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.


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Cefeidas Group



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