By: Antonio Spizzirri
In 2009, the Clarkson Centre for Board Effectiveness (CCBE) began observing pay and performance for firms on the S&P/TSX Composite Index (TSX Index).1 CCBE has continuously tracked pay and performance data since 2004 for over 300 Canadian large public firms. For the purposes of this report, we observe 200 firms who were listed on the TSX Index in 2011 and for which 7 continuous years of pay and performance data are available. The impact of the financial crisis can be seen in our TSR observations for two years (2008-2009) of our sample. The average annual TSR in 2008 is the lowest in our observation period at -31.64% which was followed by the highest average annual TSR of 36.51% in 2009, suggesting an immediate overall rebound. However, despite the negative impact of the financial crisis, overall CEO pay and performance over the 6-year 2005-2010 period were aligned.
Publication can be found here.
Clarkson Visiting Scholar Chris MacDonald recently published this commentary on the connection between corporate governance and ethics: Why You Should Care About Corporate Governance.
The main point of the piece is that corporate governance is fundamentally a matter of ethics, and that, further, governance issues have implications far beyond their impact on the shareholders they are typically thought of as protecting.
…corporate governance isn’t just about laws and regulations, and it’s not a concern just for folks on Bay Street. It is also a matter of ethics, and it should be a matter of concern to the public generally.
Governance is fundamentally about who is responsible to whom, and for what, and under what conditions. At a well-governed company, the actions of employees, and especially those of senior executives, are driven by the values that ought to drive their actions. They are not driven by personal greed, or nepotism, or cronyism. Good governance practices are intended to make it more likely that those who carry out the company’s work will act upon their ethical obligations….
Chris’s bottom line:
And regardless of your perspective on corporate governance, it is impossible to deny that the way decisions get made, and the interests that corporate policies encourage decision-makers to serve, are ethically important matters.
The Clarkson Centre is pleased to announce the arrival of its 2010 Board Shareholder Confidence Index, which rates all corporations listed on the S&P/TSX Composite Index.
You can find this year’s Index, along with past years’ results, here: Board Shareholder Confidence Index.
The BSCI is based on the kinds of factors that active shareholders use in assessing Boards of Directors in terms of their adherence to corporate governance best practices.
A couple of things are worth noting. First, our yearly Index isn’t a ranking. We assign each company a letter grade (from C to AAA+), based on a clear set of criteria, but we don’t rank-order them.
Second, as we often do, we’ve altered our methodology somewhat this year. We now reward firms that disclose the value of option gains. While boards are currently subject to a regulatory requirement to disclose a ‘grant date fair-value’ for options awarded to executives during the most recent fiscal year, the requirement to disclose the value of option gains for the year was removed a couple of years ago. We included disclosure of option gains in our scoring system because we feel that disclosure of actual gains will give a clearer impression to shareholders of how compensation has been affected over time.
This year’s Board Games report is accompanied by an excellent feature article on the role of proxy advisory firms.
Here’s the story Jane McFarland: Proxy advisory firms flexing some serious muscle.
The story focuses on North America’s biggest proxy advisory firm, Institutional Shareholder Services Inc., and the controversy over the quality and transparency of ISS’s advice, along with the amount of influence the company has.
The story quotes the Clarkson Centre‘s Chairman and Director, David Beatty:
“It’s deeply ironic to me that the whole motion toward shareholder responsibility has ended up in the hands basically of one firm whom people accept advice from,” says corporate director David Beatty, who chairs the board of Inmet Mining Corp. and also acts as an adviser to ISS competitor Glass Lewis & Co. LLC.
“By and large, the votes of $10-trillion of assets under management are determined in the first instance by one company. … It’s too much power in one place, and a total abrogation of power by everyone else.”
Yesterday’s Globe & Mail featured an interesting item on disclosure regarding executive pay. By Janet McFarland: Securities regulator urges more disclosure about executive pay
The story quotes the Clarkson Centre’s own Matt Fullbrook:
Matt Fullbrook, manager of the Clarkson Centre for Business Ethics and Board Effectiveness at the University of Toronto, said the potentially biggest amendment could be a new requirement for companies to disclose how the board of directors considered risks associated with the company’s compensation policies – for example, if a pay practice could potentially encourage an executive to take excessive risks.
Mr. Fullbrook said too few companies put meaningful information in their proxy circulars about the considerations that go into their compensation design.
“It’s a piece that is a glaring omission,” he said.
Be sure to read the Globe and Mail’s Report on Business on November 22, to see the 2010 edition of Board Games — the G&M’s annual corporate governance ranking.
The Clarkson Centre has been collecting the data behind Board Games for the past 5 years. Last year, the top 3 companies were SNC-Lavalin Group Inc., Toronto-Dominion Bank and Bank of Montreal. Who will it be, this year? Watch for the answer, here: Board Games.
Note also that, shortly after the publication of Board Games, the Clarkson Centre will be publishing the results of its annual Board Shareholder Confidence Index, courtesy of the Canadian Coalition for Good Governance. (The last 7 years’ results can be found here: Board Shareholder Confidence Index.) So check back here!