Corporate Eye

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Ed Konczal

Ed Konczal

Rating The Corporate Governance Raters

Corporate governance attracts much public attention since it purportedly involves the economic-financial health of corporations and society in general. However, corporate governance is poorly defined because it typically is composed of differing mix of policies, procedures, internal practices all surrounded by laws and regulations.

Simply put –

…the overall purpose of corporate governance, which is to align as nearly as possible the interests of individuals, corporations and society.
Theories of Corporate Governance Edited by Thomas Clarke

OK maybe that’s too simple. Here is a definition from Investopidia —

“Good corporate governance is a situation in which a company complies with all of its governance policies and applicable government regulations (such as the Sarbanes-Oxley Act of 2002) in order to look out for the interests of the company’s investors and other stakeholders.

The corporate need to be in compliance with corporate governance has shaped an industry of advisers, rating firms and other services with an estimated 2008 sales of $52 billion (corp-integrity.com). Perhaps the most influential of these companies are the rating agencies. These firms – which include the Corporate Library and RiskMetrics Group’s ISS Governance Services and S&P – analyze companies against their own criteria and rate whether a company is well governed or not.

These ratings may influence a company’s cost of capital, equity share price and shareowner relations. As such, the companies that compile these ratings have achieved a significant presence in world financial markets. But, there are some problems — extensive studies indicate these ratings bear little relation to actual corporate performance. A recent Fortune article summarized a Stanford University study widely different ratings for individual companies.

The Stanford researchers summarized their findings–

We examine these claims for the commercial corporate governance ratings produced
for 2005 by Audit Integrity, RiskMetrics (previously Institutional Shareholder Services),
GovernanceMetrics International, and The Corporate Library. Our results indicate that the level of predictive validity for these ratings are well below the threshold necessary to support the bold claims made for them by these commercial firms.(Emphasis added) Moreover, we find no relation between the governance ratings provided by RiskMetrics with either their voting recommendations or the actual votes by shareholders on proxy proposals.
Rating the Ratings: How Good Are Commercial Governance Ratings? Rock Center for Corporate Governance Stanford University

A summary of this report is available. The Stanford study is one of a number of other similar studies that question the value of these ratings agencies. Some common themes in these studies include —

  • Over reliance on quantitative accounting/financial criteria
  • “You can’t legislate compliance”
  • More emphasis needed on observable qualitative criteria, such as corporate culture, drivers of employee behavior and corporate integrity practices.

This post only touches the surface of this important subject. Future posts will cover additional aspects of Corporate Governance ratings and related topics. In the meantime, here is a Canadian company that just might be a model of effective Corporate Governance practices —

Note the focus on Integrity, the public display of an “Integrity Hotline” and a clear display of compliance documents. Criteria the rating agencies miss.

Your People Are Your Competitive Advantage

What is the best way to get out in front of your competition?

  • high tech development
  • access to financial assets
  • R & D
  • industry boundaries

These approaches may have worked in the past – but they are becoming increasingly ineffective as technologies merge, regulations are relaxed and companies form powerful strategic alliances. Savvy, fast-growing companies understand this; that’s why they are developing new ways to achieve competitive advantage through their own people and organizational capabilities.
[Read more…] about Your People Are Your Competitive Advantage

What is Web 2.0? How is Business Using It?

You may have heard the Millennials generation using terms such as Wiki, Furl, Facebook, Flickr and wondered what are they talking about. These and more are components of Web 2.0, and no this is not a new Internet hardware architecture.

Web 1.0 involved companies, webmasters and individuals developing websites and posting various content. You could look at the content and maybe buy something online but little more. Then certain applications or apps began showing up that allowed you to add your own content to other’s websites, to interact with other visitors collaborate with team members and much more. The result uses of the Internet vastly expanded and Web 2.0 evolved.

The Future Explorations Network developed a Web 2.0 Landscape (you can download the PDF containing this image at their site).

It is likely that this Landscape is already out of date since new apps are appearing continuously. If you want to find out more about specific apps, go to the Centre For Learning And Perforce where you will see a display of the top 100 web 2.0 apps.

Now let us look at how organizations are using Web 2.0. McKinsey Consultants conducted a Web 2.0 survey of senior corporate managers. Key points from the survey include —

  • Respondents show widespread but careful interest in Web 2.0 trends
  • Expressing satisfaction with their Internet investments so far, they say that Web 2.0 technologies are strategic and that they plan to increase these investments
  • Companies aren’t necessarily relying on the best-known Web 2.0 trends, such as blogs; instead, they place the greatest importance on technologies that enable automation and networking.

While McKinsey’s survey presents corporate wide applications there are many smaller intra-corporation Web 2.0 uses such as project management, team building, best practices sharing and others.

In a recent executive survey of marketplace trends by Forum Consulting Web 2.0 was identified as a key trend–

Using Web 2.0 Technology: Now, Not Futuristic: Web 2.0 technologies are used for both internal collaboration and as an interface with suppliers and customers, enhancing communication, collaboration, and intimacy among employees and the marketplace. Web 2.0 is certainly not just for tech-savvy teenagers: 79 percent of organizations view the collaborative aspects of Web 2.0 as a way to increase corporate revenue and/or margins.

Businessweek offers a Tip Sheet for using Web2.0. I agree with most, but see item pointed.

There are many opportunities for using Web 2.0 but there are risks that intellectual assets may seep out to competitors. There must be a delicate balance between promoting innovative use of Web 2.0 applications and protecting corporate assets. A worthy read is Cisco’s Internet Postings Policy.

Now you are ready to blog, wiki, Digg, and Furl, but be careful out there.

The Revolution In Corporate Training

Talent management is top on the lists of many CEO surveys.

Today’s workforce issues have the potential to impact business performance in the coming years, according to Deloitte Consulting LLP’s recent survey on talent management strategies. Almost three quarters (72 percent) of companies surveyed said they are concerned that the inadequate skills of incoming workers will negatively affect their bottom line. 2005 Talent Management Strategies Survey

As it is stated in Key Trends in Human Capital Report of Saratoga Institute, that in order to stay ahead in the competition, Organizations must rely on its people’s capabilities. In other words, Organizations have long known that they must have the best capable people in order to succeed in the competitive and increasingly complex global economy. Now, there is also awareness that Organizations must approach talent as a critical resource that must be managed in order to achieve the best possible business results and positioning over competitors.

[Read more…] about The Revolution In Corporate Training

Sites For CEOs

Things have changed in the last 15 years. In the mid-1990s, I remember hearing about a CEO from a major company when he was getting briefed about the Internet, brought his secretary since he did not know how to use a keyboard. Now CEOs are necessarily technology savvy and are increasingly using the internet. A number of surveys confirm this.

Forbes magazine’s survey “Day In The Life of C-Level Executives” (2004) found –

Web Usage

  • The internet continues to be the most influential and important source of information on business for C-Level executives around the world.
  • The Web is a pervasive presence in the lives of C-level executives: 38 percent of C-level respondents said the Web is their single most important source for information on business. The next most prevalent source of information was daily newspapers by 26 percent of respondents.
  • Among large company executives, the reliance on the Web is even greater with 51 percent naming the Web is their most important business information resource, followed by newspapers at 22 percent.
  • C-level executive respondents also stated they are spending less time with other media, including newspapers, magazines, TV, radio and industry trade publications as a result of the time they spend online (not including email): 59 percent are spending less time with magazines, 50 percent say they are spending less time with newspapers, 48 percent less time with TV, 46 percent less time with radio and industry trade publications respectively.
  • 26 percent of large firm respondents said they are knowledgeable about Wi-Fi technology and they are reporting some current usage of the technology.

[Read more…] about Sites For CEOs

Stories are Serious Business

Stories and storytelling cut across all types of industries and all business functions. The diagram below is only a narrow snapshot of where and how stories are used. You need a super wide angle lens to capture the corporate storytelling landscape. Note also that stories transcend organization size.

Stories are not limited to lofty corporate wide applications. I’ve seen more “mundane” uses such as a start-up using a story in its business plan presentation to investors, a six sigma consulting company using stories to help their clients and government vendors using stories in their proposal applications.

There have been a few articles on storytelling published in the Harvard Business Review and other publications. But it hasn’t yet hit the Business Top Ten List.
[Read more…] about Stories are Serious Business