GuerdonNews® Volume 12 Number 6

July 2016

Dear reader,

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Welcome to the July 2016 issue oGuerdonNews®

 

In this issue we:

• Assess whether the board and management value are in balance through an analysis of the relationship between NED fees and CEO fixed remuneration 

• Examine the linkages between director tenure and corporate performance, and

• In this Australian federal election month, aptly consider a necessary prerequisite for good governance - a governing objective

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How does CEO fixed pay relate to total Non-Executive Director fees?

Is the collective value of non-executive directors equal to management?

Independent non-executive directors who, in sum, should have diverse knowledge and experience to challenge and assist management, and ensure governance "balance". A rough rule of thumb to test whether the governance is as it should be has been to check that the sum of NED fees is at least the same, or greater, than CEO fixed remuneration.

After favouring the CEO, the trend has been working its way to balance again. It has been helped along by the need for the recruitment of younger NEDs, significant increase in workloads across boards, and a reduction in CEO fixed remuneration as CEO turnover has increased.

Read more.

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Director tenure: longer is better, to a point

This article looks at linkages between director tenure and corporate performance

In February this year, Joshua Livnat, an academic from the NYU Stern School of Business along with Quantitative Management Associates, released the results of their study of the relationship between average board tenure and company value.

Some critical findings of the study include board tenure is positively related to forward-looking measures of market value, unless you have a high growth company. In addition, the effectiveness of two primary board functions (monitoring management and technological advice) deteriorates with tenure.

Read more.

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Setting a clear governing objective is a necessary prerequisite for good corporate governance - A checklist

Does your board have an overall governing objective that makes clear what trade-offs you are prepared to take?

Proxy advisers and activist investors constantly challenge boards. The result is much governance activity reacting to others'  guidelines without traction and real purpose.That is, boards have extensive governance procedures but no governing objective.

The governing objective is the cornerstone upon which the organisation builds its culture, communications, and choices about how it allocates capital. It is as simple as having a clear statement of what a company is fundamentally trying to achieve.

Read more.

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The information, analysis and opinion in this e-mail and attachments are intended to be for informational purposes only. Analyses are based on information taken from public documents or private surveys, and we do not represent to its accuracy. Guerdon Associates assumes no liability for the use or interpretation of information contained herein. This publication is provided 'as is' without warranty of any kind, either expressed or implied, including, but not limited to, the implied warranties of marketability, fitness for a particular purpose, or non-infringement of third party rights.

Copyright © 2016 Guerdon Associates

ISSN 1834-8300