Posts from: Ariel Fromer Babcock

The Dangers of Buybacks: Mitigating Common Pitfalls

Posted by Sarah Keohane Williamson, Ariel Fromer Babcock, and Allen He, FCLT Global, on

Friday, October 23, 2020

Capital allocation, Dividends, Executive Compensation, Institutional Investors, Long-Term value, Repurchases, Shareholder value, Taxation
More from: Allen He, Ariel Fromer Babcock, Sarah Keohane Williamson, FCLTGlobal

Sarah Keohane Williamson is CEO, Ariel Babcock is Head of Research, and Allen He is Associate Director at FCLTGlobal. This post is based on their FCLTGlobal memorandum. Related research from the Program on Corporate Governance includes The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here); Short-Termism and Capital Flows by Jesse Fried and Charles C. Y. Wang (discussed on the Forum here); and Share Repurchases, Equity Issuances, and the Optimal Design of Executive Pay, by Jesse Fried (discussed on the Forum here).

Returning capital to shareholders is an important and legitimate goal of many corporations. Buybacks are often an effective way to distribute capital, but care must be taken to mitigate downfalls related to personal gain and enrichment, poor timing, and excess leverage.

Buybacks have experienced a meteoric rise in popularity since the turn of the twenty-first century, overtaking dividends as the preferred means to return capital to shareholders in jurisdictions like the US. In 2019 alone, corporations spent more than USD 1.2 trillion globally on buybacks.

But the rise of buybacks has been riddled with controversy. Academics, practitioners, and politicians alike have maligned the use of buybacks, taking issue with their potential contribution to income inequality, underinvestment in innovation, and use for personal enrichment. Buybacks and their implications for the long-term strength of the economy are controversial but not well understood. A deeper look at the topic reveals the following:

Investors and Companies Can Drive ESG Metrics Forward Together

Posted by Sarah Keohane Williamson and Ariel Fromer Babcock, FCLTGlobal, on

Monday, August 17, 2020

Climate change, Engagement, Environmental disclosure, ESG, Institutional Investors, Stakeholders, Sustainability
More from: Ariel Fromer Babcock, Sarah Keohane Williamson, FCLTGlobal

Sarah Keohane Williamson is Chief Executive Officer and Ariel Fromer Babcock is Head of Research at FCLTGlobal. This post is based on their FCLTGlobal memorandum.

Investors want standardized reporting of sustainability and other non-traditional metrics. What will that look like on a global scale?

The growing role of sustainability and non-traditional metrics to inform the engagement between public companies and investors has become a critical issue. Investors are seeking metrics to evaluate a company’s approach to sustainability and its drivers of long-term growth. But the format of these metrics and disclosures has become a sticking point among issuers, investors, and standard setters.

Most institutional investors seek information on environmental, social, and governance issues to better understand risks that could affect companies’ performance over time. These investors use such disclosures to monitor companies’ risk management, inform their votes, or make decisions on stock purchases.

What institutional investment decision-makers need is clear: quantitative, assurable, universally applicable disclosures around what really drives businesses in the long run.

The Board’s Impact on Long-term Value

Posted by Shawn Cooper (Russell Reynolds Associates) and Sarah Keohane Williamson (FCLTGlobal), on

Thursday, June 25, 2020

Board independence, Board performance, Boards of Directors, Director compensation, Director qualifications, Long-Term value, Managmenet, Short-termism
More from: Alison Loat, Ariel Fromer Babcock, PJ Neal, Sarah Keohane Williamson, Shawn Cooper, Todd Safferstone, FCLTGlobal, Russell Reynolds

Shawn Cooper is a senior member of the Global Board & CEO Advisory Partners at Russell Reynolds Associates and Sarah Keohane Williamson is CEO of FCLTGlobal. This post is based on a joint Russell Reynolds and FCLTGlobal memorandum by Mr. Cooper, Ms. Keohane Williamson, PJ Neal, Ariel Fromer Babcock, Alison Loat, and Todd Safferstone. Related research from the Program on Corporate Governance includes The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here) and The Uneasy Case for Favoring Long-Term Shareholders by Jesse Fried (discussed on the Forum here).

Taking a long-term approach in business leads to superior performance.

Companies that orient themselves around a long-term time horizon while also delivering against short-term objectives have been shown to outperform their peers on several key business measures, including revenue, earnings, economic profit, market capitalization and job creation. These companies were hit hard during the last major economic downturn—as were most businesses—but saw a higher-than-average rebound after markets recovered.

According to one economic analysis, had short-term-oriented companies behaved more like long-term-oriented ones, the global economy would have created an additional $1.5 trillion in returns on invested capital in the years following the Great Recession. [1]

What Is “Long-Termism”?

It is how boards and executives think and act in regard to the practice of applying a long-term approach to business and investment decision-making, including focusing on key elements of performance such as competitive advantage, long-term objectives and a strategic plan matched with clear capital allocation priorities. It stands in contrast to short-termism, or a continued focus on quarterly or other near-term performance issues, and is increasingly in demand from stakeholders who want a fundamental rethink around how companies operate and create value.

Comment Letter Regarding Earnings Releases and Quarterly Reports

Posted by Ariel Fromer Babcock and Sarah Keohane Williamson, FCLTGlobal, on

Friday, July 19, 2019

Earnings disclosure, Financial reporting, Long-Term value, SEC, SEC rulemaking, Securities regulation, Shareholder value, Short-termism
More from: Ariel Fromer Babcock, Sarah Keohane Williamson, FCLTGlobal

Ariel Fromer Babcock is Managing Director and Sarah Keohane Williamson is the Chief Executive Officer of FCLTGlobal. This post is based on a comment letter submitted by FCLTGlobal to the Securities and Exchange Commission. Related research from the Program on Corporate Governance includes The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here); The Uneasy Case for Favoring Long-Term Shareholders by Jesse Fried (discussed on the Forum here); and Can We Do Better by Ordinary Investors? A Pragmatic Reaction to the Dueling Ideological Mythologists of Corporate Law by Leo E. Strine (discussed on the Forum here).

By some accounts, public markets are out of fashion.

Detractors point to the long-term trend towards fewer initial public offerings (IPOs) in developed economies, especially the U.S., and the growth of private pools of capital over the past decade, which has largely deprived retail investors of the most significant growth investment opportunities of the past decade. But public markets continue to be essential to wealth creation, innovation and capital stability, and ensuring they remain an attractive venue is essential to our economic growth.

Investment managers and executive teams too often cite quarterly reporting and quarterly earnings guidance as a key source of short-term pressure in the public market and a principal reason many companies opt not to list.

Transitioning away from the quarterly treadmill toward conversations centered on long term capital deployment and growth can simplify investor communications and reduce the reporting burden on corporations while simultaneously strengthening companies’ longer-term shareholder bases by giving investors the relevant information they need to make their investment decisions in a format that is digestible while also alleviating one source of short-term pressure, improving the accuracy of valuations, and ensuring public markets remain a compelling option for growing corporations in need of stable capital.

Quarterly guidance leads to short-term business decisions which ultimately cause long-term harm.

Three Dilemmas for Creating a Long-Term Board

Posted by Ariel Fromer Babcock (FCLTGlobal), Robert G. Eccles (University of Oxford), and Sarah Keohane Williamson (FCLTGlobal), on

Tuesday, April 23, 2019

Accounting, Board oversight, Boards of Directors, Engagement, Institutional Investors, Long-Term value, Management, Shareholder value, Short-termism, Sustainability
More from: Ariel Fromer Babcock, Robert Eccles, Sarah Keohane Williamson

Ariel Fromer Babcock is director at FCLTGlobal; Robert G. Eccles is Visiting Professor of Management Practice at the Saïd Business School at the University of Oxford; and Sarah Keohane Williamson is Chief Executive Officer of FCLTGlobal. This post is based on a chapter in the forthcoming The Handbook of Board Governance (2nd Ed.). Related research from the Program on Corporate Governance includes The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here) and Can We Do Better by Ordinary Investors? A Pragmatic Reaction to the Dueling Ideological Mythologists of Corporate Law by Leo E. Strine (discussed on the Forum here).

Research from FCLTGlobal and others confirms that long-term companies outperform on financial metrics, including revenues, profitability, and stock price, as well as non-financial ones like job creation and sustainability. As a recent study of large public companies in the USA found, from 2001-2014 long-term companies cumulatively grew their revenues 47% more on average as compared to their shorter-term peers, and with less volatility. During the same period, these same long-term companies similarly outperformed on measures of economic profit—cumulatively growing by more than 80% on average compared to peers—while also enjoying earnings growth 35% higher than peers.

How do these companies maintain their relentless focus on the long term, investing even in the face of significant upheaval and global market uncertainty? Time and time again, we find that successful companies, in addition to producing compelling financial returns, have long-term oriented cultures and values, underscored by a framework of consistent governance principles, that guide them through tough times. Values and culture are shaped by the tone and actions from the top of an organization—and the board is the ultimate top.

The Long-term Habits of a Highly Effective Corporate Board

Posted by Ariel Fromer Babcock, FCLTGlobal, on

Friday, April 19, 2019

Board communication, Board composition, Board performance, Board tenure, Boards of Directors, Director qualifications, Diversity, Firm performance, Institutional Investors, Long-Term value, Shareholder value
More from: Allen He, Ariel Fromer Babcock, Evan Horowitz, Sarah Williamson, Victoria Tellez, FCLTGlobal

Ariel Fromer Babcock is director at FCLTGlobal. This post is based on a FCLTGlobal memorandum by Ms. Babcock, Allen He, Victoria Tellez, Evan Horowitz, and Sarah Williamson.

Research from FCLTGlobal and beyond has shown that long-term companies outperform on financial metrics, including revenues, profitability, and stock price. They also fare better on several nonfinancial metrics, including job creation. As a recent study of large public companies in the United States found, from 2001 to 2014 long-term companies cumulatively grew their revenues 47 percent more on average than their shorter-term peers, with less volatility. During the same period, these long-term companies similarly outperformed on measures of economic profit, cumulatively besting peers by 80 percent, with earnings growth that was also 35 percent higher.

Companies seeking the performance advantages that come from long-term thinking should have a ready partner in their corporate board.

Driving the Conversation: Long-Term Roadmaps for Long-Term Success

Posted by Ariel Fromer Babcock, Allen He, and Victoria Tellez, FCLTGlobal, on

Wednesday, March 6, 2019

Accounting, Board communication, Boards of Directors, Engagement, Firm performance, Institutional Investors, Long-Term value, Shareholder value, Short-termism
More from: Allen He, Ariel Fromer Babcock, Victoria Tellez, FCLTGlobal

Ariel Fromer Babcock is director, Allen He is a senior research associate, and Victoria Tellez is a research associate at FCLTGlobal. This post is based on their FCLTGlobal memorandum. Related research from the Program on Corporate Governance includes The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here); The Uneasy Case for Favoring Long-Term Shareholders by Jesse Fried (discussed on the Forum here); and Can We Do Better by Ordinary Investors? A Pragmatic Reaction to the Dueling Ideological Mythologists of Corporate Law by Leo E. Strine (discussed on the Forum here).

Despite clear evidence that investors prefer long-term communications focused on a few key drivers of performance, companies remain mired in information demands from all sides. Long-term roadmaps are a form of investor communication that brings together a unified articulation of how a company will create long-term value with the most relevant metrics to track long-term performance. They have a proven record at leading companies, and evidence suggests that the majority of investors (especially long-term investors) prefer this approach. By focusing on key elements of performance such as competitive advantages, long-term objectives, and a strategic plan matched with clear capital allocation priorities, companies can build buy-in among long-term investors who support a focus on long-term value creation.

Why Long-term Roadmaps?

Survey after survey indicates that investors prefer forward-looking, long-term guidance around a company’s strategy and expected performance.

This post, which represents the collective effort and experience of FCLTGlobal’s Members, academic experts, and other investment leaders, suggests a way to shift the investor relations conversation from quarterly “hits” and “misses” toward how companies create long-term value.

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