Tales From Corporate Governance Surveys
July 5, 2010
There is always something happening in Corporate Governance.
Two recent notable items are –
- Corporate Governance is Top Challenge for Companies Considering an IPO, KPMG Survey Series Finds
- Annual Global CEO Survey by Price Waterhouse Coopers (PWC)
KPMG and the New York Stock Exchange-Euronext recently offered IPO Bootcamps for companies considering an initial public offering (IPO). Participating companies were asked to name their top three challenges in preparing for an IPO. The results are a bit surprising. The top three items were -
- improving corporate governance (64 percent)
- preparation of a robust business plan (40 percent) and
- preparation of financial track record (36 percent).
Often, it’s the small details that companies overlook that can cause headaches down the road. For example, while many companies realize that corporate governance is a demanding issue, when selecting board members, many don’t consider that an important role for directors is working with management to ensure the right tone at the top for ethics and compliance. (Aamir Husain, a partner in KPMG LLP)
This is encouraging. Fostering compliance and ethics at the early stage of a company’s formation increases the likelihood that these issues will be properly executed as the company grows.
The PWC CEO Survey is extensive but some key items stand out:
- most CEOs outside of financial services believe the economic crisis has not changed public perceptions of their industries. They believe the trust issue is restricted to the banks and isolated to countries that experienced the worst banking crises.
- The view that companies can rebuild trust through new remuneration models appears to be held by a minority of CEOs from virtually every country.
While small start-up companies realize the importance of trust and ethics, CEOs at large established companies (at least according to the PWC Survey) still don’t get it.
Economic Indicators: Pink Ties and Trash
June 21, 2010
I must admit, I follow announcements of official indicators that measure where the economy is going. These are very involved data gathering and analytical endeavors. Currently they give no definitive picture.
I started to think that there might be other measures that are not compiled, yet might give less analytical but subtle indicators that would give an unofficial account of where the economy is headed. Then I found this article “Economy: These Below-the-Radar Indicators May Signal Growth” on Bloomberg BusinessWeek. Seems that there are some uncommon economic indicators such as–
- diesel fuel sales at roughly 7,000 truck stops across the country–climbed 3.1 percent in May from April, the largest monthly increase since February 1999
- train shipments of waste and scrap materials–increasing at the fastest pace in 16 years
- electricity usage and the service economy, ( this is compiled by the Edison Electric Institute releases weekly represents certain aspects of the service sector, such as office and retail space). Richard DeKaser, president of Woodley Park Research in Washington, D.C. says–
“When you’re filling up office buildings, and office buildings are working overtime—and the same for retail stores—that’s a good proxy for those sectors.”
This indicator for the week ended June 5 was up 10.8 percent from the same week in 2009.
- While the the typical employment data is dismal, optimism in recent data concerning temporary workers. The May 25 report by the American Staffing Association showed May staffing employment up 3 percent from April and up 19 percent from a year earlier.
Then there is this article published by Forbes: “Uncommonly Clever Economic Indicators”. These indicators are a bit more interesting–
- pink ties Bob Allsbrook, chief economist for Regions Bank, in Birmingham, Ala., looks for wisdom in neckwear–specifically, pink ties. … “Since the start of the summer(2009), I’ve seen lots of men wearing pink and fuchsia colored ties,” he notes.
- the size of restaurant trash bags : Americans are eating out again, and that’s a good sign. You can see that trend in the size of the garbage piles behind restaurants
- denim jeans sales –NPD market research firm says
“Jeans are a relatively cheap investment and one of the first things consumers buy when the economy starts to bounce back. … denim sales have already started to pop: For the six months from January to June, denim sales jumped 5.3% to $7.6 billion vs. the same period in 2008.”
- corporate hotel cancellations — cancellations for corporate meetings and events declined substantially. However, major event planners are booking space for 2010, 2011 and even 2012.
This article includes other interesting metrics such as shopping bags and Christie’s wine auctions.
Want to find out where the economy is headed? Put on a pink tie, get in your diesel truck and drive behind some restaurants.
Goldman Sachs–Here We Go Again?
May 6, 2010
The announcement came during stock market trading hours–GOLDMAN SACHS SUED BY SEC.
Some complained that the SEC should have waited until the markets closed. But the damage to Goldman Sachs shareowners and the markets was already done.
A week later more news came out on the weekend–
NEW YORK (MarketWatch) — Emails at Goldman Sachs Group Inc. released by a Senate subcommittee show just how much financial reform is needed, two leading senators said on Sunday.
The emails, released Saturday, show executives and other employees at Goldman Sachs knew that the firm was making money on the collapse of the housing market, largely by betting on the failure of mortgage securitizations and derivatives like the ones it bundled and sold to investors, whose failure led to the financial crisis.
“There is something terribly wrong about a country like ours where you make billions of dollars by making nothing and producing nothing but taking advantage of an economic situation, Sen. Christopher Dodd, D-Conn., said Sunday on Meet the Press.
What makes this emerging story even more interesting is that Goldman Sachs appeared on Barron’s February 15th cover story on The World’s Most Respected Companies; it was rated 30 out of 100 companies. Barron’s noted –
I am not faulting Barron’s (this is a good publication and I am a subscriber). Rather, this highlights the continuing problem we have with Corporate Ethics.
This story has another interesting and promising aspect: when considering a similar deal, Bear Stearns turned it down because of its Ethics conflict. As reported in the Guardian–
Bear Stearns, the Wall Street bank now part of JP Morgan Chase, turned down a similarly structured deal to the one under scrutiny between Paulson & Co and Goldman Sachs because it “didn’t pass the ethics standards”.
The bank, which collapsed during the credit crisis, “smelled trouble” when John Paulson, the hedge fund’s founder, approached it with the idea of creating an investment that the fund could bet against, according to author Gregory Zuckerman in his book on Paulson, The Greatest Trade Ever.
As noted in the MarketWatch item above, the Goldman Sachs incident is once again motivating a hair trigger demand for more regulation. When will there be a realization that you cannot regulate ethics?
This is not an academic or esoteric issue. When people are no longer restrained by objective notions of right and wrong, nothing is safe—not your investments, not your house, not your neighborhood, not you! What we’re talking about, ultimately, is the moral consensus upon which the rule of law rests—that’s the very foundation block of Western governments and societies.
When ethics fail in the commercial markets, more and more stringent regulations are certain to follow. It’s the only way to assure the integrity of financial and commercial transactions. But we lose freedom in the process.
The problem is that regulation, however well intended, can’t solve the ethical problem. The best regulation can do is to define what people can get away with by drawing a line they can’t cross. It does not answer the question, “What is the honest way to do business?” Crosswalk.com Commentary
In one of my recent posts, I mentioned that Ethics, to be effective, must be well integrated within the organization’s Culture; so much so that it guides daily decisions of all employees-
Perhaps the key reason is that most companies don’t realize that ethics must start with “the tone at the top”. Board and C-Suite members must be visible in promoting ethical behavior and putting in place an ethics program that promotes an ethics culture. This takes considerable effort and time since it must be embedded in the existing corporate culture.
Bravo to Bear Stearns for showing that Corporate Ethics can work, sometimes.
The Rush To Financial Literacy
April 22, 2010
Source: SmartFutures
In my last post I had a reference to Financial Literacy Education. In Europe this is known as Financial Capability. Many financial services companies are rushing to provide some type of financial education to existing and potential clients. What is behind the rush?
A number of developments converged to produce the 1000 year financial storm–
The global economic crisis, more complex investment choices and the shift of pension investment choices from the employer to the employee, when combined with widespread financial illiteracy, is causing increased stress among a significant number of the public.
Research suggests that 15–20 percent of employees have financial problems severe enough to negatively affect productivity. A financially stressed employee spends an average of 20 hours per month of work time on his/her personal financial problems.
The Case For Financial Education at the Workplace
The Federal Reserve Bank of Kansas City, The Federal Reserve Bank of Atlanta
Too many people fail simple tests on the basics of compound interest and basic financial math. The result: poor financial decisions such as not investing in company-offered voluntary investment plans. This worsens individuals’ financial condition and puts their retirement at risk.
Many financial services companies, banks, credit unions and financial advisory firms are offering a variety of financial literacy education resources.
Some examples in the US
Bank Of America FINANCIAL TOOLS
Wells Fargo HANDS ON BANKING
CitiBank FINANCIAL CAPABILITY
Examples from Europe
Barclay’s BUILDING FINANCIAL CAPABILITY
Halifax MANAGING YOUR MONEY
Caixa Galicia SECURE YOUR FUTURE
Some are critical of these programs. They indicate the motivation is to restore the tarnished reputations of the financial services sector. Perhaps, but the educational services offered do assist in helping individuals to improve their knowledge of financial matters.
This subject is important enough to warrant additional posts in the future.
ANZ Bank, the Spirit and the Letter
March 4, 2010
I enjoy finding a corporate website that stands out from the crowd. My latest finding is ANZ, one of the largest companies in Australia and New Zealand, and a major international banking and financial services group.
The first section I always look for is About Us
The About Us landing page is comprehensive and well designed. Personally, I would like Corporate Governance to be more prominent, but it is available via the related links section from the landing page.
Once in Corporate Governance, let’s look at what is displayed in this section.
At the top is this statement–
In relation to corporate governance, ANZ’s Board seeks to:
- embrace principles and practices it considers to be best practice internationally;
- be an ‘early adopter’, where possible, by complying before a published law or recommendation takes effect; and
- take an active role in discussions regarding the development of corporate governance best practice and associated regulation in Australia and overseas.
The second and third bulletpoints are remarkable. This is a company that wants to go beyond the “letter of the law”.
The Corporate Governance section Is very comprehensive; however you have to download PDFs to access the information. Regular readers will know that I would prefer the information to be displayed online with PDF as another option. A must see is the the Continuous Compliance Policy (PDF) which is an explanation of the company’s objective of going beyond Compliance Regulations.
Another interesting element of this site is the Our Company section that is actually the detailed About Us section, and quite a good one at that.
Click on Our Businesses and you get a more detailed description of functional and geographic areas of the company.
View Management to obtain a comprehensive background on senior managers.
Select Our Profile to learn more about the company’s strategy, and more.
A noteworthy section nestled within the Corporate Responsibility section is the company’s commitment to enhancing Financial Literacy. This subject is getting global attention due to the demise of personal pensions and the worldwide economic crisis. The company offers extensive education.
In partnership with some of the most trusted community organisations in Australia and New Zealand, ANZ has developed a number of programs that address issues of financial literacy and inclusion. Find out more about our programs:
- MoneyMinded – an adult financial literacy education program
- Saver Plus – a matched savings program for people on low incomes
- Progress Loans – a program offering small loans to people on low incomes
- MoneyBusiness – a program to improve levels of financial literacy in indigenous communities
Action on financial literacy and inclusion doesn’t only help the community – it helps ANZ too. Find out why.
This commendable suite of programs deserves to be prominently displayed on the homepage. (More about financial literacy in future posts).
But most interesting is the desire to go beyond “the letter” of compliance to “the spirit” of best practice.
