La gouvernance des CÉGEPS | Une responsabilité partagée

Nous publions ici un cinquième billet de Danielle Malboeuf* laquelle nous a soumis ses réflexions sur les grands enjeux de la gouvernance des institutions d’enseignement collégial les 23 et 27 novembre 2013, le 24 novembre 2014 et le 4 septembre 2015, à titre d’auteure invitée.

Dans un premier article, publié le 23 novembre 2013 sur ce blogue, on insistait sur l’importance, pour les CA des Cégeps, de se donner des moyens pour assurer la présence d’administrateurs compétents dont le profil correspond à celui qui est recherché. D’où les propositions adressées à la Fédération des cégeps et aux CA pour élaborer un profil de compétences et pour faire appel à la Banque d’administrateurs certifiés du Collège des administrateurs de sociétés (CAS), le cas échéant. Un autre enjeu identifié dans ce billet concernait la remise en question de l’indépendance des administrateurs internes.

Le deuxième article publié le 27 novembre 2013 abordait l’enjeu entourant l’exercice de la démocratie par différentes instances au moment du dépôt d’avis au conseil d’administration.

Le troisième article portait sur l’efficacité du rôle du président du conseil d’administration (PCA).

Le quatrième billet abordait les qualités et les caractéristiques des bons administrateurs dans le contexte du réseau collégial québécois (CÉGEP)

Dans ce cinquième billet, l’auteure réagit aux préoccupations actuelles de la ministre de l’Enseignement supérieur eu égard à la gouvernance des CÉGEPS.

La gouvernance des CÉGEPS | Une responsabilité partagée

par

Danielle Malboeuf*

Dans les suites du rapport de la vérificatrice générale portant sur la gestion administrative des Cégeps, la ministre de l’Enseignement supérieur, madame Hélène David a demandé au ministère un plan d’action pour améliorer la gouvernance dans le réseau collégial. Voici un point de vue qui pourrait enrichir sa réflexion.

Rappelons que pour atteindre de haut standard d’excellence, les collèges doivent compter sur un conseil d’administration (CA) performant dont les membres font preuve d’engagement, de curiosité et de courage tout en possédant les qualifications suivantes : crédibles, compétents, indépendants, informés et outillés.

Considérant l’importance des décisions prises par les administrateurs, il est essentiel que ces personnes possèdent des compétences et une expertise pertinente. Parmi les bonnes pratiques en gouvernance, les CA devraient d’ailleurs élaborer un profil de compétences recherchées pour ses membres et l’utiliser au moment de la sélection des administrateurs. Au moment de solliciter la nomination d’un administrateur externe auprès du gouvernement, ce profil devrait être fortement recommandé. Sachant que chacun des 48 CA des Collèges d’enseignement général et professionnel compte sept personnes nommées par la ministre pour un mandat de trois ans renouvelable, il est important de lui rappeler l’importance d’en tenir compte.

Il est également essentiel qu’elle procède à ces nominations dans les meilleurs délais. À l’heure actuelle, on constate que, dans certains cas, le délai pour nommer et remplacer des administrateurs externes peut être de plusieurs mois. Cette situation est doublement préoccupante quand plusieurs membres quittent le CA en même temps. Sachant qu’il existe une banque de candidats dûment formés par le Collège des administrateurs de sociétés et des membres de plusieurs ordres professionnels qui répondent au profil de compétences recherchées par les collèges, il serait pertinent de recruter des candidats parmi ces personnes.

De plus, pour être en présence d’administrateurs performants, il est essentiel que ces personnes soient au fait de leurs rôles et responsabilités. Des formations devraient donc leur être offertes. Toutefois, cette formation ne doit pas se limiter à leur faire connaître les obligations légales et financières qui s’appliquent au réseau collégial, mais les bonnes pratiques de gouvernance doivent également leur être enseignées. À ce sujet, il faut se réjouir du souhait formulé par madame David afin d’offrir des formations en ce sens.

Signalons aussi que les administrateurs ne devraient pas se retrouver en situation de conflit d’intérêts. Ainsi, il faut s’assurer, entre autres, que les administrateurs internes ne subissent pas de pressions des groupes d’employés dont ils proviennent. Les conseils d’administration des collèges comptent quatre membres du personnel qui enrichissent les échanges par leurs expériences pertinentes. La Loi sur les collèges prévoit que ces administrateurs internes sont élus par leurs pairs. Dans plusieurs collèges, le processus de sélection est confié au syndicat qui procède à l’élection de leur représentant au conseil d’administration lors d’une assemblée syndicale. Ces personnes peuvent subir des pressions surtout quand certains syndicats inscrivent dans leur statut et règlement que ces personnes doivent représenter l’assemblée syndicale et y faire rapport. D’autres collèges ont prévu des modalités qui respectent beaucoup mieux l’esprit de la loi. On confie au secrétaire général, le mandat de recevoir les candidatures et de procéder dans le cadre de processus convenu à la sélection de ces personnes. Cette dernière pratique devrait être encouragée.

Considérant les pouvoirs du CA qui agit tant sur les aspects financiers et légaux que sur les orientations du collège, il est essentiel que la direction fasse preuve de transparence et transmette aux membres toutes les informations pertinentes. Pour permettre aux administrateurs de porter des jugements adéquats et de juger de la pertinence et de l’efficacité de sa gestion, le collège doit aussi leur fournir des indicateurs. Sachant que des indicateurs sont présents dans le plan stratégique, les administrateurs devraient, donc porter une attention toute particulière à ces indicateurs, et ce, sur une base régulière.

Par ailleurs, les administrateurs ne doivent pas hésiter à poser des questions et à demander des informations additionnelles, le cas échéant. Le président du CA peut, dans ce sens, jouer un rôle essentiel. Il doit, entre autres, porter un regard critique sur les documents qui sont transmis avant les rencontres et encourager la création de sous-comités pour enrichir les réflexions. Considérant le rôle qui lui est confié dans la Loi, les présidents de CA pourraient être tentés de se limiter à jouer un rôle d’animateur de réunions, ce qui n’est pas suffisant.

En résumé, la présence de CA performant dans les Cégeps exige une évolution des pratiques et idéalement, des modifications législatives qui mettront à contribution chacun des acteurs du réseau collégial.

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*Danielle Malboeuf est consultante et formatrice en gouvernance ; elle possède une grande expérience dans la gestion des CÉGEPS et dans la gouvernance des institutions d’enseignement collégial et universitaire. Elle est CGA-CPA, MBA, ASC, Gestionnaire et administratrice retraitée du réseau collégial et consultante.

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Articles sur la gouvernance des CÉGEPS publiés sur mon blogue par l’auteure :

(1) LE RÔLE DU PRÉSIDENT DU CONSEIL D’ADMINISTRATION (PCA) | LE CAS DES CÉGEPS

(2) Les grands enjeux de la gouvernance des institutions d’enseignement collégial

(3) L’exercice de la démocratie dans la gouvernance des institutions d’enseignement collégial

(4) Caractéristiques des bons administrateurs pour le réseau collégial | Danielle Malboeuf

Six mesures pour améliorer la gouvernance des organismes publics au Québec | Yvan Allaire

Je suis tout à fait d’accord avec la teneur de l’article de l’IGOPP, publié par Yvan Allaire* intitulé « Six mesures pour améliorer la gouvernance des organismes publics au Québec », lequel dresse un état des lieux qui soulève des défis considérables pour l’amélioration de la gouvernance dans le secteur public et propose des mesures qui pourraient s’avérer utiles. Celui-ci fut a été soumis au journal Le Devoir, pour publication.

L’article soulève plusieurs arguments pour des conseils d’administration responsables, compétents, légitimes et crédibles aux yeux des ministres responsables.

Même si la Loi sur la gouvernance des sociétés d’État a mis en place certaines dispositions qui balisent adéquatement les responsabilités des C.A., celles-ci sont poreuses et n’accordent pas l’autonomie nécessaire au conseil d’administration, et à son président, pour effectuer une véritable veille sur la gestion de ces organismes.

Selon l’auteur, les ministres contournent allègrement les C.A., et ne les consultent pas. La réalité politique amène les ministres responsables à ne prendre principalement avis que du PDG ou du président du conseil : deux postes qui sont sous le contrôle et l’influence du ministère du conseil exécutif ainsi que des ministres responsables des sociétés d’État (qui ont trop souvent des mandats écourtés !).

Rappelons, en toile de fond à l’article, certaines dispositions de la loi :

– Au moins les deux tiers des membres du conseil d’administration, dont le président, doivent, de l’avis du gouvernement, se qualifier comme administrateurs indépendants.

– Le mandat des membres du conseil d’administration peut être renouvelé deux fois

– Le conseil d’administration doit constituer les comités suivants, lesquels ne doivent être composés que de membres indépendants :

1 ° un comité de gouvernance et d’éthique ;

2 ° un comité d’audit ;

3 ° un comité des ressources humaines.

– Les fonctions de président du conseil d’administration et de président-directeur général de la société ne peuvent être cumulées.

– Le ministre peut donner des directives sur l’orientation et les objectifs généraux qu’une société doit poursuivre.

– Les conseils d’administration doivent, pour l’ensemble des sociétés, être constitués à parts égales de femmes et d’hommes.

Yvan a accepté d’agir en tant qu’auteur invité dans mon blogue en gouvernance. Voici donc son article.

Six mesures pour améliorer la gouvernance des organismes publics au Québec

par Yvan Allaire*

La récente controverse à propos de la Société immobilière du Québec a fait constater derechef que, malgré des progrès certains, les espoirs investis dans une meilleure gouvernance des organismes publics se sont dissipés graduellement. Ce n’est pas tellement les crises récurrentes survenant dans des organismes ou sociétés d’État qui font problème. Ces phénomènes sont inévitables même avec une gouvernance exemplaire comme cela fut démontré à maintes reprises dans les sociétés cotées en Bourse. Non, ce qui est remarquable, c’est l’acceptation des limites inhérentes à la gouvernance dans le secteur public selon le modèle actuel.

En fait, propriété de l’État, les organismes publics ne jouissent pas de l’autonomie qui permettrait à leur conseil d’administration d’assumer les responsabilités essentielles qui incombent à un conseil d’administration normal : la nomination du PDG par le conseil (sauf pour la Caisse de dépôt et placement, et même pour celle-ci, la nomination du PDG par le conseil est assujettie au veto du gouvernement), l’établissement de la rémunération des dirigeants par le conseil, l’élection des membres du conseil par les « actionnaires » sur proposition du conseil, le conseil comme interlocuteur auprès des actionnaires.

Ainsi, le C.A. d’un organisme public, dépouillé des responsabilités qui donnent à un conseil sa légitimité auprès de la direction, entouré d’un appareil gouvernemental en communication constante avec le PDG, ne peut que difficilement affirmer son autorité sur la direction et décider vraiment des orientations stratégiques de l’organisme.

Pourtant, l’engouement pour la « bonne » gouvernance, inspirée par les pratiques de gouvernance mises en place dans les sociétés ouvertes cotées en Bourse, s’était vite propagé dans le secteur public. Dans un cas comme dans l’autre, la notion d’indépendance des membres du conseil a pris un caractère mythique, un véritable sine qua non de la « bonne » gouvernance. Or, à l’épreuve, on a vite constaté que l’indépendance qui compte est celle de l’esprit, ce qui ne se mesure pas, et que l’indépendance qui se mesure est sans grand intérêt et peut, en fait, s’accompagner d’une dangereuse ignorance des particularités de l’organisme à gouverner.

Ce constat des limites des conseils d’administration que font les ministres et les ministères devrait les inciter à modifier ce modèle de gouvernance, à procéder à une sélection plus serrée des membres de conseil, à prévoir une formation plus poussée des membres de C.A. sur les aspects substantifs de l’organisme dont ils doivent assumer la gouvernance.

Or, l’État manifeste plutôt une indifférence courtoise, parfois une certaine hostilité, envers les conseils et leurs membres que l’on estime ignorants des vrais enjeux et superflus pour les décisions importantes.

Évidemment, le caractère politique de ces organismes exacerbe ces tendances. Dès qu’un organisme quelconque de l’État met le gouvernement dans l’embarras pour quelque faute ou erreur, les partis d’opposition sautent sur l’occasion, et les médias aidant, le gouvernement est pressé d’agir pour que le « scandale » s’estompe, que la « crise » soit réglée au plus vite. Alors, les ministres concernés deviennent préoccupés surtout de leur contrôle sur ce qui se fait dans tous les organismes sous leur responsabilité, même si cela est au détriment d’une saine gouvernance.

Ce brutal constat fait que le gouvernement, les ministères et ministres responsables contournent les conseils d’administration, les consultent rarement, semblent considérer cette agitation de gouvernance comme une obligation juridique, un mécanisme pro-forma utile qu’en cas de blâme à partager.

Prenant en compte ces réalités qui leur semblent incontournables, les membres des conseils d’organismes publics, bénévoles pour la plupart, se concentrent alors sur les enjeux pour lesquels ils exercent encore une certaine influence, se réjouissent d’avoir cette occasion d’apprentissage et apprécient la notoriété que leur apporte dans leur milieu ce rôle d’administrateur.

Cet état des lieux, s’il est justement décrit, soulève des défis considérables pour l’amélioration de la gouvernance dans le secteur public. Les mesures suivantes pourraient s’avérer utiles :

Relever considérablement la formation donnée aux membres de conseil en ce qui concerne les particularités de fonctionnement de l’organisme, ses enjeux, ses défis et critères de succès. Cette formation doit aller bien au-delà des cours en gouvernance qui sont devenus quasi-obligatoires. Sans une formation sur la substance de l’organisme, un nouveau membre de conseil devient une sorte de touriste pendant un temps assez long avant de comprendre suffisamment le caractère de l’organisation et son fonctionnement.
Accorder aux conseils d’administration un rôle élargi pour la nomination du PDG de l’organisme ; par exemple, le conseil pourrait, après recherche de candidatures et évaluation de celles-ci, recommander au gouvernement deux candidats pour le choix éventuel du gouvernement. Le conseil serait également autorisé à démettre un PDG de ses fonctions, après consultation du gouvernement.
De même, le gouvernement devrait élargir le bassin de candidats et candidates pour les conseils d’administration, recevoir l’avis du conseil sur le profil recherché.
Une rémunération adéquate devrait être versée aux membres de conseil ; le bénévolat en ce domaine prive souvent les organismes de l’État du talent essentiel au succès de la gouvernance.
Rendre publique la grille de compétences pour les membres du conseil dont doivent se doter la plupart des organismes publics ; fournir une information détaillée sur l’expérience des membres du conseil et rapprocher l’expérience/expertise de chacun de la grille de compétences établie. Cette information devrait apparaître sur le site Web de l’organisme.
Au risque de trahir une incorrigible naïveté, je crois que l’on pourrait en arriver à ce que les problèmes qui surgissent inévitablement dans l’un ou l’autre organisme public soient pris en charge par le conseil d’administration et la direction de l’organisme. En d’autres mots, en réponse aux questions des partis d’opposition et des médias, le ministre responsable indique que le président du conseil de l’organisme en cause et son PDG tiendront incessamment une conférence de presse pour expliquer la situation et présenter les mesures prises pour la corriger. Si leur intervention semble insuffisante, alors le ministre prend en main le dossier et en répond devant l’opinion publique.

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*Yvan Allaire, Ph. D. (MIT), MSRC Président exécutif du conseil, IGOPP Professeur émérite de stratégie, UQÀM

Une culture empreinte de corruption mène habituellement à de sérieux manquements organisationnels !

Si l’on pouvait identifier les variables qui contribuent à créer une culture d’entreprise corrompue, pourrait-on prévoir les comportements corporatifs fautifs ?

C’est essentiellement la question de recherche à laquelle Xiaoding Liu, professeur de finance à University of Oregon’s Lundquist College of Business, a tenté de répondre dans un article utilisant une méthodologie originale et une solide analyse.

L’auteur avance qu’une culture d’entreprise souffrant d’un certain degré de corruption, c’est-à-dire ayant une culture interne plus tolérante envers le manque d’éthique, est plus susceptible de mener à des manquements corporatifs significatifs eu égard aux malversations, aux conflits d’intérêts et aux comportements organisationnels «opportunistes».

In particular, they ask whether a firm’s inherent tendency to behave opportunistically is deeply rooted in its corporate culture, commonly defined as the shared values and beliefs of a firm’s employees.

Cet article montre qu’il y a un lien significatif entre une culture interne basée sur de faibles valeurs éthiques et la probabilité d’inconduite de la direction.

De plus, l’article montre que les comportements des employés basés sur de faibles valeurs éthiques sont transmissibles à d’autres organisations et que ces conclusions s’appliquent tout autant à la direction.

C’est la raison pour laquelle les conseils d’administration doivent se préoccuper de la culture de l’entreprise, s’assurer d’avoir le pouls du climat interne et être vigilants eu égard aux manquements à l’éthique.

Il est également crucial de s’assurer d’avoir une équipe d’auditeurs internes indépendants et bien outillés qui se rapporte au comité d’audit de l’entreprise.

À la suite de ce compte rendu, vous aurez sûrement des questions d’ordre méthodologique. Si vous voulez en savoir davantage sur la démarche de l’auteur, je vous encourage fortement, même si c’est ardu, de lire l’article au complet.

Bonne lecture !

Corruption Culture and Corporate Misconduct

A key question in corporate governance is how to control problems arising from conflicts of interest between agents and principals. The existing literature has extensively investigated traditional ways of dealing with agency problems such as hostile takeovers, the board of directors, and institutional investors, and has found mixed evidence regarding their effectiveness. Acknowledging the difficulty in designing effective governance rules to curb corporate scandals and bank failures, regulators and academics have recently turned their attention inward to the firm’s employees. In particular, they ask whether a firm’s inherent tendency to behave opportunistically is deeply rooted in its corporate culture, commonly defined as the shared values and beliefs of a firm’s employees.

In my article, Corruption Culture and Corporate Misconduct, recently published in the Journal of Financial Economics, I investigate this question by studying the role of corporate culture in influencing corporate misconduct. To do so, I create a measure of corporate corruption culture, which captures a firm’s general attitude toward opportunistic behavior. Specifically, corporate corruption culture is calculated as the average corruption attitudes of insiders (i.e., officers and directors) of a company. To measure corruption attitudes of insiders, I use a recently developed methodology from the economics literature that is generally described as the epidemiological approach (Fernández, 2011). It is based on the key idea that when individuals emigrate from their native country to a new country, their cultural beliefs and values travel with them, but their external environment is left behind. Moreover, these immigrants not only bring their beliefs and values to the new country, they also pass down these beliefs to their descendants. Thus, relevant economic outcomes at the country of ancestry are used as proxies of culture for immigrants and their descendants. Applying this approach, I use corruption in the insiders’ country of ancestry to capture corruption attitudes for insiders in the U.S., where the country of ancestry is identified based on surnames using U.S. Census data.

Using a sample of over 8,000 U.S. companies, I test the main prediction that firms with high corruption culture, which tend to be more tolerant toward corrupt behavior, are more likely to engage in corporate misconduct. Consistent with this prediction, I find that corporate corruption culture has a significant positive effect on various types of corporate misconduct such as earnings management, accounting fraud, option backdating, and opportunistic insider trading. The effects are also economically significant: a one standard deviation increase in a firm’s corruption culture is associated with an increase in the likelihood of corporate misconduct by about 2% to 7%, which are comparable to the effects of other governance measures such as board independence.

I further show that my findings are robust to controlling for time-varying local and industry factors, and traditional measures of corporate governance including the board size, the percentage of insider directors, the presence of institutional investors, and the threat of hostile takeovers. Van den Steen (2010) proposes a model of corporate culture and predicts that the appointment of a new CEO will lead to turnover through both selection and self-sorting. Thus, although corporate culture tends to be persistent over time, it is likely to change in a significant way around new CEO appointments. Motivated by this prediction, I examine corporate misconduct 5 years before and after the appointment of a new CEO while controlling for firm fixed effects. I continue to find a significant positive relation between corruption culture and corporate misconduct, which further alleviates endogeneity concerns.

The theoretical literature has predictions regarding the mechanisms through which corporate culture would affect opportunistic behavior. The first channel predicts that corruption culture acts as a selection mechanism by attracting or selecting individuals with similar corruption attitudes to the firm, where these individuals act according to their internal norms that are then reflected in corporate outcomes (Schneider, 1987). Consistent with this channel, I find that individuals with high corruption attitudes are more likely to join firms with high corruption culture and an insider is more likely to leave the firm if his corruption attitudes are more distant from the corruption attitudes of the other insiders in the firm. The second channel predicts that corruption culture can operate beyond internal norms and have a direct effect on individual behavior through group norms (Hackman, 1992). To test this channel, I examine misconduct at the insider level and focus on the sample of insiders that have moved across firms. Holding the individual constant, results show that when the same individual joins a firm with high corruption culture, his likelihood of engaging in personal misconduct increases compared to when he was at a firm with low corruption culture, consistent with corruption culture working through group norms.

In summary, I show that a firm’s corruption culture is an important determinant of the firm’s likelihood of engaging in corporate misconduct. This finding echoes the growing focus on corporate culture by regulators in an effort to curb corporate wrongdoing. Moreover, I provide evidence on the inner workings of corruption culture, showing that it influences corporate misconduct by both acting as a selection mechanism and having a direct influence on individual behavior. To the best of my knowledge, this is the first paper to construct a novel measure of corporate culture based on the ancestry origins of company insiders. By doing so, I contribute to a growing finance literature examining the influence of corporate culture on corporate behavior, where the main challenge is measurement.

The full article is available for download here.

Deux livres phares sur la gouvernance d’entreprise

On me demande souvent de proposer un livre qui fait le tour de la question eu égard à ce qui est connu comme statistiquement valide sur les relations entre la gouvernance et le succès des organisations (i.e. la performance financière !)

Le volume publié par David F. Larcker et Brian Tayan, professeurs au Graduate School de l’Université Stanford, en est à sa deuxième édition et il donne l’heure juste sur l’efficacité des principes de gouvernance.

Je vous recommande donc vivement ce volume.

Également, je profite de l’occasion pour vous indiquer que je viens de recevoir la dernière version des Principes de gouvernance d’entreprise du G20 et de l’OCDE en français et j’ai suggéré au Collège des administrateurs de sociétés (CAS) d’inclure cette publication dans la section Nouveauté du site du CAS.

Il s’agit d’une publication très attendue dans le monde de la gouvernance. La documentation des organismes internationaux est toujours d’abord publiée en anglais. Ce document en français de l’OCDE sur les principes de gouvernance est la bienvenue !

Voici une brève présentation du volume de Larcker. Bonne lecture !

Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences (2nd edition)

This is the most comprehensive and up-to-date reference for implementing and sustaining superior corporate governance. Stanford corporate governance experts David Larcker and Bryan Tayan carefully synthesize current academic and professional research, summarizing what is known and unknown, and where the evidence remains inconclusive.

Corporate Governance Matters, Second Edition reviews the field’s newest research on issues including compensation, CEO labor markets, board structure, succession, risk, international governance, reporting, audit, institutional and activist investors, governance ratings, and much more. Larcker and Tayan offer models and frameworks demonstrating how the components of governance fit together, with updated examples and scenarios illustrating key points. Throughout, their balanced approach is focused strictly on two goals: to “get the story straight,” and to provide useful tools for making better, more informed decisions.

This edition presents new or expanded coverage of key issues ranging from risk management and shareholder activism to alternative corporate governance structures. It also adds new examples, scenarios, and classroom elements, making this text even more useful in academic settings. For all directors, business leaders, public policymakers, investors, stakeholders, and MBA faculty and students concerned with effective corporate governance.

Selected Editorial Reviews

An outstanding work of unique breadth and depth providing practical advice supported by detailed research.

Alan Crain, Jr., Senior Vice President and General Counsel, Baker Hughes

Extensively researched, with highly relevant insights, this book serves as an ideal and practical reference for corporate executives and students of business administration.

Narayana N.R. Murthy, Infosys Technologies

Corporate Governance Matters is a comprehensive, objective, and insightful analysis of academic and professional research on corporate governance.

Professor Katherine Schipper, Duke University, and former member of the Financial Accounting Standards Board

Les CEO adoptent une vision à long terme, mais ils doivent souvent rechercher des objectifs à court terme pour y arriver !

Cet article récemment publié par Richard T. Thakor*, dans le Harvard Law School Forum on Corporate Governance, aborde une problématique très singulière des projets organisationnels de nature stratégique.

L’auteur tente de prouver que même si les CEO ont généralement une vision à long terme de l’organisation, ils doivent adopter des positions qui s’apparentent à des comportements courtermistes pour pouvoir évoluer avec succès dans le monde des affaires. Ainsi, l’auteur insiste sur l’efficacité de certaines actions à court terme lorsque la situation l’exige pour garantir l’avenir à long terme.

Aujourd’hui, le courtermisme a mauvaise presse, mais il faut bien se rendre à l’évidence que c’est très souvent l’approche poursuivie…

L’étude montre qu’il existe deux situations susceptibles d’exister dans toute entreprise :

il y a des circonstances qui amènent les propriétaires à choisir des projets à court terme, même si ceux-ci auraient plus de valeur s’ils étaient effectués avec une vision à long terme. L’auteur insiste pour avancer qu’il y a certaines situations qui retiennent l’attention des propriétaires pour des projets à long terme.
ce sont les gestionnaires détestent les projets à court terme, même si les propriétaires les favorisent. Pour les gestionnaires, ils ne voient pas d’avantages à faire carrière dans un contexte de court terme.

L’auteur donne des exemples de situations qui favorisent l’une ou l’autre approche. Ou les deux !

Bonne lecture. Vos commentaires sont les bienvenus.

A Theory of Efficient Short-Termism

In the area of corporate investment policy and governance, one of the most widely-studied topics is corporate “short-termism” or “investment myopia”, which is the practice of preferring lower-valued short-term projects over higher-valued long-term projects. It is widely asserted that short-termism is responsible for numerous ills, including excessive risk-taking and underinvestment in R&D, and that it may even represent a danger to capital quiism itself. Yet, short-termism continues to be widely practiced, exhibits little correlation with firm performance, and does not appear to be used only by incompetent or unsophisticated managers (e.g. Graham and Harvey (2001)). In A Theory of Efficient Short-termism, I challenge the notion that short-termism is inherently a misguided practice that is pursued only by self-serving managers or is the outcome of a desire to cater to short-horizon investors, and theoretically ask whether there are circumstances in which it is economically efficient.

I highlight two main findings related to this question. First, there are circumstances in which the owners of the firm prefer short-term projects, even though long-term projects may have higher values. There are other circumstances in which the firm’s owners prefer long-term projects. Moreover, this is independent of any stock market inefficiencies or pressures. Second, it is the managers with career concerns who dislike short-term projects, even when the firm’s owners prefer them.

These results are derived in the context of a model of internal governance and project choice, with a CEO who must approve projects that are proposed by a manager. The projects are of variable quality—they can be good (positive NPV) projects or bad (negative NPV) projects. The manager knows project quality, but the CEO does not. Regardless of quality, the project can be (observably) chosen to be short-term or long-term, and a long-term project has higher intrinsic value. The probability of success for any good project depends on managerial ability, which is ex ante unknown to everybody.

In this setting, the manager has an incentive to propose only long-term projects, because shorter projects carry with them a risk of revealing negative information about the manager’s ability in the interim. Put differently, by investing in a short-term project that reveals early information about managerial ability, the manager gives the firm (top management) the option of whether to give him a second-period project with managerial private benefits linked to it, whereas with the long-term project the manager keeps this option for himself. The option has value to the firm and to the manager. Thus, the manager prefers to retain the option rather than surrendering it to the firm.

The CEO recognizes the manager’s incentive, and may thus impose a requirement that any project that is funded in the first period must be a short-term project. This makes investing in a bad project in the first period more costly for the manager because adverse information is more likely to be revealed early about the project and hence about managerial ability. The manager’s response may be to not request first-period funding if he has only a bad project. Such short-termism generates another benefit to the firm in that it speeds up learning about the manager’s a priori unknown ability, permitting the firm to condition its second-period investment on this learning.

There are a number of implications of the analysis. First, not all firms will practice short-termism. For example, firms for which the value of long-term projects is much higher than that of short-term projects—such as some R&D-intensive firms—will prefer long-term projects, so not all firms will display short-termism. Second, since short-termism is intended to prevent lower-level managers from investing in bad projects, its use should be greater for managers who typically propose “routine” projects and less for top managers (like the CEO) who would typically be involved in more strategic projects. Related to this, since it is more difficult to ascertain an individual employee’s impact on a project’s payoffs at lower levels of the hierarchy, this suggests that the firm is more likely to impose a short-termism constraint on lower-level managers. Third, the analysis may be particularly germane for managers who care about how their ability is perceived prior to the realization of project payoffs. As an example of this, it is not uncommon for a manager to enter a job with the intention or expectation of finding a new job within a few years. The analysis then suggests that the manager would rather not jeopardize future employment opportunities by allowing (potentially risky) project outcomes to be revealed in the short-term, instead preferring that those outcomes be revealed at a time when the manager need not be concerned about the result (i.e. in a different job).

Overall, the most robust result from this analysis is that informational frictions may bias the investment horizons of firms, and that the bias towards short-termism may, in fact, be value-maximizing in the presence of such frictions. This means that castigating short-termism as well as the rush to regulate CEO compensation to reduce its emphasis on the short term may be worth re-examining. Indeed, not engaging in short-termism may signal an inability or unwillingness on the CEO’s part to resolve intrafirm agency problems and thus adversely affect the firm’s stock price. This is not to suggest that short-termism is necessarily always a value-maximizing practice, since some of it may be undertaken only to boost the firm’s stock price. The point of this paper is simply that some short-termism reduces agency costs and benefits the shareholders.

For example, the project horizon for a beer brewery is typically 15-20 years. Similarly, R&D investments by drug companies have payoff horizons typically exceeding 10 years.

The paper is available for download here.

References

Graham, John R., and Campbell R. Harvey, 2001, “The Theory and Practice of Corporate Finance: Evidence from the Field”. Journal of Financial Economics, 60 (2-3), 187-243.

This is in line with Roe (2015), who states: “Critics need to acknowledge that short-term thinking often makes sense for U.S. businesses, the economy and long-term employment … it makes no sense for brick-and-mortar retailers, say, to invest in long-term in new stores if their sector is likely to have no future because it will soon become a channel for Internet selling.”

One can think about the long-term and short-term projects concretely through examples. Within each firm, there are typically both short-term and long-term projects. For example, for an appliance manufacturer, investing in modifying some feature of an existing appliance, say the size of the freezer section in a refrigerator, would be a short-term project. By contrast, building a plant to make an entirely new product—say a high-technology blender that does not exist in the company’s existing product portfolio—would be a long-term project. The long-term project will have a longer gestation period, with not only a longer time to recover the initial investment through project cash flows, but also a longer time to resolve the uncertainty about whether the project has positive NPV in an ex post sense. There may also be industry differences that determine project duration. For example, long-distance telecom companies (e.g. AT&T) will typically have long-duration projects, whereas consumer electronics firms will have short-duration projects.

*Richard T. Thakor, Assistant Professor of Finance at the University of Minnesota Carlson School of Management.

Assurer une efficacité supérieure du conseil d’administration

Aujourd’hui, je cède la parole à Johanne Bouchard* qui agit, de nouveau, à titre d’auteure invitée sur mon blogue en gouvernance.

Celle-ci a une solide expérience d’interventions de consultation auprès de conseils d’administration de sociétés américaines ainsi que d’accompagnements auprès de hauts dirigeants de sociétés publiques (cotées), d’organismes à but non lucratif (OBNL) et d’entreprises en démarrage.

Dans cet article publié dans la revue Ethical Boardroom, Achieving higher board effectiveness, elle aborde un sujet qui lui tient particulièrement à cœur : Assurer une efficacité supérieure du conseil d’administration.

L’auteure insiste sur les points suivants :

Le suivi des réunions du CA par le président du conseil
L’intégration des nouveaux membres du conseil
La formation en gouvernance et l’apprentissage des rouages de l’entreprise
Les sessions de planification stratégique
L’évaluation du leadership du CEO, du conseil et du management

L’expérience de Johanne Bouchard auprès d’entreprises cotées en bourse est soutenue ; elle en tire des enseignements utiles pour tous les types de conseils d’administration.

Bonne lecture ! Vos commentaires sont toujours les bienvenus.

Achieving higher board effectiveness

« Achieving higher board effectiveness goes well beyond adhering to rules, regulations, legal and ethical compliance. While there are many experts who address the regulatory requirements, an aspect that requires the utmost attention, and is often underestimated and even ignored, is the human element »

That is the basic and subtle dynamics and the complexities inherent in having individuals with diverse experience, different views and perspective, and varied cultural and personal backgrounds gathering a few times a year to serve an entity to which they are not privy on a day-to-day basis. It’s further complicated by the fact that these individuals often don’t know each other outside of their board service.

How can a board maintain its independence, make critical decisions, provide valuable and timely insights to management and be effective as a group of individuals if they have minimal access to the ins and outs of an organisation? How can they truly assess the leadership potential of the CEO, the board and management and effectively minimise vulnerabilities and risk when they’re outsiders?

There are initiatives that a board should commit to that can heighten the potential of every director within the context of their roles and responsibilities, allowing them collectively to achieve higher effectiveness. It is fundamentally critical to the board’s ability to stay current, effective and focussed in enhancing long-term shareholder value.

These initiatives include: board meeting follow-ups with the chair and the CEO; on-boarding and integration of new directors; educational sessions; strategic planning sessions; and CEO, board and management leadership effectiveness assessments.

Board meeting follow-ups with the chair and CEO

Whenever directors come together to meet to fulfill their roles and responsibilities, the chair and the CEO can’t assume that the directors have felt that they’ve made their optimal contributions; that they didn’t feel intimidated or even shy to share their insights. That they felt at ease with the dynamics of the meeting, were satisfied with the results of the board meeting and were comfortable with the way the chair led the meeting and the CEO interacted as an executive director. It is important for a chair and for the CEO to take the initiative of reaching out to all directors immediately after the meeting to do a simple check-in.

This provides an opportunity to gain input about the meeting’s outcomes as well as following up with each director on a one-on-one basis to seek their views about the meeting. It’s an opportunity to constructively share their expectations about the director for that meeting and his/her level of preparedness for that meeting and any committee duties, rather than not addressing it or postponing it to an annual board effectiveness assessment. The individual directors’ effectiveness (including the CEO) as well as the chair’s, are too important not to be handled after each meeting. These check-ins are significant to ensure that the possible ‘elephants in the boardroom’ are promptly addressed. They also enable each director and the chair, and each director and the CEO to get to know each other better.

In any relationship, it is important to have the ability to readily share what works, what is missing and what could have been done better. It takes time and, from my experiences with boards, it makes a great difference when every director is prepared to allocate time between meetings to evaluate the prior meeting before attending the next one. These frank exchanges benefit the chair in preparing the agenda for the next meeting and in leading the board meeting itself. Furthermore, it is also the chair’s responsibility to poll each director, in person or over the phone, to get a pulse about his/her ability to stay abreast of the strategy.

On-boarding and integration

It is tempting to let a director join a board and attend his/her first meeting without proper on-boarding. A board can’t afford for a new director to join for his/her first board meeting without a formal on-boarding process. A director is a human being who is being asked to participate, not to simply fill in a seat. A formal on-boarding can include a meeting with the chair and the CEO shortly after the director has been voted in by the board to formally welcome him/her, confirm their expectations and his/her expectations in having joined the board; bring the director up to date with any crisis, strategic priorities and networking opportunities where he/she could specifically provide insights; and to update the director about board governance processes the directors need to understand.

It is good business, tactful and sensible to acknowledge the need to create a proper introduction of the board and the organisation for all new directors as well as introducing and integrating the incoming directors within the board integration event can last 30 minutes to an hour and is planned and professionally facilitated, thus ensuring that the board doesn’t create a climate of ‘us and them’ as the board augments and/or is refreshed. Proper on-boarding and integration enables new directors to quickly get to know the rest of the board and enables all board directors to further connect, respect and trust each other. While a brief session, it is very powerful to welcoming an incoming director and to further integrating all existing directors within the board.

Educational sessions

Our business ecosystem is becoming more complex and is being intermittently disrupted. A board can’t afford not to be current on the trends that can affect their organisation, even if, at a glance, the trend might not appear to have any potential impact on their strategic roadmap. It is important for a CEO with his/her chair to be on top of trends and to identify specific topics that need to be addressed internally at a high level to keep the board informed as a group – but not necessarily within the scheduled meeting, due to time constraints.

I have written in the past about ‘the four pillars’ that make a great relationship between a chair and a CEO. One of the pillars is communication. It is crucial for the chair and CEO to take the time to speak in person, or at least on the phone, or remotely via video-conferencing tools to check in about their relationship, their effectiveness in their respective roles and to ensure that together they address how to keep the board current about market and industry dynamics. Topics can include how the digital economy is impacting the organisation; the cybersecurity evolution and its associated threats; new strategic considerations for the organisation, vis-à-vis corporate social responsibility; shifting the organisation’s focus from shareholders to stakeholders; making an organisational commitment to sustainability, etc.

There is a plethora of topics that a board must address and can’t realistically address within their formal meetings. This creates an opportunity for the board to further align on strategic priorities, to further ascertain how vulnerable the composition of its board may or may not be and whether the board composition needs to be refreshed or augmented. Industry and expert speakers can be invited to present and conduct small roundtables at these educational sessions.

Strategic planning sessions

Since the National Association of Corporate Directors (NACD) in the United States stipulates that boards have the responsibility to engage in the development and amendment of strategy, it is imperative for boards to participate in an annual strategic planning session – in addition to each director staying current about the industry trends. Not only are strategic planning sessions important to aligning the board on strategy, but they also contribute to evaluating human behaviour dynamics and assessing the entire leadership potential of the board.

Directors must be and stay fully informed about the organisation they serve. In particular, when directors are independent, they must have knowledge of the industry and about the business they commit to serve, given that they are not connected to the business, meeting only four-to-six times a year. Better aligned boards can be more effective in assessing the accuracy, completeness, relevance and validity of information presented to them.

A board has an opportunity to really see in action the effectiveness of their CEO when participating in the annual strategic planning session. Likewise, a CEO gets the same opportunity to experience first-hand the agility of its board during such sessions.

The chair (and CEO) should commit to an annual strategic planning session. This initiative ensures that:

■ Board effectiveness is not affected by information asymmetry that would impede its ability to adequately provide guidance, make decisions and constructively challenge the executive team. The board must be continually informed about industry dynamics, the competitive landscape, the organisation’s business model, its value proposition and its strategic milestones. It is unrealistic that a board can approve financial projections, detect overly ambitious production targets and ascertain budgets and profitability objectives without a clear understanding of strategy and key strategic performance indicators

■ The board is exposed to organisational dynamics and to the dynamics of the CEO with selected or most key executive members, which will assist with its identifying warning flags about the company’s strategic priorities and help reconsider performance indicators as needed

The adoption of strategic planning enables the CEO to share more openly among themselves, with the CEO and with management. I have often seen as a result of these sessions healthier effectiveness within the entire Pivotal Leadership Trio (Board, CEO and Executive Team).

CEO, board and management leadership effectiveness assessment

The effectiveness of a board is highly dependent on having the right leader for the organisation during major and critical strategic inflection points of the organisation, having the right leader of the board with the optimal board composition, and the right leadership in all functional areas of the organisation.

A board needs to know when the CEO can’t step up to leadership and organisational challenges, as well as when any board director or member of the management team can’t fulfil their role.

CEO leadership effectiveness assessment

For the board to adequately fulfil its duty of addressing CEO succession, it has a responsibility to evaluate the CEO’s leadership effectiveness. A board can’t assume that the CEO has the skill set, experience and leadership maturity to lead the organisation through different stages of growth, crisis and changes.

This initiative should be conducted by an objective third party. The process should include:

■ A custom and comprehensive inquiry, specifically created to evaluate the CEO of the organisation that the board serves

■ A custom inquiry to address the CEO’s role as an executive director on the board

■ In-person meetings conducted between the CEO and a third-party professional, and between each direct report to the CEO and the third-party professional and each director of the board and the third-party professional

■ Presentation of the CEO’s leadership effectiveness results to the CEO and the chair before being presented to the board as a group

Board and management leadership effectiveness assessments

The evaluation of the directors and the management team also needs to be conducted annually to appropriately support overall succession planning. These should ideally be conducted at the same time as the CEO’s to maximise everyone’s time. For the board assessments, the process should include:

■ A custom and comprehensive inquiry, specifically created to evaluate the board thoroughly

■ In-person meetings between directors and the third-party professional

■ Custom inquiries to capture the insights of the CFO, the CHRO and the general counsel

■ In-person individual meetings between the CFO, the CHRO, the general counsel and the third-party professional

■ Presentation of the board leadership assessment results to the chair and the governance chair before they’re presented to the board as a group

A similar process needs to be adopted for the management team.

It is good practice for the board assessment inquiry to include a director self-assessment, a peer review and an examination of the governance practices.

Leadership effectiveness assessments are natural processes and need to be positioned as such and should not be threatening.

Achieving higher board effectiveness has to be intentional by all directors, individually and collectively as a board, beyond check lists and formal systematic processes. Without a conscious intention, a board will not raise the bar of its effectiveness to the level where it can and should operate. While maintaining independence, the board has to be cognisant of the importance of not assuming anything at any time, not overlooking the need to coalesce on priorities, calibrating and stepping back afresh each time it works together, being in alignment on strategic priorities and refreshing leadership as needed.

Directors can’t afford to underestimate the cultural and values tone they are establishing with their CEO. The board has to pause and ask itself every time it gathers if it is as effective as it should be.

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*Johanne Bouchard est consultante auprès de conseils d’administration, de chefs de la direction et de comités de direction. Johanne a développé une expertise au niveau de la dynamique et de la composition de conseils d’administration. Après l’obtention de son diplôme d’ingénieure en informatique, sa carrière l’a menée à œuvrer dans tous les domaines du secteur de la technologie, du marketing et de la stratégie à l’échelle mondiale.

L’efficacité du rôle du président du conseil

Nous publions ici un quatrième billet de Danielle Malboeuf* laquelle nous a soumis ses réflexions sur les grands enjeux de la gouvernance des institutions d’enseignement collégial les 23 et 27 novembre 2013, à titre d’auteure invitée.

Dans un premier billet, publié le 23 novembre 2013 sur ce blogue, on insistait sur l’importance, pour les CA des Cégep, de se donner des moyens pour assurer la présence d’administrateurs compétents dont le profil correspond à celui recherché.

D’où les propositions adressées à la Fédération des cégeps et aux CA pour préciser un profil de compétences et pour faire appel à la Banque d’administrateurs certifiés du Collège des administrateurs de sociétés (CAS), le cas échéant. Un autre enjeu identifié dans ce billet concernait la remise en question de l’indépendance des administrateurs internes.

Le deuxième billet publié le 27 novembre 2013 abordait l’enjeu entourant l’exercice de la démocratie par différentes instances au moment du dépôt d’avis au conseil d’administration.

Le troisième billet portait sur l’efficacité du rôle du président du conseil d’administration (PCA).

Ce quatrième billet est une mise à jour de son dernier article portant sur le rôle du président de conseil.

Voici donc l’article en question, reproduit ici avec la permission de l’auteure.

Vos commentaires sont appréciés. Bonne lecture.

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LE RÔLE DU PRÉSIDENT DU CONSEIL D’ADMINISTRATION | LE CAS DES INSTITUTIONS D’ENSEIGNEMENT COLLÉGIAL

par Danielle Malboeuf*

Il y a deux ans, je publiais un article sur le rôle du président du conseil d’administration (CA) [1]. J’y rappelais le rôle crucial et déterminant du président du CA et j’y précisais, entre autres, les compétences recherchées chez cette personne et l’enrichissement attendu de son rôle.

Depuis, on peut se réjouir de constater qu’un nombre de plus en plus élevé de présidents s’engagent dans de nouvelles pratiques qui améliorent la gouvernance des institutions collégiales. Ils ne se limitent plus à jouer un rôle d’animateurs de réunions, comme on pouvait le constater dans le passé.

Notons, entre autres, que les présidents visent de plus en plus à bien s’entourer, en recherchant des personnes compétentes comme administrateurs. D’ailleurs, à cet égard, les collèges vivent une situation préoccupante. La Loi sur les collèges d’enseignement général et professionnel prévoit que le ministre [2] nomme les administrateurs externes. Ainsi, en plus de connaître des délais importants pour la nomination de nouveaux administrateurs, les collèges ont peu d’influence sur leur choix.

Présentement, les présidents et les directions générales cherchent donc à l’encadrer. Ils peuvent s’inspirer, à cet égard, des démarches initiées par d’autres organisations publiques en établissant, entre autres, un profil de compétences recherchées qu’ils transmettent au ministre. Ils peuvent ainsi tenter d’obtenir une complémentarité d’expertise dans le groupe d’administrateurs.

Une fois les administrateurs nommés, les présidents doivent se préoccuper d’assurer leur formation continue pour développer les compétences recherchées. Ils se donnent ainsi l’assurance que ces personnes comprennent bien leur rôle et leurs responsabilités et qu’elles sont outillées pour remplir le mandat qui leur est confié. De plus, ils doivent s’assurer que les administrateurs connaissent bien l’organisation, qu’ils adhèrent à sa mission et qu’ils partagent les valeurs institutionnelles. En présence d’administrateurs compétents, éclairés, et dont l’expertise est reconnue, il est plus facile d’assurer la légitimité et la crédibilité du CA et de ses décisions.

Un président performant démontrera aussi de grandes qualités de leadership. Il fera connaître à toutes les instances du milieu le mandat confié au CA. Il travaillera à mettre en place un climat de confiance au sein du CA et avec les gestionnaires de l’organisation. Il cherchera à exploiter l’ensemble des compétences et à faire jouer au CA un rôle qui va au-delà de celui de fiduciaire, soit celui de contribuer significativement à la mission première du cégep : donner une formation pertinente et de qualité où l’étudiant et sa réussite éducative sont au cœur des préoccupations.

Plusieurs ont déjà fait le virage… c’est encourageant ! Les approches préconisées par l’Institut sur la gouvernance des organismes publics et privés (IGOPP) et le Collège des administrateurs de sociétés (CAS) puis reprises dans la loi sur la gouvernance des sociétés d’État ne sont sûrement pas étrangères à cette évolution. En fournissant aux présidents de CA le soutien, la formation et les outils appropriés pour améliorer leur gouvernance, le Centre collégial des services regroupés (CCSR) [3] contribue à assurer le développement des institutions collégiales dans un contexte de saine gestion.

Un CA performant est guidé par un président compétent.

[1] https://jacquesgrisegouvernance.com/2014/01/24/le-role-du-president-du-conseil-dadministration-pca-le-cas-des-cegep/

[2] Ministre de l’Enseignement supérieur, de la Recherche, de la Science et de la Technologie

[3] Formation développée en partenariat avec l’Institut sur la gouvernance des organisations privées et publiques (IGOPP)

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*Danielle Malboeuf est consultante et formatrice en gouvernance ; elle possède une grande expérience dans la gestion des CEGEP et dans la gouvernance des institutions d’enseignement collégial et universitaire. Elle est CGA-CPA, MBA, ASC, Gestionnaire et administratrice retraité du réseau collégial et consultante.

Articles sur la gouvernance des CEGEP

(1) Les grands enjeux de la gouvernance des institutions d’enseignement collégiaux

(2) L’exercice de la démocratie dans la gouvernance des institutions d’enseignement collégiaux

(3) LE RÔLE DU PRÉSIDENT DU CONSEIL D’ADMINISTRATION (PCA) | LE CAS DES CÉGEP

L’importance de la confiance du président du conseil envers son CA | En reprise

Voici le point de vue de Liam McGee paru récemment dans la section Leadership de la revue du Harvard Business School (HBR). L’auteur relate son expérience alors qu’il était le président et chef de la direction (PCD) de la Hartford Financial Services Group.

Selon lui, tous les présidents de conseils d’administration tentent de « gérer leur CA » en utilisant diverses approches basées sur le contrôle et le pouvoir de l’information. Cependant, depuis une dizaine d’années, les conseils d’administration ont progressivement repris leurs droits ! Ils cherchent à maintenir une plus grande distance entre leurs rôles de fiduciaires et ceux qui incombent à la direction de l’organisation.

Pour l’auteur, il n’y a qu’une façon de réconcilier les deux parties : le partenariat. Celui-ci est fondé sur la confiance, et la confiance ne s’acquiert pas du jour au lendemain ! Il faut élaborer une stratégie et mettre en œuvre des mécanismes qui renforceront graduellement la confiance entre le CA et la haute direction. Selon lui, il vital que le PCD ait confiance en son CA.

Toute la carrière de l’auteur a été consacrée à l’établissement de liens de confiance essentiels aux bonnes pratiques de gouvernance. C’est de son expérience dont il est question dans ce bref extrait. Bonne lecture !

CEOs, Stop Trying to Manage the Board

It’s understandable that most CEOs try to manage their boards. With directors often attempting to take a more active role in decisions these days, CEOs naturally feel a bit threatened. They’re trying to lead a group of people who typically lack the time or expertise to fully understand what’s going on — but who have real power.

At most companies, despite all the best intentions, managing the board usually means keeping directors at arm’s length. Most CEOs I’ve known are inclined to give out just enough information to satisfy their fiduciary obligations, often in highly structured meetings that leave little to chance. They hold off on revealing the deeper challenges or complexities that might provoke tough questions.

But as I learned over the course of my career, there’s a better approach with boards. A CEO can work in partnership with directors without sacrificing his or her authority — and thereby accomplish far more than is possible with an arm’s-length relationship. It’s all a matter of developing trust. In my five years as CEO of The Hartford, a Fortune 100 insurer, winning trust was crucial to turning around the company in the aftermath of the global financial crisis.

Building trust can be a delicate thing, but it isn’t magic. You don’t need special charisma. All you really need is courage and self-confidence.

The first step is to show that you trust your directors. In practical terms, that means not trying to stage-manage board interactions. When I took over at The Hartford, the management team took up most of our board meetings going through long slide decks. I got rid of that barrier. We distilled the most important information into pre-reads for the directors to study in advance. The meetings themselves, aside from the CFO’s report on financials, focused on discussions of the main issues. Real transparency, I learned, isn’t so much in the numbers, but in open conversation.

That wasn’t easy at first for my executives, who were used to wielding their slide decks to control their presentations. I had to coach them not to worry and to remember that directors were genuinely interested in their businesses and in getting to know them as managers. So they should just be open to the discussions that came up.

These unscripted meetings not only freed directors to ask more questions, but also gave them more of a window into the company. They got to see the other executives in action, including my potential successors.

It’s important to remember that boards see only a small part of you, and even less of the company. They visit for a day or two and get a snapshot. How you work with them is often as important as the substance of what you say. If you give the board unfettered access to executives, you’ll build trust with the directors as well as with your management team. Openness and transparency in board meetings over time can go a long way toward making everyone comfortable with everyone else.

Still, those steps weren’t enough for me to build a strong basis of trust. It’s one thing to allow open discussion on the usual company topics. But what about the issues that involved me personally? How could I get the directors to trust me on my own performance? Obviously a CEO will want to maintain some discretion here. But openness on even these issues can pay off enormously.

A year into my tenure, a senior executive quit abruptly and, on the way out, criticized my management style to the board. I was concerned enough to get a coach, who conducted a full 360-degree feedback process for me. But instead of just telling the directors about the coaching, I decided to give them an overview of my coach’s findings. Her report was generally positive, but it had some tough parts in it, and I decided to discuss these openly. It may have been risky, but it helped to break the ice. The board members felt relaxed enough to give me some feedback of their own. My lead director even became something of a second coach. All of this was invaluable, and it wouldn’t have happened if I hadn’t made myself vulnerable in the first place.

That trust made a big difference in 2012, when an activist investor challenged us to restructure the company. We were still in the process of developing our new strategy, and the stock price was disappointingly low. The controversy could have led to my departure and, more important, a costly delay in the company’s revival. Instead the board stayed unified and we stuck to our plan, which turned out to be a better approach than the strategy the activist was pushing.

All along the way, as we developed trust, I grew to welcome the board members’ tough questions. I could see they were focused on helping me protect and improve the company. A CEO’s job is hard enough. One of your biggest responsibilities is to avoid making dumb decisions. Wouldn’t you want all the directors to feel comfortable challenging you and each other?

*Liam McGee was chairman and CEO of the Hartford Financial Services Group (“The Hartford”) from 2009 to June of 2014. He died in February 2015.

La SEC propose le bulletin de vote « universel »

Ce billet présente la proposition de la Securities and Exchange Commission (SEC) eu égard à l’utilisation d’un bulletin de vote dit universel dans le cas d’élections contestées lors de l’assemblée annuelle.

En fait, la SEC veut revoir le mode d’élection des administrateurs en obligeant les parties à solliciter les votes pour leurs candidats (la « slate »), mais à la condition d’inclure les noms de tous les autres candidats-administrateurs sur leur bulletin de vote.

Les actionnaires auront ainsi la possibilité de choisir parmi tous les candidats, plutôt que de choisir une « slate » ou une autre.

Cet article a été publié dans Harvard Law School Forum par Ron Cami, Joseph A. Hall, Phillip R. Mills, Ning Chiu, et Rebecca E. Crosby de la firme Davis Polk & Wardwell LLP ; il présente tous les arguments pour une telle proposition tout en montrant les différences avec l’accès au bulletin de vote (« proxy access ») par les groupes d’actionnaires possédant plus de 3 % du capital sur la période des trois dernières années.

Bonne lecture !

SEC Proposes Universal Proxy Ballots

On October 26, the Securities and Exchange Commission proposed long-expected changes to the proxy rules in order to mandate the use of universal proxy cards in contested elections at annual meetings. The proposal is designed to address the current inability of shareholders to vote for the combination of board nominees of their choice in an election involving a proxy contest. Under the proposal, each party in a contested election—management and one or more dissident shareholders—would continue to distribute its own proxy materials and use its own proxy card to solicit votes for its preferred slate of nominees. However, each party’s proxy card would be required to include the nominees of all parties, and thus enable the proxy voter to select its preferred combination of candidates.

The proposal would—

mandate the use of universal proxy cards for most contested director elections,

establish notice and filing requirements for both companies and dissidents,

require dissidents to undertake a minimum solicitation effort, and

prescribe form and presentation criteria for the proxy card.

What seems clear to us is that the universal proxy would ultimately move the balance of corporate power further from the board and closer to the shareholders. As the SEC observed in the proposing release, “[i]f the proposed amendments result in additional dissident representation, it is difficult to predict whether such additional dissident representation would enhance or detract from board effectiveness and shareholder value.” The SEC is seeking comment from all affected constituencies, including companies, on this critical question. The deadline for comments on the proposal is expected to fall in late December 2016, 60 days after publication of the proposal in the Federal Register. Given the timing of the proposal and comment period, there is little chance that a universal proxy card would be required for the 2017 proxy season.

Why Is the SEC Acting?

Currently, a shareholder voting by proxy in a contested election is effectively required to choose between the slate of nominees put forward by management and the slate put forward by the dissident. By contrast, a shareholder who attends a meeting in person can pick and choose between directors nominated by management and directors nominated by dissidents. In the SEC’s view this creates a kink in the proxy plumbing, the overarching goal of which is to make proxy voting as close as possible to voting at a shareholder meeting, due to the interplay between two rules—

– “Bona fide nominee” rule—Under the SEC’s rules, one party’s director nominee may not be included on the opposing party’s proxy card unless the nominee gives his or her consent to the opposing party. Since this rarely happens, the bona fide nominee rule usually results in two separate proxy cards, forcing a shareholder voting by proxy to choose one slate or the other.

– “Last in time” rule—Delaware and other state corporate laws generally provide that the latest proxy revokes any earlier proxy executed by a shareholder. The last-in-time rule therefore effectively stymies a shareholder’s attempt to submit multiple proxy cards to vote for a combination of nominees from different slates, even if the aggregate number of nominees selected is the same as the number of seats up for election. In 1992, the SEC introduced a modification to the bona-fide-nominee rule to permit a dissident to propose a “short slate” of nominees—that is, a slate where the dissident nominees would constitute a minority of the board—and then to “round out” the dissident proxy card by identifying management nominees that the dissident would not vote for, resulting in a proxy voter’s remaining votes being cast for the unnamed management nominees. While the short-slate rule allows proxy voters to vote for a combination of dissident and management nominees, albeit in a roundabout way, the shareholder is still unable to mix and match as it sees fit, since the combination of dissident and management nominees is dictated by the dissident.

Key Features of the Proposal

Mandatory use. The proposal would require universal proxy cards for most contested director elections at annual meetings. Each soliciting party would continue to distribute its own proxy materials and its own version of the universal proxy card. The proposal would not require the cards to be identical; rather, each party would be permitted to design its own card so long as the content, format and presentation comply with the proposal’s criteria.

Mandatory use only applies to solicitations that involve a contested election where a dissident is proposing a competing slate of director candidates. However, with the amendment to the bona-fide-nominee rule, a dissident could name all of management’s nominees on a proxy card in order to solicit against their election, or to seek their removal, even without a universal proxy card. A dissident could also solicit for a proposal other than an election of directors but name all of management’s nominees in order to have a proxy card that could be used for all matters to be voted on at the meeting.

Mandatory use also would not apply to “exempt solicitations” under the proxy rules or to registered investment companies or business development companies.

Revision of the bona-fide-nominee rule. The proposal would define a “bona fide nominee” as a person who has consented to being named in any proxy statement relating to the company’s next meeting of shareholders for the election of directors. The proposal would retain the requirement that a nominee intend to serve, if elected. If a nominee intends to serve only if his or her nominating party’s slate is elected, the proxy statement would need to disclose that fact.

Elimination of the short-slate rule. The proposal would eliminate the short-slate rule because universal proxy cards obviate the need for dissidents to round out partial slates with management nominees. Dissidents would however retain the ability to recommend their preferred management nominees in their proxy materials.

Notice and filing. The proposal would require a dissident shareholder to provide the company with notice of its intent to solicit proxies and the names of its nominees at least 60 days before the anniversary of the previous year’s annual meeting, or about two to four weeks prior to the time the company would typically mail its proxy statement. The company would then be required to provide the dissident with the names of management’s nominees at least 50 days before that anniversary. The dissident would need to file its proxy statement by the later of 25 days before the meeting date or five days after management files its proxy statement.

Minimum solicitation effort. Dissidents would be obligated to solicit holders of shares representing at least a majority of the company’s voting power, which would mean a dissident must expend its own resources in order to trigger use of the mandatory universal proxy card. However, because dissidents would not be required to solicit all shareholders, many shareholders (such as retail investors) may not receive proxy statements containing information about the dissident nominees—thereby decreasing the financial burden on the dissident. The SEC is seeking comment on whether dissidents should be required to solicit all shareholders.

Presentation and formatting. The proposal prescribes formatting and presentation criteria intended to ensure that information is presented clearly and fairly.

A universal proxy card would be required to—

clearly distinguish between management nominees, dissident nominees, and any proxy access nominees,

within each group of nominees, list the nominees in alphabetical order,

use the same font type, style and size to present all nominees,

disclose the maximum number of nominees for which authority to vote can be granted, and

disclose the treatment of a proxy executed in a manner that grants authority to vote for more, or fewer, nominees than the number of directors being elected, or does not grant authority to vote for any nominees. A universal proxy card would be permitted to offer the ability to vote for all management nominees as a group or all dissident nominees as a group, but only if both parties have proposed a full slate of nominees and there are no proxy access candidates.

Voting Standards Disclosure and Voting Options

The SEC has proposed additional rules governing all meetings, not just contested situations, for the election of directors. Due to concerns that some company proxy statements have ambiguous or inaccurate disclosures about voting standards in director elections, the proposal would mandate changes to proxy cards and the disclosure of those voting standards in the proxy statement.

If a company uses a majority vote standard for the election of directors and a vote cast against a nominee would have legal effect under state law, the proxy card would be required to include the options to vote “against” the nominee and to “abstain” from voting. The company would not be permitted to offer an option to “withhold” against a director.

A company that applies plurality voting standards for director elections, including a plurality voting standard with a director resignation policy (often known as “plurality plus”), would need to disclose in its proxy statement the treatment and effect of a “withhold” vote in the election—namely, that “withholds” have no legal effect.

How Is This Different From Proxy Access?

Over the past two years, many companies have adopted “proxy access” bylaws that permit shareholders, typically those who have held at least 3% of the company’s shares for at least three years, to nominate candidates for inclusion in the proxy materials distributed by the company.

The SEC acknowledged that some are concerned that a universal proxy card could be viewed as a substitute for proxy access. However, the SEC indicated that significant differences exist. Unlike proxy access, using a universal proxy card would not require a company to include in its proxy materials the names of the nominating shareholder’s nominees, disclosure about the nominating shareholder and its nominees and a supporting statement from the nominating shareholder. Shareholders making nominations under proxy access can rely on the company’s proxy materials and are not required to prepare and file their own proxy materials, disseminate those materials and use them to solicit shareholders.

With universal proxy cards, by contrast, dissidents would need to spend the time and effort and incur the costs to develop their own proxy statements and solicit shareholders. A company need only include dissident nominees on the universal proxy card it uses, and can choose to provide no other information in the company’s proxy materials about the dissident’s nominees.

What’s Next?

The SEC nodded to concerns that have been raised over allowing universal proxy cards, including the potential for investor confusion and the implication that the soliciting party endorses the other party’s nominees. Though it believes its proposal addresses these issues, the SEC acknowledged that other unknowns remain, including whether universal proxy cards would have an impact on the number of dissident nominees elected, whether they would increase the frequency of contested elections, and what the impact of these developments would be on board effectiveness and, ultimately, shareholder value. The SEC is seeking comment on all of these questions, and the responses it receives could shape any final rules in ways that differ materially from the proposal.

We expect the proposal to generate a lively debate among companies, institutional investors and shareholder advocates. The timing of the proposal, coming in the final days of the Obama Administration, suggests that any definitive action on universal proxy cards may be left to an SEC composed largely of newly appointed members, who may have priorities and concerns that differ from the current commissioners.

Whether or not the SEC adopts its proposal, it would make sense for companies to review their disclosure about voting standards and voting options on their proxy cards for the upcoming proxy season. The SEC staff has expressed concerns that some proxy statements contain ambiguities or inaccuracies under existing law and the Division of Corporation Finance may issue comments in advance of the final rules when it thinks companies may be making inaccurate disclosures.

Points saillants eu égard aux rémunérations des hauts dirigeants en 2016 | The Conference Board

Quels ont été les développements eu égard aux rémunérations de la haute direction des sociétés publiques américaines en 2016 ?

C’est le sujet de l’article publié par Matteo Tonello, directeur exécutif du Conference Board.

Chaque année, l’organisation publie un état de la situation de la rémunération des grands patrons des sociétés américaines.

L’étude, rendue publique récemment, vient de paraître dans le Harvard Law School Forum ; on y présente les changements majeurs dans les politiques de rémunération et l’on y dresse un portrait complet des pratiques de rémunération supervisées par les conseils d’administration.

C’est un compte rendu incontournable pour tous les membres de comités des ressources humaines.

Bonne lecture !

CEO and Executive Compensation Practices: 2016 Edition

The report has been designed to reflect the changing landscape of executive compensation and its disclosure. In addition to benchmarks on individual elements of compensation packages and the evolving features of short-term and long-term incentive plans (STIs and LTIs), the report provides details on shareholder advisory votes on executive compensation (say-on-pay) and outlines the major practices on board oversight of compensation design.

Compensation data is examined and segmented by business industry and company size (measured in terms of annual revenue). For the purpose of the industry analysis, the report aggregates companies within 10 industry groups, using the applicable Global Industry Classification Standard (GICS) codes. In addition, to highlight differences between small and large companies, findings in the Russell 3000 Index are compared with those from the S&P 500 Index. The S&P 500, or subset of the S&P 500, is also used to further investigate certain compensation practices, such as changes in pension value, perquisites, and incentive plans. Figures and illustrations used throughout the report refer to the Russell 3000 analysis unless otherwise specified.

Key Findings from the study

Several highest paid CEOs have made the top-25 list for years; shareholder return is rarely the performance goal driving their compensation.

In the last few years, companies have been responding to public scrutiny over pay-for-performance and made significant adjustments to their compensation policies—curbing base salaries and annual bonuses, introducing retention requirements on equity awards, and shifting from single metric to blended-metric incentive plans. And yet The Conference Board found that pay and performance alignment, at least where performance is measured in terms of total shareholder return (TSR), continues to elude some industries’ chief executives; their top-level compensation is due to performance metrics other than TSR. For example, at asset management public company GAMCO, Mario Gabelli receives fees related to the total assets that his investment company manages, not only the returns generated by those invested assets. At media companies Viacom and CBS, the performance targets of choice are operating income and free cash flow, both for annual and long-term incentives; moreover, the compensation required to retain a CEO is inevitably distorted by the generous compensation offered by those companies to the artists and other media talent needed to appeal to wide audiences. Therefore, at least for these individuals, an analysis of TSR performance is only going to tell some of the story.

CEOs of smaller companies benefited from the highest total pay growth in 2015, but the compensation gap between them and their colleagues in the S&P 500 remains wide.

Excluding the effects of pensions, the increase in median total compensation for CEOs in the S&P 500 was 2.9 percent, contributing to a six-year rise (from 2010) of 22.25 percent. The equivalent figures for the Russell 3000 were 4.2 percent and 54.7 percent respectively. In fact, in the smallest company bracket by revenue, under US$100 million, the increase in median total pay was 37 percent, just between 2014 and 2015 levels. In contrast, the CEOs of the largest companies (US$50 billion and over) received a rise in median pay of 10.8 percent, while smaller organizations saw their median compensation shrink even when excluding the effects of pensions.

Smaller increases in total CEO compensation documented for some industries (including energy, utilities, and telecommunication services) reflect the lackluster performance caused by the slump in commodity prices, new regulatory restraints, and market saturation.

According to the business sector analysis, and again excluding the effect of pension change, CEOs in telecommunications, utilities, industrials, and energy saw median total compensation fall. For energy firm CEOS, the decrease was as large as 17.7 percent. In contrast, CEOs of companies in the consumer discretionary (such as entertainment and travel), consumer staples, and health care sectors all experienced double digit increases, with the highest going to consumer staples CEOs at 28 percent. On the other hand, no industry reported a negative six-year change, with health care CEOs experiencing median growth in total compensation between 2010 and 2015 of 94 percent, from US$1,817,000 to US$3,525,000.

As companies continue to strive to achieve pay-for-performance, a rise in the value of stock awards drives the bulk of total CEO compensation increases.

Stock awards have taken up the slack of virtually every other component of pay. S&P 500 CEOs receive 47 percent of their total pay in the form of stock awards, up from a third in 2010, while in the Russell 3000 it has risen from less than a quarter of total pay to more than a third. More specifically, in 2015 the value of stock awards grew by over 23 percent at the median for CEOs in the Russell 3000, and by 13.7 percent for CEOs in the S&P 500. Over the last six years, the growth in the value of median stock awards for the Russell 3000 has been impressive at 291.4 percent (and as high as 358.3 percent for small companies with asset values between US$500 and US$999 million). In the first quarter of 2015, when decisions about most stock awards are made, awarded stocks in both the S&P 500 and the Russell 3000 were higher than at the beginning of 2014. It remains to be seen whether the volatility that these equity indices registered in 2015 will curb the rise of stock award value in 2016.

With an inflation rate of less than one percent for both 2014 and 2015, market pressure and the looming application of the new SEC pay ratio rules explain the moderate rises in CEO base salary.

Compared to 2015, base salary rose four and 4.7 percent for CEOs in the S&P 500 and the Russell 3000, respectively. Double-digit total compensation increases for CEOs of consumer staples companies were not caused by any increase in base salary, since median salary fell by two percent in that industry. The base salary of energy CEOs showed no increase at all at the median. But for most others, base salary rose by between two percent (utilities and materials) and 6.8 percent (information technology (IT)). Similar disparities can be found when companies are broken down by revenue and asset size. CEOs at the largest companies saw either no increase in median salary or, in the case of companies with annual revenue between US$25 and US$49.9 billion, a decline in median salary by 8 percent. In contrast, CEOs of companies with annual revenue of less than US$100 million reported median salary increase of 9.4 percent, compared to a 7.5 percent increase for companies with asset values of US$500 million or less.

Stock options have been losing importance as a compensation incentive in large companies, where scrutiny on share value manipulation and other unintended behavioral effects has been felt the most.

However, when smaller organizations are analyzed, the move away from stock options is not as significant as is commonly claimed. Options as a percent of total CEO pay fell from around 18 percent to 15 percent in the S&P 500. In contrast, CEOs in the Russell 3000 have been steadily receiving around 15 percent of their pay in stock options in each of the last six years, with little or no change in the percentage.

Pension value changes and the increase in non-qualified deferred compensation (NQDC) have fallen back to normal levels following the absorption of the major actuarial valuation adjustments that occurred in 2014.

In the S&P 500, for example, the amount went from less than three percent of pay in 2013 to almost eight percent in 2014, before halving to four percent in 2015. Given the lack of involvement of boards and compensation committees in such volatility, it is hardly surprising that most surveys are careful to give figures that both exclude and include this element of pay. Across industries and company size groups, the change in pension value and NQDC was negative, both between 2014 and 2015 and over the entire six-year period.

The gain in strength of the US dollar has slowed the operational performance of many multinational companies, causing a sharp year-on-year decrease in the median annual bonuses granted to CEOs in both the Russell 3000 and the S&P 500.

In fact, in the S&P 500, median 2015 bonuses are lower than they were six years ago (when they stood close to US$2 million), though similar in level to the median bonus awarded in 2012 and 2011 (around US$1,850,000). As with other compensation elements, median bonuses for CEOs of the smallest companies reverse the general trend. Median bonuses for CEOs of companies with annual revenue of less than US$100 million increased by three percent; for companies with asset values of less than US$500 million, this increase was seven percent. In contrast, CEOs of companies with an asset value of more than US$100 billion saw median bonus value fall by almost a fifth.

In 2015, for the first time in years, the annual growth in percentage points of total NEO compensation exceeded that of CEOs—a sign that companies may be concerned about talent retention at the top in a tightening job market.

While growth of compensation for NEOs exceeded that of CEOs between 2014 and 2015, growth for NEO compensation in the long-term lags that of CEOs. NEO pay rose between 2010–2015 (32 percent and 15.8 percent in the Russell 3000 and S&P 500 respectively), but CEO pay rose more over this period (55 percent and 22 percent for each index). The latest year of slower pay growth may also reflect concerns that differentials are widening too far between CEOs and NEOs. In 2015, median total compensation for NEOs (other than the CEO) was US$1,439,000 in the Russell 3000 and US$3,563,000 in the S&P 500.

The increasing attention paid by investors and other stakeholders to sustainability and long-termism is prompting companies to add non-financial targets to their incentive plans, which seldom still rely on a single metric of performance.

The number of performance measures included in an incentive plan has steadily increased over the past five years, expanding to a series of qualitative aspects of firm performance—ranging from customer satisfaction to the implementation of safety standards and from employee turnover rates to environmental impact measures. When non-financial measures are included in the target count, more than a quarter of firms use more than six performance metrics in their STI plans. Excluding them brings that proportion down to one percent. Without non-financial measures, a third of companies have between two and three metrics for their annual plans. The volume of companies using only a single metric continues to shrink quite rapidly; in STIs, it is down from 16 percent to 14 percent from 2014 to 2015, up from almost a third of the examined 2010 sample. For LTIs, companies using a single metric dropped from 41 percent in 2010 to 19 percent in 2015.

Say-on-pay analysis confirms a significant turnover in failed votes, with several companies losing the confidence of their shareholders this year after winning the vote by a wide margin in 2014.

In the Russell 3000, only 27 of the executive compensation plans put to a say-on-pay vote in the first half of 2016 failed to receive the support of a majority of shareholders. This compares with 52 and 51 percent of companies with failed votes during the same period in 2015 and 2014, respectively. Two companies that reported failed votes in 2016 had also missed a majority support level in 2015: Masimo Corp and Tutor Perini Corporation. (There were eight of these cases in 2015.) Tutor Perini Corporation is the only company in the Russell 3000 that has failed all six years of say-on-pay advisory votes. Nabors Industries Ltd. had four consecutive failed votes as of 2014, received 65.3 percent of for votes at its 2015 annual general meeting (AGM), and then failed the advisory vote again in 2016 (with a mere 36 percent of votes cast in favor of the compensation plan proposed by management).

La fonction d’audit interne | de plus en plus incontournable pour assurer une saine gouvernance et l’intégrité du management

Voici le résumé d’un article du Wall Street Journal (Internal Audit Chiefs Gain in Clout, Compensation), publié par Joann S. Lublin, et paru dans le journal The Australian.

Cet article porte sur l’importance accrue accordée au rôle de l’auditeur interne dans la vérification des mécanismes de contrôle interne, de la gestion des risques, notamment des risques de cyberattaques, ainsi que des processus de gouvernance et de conformité.

L’influence du département de l’audit interne prend une place quasi incontournable dans la vaste majorité des grandes sociétés comme en témoignent les statistiques à ce sujet.

Ainsi, 83 % des directions d’audit interne se rapportent au CA ou au comité d’audit du CA ; c’est un accroissement de 76 % en trois ans !

On peut certainement constater que les activités d’audit interne représentent les « yeux et les oreilles du comité d’audit ».

Également, les directeurs des services d’audit interne ont vu leur rémunération augmenter d’environ 30 % au cours des dix dernières années.

Les conseils d’administration accordent maintenant une grande importance à la sélection et à la rémunération des « Chief Audit Executive » (CAE).

Bonne lecture !

Chief audit executives gaining clout and higher pay

Top watchdogs inside many companies bark louder these days.

They are known as chief audit executives, or CAEs, and they assess the effectiveness of corporate controls, risk management and governance processes. As boards worry more about cyber attacks, regulatory compliance and personal liability, these executives are gaining clout and commanding higher pay.

CAEs are becoming more visible in part because directors are playing bigger roles in selecting, evaluating and rewarding internal audit chiefs. In North America, 83 per cent of those executives now report to their employer’s full board or audit committee, according to a report by the Institute of Internal Auditors. That’s up from 76 per cent in 2013.

Another sign of their rising influence: this year, for the first time, the proportion of audit leaders who report to their chief executive matched those overseen by the chief financial officer, the report found.

Solid support from audit committees and top company leaders often give CAEs more freedom to raise red flags, experts said. It can also bring them sizeable pay cheques.

“Boards will pay a lot more for CAEs with superior risk-management and business acumen in their company’s industry,’’ said Richard Chambers, IIA president.

Recruiters agree. “Chief audit executives hired by large companies now command total pay packages approaching $US1 million — about 30 per cent more than a decade ago,’’ said Scott Simmons, a managing director at Crist Kolder Associates, which recruited nearly 15 current CAEs.

Sarbanes-Oxley, the sweeping corporate-reform law enacted in 2002, raised boards’ expectations for heads of internal audit, according to Charles Noski, chairman of the audit committee at Microsoft, Priceline Group and Avon Products.

“Internal audit really is the eyes and ears of the audit committee,’’ he said, adding that CAEs today “are stronger executives’’.

Mr Noski makes sure that’s true of candidates who interview for the job. He said he seeks “a strong backbone”, plus effective boardroom presence and communications skills.

Étude sur les éléments à prendre en ligne de compte par les comités de rémunération eu égard à la compensation globale des PDG de sociétés publiques aux É.U.

Ce matin, je partage avec vous les conclusions d’une enquête effectuée par Ira Kay et Blaine Martin, pour le compte de la SEC, et parue dans la revue Pay Governance.

Quelle part de l’accroissement de l’inégalité des revenus aux États-Unis a été occasionnée par les rémunérations « excessives » des CEO ? Cette inégalité est-elle attribuable à une défaillance de la gouvernance des sociétés ?

Le mandat répond à certaines questions de la SEC, notamment :

Question 1 : Is the recent increase in US income inequality caused primarily by the increase in the number of public company executives in the top .1% of earners?

Question 2 : Alternatively, is the recent increase in US income inequality caused primarily by the increase in the aggregate pay levels of public company executives in the top 1% and .1% of earners?

Question 3 : Is CEO pay aligned with the performance of their employer?

Question 4 : Have corporate governance failures caused excessive executive compensation levels at public companies, thus exacerbating the inequality issue?

Question 5 : Are shareholders dissatisfied with the US executive pay model?

Cet article apporte des réponses qui surprendront probablement les spécialistes de la gouvernance. Les auteurs tirent des conclusions très utiles pour les comités de rémunérations à l’occasion de l’évaluation de la paie de leurs CEO. « The conclusion of our research is that relatively high executive compensation at public companies, allegedly enabled by compliant boards, is not the primary explanation for rising income inequality in the US ».

Voici quelques considérations à l’intention des comités de rémunération :

Ensure that competitive executive compensation opportunity levels are monitored annually against the median of an appropriately-sized peer group. This will provide a robust context for the CEO pay ratio.

Ensure that executive compensation program design provides appropriate pay-for-performance linkage, including setting challenging performance goals and providing the majority of compensation in long-term equity.

Apply best-practice compensation policies including robust stock ownership guidelines, clawback provisions, and prohibitions on hedging and pledging company shares to further link executive income and wealth to the performance of the company.

Maintain strong corporate governance practices including nominating directors using an independent Nominating Committee, using independent compensation consultants and legal counsel, and holding executive sessions at each Compensation Committee meeting.

Ensure that all employees are competitively and appropriately paid relative to the profitability, fairness and economics of the company.

Consider whether the Compensation Committee should review supplemental analyses related to the CEO pay ratio and broad-based pay practices (e.g., comparison of executive versus broad-based pay increases, review of number of employees covered under benefit programs, and review of pay ratio and median employee data to peers).

Consider how the Company will address and explain the disclosure of the ratio of CEO to median employee pay in the 2018 proxy. Since supporters of the CEO pay ratio believe that this disclosure will reduce “excessive” CEO pay caused by weak governance, companies may need to be explicit in responding to this theory. The data and analysis presented here could help in this regard.

The SEC’s Madated CEO Pay Ratio in the Context of Income Inequality : Perspectives for Compensation Committees

Key Takeaways

While the income inequality controversy started as a sociological and public Policy debate, Compensation Committees should have a strong understanding of the Relationship between public company executive compensation and income inequality.

The impending disclosure of the ratio of CEO to median employee pay in 2018 proxy statements, as required Under Dodd–‐Frank, will dramatically bring such discussions into the Compensation Committee in the near future. Supporters of the CEO pay ratio believe that this disclosure will reduce “excessive” CEO pay and lower the pay multiple.

Many “overpaid” executives subject to weak boards and poor corporate governance for being the primary cause of US income inequality. This is not accurate. While corporate executives are paid well, public company executives represent a smaller portion of the highest .1% in more recent times than they did in the mid–‐1990s.

Additionally, for the top .1%, growth in public company executive compensation actually lags the growth in private company executive pay and finance Professional pay over the same 13–‐year time period.

Pay Governance’s analyses of realizable pay for performance indicate that pay–‐for–‐performance is operating among US companies.

Improvements in corporate governance practices combined with similar executive pay levels and designs for private company executives suggest that high levels of public company CEO pay are not the result of corporate governance failure.

Further, widespread investor support for say–‐on–‐pay votes in the past six years indicate broad investor support of the current executive compensation regime.

We make strong arguments that the CEO pay ratio for a particular company will be indicative of market–‐driven industry, size and performance factors, rather than a failure of corporate governance.

As Compensation Committees consider the context of inequality issues and executive compensation decisions, Committees should focus on robust corporate governance practices, independent advice, and the company’s strategy for addressing the disclosure of the ratio of CEO to median employee pay in 2018.

The complete publication, including footnotes, is available here.

Prélude à un code de gouvernance aux É.U. !

Voici un bref article de Gary Larkin, associé à The Conference Board Governance Center, qui porte sur la perspective de concevoir un code de gouvernance qui s’adresse à l’ensemble des entreprises publiques (cotées) américaines.

Le projet de code est l’initiative de quelques leaders d’entreprises cotées, de gestionnaires d’actif, d’un gestionnaire de fonds de pension et d’un actionnaire activiste.

Cet énoncé des grands principes de gouvernance se veut un exercice devant jeter les bases d’un code de gouvernance comme on en retrouve dans plusieurs pays, notamment au Royaume-Uni.

Voici les points saillants des principes retenus :

Every board should meet regularly without the CEO present, and every board should have active and direct engagement with executives below the CEO level.

Directors should be elected by a majority of either “for” or “against/withhold” votes (with abstentions and non-votes not be counted)

Board refreshment should always be considered in order that the board’s skillset and perspectives remain current.

Every board should have members with complementary and diverse skills, backgrounds and experiences.

If the board decides on a combined CEO/Chair role, it is essential that the board have a strong independent director.

Institutional investors that make decisions on proxy issues important to long-term value creation should have access to the company, its management, and, in some circumstances, the board.

Companies should only provide earnings guidance to the extent they believe it is beneficial to shareholders.

Bonne lecture !

It’s Commonsense to Have a U.S. Corporate Governance Code

Over the summer, one of the most interesting pieces of corporate governance literature was the Commonsense Corporate Governance Principles.

The publication was the result of meetings between a group of leading executives of public companies, asset managers, a public pension fund, and a shareholder activist. The principles themselves may not have broken new ground—they addressed such basic issues as director independence, board refreshment and diversity, the need for earnings guidance, and shareholder engagement. But the fact that such a publication was released at a time when some in Congress to roll back Dodd-Frank corporate-governance-related regulations is impressive.

It’s impressive because of who was in the meetings. It’s impressive because the meetings took place without any government or third-party instigation. It’s impressive because it might be the beginning of a new strategy for overseeing corporate governance in the United States. It shows that sometimes industry can lead by example without rules and regulations to tell them how to govern their own companies and boards.

Maybe these principles could be the start of the first true US corporate governance code, something that our brethren in the UK have had for years. Even smaller markets such as South Africa and Singapore have codes that are used to guide corporate governance.

Granted, those at the meetings, some of who included J. P. Morgan Chase CEO Jamie Dimon, Berkshire Hathaway chief Warren Buffett, General Motors head Mary Barra, BlackRock Chair and CEO Larry Fink, and Canada Pension Plan Investment Board President and CEO Mark Machin might not have envisioned themselves as U.S. corporate governance pioneers. But it’s a first step toward a true principles-based approach to good corporate governance in a country that is used to following rules and hiring attorneys to find the loopholes.

If you look at the main points made in the Commonsense Principles, you can see the foundation for such a code:

Every board should meet regularly without the CEO present, and every board should have active and direct engagement with executives below the CEO level.

Directors should be elected by a majority of either “for” or “against/withhold” votes (with abstentions and non-votes not be counted)

Board refreshment should always be considered in order that the board’s skillset and perspectives remain current.

Every board should have members with complementary and diverse skills, backgrounds and experiences.

If the board decides on a combined CEO/Chair role, it is essential that the board have a strong independent director.

Institutional investors that make decisions on proxy issues important to long-term value creation should have access to the company, its management, and, in some circumstances, the board.

Companies should only provide earnings guidance to the extent they believe it is beneficial to shareholders.

Microsoft, a Governance Center member, is satisfied with the Commonsense Principles because it aligns with what it has in place, according to a blog from Microsoft Corporate Secretary John Seethoff. “For example, we’ve made a concerted effort to assure board refreshment occurs with a focus on diversity in skillsets, backgrounds, and experiences,” he wrote. “The Principles agree with this emphasis, asserting, ‘Diversity along multiple dimensions is critical to a high-functioning board. Director candidates should be drawn from a rigorously diverse pool.’ Board tenure receives similarly thoughtful consideration, with the Principles underscoring the need to temper ‘fresh thinking and new perspectives’ with ‘age and experience.’”

Seethoff concluded: “At Microsoft, we’ve long believed that good corporate governance encourages accountability and transparency, as well as promotes sound decision-making to support our business over time. The ultimate goal is to create a system that provides appropriate structure for the company at present, allows flexibility to change in the future, and has a long-term perspective that matches our business objectives and strategy. As part of this open, constructive mindset, we applaud the leaders for outlining these Principles and look forward to continued dialogue on this important effort.”

If you ask me, the Commonsense Principles can definitely be the US Corporate Governance Code Version 1.0. They could be treated like climate change agreements (i.e. the 2015 Paris Climate Change Agreement) where countries come together and sign on. The original group of executives could hold a follow-up meeting or convention that would allow US companies to promise to follow the principles, similar to The Giving Pledge started by Buffet and Microsoft founder Bill Gates.

Le positionnement de l’Ordre des administrateurs agréés du Québec (OAAQ) sur la gouvernance du système professionnel

Dans ce billet, je vous présente un sommaire de l’allocution que j’ai exposé devant les membres de la commission des institutions de l’Assemblée nationale, le 21 septembre, et qui concerne la position de l’ordre des administrateurs agréés eu égard à la modernisation de la gouvernance du système professionnel québécois (Projet de loi 98).

Voici donc le sommaire de notre mémoire. Vous pouvez consulter la version complète du Mémoire de l’Ordre des administrateurs agréés du Québec en vous rendant sur le site de l’assemblée nationale et en cliquant sur le document PDF en question.

Bonne lecture.

Sommaire

L’Ordre des administrateurs agréés du Québec (« OAAQ ») accueille favorablement les mesures visant à moderniser la gouvernance des ordres professionnels. Le recentrage des responsabilités des conseils d’administration vers la vigie et la stratégie, la réduction de la taille des conseils et la distinction des rôles de président et de directeur général devraient favoriser le fonctionnement de nos organisations vouées à la protection du public.

Les principes de gouvernance qui sous-tendent cette réforme sont d’ailleurs implantés à l’OAAQ depuis 2011. L’OAAQ appuie vigoureusement l’obligation pour les administrateurs de se soumettre à une formation en gouvernance et en éthique. Compte tenu de son expertise, l’OAAQ invite les acteurs du système professionnel à lui confier ce mandat de formation.

Le projet de loi nº 98 donne également suite à quatre recommandations de la Commission Charbonneau, notamment quant aux pouvoirs du syndic. Tout en appuyant ces mesures, l’OAAQ souhaite que la réflexion sur la contribution du système professionnel au défi de l’intégrité soit l’occasion de réfléchir au potentiel lié à la professionnalisation de la gestion, un axe malheureusement occulté dans la réponse à donner aux suites de la Commission Charbonneau.

En effet, le rôle joué par certains professionnels de la gestion – chargés de projets, cadres municipaux et administrateurs de contrats – a été remis en question. En sa qualité d’ordre professionnel encadrant la pratique des gestionnaires et veillant à la promotion de normes déontologiques et d’éthique, l’OAAQ peut compléter le dispositif en place aux fins de mitiger les risques d’inconduites dans le domaine des affaires et de la gestion. L’OAAQ interpelle l’État et l’invite à favoriser l’adhésion des gestionnaires au système professionnel ainsi qu’à l’OAAQ.

L’OAAQ appuie la volonté gouvernementale visant à assurer une meilleure efficacité des ordres dans leur mission de protection du public.

Toutefois, les ordres à titres réservés, comme l’OAAQ, doivent avoir les moyens d’exister pour remplir cette mission. Cette consultation sur la réforme du Code des professions est l’occasion de sensibiliser les parlementaires à l’enjeu de la pérennité auquel fait face notre ordre et d’exprimer nos attentes légitimes. Alors que l’OAAQ doit accentuer les mécanismes de protection du public, il doit d’autre part relever le défi de recruter des membres qui s’astreindront à des devoirs déontologiques et à des responsabilités supplémentaires (inspection, formation, assurance) sans bénéficier d’actes réservés.

Si l’État souhaite renforcer la protection du public et la contribution des ordres à titres réservés à cette mission, son action doit être cohérente et des mesures structurantes doivent être mises en œuvre.

Malheureusement, et bien que les consultations et travaux de l’Office des professions du Québec soient terminés, le projet de loi nº 98 ne comporte pas de disposition modernisant les champs descriptifs des ordres du secteur des affaires. L’OAAQ est également en attente de mesures législatives pour la réserve d’acte en gestion de copropriété, une action recommandée par l’Office des professions du Québec.

LISTE DES RECOMMANDATIONS

RECOMMANDATION 1

Que l’État reconnaisse le potentiel lié à la professionnalisation de la gestion comme une réponse à la Commission Charbonneau et que l’administration publique encourage et favorise l’adhésion des gestionnaires au système professionnel ainsi qu’à l’OAAQ.

RECOMMANDATION 2

Que le Code des professions soit amendé afin de renforcer la gouvernance des ordres professionnels et consacre les principes suivants :

Recentrage des responsabilités du conseil d’administration vers la surveillance, les orientations stratégiques et la gouvernance ;

Réduction de la taille des conseils d’administration ;

Distinction des rôles de président (la gouvernance) et de directeur général (la gestion) ;

Obligation d’adopter un code d’éthique et de déontologie pour les administrateurs des ordres et de se soumettre à une formation en gouvernance ;

Discrétion accordée aux ordres dans leur choix de porte-parole.

RECOMMANDATION 3

Que le Code des professions consacre l’obligation de se soumettre à une formation en matière de gouvernance et d’éthique pour les administrateurs des ordres et que les acteurs du système professionnel confient à l’OAAQ ce mandat de formation.

RECOMMANDATION 4

Que la modernisation des champs descriptifs des ordres du secteur des affaires soit intégrée au projet de loi n° 98 (modifications au paragraphe i de l’article 37 du Code des professions).

RECOMMANDATION 5

Que le gouvernement donne suite aux orientations de l’Office des professions du Québec visant la modernisation des champs d’exercice des professions du secteur des affaires et légifère pour réserver l’activité de l’administration de copropriétés.

Livres phares sur la gouvernance d’entreprise

Voici un article de James McRitchie, publié dans Corporate governance, qui commente succinctement le dernier volume de Richard Leblanc.

Comme je l’ai déjà mentionné dans un autre billet, le livre de Richard Leblanc est certainement l’un des plus importants ouvrages (sinon le plus important) portant sur la gouvernance du conseil d’administration.

Une révision du volume de Richard Leblanc | Handbook of Board Governance

Mentionnons également que le volume publié par David F. Larcker et Brian Tayan, professeurs au Graduate School de l’Université Stanford, en est à sa deuxième édition et il donne l’heure juste sur l’efficacité des principes de gouvernance. Voici une brève présentation du volume de Larcker.

Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences (2nd edition )

Je vous recommande donc vivement de vous procurer ces volumes.

Enfin, je profite de l’occasion pour vous indiquer que je viens de recevoir la dernière version des Principes de gouvernance d’entreprise du G20 et de l’OCDE en français et j’ai suggéré au Collège des administrateurs de sociétés (CAS) d’inclure cette publication dans la section Nouveauté du site du CAS.

Bonne lecture !

Les CEO adoptent une vision à long terme, mais ils doivent souvent rechercher des objectifs à court terme pour y arriver !

Aujourd’hui, le courtermisme a mauvaise presse, mais il faut bien se rendre à l’évidence que c’est très souvent l’approche poursuivie…

L’étude montre qu’il existe deux situations susceptibles d’exister dans toute entreprise :

il y a des circonstances qui amènent les propriétaires à choisir des projets à court terme, même si ceux-ci auraient plus de valeur s’ils étaient effectués avec une vision à long terme. L’auteur insiste pour avancer qu’il y a certaines situations qui retiennent l’attention des propriétaires pour des projets à long terme.
ce sont les gestionnaires détestent les projets à court terme, même si les propriétaires les favorisent. Pour les gestionnaires, ils ne voient pas d’avantages à faire carrière dans un contexte de court terme.

L’auteur donne des exemples de situations qui favorisent l’une ou l’autre approche. Ou les deux !

Bonne lecture. Vos commentaires sont les bienvenus.

A Theory of Efficient Short-Termism

In the area of corporate investment policy and governance, one of the most widely-studied topics is corporate “short-termism” or “investment myopia”, which is the practice of preferring lower-valued short-term projects over higher-valued long-term projects. It is widely asserted that short-termism is responsible for numerous ills, including excessive risk-taking and underinvestment in R&D, and that it may even represent a danger to capital quiism itself. Yet, short-termism continues to be widely practiced, exhibits little correlation with firm performance, and does not appear to be used only by incompetent or unsophisticated managers (e.g. Graham and Harvey (2001)). In A Theory of Efficient Short-termism, I challenge the notion that short-termism is inherently a misguided practice that is pursued only by self-serving managers or is the outcome of a desire to cater to short-horizon investors, and theoretically ask whether there are circumstances in which it is economically efficient.

I highlight two main findings related to this question. First, there are circumstances in which the owners of the firm prefer short-term projects, even though long-term projects may have higher values. There are other circumstances in which the firm’s owners prefer long-term projects. Moreover, this is independent of any stock market inefficiencies or pressures. Second, it is the managers with career concerns who dislike short-term projects, even when the firm’s owners prefer them.

These results are derived in the context of a model of internal governance and project choice, with a CEO who must approve projects that are proposed by a manager. The projects are of variable quality—they can be good (positive NPV) projects or bad (negative NPV) projects. The manager knows project quality, but the CEO does not. Regardless of quality, the project can be (observably) chosen to be short-term or long-term, and a long-term project has higher intrinsic value. The probability of success for any good project depends on managerial ability, which is ex ante unknown to everybody.

In this setting, the manager has an incentive to propose only long-term projects, because shorter projects carry with them a risk of revealing negative information about the manager’s ability in the interim. Put differently, by investing in a short-term project that reveals early information about managerial ability, the manager gives the firm (top management) the option of whether to give him a second-period project with managerial private benefits linked to it, whereas with the long-term project the manager keeps this option for himself. The option has value to the firm and to the manager. Thus, the manager prefers to retain the option rather than surrendering it to the firm.

The CEO recognizes the manager’s incentive, and may thus impose a requirement that any project that is funded in the first period must be a short-term project. This makes investing in a bad project in the first period more costly for the manager because adverse information is more likely to be revealed early about the project and hence about managerial ability. The manager’s response may be to not request first-period funding if he has only a bad project. Such short-termism generates another benefit to the firm in that it speeds up learning about the manager’s a priori unknown ability, permitting the firm to condition its second-period investment on this learning.

There are a number of implications of the analysis. First, not all firms will practice short-termism. For example, firms for which the value of long-term projects is much higher than that of short-term projects—such as some R&D-intensive firms—will prefer long-term projects, so not all firms will display short-termism. Second, since short-termism is intended to prevent lower-level managers from investing in bad projects, its use should be greater for managers who typically propose “routine” projects and less for top managers (like the CEO) who would typically be involved in more strategic projects. Related to this, since it is more difficult to ascertain an individual employee’s impact on a project’s payoffs at lower levels of the hierarchy, this suggests that the firm is more likely to impose a short-termism constraint on lower-level managers. Third, the analysis may be particularly germane for managers who care about how their ability is perceived prior to the realization of project payoffs. As an example of this, it is not uncommon for a manager to enter a job with the intention or expectation of finding a new job within a few years. The analysis then suggests that the manager would rather not jeopardize future employment opportunities by allowing (potentially risky) project outcomes to be revealed in the short-term, instead preferring that those outcomes be revealed at a time when the manager need not be concerned about the result (i.e. in a different job).

Overall, the most robust result from this analysis is that informational frictions may bias the investment horizons of firms, and that the bias towards short-termism may, in fact, be value-maximizing in the presence of such frictions. This means that castigating short-termism as well as the rush to regulate CEO compensation to reduce its emphasis on the short term may be worth re-examining. Indeed, not engaging in short-termism may signal an inability or unwillingness on the CEO’s part to resolve intrafirm agency problems and thus adversely affect the firm’s stock price. This is not to suggest that short-termism is necessarily always a value-maximizing practice, since some of it may be undertaken only to boost the firm’s stock price. The point of this paper is simply that some short-termism reduces agency costs and benefits the shareholders.

For example, the project horizon for a beer brewery is typically 15-20 years. Similarly, R&D investments by drug companies have payoff horizons typically exceeding 10 years.

The paper is available for download here.

References

Graham, John R., and Campbell R. Harvey, 2001, “The Theory and Practice of Corporate Finance: Evidence from the Field”. Journal of Financial Economics, 60 (2-3), 187-243.

This is in line with Roe (2015), who states: “Critics need to acknowledge that short-term thinking often makes sense for U.S. businesses, the economy and long-term employment … it makes no sense for brick-and-mortar retailers, say, to invest in long-term in new stores if their sector is likely to have no future because it will soon become a channel for Internet selling.”

One can think about the long-term and short-term projects concretely through examples. Within each firm, there are typically both short-term and long-term projects. For example, for an appliance manufacturer, investing in modifying some feature of an existing appliance, say the size of the freezer section in a refrigerator, would be a short-term project. By contrast, building a plant to make an entirely new product—say a high-technology blender that does not exist in the company’s existing product portfolio—would be a long-term project. The long-term project will have a longer gestation period, with not only a longer time to recover the initial investment through project cash flows, but also a longer time to resolve the uncertainty about whether the project has positive NPV in an ex post sense. There may also be industry differences that determine project duration. For example, long-distance telecom companies (e.g. AT&T) will typically have long-duration projects, whereas consumer electronics firms will have short-duration projects.

*Richard T. Thakor, Assistant Professor of Finance at the University of Minnesota Carlson School of Management.

Assurer une efficacité supérieure du conseil d’administration

Aujourd’hui, je cède la parole à Johanne Bouchard* qui agit, de nouveau, à titre d’auteure invitée sur mon blogue en gouvernance.

L’auteure insiste sur les points suivants :

Le suivi des réunions du CA par le président du conseil
L’intégration des nouveaux membres du conseil
La formation en gouvernance et l’apprentissage des rouages de l’entreprise
Les sessions de planification stratégique
L’évaluation du leadership du CEO, du conseil et du management