Tag Archives: Shareholder

Defining Pay in Pay for Performance — The Harvard Law School Forum on Corporate Governance

Small business of-interest, news-to-watch and need-to-know  —  revealing the results of say on pay to date and what is next.

Excerpt:  Whether the pay of a company’s CEO and other executive officers is aligned with the company’s performance has been the single most important and controversial executive pay issue for U.S. public companies since the advent of mandatory say-on-pay votes under the Dodd-Frank Act, which applied to most U.S. public companies in 2011; smaller reporting companies will face these votes and issues in 2013. As we wrote in our Director Notes “Proxy Season 2012: The Year of Pay for Performance,” 2012 was indeed the year of “pay for performance.” This has been proven by the over 2,000 say-on-pay vote results reported through September 5, 2012.

The stage for the 2012 pay-for-performance debate was set in 2011, when Institutional Shareholder Services Proxy Advisory Services (ISS), which is widely regarded as the most influential U.S. proxy adviser, applied a crude two-step test to assess pay for performance in making its say-on-pay voting recommendations.

Generally, under its 2011 test, ISS concluded that a pay-for-performance “disconnect” existed if:

Read full article via Defining Pay in Pay for Performance — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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Ten Myths of “Say on Pay” — The Harvard Law School Forum on Corporate Governance

Small business of-interest and need-to-know.   This study actually represents a study of the various studies on say on pay.  However, the insights provided with this examination are of value.

Excerpt:  In the paper, Ten Myths of “Say on Pay”, my co-authors (Allan McCall, Gaizka Ormazabal, and Brian Tayan) and I review many widely held misconceptions regarding the shareholder voting practice called “say on pay.” “Say on pay” is a prominent issue today, given its unique position at the intersection of executive compensation and shareholder democracy—two topics which themselves are of deep interest to investors, stakeholder, regulators, and the media. Despite this interest, several misconceptions have developed which continue to be commonly accepted. Fortunately, academics have devoted considerable effort studying “say on pay,” shareholder democracy, and executive compensation. As a result, a lengthy empirical record exists against which “say on pay” can be examined. Our intention is to review “say on pay” in light of the scientific evidence so that practitioners have a better understanding of the limits and consequences of granting shareholders the right to vote on executive compensation.

The ten myths of “say on pay” that we examine can be grouped into three general categories.

Read full article via Ten Myths of “Say on Pay” — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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Board Evolution: Progress Made, Yet Challenges Persist — The Harvard Law School Forum on Corporate Governance

Small business and board of diretors need-to-know and takeaways.   Where are we, accomplishments, needs, news-to-watch.

Excerpt:  Corporate directors have adjusted to significant changes in the governance environment during the last year. On the regulatory front, the Securities and Exchange Commission (SEC) continues to implement new rules stemming from the Dodd-Frank Act, causing companies to rethink and react. The voice of shareholders has never been louder, pressuring companies to adopt structural governance changes by submitting proposals on board declassification, splitting CEO and board chair roles, and majority voting. Shareholder “say on pay” votes moved into a second year with some companies uncertain about how to respond based on their voting results. Plus, more companies had their shareholders withhold approval on their “say on pay” votes, maintaining the pressure on compensation committees.

In the summer of 2012, 860 public company directors responded to PwC’s 2012 Annual Corporate Directors Survey. Of those directors, 70% serve on the boards of companies with more than $1 billion in annual revenue. As a result, the survey’s findings reflect the practices and boardroom perspectives of many of today’s world-class companies. We structured the survey to provide pragmatic feedback directors can use to assess and improve performance in areas that are “top of mind” to today’s boards. The survey shows directors are clearly making progress and enhancing their practices. At the same time, directors acknowledge the numerous challenges they still face. The following are the highlights:

Read full article via Board Evolution: Progress Made, Yet Challenges Persist — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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The Rise of “Shareholder Value” and Its Unintended Consequences

This looks like it will be a good series on governance and how did we get here from there.  For all leadership and managment

Excerpt:  I’m going to offer some views on how multiple causes, all of them well-intentioned, came together to create a “broken culture,” and I suspect the lessons from the financial sector can be applied more widely. For me, it all seems to be a story of unintended consequences, which makes our current situation more of a tragedy than a conspiracy.

The factors that caused the decline in the financial sector, which I will further elaborate on throughout this series, include:
The rise of the “shareholder value” movement
Changes in the nature of finance sector
The impact of benchmarking approaches
The rise of stock based compensation plans
The rise of the “superstar” CEO
Why regulation on it’s own doesn’t work
Enterprises as educational institutions
How it all fits together

Read full article in series via The Rise of “Shareholder Value” and Its Unintended Consequences | Governance Center Blog.

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“Publicness” in Contemporary Securities Regulation after the JOBS Act — The Harvard Law School Forum on Corporate Governance

Small business of-interest, need-to-know and news-to-watch — SEC public versus private.

Excerpt:  In our article “Publicness” in Contemporary Securities Regulation after the JOBS Act, forthcoming in the Georgetown Law Journal, we focus on the ideologically-charged question of when a private enterprise should be forced to take on public status, an extraordinarily significant change in its legal obligations and freedom to maneuver. The JOBS Act, which became law in April 2012, makes the first change in almost a half century in the criteria specified for companies that must meet public obligations under the Securities Exchange Act of 1934. Congress increased the “private space” by raising the 500 shareholder threshold to 2000 (so long as no more than 499 of those are not “accredited investors”) and permitting most new IPO companies to skip a host of regulatory obligations during their first five years as a public company.

Read full article via “Publicness” in Contemporary Securities Regulation after the JOBS Act — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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The Pension System and the Rise of Shareholder Primacy — The Harvard Law School Forum on Corporate Governance

Small business of-interest.

Excerpt:  This article explores the reasons for this highly consequential change. It is often thought that shareholder primacy prevailed because it is more efficient, and managerialism therefore could no longer be maintained in a competitive economy. I argue that changes in the pension system have been a major force pushing corporate governance toward shareholder primacy

Read full article via The Pension System and the Rise of Shareholder Primacy — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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The Costs of a Combined Chair/CEO — The Harvard Law School Forum on Corporate Governance

The article points out the only real benefit to combining these chairman of the board and CEO roles into a one person role is to the person and not to the business and its shareholders.  Small business takeaways and need-to-know.

Excerpt:  The rationale behind combining the roles of CEO and chair is usually independent of shareholder interests. For example, CEO’s recruited by a corporation sometimes make it a condition of signing their employment agreement that they also be board chair in addition to chief executive and in some cases president as well. In other instances, the founder of the company is trusted with carrying out both roles. In either case, the lack of an independent board chair represents an absence of key oversight for shareholders.

In addition to the conflict of interest, however, this report concludes that it is far more expensive to combine the roles of CEO and chairman. It also appears to be indicative of the potential for other governance and management failures. Companies that combine the roles of CEO and chair score far worse in our ESG model, which evaluates companies using GMI Ratings’ comprehensive list of ESG KeyMetrics, as well as scoring far worse on our AGR Ratings, which test for fraud and financial restatements, among other quantitative accounting items. Furthermore, shareholder returns over an extended period seem to be favorable for those companies which separate the CEO and chairman roles. Indeed, there appears to be very little benefit to long-term shareholders in having a combined CEO and chair. The only benefit seems to be an economic one to those CEOs who have convinced the board to allow them also to serve as chair.

Read full article via The Costs of a Combined Chair/CEO — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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Advancing Board-Shareholder Engagement — The Harvard Law School Forum on Corporate Governance

Small business news-to-watch and of-interest takeaways.

Excerpt: While this paper addresses discussions with large institutional investors, the themes expressed also raise questions of how boards should be engaging with all investors.

Participants at the April 26 meeting discussed the following themes, which are discussed in more detail in the full paper.

The current paradigm of board- shareholder engagement fails both boards and shareholders    ……. 

>> read more in the list of discussion list …

Read full article via Advancing Board-Shareholder Engagement — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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Corporate Governance Activism: Here To Stay? — The Harvard Law School Forum on Corporate Governance

Small business need-to-know and information for thought.

Excerpt: Corporate America is saddled with the burden of co-existing in some fashion with the parallel corporate governance universe, notwithstanding the lack of convincing evidence that corporate governance “best practices” do indeed create shareholder value.

An irony is that the corporate governance universe exists as an agent for institutional investors solely to atone for their rational apathy about exercise of the voting franchise. And those institutional investors, of course, exist solely as agents for ultimate beneficial owners who, if they held their investments directly, would likewise be rationally apathetic about exercise of their voting franchise

Read full article via Corporate Governance Activism: Here To Stay? — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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Are Safeguards Enough? – Grant Thornton LLP

Small business takeaways and need-to-know.  You are never too small to be caught out.

Excerpt: You may have anti-corruption processes and policies in place. The question you should ask yourself – is that enough?

Major multinational corporations in the headlines. Lucrative bounties paid to whistleblowers. Increased law enforcement and international cooperation. Loss of time, shareholder value and reputation. $500 million in corporate fines last year alone. How can you overcome this barrier to growth?

See introduction and download 3 complimentary papers here via Are safeguards enough? – Grant Thornton LLP.

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Corporate Law and the Team Production Problem — The Harvard Law School Forum on Corporate Governance

Small business news-to-watch and of-interest.   More and better transparency brings out many discussions on the various “status quo” is/are no longer acceptable

Excerpt: For much of the last three decades, the dominant perspective in corporate law scholarship and policy debates about corporate governance has adopted the view that the sole purpose of the corporation is maximizing share value for corporate shareholders. But the corporate scandals of 2001 and 2002, followed by the disastrous performance of financial markets in 2007-2009, have left many observers uneasy about this prescription. Prominent advocates of shareholder primacy such as Michael Jensen, Jack Welch, and Harvard’s Lucian Bebchuk have backed away from the idea that maximizing share value always and everywhere has the effect of maximizing the total social value of the firm. Shareholders, they concede, may often have incentives to take on too much risk, thereby increasing the share of firm value they capture by imposing costs on creditors, employees, taxpayers, and the economy as a whole

Read full article via Corporate Law and the Team Production Problem — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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The Shareholder Value Myth — The Harvard Law School Forum on Corporate Governance

My comment: yes, in a word.  Small business takeaway and of-interest.

Excerpt: This dogma drives directors and executives to run public firms with a relentless focus on raising stock price. In the quest to “unlock shareholder value” they sell key assets, fire loyal employees, and ruthlessly squeeze the workforce that remains; cut back on product support, customer assistance, and research and development; delay replacing outworn, outmoded, and unsafe equipment; shower CEOs with stock options and expensive pay packages to “incentivize” them; drain cash reserves to pay large dividends and repurchase company shares, leveraging firms until they teeter on the brink of insolvency; and lobby regulators and Congress to change the law so they can chase short-term profits speculating in high-risk financial derivatives. Yet many individual directors and executives feel uneasy about such strategies, intuiting that a single-minded focus on share price may not serve the interests of society, the company, or shareholders themselves.

Read full article via The Shareholder Value Myth — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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SEC Staff Guidance on Shareholder Proposals During 2012 Proxy Season — The Harvard Law School Forum on Corporate Governance and Financial Regulation

More small business need-to-know and news-to-watch for 2012 proxy season.

Excerpt: There have been a number of significant shareholder proposals submitted during the 2012 proxy season to date. This alert summarizes notable responses by the Securities and Exchange Commission (the “SEC”) staff (the “Staff”) to no-action requests concerning many of these shareholder proposals

Read full article via SEC Staff Guidance on Shareholder Proposals During 2012 Proxy Season — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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Mid-Season Update on the 2012 Proxy Season — The Harvard Law School Forum on Corporate Governance

Small business need-to-know…..an update on where each of the issues stands midway in this 2012 proxy season.

Excerpt……The 2012 proxy season in the United States, forecast by some to feature significant turmoil and change, has in fact been less tumultuous than expected. It’s been all quiet on the regulatory front, owing to the SEC’s highly deliberate approach to rulemaking and the D.C. Circuit’s interventionist reaction to the proxy access rules. With new rules, for once, not in motion, change is occurring incrementally, as activists continue old campaigns and launch new ones, institutional shareholders express their support on both the issues and the circumstances of particular companies

Read full article……..via Mid-Season Update on the 2012 Proxy Season — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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Local Investors and Corporate Governance — The Harvard Law School Forum on Corporate Governance

Small business need-to-know and of-interest.    My read of this article concludes that although there is definitely weight on the side of a business for local investors….the bigger gain for local is from the investor side.    What do you think?

Excerpt………Our key conjecture is that in an economic setting where monitoring costs vary inversely with distance, firms with high local institutional ownership would have better governance characteristics. In particular, firms with more proximate shareholders would exhibit a lower propensity to engage in undesirable corporate behavior like option backdating or aggressive earnings management. As a result of better monitoring, firms with high local institutional ownership would have a lower propensity to be a target of class action lawsuits. Further, because of geographical proximity, local institutions are more likely to attend shareholder meetings and introduce shareholder proposals, facilitate CEO turnover, or limit excess CEO pay. This form of local activism could also have an indirect influence on the selection of board members and the structure of compensation contracts

Read full article…….via Local Investors and Corporate Governance — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

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