Elect A Dissident, You May Win a Prize
Sunday, May 24, 2015
This article can be found via the New York Times.
New Research Documents Positive Link Between Corporate Human Resources Policies And Investment Outcomes
IRRC Institute, The Pensions and Capital Stewardship Project at Harvard Law School’s Labor and Worklife Program – Thursday, April 23, 2015
A new research study connects the dots on the relationship between corporate human resources (HR) policies and investment outcomes such as return on equity, return on investment and profit margins. Of the many studies of human capital policies, the new paper examines 92 that focus on the links to corporate financial performance. The authors find that a large majority of the studies conducted over several decades and encompassing dozens of countries and industries reported positive correlations.
New Research Documents Positive Link Between Corporate Human Resources Policies and Investment Outcomes
Wednesday, April 22, 2015
Webinar on May 11th at 2 PM ET Review Findings
NEW YORK, NY, April 23, 2015 – A new research study connects the dots on the relationship between corporate human resources (HR) policies and investment outcomes such as return on equity, return on investment and profit margins. Of the many studies of human capital policies, the new paper examines 92 that focus on the links to corporate financial performance. The authors find that a large majority of the studies — conducted over several decades and encompassing dozens of countries and industries — reported positive correlations.
| Human Capital Studies | ||||
| Topic | Financial Effect | |||
| Positive | Mixed | None | Negative | |
| Training (36 Studies) | 22 | 8 | 5 | 1 |
| HR Policy (56 Studies) | 45 | 9 | 2 | 0 |
| Total Number of Studies | 67 | 17 | 7 | 1 |
The research offers compelling evidence that human capital management can be material to a company’s financial performance. However, investors face significant challenges in attempting to incorporate human capital metrics into investment analyses. For example, there are no standard metrics or definitions and there is no clear consensus about which HR policies in what combinations have the most impact on financial outcomes.
The Materiality of Human Capital to Corporate Financial Performance is authored by Aaron Bernstein and Larry Beeferman, both with the Pensions and Capital Stewardship Project at Harvard Law School’s Labor and Worklife Program.
The research was supported by the Investor Responsibility Research Center Institute (IRRCi).
Download the research here. Register here for a webinar to review the report findings on Monday, May 11, 2015, at 2:00 PM ET.
“It is intuitive that companies that have sound human resources policies and invest in employee training will perform better. Now, we have a meaningful connection between human capital management and financial performance,” said Jon Lukomnik, IRRCi executive director.
“For this information to become actionable for investors, there needs to be a level of disclosure and standardization that does not exist. To date, there hasn’t been an outcry from research providers or investors pressing companies to report publicly on their human capital policies and outcomes. Perhaps this will change now that we can clearly see significant relationships to financial performance,” Lukomnik said.
“Decades of research offer powerful evidence that human capital factors can be material to financial performance,” says study co-author Aaron Bernstein. “This should give companies the incentive and confidence to provide information to investors about their HR policies and practices.”
The report says investors should consider asking companies for the following information with respect to HR and training:
- A description of the company’s training policy.
- How a firm’s overall HR policy relates to its business strategy.
- The kinds of employees trained and whether training is provided in or outside the company.
- Whether and how the company measures the direct and indirect costs of the training.
- Outcomes that characterize successful implementation of policies and how they are measured. These might be immediate in terms of increased worker knowledge and skills resulting in improved productivity or customer satisfaction. Or, they might result in lower turnover with associated cost savings.
- Measures of the impact that implementation has had on company profits and other measures of financial performance.
The study also recommends that investors seek similar kinds of information about the bundles of HR policies the companies employ.
The Investor Responsibility Research Center Institute is a nonprofit research organization that funds academic and practitioner research that enables investors, policymakers, and other stakeholders to make data-driven decisions. IRRCi research covers a wide range of topics of interest to investors, is objective, unbiased, and disseminated widely. More information is available at the IRRCi Website.
The Pensions and Capital Stewardship Project at Harvard Law School’s Labor and Worklife Program was established in 2004 to education interested parties on issues related to retirement security, pension fund governance, management, investment and related matters through conferences, training and research.
IRRC Media Contact: Kelly Kenneally +1.202.256.1445 | kelly@irrcinstitute.org
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Competition Opens for Fourth Annual Investor Research Award
Wednesday, January 14, 2015
NEW YORK, NY, January 15, 2015 – The Investor Responsibility Research Center Institute (IRRCi) today opened its fourth annual competition for research that examines the interaction between the real economy and investment theory. Practitioners and academics are invited to submit research papers by September 15, 2015, for consideration by a blue-ribbon panel of judges with deep finance and investment experience.
Two research papers – one academic and one practitioner – each will receive the 2015 IRRCi Research Award along with a $10,000 award. The winning papers will also be presented at the December 9, 2015, forum of the Millstein Center for Global Markets and Corporate Ownership at Columbia University in New York, NY.
The panel of world-class judges includes:
- Mark Anson, Chief Investment Officer, Acadia Investment Management
- Collette Chilton, Chief Investment Officer, Williams College
- Robert Dannhauser, Head of Capital Markets Policy, CFA Institute
- James Hawley, Professor & Director, Elfenworks Center for Fiduciary Capitalism, Saint Mary’s College of California
- Robert Jackson, Jr., Faculty Co-Director, Ira M. Millstein Center for Global Markets and Corporate Governance and Associate Professor of Law and Milton Handler Fellow at Columbia Law School
- Nell Minow, Governance Expert and Columnist, Huffington Post.
Biographies of the judges are available here.
“The IRRCi research competition has rapidly become a prominent award garnering significant attention amongst the investment community, academia and policymakers. Last year, the winning research was covered by major media outlets including The Wall Street Journal, The New York Times and CNBC,” said Jon Lukomnik, IRRCi executive director.
“The award competition highlights innovative research focused on the nexus between real world economy activity and investment theory. The addition of a new judge this year, Bob Dannhauser with CFA Institute, will further strengthen the careful assessment of the research submissions and reinforces the gravitas of this award,” Lukomnik added.
Award submissions are accepted online here.
Submissions may be an original work created specifically for the IRRCi Research Award, or relevant unpublished papers, or papers that have been published after July 1, 2014.
Winning papers will be published by the IRRCi on its website. IRRCi also will distribute the winning papers to some 6,000 individuals interested in the organization’s research.
As noted on the IRRCi web site, Modern Portfolio Theory (MPT) has dominated investment theory for a half century. MPT focuses on security selection, portfolio construction, and other financial issues rather than the intersection of the real economy and investing. Simultaneously, the growing importance of the private sector relative to the public sector in the real economy has increased scrutiny of private sector behavior and economic activity.
The IRRCi Research Award encourages new research that analyzes how investments interact with real world economic activity. More information regarding the award process, submission guidelines and calendar is available here, along with the award submission form and Frequently Asked Questions.
The Investor Responsibility Research Center Institute is a nonprofit research organization that funds academic and practitioner research that enables investors, policymakers, and other stakeholders to make data-driven decisions. IRRCi research covers a wide range of topics of interest to investors, is objective, unbiased, and disseminated widely. More information is available at the IRRCi Website.
IRRC Award Contact: Jon Lukomnik +1.212.344.2424 | jon@irrcinstitute.org
IRRC Media Contact: Kelly Kenneally +1.202.256.1445 | kelly@irrcinstitute.org
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Institutional Investors, Proxy Advisors Fail to Use Economic Value Creation as Major Factor In Say-on-pay Voting
IRRC Institute, Organizational Capital Partners – Monday, December 22, 2014
A new study finds that economic value creation is not a major factor in institutional investors? Say-on-Pay voting, nor in the recommendations of the two largest proxy advisors that counsel investors how to vote. The research reveals that there is no material difference between institutional investors? Say-on-Pay voting for those companies that create economic value as compared to those that destroy value.
Institutional Investors, Proxy Advisors Fail to Use Economic Value Creation as Major Factor In Say-on-pay Voting
Sunday, December 21, 2014
New York, NY, December 22, 2014 – – A new study finds that economic value creation is not a major factor in institutional investors’ Say-on-Pay voting, nor in the recommendations of the two largest proxy advisors that counsel investors how to vote. The research reveals that there is no material difference between institutional investors’ Say-on-Pay voting for those companies that create economic value as compared to those that destroy value.
The Alignment Gap Between Say on Pay Voting and Creating Value is authored by Organizational Capital Partners and was commissioned by the Investor Responsibility Research Center Institute (IRRCi). It analyzed the most recent Say-on-Pay votes for more than 100 institutional investors with approximately $13 trillion in total global assets under management at a sample of 128 S&P 1500 companies.
More specifically, the study finds:
- The average Say-on-Pay support vote across the sample was 82% for 32 low performing companies (return on invested capital – or ROIC – less than the cost of capital and negative relative total shareholder return) and 84% for 32 high performing companies (ROIC greater than the cost of capital and positive relative total shareholder return).
- The median vote was 90% for the low performing companies and 96% for high performing companies.
- There was not a meaningful difference between the recommendations of the two major proxy advisor firms, ISS and Glass Lewis. ISS recommended for 84% Say on Pay approval at value destroying companies and for 81% of value creating companies. Glass Lewis recommended for votes at 72% of the value destroying companies and 81% of the value creating companies.
“It’s time for institutional investors to step up and recognize that they also contribute to short-termism and sub-optimal value creation,” said Jon Lukomnik, IRRCi executive director. “The report suggests that using value-based performance metrics such as ROIC as part of Say-on-Pay voting analysis would help move the focus of executive compensation from short-term alignment with stock market swings to long-term corporate economic performance,” he added.
“Corporate disclosures of balance sheet and capital efficiency performance metrics – coupled with inclusion of these measures in long term incentive plan design – would provide significant insight into a company’s capacity to create positive ROIC. Ultimately, this will help drive long term value,” said Mark Van Clieaf, report co-author and partner with Organizational Capital Partners.
“Institutional shareholders and proxy voting advisors can significantly enhance voting execution so that it’s better aligned with long-term corporate value creation. Additionally, implementing a pay-for-performance analytical model that incorporates fundamental finance and value creation principles like positive ROIC greater than the cost of capital and growing five year economic profit would create a more direct line of sight alignment between operating performance and sustainable shareholder returns,” Van Clieaf added.
In the U.S., Say-on-Pay is an advisory vote by shareholders on the executive compensation design of named executive officers, including the CEO. Institutional investors and proxy voting advisory services may consider a broad range of factors in their overall Say-on-Pay voting decision. This might include compensation policy, change in control provisions, internal pay equity, use of performance metrics, performance analysis and pay-for-performance alignment as measured by total shareholder return (TSR).
Some institutional investors may also use the Say-on-Pay vote as a way to communicate their evaluation of the company’s strategy, business model and performance. This report looks at how more than 100 of the largest mutual fund families in the U.S. cast those votes for some of the largest value creating and value destroying companies in the S&P 1500 over 5 years. In the aggregate, those fund families control more than $11 trillion in global assets under management. In addition, the report data set includes 11 of the largest North American pension funds with nearly $2 trillion in assets under management, as well as the voting recommendations of the two largest proxy advisory companies (Institutional Shareholder Services and Glass Lewis) that are widely considered the most resourced and sophisticated Say-on-Pay voters and advisors. Today’s report is the second in a series of two on performance measurement, value creation, long-term incentive plan design and pay-for-performance.
The first report, The Alignment Gap Between Creating Value, Performance Measurement, and Long-Term Incentive Design, focused on performance measurement, value creation, long-term incentive plan design, and pay for performance. The first study found a major disconnect between corporate operating performance, value and incentive plans for executives for the vast majority of S&P 1500 companies.
The analysis identified that 47% of the S&P 1500 did not generate a positive ROIC or positive cumulative economic profit over the five-year period of 2008 to 2012. The research identified that 85% of companies did not disclose any type of future value type performance metrics such as innovation as part of long term incentive pan design. It also detailed an over-reliance on accounting metrics that do not measure capital efficiency, and how TSR obscures a line of sight to the underlying drivers of economic operating performance.
The Investor Responsibility Research Center Institute is a nonprofit research organization that funds academic and practitioner research that enables investors, policymakers, and other stakeholders to make data-driven decisions. IRRCi research covers a wide range of topics of interest to investors, is objective, unbiased, and disseminated widely. More information is available at the IRRCi Website.
Organizational Capital Partners is a global strategy consulting firm that delivers client impact through aligning shareholder value with, innovation, structure, and incentive design to implement value creating business strategy. More information is available at http://www.orgcapitalpartners.com/.
IRRC Media Contact: Kelly Kenneally +1.202.256.1445 | kelly@irrcinstitute.org
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