Posts Tagged ‘corporate governance’

Putting a Price on Corporate Governance: Does Your Board Add To Your Value Chain?

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Expert Perspective from Grahall’s OmniMedia Editorial Board

We noticed that the Forum for Corporate Directors recently hosted the “7th Annual Directors’ Institute to Prepare Directors for Change in the Boardroom by Addressing the Consequences of New Governance Policies”.  According to the press release, the 2 day conference was to focus on “the most timely and critical issues facing today’s boards of directors.”   Quite frankly we were pleased to see that one of the panel topics was “Do You Really Have the Right Board?”  We think that if boards truly asked themselves this question, the answer for many companies going through change would be a resounding “NO”. 
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What Goes Around Comes Around

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Expert Perspective by Grahall’s OmniMedia Editorial Board

Well, Ed Whitaker didn’t last too long as GM’s CEO, but now we are told that was all part of the plan.  Whitaker will be replaced on September 1 by GM Board member Daniel Ackerson.
Perhaps we were expecting more, or more time, when it was reported in January 2010 that Whitaker, then interim CEO, was to be the “permanent” CEO of GM.

That term “permanent”  made us think that he might have had more staying power than his predecessor, Fritz Henderson, who was “on the job” from March 31 to December 1, 2009.  But then Fritz was “permanent” too until the GM Board, led by new Chairman Edward Whitaker, became concerned “… about whether G.M. can overhaul its corporate culture and make a fresh start under a holdover executive like Mr. Henderson, who has worked for the company for 25 years.”  (New York Times December 2009). 

Of course all of this changing of the guard at GM started with the departure of Rick Wagoner at the behest of President Barack Obama when it became clear that GM would need to file for Chapter 11 Bankruptcy protection as a result of the 2008/2009 economic downturn. This required taxpayer largess of $50 billion in aid to help the company remain solvent and changed GM from General Motors more to Government Motors.

So what’s in store for Ackerman, and will he be the permanent “permanent CEO” or continue the trend of his two predecessors and be looking for a job come the spring of 2011? 
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Let’s Be Absolutely Clear

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Expert Perspective by Grahall’s OmniMedia Editorial Board

Margaret E. Tahyar (partner and member of the New York Financial Institutions Group at Davis Polk & Wardwell LLP) posted a blog on March 21, 2010 on the Harvard Law School Forum on Corporate Governance and Financial Regulation (“RiskMetrics’ Introduces New Governance Measurement for Proxy Voting Reports”).  In her blog, Tahyar said: “RiskMetrics Group (RMG) has recently overhauled its core corporate governance yardstick… The Corporate Governance Quotient (CGQ), which for the past several years has ranked companies, both within their industry and on a broader basis, according to their overall adherence to RMG’s notions of governance best practices, is being discontinued as of June 2010.  RMG is adopting a new approach as of March 2010 called Governance Risk Indicators (GRId), which will be applied to all of the 6,400 U.S. companies that it reviews.  Under the GRId system governance practices will be grouped into four headings — Board Structure, Shareholder Rights, Compensation and Audit — and a color-coded risk assessment — High, Medium or Low Concern — will be applied to each category for each company.  These assessments will be made on an absolute rather than a relative basis.”

Risk Metrics’s ISS division created CGQ in 2002 and it has since become well known and well recognized if not well understood.  At the time, it was an important step forward in helping investors understand the organization and structure of boards, company control and their relationship to management.  The methodology for CGQ was confidential and the CGQ “black box” provided companies and their investors with a number that showed how the company compared to others in that industry. Essentially, each company was “good” or “bad” compared to their peers. The rankings were perfunctory, mechanical and, other than companies on the very extremes of “good” or “bad”, the data was so highly “normalized” that everybody fell in the middle.  
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Does Golden Pay for the CEOs Sink Stocks?

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Published in The Wall Street Journal, December 26, 2009 by Jason Zweig 

Why does it seem that it’s always Christmas in corporate boardrooms? And how can investors tell whether those glittering pay packages are worth the cost?
The answer sounds obvious: Pay the boss more for good results now, and you should get even better results later. But the evidence for that is surprisingly weak, and two new studies even suggest that when chief executive officers get paid more, shareholders end up earning less.
The first study, led by corporate-governance expert Lucian Bebchuk of Harvard Law School, looked at more than 2,000 companies to see what share of the total compensation earned by the top five executives went to the CEO. The researchers call this number—which averages about 35%—the “CEO pay slice.”
It turns out that the bigger the CEO’s slice of the pie, the lower the company’s future profitability and market valuation. “These CEOs,” says Prof. Bebchuk, “seem to be trying to grab more than they should.”
Finance professor Raghavendra Rau of Purdue University and two colleagues looked at CEO pay and stock returns for roughly 1,500 companies per year from 1994 through 2006. They found that the 10% of firms with the highest-paid CEOs produce stock returns that lag their industry peers by more than 12 percentage points, cumulatively, over the next five years.

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Pay cuts should not be limited to Wall St–Warren

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Published in Reuters November 6, 2009

Reforms that remove short-term financial incentives from compensation packages should not be limited to the banking sector, a top U.S. government watchdog said on Friday.
Elizabeth Warren, who chairs a congressional oversight panel for TARP, the Treasury’s $700 billion financial bailout program, told Reuters television that the problem of misaligned incentives was hardly restricted to finance.
“In my view, it’s not just lower pay on Wall Street, there’s a larger corporate governance issue at stake here,” said Warren.

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