Saturday, October 31, 2015

An Update From Howard Sherman of MSCI ESG Research Inc.

The latest memo (October 30, 2015) from Howard Sherman, Executive Director of MSCI ESG Research Inc., is a welcome update from MSCI regarding their Diverse Director DataSource, MSCI’s database of women and minority board of director candidates.

Mr. Sherman begins by saying that “As you know, the issue of board diversity continues to attract investor and company attention.” That’s like saying, shareholder activism is on the rise.  Or, we read a lot in the media about Black Lives Matter.

The 3D database issued a press release announcing they were in business July 19, 2012, starting with 400 profiles in place and another 300 profiles in the queue.  That’s the last data we’ve heard from Mr. Sherman and his folk.

"Diverse Director DataSource (3D) Opens for Business"

A bit earlier, on October 4, 2011, I posted an entry on the 3D (Diversity Director DataSource) blog which challenged us all to begin to put performance metrics behind our efforts to increase the numbers of diverse candidates actually sitting on corporate boards of directors.

"To Ensure That We Succeed"

I challenged the leaders of the then-GMI 3D Registry in three specific ways:
  1. How would you know if your 3D Registry were succeeding?
Is success defined by a significant increase in qualified candidates listing themselves on the Registry or by a significant increase in the number of qualified candidates selected from the Registry to serve on public or private company boards per year?

     2.  Would another measure of success be based on who is using the 3D Registry?

Would success be defined by the number of boards that inquired of the Registry per month? Or would it matter if board executive search professionals accessed the Registry on a regular basis?

     3.  What would the leaders at the 3D Registry offer by way of metrics to measure their own success?

Is the 3D Registry an innovation with creative talent at the helm or is this just another fly by night database that sits on the electronic shelf rather than the physical shelf?

We have on October 30, 2015 – four years later – an UPdate that tells us nothing with regard to the hoped-for metrics above.  Instead, we get more of the same ol’ same ol’: 
  • MSCI ESG Research teams “made an effort” to include the 3D in their presentations “when board diversity was on the agenda.”
  • They gave “background briefings” to reporters.
  • They referenced the 3D in the MSCI ESG Research’s 2014 Women on Boards survey. (A search of the report revealed no references whatsoever in the text, located at
  • They “engaged” with other board diversity activist organizations.
  • In the summer of 2015, they mailed a communication to their 23,000 contact list to tell them how they might use the 3D Registry.
  • They “set up a number of logins for firms and individuals” to search the 3D Registry.
  • In 2014, CalPERS/CalSTRS wrote to 130 of the largest California headquartered-firms with ZERO women directors; over 30% responded; at total of 27 appointed at least one woman to their board. (it is not clear if these 27 were companies appointing their FIRST woman to their board.)

The people at MSCI don’t seem to be able to distinguish efforts from results.  Even the 2014 Women on Boards survey is a mish-mash of global economy comparisons that tells us little about whether progress is occurring or not.

It reminds me of the people who keep trying to sell me t-shirts “to raise awareness” about an issue.  I’m perfectly AWARE.  But, so far, I am not impressed by any of the databases that pretend to be able to actually advance the specific number of diversity candidates on boards. 

Tell me how many diversity candidates are now in the Registry? How many were added each year since we started playing this game? How many candidates have become disenchanted and left the Registry each year?  How many companies have used the Registry to search and how many executive search inquiries have been posted on the Registry monthly? How many of these talented candidates have actually been placed on a company board of directors?

Why has it taken you this long to even UPDATE the marketplace?

Why Did Catalyst Change Its Survey?

In December 2015, we can expect another report from Catalyst about the percentage of women corporate directors - at S&P Index companies. We will have two years of comparative data, rather than the 10 years of data we used to have with the old Catalyst surveys. Why did Catalyst change?

The clearest benefit is the big jump in percentages. The S&P had a 19.2% share of women directors in 2014, while the last Catalyst report using Fortune 500 was 16.9% in 2013. That's a nice 2.3% bump without having to do any heavy lifting at all!

Fortune 500 is an annual list of the 500 largest companies using the most recent revenue figures and includes public and private companies. The S&P 500 is an index of (actually) 505 public companies that are selected by the S&P Index Committee based on their assessment of liquidity, risk, and industry and market capitalization.

Another difference is that the S&P Index Committee announces adds or deletes to its list five days before publication, so investors typically purchase shares and sell deletes in the soon to be published company before the S&P announces its index. As a result, share price changes can result from mere publication of the list, distorting the market value of the list itself.

The Catalyst 2014 report also fails to report on the total number of board seats included in the 2014 survey. The biggest loss in the Catalyst change is the historic value of being able to track board make-up, compare the average size of boards, and the mix of men to women over that timeframe. We will not be able to assess whether male-occupied seats are continuing to decline as we were able to do with the Fortune 500 firms over the past decade. 

Now, we have the ability to compare US companies with those in other nations, regardless of the size or complexity of their economies. The new Catalyst survey proudly compares the US to a host of other nations, only a token few of whom have comparable sample sizes:  Australia S&P/ASX 200, the India BSE 200, the United Kingdom’s FTSE 100 and the Canada S&P/TSX 60.  Most of the other exchanges include only 20 to 30 companies.

Catalyst especially likes to compare the US economy with that of Norway because of the quotas mandating 40% women on their boards, implemented in Norway in 2003.  That means Catalyst thinks it is appropriate to compare the U.S. with its $18.1 TRILLION GDP engine, 319 million population and a labor force of 158 million with Norway, a country with a GDP of $345 B in a heavily state-owned economy, a 5.1 M population, and a 2.8 M labor force.

However, Catalyst totally ignores the reality that Norwegian companies were so resistant to the idea of appointing women to their boards that 384 of the 563 publicly traded companies subject to the requirement went private to avoid having to comply. That means only 32% of the pre-quota companies remained public. That is comparable to cutting 341 companies out of the Fortune 500 or the S&P 500.

“Women on the Board Quotas Have Limited Success”, by Claire Cain Miller, New York Times, June 20, 2014

If you know your statistics, you know that cutting out a third of the sample, especially if those companies had zero women on their boards, inevitably should raise the final percentage share of women directors in the revised sample.  Wow! What a great way to inflate a country’s share of women directors!  Maybe we should try that!

Friday, October 30, 2015

The Offshore Tax Shell Game

A study of Fortune 500 public company documents was released October 6, 2015 by the Public Interest Research Group and Citizens for Tax Justice. The study was entitled, Offshore Shell Games – 2015 - The Use of Offshore Tax Havens by Fortune 500 Companies.

The study concluded that “Nearly three-quarters of Fortune 500 companies booked profits to tax havens in 2014, with just 30 companies accounting for 62 percent of earnings stashed offshore.”

The study reported that $2.1 Billion in cash is being hoarded at overseas tax havens by top US  companies intent upon avoiding US 35% corporate tax rate. Over 38% of the total amount ($807) is being hoarded by the top ten firms, five of whom are high technology firms while three are big pharma companies.

Apple -                                 $181 B
GE -                                      $119 B
Microsoft -                          $108 B
Pfizer –                                  $74 B
IBM -                                     $61 B
Merck -                                  $60 B
Johnson & Johnson -         $53 B
Cisco -                                   $53 B
Exxon/Mobil -                     $51 B
Google -                                $47 B

For comparison, the 2015 US budget deficit is $426 Billion.

One major aspect of the “offshore shell game” is the “tax inversion” - a merger/acquisition by a U.S. company of a company located in a lower tax haven country in order to be able to incorporate overseas and save on taxes.  There have been 54 completed or announced “tax inversions” since last fall, according to Dealogic.  The latest example is Pfizer’s proposed acquisition of Dublin, Ireland based Allergan.

In September, the U.S. Treasury passed a new rule in an attempt to discourage “tax inversion” acquisitions.  Before September, 20% of the resulting company had to be owned by a foreign entity in order to take full tax advantage of the overseas relocation (i.e., avoidance of US taxes).  After September, Treasury raised the threshold to 40%. 

The decision that a U.S. company must make is: how much would they pay in U.S. taxes vs how much of a premium would they be willing to pay to acquire the foreign company in order to elevate the foreign company’s market valuation?

The Pfizer-Allergan example looks like this. Currently Pfizer has $74 B in cash overseas, thereby avoiding U.S. taxes at 35% or roughly $25.9 B. Pfizer’s current market cap is $220 B while Allergan’s is $120 B for a combined market cap after acquisition of $340 B. But, at that valuation the foreign company would equal only 35.3%.  In order for Allergan’s foreign share to beat the 40% threshold, its acquisition price would have to equal $147 B (meaning that Pfizer would have to be willing to pay a premium of $27 B to avoid taxes of $25.9 B).

The Organization for Economic Co-operation and Development (OECD) recently proposed “Reforms to the international tax system for curbing avoidance by multinational enterprises” – a set of recommendations that were strongly endorse at the October 8, 2015 G20 Finance Ministers’ meeting in Lima, Peru.

Implementation will, of course, determine effectiveness.

Friday, October 9, 2015

Which Story Will You Believe?

Today’s LA Times reports on a Korn Ferry survey of UCLA Anderson School faculty that concludes that women are underrepresented, underappreciated, and less respected at the graduate school of management in Westwood. 

“Women Faculty Face Bias at UCLA Business School, Study Says” by Larry Gordon.  The study was commissioned by Dean Olian (first female dean of the school in place since 2006) and a faculty committee.  The report concluded that, “Anderson leaders 'have not demonstrated the focused intention and proactive behavior required to increase diversity.'”  And “many faculty do not trust the dean and do not believe she is serious about gender equality.”

A separate study reported in Fortune Magazine in January 2015 found that UCLA under Dean Olian had made tremendous strides in moving the graduate school of management toward closer connections with the burgeoning technology field.  “UCLA's Business School Embraces the Tech Boom” by John Byrne. Other studies cite Dean Olian’s progress in bringing a more diverse international and national student body into the Anderson School.

What appears to be happening is better described in the article, “Harassment vs. the Gender Gap” by psychologist and author Kim Elsesser in today’s LA Times:

Ten years of diversity training has produced little measurable success in reducing the gender gap, according to the author’s research, because diversity training has focused overly on protecting the entity from harassment lawsuits and failed to provide guidance on how the genders can collaborate effectively without suspicions. “Employees generally perceive that the training is provided for the protection of female employees, which carries with it the image of weak women who can’t fend for themselves. … training video[s] left viewers with the impression that women were emotionally weak.” The author suggests that diversity training has resulted in the unintended consequence of creating “gender partitions” that keep men and women operating in separate cultural and social circles in the workforce, rather than fostering genuine collaboration.

Elsewhere, an August 2015 Korn Ferry survey of Senior Human Resources Executives found that “Companies Lack Experiential and Intellectual Diversity.” See:

Korn Ferry reported specifically that “the large majority of [Chief Human Resource Officers] CHROs say finding HR talent with business acumen is the biggest barrier to making strong hires.”  [Emphasis added.] So, if the people behind hiring for diversity and providing diversity training are themselves not intellectua

Thursday, October 1, 2015

Who ARE These People?

Herbert, Marc, Michael, J. Michael, George and John?  They are the directors at McKinsey & Company, the management consulting firm that co-authored the study with  The study is: Women in the Workplace.

McKinsey has only one woman in leadership, Claudia Funke, the Director at McKinsey’s German High Tech Sector area. She also is a member of McKinsey’s global High Tech Sector leadership group. Brava! Even so, McKinsey at least has presented a balanced perspective on the true causes of women’s under- representation in corporate leadership. The underlying issues truly are complex:  it IS complicated.

The Wall Street Journal presented the research with a slightly more depressing tone: What’sHolding Women Back in the Workplace? by Nikki Waller and Joann Lublin   You know it’s a Wall Street Journal article because it starts with the word “Despite….” is equally depressing in its coverage of the research: Corporate America Not on a Pathto Gender Equality. begins their article with “Women are STILL UNDER-REPRESENTED….” Surprise! Surprise!

What is really different about this study is how balanced are the conclusions. The WSJ and point to everything that men in corporations are doing to “keep women out” of leadership. At least this study itself is beginning to include some of the decisions that women are making that “keep themselves out” of leadership paths and potentials.

Women are finally admitting that many of them (NO, NOT ALL!) do not aspire to leadership roles because they ASSUME that they cannot handle the stress or that they cannot change the environment that existed before.  That is a big assumption and a major deterrent to personal advancement.  If you believe you will fail, you will.  What are we doing to convince women that the only and inevitable result of leadership advancement is the same world that men operated before we arrived on the scene? 

Smart women, like Claudia Funke for example, wait until they reach leadership positions to decide how they will define those roles and relationships.  Brava!

Women are finally recognizing that staff/supportive roles do not provide the same experiences that line/P&L responsibilities do on the way to leadership.  If women really PREFER to stay in the helper mode, then that is where those career decisions inevitably will lead – always helping someone else succeed, rather than helping herself or other women succeed as leaders.

Smart women take on leadership responsibilities all along their career path – learning how to be a leader at every possible opportunity.

Did anyone besides me notice that 98% of the comments on the WSJ article were by men?  Where are the women with an opinion on this subject?  Are we all hiding in the background - afraid of the consequences of holding an opinion?   Well, maybe that’s part of the problem as well.

McKinsey’s web site is trying to make a difference by offering management courses, at McKinsey Academy, that will help women learn the basics they need to take on greater responsibility, negotiate and communicate better, and advance in their careers.  Brava! Every woman worth her leadership potential should sign up for those courses.  Even so, McKinsey could do a better job of presenting those courses. All but one of them has men in the principle role of instructor. I can learn a lot from men – I have and always will. But, when it comes time for me to acquire the specific skills of a woman in leadership, I would be more inclined to sign up to hear a woman who actually IS in leadership tell me what I need to know.

Also, it’s time we talked to women about the alternative to the corporate path – and I do not mean the NON-profit, charity path.  I mean the entrepreneurial path.  If women believe that they know a better way to build a business, then come on out into the entrepreneurial space, build the teams and the companies we need for next generation opportunities.  Hire the talent and pay them the decent wages we need to grow this economy again.  Don’t just sit back and whine about how bad corporations are.  Stand up, speak up, stand out, and put up the money and all of the other resources we need to build a better economy. And I don’t mean YET ANOTHER jeans store, a shoe store, or a muffin shop.  I mean serious businesses that solve real and substantive problems that we face as a nation.

There is a lot that women can do to make change happen – to change the frame through which we view business, corporations, and leadership.  This is not your mother’s world.  It is your world.  What are YOU doing to make a difference here and now?