Jay Fishman, 63, executive chairman and former CEO of Travelers last week died of amyotrophic lateral sclerosis (ALS), the progressive neurological disease also known as Lou Gehrig's Disease. Gehrig, the legendary New York Yankees first baseman, died from the disease in 1941 at the age of 37 after having played in 2,130 consecutive baseball games, the latter feat earning him the nickname The Iron Horse.
Diagnosed in 2014, Fishman stepped down as Travelers' CEO last December. Alan Schnitzer, Fishman's successor at the company, called him an "icon among corporate leaders."
Fishman turned around The St. Paul Companies and in 2004 merged it with Travelers, a company he had run while at Citigroup. He led the insurer through turbulent times on Wall Street unscathed. Amid the booms and busts that marked the era coinciding with his ascendancy as an executive in the financial services industry, Fishman steered clear of much of the excessive risk-taking that hobbled or felled many financial institutions.
While prominent big banks like Citigroup and big insurers like AIG collapsed in the financial crisis and required massive bailouts, Travelers hardily weathered the 2008-2009 financial storm and was added mid-2009 to the Dow Jones Industrial Average as its only property and casualty insurance component. Over his last decade at the helm of Travelers, the company's stock outperformed both the S&P 500 index and Berkshire Hathaway common.
After being diagnosed with the debilitating disorder, Fishman joined the battle against ALS, exhibiting his characteristic tenacity and effectiveness. He contributed and raised millions of dollars for a project directed by neurologist Jeffrey Rothstein at Johns Hopkins to use big data techniques to identify characteristics of different versions of ALS. Fishman also backed a Boston Children's Hospital project that banks the voices of ALS patients so that when the patients lose the ability to speak they can rely on computers that will speak for them in their own voices.
Fishman and his wife Randy recently donated $3 million to the University of Pennsylvania to support comprehensive at-home respiratory care for adult patients with chronic respiratory insufficiency due to neurological, muscular, skeletal or chronic respiratory diseases, including ALS. Earlier this month, he served as co-chairman of the PGA Tour's Travelers Championship golf tournament, the main charitable beneficiary of which was the ALS Clinic at the Hospital for Special Care (HSC) in New Britain, Connecticut. In honor of Fishman, in the midst of the tournament 2-time Masters champion Bubba Watson pledged $100,000 to fight ALS.
"You can be a skeptic and say, 'Well, the only reason he's doing it is that he has the disease,'" Fishman said in June. "The answer is, 'Yeah, of course.' If not me, then who? If I'm not going to reflect all the good things that have happened to me in my life and find a way to plow that back to help people deal with what I personally know is a horrible disease, then shame on me."
Having an old friend battling the disease for three years now, count us not among the skeptics. If you'd like to join the movement to end ALS, there's no better time than summer's end to cool off and learn more about the ALS Association's undying mission.
Robert Stead
Thursday, August 25, 2016
Friday, August 19, 2016
Can Commonsense CG mend sorry state of public companies?
Last summer, a group comprised mainly of top institutional investor executives gathered in the Manhattan offices of JPMorgan Chase to start to hash out more prudent corporate governance principles, aiming to fix what JPM CEO Jamie Dimon considers a broken system of corporate governance. Among the attendees were Laurence Fink, chairman of BlackRock, the world’s largest money manager, Abby Johnson, the chief executive of Fidelity, Frederick William McNabb III, chief of Vanguard, and Warren Buffett, CEO of Berkshire Hathaway. Fidelity and Wellington Management eventually dropped out of the consortium before signing on to the list of CG recommendations.
The New York Times reported that: "[t]he agenda...was to discuss the sorry state of publicly traded companies: too little trust and connection between shareholders and management, too many rules imposed by so-called governance experts and too many idiosyncratic accounting guidelines. As a result, much of the smart money in the United States is going — and staying — private, creating more companies that have less public accountability and transparency."
After the year-long succession of meetings, conference calls and email exchanges, the institutional investor and corporate chiefs released an open letter in late July, entitled Commonsense Corporate Governance Principles, calling for:
• Truly independent corporate boards, not beholden to the CEO or management, that meet regularly without the CEO present, and engage actively and directly with executives below the CEO level;
• Diverse boards, comprised of members with complementary and diverse skills, backgrounds and experiences, balancing wisdom and judgment that accompany experience and tenure with the need for fresh thinking and perspectives of new board members;
• Strong board leadership independent of management, with the board’s independent directors deciding whether the roles of chairman and CEO should be separate or combined; and if the board decides on a combined role, the board must have a strong lead independent director with clearly defined authorities and responsibilities;
• Elimination of quarterly earnings forecasts, unless companies believe that providing such guidance is beneficial to shareholders;
• Never obscuring Generally Accepted Accounting Principles-reported results even when companies use non-GAAP to explain and clarify their results, in particular, reflecting the cost of stock- or options-based compensation in non-GAAP measurements of earnings; and
• Constructive engagement between a company and its shareholders, allowing the company’s institutional investors access to the company, its management and, in some circumstances, the board and, likewise, a company, its management and board access to institutional investors’ ultimate decision makers.
The letter's signers open by asserting that "the health of America’s public corporations and financial markets — and public trust in both — is critical to economic growth and a better financial future for American workers, retirees and investors." Millions of American families, they remind, depend on these companies for work — our 5,000 public companies account for a third of the nation’s private sector jobs.
Clearly, the nation's publicly-traded companies still form a massive pillar of the American economy that could stand to be strengthened. Undoubtedly, the letter's 13 signatories lead major U.S. concerns and are highly influential in prominent corporate and investor circles. But beyond stirring debate, the impact of, and the next steps for, the Commonsense CG initiative remains to be seen. We'll delve more deeply into the group's particular recommendations as it unfolds.
Robert Stead
The New York Times reported that: "[t]he agenda...was to discuss the sorry state of publicly traded companies: too little trust and connection between shareholders and management, too many rules imposed by so-called governance experts and too many idiosyncratic accounting guidelines. As a result, much of the smart money in the United States is going — and staying — private, creating more companies that have less public accountability and transparency."
Mr. Dimon pushed for the ensuing series of meetings because of his frustration that public companies find it increasingly difficult to hold onto talented executives who leave in droves to work at private companies — outside the harsh spotlight of the stock market, activist investors and new regulations. Numerous Silicon Valley companies in recent years have delayed public offerings for as long as possible. According to the National Bureau of Economic Research, the number of publicly-listed companies in the United States declined from 8,025 in 1996 to 4,101 in 2012.
After the year-long succession of meetings, conference calls and email exchanges, the institutional investor and corporate chiefs released an open letter in late July, entitled Commonsense Corporate Governance Principles, calling for:
• Truly independent corporate boards, not beholden to the CEO or management, that meet regularly without the CEO present, and engage actively and directly with executives below the CEO level;
• Diverse boards, comprised of members with complementary and diverse skills, backgrounds and experiences, balancing wisdom and judgment that accompany experience and tenure with the need for fresh thinking and perspectives of new board members;
• Strong board leadership independent of management, with the board’s independent directors deciding whether the roles of chairman and CEO should be separate or combined; and if the board decides on a combined role, the board must have a strong lead independent director with clearly defined authorities and responsibilities;
• Elimination of quarterly earnings forecasts, unless companies believe that providing such guidance is beneficial to shareholders;
• Never obscuring Generally Accepted Accounting Principles-reported results even when companies use non-GAAP to explain and clarify their results, in particular, reflecting the cost of stock- or options-based compensation in non-GAAP measurements of earnings; and
• Constructive engagement between a company and its shareholders, allowing the company’s institutional investors access to the company, its management and, in some circumstances, the board and, likewise, a company, its management and board access to institutional investors’ ultimate decision makers.
The letter's signers open by asserting that "the health of America’s public corporations and financial markets — and public trust in both — is critical to economic growth and a better financial future for American workers, retirees and investors." Millions of American families, they remind, depend on these companies for work — our 5,000 public companies account for a third of the nation’s private sector jobs.
Clearly, the nation's publicly-traded companies still form a massive pillar of the American economy that could stand to be strengthened. Undoubtedly, the letter's 13 signatories lead major U.S. concerns and are highly influential in prominent corporate and investor circles. But beyond stirring debate, the impact of, and the next steps for, the Commonsense CG initiative remains to be seen. We'll delve more deeply into the group's particular recommendations as it unfolds.
Robert Stead
Tuesday, August 9, 2016
Meanwhile across the Channel...
When writing last week about the potential CG trajectory under Britain's new government, I did not mean to overlook the recent high-profile exec comp developments happening on the other end of the Chunnel.
Late last month, a day after the company reported that first-half earnings rose 41%, Renault’s board announced a reduction in its chief executive’s next pay package after the carmaker’s dismissal of April's shareholder vote against his 2015 compensation triggered protests against executive pay in France. The board approved a recommendation by the company’s remuneration committee to reduce the variable share of CEO Carlos Ghosn’s salary by 20 per cent, capping it at 180 per cent of the fixed salary. It also modified the way the variable portion will be calculated.
At the company’s annual general meeting on April 29 in Paris, just over 54 per cent of shareholders voted against and 45.9 per cent voted for Ghosn’s pay package of €7.3 million ($10.75) for 2015, with less than 1 per cent abstaining. The board did not heed the non-binding vote, declining to adjust Ghosn’s pay package.
In the aftermath, France threatened to take actions to force the board's hand, as a council on corporate governance comprising executives from major firms and representatives of the Mouvement des Entreprises de France employers association reviewed the decision. France’s president Francois Hollande also weighed in on the matter, saying: “I’ve been told there is a code of good conduct [and] if it’s not applied there will be consequences,” adding that “[i]f this council does not react firmly, the first decision will be to make general shareholder assembly decisions binding.”
Then in June, France's Socialist government floated "anti-corruption" legislation that would allow shareholders to vote on the pay packages of chief executives when they are hired or when the structure of their compensation changes. But it goes further than the UK's say-on-pay rules by also allowing them to reject executives' variable compensation, which is tied to companies’ annual performance. The Renault board seems to have taken its cue to reign in the pay package from the latter provision.
Likely due to heightened societal concerns over income inequality, executive compensation controversies are lately flaring up with greater frequency in Europe. What this portends for other markets is of keen interest looking ahead.
Robert Stead
Late last month, a day after the company reported that first-half earnings rose 41%, Renault’s board announced a reduction in its chief executive’s next pay package after the carmaker’s dismissal of April's shareholder vote against his 2015 compensation triggered protests against executive pay in France. The board approved a recommendation by the company’s remuneration committee to reduce the variable share of CEO Carlos Ghosn’s salary by 20 per cent, capping it at 180 per cent of the fixed salary. It also modified the way the variable portion will be calculated.
At the company’s annual general meeting on April 29 in Paris, just over 54 per cent of shareholders voted against and 45.9 per cent voted for Ghosn’s pay package of €7.3 million ($10.75) for 2015, with less than 1 per cent abstaining. The board did not heed the non-binding vote, declining to adjust Ghosn’s pay package.
In the aftermath, France threatened to take actions to force the board's hand, as a council on corporate governance comprising executives from major firms and representatives of the Mouvement des Entreprises de France employers association reviewed the decision. France’s president Francois Hollande also weighed in on the matter, saying: “I’ve been told there is a code of good conduct [and] if it’s not applied there will be consequences,” adding that “[i]f this council does not react firmly, the first decision will be to make general shareholder assembly decisions binding.”
Then in June, France's Socialist government floated "anti-corruption" legislation that would allow shareholders to vote on the pay packages of chief executives when they are hired or when the structure of their compensation changes. But it goes further than the UK's say-on-pay rules by also allowing them to reject executives' variable compensation, which is tied to companies’ annual performance. The Renault board seems to have taken its cue to reign in the pay package from the latter provision.
Likely due to heightened societal concerns over income inequality, executive compensation controversies are lately flaring up with greater frequency in Europe. What this portends for other markets is of keen interest looking ahead.
Robert Stead
Thursday, August 4, 2016
UK again leading the way on CG?
Many observers attributed June 23rd's Brexit vote to leave the European Union to voters' dissatisfaction with worsening inequalities and asymmetries in wealth and power in the UK, and more fundamentally, as the electorate's response to economic and societal insecurity and instability.
Just two days before she officially became UK Prime Minister July 13 due to the fallout from the Brexit vote, Conservative Party leader Theresa May seemed to find common cause with former US presidential candidate Bernie Sanders when she spoke of her vision for corporate Britain. May’s speech also echoed corporate responsibility themes pushed by the former Labour leader Ed Miliband during the 2015 election campaign. May spoke of a country that "works not for a privileged few but for every one of us." However, she stressed that “it is not anti-business to suggest that big business needs to change.”
Then last week, Members of Parliament released a report on the scandalous collapse of British retailer BHS. Asked what May would do to curb corporate greed, her spokeswoman said: “The prime minister has already set out that we need to tackle corporate irresponsibility, reform capitalism so that it works for everyone not just the privileged few. That means in the long run doing more to prevent irresponsible and reckless behaviour and look carefully at the policies linked to that and work at the best way forward.”
Among the notable initiatives PM May sketched out are:
"Better governance will help these companies to take better decisions, for their own long-term benefit and that of the economy overall," May said. This contention, pertaining to her government's specific proposals, will be vigorously debated for some time. But the new Prime Minister appears intent on pushing the CG envelope for UK companies, which if past is prelude could foreshadow changes in other markets.
Robert Stead
Just two days before she officially became UK Prime Minister July 13 due to the fallout from the Brexit vote, Conservative Party leader Theresa May seemed to find common cause with former US presidential candidate Bernie Sanders when she spoke of her vision for corporate Britain. May’s speech also echoed corporate responsibility themes pushed by the former Labour leader Ed Miliband during the 2015 election campaign. May spoke of a country that "works not for a privileged few but for every one of us." However, she stressed that “it is not anti-business to suggest that big business needs to change.”
Then last week, Members of Parliament released a report on the scandalous collapse of British retailer BHS. Asked what May would do to curb corporate greed, her spokeswoman said: “The prime minister has already set out that we need to tackle corporate irresponsibility, reform capitalism so that it works for everyone not just the privileged few. That means in the long run doing more to prevent irresponsible and reckless behaviour and look carefully at the policies linked to that and work at the best way forward.”
Among the notable initiatives PM May sketched out are:
- Making annual shareholder votes on executive pay legally binding;
- Allowing employee and consumer representatives to sit on corporate boards;
- Escalating antitrust enforcement of M&A activity; and
- Cracking down on individual and corporate tax avoidance and evasion.
"There is an unhealthy and growing gap between what these companies pay their workers and what they pay their bosses," May claimed. Britain led the way in requiring shareholder votes on executive compensation, in 2002 becoming the first country to adopt mandatory nonbinding shareholder votes on executive compensation (say on pay), through the Directors’ Remuneration Report (DRR) regulations. Say on pay legislation subsequently spread to Australia, Belgium, the Netherlands, and Sweden, among others. It was only in 2011 that advisory say on pay for top executives’ compensation was made universal for public companies in the U.S. by virtue of the Dodd-Frank Act. Along with pressing for binding say on pay votes, PM May also called for Britain to adopt the U.S. regulatory requirement that companies publish the ratio of pay between their chief executives and their employees median pay.
Although her comments were taken to refer to adding employee and perhaps consumer representatives to corporate boards, May alluded to board diversity in a broader sense, saying: “The people who run big businesses are supposed to be accountable to outsiders, to non-executive directors who are supposed to ask the difficult questions, think about the long-term and defend the interests of shareholders. In practice, they are drawn from the same, narrow social and professional circles as the executive team and – as we have seen time and time again – the scrutiny they provide is just not good enough.”"Better governance will help these companies to take better decisions, for their own long-term benefit and that of the economy overall," May said. This contention, pertaining to her government's specific proposals, will be vigorously debated for some time. But the new Prime Minister appears intent on pushing the CG envelope for UK companies, which if past is prelude could foreshadow changes in other markets.
Robert Stead
Wednesday, July 27, 2016
Corporate America down in the polls this election cycle
Although the 2016 proxy season is in the rearview mirror, corporate governance issues are more prominent in the news than usual as we head into the dog days of summer. A contentious presidential campaign - finally - entering the home stretch could be the culprit.
Long-time Wall Street Journal columnist and Brookings Institution scholar William Galston last week wouldn't venture a guess on who will win the presidential election but he's certain who lost it: corporate America. Galston suggests that corporate America had it coming as "the consequence of policies that have ended by alienating huge numbers of Americans;" favorable opinions of corporations bottomed out after registering 38% in 2011, down from 73% in 1999. Moreover, per Gallup polling in 2014, 66% of Americans believe big businesses create jobs in foreign countries while just 43% thought U.S. companies were creating jobs domestically.
Galston seems skeptical of the insistence of many corporate execs that they are merely doing what they must to stay ahead of intensifying global competition by, e.g., locating plants in low-wage countries. If global competition is so intense, he asks, why are profits near record highs as a share of GDP and why is executive compensation soaring?
Underlying the level of compensation for top-earners, including corporate execs, relative to that for average Americans - and the perceived decline in good-paying jobs for the latter - is one of the dominant themes of this election cycle: widening income inequality. As former Democratic presidential candidate Bernie Sanders starkly put it, America now has more wealth and income inequality than any major developed country on earth, and the gap between the very rich and everyone else is wider than at any time since the 1920s. Perhaps currently the prime mover in Democratic Party policy-making, Sanders asserts that corporate CEOs in this country often enjoy an effective tax rate that is lower than their secretaries. For his part, Donald Trump, now the Republican nominee, last fall deemed the system for setting executive compensation "disgraceful" and "a total and complete joke."
According to Galston, the moral for corporate leaders is clear: If you care only about shareholder value, only your shareholders will care about you. And when a political crunch comes, your shareholders won't be numerous or powerful enough to save you. But the tacit compact - by which corporate leaders are given substantial latitude to chart their own course in exchange for giving due weight to the interests of the broader community - has broken down in the eyes of many Americans.
Even as the summer winds down, how corporate governance issues play in the run-up to the national election and its aftermath bears close watching. Stay tuned.
Robert Stead
Long-time Wall Street Journal columnist and Brookings Institution scholar William Galston last week wouldn't venture a guess on who will win the presidential election but he's certain who lost it: corporate America. Galston suggests that corporate America had it coming as "the consequence of policies that have ended by alienating huge numbers of Americans;" favorable opinions of corporations bottomed out after registering 38% in 2011, down from 73% in 1999. Moreover, per Gallup polling in 2014, 66% of Americans believe big businesses create jobs in foreign countries while just 43% thought U.S. companies were creating jobs domestically.
Galston seems skeptical of the insistence of many corporate execs that they are merely doing what they must to stay ahead of intensifying global competition by, e.g., locating plants in low-wage countries. If global competition is so intense, he asks, why are profits near record highs as a share of GDP and why is executive compensation soaring?
Underlying the level of compensation for top-earners, including corporate execs, relative to that for average Americans - and the perceived decline in good-paying jobs for the latter - is one of the dominant themes of this election cycle: widening income inequality. As former Democratic presidential candidate Bernie Sanders starkly put it, America now has more wealth and income inequality than any major developed country on earth, and the gap between the very rich and everyone else is wider than at any time since the 1920s. Perhaps currently the prime mover in Democratic Party policy-making, Sanders asserts that corporate CEOs in this country often enjoy an effective tax rate that is lower than their secretaries. For his part, Donald Trump, now the Republican nominee, last fall deemed the system for setting executive compensation "disgraceful" and "a total and complete joke."
According to Galston, the moral for corporate leaders is clear: If you care only about shareholder value, only your shareholders will care about you. And when a political crunch comes, your shareholders won't be numerous or powerful enough to save you. But the tacit compact - by which corporate leaders are given substantial latitude to chart their own course in exchange for giving due weight to the interests of the broader community - has broken down in the eyes of many Americans.
Even as the summer winds down, how corporate governance issues play in the run-up to the national election and its aftermath bears close watching. Stay tuned.
Robert Stead
Launching my blog on corporate governance
Welcome,
After a decade working in corporate governance, including 7 years at Institutional Shareholder Services (ISS) advising the firm's clients, I'm starting this blog to share my expertise and insights on the subject. The objectives are to keep decision-makers apprised of pertinent developments in the field and to help discern trends and anticipate changes in corporate governance driven by the forces of the political economy. Bringing to bear my background in corporate finance and financial analysis, a complementary aim is to explore the impact of corporate governance policies and procedures on the various stakeholders in corporate America and other major markets.
Coming on the heels of the hurried and harried proxy season, the summer months are typically a welcome respite for the diverse and dispersed corporate governance community. Nevertheless, I decided to launch now - albeit posting at a measured pace - because corporate governance, particularly in regard to the divergence between executive and rank-and-file employee compensation purportedly exacerbating income inequality, is a hot topic on the presidential campaign trail.
And as for the eponymous masthead of this blog, it's meant to convey continuously striving for sustainable and supportable corporate governance policies and practices that will hold up in today's dynamic environment.
I hope you find the news, analysis and commentary valuable and useful input for navigating the increasingly challenging corporate governance terrain. Your feedback is most welcome.
Enjoy the rest of the summer!
Robert Stead
After a decade working in corporate governance, including 7 years at Institutional Shareholder Services (ISS) advising the firm's clients, I'm starting this blog to share my expertise and insights on the subject. The objectives are to keep decision-makers apprised of pertinent developments in the field and to help discern trends and anticipate changes in corporate governance driven by the forces of the political economy. Bringing to bear my background in corporate finance and financial analysis, a complementary aim is to explore the impact of corporate governance policies and procedures on the various stakeholders in corporate America and other major markets.
Coming on the heels of the hurried and harried proxy season, the summer months are typically a welcome respite for the diverse and dispersed corporate governance community. Nevertheless, I decided to launch now - albeit posting at a measured pace - because corporate governance, particularly in regard to the divergence between executive and rank-and-file employee compensation purportedly exacerbating income inequality, is a hot topic on the presidential campaign trail.
And as for the eponymous masthead of this blog, it's meant to convey continuously striving for sustainable and supportable corporate governance policies and practices that will hold up in today's dynamic environment.
I hope you find the news, analysis and commentary valuable and useful input for navigating the increasingly challenging corporate governance terrain. Your feedback is most welcome.
Enjoy the rest of the summer!
Robert Stead
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