Nothing new, but always nice to emphasize. Booz & Co.’s Strategy & Business has a summary of a recent paper on CEO compensation. It’s public knowledge that it has skyrocketed in the last 20 years or so, but this paper searches for a driver – and finds it in “compensation benchmarking”. You could also call it “The grass is always greener” effect.
Two more big-shots call for the return of the Estate Tax, and we learn why 2010 is “the year to Throw Momma From the Train”… This time Bob Rubin and Julian Robertson co-author an op-ed in the Wall Street Journal calling for the return of the Estate Tax, at least in the 2009 model. We can’t help but agree the following reason is strong enough to demand attention by the US Congress: “[The USA] is losing revenue that, with its stressed fiscal conditions, it can ill afford to forego”.
The August 2010 issue of Capital Aberto magazine has an article (in English) about the new UK Stewardship Code, designed to (take a deep breath) “enhance the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and the efficient exercise of governance responsibilities by setting out good practice on engagement with investee companies to which the FRC believes institutional investors should aspire.” Our partner and Head of Investor Relations, Elsen Carvalho, was interviewed and shared our take on the code.
Economies, in the plural, since two recent articles have dealt with the “unofficial” sides of the Chinese Economy. First there was a Bloomberg article on Chinese banks getting the order to move their off-balance sheet stuff to the books. It makes us wonder who still trusts short-term bank earnings in China. We suggest a “translation” to the funny part inside, along with the second article, a LEX on China’s “grey” economy, mentioning research by Credit Suisse. In it CS researches China’s “real” wealth distribution, and surprise surprise, it looks more like South than North America. Why? Because incomes may be as much as 90% higher than official stats. Would the real China please stand up?
As we blog and try to become more transparent for investors, potential investors and even invested companies, we’re aware of the dangers of over-exposure and “posing”, as these two NY Times pieces highlight. We feel we’re safe because 1) Transparency has always been our culture: we pioneered fund reports in Brazil, then annual investor meetings, and now this blog – and more to come; 2) We’re aware of the risks and have built our processes and incentive systems accordingly; and 3) We tend to assume we’re wrong – meaning we’re conservative. Since we recognize we’re learning as much as everybody else is, we will prefer to err on the side of omission.
Two LEX articles highlight the accounting “dangers” still lurking around the world. Taken together, it’s a reminder that it’s easy to “learn lessons” from crises, but it’s extremely hard to actually implement changes. We would even point out that when changes are implemented, it’s not always an improvement…
This 2008 article discusses red flags for Board members trying to detect fraud. For us the article doesn’t give nearly enough emphasis to incentives, but to correct that we’re linking to our Q4 2008 report excerpts. It’s vital to remember that one shouldn’t rely on checklist approaches to CG, fraud, stock research and pretty much anything else involving “systems” that are far from simple.
A Harvard researcher says that Brazilian CG of about 100 years ago could teach the current-day US (and others) many lessons. What’s perhaps most interesting and thought-provoking: the provisions came from the companies themselves and surpassed – by far – the legal requirements at the time. We’re reminded of Saraiva, which instituted a tag-along provision long before the law demanded it.
A Moody’s study shows that bank Boards have seen some shuffling and that more “financial expertise” was added. The FT argues that some banks with the “worst” boards in terms of financial experience actually did pretty well, and notes other apparently strange occurrences – for instance, Goldman Sachs has a CEO who’s also chairman and yet the bank has done pretty well in the crisis… We’ll never get tired of saying this: dump the checklist approach to CG. Actually, dump the checklist approach to anything.
There’s lots of interesting content in Amazon.com’s launch page for “No One Would Listen”, a book by the main whistleblower in the Bernie Madoff saga. The timeline in particular is very impressive: it shows that it took ten years to uncover the mess – nine since the first contact with the SEC – by which time the problem was irreversible. And that’s far from the only case, which begs a question… How do we justify still having institutions supposed to keep watch so unready and unwilling to investigate red flags?
