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PAID TO PERFORM? What do we want our business leaders to achieve?

PAID TO PERFORM? What do we want our business leaders to achieve?. Prem Sikka (prems@essex.ac.uk) Professor of Accounting, Essex Business School, UK and Director, Association for Accountancy & Business Affairs (AABA) – www.aabaglobal.org. Paid to Perform?.

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PAID TO PERFORM? What do we want our business leaders to achieve?

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  1. PAID TO PERFORM?What do we want our business leaders to achieve? Prem Sikka (prems@essex.ac.uk) Professor of Accounting, Essex Business School, UK and Director, Association for Accountancy & Business Affairs (AABA) – www.aabaglobal.org

  2. Paid to Perform? • What do we want our business leaders to achieve? • Reduce Inequalities • Democracy at Work • Focus on the long-term • Build a sustainable economy • Equitable distribution of income/wealth is the key • Inequitable distribution is a major cause of the economic crisis.

  3. Paid to Perform? • SHORT-TERMISM • The average duration of shareholding in UK-listed companies has fallen from about five years in the mid-1960s and about two years in the 1980s to about 7.5 months at the end of 2007. • The average shareholding periods for US and UK banks fell from around 3 years in 1998 to around 3 months by 2008

  4. Paid to Perform? • SHAREHOLDERS AS ARE NOT THE MAIN RISK-BEARERS Leverage Ratios Barclays 24 times HSBC 21 times Lloyds 18 times Lehman Brothers 30 times Bear Stearns 33 times Northern Rock 50 times • Shareholders are neither the owners, nor the main risk-bearers.

  5. Paid to Perform? • Australian two-strikes law • if 25% or more of votes cast at two consecutive AGMs oppose the adoption of a remuneration report, then the company must formally respond by asking all board members except the managing director to stand for re-election within 90 days.

  6. Paid to Perform? • FTSE 350 CEOs Tenure • 4 years and declining • Remunerations schemes often based on short-term measures. • Yes, link remuneration to long-term performance • Need more effective information and disclosures BUT CSR has also become a PR vehicle.

  7. Paid to Perform? • Are there better standards: Human Rights? • They apply to all states and corporations • Need more public information about corporate contract with society • Quality of profits • FDI contracts • Tax payments • Pollution • Relationship with local elites

  8. Paid to Perform? • EMPLOYEES AND OTHER STAKEHOLDERS MUST HAVE A BINDING VOTE ON EXECUTIVE REMUNERATION • AN ADVISORY VOTE DOES NOT EMPOWER • Executive remuneration contracts to be publicly available.

  9. Paid to Perform? • The UK was instrumental in developing the German system of corporate governance: • Two-tier boards • Workers on company boards • Works councils • Scandinavian countries also build on employees • Why does the same not happen in the UK?

  10. Paid to Perform? THANK YOU

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