Le pouvoir démesuré des firmes de conseil en votation !

Voici un article publié par Daniel M. Gallagher* sur le blogue de Harvard Law School on Corporate Governance. L’auteur met sérieusement en question le pouvoir et l’influence des conseillers en votation.

L’article examine les conséquences de la montée des firmes de conseillers en votation et leur influence sur les décisions des investisseurs.

Je sais, c’est un article un peu long mais je crois qu’il vous donnera l’heure juste sur l’historique de l’évolution des « Proxy Advisers » et sur certaines actions qui pourraient être entreprises pour les contrôler !

Bonne lecture ! Vos commentaires sont les bienvenus.

In addition, as I have stated in the past, I believe that the Commission should fundamentally review the role and regulation of proxy advisory firms and explore possible reforms, including, but not limited to, requiring them to follow a universal code of conduct, ensuring that their recommendations are designed to increase shareholder value, increasing the transparency of their methods, ensuring that conflicts of interest are dealt with appropriately, and increasing their overall accountability. I do not believe that the Commission should be in the business of comprehensively regulating proxy advisory firms—as we’ve seen from the 2006 NRSRO rule, such regulation often is simply ineffective—but there may be additional steps that we can take to promote transparency and best practices.

Outsized Power & Influence: The Role of Proxy Advisers

Shareholder voting has undergone a remarkable transformation over the past few decades. Institutional ownership of shares was once negligible; now, it predominates. This is important because individual investors are generally rationally apathetic when it comes to shareholder voting: value potentially gained through voting is outweighed by the burden of determining how to vote and actually casting that vote. By contrast, institutional investors possess economies of scale, and so regularly vote billions of shares each year on thousands of ballot items for the thousands of companies in which they invest.

For example, an investor purchasing a share of an S&P 500 index mutual fund would likely have no interest in how each proxy is voted for each of the securities in each of the companies held by that fund. Indeed, it would defeat the purpose of selecting such a low-maintenance, lost-cost investment alternative. And so it is left to the investment adviser to the index fund to vote on the investor’s behalf. This enhanced reliance on the investment adviser to act on behalf of investors inevitably results in a classic agency problem: how do we make sure that the investment adviser is voting those shares in the investor’s best interest, and not the adviser’s?

The Rise of Proxy Advisory Firms

The Commission took up this very issue in a rulemaking in 2003, putting in place disclosures to inform investors how their funds’ advisers are voting, as well as outlining clear steps that advisers must undertake to ensure that they vote shares in the best interest of their clients. But every regulatory intervention carries with it the risk of unintended consequences. And the 2003 release has since proved that to be true—to the point where the costs of the unintended consequences now arguably dwarf those benefits originally sought to be achieved. How exactly did this happen?

Proxy Voting by Investment Advisers

In the 2003 release, the SEC took on one specific manifestation of the general agency problem discussed above: that an adviser could have a conflict of interest when voting a client’s securities on matters that affect the adviser’s own interests (e.g., if the adviser is voting shares in a company whose pension the adviser also manages). To remedy this issue, the release stated that an investment adviser’s fiduciary duty to its clients requires the adviser to adopt policies and procedures reasonably designed to ensure that it votes its clients’ proxies in the best interest of those clients. Further, the Commission noted that “an adviser could demonstrate that the vote was not a product of a conflict of interest if it voted client securities, in accordance with a pre-determined policy, based upon the recommendations of an independent third party.” From these statements, two specific unintended consequences arose.

First, some investment advisers interpreted this rule as requiring them to vote every share every time. This seemed, perhaps, to be the natural outgrowth of the Department of Labor’s 1988 “Avon Letter,” which stated that “the fiduciary act of managing plan assets which are shares of corporate stock would include the voting of proxies appurtenant to those shares of stock.” As a result, investment advisers with investment authority over ERISA plan assets—and thus regulated by the Department of Labor as well as the SEC—were already required to cast a vote on every matter. Reading the SEC’s 2003 rule, some advisers may have assumed that the Commission intended to codify that result for all investment advisers.

A requirement to vote every share on every vote, however, gives rise to a significant economic burden for investment advisers who may own only relatively small holdings in a large number of companies. For example, one study found that “most institutional investor holdings are relatively small portions of each firm’s total securities. For example, in our sample … the mean (median) holding of an individual stock by institutional investors is 0.3% (0.03 %).” Given that institutional investors hold stock in hundreds or thousands of companies (for example, TIAA‐CREF holds stock in 7,000 companies), institutional investors—particularly the smaller ones—may not be able to invest in the costly research needed to ensure that they cast each vote in the best interest of their clients. The logical answer is to outsource the research function to a third party, who could do the needed research and sell voting recommendations back to investment advisers for a fee: a proxy advisory firm. While these firms already existed, the 2003 rule gave advisers new economic incentives to use them.

Second, proxy advisory firms noticed the suggestion in the 2003 rule that soliciting the views of an independent third party could overcome an adviser’s conflict of interest. In 2004, a proxy advisory firm requested—and received—“no-action” relief from the SEC staff that significantly expanded investment advisers’ incentive to use these firms. Specifically, the staff advised Institutional Shareholder Services (“ISS”) that “[A]n investment adviser that votes client proxies in accordance with a pre-determined policy based on the recommendations of an independent third party will not necessarily breach its fiduciary duty of loyalty to its clients even though the recommendations may be consistent with the adviser’s own interests. In essence, the recommendations of a third party who is in fact independent of an investment adviser may cleanse the vote of the adviser’s conflict.” Thus, rotely relying on the advice from the proxy advisory firm became a cheap litigation insurance policy: for the price of purchasing the proxy advisory firm’s recommendations, an investment adviser could ward off potential litigation over its conflicts of interest.

Finally, in a second 2004 no-action letter to Egan‐Jones, the staff affirmed that a key aspect of some proxy advisory firms’ business model—selling corporate governance consulting services to companies—“generally would not affect the firm’s independence from an investment adviser.” This determination is somewhat incredible, as it places the proxy advisory firm in the position of telling investment advisers how to vote proxies on corporate governance matters that had been the subject of the proxy advisory firm’s consulting services—a seemingly obvious, and insurmountable, conflict of interest.

In sum, the 2003 release and the 2004 no-action letters set the stage for proxy advisory firms to wield the power of the proxy, through investment adviser firms that had economic, regulatory, and liability incentives to rotely rely on the proxy advisory firms’ recommendations and through the SEC staff’s assurances that this arrangement was just fine, despite the obvious conflicts of interest involved throughout. But it would take some additional developments for proxy advisory firms to attain the dominant voice in American corporate governance that they have today.

Subsequent Developments

Since 2003–2004, some features of the SEC regulatory regime have acted to deepen investment advisers’ reliance on proxy advisory firms. First, the quantity of company disclosures has increased significantly over the past few years. For example, the SEC in 2006 adopted revisions to the proxy and periodic reporting rules to require extensive new disclosures about “executive and director compensation, related person transactions, director independence and other corporate governance matters and security ownership of officers and directors.” The new rule generated reams of new disclosures that were long, complex, and focused on regulatory compliance rather than telling the company’s compensation story. The sheer volume of information that an investment adviser would have to review in order to make a fully-informed voting decision is difficult even to organize, much less to read and digest.

Second, the average number of items on which investors are asked to vote has also been on the rise. This trend is attributable at least in part to the Dodd‐Frank twin advisory votes on executive compensation: a vote for how often to approve executive pay (“say-on-frequency”), and a vote to in fact approve (or disapprove) that pay (“say-on-pay”). We have also seen a continued increase in shareholder proposals that SEC rules generally compel companies to include in the proxy to be voted on, which in turn reflects increased activism around shareholder voting.

As a result, the economic imperative to use proxy advisory firms that the vote-every-share-every-time interpretation of the 2003 rulemaking created has only deepened over time. At the same time, serious questions emerged, particularly in the corporate community, about the power being wielded by proxy advisory firms in making their recommendations. These recommendations are of course provided contractually to investment advisers; proxy advisory firms have no fiduciary duty to shareholders, nor do they have any interest or stake in the companies that are the subject of the recommendations.

In particular, corporate observers raised two key questions about proxy advisory firms: are their recommendations infected by conflicts of interest, and even assuming they are not, do they have the capacity to produce accurate, transparent, and useful recommendations?

With regard to the former question, as alluded to in the Egan-Jones no-action letter, proxy advisory firms may have other, complementary lines of business. For example, in addition to selling vote recommendations to institutional investors (along with voting platforms, data aggregation, and other auxiliary services), they may also sell consulting services to companies that want to ensure that they have structured their governance and other proxy votes so as to avoid “no” recommendations from the proxy advisory firms. The sale of voting recommendations to institutional investors creates a risk that proxy advisory firms, in formulating their core voting recommendations, will be influenced by some of their largest customers (e.g., union or municipal pension funds) to recommend a voting position that would benefit them. The sale of consulting services to companies creates a risk that proxy advisory firms would be lenient in formulating voting recommendations for companies that are their clients and harsh in crafting the recommendations for those companies that have refused to retain their services.

With regard to the latter question, proxy advisory firms themselves face the same difficulties as institutional investors faced before they determined to outsource their voting: how does one formulate timely, high-quality recommendations for thousands of votes at thousands of companies based on millions of pages of data—all while competing on price with other firms? To put it charitably, they just do the best they can. But their best often is simply not good enough: proxy advisory firms publish some recommendations that are based on clear, material mistakes of fact. Moreover, they base some recommendations on a cookie-cutter approach to governance—i.e., in favor of all proposals of a certain type, like de-staggering boards or removing poison pills, even if there is a sound basis for challenging the assumption that an otherwise beneficial governance reform might not be appropriate for a given company. As one academic article has argued:

[I]f the institutional investors are only using the proxy advisor voting recommendations to meet their compliance requirement to vote their shares, these investors will favor lower costs over robust research. This raises the question of whether these payments are sufficient to compensate proxy advisors for sophisticated analysis of firm-specific circumstances that is necessary to develop correct governance recommendations. If the price paid by institutional investors is low, this will motivate proxy advisory firms to base their voting recommendation on simple models that ignore the important nuances that affect the appropriate choice of corporate governance. It is unlikely that this type of low level research can actually identify the appropriate governance structure for individual firms.

Unfortunately companies have little access to proxy advisory firms in order either to correct a mistake of fact, or to explain why a generic corporate governance recommendation is the wrong result in the specific instance: letting companies appeal to the advisory firm is time-consuming and expensive, neither of which is consistent with the proxy advisory firm’s business model. As a result, while the companies that also hire a proxy advisory firm for its corporate consulting service may have some minimal degree of access (e.g., by being provided an opportunity to make limited comments on draft reports), smaller companies that are not clients generally are not afforded any such rights.

Advisers that rely rotely on the proxy advisory firm’s recommendations also tend not to afford companies an opportunity to tell their story. This is unsurprising: if the advisers wanted to make contextualized decisions about casting each vote, they would not have outsourced their vote in the first place. But it is also supremely ironic: a company that may want to engage in good faith with its shareholders may find that it has no meaningful opportunity to do so. This trend is deeply troubling to me. If an investment adviser is approached by a company with information indicating that the basis on which the adviser is casting its vote is fundamentally flawed, is it really consistent with the investment adviser’s fiduciary duties for the adviser to simply ignore that information? I think the rote reliance on proxy advisory firms has caused investment advisers to lose the forest for the trees: they are so focused on checking the compliance boxes to absolve conflicts of interest under our rules that they forget that they still have a broader fiduciary duty to investors to cast votes in the investors’ best interest. That fiduciary duty, I believe, cannot be satisfied through rote reliance on proxy advisory firms.

Regulatory Response

First Steps

These issues have been on the SEC’s radar for some time now, most notably when they were raised in the 2010 Concept Release on the U.S. Proxy System (the “Proxy Plumbing” release). This release outlined the conflict-of-interest and low-quality voting recommendation issues addressed above, and it requested comment on a long list of potential regulatory solutions. I raised this issue in a number of speeches in 2013 and 2014, and the Commission in December 2013 held a roundtable to examine key questions about the influence of proxy advisers on institutional investors, the lack of competition in this market, the lack of transparency in the proxy advisory firms’ vote recommendation process and, significantly, the obvious conflicts of interest when proxy advisory firms provide advisory services to issuers while making voting recommendations to investors. A wide range of other parties, including Congress, academia, public interest groups, the media, and a national securities exchange, have also been calling for reforms.

There has also been substantial interest and work regarding the role of proxy advisers on the international front. Recently, the European Commission introduced legislation to address the accuracy and reliability of proxy advisers’ analysis as well as their conflicts of interest. If adopted by the EU’s legislature, Article 3i (entitled “Transparency of proxy advisors”) would require proxy advisors to publicly disclose certain information in relation to the preparation of their recommendations, including the sources of information, total staff involved, and other meaningful data points. It would also require that member states ensure that proxy advisers identify and disclose without undue delay any actual or potential conflicts of interest or business relationships that may influence their recommendations and what they have done to eliminate or mitigate such actual of potential conflicts. While I may not often find myself in a position of agreeing with the European Commission, here I believe their proposal takes an incredible step forward and one that I commend them for promoting.

Staff Legal Bulletin No. 20

After the concept release and the roundtable, which provided a wealth of information and perspectives, the SEC staff on June 30th moved toward addressing some of the serious issues. The Division of Investment Management and the Division of Corporation Finance released Staff Legal Bulletin No. 20 (“SLB 20”), providing much-needed guidance and clarification as to the duties and obligations of proxy advisers, and to the duties and obligations of investment advisers that make use of proxy advisers’ services.

This guidance is a good initial step in addressing the serious deficiencies currently plaguing the proxy advisory process. In particular, it does three important things worth highlighting.

First, it clarifies the widespread misconception discussed above that the Commission’s 2003 release mandates that investment advisers cast a ballot for each and every vote. The guidance makes clear that this interpretation is wrong. Rather, an investment adviser and its client have significant flexibility in determining how the investment adviser should vote on the client’s behalf. The investment adviser and client can agree that votes will be cast always, sometimes (e.g., only on certain key issues), or never. They similarly can agree that votes will be cast in lockstep with another party (e.g., management, or a large institutional investor). Advisers could agree with investors in a mutual fund managed by the adviser that the adviser would only vote shares in companies representing more than a certain threshold percentage of the fund’s assets—and refrain from voting smaller holdings, vote them with management, or vote them some other way. While possibilities may not be endless, there is room for much more creativity than exists today.

Second, SLB 20 cautions against misguided reliance on the two 2004 staff no-action letters, which have been widely misinterpreted as permitting investment advisers to abdicate essentially all of their voting responsibilities to proxy advisers without a second thought. The guidance makes clear that investment advisers have a continuing duty to monitor the activities of their proxy advisers, including whether, among other things, the proxy advisory firm has the capacity to “ensure that its proxy voting recommendations are based on current and accurate information.” I have heard from many companies that proxy advisory firms sometimes produce recommendations based on materially false or inaccurate information, but they are unable to have the proxy advisory firm even acknowledge these claims, much less review them and determine whether to revise its recommendation in light of the corrected information.

While I encourage companies to attempt to work with proxy advisers, I also believe it is important for companies to bring this type of misconduct by proxy advisers to the attention of their institutional shareholders. As explained in the new guidance, investment advisers are required to take reasonable steps to investigate errors. Repeated instances of proxy advisers failing to correct recommendations they based on materially inaccurate information should cause investment advisers to question whether the proxy adviser can be relied upon. Separate and apart from the guidance they receive, I believe investment advisers’ broader fiduciary duty should compel them to review the corrected information provided by the company and consider it when determining how ultimately to cast their votes.

Third, SLB 20 makes clear that a proxy advisory firm must disclose to recipients of voting recommendations any significant relationship the proxy advisory firm has with a company or security holder proponent. This critical disclosure must clearly and adequately describe the nature and scope of the relationship, and boilerplate will not suffice.

Further Interventions?

While these reforms are much-needed, I am concerned that the guidance does not go far enough. SLB 20 provides some incremental duties and suggests ways that individual entities could structure their advisory relationship so as to reduce reliance on proxy advisory firms, but it has become clear to me that, over the past decade, the investment adviser industry has become far too entrenched in its reliance on these firms, and there is therefore a risk that the firms will not take full advantage of the new guidance to reduce that reliance.

I therefore intend to closely monitor how these reforms are being executed and whether they are solving the current significant problems in this space. In fact, if a company does experience difficulties in getting the proxy advisory firm to respond to the company’s concerns about the accuracy of the information on which the recommendation is based, and does therefore follow my suggestion to reach out directly to its institutional investors, I would encourage the company also to provide a copy of its shareholder communications directly to my office. I would be very interested to learn which complaints are being disregarded by proxy advisory firms and institutional investors. In addition, I believe SLB 20 should diminish the number of these complaints over time, and I will be very interested to discover whether this is in fact the case.

Finally, while I appreciate the important steps that are being taken above, I believe that the release of SLB 20 still may not fully address the fact that our rules have accorded to proxy advisors a special and privileged role in our securities laws—a role similar to that of nationally recognized statistical ratings organizations (“NRSRO”) before the financial crisis. I intend to continue to seek structural changes that will address this dangerous overreliance.

For example, the Commission could replace the two staff no-action letters with Commission-level guidance. Such guidance would seek to ensure that institutional shareholders are complying with the original intent of the 2003 rule and effectively carrying out their fiduciary duties. Commission guidance clarifying to institutional investors that they need to take responsibility for their voting decisions rather than engaging in rote reliance on proxy advisory firm recommendations would go a long way toward mitigating the concerns arising from the outsized and potentially conflicted role of proxy advisory firms.

In addition, as I have stated in the past, I believe that the Commission should fundamentally review the role and regulation of proxy advisory firms and explore possible reforms, including, but not limited to, requiring them to follow a universal code of conduct, ensuring that their recommendations are designed to increase shareholder value, increasing the transparency of their methods, ensuring that conflicts of interest are dealt with appropriately, and increasing their overall accountability. I do not believe that the Commission should be in the business of comprehensively regulating proxy advisory firms—as we’ve seen from the 2006 NRSRO rule, such regulation often is simply ineffective—but there may be additional steps that we can take to promote transparency and best practices.

In Sum

To be clear, I realize that proxy advisers can provide important information to institutional investors and others. But that business model should be able to stand or fall on its own merits—i.e., based on the usefulness of the information provided to the marketplace. The SEC’s rulebook should not accord proxy advisory firms a special, privileged role—or, if that privilege cannot be completely stripped away, proxy advisory firms should be subject to increased oversight and accountability commensurate with their role.

________________________________________________

Daniel M. Gallagher* is a Commissioner at the U.S. Securities and Exchange Commission. The following post is based on a Washington Legal Foundation working paper by Mr. Gallagher; the complete publication, including footnotes, is available here.

Les modèles de gouvernance fondés sur la prise en compte des intérêts des « Stakeholders » sont-ils efficaces ?

Dans ce billet, nous attirons votre attention sur une étude remarquable, récemment publiée par Franklin Allen, professeur d’économie à l’Université de Pennsylvanie et à Imperial College, Londres; Elena Carletti, professeure de finance à l’université Bocconi ; et Robert Marquez, professeur de finance à l’Université de Californie (Davis), paru sur le blogue de Harvard Law School Forum on Corporate Governance.

L’étude montre que les entreprises peuvent adopter deux modèles relativement distincts de gouvernance.

Le premier modèle, celui qui règne dans les pays Anglo-Saxons, adopte la perspective de la théorie de l’agence selon laquelle il doit exister une nette séparation des pouvoirs entre les actionnaires-propriétaires et les dirigeants de l’organisation. Dans ces pays (U.S., Canada, UK, Australie), les lois précisent assez clairement que les actionnaires sont les propriétaires de l’entreprise et que les managers ont le devoir fiduciaire d’agir en fonction de leurs intérêts, tout comme les administrateurs qui sont les représentants élus des actionnaires.

La situation canadienne est un peu particulière parce que certains jugements stipulent que les administrateurs doivent aussi tenir compte des conséquences des décisions sur les diverses parties prenantes.

Il y a plusieurs pays qui adoptent un deuxième modèle de gouvernance, un modèle qui accorde une importance capitale aux parties prenantes (Stakeholders), plus particulièrement aux employés.

Par exemple, en Allemagne, le système de cogestion exige un nombre égal de sièges d’actionnaires et d’employés au conseil de supervision. Les intérêts des parties prenantes sont également pris en compte par une représentation significative d’employés en Autriche, en France, aux Pays-Bas, au Danemark, en Suède.

D’autres pays tels que la Chine et le Japon ont des modèles de gouvernance qui se fondent sur des normes se rapportant aux consensus sociaux.

Quel modèle de gouvernance peut le mieux optimiser la performance des entreprises, tout en répondant aux impératifs de rentabilité, de compétitivité et de pérennité de ces dernières ?

Vous ne serez peut-être pas étonnés d’apprendre que le modèle Anglo-Saxon, fondé sur la propriété des actionnaires, n’est pas nécessairement le plus efficace ! Mais pourquoi ?

Voilà ce que cette étude examine en profondeur. Voici quelques extraits de l’article, dont la conclusion suivante :

« If workers and shareholders are made better off by co-determination and consumers are made worse off, then it is still likely that co-determination will be implemented. The reason is that workers and shareholders are usually better organized and are in a position to lobby in favor of co-determination, whereas consumers are dispersed. Such a political economy approach can help shed light on the emergence of stakeholder governance. In turn, the present study illustrates one of the likely consequences of the adoption of a stakeholder approach to corporate governance ».

Stakeholder Governance, Competition and Firm Value

….. These differences in firms’ corporate orientation are confirmed by the results of a survey of senior managers at a sample of major corporations in Japan, Germany, France, the US, and the UK, who were asked whether “A company exists for the interest of all stakeholders” or whether “Shareholder interest should be given the first priority” (Yoshimori, 2005). The results of the survey strongly suggest that stakeholders are considered to be very important in Japan, Germany and France, while shareholders’ interests represent the primary concern in the US and the UK. The same survey reports that firm continuity and employment preservation are important concerns for managers of corporations located in Japan, Germany and France, but not for those located in the US and the UK. All these considerations suggest that in many countries the legal system or social conventions have as a common objective the inclusion of parties beyond shareholders into firms’ decision-making processes. In particular, workers are seen as important stakeholders in the firm, with continuity of employment being an important objective.

In our paper, Stakeholder Governance, Competition and Firm Value, forthcoming in the Review of Finance, we examine these issues, and provide an understanding of how imposing stakeholder governance affects firms’ behavior even when this involves a trade-off between the interests of shareholders and those of other stakeholders. Our main idea is that stakeholder firms internalize the effects of their behavior on stakeholders other than shareholders. In particular, they are concerned with the benefits that their stakeholders would lose should the firm not survive. As a consequence, stakeholder firms are more concerned with avoiding bankruptcy since this prevents their stakeholders from enjoying their benefits. The different concern for survival affects firms’ strategic behavior in the product market and, in particular, the way they behave in the presence of uncertainty.

Specifically, we develop a model where firms compete in the product market with other firms, and have to choose the prices at which to sell their goods. Firms are subject to uncertainty, and can go bankrupt if they fail to turn a profit either because the expected sales did not quite materialize, or because costs turned out to be higher than anticipated. The possibility, and fear, of bankruptcy thus induces firms to be more conservative in their pricing policies, preferring to maintain a larger cushion between their revenues and their costs, than in seeking out (possibly) larger sales but at thinner margins.

A concern for stakeholders makes a firm even more concerned about avoiding bankruptcy to the extent that it may lead to dislocation of its workers, and makes it even more conservative in its pricing policies. While the direct consequence of this is to move a firm away from the objective of maximizing profits and thus shareholder value, there is an indirect effect coming through the interaction between competing firms in the product market: when one firm becomes less aggressive, other firms have an incentive to follow suit. This reduction in aggression (i.e., competition) industry-wide benefits the stakeholder-oriented firm, so much so that shareholders may in fact be better off when their firm can commit to internalizing stakeholder concerns. In other words, stakeholders’, such as employees, and shareholders’ interests become aligned through the competitive interactions among firms, rather than being at odds as they would appear to be if one ignores firms’ product market interactions.

We use this basic idea to study a number of issues ranging from state-mandated inclusion of stakeholders in corporate governance (e.g., the case of Germany), to globalization that makes it commonplace for firms from shareholder-oriented societies to compete with those from countries with a stakeholder orientation. We also study the implications of financial constraints for the capital structure of stakeholder-oriented firms, and show that the same conservative stance in the product market translates into more conservative capital structure.

Our study raises a number of unanswered questions about the ultimate effect of stakeholders’ orientations on firm behavior and value, and suggests directions for future research. One of the interesting questions is why some countries adopt stakeholder governance while others do not, and why governments adopt such governance although it may benefit firms and employees at the expense of consumers. There is a growing literature on corporate governance and political economy that emphasizes that the political process plays a very important part in determining the corporate governance structure in a country (see, e.g., Pagano and Volpin, 2005; Perotti and von Thadden, 2006; and Perotti and Volpin, 2007). For example, if workers and shareholders are made better off by co-determination and consumers are made worse off, then it is still likely that co-determination will be implemented …..

Dix pratiques exemplaires à l’intention des membres de comités d’audit

Vous trouverez ci-dessous un article publié par Naomi Snyder* dans BankDirector.com qui présente une synthèse des caractéristiques des comités d’audit performants dans le domaine bancaire.

Bien sûr, ces pratiques peuvent aussi s’appliquer à tout autre comité d’audit. Bonne lecture !

10 Best Practices for Audit Committee Members

Serving on the audit committee can be one of the toughest jobs on the board, which is why audit committee members often are paid more than what members of other committees receive. Audit committee members have more duties than ever before, thanks to heightened regulatory scrutiny that banks have received in recent years, and are under more pressure than ever to get it right.

Sal Inserra, a partner at accounting and advisory firm Crowe Horwath LLP, spoke at Bank Director’s Bank Audit Committee Conference in Chicago recently, and laid out some of the qualities of highly functioning audit committee members. This is not his list, but was created based on his talk.

Be a skeptic.
“If you notice inconsistencies, ask the question,’’ Inserra said. “It’s not necessarily wrong. You are just trying to find out.”

Understand your business.
If you enter a new business line, you must understand that new line of business. Trust departments present banks with a minefield of compliance issues, for example.

Meet with regulators.
Examiners are more likely now to have a discussion with board members than years past. Regulators are interested in learning about the audit committee’s understanding of the risks in the organization. Attend some meetings with examiners to get a flavor for the bank’s relationship with its regulators and to prepare you for any problems ahead of time.

Support the internal audit department and its findings.
Make sure the department is adequately funded and staffed. “I have seen way too many situations where internal audit was not a functional unit of the bank because no one respected them,’’ Inserra said. The internal audit chief should report directly to the audit committee chairman.

Look for red flags.
Red flags include when management delivers the audit committee book without sufficient time for members to digest it before the audit committee meetings. Other red flags include problematic findings that remain unaddressed between audits.

Take control of the audit committee meetings.
Don’t let management control the meeting agenda by burying you under a mountain of detail. It’s your meeting. Put the priorities at the beginning of the meeting, instead of starting with the easiest things. Get summaries of reports with the most important points highlighted. Who can read a 600 page audit in two nights?

Make sure every member is contributing.
Three to six people should serve on the audit committee. If it’s politically problematic to remove someone who is no longer contributing, add people you do need on the audit committee.

Hold management accountable.
Actively monitor management’s action plans. If remediation plans aren’t followed or completed on time, why not?

Communicate with internal and external auditors.
Be proactive. Have executive sessions with members of the internal auditing staff on a regular basis, as well as with external auditors.

Improve the committee’s knowledge of technology by recruiting an IT expert to be a member, or hire a consultant to advise the board.
If you are getting third party reports on your bank’s information security you don’t fully understand, then you need help.

Of course, there are many more aspects of being a great audit committee member. This is just a small sample. But at a time when audit committees have an increasing amount of responsibilities, it is important that the audit committee performs at the top of its game.

______________________________________________

*Naomi Snyder is the managing editor for Bank Director, an information resource for directors and officers of financial companies.

Le point de vue sans équivoque de l’activiste Carl Icahn

Depuis quelques années, on parle souvent d’activistes, d’actionnaires activistes, d’investisseurs activistes ou de Hedge Funds pour qualifier la philosophie de ceux qui veulent assainir la gouvernance des entreprises et redonner une place prépondérante aux « actionnaires-propriétaires » !

Pour ceux qui sont intéressés à connaître le point de vue et les arguments d’un actionnaire activiste célèbre, je vous invite à lire l’article écrit par Carl Icahn le 22 août sur son site Shareholders’ Square Table (SST).

Vous aurez ainsi une très bonne idée de cette nouvelle approche à la gouvernance qui fait rage depuis quelque temps.

Je vous invite aussi à lire l’article de Icahn qui s’insurge contre la position de Warren Buffet de ne pas intervenir dans la décision de la rémunération globale « excessive » à Coke, suivi de la réponse de Buffet.

My article from Barron’s on Warren Buffett’s abstention from a vote on Coke’s executive-pay plan

À vous de vous former une opinion sur ce sujet ! Bonne lecture !

The Bottom Line | Carl Icahn

Among other things, I’m known to be a “reductionist.” In my line of work you must be good at pinpointing what to focus on – that is, the major underlying truths and problems in a situation. I then become obsessive about solving or fixing whatever they may be. This combination is what perhaps has lead to my success over the years and is why I’ve chosen to be so outspoken about shareholder activism, corporate governance issues, and the current economic state of America.

Currently, I believe that the facts “reduce” to one indisputable truth which is that we must change our system of selecting CEOs in order to stay competitive and get us out of an extremely dangerous financial situation. With exceptions, I believe that too many companies in this country are terribly run and there’s no system in place to hold the CEOs and Boards of these inadequately managed companies accountable. There are numerous challenges we are facing today whether it be monetary policy, unemployment, income inequality, the list can go on and on… but the thing we have to remember is there is something we can do about it: Shareholders, the true owners of our companies, can demand that mediocre CEOs are held accountable and make it clear that they will be replaced if they are failing.

I am convinced by our record that this will make our corporations much more productive and profitable and will go a long way in helping to solve our unemployment problems and the other issues now ailing our economy.

…….

Pourquoi nommer un administrateur indépendant comme président du conseil

Plusieurs se questionnent sur les raisons qui expliquent l’importance de choisir un administrateur indépendant comme président du conseil, même dans les entreprises dont le fondateur possède le contrôle.

Le court article de Gerard Buckley paru dans itbusiness le 25 août 2014 montre les avantages réels à se doter d’une gouvernance exemplaire.

Voici, selon l’auteur, neuf points à considérer dans le choix de cette option. Bonne lecture !

1. Increased share price on acquisition
2. Investor due diligence is smoother
3. Greater interest in follow-on investment rounds
4. Increased transparency through supplying shareholder information
5. Increased accountability of management
6. Stronger risk and crisis management policies
7. Stronger customer acquisition process resulted from customers’ appreciation that the company is stronger than its individual executives.
8. Competitors take notice of the seriousness of your company’s approach
9. Creates environment for innovative change

The use of a non-executive chairperson for a private corporation, including early and growth stage companies, allows the company to start acting as if the company is structured for success and is serious about its responsibilities to shareholders, customers, and staff.

9 reasons to name a non-executive chairperson to your board

It is natural for entrepreneurs and founders to want to control the destiny of their company. Facebook and Mark Zuckerberg are often cited as examples of why a founder should stay in control.

In this example, Zuckerberg owned less than 30 per cent of Facebook; however, he maintained a controlling vote through multiple voting rights. These voting rights enabled him to singlehandedly buy Instagram for over $1 billion without board approval.

Some entrepreneurial observers may say that this is a good thing. Others who have been schooled in corporate governance would suggest too much power rested in one shareholder’s hands, and one who holds less than 50 per cent of the equity of the company. This example of a lack of corporate governance points a founder in the direction of how a private company and its strategic direction should be directed and controlled, while maintaining the vision the founders had when they formed the company.

When a company accepts equity investment from outside shareholders, the shareholders have an expectation that their rights will be protected by the board of directors. For a growth stage company, these many responsibilities become burdensome. I agree with most founders that their primary responsibility is to drive product development and acquire profitable customers. A founder who is both comfortable with and understands the alignment of the vision and strategic direction should be comfortable handing off some of the leadership responsibilities that guide the company.

Best practices of corporate governance for a public company separate the role of CEO of the company and the chairperson of the board of directors, often referred to as the non-executive chairperson or lead director. Under this structure, the CEO manages the affairs of the company under the direction of the board, and the governance structure or board of directors and its members are managed by the non-executive chairperson. Many founders are concerned with a loss of control in this structure; however, they need not be. With a strong selection process that was developed from a skills matrix, and a desire to have open and regular communication between the two roles, the company should be positioned for success.

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Les C.A de petites tailles performent mieux !

Selon une étude du The Wall Street Journal publié par Joann S. Lublin, les entreprises qui comptent moins d’administrateurs ont de meilleurs résultats que les entreprises de plus grandes tailles.

Bien qu’il n’y ait pas nécessairement de relation de type cause à effet, il semble assez clair que la tendance est à la diminution de nombre d’administrateurs sur les conseils d’administration des entreprises publiques américaines. Pourquoi en est-il ainsi ?

Il y a de nombreuses raisons dont l’article du WSJ, ci-dessous, traite. Essentiellement, les membres de conseils de petites tailles :

sont plus engagés dans les affaires de l’entité
sont plus portés à aller en profondeur dans l’analyse stratégique
entretiennent des relations plus fréquentes et plus harmonieuses avec la direction
ont plus de possibilités de communiquer entre eux
exercent une surveillance plus étroite des activités de la direction
sont plus décisifs, cohésif et impliqués.

Les entreprises du domaine financier ont traditionnellement des conseils de plus grandes tailles mais, encore là, les plus petits conseils ont de meilleurs résultats.

La réduction de la taille se fait cependant très lentement mais la tendance est résolument à la baisse. Il ne faut cependant pas compter sur la haute direction pour insister sur la diminution de la taille des C.A. car il semblerait que plusieurs PCD s’accommodent très bien d’un C.A. plus imposant !

Il faut cependant réaliser que la réduction du nombre d’administrateurs peut constituer un obstacle à la diversité si l’on ne prend pas en compte cette importante variable. Également, il faut noter que le C.A. doit avoir un président du conseil expérimenté, possédant un fort leadership. Un conseil de petite taille, présidé par une personne inepte, aura des résultats à l’avenant !

Voici deux autres documents, partagés par Richard Leblanc sur son groupe de discussion LinkedIn Boards and Advisors, qui pourraient vous intéresser :

« Higher market valuation of companies with a small board of directors« : http://people.stern.nyu.edu/eofek/PhD/papers/Y_Higher_JFE.pdf

« Larger Board Size and Decreasing Firm Value in Small Firms« : http://scholarship.law.cornell.edu/cgi/viewcontent.cgi?article=1403&context=facpub

Je vous convie donc à la lecture de l’article du WSJ dont voici un extrait de l’article. Bonne lecture !

Smaller Boards Get Bigger Returns

Size counts, especially for boards of the biggest U.S. businesses.

Companies with fewer board members reap considerably greater rewards for their investors, according to a new study by governance researchers GMI Ratings prepared for The Wall Street Journal. Small boards at major corporations foster deeper debates and more nimble decision-making, directors, recruiters and researchers said. Take Apple Inc. In the spring when BlackRock founding partner Sue Wagner was up for a seat on the board of the technology giant, she met nearly every director within just a few weeks. Such screening processes typically take months.

But Apple directors move fast because there only are eight of them. After her speedy vetting, Ms. Wagner joined Apple’s board in July. She couldn’t be reached for comment.

Smaller boards at major corporations have more nimble decision-making processes, directors, recruiters and academic researchers say. Eric Palma

Among companies with a market capitalization of at least $10 billion, typically those with the smallest boards produced substantially better shareholder returns over a three-year period between the spring of 2011 and 2014 when compared with companies with the biggest boards, the GMI analysis of nearly 400 companies showed.

Companies with small boards outperformed their peers by 8.5 percentage points, while those with large boards underperformed peers by 10.85 percentage points. The smallest board averaged 9.5 members, compared with 14 for the biggest. The average size was 11.2 directors for all companies studied, GMI said.

« There’s more effective oversight of management with a smaller board, » said Jay Millen, head of the board and CEO practice for recruiters DHR International. « There’s no room for dead wood. »

Many companies are thinning their board ranks to improve effectiveness, Mr. Millen said. He recently helped a consumer-products business shrink its 10-person board to seven, while bringing on more directors with emerging-markets expertise.

GMI’s results, replicated across 10 industry sectors such as energy, retail, financial services and health care, could have significant implications for corporate governance.

Small boards are more likely to dismiss CEOs for poor performance—a threat that declines significantly as boards grow in numbers, said David Yermack, a finance professor at New York University’s business school who has studied the issue.

It’s tough to pinpoint precisely why board size affects corporate performance, but smaller boards at large-cap companies like Apple and Netflix Inc. appear to be decisive, cohesive and hands-on. Such boards typically have informal meetings and few committees. Apple directors, known for their loyalty to founder Steve Jobs, have forged close ties with CEO Tim Cook, according to a person familiar with the company. Mr. Cook frequently confers with individual directors between board meetings « to weigh the pros and cons of an issue, » an outreach effort that occurs quickly thanks to the board’s slim size, this person said.

Mr. Cook took this approach while mulling whether to recruit Angela Ahrendts, then CEO of luxury-goods company Burberry Group PLC for Apple’s long vacant position of retail chief. Private chats with board members helped him « test the thought » of recruiting her, the person said. She started in April.

Ms. Wagner, Apple’s newest director, replaced a retiring one. The board wants no more than 10 members to keep its flexibility intact, according to the person familiar with the company, adding that even « eye contact and candor change » with more than 10 directors.

Apple returns outperformed technology sector peers by about 37 cumulative percentage points during the three years tracked by GMI. An Apple spokeswoman declined to comment.

Netflix, with seven directors, demonstrated equally strong returns, outperforming sector peers by about 32 percentage points. Board members of the big video-streaming service debate extensively before approving important management moves, said Jay Hoag, its lead independent director.

« We get in-depth, » he said. « That’s easier with a small group. »

Netflix directors spent about nine months discussing a proposed price increase, with some pushing back hard on executives about the need for an increase, Mr. Hoag said. Netflix increased prices this spring for new U.S. customers of the company’s streaming video plan, its first price bump since 2011.

A board twice as big wouldn’t have time for « diving deeper into the business on things that matter, » Mr. Hoag said.

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Laxisme et passivité au conseil d’administration | La situation en G-B

Vous trouverez, ci-dessous, l’extrait d’un article très pertinent publié par Dina Medland , laquelle couvre le domaine de la gouvernance dans Forbes, qui fait état d’une entrevue conduite avec le professeur de Gouvernance Andrew Kakabadse, de la Henley Business School de Grande-Bretagne.

L’article met le doigt sur le conservatisme (et le traditionalisme) crasse des administrateurs qui siègent sur les conseils d’administration en Grande-Bretagne. L’attitude de non-intervention de plusieurs administrateurs conduit à un sérieux manque d’innovation dans la gouvernance des entreprises anglaises (UK).

Trouve-t-on le même laxisme et la même résistance aux changements dans nos organisations nord-américaines ?

Personnellement, je ne crois pas que ce soit à la même échelle mais les conseils d’administration souffrent beaucoup du manque de questionnement de leurs membres. Il y a, ici aussi, trop de passivité eu égard aux questions d’orientation de l’entreprise ainsi qu’aux actions de la direction.

Je vous invite donc à lire ce court article et à partager votre point de vue sur le sujet. Bonne lecture !

There Is A Crying Need For Innovation In Boardrooms

Andrew Kakabadse has built a reputation for sharp, insightful commentary on the boardrooms of publicly listed companies. Professor of Governance and Leadership at Henley Business School since last summer, he has spoken out before now on the declining worth of non-executive directors.

In an interview with me in April 2013, he suggested many non-executive directors in the UK’s boardrooms were ‘of little or no value to the business.’ Particularly scathing about the UK, he said : “We have a culture where we don’t ask questions.”

Dina Medland, Contributrice pour Forbes

We also have a boardroom culture in the UK where we believe that “if it has worked fine for hundreds of years, why change it?” It is part and parcel, it seems of a national love of ritual – at which we clearly excel. The world’s love for very British celebrations -often involving members of the Royal family, horses, logistical feats of military planning and discipline and split-second timing- bears testimony to that. But the flip side of that seems to be that innovation is both rare, and resisted.

It is worth noting, therefore, that ICSA, the professional body for company secretaries – who are required for listed companies in the UK – chose Professor Kakabadse to undertake a piece of research on The Company Secretary, with a view to finding a way to progress the value of the role. (Note: for transparency, the software arm of ICSA which provides technology solutions for the boardroom is the commercial sponsor of my blog Board Talk but has no editorial control on input).

“On average, UK boards consist of 9 to 11 members, if whom the majority are over the age of 50. Fewer than half of these board members had had a job description and the chairman is very likely to be white, male and over the age of 60. Barriers to diversity remain firmly set throughout most boardrooms in the country” says the report.

It says the management and governance realities of boards indicate “animosity, a lack of intimacy with strategy, and poor communication” when it comes to top team strategy. Board and executive relations are “non-cohesive” when it comes to “shaping/negotiation of strategy, open interaction and trust.” Board members are described as “out of touch” – with “reality, markets and employees, unclear member role and contribution, productivity of meetings, engagement with the executive.”

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L’état des travaux de recherche relatifs à la contribution des investisseurs activistes

Ainsi que mon billet du 19 août en faisait état, le débat est de plus en plus vif en ce qui regarde la contribution des « Hedge Funds » à l’amélioration de la performance à long terme des entreprises ciblées.

Vous trouverez, ci-dessous, un court billet de Martin Lipton, partenaire fondateur de la firme Wachtell, Lipton, Rosen & Katz, paru sur le site du Harvard Law School Forum on Corporate Governance, qui décrit la problématique et les principaux enjeux liés au comportement des investisseurs « activistes ».

L’auteur accorde une grande place aux travaux d’Yvan Allaire et de François Dauphin de l’IGOPP (Institut sur la Gouvernance d’Organisations Privées et Publiques) qui pourfendent l’approche économétrique de la recherche phare de Bebchuk-Brav-Jiang.

Le résumé ci-dessous relate les principaux jalons relatifs à cette saga !

The post puts forward criticism of an empirical study by Lucian Bebchuk, Alon Brav, and Wei Jiang on the long-term effects of hedge fund activism; this study is available here, and its results are summarized in a Forum post and in a Wall Street Journal op-ed article. As did an earlier post by Mr. Lipton available here, this post relies on the work of Yvan Allaire and François Dauphin that is available here. A reply by Professors Bebchuk, Brav, and Jiang to this earlier memo and to the Allaire-Dauphin work is available here. Additional posts discussing the Bebchuk-Brav-Jiang study, including additional critiques by Wachtell Lipton and responses to them by Professors Bebchuk, Brav, and Jiang, are available on the Forum here.

The Long-Term Consequences of Hedge Fund Activism

The experience of the overwhelming majority of corporate managers, and their advisors, is that attacks by activist hedge funds are followed by declines in long-term future performance. Indeed, activist hedge fund attacks, and the efforts to avoid becoming the target of an attack, result in increased leverage, decreased investment in CAPEX and R&D and employee layoffs and poor employee morale.

Several law school professors who have long embraced shareholder-centric corporate governance are promoting a statistical study that they claim establishes that activist hedge fund attacks on corporations do not damage the future operating performance of the targets, but that this statistical study irrefutably establishes that on average the long-term operating performance of the targets is actually improved.

In two recent papers, Professor Yvan Allaire, Executive Chair of the Institute for Governance of Private and Public Organizations, has demonstrated that the statistics these professors rely on to support their theories are not irrefutable and do not disprove the real world experience that activist hedge fund interventions are followed by declines in long-term operating performance. The papers by Professor Allaire speak for themselves:

“Activist” hedge funds: creators of lasting wealth? What do the empirical studies really say?

Hedge Fund Activism and their Long-Term Consequences; Unanswered Questions to Bebchuk, Brav and Jiang

Les « Hedge Funds » contribuent-ils à assurer la croissance à long terme des entreprises ciblées ?

Voici un article publié par IEDP (International Executive Development Programs) et paru sur le site http://www.iedp.com

Comme vous le constaterez, l’auteur fait l’éloge des effets positifs de l’activisme des actionnaires qui, contrairement à ce que plusieurs croient, ajoutent de la valeur aux organisations en opérant un assainissement de la gouvernance.

Je sais que les points de vue concernant cette forme d’activisme sont très partagés mais les auteurs clament que les prétentions des anti-activistes ne sont pas fondées scientifiquement.

En effet, les recherches montrent que les activités des « hedges funds » contribuent à améliorer la valeur ajoutée à long terme des entreprises ciblées.

La lecture de cet article vous donnera un bon résumé des positions en faveur de l’approche empirique. Votre idée est-elle faite à ce sujet ?

Do Hedge Funds Create Sustainable Company Growth ?

Hedge funds get a bad press but are they really a negative force? Looking at their public face, on the one hand we see so the called ‘vulture’ funds that this month forced Argentina into a $1.5bn default, on the other hand we recall that the UK’s largest private charitable donation, £466 million, was made by hedge fund wizard Chris Cooper-Hohn. Looking beyond the headlines the key question is, do hedge funds improve corporate performance and generate sustainable economic growth or not?

Researchers at Columbia Business School, Duke Fuqua School of Business and Harvard Law School looked at this most important question and discovered that despite much hype to the contrary the long-term effect of hedge funds and ‘activists shareholders’ is largely positive. They tested the conventional wisdom that interventions by activist shareholders, and in particular activist hedge funds, have an adverse effect on the long-term interests of companies and their shareholders and found it was not supported by the data.

Their detractors have long argued that hedge funds force corporations to sacrifice long-term profits and competitiveness in order to reap quick short-term benefits. The immediate spike that comes after interventions from these activist shareholders, they argue, inevitably leads to long-term declines in operating performance and shareholder value.

Three researchers, Lucian Bebchuk of Harvard Law School, Alon Brav of Duke Fuqua School of Business, and Wei Jiang of Columbia Business School argue that opponents of shareholder activism have no empirical basis for their assertions. In contrast, their own empirical research reveals that both short-term and long-term improvements in performance follow in the wake of shareholder interventions. Neither the company nor its long-term shareholders are adversely affected by hedge fund activism.

Their paper published in July 2013 reports on about 2,000 interventions by activist hedge funds during the period 1994-2007, examining a long time window of five years following the interventions. It found no evidence that interventions are followed by declines in operating performance in the long term. In fact, contrary to popular belief, activist interventions are followed by improved operating performance during the five-year period following these interventions. Furthermore the researchers discovered that improvements in long-term performance, were also evident when the intervention were in the two most controversial areas – first, interventions that lower or constrain long-term investments by enhancing leverage, beefing up shareholder pay-outs, or reducing investments and, second, adversarial interventions employing hostile tactics.

There was also no evidence that initial positive share price spikes accompanying activist interventions failed to appreciate their long-term costs and therefore tend to be followed by negative abnormal returns in the long term; the data is consistent with the initial spike reflecting correctly the intervention’s long-term consequences.

‘Pumping-and-dumping’ (i.e. when the exit of an activist is followed by long-term negative returns) is much sited by critics. But no evidence was found of this. Another complaint, that activist interventions during the years preceding the financial crisis rendered companies more vulnerable, was also debunked, as targeted companies were no more adversely affected by the crisis than others.

In light of the recent events in Argentina it is salutary to recall this important research. The positive aspect of activist hedge fund activity that it reveals should be born in mind when considering the ongoing policy debates on corporate governance, corporate law, and capital markets regulation. Business leaders, policy makers and institutional investors should reject the anti-hedge fund claims often used by detractors as a basis for limiting the rights and involvement of shareholders, and should support expanding rather than limiting the rights and involvement of shareholders. Boards and their executives should carefully monitor these debates in order to prepare for corporate governance’s evolving policy environment.

Reconsidération des indicateurs de mesure d’un « bon » conseil d’administration

Aujourd’hui, je vous propose la lecture d’un excellent article de Knud B. Jensen, paru dans le numéro Juillet-Août 2014, du Ivey Business Journal, section Governance.

L’auteur a fait une analyse attentive des études établissant une relation entre l’efficacité des « Boards » et les résultats financiers de l’entreprise. Sa conclusion ne surprendra pas les experts de la gouvernance car on sait depuis un certain temps que la plupart des études sont de nature analytique et que les relations étudiées sont associatives, donc de l’ordre des corrélations statistiques.

Mais, même les résultats dits scientifiques (empiriques), n’apportent pas une réponse claire aux relations causales entre l’efficacité des conseils d’administration et les résultats attendus, à court et long terme … Pourquoi ?

L’auteur suggère qu’un modèle de gouvernance ne peut être utilisé à toutes les sauces, parce que les organisations évoluent dans des contextes (certains diront univers) éminemment différents !

L’analyse fine de l’efficacité des C.A. montre que les variables contextuelles devraient avoir une place de choix dans l’évaluation de l’efficacité de la gouvernance.

La gouvernance est une discipline organisationnelle et son analyse devrait reposer sur les « théories organisationnelles, tels que le design, la culture, la personnalité et le leadership du PDG (CEO), ainsi que sur les compétences « contextuelles » des administrateurs ». C’est plus complexe et plus difficile que de faire des analyses statistiques … ce qui n’empêche pas de poursuivre dans la voie de la recherche scientifique.

Voici un extrait de cet article. Je vous invite cependant à le lire au complet afin de bien saisir toutes les nuances.

Bonne lecture ! Vos commentaires sont grandement appréciés.

Reconceptualizing the board and its metrics

« The key to rating boards is understanding context. Most researchers and public policies assume a similar board system across industries. This assumption allows law makers and researchers to ignore inter-company board differences. Nevertheless, board functions and effectiveness must reflect the context in which an organization finds itself. After all, board processes and functions are clearly dependent on context (growth or the lack of it, competition, strategy or the lack of it, etc.). For example, after it became very clear that the functioning of the board of directors at Canadian Pacific was no longer suitable to drive company growth, an activist shareholder pushed for new directors and a reorganized board. This led to a dramatic increase in cost ratios, profit and share price. It changed the function of the board. Other illustrations where context called for a change of the board include BlackBerry (formerly RIM) and Barrick Gold….

When it comes to an effective governance model, one size does not fit all. Context is paramount. Context is both endogenous and exogenous. Endogenous variables include complexity, asset base, competitive advantage, capital structure, quality of management, and board culture and leadership. Exogenous variables include industry structures, position in growth cycle, competitive force, macroeconomics (interest rate, commodity pricing), world supply and growth, political changes, and unforeseen events (earthquakes, tsunamis, etc.). These variables are key inputs for company performance and determine whether earnings are above or below average. Simply put, companies may need a different type of board to fit with different sets of endogenous and exogenous variables.

Boards and management typically have different mandates, not to mention a different social architecture to carry them out. It is generally agreed that the CEO and the management teams run the firm, while the board approves strategy, selects the CEO and determines the incentives, sets risk management, and approves major investments and changes to the capital structure. But as discussed in Boards that Lead (2014) by Ram Charan, Dennis Casey and Michael Useen, directors must also lead the corporation on the most crucial issues. As a result, the ideal level of board involvement remains a grey area and is rarely defined. Setting boundaries when there are overlapping responsibilities is difficult. Nevertheless, how the functional relationships between the board and management work is probably far more important than board features to the growth, and sometimes survival, of the organization.

In Back to the Drawing Board (2004), Colin Carter and Jay Lorsch suggest the reason so little has resulted from the various reforms aimed at improving governance is the focus on visible variables, or what others have labeled structural issues, instead of a focus on process or inside board behavior. In other words, features have trumped functions.

The increase in complexity may be another issue. Keep in mind that directors don’t spend a lot of time together, which is a barrier to good behavior and process and makes it difficult for boards to function as a dynamic team. According to a 2013 McKinsey survey of over 700 corporate board members, directors spend an average of 22 days per year on company issues and two thirds do not think they have a complete understanding of the firm’s strategy. Clearly, there are severe limitations on boards, which have more to do than time available, especially with their limited number of board meetings packed with presentations from management.

Boards should be viewed as an organizational system, with context part of any performance judgment. This view has more merit in distinguishing between effective and ineffective boards than the structural view. Human resource metrics may hold more promise and be more important than the structural indices currently used to distinguish between effective and ineffective boards. »

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*Knud B. Jensen est professeur d’administration à Ryerson University’s Ted Rogers School of Management de Toronto.

L’art d’établir des consensus au conseil d’administration

Je vous invite à prendre connaissance de la lettre informative (Newsletter) du mois d’août 2014 de la firme de consultation The Brown Governance intitulée Consensus and Dissent.

Les auteurs traitent de la pratique de la décision par consensus, un sujet vraiment crucial pour la bonne gestion d’un conseil d’administration. Voici un extrait de cette lettre. Vous pouvez vous inscrire par la recevoir à chaque mois.

Également, sur le site de Brown Governance, vous pourrez visionner une vidéo de David Brown qui explique la mécanique des huis clos afin d’éviter que ceux-ci traînent en longueur.

Brown Governance

Building Consensus by Addressing the Roots of Dissent

Boards today often strive to make decisions by consensus, which is both healthy and sustainable compared to forced votes; how to build consensus while honouring dissent is the subject of this Brown Governance newsletter. How Boards deal with dissent is one of the biggest changes in boardroom governance in the past generation – instead of ignoring, discouraging or quashing dissent, high performance boards seek to understand and deal with dissent. Here we will explore the typical roots of dissent as a tool to help Chairs and Board members to understand, identify and so address dissent more effectively:

Information gap

Knowledge gap

Direction gap

Strategy gap

Political gap

Personal gap

What is Consensus anyway?

Consensus does not necessarily mean unanimity. Consensus means reaching a point that different viewpoints have been listened to, and no one is going to stand in the way of us moving forward. Everyone “consents” to move forward, not necessarily everyone in agreement with the specific direction. “Consensus” comes from the Latin, “feeling together”. It may be that everyone is of one accord, or it may be that dissenting views have been dealt with to the satisfaction of the dissenters: consensus means “unity not unanimity”. Consensus decision-making is a group decision-making process that seeks the consent of all participants.

Consensus may be defined professionally as an acceptable resolution, one that can be supported, even if not the « favourite » of each individual. It may seem counter intuitive that two of the most visible trends in modern governance are to strive for decision-making by consensus rather than just a majority vote, and to encourage dissent and divergent views from the one being proposed.

Yet these two potentially conflicting forces can be brought into harmony, by exploring and better understanding the root causes behind the dissenting view, and using the most effective tool to address and deal with each, to bring the dissenter into the consensus. Here is how Board and Committee Chairs and Members can use this in practice during meetings:

Have the proposed solution (e.g. strategy, decision, problem or issue) presented briefly;

Invite Board members to express any additional or different perspectives;

Once these divergent views have been expressed, move on to convergent thinking (consensus building) by exploring the root causes of each divergent view (the Chair may need to “name” or explicitly articulate the divergent view since the stated dissent is often not the underlying cause), and proposing that each be dealt with based on addressing its root, including amending and revising the proposed solution;

Probe and test for consensus: do we have consent to move forward on this path?

Pour une supervision efficace de la fonction audit interne | PwC

Vous trouverez ci-dessous un document de référence publié par PwC et paru dans la série Audit Committee Excellence. Ce document, partagé par Denis Lefort, CPA, CIA, CRMA, expert-conseil en Gouvernance, audit et contrôle, apporte des réponses très complètes à plusieurs questions que les membres de conseils d’administration se posent eu égard au rôle de la fonction audit interne dans l’organisation.

1. Pourquoi la surveillance de l’audit interne est-elle critique pour les comités d’audit ?

2. Quel est le rôle des administrateurs dans l’optimisation des activités de l’audit interne ?

3. Comment aider l’audit interne à mieux définir sa mission ?

4. Quelles sont les lignes d’autorité et les besoins en ressources de cette activité ?

5. Quel est le processus de révision des résultats de l’audit interne ?

6. Que faire si votre entreprise ne possède pas une fonction d’audit interne ?

Ce document sera donc très utile à tout administrateur soucieux de parfaire ses connaissances sur le rôle très important qu’un service d’audit interne peut jouer.

Voici une introduction au rapport de PwC . Bonne lecture ! Vos commentaires sont les bienvenus.

Effective oversight of the internal audit function | PwC

The audit committee’s role is not getting any easier, but an audit committee has a lot of resources in its arsenal to help meet today’s high expectations. One of these tools is the internal audit function. Directors can, and should, focus on maximizing the value proposition of this group to ensure their own success.

A lot goes on in companies — and a lot can go wrong, even when you have good people and thoughtfully designed processes. That’s why so many audit committees look to internal audit as their eyes and ears — a way to check whether things are working as they should. Some companies staff the function internally, while others choose to outsource some or all of the role. Some do not have an internal audit function at all.

For many audit committees, overseeing internal audit isn’t just the right thing to do, it’s a requirement. At NYSE companies, audit committees have to oversee internal audit’s performance and periodically meet in private sessions. NASDAQ is currently considering whether to require its listed companies to have an internal audit function and what role audit committees should play.

Whether a required function or not, we believe it’s critical that audit committees focus on internal audit. Why? PwC’s 2014 State of the internal audit profession study found that about one-third of board members believe internal audit adds less than significant value to the company, and only 64% of directors believe internal audit is performing well at delivering expectations. Even Chief Audit Executives (CAEs) are critical of their functions’ performance, with just two-thirds saying it’s performing well.

L’évaluation des conseils d’administration et des administrateurs | Sept étapes à considérer

Cet article rédigé par Geoffrey KIEL, James BECK et Jacques GRISÉ (1) et paru dans les Documents de travail de la Faculté des sciences de l’administration en 2008 est toujours d’actualité. Il présente un guide pratique des questions clés que les conseils d’administration doivent prendre en considération lorsqu’ils planifient une évaluation.

On met l’accent sur l’utilité d’avoir des évaluations bien menées ainsi que sur les sept étapes à suivre pour des évaluations efficaces d’un conseil d’administration et des administrateurs. Bonne lecture.

SEPT ÉTAPES À SUIVRE POUR DES ÉVALUATIONS EFFICACES D’UN CONSEIL D’ADMINISTRATION ET DES ADMINISTRATEURS

Lorsqu’une crise se produit au sein d’une société, comme celles qu’ont connues Nortel et Hollinger International, les intervenants, les médias, les organismes de réglementation et la collectivité se tournent vers le conseil d’administration pour trouver des réponses. Étant donné que ce dernier est le chef décisionnel ultime de la société, il est responsable des actions et du rendement de la société.

Le défi actuel que doivent relever les conseils d’administration consiste à accroître la valeur des organisations qu’ils gouvernent. Grâce à l’évaluation du rendement, les conseils d’administration peuvent s’assurer qu’ils ont les connaissances, les compétences et la capacité de relever ce défi.

Plusieurs guides et normes de pratiques exemplaires reconnaissent cette notion. Ainsi, la Commission des valeurs mobilières de l’Ontario indique dans les lignes directrices sur la gouvernance des sociétés (NP 58-201) que « le conseil d’administration, ses comités et chacun de ses administrateurs devraient faire l’objet régulièrement d’une évaluation à l’égard de leur efficacité et de leur contribution ».

L’évaluation du conseil d’administration est trop souvent perçue comme un mal nécessaire – un processus mécanique consistant à cocher des points sur une liste qui, en bout de ligne, a peu de valeur réelle pour le conseil d’administration si ce n’est pour satisfaire aux exigences en matière de conformité. Toutefois… un processus efficace d’évaluation du conseil d’administration peut donner lieu à une transformation.

Une publication du Collège des administrateurs de sociétés (CAS), sous forme de questions et réponses sur la gouvernance, a été conçue à l’intention des administrateurs nommés par le gouvernement du Québec comme membre d’un conseil d’administration d’une société d’État ou d’un organisme gouvernemental. Celle-ci vise à répondre aux questions les plus courantes qu’un administrateur nouvellement nommé peut légitimement se poser en matière de gouvernance. On y indique qu’ « une évaluation faite à intervalles périodiques est essentielle pour assurer le maintien d’une gouvernance efficace » (2).

Cet article offrira une approche pratique en matière d’évaluations efficaces des conseils d’administration et des administrateurs en appliquant un cadre comportant sept étapes qui pose les questions clés que tous les conseils d’administration devraient prendre en considération lorsqu’ils planifient une évaluation. Même les conseils d’administration efficaces peuvent tirer profit d’une évaluation bien menée.

Comme nous l’avons résumé dans le tableau 1, une évaluation menée adéquatement peut contribuer considérablement à des améliorations du rendement à trois niveaux : organisation, conseil d’administration et administrateur. Selon Lawler et Finegold « les conseils qui évaluent leurs membres et qui s’évaluent ont tendance à être plus efficaces que ceux qui ne le font pas ». Toutefois, il faut souligner que ces avantages ne sont possibles qu’au moyen d’une évaluation du conseil d’administration menée de manière appropriée; si l’évaluation n’est pas faite correctement, cela peut causer de la méfiance parmi les membres du conseil d’administration et entre le conseil lui-même et la direction.

Une publication de l’École d’administration publique du Québec (ENAP), produite en collaboration avec le Collège des administrateurs de sociétés (CAS), présente une section traitant de l’évaluation de la performance du conseil d’administration (3).

Selon les auteurs, « L’évaluation est une composante essentielle d’une saine gouvernance d’entreprise. Elle permet de jeter un regard sur la façon dont les décisions ont été prises et sur la manière d’exercer la gestion des activités de l’organisation et ce, dans une perspective d’amélioration continue… Il incombe au président du conseil d’instaurer une culture d’évaluation du rendement et de la performance. Pour ce faire, il doit veiller à la mise en place d’un processus d’évaluation clair, à l’élaboration de règles et d’outils pertinents, à la définition des responsabilités de chaque intervenant dans le processus d’évaluation, à la diffusion de l’information et à la mise en place des correctifs nécessaires ». Dans cette publication, on présente dix outils détaillés d’évaluations (questionnaires) qui concernent les groupes cibles suivants :

1. l’évaluation du conseil

2. l’évaluation du fonctionnement du conseil

3. l’évaluation du président du conseil

4. l’évaluation d’un membre de conseil

5. l’évaluation du comité de gouvernance et d’éthique

6. l’évaluation du comité de vérification

7. l’évaluation du comité des ressources humaines

8. l’évaluation du fonctionnement d’un comité

9. l’évaluation d’un membre de comité

10. l’évaluation du président d’un comité

_______________________________________

(1) Geoffrey Kiel, Ph.D., premier vice-chancelier délégué et doyen de l’École d’administration, University of Notre Dame, Australie, et président de la société Effective Governance Pty Ltd, James Beck, directeur général, Effective Governance Pty Ltd, Jacques Grisé, Ph.D., F.Adm.A., collaborateur spécial du Collège des administrateurs de sociétés (CAS), Faculté des sciences de l’administration, Université Laval, Québec.

(2) Collège des administrateurs de sociétés, Être un administrateur de sociétés d’état : 16 questions et réponses sur la gouvernance, Faculté des sciences de l’administration, Université Laval, 2007.

(3) ENAP, Les devoirs et responsabilités d’un conseil d’administration, Guide de référence, Bibliothèque et Archives nationales du Québec, 2007.

Ce que chaque administrateur de sociétés devrait savoir à propos de la sécurité infonuagique

Cet article est basé sur un rapport de recherche de Paul A. Ferrillo, avocat conseil chez Weil, Gotshal & Manges, et de Dave Burg et Aaron Philipp de PricewaterhouseCoopers. Les auteurs présentent une conceptualisation des facteurs infonuagiques (cloud computing) qui influencent les entreprises, en particulier les comportements de leurs administrateurs.

L’article donne une définition du phénomène infonuagique et montre comment les conseils d’administration sont interpellés par les risques que peuvent constituer les cyber-attaques. En fait, la partie la plus intéressante de l’article consiste à mieux comprendre, ce que les auteurs appellent, la « Gouvernance infonuagique » (Cloud Cyber Governance).

L’article propose plusieurs questions critiques que les administrateurs doivent adresser à la direction de l’entreprise. Vous trouverez, ci-dessous, les points saillants de cet article lequel devrait intéresser les administrateurs préoccupés par les aspects de sécurité des opérations infonuagiques. Bonne lecture !

Cloud Cyber Security: What Every Director Needs to Know

« There are four competing business propositions affecting most American businesses today. Think of them as four freight trains on different tracks headed for a four-way stop signal at fiber optic speed.

First, with a significant potential for cost savings, American business has adopted cloud computing as an efficient and effective way to manage countless bytes of data from remote locations at costs that would be unheard of if they were forced to store their data on hard servers. According to one report, “In September 2013, International Data Corporation predicted that, between 2013 and 2017, spending on pubic IT cloud computing will experience a compound annual growth of 23.5%.” Another report noted, “By 2014, cloud computing is expected to become a $150 billion industry. And for good reason—whether users are on a desktop computer or mobile device, the cloud provides instant access to data anytime, anywhere there is an Internet connection.”

The second freight train is data security. Making your enterprise’s information easier for you to access and analyze also potentially makes it easier for others to do, too. 2013 and 2014 have been the years of “the big data breach,” with millions of personal data and information records stolen by hackers. Respondents to the 2014 Global State of Information Security® Survey reported a 25% increase in detected security incidents over 2012 and a 45% increase compared to 2011. Though larger breaches at global retailers are extremely well known, what is less known is that cloud providers are not immune from attack. Witness the cyber breach against a file sharing cloud provider that was perpetrated by lax password security and which caused a spam attack on its customers. “The message is that cyber criminals, just like legitimate companies, are seeing the ‘business benefits’ of cloud services. Thus, they’re signing up for accounts and reaching sensitive files through these accounts. For the cyber criminals this only takes a run-of-the-mill knowledge level … This is the next step in a new trend … and it will only continue.”

The third freight train is the plaintiff’s litigation bar. Following cyber breach after cyber breach, they are viewing the corporate horizon as rich with opportunities to sue previously unsuspecting companies caught in the middle of a cyber disaster, with no clear way out. They see companies scrambling to contend with major breaches, investor relation delays, and loss of brand and reputation.

The last freight train running towards the intersection of cloud computing and data security is the topic of cyber governance—i.e., what directors should be doing or thinking about to protect their firm’s most critical and valuable IP assets. In our previous article, we noted that though directors are not supposed to be able to predict all potential issues when it comes to cyber security issues, they do have a basic fiduciary duty to oversee the risk management of the enterprise, which includes securing its intellectual property and trade secrets. The purpose of this article is to help directors and officers potentially avoid a freight train collision by helping the “cyber governance train” control the path and destiny of the company. We will discuss basic cloud security principles, and basic questions directors should ask when considering whether or not the data their management desires to run on a cloud-based architecture will be as safe from attack as possible. As usual when dealing with cyber security issues, there are no 100% foolproof answers. Even cloud experts disagree on cloud-based data security practices and their effectiveness] There are only good questions a board can ask to make sure it is fulfilling its duties to shareholders to protect the company’s valuable IP assets.

What is Cloud Computing/What Are Its Basic Platforms

“Cloud computing is a model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services). Cloud computing is a disruptive technology that has the potential to enhance collaboration, agility, scaling, and availability, and provides the opportunities for cost reduction through optimized and efficient computing. The cloud model envisages a world where components can be rapidly orchestrated, provisioned, implemented and decommissioned, and scaled up or down to provide an on-demand utility-like model of allocation and consumption.”

Cloud computing is generally based upon three separate and distinct architectures that matter when considering the security of the data sitting in the particular cloud environment.

……

Cloud Cyber Governance

As shown above, what is commonly referred to as the cloud actually can mean many different things depending on the context and use. Using SaaS to manage a customer base has a vastly different set of governance criteria to using IaaS as a development environment. As such, there are very few accepted standards for properly monitoring/administering a cloud-based environment. There are many IT consultants in the cloud-based computing environment that can be consulted in that regard. Our view, however, is that directors are ultimately responsible for enterprise risk management, and that includes cyber security, a subset of which is cloud-based cyber-security. Thus it is important for directors to have a basic understanding of the risks involved in cloud-based data storage systems, and with cloud-based storage providers. Below are a few basic questions that come to mind that a director could pose to management, and the company’s CISO and CIO:

1. Where will your data be stored geographically (which may determine which laws apply to the protection of the company’s data), and in what data centers?

2. Is there any type of customer data co-mingling that could potentially expose the company data to competitors or other parties?

3. What sort of encryption does the cloud-based provider use?

4. What is the vendor’s backup and disaster recovery plan?

5. What is the vendor’s incident response and notification plan?

6. What kind of access will you have to security information on your data stored in the cloud in the event the company needs to respond to a regulatory request or internal investigation?

7. How transparent is the cloud provider’s own security posture? What sort of access can your company get to the cloud provider’s data center and personnel to make sure it is receiving what it is paying for?

8. What is the cloud servicer’s responsibility to update its security systems as technology and sophistication evolves?

9. What is the cloud provider’s ability to timely detect (i.e., continuously monitor) and respond to a security incident, and what sort of logging information is kept in order to potentially detect anomalous activity?

10. Are there any third party requirements (such as HITECH/HIPAA) that the provider needs to conform to for your industry?

11. Is the cloud service provider that is being considered already approved under the government’s FedRamp authorization process, which pre-approves cloud service providers and their security controls?

12. Finally, does the company’s cyber insurance liability policy cover cloud-based Losses assuming there is a breach and customer records are stolen or otherwise compromised? This is a very important question to ask, especially if the company involved is going to use a cyber-insurance policy as a risk transfer mechanism. When in doubt, a knowledgeable cyber-insurance broker should be consulted to make sure cloud-based Losses are covered.

High-profile breaches have proven conclusively that cybersecurity is a board issue first and foremost. Being a board member is tough work. Board members have a lot on their plate, including, first and foremost, financial reporting issues. But as high-profile breaches have shown, major cyber breaches have almost the same effect as a high profile accounting problem or restatement. They cause havoc with investors, stock prices, vendors, branding, corporate reputation and consumers. Directors should be ready to ask tough questions regarding cyber security and cloud-based security issues so they do not find themselves on the wrong end of a major data breach, either on the ground or in the cloud. »

La valeur stratégique du développement durable | Résultats de l’enquête de McKinsey

Vous trouverez, ci-dessous, les résultats d’un Survey réalisé par la firme McKinsey* qui porte sur la valeur stratégique à accorder au développement durable et sur l’évolution de l’intérêt des entreprises pour cette dimension de la gouvernance.

Il s’agit ici d’un article très soigné qui présente les analyses de plusieurs facteurs qui contribuent aux changements stratégiques à long terme des organisations. L’intérêt de l’étude est que celle-ci est de type comparatif puisque c’est un sujet de gouvernance que McKinsey étudie depuis plusieurs années.

Le tableau présenté dans cet extrait montre l’évolution des trois (3) principales raisons évoquées par les répondants pour investir dans le développement durable :

(1) l’alignement avec les objectifs d’affaires de l’entreprise

(2) l’amélioration de la réputation de l’organisation

(3) la réduction des coûts

Je vous invite donc à prendre connaissance de cet article de référence en matière de développement durable et de responsabilité sociale des entreprises.

Sustainability’s strategic worth: McKinsey Global Survey results

« Executives at all levels see an important business role for sustainability. But when it comes to mastering the reputation, execution, and accountability of their sustainability programs, many companies have far to go »

« Company leaders are rallying behind sustainability, and executives overall believe the issue is increasingly important to their companies’ strategy. But as it continues to grow into a core business issue, challenges to capturing its full value lie ahead. These are among the key findings from our most recent McKinsey survey on the topic,¹ which asked respondents about the actions their companies are taking to address environmental, social, or governance issues, the practices they use to manage sustainability, and the value at stake.

One such challenge is reputation management. Year over year, large shares of executives cite reputation as a top reason their companies address sustainability; of the 13 core activities we asked about, they say reputation has the most value potential for their industries. However, many of this year’s respondents say their companies are not pursuing the reputation-building activities that would maximize that financial value.

Comparing companies with the most effective sustainability programs (our sustainability “leaders”) with others in their industries highlights another obstacle: incorporating sustainability into key organizational processes, such as performance management, one area where the leaders report better results than others. Beyond strong performance on processes, the leaders share other characteristics that are keys to a successful sustainability program—among them, aggressive goals (both internal and external), a focused strategy, and broad leadership buy-in.

Sustainability rising

According to executives, sustainability is becoming a more strategic and integral part of their businesses. In past surveys, when asked about their companies’ reasons for pursuing sustainability, respondents most often cited cost cutting or reputation management. Now 43 percent (and the largest share) say their companies seek to align sustainability with their overall business goals, mission, or values²—up from 30 percent who said so in 2012 (Exhibit 1).

Exhibit 1

More and more companies are addressing sustainability to align with their business goals

One reason for the shift may be that company leaders themselves believe the issue is more important. CEOs are twice as likely as they were in 2012 to say sustainability is their top priority. Larger shares of all other executives also count sustainability as a top three item on their CEOs’ agendas ».

___________________________________________________

* The contributors to the development and analysis of this survey include Sheila Bonini, a senior expert in McKinsey’s Silicon Valley office, and Anne-Titia Bové, a specialist in the São Paulo office.

Que faire quand la confiance entre le conseil et la direction est faible ? | Le cas d’une OBNL

Voici un cas qui origine du blogue australien de Julie Garland McLellan et qui intéressera certainement tous les membres de conseils d’administration d’OBNL. J’ai choisi de partager ce cas en gouvernance avec vous car je crois que celui-ci évoque trop souvent les situations vécues par certaines organisations à but non lucratif.

Ce cas présente la situation réelle d’une entreprise dont les liens de confiance entre le C.A. et la direction se sont effrités.

Qu’en pensez-vous ? Que feriez-vous à la place de Jake ? Quelle analyse vous semble la plus appropriée dans notre contexte ? Que pensez-vous des analyses effectuées par les trois experts ?

« Boards operate best when each director trusts each other director to adhere to the jointly accepted governance processes and policies as well as the relevant laws and regulations. This month our real life case study considers what to do when that trust is lost. Consider: What would you advise a friend to do under these circumstances ? »

Que faire quand la confiance est perdue ?

« Jake is a club chairman. The former chairman resigned after a major disagreement with the rest of the board which arose because the former chairman signed a major contract. When the board discovered what had happened they were furious that a large decision had been made without involving them. The former chairman stormed from the meeting and resigned in writing the following morning.

The Board then acted without a formal chair, directors took turns to chair the meetings, until the next election. During this time the board rewrote the by-laws which previously allowed the chairman to sign contracts after verification by the treasurer that doing so would not lead to insolvency. They adopted new by-laws that stated no director, including – for absence of doubt – the chairman and/or treasurer, could commit the club to any contract, expenditure or course of action unless approved in a duly constituted board meeting.

Jake was not previously on the board and was elected unopposed after being invited by the treasurer to stand for election. He is a successful businessman but has no experience with consensual board decision-making. He has now discovered that the club is wallowing because recent decisions have not been made in a timely fashion. His fellow directors are numerous, factionated and indecisive. The CEO has low delegations and the constitution envisages that the chairman, CEO and treasurer should make decisions between meetings and use the board to ratify strategy, engage members and provide oversight. The amended by-laws prevent the constitution from working but don’t provide an alternative workable model.

The board reacted with horror to a suggestion that they soften the new by-laws but don’t appear willing to improve their own performance so the club can operate under the new by-laws. Staff performance reviews and bonuses are soon to be agreed and Jake is fairly certain that his board will not make rational decisions or support the CEO’s recommendations. He knows that he needs to act decisively to avert disaster but doesn’t know where to start.

How can Jake create an environment that allows for effective management of the club before this situation spirals out of control? »

Séparation des fonctions de président du conseil et de chef de la direction : retour sur un grand classique !

Voici le deuxième billet présenté par le professeur Ivan Tchotourian de la Faculté de droit de l’Université Laval, élaboré dans le cadre de son cours de maîtrise Gouvernance de l’entreprise.

Dans le cadre d’un programme de recherche, il a été proposé aux étudiants non seulement de mener des travaux sur des sujets qui font l’actualité en gouvernance de l’entreprise, mais encore d’utiliser un format original permettant la diffusion des résultats. Le présent billet expose le résultat des recherches menées par Nadia Abida, Arnaud Grospeillet, Thomas Medjir et Nathalie Robitaille.

Ce travail revient sur les arguments échangés concernant la dissociation des fonctions de président du conseil d’administration et de chef de la direction. Ce billet alimente la discussion en faisant une actualité comparative des normes et des éléments juridiques, et en présentant les dernières statistiques en ce domaine.

Le papier initial des étudiants a été retravaillé par Nadia Abida afin qu’il correspondre au style du blogue . Bonne lecture ! Vos commentaires et vos points de vue sont les bienvenus.

« Je vous en souhaite bonne lecture et suis certain que vous prendrez autant de plaisir à le lire que j’ai pu en prendre à le corriger. Merci encore à Jacques de permettre la diffusion de ce travail et d’offrir ainsi la chance à des étudiants de contribuer aux riches discussions dont la gouvernance d’entreprise est l’objet ». (Ivan Tchotourian)

Séparation des fonctions de président du conseil et de chef de la direction : retour sur un grand classique

Nadia Abida, Arnaud Grospeillet, Thomas Medjir, Nathalie Robitaille

Anciens étudiants du cours DRT-6056 Gouvernance de l’entreprise

La séparation entre les fonctions de président du conseil d’administration (CA) et du chef de la direction est l’un des facteurs incontournables de l’indépendance des administrateurs. Cette dernière est un indicateur de pratique de bonne gouvernance d’entreprise. Cependant, et malgré l’importance avérée de la séparation des deux fonctions, nombre d’entreprises continuent à en pratiquer le cumul. Les arguments foisonnent de part et d’autre, et ne s’accordent pas sur la nécessité de cette séparation.

redaction-des-statuts-de-sa

Un retour sur une proposition d’actionnaires de la banque JP Morgan démontre la nécessité de ne pas laisser ce sujet sans réflexions. Cette proposition en faveur d’une séparation des fonctions a été émise à la suite d’une divulgation par la société d’une perte s’élevant à 2 milliards de dollars… perte essuyée sous la responsabilité de son PDG actuel [1].

Ce n’est un secret pour personne que cette société a un passif lourd avec des pertes colossales engendrées par des comportements critiquables sur lesquels la justice a apporté un éclairage. Les conséquences de cette gestion auraient-elles été identiques si une séparation des pouvoirs avait était mise en place entre une personne agissant et une personne surveillant ?

Silence du droit et positions ambiguës

Les textes législatifs (lois ou règlements) canadiens, américains ou européens apportent peu de pistes de solution à ce débat. La plupart se montrent en effet silencieux en ce domaine faisant preuve d’une retenue étonnamment rare lorsque la gouvernance d’entreprise est débattue. Dans ses lignes directrices [2], l’OCDE – ainsi que la Coalition canadienne pour une saine gestion des Entreprises dans ses principes de gouvernance d’entreprise [3] – atteste pourtant de l’importance du cloisonnement entre les deux fonctions.

De ce cloisonnement résulte l’indépendance et l’objectivité nécessaires aux décisions prises par le conseil d’administration. Au Canada, le comité Saucier dans son rapport de 2001 et le rapport du Milstein center [4] ont mis en exergue l’importance d’une telle séparation. En comparaison, la France s’est montrée plus discrète et il n’a pas été question de trancher dans son Code de gouvernement d’entreprise des sociétés cotées (même dans sa version amendée de 2013) [5] : ce dernier ne privilégie ainsi ni la séparation ni le cumul des deux fonctions [6].

Quelques chiffres révélateurs

Les études contemporaines démontrent une nette tendance en faveur de la séparation des deux rôles. Le Canadian Spencer Stuart Board Index [7] estime qu’une majorité de 85 % des 100 plus grandes entreprises canadiennes cotées en bourse ont opté pour la dissociation entre les deux fonctions. Dans le même sens, le rapport Clarkson affiche que 84 % des entreprises inscrites à la bourse de Toronto ont procédé à ladite séparation [8]. Subsistent cependant encore de nos jours des entreprises canadiennes qui permettent le cumul. L’entreprise Air Transat A.T. Inc en est la parfaite illustration : M. Jean-Marc Eustache est à la fois président du conseil et chef de la direction. A contrario, le fond de solidarité de la Fédération des travailleurs du Québec vient récemment de procéder à la séparation des deux fonctions. Aux États-Unis en 2013, 45 % des entreprises de l’indice S&P500 (au total 221 entreprises) dissocient les rôles de PDG et de président du conseil. Toutefois, les choses ne sont pas aussi simples qu’elles y paraissent : 27 % des entreprises de cet indice ont recombiné ces deux rôles [9]. Évoquons à ce titre le cas de Target Corp dont les actionnaires ont refusé la dissociation des deux fonctions [10].

Il faut séparer les fonctions !

Pendant longtemps, il a été d’usage au sein des grandes sociétés par actions, que le poste de président du conseil soit de l’apanage du chef de la direction. Selon les partisans du non cumul, fusionner ces deux fonctions revient néanmoins à réunir dans une seule main un trop grand pouvoir et des prérogatives totalement antagonistes, voir même contradictoires. En ce sens, Yvan Allaire [11] souligne qu’il est malsain pour le chef de la direction de présider aussi le conseil d’administration. Rappelons que le CA nomme, destitue, rémunère et procède à l’évaluation du chef de la direction. La séparation des deux fonctions trouve pleinement son sens ici puisqu’elle crée une contre mesure du pouvoir : le président du CA est chargé du contrôle permanent de la gestion, et le directeur général est en situation de subordination par rapport au CA.

Sous ce contrôle, le directeur général ne peut être que plus diligent et prudent dans l’exercice de ses fonctions, puisqu’il doit en rendre compte au CA. Des idées et décisions confrontées et débattues sont de loin plus constructives que des décisions prises de manière unilatérale. N’y a-t-il pas plus d’esprit dans deux têtes que dans une comme le dit le proverbe ? De plus, les partisans du non cumul avancent d’autres arguments. Il en va ainsi de la rémunération de la direction. Le cumul des deux fonctions irait de pair avec la rémunération conséquente. Celui qui endosse les deux fonctions est enclin à prendre des risques qui peuvent mettre en péril les intérêts financiers de la société pour obtenir une performance et un rendement qui justifieraient une forte rémunération. Par ailleurs, le cumul peut entrainer une négligence des deux rôles au profit de l’un ou de l’autre. Aussi, le choix du non cumul s’impose lorsque l’implication de la majorité ou encore, de la totalité des actionnaires ou membres dans la gestion quotidienne de la société, est faible. Cette séparation permet en effet aux actionnaires ou aux membres d’exercer une surveillance adéquate de la direction et de la gestion quotidienne de ladite société [12].

Attention à la séparation !

Nonobstant les arguments cités plus haut, la séparation des deux fonctions ne représente pas nécessairement une meilleure gestion du conseil d’administration. Les partisans du cumul clament que non seulement l’endossement des deux fonctions par une seule personne unifie les ordres et réduit les couts de l’information, mais que c’est aussi un mécanisme d’incitation pour les nouveaux chefs en cas de transition. Cela se traduit par la facilité de remplacer une seule personne qui détient les deux pouvoirs, à la place de remplacer deux personnes. Par ailleurs, la séparation limiterait l’innovation et diluerait le pouvoir d’un leadership effectif [13] en augmentant la rivalité entre les deux responsables pouvant même aller jusqu’à semer la confusion.

Coûts et flexibilité du choix

En dépit de la critique classique du cumul des fonctions, les deux types de structures sont potentiellement sources de bénéfices et de coûts, bénéfices et coûts que les entreprises vont peser dans leur choix de structure. Les coûts de la théorie de l’agence impliquent des arrangements institutionnels lorsqu’il y a séparation entre les fonctions de président et de chef de la direction [14]. Ces coûts sont occasionnés par exemple par la surveillance du CA sur le chef de la direction. Il devient plus cher de séparer les deux fonctions que de les unifier.

Cependant, une antithèse présentée par Andrea Ovans [15] soutient qu’au contraire il est plus cher d’unifier les deux fonctions que de les séparer. Comment ? Simplement à travers la rémunération (salaire de base, primes, incitations, avantages, stock-options, et les prestations de retraite). L’imperméabilité entre les deux fonctions qui apparaît comme « la » solution en matière de bonne gouvernance pourrait ne pas l’être pour toutes les entreprises.

Si le cumul des fonctions et les autres mécanismes de surveillance fonctionnement bien, pourquoi faudrait-il prévoir un changement ? De surcroit, le « one size fits all » n’est pas applicable en la matière. Devrait-on prévoir les mêmes règles en termes de séparation pour les grandes et petites entreprises ? Rien n’est moins sûr… Le cumul des fonctions apparaît plus adapté aux entreprises de petite taille : ceci est dû à la fluidité de communication entre les deux responsables et à la faiblesse de la quantité d’informations à traiter [16].

[1] Investors seek to split JP Morgan CEO, Chairman http://www.wfaa.com/news/business/192146051.html, <en ligne>, date de consultation : 12 Juillet 2014.

[2] http://www.oecd.org/fr/gouvernementdentreprise/ae/gouvernancedesentreprisespubliques/34803478.pdf, <en ligne>, date de consultation : 12 juillet 2014. Dans le même sens, voir l’instruction générale 85-201 et le rapport Cadbury en 1992.

[3] CCGG : Principes de gouvernance d’entreprise pour la mise en place de conseils d’administration performants, http://www.ccgg.ca/site/ccgg/assets/pdf/Principes_de_gouvernance.pdf, <en ligne>, date de consultation : 12 juillet 2014

[4] « Split CEO/Chair Roles: The Geteway to Good Governance? », http://www.rotman.utoronto.ca/FacultyAndResearch/ResearchCentres/ClarksonCentreforBoardEffectiveness/CCBEpublications/SplitCEO.aspx, <en ligne>, date de consultation : 18 juillet 2014.

[5] Code de gouvernement d’entreprise des sociétés cotées (révisé en juin 2013), http://www.medef.com/fileadmin/www.medef.fr/documents/AFEP-MEDEF/Code_de_gouvernement_d_entreprise_des_societes_cotees_juin_2013_FR.pdf, <en ligne>, date de consultation : 15 juillet 2014.

[6] L’Union européenne ne s’est pas prononcée sur la séparation des deux fonctions. Voir à ce propos Richard Leblanc.

[7] Canadian Spencer Stuart Board Index 2013, https://www.spencerstuart.com/~/media/Canadian-Board-Index-2013_27Jan2014.pdf, <en ligne>, date de consultation : 12 Juillet 2014 ; p. 19.

[8] Public Submissions on Governance Issues, http://www.powercorporation.com/en/governance/public-submissions-governance-issues/may-12-2014-canada-business-corporations-act/#_ftn12, <en ligne>, date de consultation : 18 juillet 2014.

[9] Spencer Stuart Board Index 2013 (US), https://www.spencerstuart.com/~/media/PDF%20Files/Research%20and%20Insight%20PDFs/SSBI13%20revised%2023DEC2013.pdf, <en ligne>, date de consultation : 25 juillet 2014.

[10] Target shareholders narrowly reject splitting CEO, Chairman posts, http://www.bizjournals.com/twincities/news/2014/06/13/target-shareholders-narrowly-reject-splitting-ceo.html, <en ligne>, date de consultation : 18 juillet 2014.

[11] Yvan Allaire, « Un « bon » président du CA ? », http://droit-des-affaires.blogspot.ca/2007/11/un-bon-prsident-du-ca.html, <en ligne>, date de consultation : 23 juillet 2014.

[12] À ce propos, voir André Laurin, « La fonction de président de conseil d’administration », http://www.lavery.ca/upload/pdf/fr/DS_080203f.pdf, <en ligne>, date de consultation : 21 juillet 2014, p. 2.

[13] Aiyesha Dey, Ellen Engel and Xiaohui Gloria Liu, « CEO and Board Chair Roles: to Split or not to Split? », December 16, 2009, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1412827, <en ligne>, date de consultation : 22 juillet 2014.

[14] Idem.

[15] Voir Coûts élevés associés à la combinaison des rôles du président du conseil et du président de la société : https://jacquesgrisegouvernance.com/2014/06/29/couts-eleves-associes-a-la-combinaison-des-roles-du-president-du-conseil-et-du-president-de-la-societe/, <en ligne>, date de consultation : 21 juillet 2014.

[16] Aiyesha Dey, « What JPMorgan Shareholders Should Know About Splitting the CEO and Chair Roles », Research, http://blogs.hbr.org/2013/05/research-what-jpmorgan-shareho/, <en ligne>, date de consultation : 21 juillet 2014.

Quel est le rôle du conseil dans une entreprise familiale ?

La gestion des entreprises familiales est un sujet qui concerne un grand nombre d’organisations, souvent très petites mais qui ont néanmoins besoin d’une certaine configuration de gouvernance. L’article de Dan Ryan, président des pratiques réglementaires à PricewaterhouseCoopers, est basé sur une publication de PwC.

On y présente un modèle de gouvernance qui reflète l’évolution des entreprises familiales ainsi que les nombreux avantages à se doter des mécanismes de gouvernance appropriés.

Également, l’article décrit les principales réticences des entrepreneurs et des fondateurs à aller de l’avant; l’auteur tente d’apporter des réponses concrètes aux préoccupations des propriétaires-dirigeants. Enfin, l’article aborde les attentes que les entreprises doivent avoir eu égard à la mise en place d’un conseil d’administration.

Je vous invite donc à prendre connaissance de l’extrait ci-dessous et de poursuivre la lecture complète de l’article en cliquant sur le lien suivant :

What Is a Board’s Role in a Family Business?

Individual- and family-owned businesses are a vital part of our economy. If you or your family owns such a company you understand how important the company’s success is to your personal wealth and to future generations. If you’re a nonfamily executive at a family company, you also recognize that its profitability and resilience is vital to your job security and financial well-being.

We see more family companies interested in corporate governance today than we did a decade ago, as shown in changes they’ve made to their boards. While some family companies have a board only to satisfy legal compliance requirements, more are moving toward the outer rings on the family business corporate governance model, below. Ultimately, owners will choose which level best suits the company’s needs and when changing circumstances mean the company’s governance should transition to another ring.

Family Business Corporate Governance Model*

Compliance board. While most states require companies incorporated in the state to have a board, the requirement may be as simple as a board of at least one person that meets at least once per year. A company may have only the founder on its board. In the early stages of a founder-led company, this type of board may well be the best fit for the company, since the founder is usually more focused on building the business than on governance.

Insider board. Such a board often includes family members and members of senior management. This membership can better involve the family in the business, help with succession planning, and introduce additional perspectives to board discussions. The insider board may be created by the founder—who may no longer be the CEO—or by the next generation owner(s) of the company. That said, the founder/owner(s) retain decision-making authority.

Inner circle board. In this type of board the founder/owner adds directors he or she knows well. These may include an accountant, lawyer, or other business professional that guided or influenced the company, or the founder’s close friends. These directors may bring skills or experience to the board that are otherwise missing and may be in a position to challenge the founder/owner(s) in a positive way. Such boards might create an audit committee or other committees. That said, the founder/owner(s)—who may or may not be the CEO—retains decision-making authority.

Quasi-independent board. This level introduces outside/independent directors who have no employment or other tie to the company apart from their role as a director. (See the Family Business Corporate Governance Series module Building or renewing your board for a more complete discussion of independent/outside directors.) These directors introduce objectivity and accountability to the board and they expect their input to be respected. Board processes and policies will likely become more formalized with outside/independent directors on the board. The number of committees may increase. This outermost ring on the family business corporate governance model is most similar to governance at a public company.

59% of CEOs and CFOs of 147 family-owned/owner-operated companies report having a “formal board of directors that acts on behalf of company owners to oversee the business and management,” per a PwC 2013 survey.

We recognize that governance at any family company will be determined almost exclusively by what the founder (or family members who control the company) wants. You may have a compliance board or an inner circle board—and those may be entirely appropriate for where your company is at present. We’ve seen numerous family companies that benefited greatly from moving toward the outer rings in the governance model—especially when anticipating a generational transition.

In this post, we’ll help you understand how to build an effective board for your family company, and how boards can assist with some of the particularly challenging issues family companies face. This first module discusses why you might want to evolve or change your governance model and what you could expect from a board if you do so.

Each family company’s situation is unique and we can’t address every scenario. Our goal is to provide a framework of how corporate governance practices apply to family companies so you can decide what’s best for you.

___________________________________________

* Some companies also have an Advisory Board to advise management (and directors). Advisory Board members don’t vote or have fiduciary responsibilities.

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Comment le C.A. peut-il s’acquitter de la surveillance des cyber-risques ?

Aujourd’hui, j’attire votre attention sur un article publié par Tom Hogue, paru sur le site Cisco Blog, qui porte sur les nouvelles responsabilités qui incombent aux membres des conseils d’administration en matière de surveillance des risques cybernétiques globaux de la société..

Il existe des « guidelines » très utiles qui peuvent aider les membres de la direction (CxC), ceux qui doivent attester (signer) de la véracité des éléments de divulgation relatifs aux risques cybernétiques.

Également, il existe des moyens pour les membres de conseils d’administration de s’assurer qu’ils exercent une veille efficace de ces risques. Cet article fait écho à la conférence du Gartner Security and Risk Management Summit , plus particulièrement à la session « Finding the Sweet Spot to Balance Cyber Risk ».

Tammie Gartner Session

À mon avis, tous les administrateurs devraient se familiariser avec l’environnement et la gestion des cyber-risques car ceux-ci peuvent avoir des conséquences dramatiques sur la performance de l’organisation.

La lecture de cet article vous sensibilisera davantage à votre rôle d’administrateur et aux conséquences qui en découlent. Voici un extrait de celui-ci. Bonne lecture !

Cyber Threat Management from the Boardroom Risk: Lost in Translation

During the session, the panel had been discussing how the senior leadership teams address the problem of putting their signatures against the risk that cyber threats pose to their organizations. Tammie Leith made a point to the effect that it is just as important for our teams to tell us why we should not accept or acknowledge those risks so that we can increase investments to mitigate those risks.

What caught my attention was that the senior management teams are beginning to question the technical teams on whether or not appropriate steps have been taken to minimize the risks to the corporation. The CxO (senior leadership team that has to put their signature on the risk disclosure documents) teams are no longer comfortable with blindly assuming the increasing risks to the business from cyber threats.

To make matters worse, the CxO teams and the IT security teams generally speak different languages in that they are both using terms with meanings relevant to their specific roles in the company. In the past, this has not been a problem because both teams were performing very critical and very different functions for the business. The CxO team is focused on revenue, expenses, margins, profits, shareholder value, and other critical business metrics to drive for success. The IT security teams, on the other hand, are worried about breaches, data loss prevention, indications of compromise, denial of services attacks and more in order to keep the cyber attackers out of the corporate network. The challenge is that both teams use the common term of risk, but in different ways. Today’s threat environment has forced the risk environment to blend. Sophisticated targeted attacks and advanced polymorphic malware affect a business’s bottom line. Theft of critical information, such as credit card numbers, health insurance records, and social security numbers, result in revenue losses, bad reputation, regulatory fines, and lawsuits. Because these teams have not typically communicated very well in the past, how can we ensure that they have a converged meaning for risk when they are speaking different “languages”?

In order to fully explore the variations to the term “risk” for the business, I wanted to understand what the Security Exchange Commission (SEC) required of corporations in reporting requirements to their shareholders. The 2013 Cybersecurity Executive Order signed by President Obama, and the release of the NIST Cyber Framework seemed to be giving the SEC a new reason to revisit the topic of cyber security with a revitalized vigor.

The SEC had already published guidance on how corporations should provide cyber security risk disclosures in the CV Disclosure Guidance: Topic No. 2 Date: October 13, 2011. However, the speech that SEC Commissioner Luis A. Aguilar gave at the “Cyber Risks and The Boardroom Conference” at the New York Stock Exchange on June 10 discussed what the “boards of directors can, and should, do to ensure that their organizations are appropriately considering and addressing cyber risks.” In proposing a strong case for the boards of directors to take action, he discussed the “threat of litigation and potential liability for failing to implement adequate steps to protect the company from cyber-threats.” He also discussed the derivative lawsuits that were brought against companies, their officers and directors relating to data breaches. What caught my attention most about the speech is when he said, “Thus, boards that chose to ignore, or minimize, the importance of cybersecurity oversight responsibility, do so at their own peril.”

Commissioner Aguilar made a strong recommendation for corporations to voluntarily adopt the NIST Cybersecurity Framework in order to begin addressing the problem with the statement, “While the Framework is voluntary guidance for any company, some commenters have already suggested that it will likely become a baseline for best practices by companies, including assessing legal or regulatory exposure to these issues or for insurance purposes.”

I am not disagreeing with Commissioner Aguilar, but in practice, this is an incredible challenge for any board of directors as they are now being asked to provide direct cyber security oversight to the internal day-to-day operations of the organization or risk “peril.”

…..

Les investissements des fonds activistes créent-ils une réelle valeur à long terme ?

Récemment, plusieurs experts de la gouvernance des sociétés se sont questionnés (et prononcés) sur la nature de la création de valeur et sur les conséquences à long terme apportées par les fonds de couverture (« edge funds »).

Ce court billet de Martin Lipton, associé principal de la firme Wachtell, Lipton, Rosen & Katz, spécialisée dans les activités de fusions et acquisitions ainsi que dans les questions qui touchent la gouvernance et les stratégies d’affaires, est basé sur la réponse que la firme adresse à une importante étude empirique des auteurs Lucian Bebchuk, Alon Brav, and Wei Jiang sur les bénéfices à long terme des actionnaires activistes.

Cette étude est disponible au lien suivant : The Long-Term Effects of Hedge Fund Activism. Les résultats sont résumés dans un billet du Forum post et dans le Wall Street Journal op-ed article.

Ce qu’il y a de particulier dans ce court billet de Lipton, c’est qu’il vante les mérites d’une étude de l’IGOPP qui pourfend la méthodologie de l’étude économétrique de Bebchuk et al.

Je vous invite donc au débat qui fait rage dans les cercles de la gouvernance en vous référant au document des auteurs Allaire et Dauphin.

“Activist” hedge funds

Voici cette courte introduction de Lipton qui illustre parfaitement sa prise de position en faveur des arguments de l’étude de l’IGOPP. Bonne lecture ! Vos commentaires sont appréciés.

About a year ago, Professor Lucian Bebchuk took to the pages of the Wall Street Journal to declare that he had conducted a study that he claimed proved that activist hedge funds are good for companies and the economy. Not being statisticians or econometricians, we did not respond by trying to conduct a study proving the opposite. Instead, we pointed out some of the more obvious methodological flaws in Professor Bebchuk’s study, as well as some observations from our years of real-world experience that lead us to believe that the short-term influence of activist hedge funds has been, and continues to be, profoundly destructive to the long-term health of companies and the American economy.

Recently, the Institute for Governance of Private and Public Organizations issued a paper that more systematically examines the flaws of Professor Bebchuk’s econometric and statistical models, concluding that “the Bebchuk et al. paper illustrates the limits of the econometric tool kit, its weak ability to cope with complex phenomena; and when it does try to cope, it sinks quickly into opaque computations, remote from the observations on which these computations are supposedly based.” The paper also observes that “activist hedge funds operate in a world without any other stakeholder than shareholders. That is indeed a myopic concept of the corporation bound to create social and economic problems, were that to become the norm for publicly listed corporations.”

Further the Institute’s paper concludes: “[T]he most generous conclusion one may reach from these empirical studies has to be that “activist” hedge funds create some short-term wealth for some shareholders (and immense riches for themselves) as a result of investors, who believe hedge fund propaganda (and some academic studies), jumping in the stock of targeted companies. In a minority of cases, activist hedge funds may bring some lasting value for shareholders but largely at the expense of workers and bond holders; thus, the impact of activist hedge funds seems to take the form of wealth transfer rather than wealth creation.”

The Institute’s paper, “Activist” hedge funds, is well worth reading for its academically rigorous, as well as common sense, refutation of Bebchuk’s claims.

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Sustainability rising

Exhibit 1

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Séparation des fonctions de président du conseil et de chef de la direction : retour sur un grand classique

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