How healthy are our companies? 2) Boards need to step up - courage for the long term

https://www.flickr.com/photos/cygnus921/2354592701

Why have activists have found strong demand from retail and institutional investors? I think that an important reason is that companies themselves have become more short term focused, and their Boards are not doing enough to look at the long term.

HBR has pointed out how increases in share buybacks are driving shareholder returns (Where Boards Fall Short - HBR), but at the cost of R&D investment in businesses for the longer term and the vast majority of employees who are seeing stagnant wages and fewer opportunities for their own development (Efficiency Experts). Of course, investment with no return does not make sense, but it seems in general that Boards are increasingly uncertain about their longer term.

There are exceptions. In the tech space, Google, Facebook and Alibaba are clearly focused on the longer term for their businesses and their employees, and have the ownership structure that allows them to do so, with control held by the founders. Amazon and Netflix have leaders with a clarity of purpose exceptional today.

But Boards need to complete their shift from comfortable sinecure to a true driver of long term value creation. In place of celebrity boards (think Theranos), we need Boards filled with those who can really understand, support and challenge the strategy and operations of the business (For AGMs to work the public must ask hard questions and leaders must listen | Business | The Guardian).

Insight from HBR is disturbing. Where Boards Fall Short - HBR: "A mere 34% of the 772 directors surveyed by McKinsey in 2013 agreed that the boards on which they served fully comprehended their companies’ strategies. Only 22% said their boards were completely aware of how their firms created value, and just 16% claimed that their boards had a strong understanding of the dynamics of their firms’ industries."

There is no excuse today for Boards to be less sure of their strategy than activists....



Notes -----------------------------------------------------------------
Profits Without Prosperity - Harvard Business Review: Five years after the official end of the Great Recession, corporate profits are high, and the stock market is booming. Yet most Americans are not sharing in the recovery. While the top 0.1% of income recipients—which include most of the highest-ranking corporate executives—reap almost all the income gains, good jobs keep disappearing, and new employment opportunities tend to be insecure and underpaid. Corporate profitability is not translating into widespread economic prosperity.

Efficiency Experts: Major firms are squeezing more money out of their employees. Productivity is at an all-time high for the Fortune 500, generating an average of $1.2 million in annual revenue for every employee. Energy, wholesalers, and financial firms are leading the way, bringing in large amounts of revenue from relatively small payrolls. On the tail end? No surprise here: Companies in the restaurant and retailing sectors still sweat out every dollar in sales. —Scott DeCarlo

For AGMs to work the public must ask hard questions and leaders must listen | Business | The Guardian: As the season in which public companies hold their annual general meetings progresses, one persistent issue is the lack of genuine dialogue between company officials and the general public. In place of robust debate and discussion among investors, executives, the workforce, and the community at large, the conversation seems to be taking place in different silos, with one group sitting around the boardroom table and another gathered at the kitchen table.