Archive | March, 2018

Measuring Effectiveness: SDG Investing

A new measuring effectiveness roadmap helps investors ensure they are moving beyond generating environmental or social impact through individual market transactions and are better aligning with broader system-level goals (e.g., the United Nations Sustainable Development Goals, SDGs). Group action along the same trajectory can better influence system-level change. The measuring effectiveness roadmap helps investors answer the following question: How can I measure whether I, as a long-term institutional investor, have contributed to promoting the long-term wealth-creating potential of the environment, society, or the financial system? Continue Reading →

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Mark Zuckerberg: Give Up Facebook Control

Mark Zuckerberg, the social media titan, needs to embrace a new model of ownership and corporate governance.

As Mark Zuckerberg comes to terms with his latest public-relations disaster, he has made some interesting admissions. One is that the Facebook CEO feels “fundamentally uncomfortable sitting here in California in an office making content policy decisions for people around the world,” as he told Recode. This sentiment echoes his manifesto on the future of Facebook from earlier this year, in which he called for “a system of more local governance,” for the same reason: He can’t figure out by himself how to set standards of behavior for Facebook’s more than 2 billion monthly active users. Continue Reading →

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Transforming Capital Markets

Transforming Capital Markets; that will be my abbreviation for Transformation of Our Capital Markets. the topic of a panel at the Corporate Directors Forum I attended in San Diego in January. Yes, I’m still digesting all the great conversations. Like all Corporate Directors Forums, this one operated under the Chatham House Rule, so you will not find any direct quotes below. These are my notes. As such, they include my opinions as well observations made by speakers, panelists and others in attendance at the Forum. This is certainly not a transcript. However, I hope even those who attended the Forum will find the post useful, especially my attempt to provide additional context through links and commentary. Continue Reading →

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Talent Management: #CorpDirForum2018

Culture: A Driving Force in Talent Management was the topic of a panel at the Corporate Directors Forums I attended in San Diego in January. Yes, I’m still digesting all the great conversations. Like all Corporate Directors Forums, this one operated under the Chatham House Rule, so you will not find any direct quotes below. These are my notes. As such, they include my opinions as well observations made by speakers, panelists and others in attendance at the Forum. This is certainly not a transcript. However, I hope even those who attended the Forum will find the post useful, especially my attempt to provide additional context through links and commentary. Continue Reading →

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Cultural Risks: SVDX & Rock Center

Cultural Risks: As Advertised

Cultural risks were the topic of a recent Rock Center / SVDX event.

The spotlight often shines on cultural risks only after an organizational crisis or incident. But forward-looking leaders are shifting to a proactive approach to cultural risk management. Macro business issues—cost and regulatory pressures, digital disruption, cyber threats, talent shortages, and others—have clear cultural implications. Corrosive cultures can pose significant challenges, making the organization more vulnerable to a wide range of potential risks. So is assessing an organization’s culture the responsibility of the board? If so, how can they be a change agent? Where does the board’s role end and management’s begin? And finally, how can a board objectively examine its own culture?

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Lobbying Disclosure Sought @ 50 Companies

Lobbying disclosure remains a top shareholder concern for the 2018 season, as evidenced by proposals filed at 50 companies by 74 institutional and individual investors. A coalition is asking for lobbying reports that include federal and state lobbying payments, payments to trade associations used for lobbying, and payments to any tax-exempt organization that writes and endorses model legislation. (Above graphic from The Nation’s Where Have All the Lobbyists Gone?)

I urge readers to vote in favor of all these resolutions. In Citizens United v. Federal Election Commission, dealing with the related issue of political contributions,  Justice Kennedy’s majority opinion justified the Supreme Court’s decision by pointing to the Internet.

With the advent of the Internet… Shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are ‘in the pocket’ of so-called moneyed interests.

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Starbucks Corp Proxy Voting Recommendation

Starbucks Corp (SBUX), operates as a roaster, marketer, and retailer of specialty coffee worldwide. Most shareholders do not vote because reading through 70 pages of the proxy is not worth the time for the small difference your vote will make. Below, I tell you how I am voting and why. If you have read these posts related to my portfolio for the last 22 years and trust my judgment (or you don’t want to take the time to read it), go immediately to see how I voted my ballot. Voting will take you only a minute or two and every vote counts.

The annual meeting is coming up on March 21, 2018. I voted with the Board’s recommendations 35% of the time. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A). Continue Reading →

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Compensation: The Difference it Makes

Compensation:  The Difference it Makes

Compensation. Most Americans think CEOs of the 500 largest publicly traded corporations are overpaid, even though they think CEOs made less than a tenth of what they actually earn. The Rock Center for Corporate Governance at Stanford University conducted a nationwide survey of 1,202 individuals — representative by gender, race, age, political affiliation, household income, and state residence — to understand public perception of CEO pay levels among the  Key takeaways are:

  • CEOs are vastly overpaid, according to most Americans
  • Most support drastic reductions
  • The public is divided on government intervention

Americans and CEO Pay: 2016 Public Perception Survey on CEO Compensation found 74% believe that CEOs are not paid the correct amount relative to the average worker. Only 16% believe that they are.

A brave panel tackled the topic, Compensation: The Difference it Makes, at the Corporate Directors Forums I attended in San Diego last month. Like all Corporate Directors Forums, this one operated under the Chatham House Rule, so you will not find any direct quotes below. These are my notes on Compensation: The Difference it Makes. As such, they include my opinions as well observations made by speakers panelists and others in attendance at the Forum. This is certainly not a transcript. However, I hope even those who attended the Forum will find the post useful, especially my attempt to provide additional context through links and commentary. Continue Reading →

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Universal Background Checks: Take Action

Universal background checks; that would be a good first step. Gun violence may seem to some of my readers too far afield from corporate governance. However, I believe our investment decisions, including communications with companies and proxy votes made after AFTER buying stock should reflect all our values, not just greed.

I am all for banning assault weapons, ending the federal funding freeze on gun violence research, raising the minimum age to buy firearms, outlawing bump stocks, no-fly no-buy laws, etc.  However, here I simply request that readers take a few minutes to help pass federal legislation requiring universal background checks by putting pressure on corporations to lobby in favor of it. Continue Reading →

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Culture Impact: Directors Forum 2018

The Culture Impact: Values, Attitudes & Strategic Directions

Culture impact in corporate governance got a big boost with NACD Blue Ribbon Commission report Culture as a Corporate Asset. A brave panel tackled the topic, The Culture Impact: Values, Attitudes & Strategic Directions, at the Corporate Directors Forums I attended in San Diego. Like all Corporate Directors Forums, this one operated under the Chatham House Rule, so you will not find any direct quotes below. These are my notes on The Culture Impact. As such, they include my opinions as well observations made by speakers, panelists and others in attendance at the Forum. This is certainly not a transcript. However, I hope even those who attended the Forum will find the post useful, especially my attempt to provide additional context through links and commentary.

To learn more about the 13th annual Directors Forum: Directors, Management & Shareholders in Dialogue conference, click on the following: @corpdirforum on Twitter, tweets from  that often link to other posts,   website, and Linkedin.

The Culture Impact: Panelists

  • Moderator: Michael Berthelot, Director, Fresh Del Monte Produce Company, CEO, Cito Capital Corp; and Managing Principal, Corporate Governance Advisors, Inc.
  • Stephen L. Brown, Senior Advisor, KPMG Board Leadership Center
  • Joann Lublin, Pulitzer-Prize Winning Journalist & Management News Editor, The Wall Street Journal; Author, Earning It
  • Bryan Cornwall, Founder & Principal, Cornwall Bioengineering & Communications
  • Hanna Grene, Policy Director, Center for Sustainable Energy

The Culture Impact: My Notes

Paper forthcoming on Wells Fargo and Uber by Hanna Grene and Bryan Cornwall to be published on Equilar website. I will be waiting with anticipation. How would we react? What tools do we have available? It seems to me, the problems were an open “secret,” not unlike Harvey Weinstein.  The basics of the Wells Fargo scandal were reported in the LA Times in 2013. Los Angeles sued in 2015. The Board didn’t issue their own internal study until April 2017. Too little, too late with Federal Reserve placing the first firmwide limit on a bank as Chair Janet Yellen stepped down. Wells Fargo announced concurrently that it would replace 4 board members, three by April. Wells Fargo will be included in case studies on culture impact for years to come.

Similarly, Uber’s “hard charging” workplace environment was hardly a secret and had adverse corporate culture. Culture was key. Uber was (is?) aggressive and overbearing. Whereas founder Travis Kalanick’s motto might have been something like, “get it done,” the new CEO Dara Khosrowshahi has adopted ‘We do the right thing. Period.’ Media impact was huge reason for change. We see the influence of media, especially social media, even more after the latest mass shooting. (Mass shootings have made gun stocks toxic assets on Wall Street)

The Culture Impact: Public Opinion Sidebar

Renee Aggarwal, Isil Erel and Laura T. Starks, Influence of Public Opinion on Investor Voting and Proxy Advisors (August 6, 2014, Georgetown McDonough School of Business Research Paper No. 2447012; available at SSRN) found that investors have been “voting less with the recommendations of management or proxy advisors.” In contrast,

public opinion on corporate governance issues, as reflected in media coverage and surveys, is strongly associated with investor voting, particularly mutual fund voting. In addition, even proxy advisor’s recommendations are associated with public opinion… media coverage captures the attention of proxy advisors, institutional investors and individual investors, and is thus reflected in recommendations and votes.

The researchers looked at each proxy proposal for each firm in the Russell 3000 Index for the period January 2004 through November 2010. They looked not only at voting records and ISS recommendations but also media coverage of executive compensation, as well as Gallup surveys of public opinion.

A few highlights from their research are as follows:

  • Mean support for shareholder proposals increased from 23.6% in 2004 to 31.8% in 2010, after peaking at 37% in 2009.
  • Institutions voted with management on shareholder proposals 74% of the time in 2004 but only 54% of the time by 2010.
  • Investor agreement with ISS advice went from 78.4% in 2004 to 57.5% in 2010.
  • In 2004, 60% of investors followed ISS opposition to proposals but only 20% did so by 2010.
  • The proportion of shareholder proposals opposed by ISS declined from 156.4% in 2010 to 30.5% by 2010.
  • Support for shareholder proposals increases by 3.15%-2.69% if there is a one standard deviation increase in media coverage.

They conclude:

Our results suggest that public opinion, as measure through either Gallop Poll survey or media coverage at the aggregate and firm level, influences shareholder voting. The implications of these results are that financial intermediaries, such as mutual funds, pay attention to the shareholders’ preferences regarding corporate governance. These results hold even after controlling for the recommendations of the proxy advisor.

The Culture Impact: Back to Conference Notes

Executives sometimes make it known they did not want negative feedback. How do directors make changes before a negative story appears on the upper fold of a major newspaper?

If you are a high performer, culture impact may be nonexistent for a while; you can do anything you want. But the buck stops at the board, not the CEO. The board needs to be willing to second guess. The board needs to wonder about what you do not know. The board should insure it has independent sources of information. Some argue they have their own independent staff. Activists often do, and they often turn out to be good board members in part because of those additional resources.  Every board member should have a responsibility to visit branches, have many experiences as a customer or user. Uber board members seem to have been blind-sided with rapid growth. They waited to long to go after the CEO. Mandatory unconscious bias training might have helped.

The NACD Blue Ribbon report has many tools. Regulatory or the courts; markets or self-reflection. Unfortunately, too often boards seem to be wearing blinders. We are unlikely to see regulatory reform on culture impact. Pressure seems more likely from major shareholders like BlackRock’ announcement to gunmakers. Shareholders have the ability to push back. They have the right to vote boards off the island. Larry Fink’s letter this year said companies must have “a sense of purpose.” Companies have culture impact.

Furthermore, the board is essential to helping a company articulate and pursue its purpose, as well as respond to the questions that are increasingly important to its investors, its consumers, and the communities in which it operates. In the current environment, these stakeholders are demanding that companies exercise leadership on a broader range of issues. And they are right to: a company’s ability to manage environmental, social, and governance matters demonstrates the leadership and good governance that is so essential to sustainable growth, which is why we are increasingly integrating these issues into our investment process.

Your vote is really important. At Wells Fargo and Uber we saw a failures of courage. Uber had frat boy culture. Culture, character and courage… that is what it takes. Wells Fargo seems to have had a culture of, ‘cheat and you can stay; don’t cheat and you are fired.’ Boards need to be more transparent around reports and actions taken, not just to reduce potential liabilities but also to help your company live up to its purpose.

Investigations must be reported up. HR should number and track complaints so they do not get lost. Boards should get routine reports to assess culture impact — to see trends and outliers. Boards should seek the right answers. Non-financial measures should be to be tied to compensation. In an M&A, which culture will prevail? Which culture to keep.

The role of HR. Is it to protect the company or to protect and develop employees? Heads of HR should address boards more frequently. Directors have to spot the data anomalies. Culture is important and is part of their fiduciary duty.

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