Archive

Archive for the ‘governance’ Category

Why Do Good People Sometimes Do Bad Things?: 52 Reflections on Ethics at Work

August 25, 2012 Comments off

Why Do Good People Sometimes Do Bad Things?: 52 Reflections on Ethics at Work
Source: Social Science Research Network

Why do good people sometimes do bad things in their work? This important question for the management of the ethics and integrity of an organization is addressed in this book. Drawing on social-psychological experiments, a model of 7 cultural factors is presented.
>/blockquote>

Ripple Effects: Why Water Is a CFO Issue

August 15, 2012 Comments off

Ripple Effects: Why Water Is a CFO Issue

Source: Deloitte

Water, the once plentiful resource, is growing scarcer. And that scarcity is a finance issue – one that has the potential to disrupt business and supply chain operations, lead to increased costs, and increase the price of commodity products.

In this edition of CFO Insights, we explore the reasons behind water scarcity; the risks associated with the growing lack of water; and why water availability is a CFO issue.

New From the GAO

August 7, 2012 Comments off

New GAO Reports and Presentation

Source: Government Accountability Office

+ Reports

1. Telecommunications: Exposure and Testing Requirements for Mobile Phones Should Be Reassessed. GAO-12-771, July 24.
http://www.gao.gov/products/GAO-12-771
Highlights – http://www.gao.gov/assets/600/592902.pdf

2. Students with Disabilities: Better Federal Coordination Could Lessen Challenges in the Transition from High School. GAO-12-594, July 12.
http://www.gao.gov/products/GAO-12-594
Highlights – http://www.gao.gov/assets/600/592328.pdf
Podcast – http://www.gao.gov/multimedia/podcasts/593300

+ Presentation by the Comptroller General

1. Anticipating and Meeting Accountability Challenges in a Dynamic Environment, by Gene L. Dodaro, Comptroller General of the United States, before the American Bar Association, Chicago, Illinois. GAO-12-988CG, August 4.
http://www.gao.gov/products/GAO-12-988CG

UK — Open Data White Paper: Unleashing the Potential

July 6, 2012 Comments off

Open Data White Paper: Unleashing the Potential
Source: Cabinet Office

Today we publish our Open Data command paper, which sets out how we’re putting data and transparency at the heart of government and public services.

We’re making it easier to access public data; easier for data publishers to release data in standardised, open formats; and engraining a ‘presumption to publish’ unless specific reasons (such as privacy or national security) can be clearly articulated.

From the Prime Minister down, central Government is committed to making Open Data an effective engine of economic growth, social wellbeing, political accountability and public service improvement.

Report Shows More Corporations Disclose Water Risk Following SEC Guidance, Though Data is Lacking

June 21, 2012 Comments off

Report Shows More Corporations Disclose Water Risk Following SEC Guidance, Though Data is Lacking
Source: Ceres

Overall corporate disclosures of water-related risks have increased since 2009, but most reporting remains weak and inconsistent according to Clearing the Waters: A Review of Corporate Water Risk Disclosure in SEC Filings, a new report issued today by Ceres.

Since 2010, the Securities and Exchange Commission has required companies to disclose financially material risks from climate change to their investors. These risks include “significant physical effects of climate change, such as effects on the severity of weather (for example, floods or hurricanes), sea levels, the arability of farmland, and water availability and quality.”

In light of this guidance, Clearing the Waters analyzes changes in water risk disclosure by more than 80 companies between 2009 and 2011, finding that though reporting has risen, it is lacking especially in regard to data on financial impacts, quantitative water metrics and potential supply chain risks. The report covers water use in eight water intensive sectors: beverage, chemicals, electric power, food, homebuilding, mining, oil & gas and semiconductors.

CRS — SEC Climate Change Disclosure Guidance: An Overview and Congressional Concerns

June 5, 2012 Comments off

SEC Climate Change Disclosure Guidance: An Overview and Congressional Concerns (PDF)
Source: Congressional Research Service (via Federation of American Scientists)

Publicly traded companies are required to transparently disclose material business risks to investors through regular filings with the Securities and Exchange Commission (SEC). On January 27, 2010, the SEC voted to publish Commission Guidance Regarding Disclosure Related to Climate Change, which clarifies how publicly traded corporations should apply existing SEC disclosure rules to certain mandatory financial filings with the SEC regarding the risk that climate change developments may have on their businesses. The Guidance has been controversial and has prompted legislation in the 112 th Congress to repeal it.

Proponents of the Guidance, including several union and public pension funds, have argued that it was necessary because a consensus has been established on the reality of climate change and that, given the salience of climate change and the various related legislative and regulatory responses to it, the Guidance would help foster a better understanding of how the SEC’s existing disclosure requirements applied to it. Some that oppose the guidance, including several business interests, argue that the current state of the science and the law underlying the idea of global climate change remains uncertain; existing SEC disclosure rules are adequate with respect to corporate reporting on environmental change; and while certain interest groups had advocated for such climate change disclosure guidance, the climate change disclosure guidance’s usefulness for most investors is unclear.

In the 112th Congress, Senator John Barrasso and Representative Bill Posey introduced identical bills (S. 1393 and H.R. 2603, respectively) that would prohibit the enforcement of the SEC’s climate change disclosure guidance.

Since the Guidance went into effect on February 8, 2010, there have been several attempts to gauge its impact. A 2011 report from Ceres, a nonprofit coalition of institutional investors, environmental organizations, and other public interest groups, concluded that most corporate filers needed more experience at communicating the risks associated with climate change. Although it found that large public companies had improved their climate-change risk disclosures in recent years, the report concluded that there was more work to be done in this area.

A report from the law firm of Davis Polk & Wardwell found that the Guidance did not appear to have had as significant an impact on disclosure as some had expected; that new disclosures emerged involving potential changes in demand for products and services and increases in fuel prices; and that there was little disclosure of actual or potential reputational harm that might result from climate change.

A third study published for the American Bar Association found that many companies reported seeing little upside and even less downside in climate change disclosures. It also found that many companies reported few meaningful business opportunities resulting from climate change disclosures, which instead carried a potential for creating risks. In addition, many companies indicated that disclosing frequently uncertain climate change-related information was often a very speculative process and that there were few, if any, penalties from the SEC for nondisclosure of climate change matters. This perception was underscored by other observations that characterized the SEC’s level of enforcement in this area as negligible.

This report will be updated as events warrant.

Corporate Social Responsibility and Access to Finance

May 30, 2012 Comments off

Corporate Social Responsibility and Access to Finance (PDF)
Source: Harvard Business School Working Papers

In this paper, we investigate whether superior performance on corporate social responsibility (CSR) strategies leads to better access to finance. We hypothesize that better access to finance can be attributed to a) reduced agency costs due to enhanced stakeholder engagement and b) reduced informational asymmetry due to increased transparency. Using a large cross-section of firms, we find that firms with better CSR performance face significantly lower capital constraints. Moreover, we provide evidence that both of the hypothesized mechanisms, better stakeholder engagement and transparency around CSR performance, are important in reducing capital constraints. The results are further confirmed using an instrumental variables and a simultaneous equations approach. Finally, we show that the relation is driven by both the social and the environmental dimension of CSR.

Monitoring Risks Before They Go Viral: Is it Time for the Board to Embrace Social Media?

April 23, 2012 Comments off
Source:  Stanford Graduate School of Business
Given the pervasiveness of social media, should the board of directors pay closer attention to the information exchanged on these sites? Can this information be used to improve oversight and risk management?

+ Full Document(PDF)

Sudden Death of a CEO: Are Companies Prepared When Lightening Strikes?

April 21, 2012 Comments off
Source:  Stanford University Graduate School of Business
It is very difficult for shareholders to know detailed information about CEO succession planning among the companies they have invested in.  Although CEO deaths are rare, the sudden death of a CEO can provide insight into the quality of succession planning and governance of a company.  Whereas some companies are able to appoint a successor immediately, others take weeks or months to do so.
In this Closer Look, we examine this issue in detail.
We ask:
  • Why haven’t more companies done a “reality check” on whether they have a truly operational succession plan?
  • What can a board learn and what should it do if the market reacts positively to the death of its CEO?
  • Should the board revise its succession plan if its CEO engages in risky hobbies or lifestyle habits?

Limits of the Jugaad Growth Model — No Workaround to Good Governance for India

March 17, 2012 Comments off

Limits of the Jugaad Growth Model — No Workaround to Good Governance for India (PDF)
Source: James A. Baker III Institute for Public Policy (Rice University)

Indian industry has gained fame in management circles for jugaad, or persevering despite limited resources. This skill has proven particularly important in overcoming inadequate public services. However, the economy appears to have reached the limit of using jugaad in the place of good government, suggesting a lower growth trajectory in the absence of a major improvement in political dynamics.

Governance and the Arab World Transition: Reflections, Empirics and Implications for the International Community

March 14, 2012 Comments off

Governance and the Arab World Transition: Reflections, Empirics and Implications for the International Community
Source: Brookings Institution

The evidence suggests that in the past, misgovernance in the Middle East was largely ignored by the international community, which provided increasing volumes of foreign aid to governments while their standards of voice and accountability were among the worst worldwide—and declining.

Both politics and the economy were subject to elite capture—that is, the shaping of the rules of the game and institutions of the state for the benefit of the few—across the region. In Egypt and Tunisia, the old leadership has been toppled, yet even there the legacy of misgovernance and capture matters for prioritizing reforms and assistance during the transition, and calls for a revamping of the aid strategies of the international community, including the international financial institutions.

Aid strategies need to become more selective across countries and institutions, with due attention given to democratic reforms, devolution, civil society, and to concrete governance and transparency reforms. Reforms also need to mitigate capture and corruption. This policy brief offers specific recommendations for the international community as input for this process of improving strategies of assistance.

+ Full Document (PDF)

Federal Reserve Board releases action plans for supervised financial institutions to correct deficiencies in residential mortgage loan servicing and foreclosure processing

March 3, 2012 Comments off

Federal Reserve Board releases action plans for supervised financial institutions to correct deficiencies in residential mortgage loan servicing and foreclosure processing
Source: Federal Reserve Board

The Federal Reserve Board on Monday released action plans for supervised financial institutions to correct deficiencies in residential mortgage loan servicing and foreclosure processing. It also released engagement letters between supervised financial institutions and independent consultants retained by the firms to review foreclosures that were in process in 2009 and 2010.

The action plans are required by formal enforcement actions issued by the Federal Reserve last year. The enforcement actions direct mortgage loan servicers regulated by the Federal Reserve to submit acceptable plans that describe, among other things, how the institutions will strengthen communications with borrowers by providing each borrower the name of a primary point of contact at the servicer; establish limits on foreclosures where loan modifications have been approved; establish robust, third-party vendor controls; and strengthen compliance programs.

The Federal Reserve enforcement actions also require the parent holding companies of mortgage servicers to submit acceptable plans that describe, among other things, how the companies will improve oversight of servicing and foreclosure processing conducted by bank and nonbank subsidiaries.

The enforcement actions further require the mortgage servicing subsidiaries to provide appropriate remediation to borrowers who suffered financial injury as a result of errors by the servicers. The engagement letters describe the procedures that will be followed by the independent consultants in reviewing servicers’ foreclosure files to determine whether borrowers suffered financial injury as a result of servicer error.

+ Action plans and engagement letters

Federal Reserve Board releases action plans for supervised financial institutions to correct deficiencies in residential mortgage loan servicing and foreclosure processing

March 3, 2012 Comments off

Federal Reserve Board releases action plans for supervised financial institutions to correct deficiencies in residential mortgage loan servicing and foreclosure processing
Source: Federal Reserve Board

The Federal Reserve Board on Monday released action plans for supervised financial institutions to correct deficiencies in residential mortgage loan servicing and foreclosure processing. It also released engagement letters between supervised financial institutions and independent consultants retained by the firms to review foreclosures that were in process in 2009 and 2010.

The action plans are required by formal enforcement actions issued by the Federal Reserve last year. The enforcement actions direct mortgage loan servicers regulated by the Federal Reserve to submit acceptable plans that describe, among other things, how the institutions will strengthen communications with borrowers by providing each borrower the name of a primary point of contact at the servicer; establish limits on foreclosures where loan modifications have been approved; establish robust, third-party vendor controls; and strengthen compliance programs.

The Federal Reserve enforcement actions also require the parent holding companies of mortgage servicers to submit acceptable plans that describe, among other things, how the companies will improve oversight of servicing and foreclosure processing conducted by bank and nonbank subsidiaries.

The enforcement actions further require the mortgage servicing subsidiaries to provide appropriate remediation to borrowers who suffered financial injury as a result of errors by the servicers. The engagement letters describe the procedures that will be followed by the independent consultants in reviewing servicers’ foreclosure files to determine whether borrowers suffered financial injury as a result of servicer error.

+ Action plans and engagement letters

Moral Hazard, Investment, and Firm Dynamics

March 1, 2012 Comments off
Source:  Federal Reserve Bank of Atlanta
We present a dynamic general equilibrium model with heterogeneous firms. Owners of firms delegate investment decisions to managers, whose consumption and investment decisions are private information. We solve the optimal contracts and characterize the implied general equilibrium. Our calibrated model has implications on the cross-sectional distribution and time-series dynamics of firms’ investment, managers’ compensation, and dividend payout policies. Risk sharing requires that managers’ equity shares decrease with firm sizes. That, in turn, implies it is harder to prevent private benefit in larger firms, where managers have a lower equity stake under the optimal contract. Consequently, small firms invest more, pay less dividends, and grow faster than large firms. Despite the heterogeneity in firms’ decision rules and the failure of Gibrat’s law, we show that the size distribution of firms in our model resembles a power law distribution with a slope coefficient about 1.06, as in the data.

Full Paper (PDF)

ICCR Issues 2012 Proxy Resolutions and Voting Guide

February 8, 2012 Comments off
Source:  Interfaith Center on Corporate Responsibility
With increasing attention to risk assessment, members of the Interfaith Center on Corporate Responsibility (ICCR) today release their 2012 Proxy Resolutions and Voting Guide including all member-sponsored shareholder proposals for the upcoming proxy season.
The Guide features 160 resolutions filed at 115 companies by ICCR members for 2012. Resolutions address investor concerns around human rights and supply chain accountability, financial practices and risk, health care, food and water sustainability, environmental health and corporate governance.
Said Laura Berry, Executive Director of ICCR, “Because so many of our members come from faith communities, their work is framed within the context of social justice. On the surface, this year’s proposals address perennial investor concerns around environmental, social and governance risks to shareholder value, but the social dimension has become much more prominent. Increasingly these proposals are being deliberately written to remind companies that the consequences of corporate decision-making aren’t abstractions, they have human faces.”
ICCR members filed 10 resolutions on hydraulic fracturing this proxy season. Said Pat Zerega of Mercy Investments, “ICCR has been issuing resolutions on the environmental impacts of fracking for years and the very high support they receive at shareholder meetings reflect anxieties around safety. But this year nearly all the resolutions on fracking cite community impact which stems directly from our member’s experience in towns where fracking occurs.”
As would be expected during an election year, resolutions on lobbying and political spending showed a sharp spike, and accounted for nearly a third of all resolutions filed in 2012.

2012 Shareholder Resolutions / Environmental Performance by Sector

Treaty Establishing the European Stability Mechanism

February 8, 2012 Comments off

Treaty Establishing the European Stability Mechanism
Source: European Commission

TREATY
ESTABLISHING THE EUROPEAN STABILITY MECHANISM

BETWEEN The Kingdom of Belgium, THE Federal Republic of Germany,
THE REPUBLIC OF ESTONIA, Ireland, THE HELLENIC REPUBLIC,
THE Kingdom of Spain, THE French Republic,
THE Italian Republic, THE Republic of Cyprus,
THE Grand Duchy of Luxembourg, Malta,
THE Kingdom of the Netherlands, THE Republic of Austria,
THE Portuguese Republic, THe Republic of Slovenia,
THE Slovak Republic, THE Republic of Finland

THE CONTRACTING PARTIES, the Kingdom of Belgium, the Federal Republic of Germany, the Republic of Estonia, Ireland, the Hellenic Republic, the Kingdom of Spain, the French Republic, the Italian Republic, the Republic of Cyprus, the Grand Duchy of Luxembourg, Malta, the Kingdom of the Netherlands, the Republic of Austria, the Portuguese Republic, the Republic of Slovenia, the Slovak Republic and the Republic of Finland (the “euro area Member States” or “ESM Members”);

COMMITTED TO ensuring the financial stability of the euro area;

Mid-market perspectives: Optimizing private company competitiveness through effective board composition

December 18, 2011 Comments off

Mid-market perspectives: Optimizing private company competitiveness through effective board composition
Source: Deloitte

Getting its “governance house” in order can enhance a private company’s success and ability to compete. Where does the move to good governance begin? Perhaps chief among the actions that need to be taken is board of director composition and selection. Having the right people and the right “mix” of people on the board is the essential stage-setter for sound governance. If board composition isn’t right, then all other policies, procedures, and structuring activities will be more difficult to execute and likely not as effective. Moreover, sound governance can pay major dividends.

This paper is written for private company boards of directors, owners and senior management who want to optimize their board as a strategic differentiator to strengthen the organization’s competitive position as well as stakeholder confidence. Optimizing private company competitiveness through effective board composition presents a strategic way of thinking about board composition that can help set the company on the journey to improved governance that also leads to enhanced competitiveness and greater opportunities for profitability and overall success.

+ Full Paper (PDF)

According to LEAP, Asian and Pacific Islanders Remain Absent from Foundation Boards

December 14, 2011 Comments off
Source:  Leadership Education for Asian Pacifics, Inc.
In 2010, 36 Asian and Pacific Islanders held 37 board seats at 24 foundations in the top 100 grantmaking U.S. foundations. APIs constitute 5.6% of the U.S. population and its buying power is projected to climb to $696.5 billion by 2014.
  • There are 36 APIs that hold 37 board seats at 24 of the top 100 foundations.
  • There is no API heading a foundation in the role of executive director, president and/or CEO.
  • The 37 board seats represent 4.95% of the total 748 board seats in the top 100 foundations.
  • The ethnic breakdown of these API board of directors is as follows: Chinese (13), Japanese (8), Asian Indian (6), Korean (3), Filipino (2), Vietnamese (2), Singaporean (1) and Thai (1).
  • Twelve (33.33%) out of the 36 API directors are women.
  • One API director sits on more than one foundation board: Irene Hirano Inouye.
  • There are two API directors serving as chairman of the board: Tessie Guillermo (The California Endowment) and Irene Hirano Inouye (The Ford Foundation).
  • Seven of the top 100 foundations have 2 or more API directors on their board: The Ford Foundation (3), The California Endowment (3), The Rockefeller Foundation (4), The Silicon Valley Community Foundation (4), The James Irvine Foundation (2), The San Francisco Foundation (2) and The Commonwealth Fund (2).
  • The Rockefeller Foundation has 25% API representation on its board of trustees, the highest percentage of any foundation in the top 100.
Full Report (PDF)

CEO Bonus Plans: And How to Fix Them

November 14, 2011 Comments off

CEO Bonus Plans: And How to Fix Them
Source: Harvard Business School Working Paper

Discussions about incentives for CEOs in the United States begin, and often end, with equity-based compensation. After all, stock options and (more recently) grants of restricted stock have comprised the bulk of CEO pay since the mid-1990s, and the changes in CEO wealth due to changes in company stock prices dwarf wealth changes from any other source. Too often overlooked in the discussion, however, is the role of annual and multiyear bonus plans—based on accounting or other non-equity-based performance measures—in rewarding and directing the activities of CEOs and other executives. In this paper, Kevin J. Murphy and Michael C. Jensen describe many of the problems associated with traditional executive bonus plans, and offer suggestions for how these plans can be vastly improved. The paper includes recommendations and guidelines for improving both the governance and design of executive bonus plans and, more broadly, executive compensation policies, processes, and practices. The paper is a draft of a chapter in Jensen, Murphy, and Wruck (2012), CEO Pay and What to Do About it: Restoring Integrity to both Executive Compensation and Capital-Market Relations, forthcoming from Harvard Business School Press. Key concepts include:

  • While compensation committees know how much they pay in bonuses and are generally aware of performance measures used in CEO bonus plans, relatively little attention is paid to the design of the bonus plan or the unintended consequences associated with common design flaws.
  • These recommendations for improving executive bonus plans focus on choosing the right performance measure; determining how performance thresholds, targets, or benchmarks are set; and defining the pay-performance relation and how the relation changes over time.
  • In the absence of “clawback” provisions, boards are rewarding and therefore providing incentives for CEOs and other executives to lie and game the system. Any compensation committee and board that fails to provide for the recovery of ill-gained rewards to its CEO and executives is breaching another of its important fiduciary duties to the firm.

+ Full Paper (via SSRN)

CEO Bonus Plans: And How to Fix Them

November 12, 2011 Comments off

CEO Bonus Plans: And How to Fix Them
Source: Social Science Research Network (Harvard Business School/Marshall School of Business Working Paper)

Almost all CEO and executive bonus plans have serious design flaws that limit their benefits dramatically. Such poorly designed executive bonus plans destroy value by providing incentives to manipulate the timing of earnings, mislead the board about organizational capabilities, take on excessive (or insufficient) risk, forgo profitable projects, and ignore the cost of capital. We describe the causes of the problems associated with widely prevalent executive bonus plans, and offer our recommendations for fixing them. We focus on choosing the right performance measure, determining how performance thresholds, targets, or benchmarks are set, and defining the pay-performance relation and how the relation changes over time.

Follow

Get every new post delivered to your Inbox.

Join 631 other followers