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Archive for October, 2013

Big Data. New realities and implications for Boards and Directors

October 23, 2013 Leave a comment

In recent times, a decent number of articles about Big Data have been published, basically suggesting its great capacity to add value to our organizations. Some even say it is part of the 21st Century fingerprint for progress (jointly with social media, mobile and cloud computing). (4) What`s behind that name? Let`s try to clarify the concept and usefulness of Big Data.

What is it? How can it be defined? and its effects relevant?

The fact is more and more data are collected everyday; everything we do is data producing or data driven.

Big Data is partly made of the different databases stored in data centers, but in order to build Big Data (BD), firms must add:

–         Dark data, which are collected informally while doing business, in most cases in non electronic formats,

–         Internal unstructured data,

–         Machine data, (provided by sensors such as security cameras, etc),

–         Databases external to the company, (universities, and so on), structured or not

Businesses should be able to gather information in every point a customer acts in the revenue chain, and the same can be said of the supply chain. Read more…

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The short-selling activities as a market mechanism for monitoring managers

October 14, 2013 Leave a comment

In the last decades, many efforts have been deployed to understand the way market forces help control managers` activities in a corporate world where shareholders are absent from managerial activities in the firm. As a result of the early 2000`s scandals in corporate governance, (Enron, Worldcom, etc), and some other arising later, (Olympus, but mainly the 2008 financial sector debacle), many countries regulated corporate governance structures in favor of shareholders, who were said to hold and use (at least) the power to monitor and in extreme cases eject directors if a dysfunctional board did not generate satisfactory results in terms of shareholder wealth.

The problem emerges when shareholders do not react soon enough with the responsibility to use the power they have been granted. Let`s have a comment on that. Read more…

Challenges and Trends for boards in the near future

October 12, 2013 Leave a comment

There are a number of studies or surveys that try to depict a picture of boards in the near future: the challenges, the ongoing trends, the changes to come. A small description of the main topics is outlined in what follows:

  1. Composition, structure and performance.
    1. Composition. Starting with a skills matrix, knowing where a board stands, what the board ideally should have, allows to build a better skill set for the future. The board must be decided to change if needed, as turnover is normally slow; it needs to act fast if it wants to avoid to fall short in proxy contests; if so, a sharp and damaging renewal of the board forced by shareholders will not take place.
    2. Size. Increasing the size could help add the necessary skills when turnover is too slow, but size`s impact in the effective job of the board is to be considered.
    3. Specific Education. Board directors will ideally soon have specific knowledge to carry out their fiduciary duty in each of the existing board committees, whatever their original background, (finance, human resources, and so on).
    4. Independence. An independent chair, (or and effective lead director), and a number of other independent directors that will serve in the Audit, Compensation, Governance and Risk committees, (at least), will become a norm in every public company, and perhaps also in private growing companies.
    5. Industry expertise. If a board is to hold management accountable, industry expertise needs to be present at the board, which is not always the case.
    6. Shareholder support: its relevancy increases each year, so that directors feel they can`t be reelected without the shareholders`approval, so they need to be proactive to their requirements.
    7. Tenure. The idea of a term limit if independence and effectiveness is to be maintained is slowly being imposed. It may be nine, twelve, or a different number of years.
    8. Diversity. Related to the tenure, as renewal is the only source today for higher diversity, this is a great challenge. Regulators will push for results, and quotas are always at reach, so boards should really enhance their diverse experiences. Read more…

How are board directors elected? The US/Canada and Spain cases.

October 11, 2013 1 comment

According to the Council of Institutional Investors, (CII), at most US companies, (it is also the case in Canada, although there is a trend to change that), directors are elected by a plurality of votes cast; under this procedure, the candidate that receives the most “for” votes, is elected as a director. This might seem acceptable, but what does this entail? First, a director may be elected by a minority of votes cast, which might put into question the adequacy of the candidate for the job, but this is common to the majority system; second, what happens in an uncontested election? In that case, the election turns into a “for or withhold” choice, so that the “withheld votes” could win if that bipolarity was respected; but, if not, a single “for” vote could be enough for a candidate to be elected. This is the case in Canada and the US, except where companies have adopted an alternative procedure. Majority systems require a candidate to obtain more “for” than “withhold” votes to be elected or reelected, and in many companies, those directors not reaching that target need to offer their resignation, (even if the Board does not accept it, which leads to what recent literature calls “zombie directors”). Read more…