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  Managing for Value Creation  
 

Financial Management

 
 
  SEC Sets Rules on Executive Compensation  
  The new rules covering increased disclosure of executive compensation go into effect for companies in 2007. A key requirement: a table showing total compensation, including the value of options, for the CEO, CFO, next three-highest paid executives and for all board directors. The new backdating scandal prompted the SEC to add data designed to end the practice. Going forward, companies and their boards have incentive to set more formalized policies on the timing of option awards, covering amounts and grant and exercise dates.  
  (Published 06-Sep-2006)  
 
 
  Maximizing Shareholder Value And The Greater Good  
  Bartley J. Madden has written an excellent, thought-provoking monograph on the vital role of successful businesses in growing the economy and improving society. Madden builds the case for companies to maximize shareholder value as the basis to accrue benefits to all constituencies. His credo focuses on using an economic foundation to value a company, essentially tracking its ability to grow its cash-generating capabilities in a competitive environment. Mr. Madden has kindly given us permission to publish his monograph in Valuation Issues.  
  (Published 20-Dec-2005)  
 
 
  Dealing with Corporate Fraud  
  Being charged with some form of corporate fraud by the SEC or FBI or Eliot Spitzer is never good news. IROs need to be aware of the possibility of fraud taking place at their companies, how to detect it and what to do about it. A primer on fraud given at the NIRI conference described the main reasons fraudulent behavior occurs, alerts to detecting fraud and how to behave should you get a call from an investigator. Included are 20 red flags that indicate fraud may be occurring at your company.  
  (Published 05-Oct-2005)  
 
 
  Bullish on the Stock Market  
  Investment strategist Jason Trennert presented a bullish view of the stock market over the next decade at the CFA Institute conference. Trennert said a low price/earnings multiple could go higher and stocks still would be cheap. He said that scandals and terrorism contributed to a high equity risk premium that is likely to fall thanks to less economic volatility, declining stock trading costs, globalization and a better central banking system. Trennert expects dividends to be a bigger part of shareholder return in the future. He also described the impact of hedge funds on the market, showing how they have become the big player for brokerage trading and research, and offering proof that they now have a sizable effect on market sentiment.  
  (Published 31-Aug-2005)  
 
 
  SEC Issues Guidance on Internal Controls for Financial Reporting  
  In the face of widespread complaints from companies about the uncertainty of the requirements and the cost of complying with Sarbanes-Oxley internal control systems, new guidance has come from the Securities and Exchange Commission and the Public Company Accounting Oversight Board. The SEC and PCAOB believe the auditors have been too "mechanistic and overly cautious" in implementing the requirements. Auditor and company efforts are described as "excessive, duplicative and misfocused." A key SEC recommendation: Combine the audit process taken for internal controls and preparing financial statements.  
  (Published 20-Jun-2005)  
 
 
  Prioritizing the Sources of Accounting Principles  
  A new project of the Financial Accounting Standards Board establishes the hierarchy for determining the main sources of accounting principles under U.S. GAAP. The FASB also aims to simplify standard setting, narrow the types of accounting principles and establish a single, authoritative codification of GAAP. Two related projects will dig into the complexity issue and determine the relative importance of conceptual statements.  
  (Published 17-May-2005)  
 
 
  Tax Breaks Fueling Dividend Increases  
  With the tax on dividends now 15%, more companies are boosting their payouts or starting to issue dividends. Dividends are an important component of total shareholder return, attracting investors, especially in markets where stock price appreciation is uncertain.  
  (Published 28-Apr-2005)  
 
 
  Research: Earnings Quality Deteriorating  
  In our continuing series, we turn again to a piece of sell-side research to keep tabs on key ideas being presented to investors by analysts. This time, highly-regarded research specialist Richard Bernstein documents his case that earnings quality is deteriorating, identifying seven "unattractive" industries and seven industries with the highest quality. Attractive industries have the smallest GAAP gap, namely the gap between reported GAAP EPS and announced/pro forma EPS.  
  (Published 28-Apr-2005)  
 
 
  Certifying Internal Controls for Reporting: A Real Pain  
  Concerns are high as the time arrives for companies to certify the effectiveness of their internal control systems for financial reporting. Meeting the provisions of Section 404 of Sarbanes-Oxley will force some companies to report "material weaknesses" in their controls and can cause others to delay reporting financial results or have to restate them. Lower stock prices could result. And SOX compliance costs are proving to be a real burden to companies.  
  (Published 30-Mar-2005)  
 
 
  Options Expensing Now a Reality  
  FASB has won, mandating that companies will expense options and other share-based payments on their income statements starting in the third quarter. New Statement No. 123 requires using the fair value method based on the grant date of options. No more use of the intrinsic value method. Companies are responding by finding ways to tweak their assumptions in attempts to reduce their reported expenses and lessen the impact on earnings.  
  (Published 25-Jan-2005)  
 
 
  CFROI® Valuation, Efficient Markets, and Behavioral Finance  
  This is the second in our series from consultants on value-based management. In an efficient stock market, the key for investors is to use the right valuation model to analyze companies. Author Bart Madden says the model must be comprehensive and accurate in its analysis, the investor must know how to apply it, and company information must be performance-relevant. Madden explains in depth how to use the cash flow return on investment (CFROI) valuation framework to measure a company's life cycle of economic returns.  
  (Published 14-Apr-2004)  
 
 
  Incentive-Based Management  
  When you want results, show them the money. In this article, author John Collard literally provides the complete blueprint for building an incentive-based bonus framework for employees throughout the company. Executives can just follow the roadmap and put the programs in place.  
  (Published 25-Feb-2004)  
 
 
  Pension Fund: Value Creator or Destroyer?  
  Corporate pension plans can boost net income or drain cash intended to invest in growth. The question becomes is the plan over or under funded. Stock and bond market returns fuel pension assets, but liabilities for most companies keep rising. The real issue is the impact the discount rate has on liabilities. Our low interest rate environment has brought down the discount rate, raising pension liabilities.  
  (Published 10-Feb-2004)  
 
 
  FASB Readies New Rules on Option Expensing  
  New rules to expense stock options have companies rethinking the best ways to create incentive-based compensation packages for executives and managers. Individuals are demanding reform, professional investors want compensation to be in line with stock performance. FASB and IASB are writing new rules, ready for comment this quarter and scheduled for implementation by the end of 2004. First step is to understand how expensing will impact income statements and balance sheets. We offer a primer in this article.  
  (Published 20-Jan-2004)  
 
 
  How Options Expensing Will Change Executive Compensation  
  Don Delves has written a definitive book on stock options -- how they grew, stirred behavior geared more toward greed and short-term management than an incentive aligned with shareholders, and now are being curtailed because of new accounting rules that will put added expense on a company's books. In the book and in our interview, Delves says this is the time for boards and executives to rethink not just how options are used but how entire incentive compensation packages are structured. He offers a host of suggestions.  
  (Published 20-Jan-2004)  
 
 
  Focused Finance  
  Most companies overly complicate financial management. The best companies keep it lean and linked to value. Okay, so you have always wanted to gain a comprehensive understanding of Economic Value Added (EVA) as taught by the consultants at Stern-Stewart & Company. We asked Bennett Stewart to elaborate. Half of his article details "fuzzy finance," building the arguments for why EPS, DCF and RONA do not offer the right paths to creating value Then, he shows us how EVA is at the center of "focused finance." The article is long, but we urge you to stick with it; it leaves you with much to think about.  
  (Published 20-Jan-2004)  
 
 
  The Search for the Elusive .400 Hitter: From Baseball to Corporate America  
  "400 hitters" in baseball are hard to come by these days. Is it because the talent pool is better or worse? Maybe, hitting .350 is the equivalent today. In the same manner, top performers among corporations may not be racking up returns as high as they were years ago. Maybe 30% is the equivalent today. What's reasonable for old-line companies? Are most of the winners in New Line industries? And how can your company step up to the plate and lead your industry? This fascinating article by Jim Bucholz offers an analysis that compares baseball and business performance, and provides insights aimed at helping managements get to the World Series of Business.  
  (Published 09-Sep-2003)  
 
 
  Beating the "Capital Crunch:" How to Secure Funding in a Tight-Fisted Market  
  Here is a primer for newer companies on how to raise capital in these uncertain economic times. CFOs take note: Virtually all the options are laid out. IROs and IR consultants can gain a comprehensive look at the funding alternatives.  
  (Published 30-Jul-2003)  
 
 
  Governance Environment Empowering the CFO  
  Governance practices are changing rapidly inside companies. Audit committees are involved in financial statement preparation and reporting. CEOs and CFOs must assume accountability. The finance function is being reinvented. And CFOs are gaining power.  
  (Published 30-Jul-2003)  
 
 
  Liquidity Impacts Investor Risk And a Company's Stock Price  
  Your company's stock trading liquidity can make a difference in your stock price. Institutions are more inclined to buy shares of companies, knowing their purchases won't punch up the price too fast and their sales won't lower the price before they can get out completely.  
  (Published 30-Jul-2003)  
 
 
  Reputation Matters  
  Can reputation be measured? It sure can, according to research specialists taking up the effort. They?re looking at some 40 factors that contribute in major ways to a company?s reputation. The result enables executives to gain a beat on the external perception of their reputation.  
  (Published 11-Jul-2003)  
 
 
  Historical Performance of Valuation Models ? An Update  
  See how most valuation models went haywire in 2000! John J. Lewis updates the charts from his descriptions of various valuation models showing cumulative returns from investments using each model. Institutions rely on these models in their portfolios.  
  (Published 19-Jun-2003)  
 
 
  Earnings Revisions Still the Hot Measure  
  Earnings are still the main measure, driving investment decisions for many institutions and most individuals, despite accounting manipulation and sell-side analyst overemphasis on quarterly EPS numbers.  
  (Published 19-Jun-2003)  
 
 
  Companies? Financial Statements Being Put Under a Critical Microscope  
  Accounting critic Jack Ciesielski advises money managers and analysts on how to scrutinize corporate financial statements in the search for problems. Restatements and pro forma methods are underscored. Corporate executives are wise to see what Ciesielski is teaching.  
  (Published 15-Apr-2003)  
 
 

Performance Metrics

 
 
  Dissecting Market Efficiency  
  Al Rappaport describes three views of market efficiency - informational, fundamental and allocative (allocating capital to grow businesses), detailing how each theory suffers from the market's penchant for short-term, earnings-driven investing. The perceived need to match or beat a benchmark drives managers (as agents for investors) to track market patterns on a short-term basis and prevents them from relying on cash flow valuation methods to achieve longer-term excess returns.  
  (Published 04-Apr-2006)  
 
 
  Advice from a Market Guru:
Focus on Cash Flow, Not Earnings Expectations
 
  Investment guru Alfred Rappaport has written a definitive piece on the fallacies of investment that dominate the equity market today. Rappaport builds a strong case to show the weakness of a short-term market relying mainly on earnings expectations to drive stock prices. He writes that it is unrealistic to believe an investor can beat the market averages consistently over time using earnings as the chief metric. He argues instead for a return to applying discounted cash flow methods in managing portfolios for long-term excess returns. We report on his lengthy and most valuable treatise in a series of six articles included in this edition.  
  (Published 04-Apr-2006)  
 
 
  Helping Investors Improve Returns  
  Investment guru Alfred Rappaport advises professional investors on how to overcome the market's obsession with earnings as a short-term measure and focus instead on cash flow in their models in building a longer-term time horizon. To succeed, investors need to get in step with each other in forsaking earnings as the measure of choice and grow their confidence in the value of cash flow as the metric best reflecting corporate performance. A key: Focusing on cash flows enables investors to make better use of information in forecasting future business performance.  
  (Published 04-Apr-2006)  
 
 
  Creating THE Corporate Performance Statement  
  Author and professor Alfred Rappaport describes the content of a new financial statement that would replace the traditional income statement. The new statement would separate cash flows from accruals and classify accruals by their levels of uncertainty, from low to high. Accruals not relevant to realized cash flows also would be eliminated. Assumptions and risk levels would be spelled out. Rappaport says the new statement would go far in helping analysts and investors estimate future cash flows. He wants the equity market to forsake its obsession with short-term earnings as the metric to measure value and stick with long-term cash flows instead. Better disclosure is at the center of enabling the market to make better calculations of future cash flow. The new Corporate Performance Statement would be the source of that better disclosure.  
  (Published 04-Apr-2006)  
 
 
  The Short-term Earnings-based Obsession of Executives and Investors  
  Executives are geared today to run companies for short-term performance results. Managers say they have no choice because the market awards higher multiples and stock prices to companies growing earnings on a continuing basis. Executive compensation plans tend to focus on earnings goals as well. Professor Alfred Rappaport describes the short-term penchant of companies and investors as an obstacle in the way of building shareholder value over time.  
  (Published 04-Apr-2006)  
 
 
  Discounted Index Options: Their Time Has Come  
  Investment guru Alfred Rappaport lays out a program for companies to make stock options a viable incentive for managers to work at improving shareholder value long term. His answer: Discounted index options. The options would be indexed to an industry peer group. Companies without a logical peer group can provide discounted equity-risk options (DEROs). Rappaport believes the new need for companies to expense options eliminates executive reluctance to use discounted index options and DEROs.  
  (Published 04-Apr-2006)  
 
 
  Proving the Value of Economic Profit Models  
  Continuing research is moving Rawley Thomas meticulously closer to developing the empirical evidence that shows the superiority of economic return spreads over price/earnings ratios and other traditional metrics in valuing companies. Thomas' contention is that economic profit is the basis of value creation; companies create shareholder value by investing in projects that produce returns above investors' cost of capital. He argues that rate of return spreads should replace growth and value styles. His new objective measurement methodology aims to show the accuracy and predictive capability of DCF valuation models.  
  (Published 20-Jun-2005)  
 
 
  Is Cash King -- or Pawn?  
  Now that cash flow has become such a popular metric, companies are starting to manipulate the numbers to make them look better, according to critics. Eleanor Bloxham raises the new issue, cites the growing legion of critics and their claims, and gives examples of companies playing with the numbers. Financial reporting continues to be a highly-creative exercise.  
  (Published 15-Jun-2004)  
 
 
  Whose Side Are You On?  
  Author Eleanor Bloxham wants to make sure corporate executives understand the worlds apart that can exist between GAAP (accounting) and valuation. GAAP provides structure to maintain the books and provide financial reporting. Valuation gets at what a company is worth. They're not the same thing.  
  (Published 10-Feb-2004)  
 
 
  A Case Study: Evaluating Valuation Approaches  
  Managements have a growing interest in determining the best ways to place values on their lines of business. Which are the most valuable metrics to use? Should it P/E, ROE? Our author points out their flaws and suggests using an economic-based measure.  
  (Published 28-May-2003)  
 
 

Operations

 
 
  Managing Customer Value: When is More, Better?  
  Smart companies know how to improve customer value in ways that also increase shareholder value. Strengthening customer value involves increasing revenues from a product by raising demand for it through key product improvements that distinguish it from offerings of competitors, and by either gaining market share or higher returns on investment through the pricing equation. Marakon co-founder William Alberts details the customer value/shareholder value enhancement proposition.  
  (Published 13-May-2004)  
 
 
  How to Grow Everything But Shareholder Value  
  Top line growth can be a big tease for executives, but it isn't an automatic path to value creation. Those revenues must result from having a competitive advantage to be turned into shareholder value. Here are some other tips offered by the author. In the rush to find new customers, don't neglect those you already have. Don't push into new markets that may prove unprofitable. Stay out of low-growth markets and be wary of acquisitions that destroy value.  
  (Published 10-Mar-2004)  
 
 
  Accelerating Profitable Organic Growth  
  Corporate managements are challenged to find ways to accelerate growth in this tough business environment. Marakon co-chairman Jim McTaggart lays out winning strategies leading to growth built around creating value for end-use customers and channel partners. The concepts focus on increasing economic profit. Two examples show how companies are successfully implementing the ideas.  
  (Published 28-Oct-2003)  
 
 
  Seven Steps to Operational Shareholder Value  
  Where is shareholder value created? The answer: In the actual operations of the business. People create the framework and make it work successfully. Management guru David Connaughton lays out seven steps that serve as the framework for true value creation.  
  (Published 11-Jul-2003)  
 
 
  Is Your Company At Risk? Early Warning Signs Pinpoint Business Troubles  
  Companies don?t need to die prematurely. By recognizing the indicators of problems, companies can head off the dangers and sustain growth well into the future.  
  (Published 28-May-2003)  
 
 

Authors

 
 
  Social Security and Generation X Revisited  
  We follow-up a recent column by Natalia Davis and Russell Redenbaugh suggesting that Generation X will revise the U.S. Social Security system with a response from reader Don Allen. As Mr. Allen writes, "If we allow Generation X'ers to put away six percent of their SS taxes in private accounts, who's going to make up that six percent to pay for current retirees' benefits?" In turn, Natalia and Russell suggest relying on the ingenuity of Generation X to come up with a creative solution.  
  (Published 21-Jul-2004)  
 
 
  Getting All the Revenue Your Company Has Coming  
  Most companies lose millions of dollars in revenue every year by failing to have systems that assure obtaining every sales dollar they're entitled to receive. Systems to capture revenues are proliferating. And now a new book spells out the process.  
  (Published 30-Jul-2003)  
 
 

Corporate Governance

 
 
  Mutual Funds Embracing Governance  
  Perhaps something of a surprise, mutual funds appear to be growing their appetite to push companies into good governance practices. Nearly 85% of mutual funds globally responding to an ISS survey said they view governance as an important factor in a company's value proposition and stock price. Even 20% feel they have metrics to quantify the value of governance, a percentage likely to grow as investment models are fine tuned.  
  (Published 11-Jul-2006)  
 
 
  Companies Agreeing to Majority Vote Requirement to Elect Directors  
  More companies are agreeing to require a majority vote of the shareholders to elect directors, replacing the simple plurality standard that has long existed. In volunteering to require a majority vote, companies are getting in step with shareholders, who want to see the governance change in place. In fact, the majority vote practice is the subject of a sizable number of shareholder resolutions this year. In other news, CFOs are displaying more optimism than pessimism in their expectations to spend more on growth and hire more people to capitalize on opportunity in an economy that continues to be strong. They also agree with SEC plans to expand disclosure on executive compensation but are opposed to giving shareholders the right to approve pay packages. Further, a survey shows that all the negative press about excessive pay hasn't served to reduce the size of compensation packages.  
  (Published 11-Jul-2006)  
 
 
  CFAI Urges Investor Involvement in Governance  
  Professional investors continue to be encouraged on many fronts to be more active and aggressive in pushing companies into good governance practices. Here we review a manual from the CFA Institute that identifies the many governance practices that investors should insist on inside companies. The CFAI lays out the investment value implications of each governance practice, identifies things for investors to consider and provides sources of additional information.  
  (Published 08-Mar-2006)  
 
 
  Hedge Funds Wielding Clout in Governance Matters  
  Hedge funds certainly are becoming players in pushing companies and other investors into the governance arena. They are gathering extensive voting support in proxy contests to remove CEOs and fill board seats. Their support also is putting shareholder proposals over the top. Their motivation in most situations is to boost stock prices in the short run.  
  (Published 01-Dec-2005)  
 
 
  Social and Environmental Issues Continue to Evolve  
  Activist shareholders are not letting up in their push for companies to help solve social and environmental issues. Environmental concerns share the spotlight with those involving human rights. Topping the list are worries over greenhouse gas emissions, fair labor standards, outsourcing, workplace conduct and health. U.S. companies still must comply with the Kyoto Protocol when doing business in those 128 countries that have signed it.  
  (Published 01-Dec-2005)  
 
 
  Governance Is For Everyone  
  There's no escaping the reality of the new definition and practice of governance impacting virtually every public company today. Governance has become an important and integral part of the basic functions that comprise a company. The company's shareholders demand it. If your management's attitudes toward governance and its fundamental governance practices aren't in line with modern thinking, beware.  
  (Published 01-Dec-2005)  
 
 
  CEO Pay: Getting No More Than What You Deserve  
  Shareholders are demanding that total shareholder return function as the essential measure to determine executive compensation. In 2005, there were more resolutions aimed at forcing companies to focus on achieving specific performance targets as the basis for CEO and other executive pay. The majority of institutional investors still believe that CEOs are overpaid. Shareholders continue to worry about whether the FASB and SEC will require expensing stock options. And they want a voice in determining the size of golden parachutes. ISS outlines its criteria for shareholders to use in supporting the election of directors serving on compensation committees. ISS also is demanding better disclosure of companies' executive compensation practices and their justifications to increase CEO pay.  
  (Published 01-Dec-2005)  
 
 
  Ballot Power of Shareholders Continues to Grow  
  Shareholders continue to refine their agendas in deciding on the governance issues to pursue with companies. Board independence remains a top priority, based on resolutions to require majority votes to elect directors and the continuing movement to withhold votes against candidates not favored by investors. Companies seem to be more relaxed about preventing unwanted takeovers, even submitting management proposals to rescind poison pills and classified boards. Executive pays continues to be a big issue.  
  (Published 01-Dec-2005)  
 
 
  How Governance Impacts Investment Decisions  
  Prominent investment managers John Bogle and Steve Galbraith delved into the state of the practice in corporate and institutional investor governance at the CFA Institute conference. Hedge fund Maverick Capital employs 45 analysts to scrutinize companies' governance practices. The firm makes half of its money on "atrocious governance," said Galbraith. Bogle said the owners of companies are no longer in charge. Instead, this is the era of "managers' capitalism." Institutions are functioning as agents for the owners. He called on the big institutions to unite and become a force in corporate governance.  
  (Published 31-Aug-2005)  
 
 
  From New Regulation a New Era  
  While the costs of compliance are burdensome, expert opinion is running high that the sweeping regulations of recent times ultimately will prove beneficial to corporations and investors alike while rebuilding investor trust. Even a strong economy and stock market can emerge. Managements are encouraged to embrace the changes, develop new disciplines and embed a culture that is honest, open and transparent. Boards and investor relations departments can be significant contributors.  
  (Published 10-Aug-2005)  
 
 
  Exercising Institutional Clout  
  We take an inside look at how one major institutional shareholder went about seeking to influence the decision of MCI's board when weighing competing merger bids from Verizon and Qwest. Investment guru Bill Miller made it quite clear in a letter who his firm, Legg Mason favors and how it would vote its 240 million shares.  
  (Published 17-May-2005)  
 
 
  Better Corporate and Environmental Management  
  Good environmental citizenship has its rewards, a key one being higher valuation and stock price. A new study documents the positive correlation between environmental performance and stock price. Other studies also support the positive link. Governance ratings are higher as well. Companies are encouraged to focus on environmental performance.  
  (Published 14-Mar-2005)  
 
 
  Good Works, Good Investment Returns  
  Evidence continues to grow suggesting that companies topping the charts in social and environmental responsibility do well in business, attract investors and achieve above-market returns. Some of the best-known corporate names on the globe are working hard to improve their citizenship and disclosure practices. Business benefits from enhanced image, improved employee and customer relationships serve to strengthen the bottom line.  
  (Published 28-Feb-2005)  
 
 
  Reviewing the 2004 Proxy Season  
  Board authority, ability to nominate directors and executive compensation are the big issues of 2004 carrying into this year, according to a comprehensive year-end report from Georgeson Shareholder Communications. Proposals to give shareholders access to the ballot heightened the emotional level for activists. And campaigns to withhold votes on directors gained momentum and are likely to have even more impact this year.  
  (Published 25-Jan-2005)  
 
 
  Top Board Issues for 2004: Executive Compensation and SOX Compliance  
  Executive compensation and Sarbanes-Oxley Act compliance are the main issues facing corporate boards, according to a survey of directors conducted by Columbia University. Author and consultant Bruce Ellig offers help to board compensation committees by laying out what he sees as the 12 best practices in executive compensation.  
  (Published 04-Jan-2005)  
 
 
  Proxy Season Brings Out Record Number of Shareholder Resolutions  
  For the second straight year, shareholders have submitted more than 1,000 resolutions to U.S. companies. In fact, the number is up to 1,100 and still growing. More than 100 have received the majority of votes cast, and companies are responding by installing the changes being demanded. Key issues: Annual director elections, end poison pills, independent chairman, ratify the auditors, performance-based stock options, expense options, cut down on severance packages. Bottom line: Shareholders have a voice in corporate governance.  
  (Published 21-Jul-2004)  
 
 
  Shareholder Activism in 2004: An Analysis  
  Corporate Governance has turned a corner and isn't ever going to look back. Veteran proxy firm, Morrow & Company analyzed the movement in the context of the last few years and shares its findings with us. It's not going to be business as usual for corporate managements. Board composition and behavior is changing. So is compensation.  
  (Published 14-Apr-2004)  
 
 
  They're Mad and They're Not Going to Take It Anymore  
  Shareholders are riled up about governance and there's no turning back. New regulations following the corporate scandals have emboldened investors to be vigorous in their pursuit of governance changes. The 2004 proxy season is proof: More resolutions and a move toward making them binding. The big issue: Compensation. Then, there's the Governance Index. It suggests that companies where the balance of power favors management over shareholders don't do as well.  
  (Published 14-Apr-2004)  
 
 
  Corporate Governance: How Will It Change?  
  What is the state of corporate governance in America? We asked three experts for their opinion on a wide range of governance-related hot topics, in particular, board independence, executive compensation, and selection of directors. Here are their answers, in an interview format.  
  (Published 20-Jan-2004)  
 
 
  Rating Corporate Governance  
  Governance rating services are contributing intelligence to the efforts of investors to quantify the impact of a company's governance on its value-creating capabilities. Investors value the services, but they are concerned about the extent these ratings get at true governance behavior, whether it is changing and whether it constitutes "good" governance practices.  
  (Published 17-Dec-2003)  
 
 
  The Newest Value Driver: Governance  
  Yes, it certainly appears that corporate governance has become a value driver. Two years ago, institutional investors called governance a secondary consideration in evaluating a company for investment. Today, money managers say they won't invest in companies with "bad" governance practices. In contrast, being seen as a company practicing "good" governance is desired. The biggest question: Is the drive toward good governance changing management behavior?  
  (Published 17-Dec-2003)  
 
 
  Shareholders Determined to Have Bigger Role in Running Companies  
  Scandals and lost stock returns have gone too far. Investors are backing their drive to have more influence in how companies are run, demanding changes through a host of pressures ? bringing media heat, complaining to regulators and legislators, adding proposals and supporting dissident moves with their proxy votes.  
  (Published 11-Jul-2003)  
 
 

Strategic Development

 
 
  Acquire or Perish  
  Don't rely on acquisitions to survive and grow, says noted author Eleanor Bloxham. Instead, build a truly effective sales and marketing organization that focuses on bringing highest satisfaction to customers. There is a blueprint for success and Bloxham details it for readers. CFOs are exhorted to get off the acquisition trail and lead the way in this effort.  
  (Published 25-Jan-2005)  
 
 
  Beating Expectations  
  What really moves a company's stock price? Changes in the expectations of investors concerning a company's future performance, say two leading thinkers on market behavior. Alfred Rappaport and Michael Mauboussin have written a book detailing how market revisions of expectations impact companies' valuation and stock price. Competitive strategy and advantage are big influences. It's certainly valuable for managements to understand the value triggers that revise investor expectations. Michael Mauboussin explains them.  
  (Published 10-Mar-2004)  
 
 
  Reverse to the Mean  
  Investors strongly believe that company performance "reverses to the mean" as competition steps in or customers stop buying the products or services. Managements are challenged to sustain their company's value or competitive advantage. Studies clearly show that most companies encounter positive or negative shifts in shareholder value during a five-year period.  
  (Published 17-Dec-2003)  
 
 
  CFO as Strategist  
  CFOs can increase their value to the company by helping lead the effort to run true economic-based value analyses of strategic initiatives being considered by managers. The effort seeks to understand more than the cost and earnings impact of strategic initiatives, but also the value. The key: The process measures the economic value of each initiative in each period of its life. Eleanor Bloxham builds the case for why this is the best method to use.  
  (Published 28-Oct-2003)  
 
 
  Gaining and Extending Industry Leadership Through Continuing Business Model Innovation  
  Empirical research shows that continuing business model innovation is the most potent strategic process available now to create and build upon powerful competitive advantages that translate into large shareholder value gains. Few companies are focused on continuing business model innovation, and even fewer do it well. By shifting attention to this process and continually improving their business models, business model innovating firms can achieve large gains over current and potential competitors before those firms shift their focus.  
  (Published 09-Sep-2003)  
 
 
  The Chief Equity Intelligence Officer  
  In today's environment, Market Value is a critical part of senior executive responsibility. The job of maintaining fair market value should be vested in an officer who is an essential player on the top management team. Investor relations officers have the opportunity to fill the role. If they don't, others will. It's inevitable.  
  (Published 09-Sep-2003)  
 
 
  Economic Value Management  
  Noted author and consultant Eleanor Bloxham has written a highly practical guide on how corporate managements can think through the key questions to come up with the best answers in building an economic value management process that heightens the probabilities of creating a business that can continue to grow and grow. Our interview with Ms. Bloxham hits the high points.  
  (Published 09-Sep-2003)  
 
 

Value Based Management

 
 
  Key Causes of Shifts in Shareholder Value  
  What are the primary reasons for the sudden positive or negative change in a company's stock price and value? Ernst & Young and Oxford Metrica did an extensive study of companies experiencing major value changes to identify the reasons. Positive shifts result from strategic alliances, improving the core business and research/innovation investment. Negative changes occur because of not adapting to business environment change, customer mismanagement and poor investor relations.  
  (Published 23-Aug-2004)  
 
 
  Value Analysis - The Proper Focus  
  Value "analysis" needs to be focused at the level where value "creation" occurs.  Author/consultant Roy E. Johnson explains and illustrates how valuation techniques can be mis-applied and how to avoid these pitfalls.  
  (Published 28-May-2003)  
 
 

Value Drivers

 
 
  Dividends in Favor  
  With the recent tax cut on dividends, companies are raising the payout and attracting longer-term investors focusing on total shareholder return. Companies are shifting funds from buybacks to dividends since they're now taxed at the same level. Making the tax cut permanent should prove positive to sustaining economic growth.  
  (Published 23-Aug-2004)  
 
 
  Thinking Differently About Dividends  
  Dividends are back in favor with investors. Gerry Hansell and Eric Olsen cite a host of reasons, including their important contribution to total shareholder return and improved tax status. A low PE, limited opportunity to invest cash in new growth, and opportunity to attract value investors are all good reasons to increase dividends. Bottom line: Dividend increases are a way to improve shareholder value.  
  (Published 25-Mar-2004)  
 
 
  Putting a Market Value on Reputation  
  Everyone knows intangible assets drive market price, but the trick is how to value them. Now, someone has come up with a way to quantify the contribution to market cap of one of the most important intangible drivers - the corporate brand. The average contribution of the company's image or reputation is about 5% of total market value. But for many companies, it is much higher. At last read, it was over 18% for Microsoft and almost as high for General Electric. How are these values quantified? Read on.  
  (Published 18-Nov-2003)  
 
 

Non-Financial Drivers

 
 
  Optimizing Human Capital Investments for Superior Shareholder Returns  
  Does your company have an effective way of measuring the return on its investment in human capital? That's a tough question, right? In recent years, it has become obvious to managements and investors that such key intangibles as the human contribution to business operations, customer relationships, quality of management, the power of the brand and others are the real drivers of shareholder value. Consultants at Hewitt Associates have been working for years to develop meaningful ways of measuring a company's return on investment in human capital to achieve superior shareholder returns. A complete description of this methodology is presented here.  
  (Published 31-Jan-2006)  
 
 
  The Case for Good Citizenship  
  New evidence clearly demonstrates the shareholder value enhancement benefit for companies improving their environmental, health and safety practices. Good social responsibility also is rewarded. Stakeholders are looking favorably on companies making improvements in practices and disclosing their efforts. Investors and analysts are defining their expectations concerning social responsibility and governance.  
  (Published 13-May-2004)  
 
 

Intangible Value Drivers

 
 
  Getting More Market Value from Intangible Assets  
  Professional investors are working harder to quantify the impact of intangibles in driving a company's value. Making assumptions and putting numbers to strategic planning, quality of management, intellectual capital, innovation/R&D, superior customer relationships is the next big step in investment modeling. Companies are responding by focusing more on these value drivers in trying to further exploit them and doing a better job of reporting on their progress.  
  (Published 30-Jul-2003)  
 
 

Leadership

 
 
  Market Leadership Is No Guarantee of Shareholder Return Superiority  
  Being the biggest player in your industry no longer assures a company of being the superior provider of shareholder value. That's the conclusion of a new study from the prominent management consulting firm, Marakon Associates. We review the findings, presented in an article by Marakon Associates' Brian Burwell and Jeremy Sicklick. Conclusion: The scale that results from being the market leader doesn't necessarily translate into highest shareholder return in the industry. The key is to apply the right kind of scale for your business. The authors outline four primary ways companies can differentiate themselves to use scale in optimizing shareholder return.  
  (Published 08-Mar-2006)  
 
 
  A New Era for Corporate Leadership  
  In the wake of corporate scandals and new laws seeking reform, former SEC chairman Harvey Pitt offers 18 principles of behavior for boards of directors and investor relations officers. The principles focus on ethical behavior, full disclosure and ways to repair relationships with investors and the public. Boards and IROs are well positioned to assume leadership and effect the changes. Companies and their CEOs must lead the reform.  
  (Published 10-Aug-2005)  
 
 
  The New Leadership at Companies  
  In the wake of scandals and partly in response mandated by new laws, leadership at the top clearly is changing for the better, say observers of the corporate scene. Directors are exercising independent leadership as their attitudes and the composition of boards change. CEOs and other top executives are recognizing the benefits of putting self-interests aside in favor of team building and working to satisfy the interests of all stakeholders. A focus on what it means to behave ethically is building. These changes are real; even the cynical media say so.  
  (Published 17-May-2005)  
 
 
  Opinion: Expand Leadership But Don't Neglect Vital IR Role  
  Investor relations professionals are being pulled in multiple directions these days. Increasingly, they're becoming involved in corporate governance, media relations, crisis communications and more. IROs benefit from understanding company practices in these areas while the company benefits from having important leadership from IROs. But this support should not come at the expense of performing the vital investor relations function.  
  (Published 14-Mar-2005)  
 
 
  Best Practices in Global Investor Relations: The Search for Corporate Strategic Credibility Continues  
  Prominent author and teacher Dr. Richard Higgins gives us a comprehensive and insightful analysis of the Business Enterprise in today's economic, political and global climate. Issues and opportunities facing companies contain many challenges that managements must meet if they are to steer their businesses along a successful path. Dr. Higgins updates his analysis of General Electric from his earlier book in describing how GE's leadership continues to reinvent the company as it moves forward.  
  (Published 14-Mar-2005)  
 
 
  Analyst and Investor Views on Corporate Management Behavior  
  Sell and buy side analysts talk about the vital role information from companies and relationships play in decisions about stocks in this article based on exclusive interviews with some 20 investment professionals. Clearly, management behavior and information transparency are driving factors in decisions to follow a company, invest in it, make buy/sell recommendations, and set growth and stock price targets.  
  (Published 28-Feb-2005)  
 
 
  Are CEOs Weak?  
  Eleanor Bloxham disagrees with the suggestion in an article that social responsibility doesn't pay. Bloxham points out that companies stand to grow and succeed when they satisfy multiple constituencies. A board's responsibility, she writes, is to "ensure the longevity of the corporate entity." A lack of good governance doesn't go unnoticed; word travels fast among stakeholders.  
  (Published 28-Feb-2005)  
 
 
  CEOs: The Heat's On  
  CEOs are coming in for a lot of criticism these days. Even the future generation believes corporate leaders lack vision, the ability to motivate people and grow their businesses. The media seem to delight in reporting the current CEO trials and in blaming corporate leaders for a host of ills. Clearly, it's time for a broader and truer perspective. Business continues to do amazing things. And there are many examples of great CEOs.  
  (Published 28-Feb-2005)  
 
 
  Natural Cycles  
  Cycles are real and rather than deny them, executives are wise to prepare for them, making changes early enough to sustain good economic performance. Companies often abandon economic-based, managing-for-value methods in the face of short-term earnings pressure from the market. Eleanor Bloxham calls upon real life situations involving "natural cycles" to offer wisdom on staying the course.  
  (Published 25-Jan-2005)  
 
 
  What's Hot and What's Not  
  Eleanor Bloxham gives us her lists of the top 15 trends, actions, developments, issues and initiatives that are hot and not so hot for CEOs and CFOs intent on creating long-term value for investors, managers, employees and other stakeholders.  
  (Published 04-Jan-2005)  
 
 
  Playing to Win: Lessons from the Best Businesses and Baseball Teams  
  Successful companies and successful baseball teams have a number of vital business management principles and practices in common. They start with developing strategies and action plans geared for success. The right objective: deliver superior shareholder returns. They collect meaningful information to help build the right team capable of achieving their objective. And they use measures that truly apply. Our authors, from Marakon Associates, lay out the blueprint and back it with a host of successful business and baseball experiences.  
  (Published 30-Nov-2004)  
 
 
  Identifying the Top Threats to Revenue Sources  
  A new study suggests that corporate executives are more confident of their ability to protect key revenue sources against major disruptions than are investment professionals. Executives and investors disagree on the major threats to top revenue sources. Companies see them as property related, namely explosions, fires and supply chain disruptions. Investors believe the prime risks are pricing fluctuations, regulation and management/employee malfeasance.  
  (Published 30-Nov-2004)  
 
 
  Work with Turnaround Professionals to Preserve Value  
  Companies in trouble may need a turnaround specialist in a hurry. Current, or founding management may need to be replaced. Lenders will have a big role to play in any turnaround process; the goal is to restore credit worthiness. Selecting the right turnaround specialist is a critical move that must be made effectively. John Collard details situations that call for help, lays out the lender's position, advises on the steps needed to bring about a turnaround, and offers tips on how to select the specialist right for your company. The primer is valuable for CFOs and IROs, in case your company gets into trouble.  
  (Published 13-May-2004)  
 
 
  All Leaders Are Not Created Equal  
  John Collard says troubled companies and those pushing to turn the fortunes of the business around must act decisively and obtain results quickly. Certain key management skills are essential - the ability to focus on objectives, make vital decisions, delegate authority, develop people well and be consistent in practices. Maintaining the support of your bankers is a must. It may be necessary to change the leadership style to save the company.  
  (Published 14-Apr-2004)  
 
 
  The Secrets of Sustaining Business Growth  
  Executive behavior determines how well a company does and whether it can sustain growth over time. Many managers are stalled by any number of serious barriers such as the wrong mindset, misconception, procrastination, or not adapting to major forces at work. Two books by Don Mitchell and Carol Coles describe the issues and show how to deal with them. Then, there's that third book, revealing an undetected reality: the way for companies to grow and grow and grow is to continually change their business model. Mitchell and Coles show the results of Business Model Innovation.  
  (Published 25-Mar-2004)  
 
 
  Mission Possible: Six Key Elements to a Good Mission Statement  
  Want to create a mission statement that is substantive, detailed and truly lays out the path for your company to follow? Bland statements don't guide employees, customers or anyone to specific behavior that drives growth, confidence, loyalty, sales and better relationships. John Collard provides the outline for a mission statement and shows executives exactly how to fill it in.  
  (Published 10-Mar-2004)  
 
 
  Investors Search for Ethical Companies  
  Ethical corporate behavior is gaining considerable attention from investors today. Recent corporate scandals and questions of trust are the main reasons. Sarbanes-Oxley covers some ethical issues. Managements are taking steps to ensure that their companies' ethical practices are not found wanting. Indeed, good ethics starts with the CEO.  
  (Published 17-Dec-2003)  
 
 
  A Primer for the Next Generation of CEOs  
  Former Medtronic CEO Bill George has written a refreshingly candid book about the failure of corporate leadership and how the new generation of chief executives should behave to gain it back. Among his keys: Put customers and employees first as the basis to sustain shareholder value, manage for the long term, and don't get caught up in stock market demands for immediate gratification.  
  (Published 28-Oct-2003)  
 
 

Transactions

 
 
  How to Avoid Paying Too Much In a Merger or Acquisition  
  Want to be an instant expert on how to negotiate a merger or acquisition, to your company's best advantage? We offer a comprehensive primer, for a corporate insider's benefit. The primary goal: Make sure you don't pay more than you should when assessing the value your company can build through the combination. Ten major implications from overpaying are presented, along with 10 common reasons managements indeed spend more than they should.  
  (Published 28-Oct-2003)  
 
 

Accounting

 
 
  The 80/20 Split  
  A new survey indicates companies are willing to give up longer-term economic value to smooth earnings and not miss a quarterly consensus number. Don't let a peer company "crossing the line" influence you to do the same, says our author, Eleanor Bloxham. Case law is building and courts are looking at "intent." Focus on economic value calculations and stay out of the grey areas, she advises.  
  (Published 25-Mar-2004)  
 
 
  FASB to Deal with Revenue Recognition  
  It may not be right around the corner, but the Financial Accounting Standards Board is definitely looking at a project to straighten out the inconsistencies it currently sees in revenue recognition practices. It also is intent on working with the International accounting board to create global standards. Accounting guru Pat McConnell fills us in the status of the project.  
  (Published 25-Mar-2004)  
 
 

Macro View

 
 
  How Macro Factors Impact Stock Market Performance  
  A lesson on ways to analyze economic and other macro conditions as the basis to project stock market behavior was given at the 2006 NIRI conference by Mike Santoli, senior editor at Barron's magazine. Santoli was focusing on the significant impact of macro factors driving the market, such as inflation and interest rate levels. He expected the market to "muddle through" current issues and come out alright.  
  (Published 06-Sep-2006)  
 
 
  Economic Optimism  
  CFOs are optimistic about the U.S. economy and expect capital expenditures to rise by 13% in the next year. Higher interest rates are not seen as a deterrent. Still, U.S. institutions are putting more of their assets in international equities, hedge funds and alternative investments. Bottom line: It is performance and expected returns that matter.  
  (Published 30-Mar-2005)  
 
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