Tag Archives | performance

SEC’s CEO Pay Rules Should Provoke Internal Pay Exam

CEO pay rules proposed by SEC

CEO pay rules proposed by SEC: Borrowed from https://www.linkedin.com/pulse/top-13-ways-grow-healthy-inbound-customer-call-center-tasha-hickman Good news but let’s not get carried away.

Tom Croft of Heartland Capital Strategies had a good post the other day on the proposed CEO pay rules:

The US Securities Exchange Commission (SEC) voted to adopt a new CEO-Worker Pay Ratio Rule at its August 5 Meeting, passing the rule mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (five years later).
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Corporate Concinnity in the Boardroom

Received for Review –  Corporate Concinnity in the Boardroom: 10 Imperatives to Drive High Performing Companies

Corporate Concinnity in the Boardroom

“ . . .a really important book about how to maximize the performance of companies and provides rare, clear common sense guidance for Boards of Directors that is worth its weight in gold.” –Hap Klopp, Founder and former CEO, The North Face, author, lecturer, serial entrepreneur 

Nothing should be more important than building exceptional, sustainable leadership teams, effective governance platforms, and a strategy to make them work well together.  According to her publisher, forward-thinking board members, C-suite executives, family business owners, and investors who are committed to excellence and continuous improvement in governance will be well served by embracing the framework that advisor Nancy Falls outlines in her new book Corporate Concinnity in the Boardroom: 10 Imperatives to Drive High Performing Companies. Continue Reading →

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Participative Leadership: Information Sharing Crucial

Trust Participative Information SharingA supervisor solicits ideas and suggestions from workers, hears them out even when disagreeing with them, and uses suggestions from the group in making decisions. All well and good, but, given the natural human resistance to yield decision-making, how is the group likely to respond to such initiatives?

With little change at first, but, once past a certain threshold, with considerably improved performance, according to new research involving some 770 workers and 220 supervisors at three different companies. Continue Reading →

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Directors Forum 2015: Part 1

Directors Forum 2015 Opening Reception

Directors Forum 2015 Opening Reception

Disclaimer: I’m sharing a few notes from Directors Forum 2015 held at San Diego University beginning 2/25/2015 and ending 2/27/2015. The Forum was held under the Chatham House Rule, so you won’t read any juicy tidbits here. However, I do hope to give readers some flavor of the topics discussed and a little on the general range of opinions. I have take slight liberties with the rule with regard to individual featured speakers, giving some sense of their talks without revealing the specifics of cases raised or providing quoted material of any substance. My notes are sometimes cryptic. Sorry but my time is better spent on other activities.

Tom Ridge

Tom Ridge

Directors Forum 2015: Sunday

Thomas J. RidgeCEO, Ridge Global, LLC

The Honorable Tom Ridge is the CEO of Ridge Global, which helps businesses and governments address risk management issues. He was the first Secretary of the U.S. Department of Homeland Security, another call to service for the former soldier, congressman and governor of Pennsylvania. Governor Ridge was the keynote speaker at the opening dinner. Continue Reading →

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Corporate Governance Paradigm in Crisis

The March 2010 edition of Corporate Governance: An International Review (CGIR), one of our favorite “stakeholders,” contains three articles that struck me as particularly significant.

Corporate-Governance Ratings and Company Performance: A Cross-European Study by Annelies Renders, Ann Gaeremynck, and Piet Sercu finds a significant positive relationship between corporate-governance ratings and performance across 14 developed economies in Europe from 1999-2003. The strength of this relationship seems to depend on the quality of the institutional environment, the correlation being weaker in countries with higher corporate governance ratings and stronger in countries with weaker shareowner protection laws. The authors find that improvements in corporate-governance ratings over time result in decreasing marginal benefits in terms of performance.

Second, the editorial by William Q. Judge, Editor in Chief, is significant in announcing a new type of article, which CGIR intends to publish. Noting the thesis of Thomas S. Kuhn’s The Structure of Scientific Revolutions, that paradigms do not get replaced until a credible alternative arrives that more effectively describes and explains unsolved puzzles, CGIR now invites “Perspectives” to “challenge the existing paradigm in which corporate governance research operates, point to anomalies that are not being solved, and suggest an alternative world-view that may better solve the problems before us.” The first such offering is included in the issue and is prominent governance consultant John Carver.

Like governance ratings by The Corporate Library’s ratings, Carver’s theory appears to be built from the ground up, measuring from the ideal, rather than from common practices.

A Case for Global Governance Theory: Practitioners Avoid It, Academics Narrow It, the World Needs It includes the following opening observation:  “A credible theory of corporate governance will not arise by studying what is.”

Since governance is a social construct, we are not best served by “studying our own creation in order to tie together practices that grew in the absence of theory. Taking that course is to forever constrain tomorrow’s possibilities by today’s practices.”

I assume it is his long-time consulting practice that taught him it is better to start with what we need from corporate boards, rather than what they already do. “Therefore, it is not descriptive theory we need for governance but prescriptive theory.”

Once we have determined the needs of governance, those need can serve as the measure to judge the appropriateness of “accounting standards, structural considerations, reporting methods, techniques of delegation, officers’ roles, the choice of topics for board involvement, even statutes and codes.”

Clarifying what boards are for must not be based on the needs of CEOs (as is all too common today). Because boards’ prime fiduciary obligation is to owners, their organizational authority comes from owners, and their relationship to management is one of greater authority, boards are organs of ownership, not of organs of management.

Carver’s theory, like his practice, builds on the central position of the board. If we examine the board’s central purpose, we are only distracted from our theory building by recounting how boards have been used. We must start from the barest necessity.

The board represents owners in the governance of the enterprise… The board is owner-representative before it is the CEO’s superior and, in fact, before it makes a decision to have a CEO to begin with… It is the board’s necessary function, then, to define and demand what owners want the organization to accomplish and what risks it may take… Construed in line with this raison d’être, the board should be the most vigorous shareholder activist in sight.

Starting from this basic foundation, Carver argues that many other things follow:

  • Board agendas, for example should become the board’s agendas rather than management’s agendas for the board.
  • The board chairman works for the board, not the other way around.
  • Sarbanes Oxley is misdirected, since if assigns responsibility to sub-board units, rather than recognizing the board’s accountability for all its delegated authority.
  • Advising the CEO is an optional obligation. “Responsible governance theory cannot allow the mandatory to be sacrificed to or even potentially weakened by the optional.” “The board’s unique responsibility is not to give good advice, but to ensure that the CEO produces good performance.”

Carver’s theory has been elaborated into what he calls his “Policy Governance” model, which

positions governance as an owner-representative function rather than a management function; provides for resolute board action despite diversity of views among owners and even among directors; balances overcontrol and undercontrol through a policy design that enables boards to control what they need to control and safely leave to the CEO what they do not need to control; avoids both rubber stamping and micromanaging; optimizes the values of CEO empowerment and board control; moves directors from advising on management’s job to defining management’s job; forces the practice of group authority by allowing no way to elude it; ensures that committees are aligned with dominant board accountability; positions the topmost of a two-tier board arrangement as the owner-representative (“governing” board), and illuminates any practice or structure that detracts from total board allegiance to agency responsibility (such as executive/inside directors and chair-CEO duality).

While he doesn’t claim his model to be the only governance theory possible, he does argue forcefully that a globally-applicable theory would facilitate progress by introducing a common language, enhancing public perception of corporate boards as accountable stewards, clarifying the distinction between governance and management, guiding productive research, clarifying roles, and aiding investor confidence.

Kuhn posited that “normal science” is predicated on the assumption that scientists know what the world is like. Anomalies are discounted until extraordinary investigations lead the profession to new paradigms, incompatible with time-honored theories. Scientist reject the old paradigm only when the new has more explanatory power.

Unlike the natural sciences, where paradigms are used to explain and predict, corporate governance is socially constructed. Paradigms in our discipline are normative models, used to to discipline and guide. The major stumbling block to shifting paradigms is recognizing the element of choice. We aren’t stuck with what we have. We can choose to move to a whole new paradigm, if it offers a better foundation for building the kind of world we want.

Personally, I doubt if the current crisis will push us into a new corporate governance paradigm. However,  it may accelerate explorations of what such a paradigm might look like. I’m delighted to learn that  Corporate Governance: An International Review will facilitate such discussion.

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Pay Without Performance

PayWithoutPerformancePay without Performance: The Unfulfilled Promise of Executive Compensation was the best book published in 2004 in the field of corporate governance. Lucian Bebchuk and Jesse Fried focus on one aspect of corporate governance, executive pay, and clearly demonstrate that many features of executive pay are better explained as a result of shear managerial power, rather than arm’s-length bargaining by boards of directors. After thoughtful analysis, they find “systematic use of compensation practices that obscure the amount and performance insensitivity of pay, and the showering of gratuitous benefits on departing executives.” The cost of current corporate governance systems is weak incentives to reduce managerial slack or increase shareholder value and “perverse incentives” for managers to “misreport results, suppress bad news, and choose projects and strategies that are less transparent.” Continue Reading →

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