Seventy-five percent of investee companies are not designed for sustainable value creation for long-horizon investors. In this event hosted by the CFA Society Chicago, representatives from Blackrock, UAW Pension Trust, Engaged Capital, and McKinsey discuss key issues for effective corporate governance that investors and board members need to act on in order to create long-term shareholder value. Topics covered in this three-part series include:
- What should be the role of the Board in long-term value creation for customers, shareholders and broader society?
- How should the Board and named officers ensure the balance between growth (innovation) and return on invested capital (ROIC), which in turn drives long-term cash flows and sustainable long-term shareholder wealth?
- How should the Board ensure the integrated alignment of business strategy, value drivers, management structure, name officer accountability design, performance targets, and long-term incentive design?
- How should the Board and C-suite ensure that the right disclosures tell the strategic story, performance metric, and incentive alignment for long horizon investors?
- What should be the Board's role in CEO succession planning, CEO selection and organizational capital management?
Part 1: Designing Investee Company Metrics, Incentives, and Leadership to Create Long-term Value
Mark Van Clieaf of Organizational Capital Partners outlines the current state of performance measurement, pay for performance, and CEO succession planning in corporate America. His examination of the “corporate governance gap” concludes with a call for better alignment between executive accountabilities and incentives and long-term strategic performance.
Part 2: Value Creation: Getting the Balance Right
Tim Koller outlines why revenue growth and return on invested capital (ROIC) are the best metrics to align performance and pay-for-performance with long term shareholder value. Finding the balance between revenue growth, return on capital, economic profit, and innovation drivers is the key to sustained total shareholder returns. He also addresses the need of executive management to focus on business strategy and the longer term and the need to invest in R&D, marketing, and capital expenditures to drive future profitable growth and returns. Koller concludes that there is no single “silver bullet” performance measurement and addresses why a balanced suite of metrics is required for pay-for-performance alignment.
Part 3: Strategic Corporate Governance: Getting Metrics, Incentives, and CEO Succession Right to Create Long-term Value
The panel discussion covers:
- A board’s proper role in developing strategy, setting metrics, and designing executive incentives.
- How a board’s focus on compliance issues and the short-term can serve as a barrier to long-term value creation
- Expectations of the board’s role in CEO succession and human capital management
- The role of engaged shareholders when a board fails to live up to its core fiduciary duties
For more information and related resources, please visit the CFA Society Chicago event information page.