The Data Privacy Puzzle

IRRCi, IRRCi Research

Heidi Bush, John Wilson – Tuesday, August 21, 2018

The Data Privacy Puzzle finds that companies with business models reliant on the increasing quantity and scope of consumer data are at risk if public ambivalence about data privacy turns to opposition. Prepared by Cornerstone Capital Group and commissioned by the Investor Research Responsibility Center Institute, the report outlines four possible scenarios for the impact of data privacy concerns on companies and offers eight company-specific case studies. Importantly, the report provides a framework for investors to monitor corporate responses to this rapidly shifting, high stakes environment. The study coincides with multiple data privacy incidents, including concerns about Facebook that resulted in a single-day valuation plunge of more than $119 billion. Analysts have indicated that a cause of Facebook’s declining growth is tied to data privacy concerns. Analysts also indicate that many consumers do not support the collection of their data, and companies that are built to collect and use data are likely to face downside risk, as the potential for government regulation increases.

New Data Privacy Report Finds Companies Reliant on Consumer Data Are at Risk

IRRCi, IRRCi Research

Tuesday, August 21, 2018

Research Provides Investors with Guide to Evaluate Companies with Mounting Data Privacy Dependencies

Webinar On Thurs., Sept 20^th at 2 PM ET To Review Findings

NEW YORK, NY, August 21, 2018 – A new report, The Data Privacy Puzzle, finds that companies with business models reliant on the increasing quantity and scope of consumer data are at risk if public ambivalence about data privacy turns to opposition. The report outlines four possible scenarios for the impact of data privacy concerns on companies and offers eight company-specific case studies. Importantly, the report provides a framework for investors to monitor corporate responses to this rapidly shifting, high stakes environment. Prepared by Cornerstone Capital Group (CCG) and commissioned by the Investor Research Responsibility Center Institute (IRRCi), The Data Privacy Puzzle coincides with multiple data privacy incidents, including concerns about Facebook that resulted in a single-day valuation plunge of more than $119 billion. Analysts have indicated that a cause of Facebook’s declining growth is tied to data privacy concerns. Analysts also indicate that many consumers do not support the collection of their data, and companies that are built to collect and use data are likely to face downside risk, as the potential for government regulation increases. Download the report here. A webinar, featuring IRRCi and Cornerstone experts discussing the report, is scheduled for Thursday, September 20, 2018, at 2:00 PM ET. Register here at no charge. “As policymakers and consumers struggle with data privacy issues, investors need frameworks to understand both the different ways companies monetize personal data and the business risks those business models face,” said Jon Lukomnik, IRRCi executive director. “Given the recent data scandals and the soaring level of concern around data privacy issues, investors are increasingly wary about how companies will evolve business strategies reliant on consumer data. As expectations for privacy shifts, some companies will flounder, and others will flourish. This new report outlines useful frameworks to assess data privacy issues.” “The ambiguity of the current data privacy environment is unsustainable, and investors need to understand how social and governance issues like data privacy impact company performances,” said John Wilson, Cornerstone’s head of research and corporate governance. “As data privacy concerns rapidly evolve, investors need to evaluate how well the company’s governance is positioned to manage changing norms, expectations and regulations that may affect access to data, stakeholder trust and, ultimately, company strategy.” Several emerging trends are raising the issue of data privacy as a strategic and operational concern for companies and investors. This report:

• Identifies key regulatory, technological and behavioral trends that will drive societal response to concerns about data privacy;
• Outlines four possible regulatory and consumer expectation scenarios that will impact companies;
• Examines the business models relating to the gathering, use and sharing of personal data for eight case-study companies, including: Alphabet, Amazon, American Express, AT&T, Facebook, MasterCard, Twitter, and Walmart; and
• Provides a general framework for investors to monitor the impact of evolving attitudes toward data privacy on companies, plus an overview of emerging data-privacy solutions.

The Investor Responsibility Research Center Institute is a nonprofit research organization that funds academic and practitioner research enabling 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

Cornerstone Capital Group was created to catalyze the flow of capital toward a more regenerative and inclusive global economy. The firm seeks to optimize investment performance together with social impact through rigorous research that systematically integrates Environmental, Social and Governance (ESG) factors into portfolio design. In seeking positive societal impact at scale, Cornerstone offers investment advisory and capital markets advisory services, working with asset owners, corporations and financial institutions. Cornerstone is are an SEC Registered Investment Advisor and a WBENC certified women-owned business. More information is available at www.cornerstonecapinc.com.

Media Contacts: Kelly Kenneally | +1 202.256.1445 | kelly@irrcinstitute.org | @irrcresearch Jesse Tron (for Cornerstone) | +1 646.859.5952 | jtron@mgroupsc.com | @Cornerstone_Cap  

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Microcap Board Governance

IRRCi, IRRCi Research

Annalisa Barrett – Wednesday, August 1, 2018

This in-depth analysis of micro-capitalization (microcap) public companies finds that the corporate governance of these companies with less than $300 million in market capitalization differs materially from that of their larger brethren. Microcap Board Governance, conducted by Board Governance Research LLC examines the governance practices at 160 microcap companies, representing approximately ten percent of all companies with less than $300 million in market capitalization traded on a major U.S. stock exchange. Most of these microcaps are not included in major indices and many do not have analysts following their performance. Possibly as a result, microcap governance practices have not received the same level of scrutiny as larger capitalization companies.  

New Study Identifies Key Corporate Governance Differences Between Microcap & Larger Companies

IRRCi, IRRCi Research

Wednesday, August 1, 2018

Microcap Boards Smaller, Less Independent and Less Diverse

Microcap Study Stats: 22% of Boards Studied Have Five or Fewer Directors; 61% Have No Female Directors; and 70% of Companies with Combined CEO/Chair Have No Lead Director

Webinar to Review Findings on August 22^nd at 4 PM ET

NEW YORK, NY, August 1, 2018 – A new in-depth analysis of micro-capitalization (microcap) public companies finds that the corporate governance of these companies with less than $300 million in market capitalization differs materially from that of their larger brethren. The new study, Microcap Board Governance, conducted by Board Governance Research LLC and commissioned by the Investor Responsibility Research Center Institute (IRRCi), examines the governance practices at 160 microcap companies, representing approximately ten percent of all companies with less than $300 million in market capitalization traded on a major U.S. stock exchange. Most of these microcaps are not included in major indices and many do not have analysts following their performance. Possibly as a result, microcap governance practices have not received the same level of scrutiny as larger capitalization companies. Download the full study here. Register here for a webinar on Wednesday, August 22nd at 4:00 PM ET to review the findings. Among the study’s key findings were:

• Microcaps typically are not young, nor do they feature dual class stock. The vast majority (86 percent) of the study companies have been in existence for more than a decade. Also, few (seven percent) of the companies studied have multiple classes of stock and even fewer (four percent) have one shareholder controlling more than 50 percent of the common stock. These findings contradict common misconceptions that many microcap companies are early-stage growth companies or are controlled by founders or early funders.
• Microcap boards are less independent than larger corporations’ boards. Some 61 percent of microcap boards have fewer than 80 percent independent board members, compared to 51 percent of large companies. Also, while large cap and microcap boards are just as likely to have combined the roles of CEO and board chair, microcap companies are unlikely to have an independent lead director in such circumstances — 70 percent of such microcap companies have not named a lead director, despite that being considered best practice.
• Microcap boards are less gender diverse. The majority (61 percent) of microcap companies have no female directors. By contrast, only 21 percent of the Russell 3000 boards have all male boards. Additionally, only 12 percent of the microcap companies have more than one female director, while nearly half (45 percent) of Russell 3000 companies have more than one female director.
• Microcap boards are smaller. The average microcap board has 6.9 directors, compared to 8.9 at larger companies. Nearly a quarter (22 percent) of microcaps have boards with five or fewer directors.

“Microcaps are an intriguing and often overlooked corner of the equity market,” said Jon Lukomnik, IRRCi executive director. “This report is a much-needed deep dive into the corporate governance of microcaps so investors can better understand the landscape. The findings contradict a number of microcap misconceptions. For example, these aren’t necessarily young companies with the founder at the helm. Instead, about one-quarter of microcaps have been public for less than five years and only 14 percent of microcap CEOs are the founders.” Lukomnik added, “At the same time, the report suggests some paths microcap companies should consider moving toward consensus best practice for corporate governance. For example, there is nothing associated with size that suggests it is a good idea to have an all-male board or to fail to establish the position of a lead independent director when there is a combined chair/CEO structure.” “The smallest U.S. companies play an important role in our economy, so everyone has an interest in how they are governed,” said Annalisa Barrett, report author, chief executive officer and founder of Board Governance Research and clinical professor at the University of San Diego School of Business. “Investors, employees, customers and suppliers of these microcap companies all benefit when they are well-governed and their boards have the optimal structure and practices in place to provide effective oversight and guidance to management,” Barrett explained. Other key findings of the report include:

• Only one in seven (14 percent) of the microcap CEOs studied are the founders of the companies they lead, contrasting the notion that many small companies are founder led start-ups.
• Only four percent of the microcap companies studied have a majority shareholder who owns 50 percent or more of shares.
• Director election standards differ. While the majority (54 percent) of Russell 3000 companies have adopted majority voting for director elections, only 11 percent of microcap companies have done so.
• Microcap directors may have less boardroom experience, as only 17 percent of them currently serve on the boards of other publicly-traded companies compared to 35 percent of Russell 3000 directors.
• Microcap boards have more variability in the number of board meetings held than do larger companies. More microcap boards (24 percent) held 12 or more meetings as compared to the 17 percent of the Russell 3000 boards which did so during the study year. On the other hand, microcap boards were also more likely (five percent) than Russell 3000 boards (two percent) to have held fewer than four meetings that year.
• The committee structures in place at microcap boards tend to be less complex than those of larger company boards. While the microcap boards studied are just as likely to have the three key committees (Audit, Compensation and Nominating/Governance) as the Russell 3000 boards, they are less likely to have additional committees. Further, many microcap board committees meet only once a year and some reported holding no meetings during the study year.

The Investor Responsibility Research Center Institute is a not-for-profit organization headquartered in New York, NY, that provides thought leadership at the intersection of corporate responsibility and the informational needs of investors.  More information is available at the IRRCi Website. Board Governance Research LLC provides independent research on corporate governance practices, board composition, and director demographics.  For more information and to see the firm’s research on various corporate governance topics, please visit www.boardgovernanceresearch.com.   Media Contact: Kelly Kenneally Investor Responsibility Research Center Institute | +1.202.256.1445 | kelly@irrcinstitute.org

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Competition Now Open for Seventh Annual IRRC Institute Research Award Examining the Interaction Between the Real Economy and Investing

IRRCi, IRRCi Research

Thursday, May 3, 2018

Practitioner & Academic Submissions Accepted Until October 19, 2018; Winners to Receive $10,000 Each

NEW YORK, NY, May 3, 2018 – The Investor Responsibility Research Center Institute (IRRCi) has opened its seventh 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 Friday, October 19, 2018, for consideration by a blue-ribbon panel of judges with deep finance and investment experience. Two research papers each will receive the 2018 IRRCi Research Award along with a $10,000 award. Winners will be announced in December 2018. The blue ribbon panel of judges includes:

• Robert Dannhauser, Head of Global Private Wealth Management, CFA Institute
• James Hawley, Professor Emeritus of Economics and Senior Research Fellow, Elfenworks Center for Fiduciary Capitalism at St. Mary’s College and Head of Applied Research, TruValue Labs.
• Erika Karp, Founder, CEO and Chair of the Board of Cornerstone Capital
• Nell Minow, Governance Expert

Biographies of the judges are available here. 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, 2017. “This award is unique because it focuses on both academic and business research, and links capital markets and investing back to the real economy,” said Jon Lukomnik, IRRCi executive director. As noted on the IRRCi web site, Modern Portfolio Theory (MPT) has dominated investment theory for more than 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. Information on past winners is available here. More information about the award is available here. Read the full body of IRRCi research here.

The IRRC 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. Follow IRRCi on Twitter at @IRRCResearch. IRRCi Award Contact: Jon Lukomnik +1.212.344.2424 | jon@irrcinstitute.orgIRRCi Media Contact: Kelly Kenneally | +1.202.256.1445 | kelly@irrcinstitute.org

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