Archive

Archive for April, 2014

What´s the best way to compare the Ceo pay?

Gretchen Morgeson wrote in September 22nd, (1), that there should be a better way to compare Ceo pay than that of putting it in relation to the median or average pay of all the company employees, (the Sec has been mandated in the USA to introduce that disclosure obligation for public firms). Companies in different sectors and countries, with different sizes, and with different human capital component in the workforce would for sure show different ratios, but the measure will probably not be very useful, except for media disclosure, exposure and debate. He instead proposes regulators, Corporate Governance practitioners and company departments to focus on Peer Groups, so as to improve the way they are used. As he said, 86% of companies in the S&P 1500 index used them. Read more…

Activism`s consequences and effects on directors`careers

In this post we will analyse the effects of shareholder activism in a different direction than the one researchers usually target, (effects on firm performance and shareholder value).

The authors, Gow, Sean Shin and Srinivasan, extract the conclusion that directors having faced an activist campaign are twice as likely to leave their job as their fellow directors haven`t been confronted to it. So, apart from other consequences on firm performance and shareholder value, activism has career effects and costs for directors. (1)

 

It has been argued that proxy contests are an ineffective and inefficient tool for replacing directors, but according to Gow, Sean Shin and Srinivasan, the activists replacement seed grows even if activists don´t even engage in such a proxy fight. The seed grows even stronger when directors having faced a campaign are afterwards given a low approval rate at elections; nevertheless, their reputation does not seem to be affected overall, as they don`t usually lose their other board seats in other firms.

 

I will try to briefly explain how the authors get to their conclusions, and above all explain their and my view on the reasons why these consequences occur the way they do. Read more…