Monthly Archives: December 2016

2017 Board Priorities Report

Mark Manoff is the Americas Vice Chair, Steve Klemash is a Partner and Ann Yerger is an Executive Director with the EY Center for Board Matters. This post is based on an EY publication by Mr. Klemash, Ms. Yerger, and Mark Manoff.

Geopolitical developments, innovation and technology are rapidly accelerating change in the global economy and affecting how companies create competitive advantage. Boards should continue to rethink and address their organization’s strategy, risk management and whether the required talent is in place to deal with such changes.

Boards may need to rethink their own composition and structure to stay fit for purpose. Institutional investors continue to seek more communication and engagement around these important issues. In 2017, the EY Center for Board Matters expects boards to heighten their focus on the following six priorities:

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Are Directors Really Irrelevant to Capital Structure Choice?

André Gygax is on the finance faculty at the University of Melbourne. This post is based on a recent paper authored by Mr. Gygax; Matthew Hazledine, Department of Finance at the University of Melbourne; and J. Spencer Martin, Professor of Finance at the University of Melbourne.

Theories of capital structure typically say that the optimal level of debt depends on the characteristics of a firm, such as volatility of its business, and environmental variables such as tax rates and interest rates. Thus, other things equal, the 35-year fall in 10-year bond yields over the 1981-2016 period would be expected to lead to significant increases in corporate leverage. Instead, Lemmon, Roberts and Zender (2008) find that firms persist a long time in their choice for high or low borrowing levels. Complicating the picture, DeAngelo and Roll (2015) find that differences in leverage across firms are highly volatile, more so than the range of firm characteristics influencing capital structure. They suggest broadening existing analyses to incorporate “managerial attitudes and social norms about debt.”

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Weekly Roundup: December 22–December 29, 2016


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This roundup contains a collection of the posts published on the Forum during the week of December 22–December 29, 2016.











Executive Compensation: Analysis of Recent Incentive Financial Goals

John R. Sinkular is a partner and Julia Kennedy is a consultant at Pay Governance LLC. This post is based on a Pay Governance publication by Mr. Sinkular and Ms. Kennedy.

In order to understand the financial performance measures, target goals, performance ranges, and payouts of an annual incentive plan, we analyzed the proxy-disclosed practices of approximately 100 manufacturing and materials companies. We assessed year-over-year (YOY) trends in particular, including the change in target goals relative to actual results and the spread of threshold to maximum goals. While the 5 years we examined had a generally upward-trending stock market, individual companies’ performance and business situations varied over the period.

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Female Directors, Board Committees and Firm Performance

Colin Green is Professor of Economics and Swarnodeep Homroy is Lecturer in Economics at Lancaster University. This post is based on their recent paper.

There is an increasing focus on the gender diversity of executive boards. While the share of female employment in large firms has increased dramatically in the United States and the European Union, this has not been reflected in the gender composition of executive boards (Black and Juhn, 2000; Bertrand and Hallock, 2001). Growing concerns about this lack of gender equality has led to a spate of regulation aimed at increasing female representation on corporate boards. Female representation on corporate boards is likely to remain a central theme of future interventions, yet existing evidence suggests no or even a negative effect of board gender diversity on firm performance (Adams and Ferreira, 2009; Gregory-Smith et al, 2014).

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Results of the 2016 Proxy Season in Silicon Valley

David A. Bell is partner in the corporate and securities group at Fenwick & West LLP. This post is based on portions of a Fenwick publication titled Results of the 2016 Proxy Season in Silicon Valley; the complete survey is available here.

In the 2016 proxy season, most of the technology and life sciences companies included in the Silicon Valley 150 Index (SV 150) and the public companies in other industries included in the Bay Area 25 Index (BA 25) held annual meetings that included voting for the election of directors, ratifying the selection of auditors of the company’s financial statements and voting on executive officer compensation (“say-on-pay”). Increasingly in Silicon Valley, annual meetings also include voting on other matters, such as proposals in compensation, governance, policy and other general business issues. All told, stockholders voted on 535 matters at the 140 annual meetings held by SV 150 companies (compared to 88 matters at 22 annual meetings of BA 25 companies). [1]

This companion post to the Fenwick survey, Corporate Governance Practices and Trends: A Comparison of Large Public Companies and Silicon Valley Companies (discussed on the Forum here), provides insight into the results of stockholder voting at annual meetings in the 2016 proxy season, [2] allowing directors, executives and practitioners to analyze company results with relevant peers.

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2016 Spencer Stuart Board Index

The following post is based on a Spencer Stuart publication.

Investor attention to board performance and governance continues to escalate, and, increasingly, it’s large institutional investors—so-called “passive” investors—who are making known their expectations in areas such as board composition, disclosure and shareholder engagement. Long-term investors have shifted their posture to taking positions on good governance, and are increasingly demonstrating common ground with activists on governance topics.

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Rethinking US Financial Regulation in Light of the 2016 Election

Reena Agrawal Sahni is a partner in the global Financial Institutions Advisory & Financial Regulatory Group at Shearman & Sterling LLP. This post is based on a Shearman & Sterling publication by Ms. Sahni, Bradley SabelGeoffrey B. Goldman, and Timothy J. Byrne. Additional posts addressing legal and financial implications of the incoming Trump administration are available here.

Throughout his campaign, Donald Trump wavered between populist and business-friendly policies and expressed seemingly conflicting plans for Wall Street—on the one hand advocating for less regulation with a repeal of the Dodd-Frank Act, the wide-ranging financial statute that was born of the 2008 financial crisis, but on the other hand proposing the introduction of a 21st Century Glass-Steagall Act, a law that could impose a raft of new restrictions on banks and limit their affiliation with investment banks. Since the election, President-elect Trump and his advisors, as well as Congressional Republicans and others, have suggested a variety of aspects of US regulations that are viewed as particularly onerous and should be rolled back. Although clarity is not expected for several months, it is possible to identify some likely areas of change, and at least some change seems likely because the Republican Party will control both houses of Congress and the presidency. The President-elect wants to encourage increased lending by reducing regulatory burden in some manner, the Republican leaders in Congress seem intent on achieving regulatory rollback in some form, the principal financial regulatory agencies will have Republican leadership, and the designated Secretary of the Treasury has intimate knowledge of banks and financial markets and appears to be amply equipped to develop and promote a reform agenda for the Trump Administration.

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Areas of Focus for Global Audit Regulators

Steven B. Harris is a Board Member of the Public Company Accounting Oversight Board. This post is based on Mr. Harris’ recent remarks at the 2016 International Institute on Audit Regulation. The views expressed in this post are those of Mr. Harris and do not necessarily reflect those of the Board or staff of the PCAOB.

Today [Dec. 13, 2016], I want to touch on four topics: recent enforcement findings, firm governance and transparency, non-GAAP financial measures, and the impact of technology on audits. I know that some of the topics I want to address have already been discussed in the Enforcement breakout session, by the panel on Taking Forward Audit Regulation, and just now on our panel dealing with investor perspectives. But because they remain priorities of mine, let me also touch upon some of them briefly and raise others which were discussed at the October meeting of the PCAOB’s Investor Advisory Group (“IAG”), which I chair.

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2016 Corporate Governance Annual Summary

Michael McCauley is Senior Officer, Investment Programs & Governance, of the Florida State Board of Administration (the “SBA”). This post is based on an excerpt from the SBA’s 2016 Corporate Governance Report written by Mr. McCauley, Jacob Williams, Tracy Stewart, Hugh Brown, and Logan Rand.

The Florida SBA’s annual corporate governance summary explains how the Board makes proxy voting decisions, describes the process and policies used to analyze corporate governance practices, and details significant market issues affecting global corporate governance practices at owned companies. The SBA acts as a strong advocate and fiduciary for Florida Retirement System (FRS) members and beneficiaries, retirees, and other non-pension clients to strengthen shareowner rights and promote leading corporate governance practices at U.S. and international companies in which the SBA holds stock.

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