Linda-Eling Lee, Ric Marshall – Wednesday, December 7, 2016
The paper examines whether CEO pay reflects long-term stock performance, and finds that it does not. It finds that companies that awarded CEOs higher pay incentive levels had below-median returns based on a sample of 429 larwge-cap U.S. companies observed from 2005 to 2015. On a 10-year cumulative basis, total shareholder returns of those companies with total summary pay below their sector median outperformed those companies where pay exceeded the sector median.
Jay C. Hartzell, Jonathan B. Cohn, Stuart L. Gillan – Wednesday, December 7, 2016
The paper examines a key issue in corporate finance – the optimal division of control between shareholders and management. The research indicates that reforms allowing greater shareholder input via increased proxy access are associated with increases in firm value for those firms in which intervention is needed and where shareholders are more likely to seek board access.
“State of the Industry” Report Finds 50 Profiled Investors With $17.3 Trillion in Assets Moving Beyond Portfolio Diversification; Identifies Ten Investor Tools for Intentional, Systems-Related Investing
Webinar on Nov. 15th at 12 PM ET to Review Findings
NEW YORK, NY, November 7, 2016 – A new state-of-the-industry report finds that that investors are deliberately incorporating new investment approaches to help address systems-level risks and opportunities. The study indicates that investors are intentionally attempting to influence systems-level risk factors previously ignored as beyond the impact-ability of institutional investors. The report identifies ten tools through which 50 major institutional investors, with some $17.3 trillion in aggregate assets, are deploying “intentional, systems-level investing.” The report also offers specific examples of investors working to impact global challenges including financial system sustainability, climate change and human rights issues. The new study, Tipping Points 2016: Summary of 50 Asset Owners’ and Managers’ Approaches to Investing in Global Systems, examines how 28 asset owners and 22 asset managers are beginning to think about the impact of their investments and, in turn, how those investments are affected by global environmental, social and financial systems. This new systems-level thinking is additive to traditional investment scrutiny at the security and portfolio levels. Supported by the Investor Responsibility Research Center Institute (IRRCi), the report is authored by William Burckart, Steve Lydenberg and Jessica Ziegler with The Investment Integration Project. A webinar is scheduled for Tuesday, November 15, 2016, at 12 PM ET to review the findings and respond to questions. Register at no charge here. Download the full report here.
“It has been more than a half century since Harry Markowitz popularized diversification and portfolio level investing, for which he later won a Nobel Prize. Since then, capital markets around the world have changed dramatically, and the global financial crisis was a game changing wake-up call. Against this dynamic backdrop, investors are evolving and realizing that global financial, environmental and social systems have major ramifications on their investments and, simultaneously, their investments have deep impacts on those systems,” said Jon Lukomnik, IRRCi executive director. “The report illustrates the new policies and practices that investors are embedding into their business culture and investment strategies. We now have concrete evidence that investors are intentionally confronting global environmental, social and financial systems challenges in a way that makes financial sense,” Lukomnik explained.
“A lot of work is left to be done to better understand the complex relationship between systems and portfolios. But, this study demonstrates that institutional investors, whether implicitly or explicitly, understand that the world is becoming increasingly interconnected,” said report co-author William Burckart. “Previously, investors could find ways to insulate their portfolios from certain global events. Today, even seemingly ‘local’ events can immediately and adversely affect all portfolios. Because the largest and most influential investors are recognizing this trend and beginning to consider the connection between planetary systems under stress and adversely effected portfolio performance, we are looking at a potentially critical shift in the evolution of investment,” Burckart observed.
The report highlights several investor examples in the U.S. and abroad:
PGGM, the Dutch pension fund manager, has allocated a multi-billion dollar portion of its assets to what it describes as a “solutions” portfolio focused on four issues: climate change, food, healthcare and water.
To contribute to the vitality of Montreal, the regionally focused Caisse de dépôt de Québec has invested in a combination of public transportation and downtown office buildings and hotels.
The largest investor in the world, BlackRock, has created an impact division to design bespoke investment programs and has made a name for itself through its investment stewardship program which has taken a long-term, sustainability approach for all its portfolio companies.
The California State Teachers Retirement System has allocated $2.5 billion to an MSCI low-carbon index fund, and also has worked with the NGO Ceres to query 45 fossil fuel companies about their strategic plans under various energy/climate scenarios.
One of the most important findings of the report is the identification of ten tools through which investors express this intentionality:
Download the full study here. Register for the webinar at no charge here.
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.
The Investment Integration Project helps institutional investors understand the feedback loops between their investments and the planet’s overarching systems – be they environmental, societal or financial – that make profitable investment opportunities possible. Once this relationship is understood, TIIP provides investors with the tools to help manage the impacts of their investment policies and practices on these systems. More information is available at http://tiiproject.com/
Jessica Ziegler, Steve Lydenberg, William Burckart – Monday, November 7, 2016
This new state-of-the-industry report finds that that investors are deliberately incorporating new investment approaches to help address systems-level risks and opportunities. The study indicates that investors are intentionally attempting to influence systems-level risk factors previously ignored as beyond the impact-ability of institutional investors. The report identifies ten tools through which 50 major institutional investors, with some $17.3 trillion in aggregate assets, are deploying “intentional, systems-level investing.” The report also offers specific examples of investors working to impact global challenges including financial system sustainability, climate change and human rights issues.
Buybacks at Highest Level Since Financial Crisis, With S&P 500 Companies Repurchasing $166.3 Billion of Shares in First Quarter of 2016
Webinar on Tuesday, Sept. 13th at 1 PM ET to Review Findings
NEW YORK, NY, August 22, 2016 – As large American public corporations repurchase company shares at historic rates, corporate directors cite four key reasons for buybacks: to return capital to shareholders; invest in the company’s shares; offset dilution from using equity as currency; and/or alter the company’s capital structure. The directors generally disagree with widespread criticism of corporate stock buybacks, and say that companies need to better disclose the reasons for undertaking buybacks. These findings are contained in a new report, Buybacks and the Board: Director Perspectives on the Share Repurchase Revolution, from the Investor Responsibility Research Center Institute (IRRCi) and Tapestry Networks.
A webinar is scheduled for Tuesday, September 13, 2016, at 1 PM ET to review the findings and respond to questions. Register at no charge here. Download the research here.
The research notes that Standard & Poor’s (S&P) 500 companies acquired $166.3 billion of their own shares in the first quarter of 2016, more than in any other quarter since the financial crisis. For the past nine quarters, more than 370 S&P 500 companies repurchased shares, and S&P 500 companies spent over $1.5 trillion on buybacks during the past three years. Between 2003 and 2013, S&P 500 companies doubled their spending on share repurchases and dividends. But, at the same time, companies cut spending on investments in new plants and equipment. “A trillion and a half dollars in buybacks over three years certainly returns capital to shareowners and reduces the number of shares outstanding. That’s why buybacks are popular,” says Jon Lukomnik, IRRCi executive director.
“But, some view buybacks as financial engineering to juice short-term corporate performance at the expense of investments that would better grow companies and the economy over the long-term.” Lukomnik added, “Corporate board directors are charged with making sure buyback programs are well-designed and well-executed. However, there was little information available about how directors themselves analyzed buybacks. Not surprisingly, the research finds that directors believe they do a good job, but they also admit that they could do a better job disclosing the specific reasons for each buyback program to investors.”
“Decisions about capital return and allocation are among board members’ most important responsibilities,” says Richard Fields, report author and Tapestry Networks principal. “The 44 directors we interviewed take these decisions seriously to ensure share repurchases occur only when in the company’s best interest. But, we find that few companies effectively disclose the strategies and thinking behind buybacks. As a result, few companies get credit for the rigor of their buyback decision-making.”
The report’s key findings are as follows:
Companies repurchase shares for four main reasons – to return capital to shareholders; invest in the company’s shares; offset dilution from using equity as currency; and/or alter the company’s capital structure. Directors define what constitutes a successful buyback program differently depending on the reason(s) the buybacks were initiated.
Most directors disagree with criticisms of buyback programs. The two most common criticisms are that buybacks jeopardize corporate growth and that they lead to large, unjustified pay packages for executives. Directors, with few exceptions, say that their companies can afford both buybacks and adequate investment. Directors also reported that buybacks do not unjustly enrich senior executives, as compensation plans are adjusted for buybacks.
There is room to improve corporate disclosures about share repurchase programs. Few companies publicly disclose details about buyback decision-making and very few state the reasons for a specific buyback program. With regard to executive compensation, though a number of directors mentioned that their companies project how buyback activity will affect earnings per share and adjust targets accordingly, only 20 S&P 500 companies disclose that they do so.
Macroeconomic factors make share buybacks attractive. Monetary and fiscal policies and macroeconomic forces have encouraged repurchase programs. Many directors said that they would be unlikely to find enough good opportunities to invest all their companies’ available capital in today’s low- growth, low-interest-rate environment, and that it was often better to return capital to shareholders than to hoard capital or invest in projects with less-than-desired projected returns. Directors also said they tend to prefer buybacks to dividends because they believe a buyback program offers greater flexibility over time.
S. tax policies that discourage companies from repatriating foreign cash have also spurred buyback activity. The large build-up of capital in non-US affiliates means that companies have an emergency fund to draw upon should it become necessary. As a result, creditors offer very attractive loans to companies, meaning some corporations are able to engage in almost costless borrowing to fund buyback programs.
To conduct this study on how companies make decisions about share repurchases, Tapestry Networks reviewed available literature and current capital market reports, and interviewed 44 directors serving on the boards of 95 publicly traded U.S. companies with an aggregate market capitalization of $2.7 trillion. The interviews were conducted from August 2015 through May 2016 on a not-for-attribution basis. Download the full study here. Register for the webinar at no charge here.
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
Tapestry Networks helps corporate leaders become more effective and more confident in carrying out the challenging task of governing and leading the world’s largest companies. We do this by bringing together non-executive directors, regulators and executives from North America and Europe, to learn from one another and to discuss their role. For well over a decade our cross-sector networks of audit committee chairs, compensation committee chairs, lead directors, and our networks of top leaders in banking, insurance and healthcare, have been advancing the state of the art of governance and leadership.
Media Contacts: Kelly Kenneally | +1.202.256.1445 | kelly@irrcinstitute.org | @IRRCResearch Richard Fields | +1.781.290.2292 | rfields@tapestrynetworks.com | @leadcomp
As large American public corporations repurchase company shares at historic rates, corporate directors cite four key reasons for buybacks: to return capital to shareholders; invest in the company’s shares; offset dilution from using equity as currency; and/or alter the company’s capital structure. The directors generally disagree with widespread criticism of corporate stock buybacks, and say that companies need to better disclose the reasons for undertaking buybacks.
