Create a Finance Committee at Every Public Company [cfo.com]

Almost all boards of U.S. public companies now have three committees that meet immediately before every board meeting and report to the full board — audit, compensation, and nominating-governance. Committees have become the workhorses of the governance process: with their small size and expert support, they can do more in-depth analysis of complex topics than the full board of directors.

On Wall Street’s big banks, Trump and the Democrats are both wrong

In Trump’s campaign for president, he pledged to bring back Glass Steagall, and that same pledge was included in the Republican Party platform. Glass Steagall was a depression-era law limiting the financial activities of banks, which was repealed in 1999. But what does it mean to support a modern version of this act?

The Trump administration has given confusing answers to this question. Meanwhile, liberal Democrats have made clear that they mean breaking up the large banks. These issues will have to be sorted out by Randal Quarles, who will soon gain Senate approval to be the first vice chair for regulation at the Federal Reserve.

Please read the rest at thehill.com 

Millennials don’t save for enough retirement — but Congress can help[ The Hill]

“Young people are not saving enough.”

“They will have to double their savings to retire at a reasonable age.”

These quotes represent the conventional wisdom about our nation’s millennials, the more than 80 million Americans between the ages of 20 and 36. However, the savings picture for millennials has become more complex, according to recent data. This cohort of young people is saving more, though for short-term goals instead of retirement.

Read the full article here 

How to fix gaps in disclosures at Canadian stocks[theglobeandmail]

When a Canadian company publicly restates its financial statements, the restatement suggests a material weakness in its internal controls. Those controls comprise the checks and balances, which are supposed to provide investors with reasonable assurances that their financial statements are accurate and complete.

To examine these issues, we reviewed all financial restatements by Canadian-listed companies (with a market capitalization above $75-million except for dual-listed companies) between Jan. 1, 2009, and Dec. 31, 2016. In this period, there were 78 financial restatements by such Canadian companies.

Read the rest at theglobeandmail.com

Decoding CEO Pay[Harvard Business Review]

Each year most public companies issue reports on the pay packages of their top executives, describing how their compensation committees arrived at the numbers. These reports are part of the proxy statements sent to all shareholders, who vote on the packages. The votes are advisory or binding, depending on the country where a company is chartered.

More than 95% of the time, shareholders overwhelmingly approve the pay recommendations. Yet our research suggests that investors should be more skeptical. Compensation committees frequently adjust company performance numbers in complex and even obscure ways, for a variety of reasons. Sometimes, for example, they want to focus on the performance of a company’s core or continuing operations. Whatever the motive, the upshot is all too often inflated numbers, calculated on a nonstandard basis, that rationalize overly generous compensation.

Read the rest at brookings.edu 

The slow road to state pension reform[Pensions & Investments]

Pennsylvania, like many other states, is facing a huge unfunded pension deficit in its defined benefit plans: a $70 billion shortfall in two large plans for teachers and other state employees. Unlike most states, Pennsylvania in early June passed — with widespread bipartisan support — major legislation “to get real meaningful pension reform,” as Gov. Tom Wolf was quoted saying.

Indeed, the recent Pennsylvania law is a significant step in the right direction. However, the financial projections for the legislation show how long it takes, given the legal and political constraints, for this approach to pension reform to meaningfully reduce the burden on state budgets.

Read the rest at pionline.com 

Impact of Reporting Frequency on UK Public Companies[CFA Institute]

Corporate executives have long decried the undue emphasis on short-termism—defined as maximizing corporate profits in the next quarter. Instead, most corporate executives say that they want to make corporate investments from a long-term perspective—defined as enhancing corporate value over a period of three to five years (Rappaport 2006).

This concern about favoring short-termism over long-termism has now spread to institutional investors (Perrin 2016). In an open letter, Laurence Fink, CEO of BlackRock, warned US companies that they may be harming their long-term value by capitulating to pressures from activist hedge funds to increase dividends or share buybacks in the short term (Fink 2015).

Read the rest at cfapubs.org

The Board’s Role in Share Repurchases[Sloan Management Review]

Capital allocation is a significant function for company directors. How much of the company’s profits gets reinvested in the business rather than distributed to shareholders through cash dividends or share repurchases is a critical decision companies must make. Boards of directors typically approve a dividend policy and precise amounts for each quarter: Everyone knows that cutting the dividend will result in a sharp decline in the share price.

Yet in many companies, decisions about the level and timing of share repurchases are left to management. That stems partly from differences in legal requirements: The board must formally approve the amount of the company’s quarterly dividend but not its repurchases. Moreover, the implementation of the repurchase program is heavily influenced by the company’s actual cash flows.

Read the rest at sloanreview.mit.edu