Yet many companies today are reducing their capital expenditures, returning cash to shareholders, and holding huge amounts of cash on the sidelines. Technology, Media, and TelecommunicationsĬapital allocation may be the most critical means of translating corporate strategy into action.Many other criteria reflect larger social issues, rather than individual corporate issues - for example, how many board members are women, disabled, or Indigenous. Some practices used in the rankings probably are good indicators of a board’s likely stewardship, particularly an item addressing the disclosure of individual director biographies and each director’s “qualifications to represent shareholders.” Less obviously relevant indicators are directors’ ages and whether they serve together on other boards or serve on multiple boards. Similarly, the rankings weight handling of stock options heavily - in terms of hurdles, vesting periods, dilution - without crediting companies who simply avoid using them due to their questionable effects and contested accounting. Similarly, the U of T ranking credits boards that require directors to own a certain amount of the company’s stock, when it would obviously be preferable to credit directors who buy large stakes without being required to do so. Likewise, it credits companies that split the roles of chairman and CEO, but without recognizing that combining them remains both common and apparently effective at a large portion of public companies. For instance, the study credits “one-share, one-vote” capital structures, thus penalizing dual-class companies, but without considering the particular history, reasons and context for the differences. In contrast, the U of T rankings give the highest marks for conforming to standardized practices, without probing to what extent, if at all, they may be expected to result in superior capital allocation or shareholder stewardship. Rather than necessarily conforming to consensus best-governance practices, they show a variety of approaches to such matters as dual-class stock, combining or splitting the CEO and board chair roles, and whether or not to stagger the terms that board members serve. For instance, rather than focus on quarterly earnings per share or market capitalization, they stress intrinsic value, long-term performance metrics, such as return on invested capital, and analytics like internal rate of return. In general, they march to their own drum. This research also investigated what sets these “high-quality” managers and shareholders apart. This advertisement has not loaded yet, but your article continues below. Warren Buffett has dubbed this cohort “high-quality shareholders.” Having lots of them in a company is associated with superior corporate performance. These are shareholders with the longest average holding periods and most concentrated portfolios - neither traders, who sometimes buy large stakes but never hold for long, nor indexers, who may hold for the long term but never concentrate. In related research, one of us (Cunningham) found that the superior allocators attracted the most patient and focused shareholders. By contrast, some of the best capital allocators - including CGI, Restaurant Brands, Rogers Communications, and Westshore Terminals - ranked lowest on the governance scale. Among the leading capital allocators, however, only four ranked in the top quarter of the governance rankings: Emera, TC Energy, Fortis and Telus. Of the best 41 Canadian capital-allocating companies, 28 were also ranked in the University of Toronto governance study. Terence Corcoran: Can Ottawa resist the Great Reset?.Terence Corcoran: If LGBTQ+ boards boost value, do it!.Terence Corcoran: Michael Sabia and the ESG takeover.Terence Corcoran: Time to start the corporate ESG revolt.