Archive for July, 2011

Women in Business: Still lonely at the top

by The Economist, July 21st, 2011.´

Several governments are threatening to impose quotas for women in the boardroom. This is a bad idea.

In François Ozon’s latest film, “Potiche”, Catherine Deneuve (pictured) plays a trophy wife, a potiche, who spends her days jogging in a scarlet jumpsuit, making breakfast for her cantankerous husband and writing poetry perched on a sofa. But then her husband, the boss of an umbrella factory, is taken hostage by striking workers. Ms Deneuve takes over the factory and charms the workers into returning to work. She jazzes up the products and generally proves that anything a man can do, a woman can do better.

The film was set in 1977, when the only women in a typical Western boardroom were serving the coffee. Times have changed. These days no one doubts that women can run companies: think of Indra Nooyi at PepsiCo, Carol Bartz at Yahoo! or Ursula Burns at Xerox. Sheryl Sandberg, the number two at Facebook, is more widely applauded than her young male boss, Mark Zuckerberg (see article).

Yet the number of female bosses of large firms remains stubbornly small. Not a single one on France’s CAC 40 share index or on Germany’s DAX index is run by a woman. In America, only 15 chief executives of Fortune 500 companies are women. Britain does better, but not much: five of the FTSE-100 firms have female bosses. (continue reading… )

Forum’s Summer 2011 Newsletter

published by The Global Corporate Governance Forum, July, 2011.

Forum supports corporate governance centers and South-South collaboration. The role and place of corporate governance in IFC. Resolving corporate governance disputes in Latin America. Stories from a “company fixer” in Indonesia, and three business leaders in Malawi. Corporate governance as part of a wider challenge of corporate responsibility. New standards challenge enforcers’ capacity. Latest publications and reports and more…

Shareholder Capitalism Is Dead

by John T. Landry for Harvard Business Review, July 21st, 2011.

The verdict is in, and it serves as a convenient end point for the era of shareholder capitalism: Say-on-pay has been a dud.

Fewer than 100 corporations, about 1.5%, lost these mandatory but nonbinding votes on executive pay practices. Most got well over 90% in favor. Say-on-pay may have led some to modify their practices before the votes, but it’s clear that executive worries of investor interference have not played out.

Why does this matter now? Most investors, including the big institutional players, have long tolerated rising compensation. Pay started taking off in the 1980s, at the beginning of the era of shareholder capitalism. Companies were putting renewed focus on investors relative to workers or society. Shareholders were fine with paying executives more if that boosted their returns.

At some point, though, the tail started wagging the dog. Shareholder returns and executive pay diverged after the market bust of 2000. Since 2001, shareholders have typically made nothing on their stock after inflation, while executive compensation has continued its long boom. For a variety of reasons, stock-based compensation is no guarantee that pay will rise and fall with stock returns. Even the Great Recession, blamed partly on compensation practices, now looks to be only a hiccup in the pay rise.

Another data point is the decline in dividends since the 1990s. Companies now generally pay out far less than half of their earnings, the lowest in decades. Cutting dividends might make sense if firms were growing rapidly, but that’s hardly the case these days. (continue reading… )

Corporate reporting at risk

by Daniel Mather for CFO World, May 2011.

Corporate reporting structures as they stand amount to a system at risk and in need of significant change, a new report claims.

Unless evolution is properly achieved, corporate reporting might become unfit for purpose and fail to provide investors and other users with comprehensive information, say PwC, the Chartered Institute of Management Accountants (CIMA) and think tank Tomorrow’s Company.

Serious discussions and substantive change need to be achieved to save the system at what the report describes as a “critical point” for the future of corporate reporting. The risk of leaving the reporting framework, founded during the Industrial Revolution, largely unchanged means the whole system could redundant.

Tony Manwaring, CEO of Tomorrow’s Company, said: “We have come to terms with the short-term thinking and silo decision-making which did so much to cause the financial crisis. Corporate reporting must also come to terms with these challenges, to make the step-change needed so that it is fit for purpose during the global recovery and beyond.

“To be effective, reporting must not only provide an integrated account of what is material, drawing on financial and non-financial data – tomorrow’s corporate reporting must fully reflect the needs of the whole system of which it is part, and all the key players  and institutions who bring the system to life.” (continue reading… )

Why Does Corporate Governance Really Matter?

by Professor David Larcker and Brian Tayan for Stanford, July 19thm 2011.

New Book from Stanford Graduate School of Business Showcases Research into How Boards Can Govern Better.

“The debate on the role of boards in the wake of the financial crisis has created a lot of hype and rhetoric about corporate governance,” says David Larcker, who is James Irvin Miller Professor of Accounting and Director of the Corporate Governance Research Program at the Stanford Graduate School of Business and coauthor with Brian Tayan of the new book Corporate Governance Matters(FT Press). According to Larcker, many so-called experts are heavy on opinions about governance, but light on the facts.

“The FDA requires research on drug outcomes before approving a pharmaceutical,” he says. “Shouldn’t experts that prescribe ‘cures for bad governance’ be subject to a similar standard of review?”

In their book, Larcker and Tayan, a researcher at Stanford GSB, challenge the conventional wisdom of the many books, reports, and recommendations of blue-ribbon panels on what constitutes “good” governance. The authors researched hundreds of companies and interviewed many board directors to uncover the real-life consequences of corporate governance practices – from director independence to designing appropriate executive pay packages.

“A lot of people want to measure what’s measurable – we wanted to measure what’s informative,” says Tayan. “For example, certain lightning-rod issues, such as ‘excessive’ risk taking and CEO compensation, get a lot of attention from outside observers, while important issues that are considerably more difficult to assess – such as corporate strategy and succession planning – tend to get the short shrift.”

Trends Getting in the Way of Good Governance
“Our research shows that many emerging developments that were intended to improve governance – purportedly to avert the kind of financial disaster we just experienced – just don’t hold water,” Larcker explains.  (continue reading… )

News Corp and Questions Boards Need to Ask

by Rob Kaplan for Harvard Business Review, July 18th, 2011.

Much has been written and said regarding News Corp and its activities in the UK, and serious questions have been raised about the leadership and culture of this company. Some of these questions have been directed at the company’s board of directors: did it properly fulfill its independent fiduciary responsibilities in overseeing this global organization? While there is a temptation to pile on, I would prefer to comment on what can be learned from this situation.

This and other leadership crises of the past few years raise several key questions for boards of directors. In particular, how does a board really know the leadership style of its senior operating management and the culture of the company for which it has fiduciary responsibility?

Most boards do a good job of evaluating their CEOs and senior leadership teams based on specific operating metrics. Unfortunately, these same boards often have very little process in place to judge the leadership style, daily behaviors, and cultural norms being established by their senior operating leadership. As a result, board judgments are frequently based on observing senior management in relatively formal presentation settings and receiving narrative information regarding company culture — typically from the CEO. Too often, by the time directors realize there is a culture or leadership style problem at the company, it is too late to have prevented real damage to the business, reputation, and careers of senior executives.

I would suggest that boards need to regularly ask themselves whether they have a firm grasp on the operating style and role modeling behaviors of their senior leadership teams. If after candid debate and discussion they realize they don’t have a firm grasp on these questions, they need to assert their independence and consider actions which would allow them to get a better reading. (continue reading… )

Roads to Ruin: A study of major risk events. Their origins, impact and implications

by Derek Atkins, Anthony Fitzsimmons, Chris Parsons, Alan Punter. July 2011.

This report investigates a sample of major corporate risk events, spread over the last decade or so, in order to find lessons that could be learned from them.

Download the full report here.

 

Corporate Governance in Emerging Markets: Why It Matters to Investors – and What They Can Do About It

published by The Global Corporate Governance Forum, July 15th, 2011.


Private Sector Opinion #22,
by Melsa Ararat and George Dallas. What should investors do when scholarly research on corporate governance in emerging markets does not provide conclusive evidence on which aspects of governance matter most across all the emerging markets and how they affect firm performance? A researcher and a practitioner team up to offer guidelines and recommendations that focus on board independence and business group affiliation.

Foreword by Paul Coombes, Chairman, Centre for Corporate Governance, London Business School.

Download PDF here.

Boards in a Time of Crisis

by Lucy Marcus for Marcus Ventures, July 7th, 2011.

What role does the board play in times when a company is involved in a crisis that has an impact on the community?

I don’t mean “brand management” or “reputation management”. I mean cases like the one we are seeing now with the News of the World hacking scandal in the UK, or last year with the BP oil spill, where real people are harmed and whole communities are affected.

As independent directors on the boards of companies our job is to help the companies navigate and be successful. Part of that is calling the company to task if something it is doing is harming the long term stability of the company, and, I would argue, is beyond ethically acceptable business practice. We should not simply be automatons with only dollar, pound, euro or yen signs. If an organization is caught up in a spiral of bad or unethical behaviour we as directors need to be people who step up and challenge the manner in which a company is doing business.

I realize that News International’s board is perhaps not the best demonstration of good corporate governance, with so many inside executive directors in the balance, not a lot of diversity (there is only one woman), and the independent directors including amongst their ranks an opera singer and Marc Hurdhttp://en.wikipedia.org/wiki/Mark_Hurd formerly of HP. I would ask the board of News International, and particularly the independent members: what are you doing about the News of the World hacking scandal? I’d genuinely like to know. (continue reading… )

Changing the role of the CFO

by Peter Walker for Director of Finance Online, July 11th, 2011.

Why predictive analytical information has to be automated and embedded into the current BI system.

From bean counter to business leader: Can a performance management framework with embedded predictive analytics really help change the role of the CFO?

The role of the CFO has undergone significant and dramatic changes since the early 1980s, with some of the biggest taking place over the last decade or so. In the run-up to Y2K, companies invested heavily in preparing their IT systems, with many opting for enterprise resource planning (ERP) applications to ensure a smooth date-change transition.

Today, the role of CFO comes with even more pressure, with increasing demand to identify cost savings and uncertainty around every corner. In the most recent business cycle, the emergence of regulations such as Sarbanes-Oxley, Basel III and their associated compliance costs has kept cost containment on the front burner, while putting pressure on the CFO to implement more effective internal controls and corporate governance. Given these issues, it is not surprising that the CFO’s role is often far from easy or predictable.

However, this is not to say that difficult situations don’t have their advantages. In many cases, they offer a level of freedom to act that is not present during the boom times. When the old ways have been proven inadequate, it is my view that today’s CFO has more latitude to make the changes needed to create a new performance management culture that explores patterns found in real-time data to identify risks and opportunities. It is clear that post the financial crisis, many CFOs believe that having real-time access to estimates, projections and pattern recognition will allow them to act prior to the occurrence of the events predicted. (continue reading… )


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(in Portuguese) A weekly chronicle about shareholders' rights & duties, activism and capital markets regulation, by Renato Chaves.
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