After witnessing a parade of corporate implosions, accounting scandals, stock option manipulations and executive compensation excesses, still-cautious investors need clear, honest communication from corporate managers and boards of directors to restore trust.
But despite reforms, relationships between corporations and their shareholders are still tenuous, says Dr. Baruch Lev, professor of accounting and finance at New York University’s Stern School of Business.
Dr. Baruch Lev
Lev spoke to C-suite officers and board members at the UT Dallas Jindal School of Management on Oct. 4 at the 10th annual Corporate Governance Conference. The event was hosted by the school’s Institute for Excellence in Corporate Governance. Lev is director of the Vincent C. Ross Institute for Accounting Research and an expert on intangible assets, valuation and accounting.
Regaining the confidence of shareholders, said Lev, author of the recently published Winning Investors Over: Surprising Truths About Honesty, Earnings Guidance and Other Ways to Boost Your Stock Price, is one of the most critical issues facing corporate managers today.
Companies are spending $3 trillion a year for intellectual assets, R&D and software, so the role of capital markets is crucial, Lev said. “The question is where will this money come from? Governments are generally broke, banks are lending very little. If indeed we manage to regain the trust of shareholders, capital markets are the only reliable source of funds,” he said.
“Winning investors over is crucial, but it’s a very, very difficult task. Investors just endured the worst stock market decade since the Depression. They constantly hear about corporate failures, accounting scandals and excessive compensation, so they’re not just frustrated. They act, and their actions have consequences,” said Lev.
The 10th annual Corporate Governance Conference drew corporate executives and board members.
Lev listed five ways corporate executives and board directors may mend relationships and regain shareholders’ support. Lev suggested that managers listen carefully to investors, provide information that they really need, properly manage information provided to shareholders, link managers’ pay to performance and engage in corporate social responsibility practices.
Earlier in the daylong session, a panel – made up of Julie England, director of Checkpoint Systems Inc.; Robert Kueppers, senior managing partner for the Deloitte Center for Corporate Governance; and Dr. Richard Leblanc, author and professor of law, governance and ethics at York University in Toronto – discussed board dynamics, including board make-up, leadership and teamwork.
“The use of technology, phones, iPads, informal gatherings, tours, trips – that’s all crucial. That’s where relationships are built and that’s where, if there is a dysfunction and directors are not talking, issues can be resolved. Outside the boardroom is becoming as, if not more important, than inside the boardroom.”
Dr. Richard Leblanc,
author and professor of law, governance
and ethics,
York University in Toronto
To build better boards, directors should spend time developing positive working relationships outside the boardroom, Leblanc said.
“The use of technology, phones, iPads, informal gatherings, tours, trips – that’s all crucial. That’s where relationships are built and that’s where, if there is a dysfunction and directors are not talking, issues can be resolved,” Leblanc said. “Outside the boardroom is becoming as, if not more important, than inside the boardroom.”
Mark Sinclair, the IECG’s chairman of the board and moderator of the panel session, asked the panelists to identify traits they believe CEOs should and should not have.
A tendency to dominate or “bully” a board and a lack of integrity, providing disclosure and transparency and an inability to share “what’s keeping you up at night” are negative traits of a CEO, said Leblanc.
A positive trait, Kueppers said, is a CEO’s ability to develop people. “It’s about succession. It’s about strength of the team. If you find somebody who has that people orientation and a development mindset, that’s a huge asset to an organization.”
Also, having the courage and vision to take an organization in a different direction is a desirable, but rare quality in a corporation’s leader, Kueppers said.
“I think what tends to happen is they perpetuate the state of play they’re in as opposed to admitting it’s time to take a right turn or a left turn. To admit that we’ve got to head in a new direction is a pretty gracious thing. That kind of quality is frankly all too rare,” he said.