The PNC Financial Services Group, Inc. (NYSE: PNC) is one of a few financial companies that remains unscathed from the ongoing financial crisis. According to its recent 10K, in fiscal 2007, PNC incurred $48M in losses for mortgage loan portfolio repositioning, compared with $143B in annual revenue. The company said only 2% of the company’s asset is tied to subprime mortgages.
It is not easy for an outsider to determine why PNC has such little exposure to the once-highly rewarding subprime and asset-backed securities markets. However, a quick review of PNC’s regulatory filings gives some clue. PNC’s remuneration policy is comprehensive. Risk management and the quality of corporate governance factor in the determination of executive compensation. Since fiscal 2006, executive incentive pay has been tied to not only such financial goals as EPS and ROCE growth, but also non-financial metrics as operating leverage, diversification and risk and governance ratings.
What really sets PNC apart from other financial firms is that the company has been putting serious efforts into meeting this set of long-term nonfinancial goals, instead of changing them as many financial companies did almost as a matter of expediency. PNC appears to remain immune to the current crisis because it has a strong governance culture committing directors and executives to implementation of strong, well-balanced policies.
Showing posts with label Governance. Show all posts
Showing posts with label Governance. Show all posts
Tuesday, April 28, 2009
Tuesday, April 8, 2008
Spotlight: Samsung Electronics (July 24, 2007)
Originally published in the July 24, 2007 issue of In Focus, Governance Metrics International’s newsletter.
Spotlight: Samsung Electronics
South Korea’s most famous blue chip company, Samsung Electronics, has suffered a spectacular decline in value over the last two years. While the KOSPI composite index rose by 27 percent over the last year, Samsung’s shares fell 4 percent. Samsung used to dominate the Korean exchange with 25 percent of its total market capitalization. Today, Samsung accounts for only 8 percent of the market capitalization of the Korean bourse.
Governance is an issue here. Although the company blames the usual culprits of low-cost competition from China and irregular dynamics in the memory chip market, Samsung’s problematic governance is a likely additional drag on share price performance. GMI currently rates Samsung 2.0 on a scale of 1.0 to 10.0, with 10.0 being the highest relative to other emerging market companies, and 1.5 globally. GMI also has flagged the company in three out of six research categories.
Samsung’s governance structure is marked by a web of cross-holdings which ensure the control of the Lee family over the Samsung conglomerate. The Lees’ influence was evident in January 2007, when the company appointed Lee Jae-yong, the 39-year-old son of the family patriarch, to the newly created position of chief customer officer. The appointee’s prior business experience was a failed internet venture. In May 2007, the Seoul appeals court upheld the convictions of two executives of a Samsung affiliate for breach of their fiduciary duties because they helped Mr. Lee Sr. transfer control of the company to his children. These and other governance issues not only hamper the ability of outsiders to exercise control over the company, they also act as disincentives to challenge the company’s internal dynamics, which will be necessary to spur product and marketing innovations.
South Korea’s largest daily newspaper, Chosun Il Bo, quoted an anonymous Samsung executive on July 13 as saying that U.S. investor Carl Icahn might make a hostile takeover bid for the company. Samsung’s stock rose on this news, despite a 36 percent fall in quarterly operating profit announced the same day. On July 17, Icahn denied the report as “erroneous rumors.”
Spotlight: Samsung Electronics
South Korea’s most famous blue chip company, Samsung Electronics, has suffered a spectacular decline in value over the last two years. While the KOSPI composite index rose by 27 percent over the last year, Samsung’s shares fell 4 percent. Samsung used to dominate the Korean exchange with 25 percent of its total market capitalization. Today, Samsung accounts for only 8 percent of the market capitalization of the Korean bourse.
Governance is an issue here. Although the company blames the usual culprits of low-cost competition from China and irregular dynamics in the memory chip market, Samsung’s problematic governance is a likely additional drag on share price performance. GMI currently rates Samsung 2.0 on a scale of 1.0 to 10.0, with 10.0 being the highest relative to other emerging market companies, and 1.5 globally. GMI also has flagged the company in three out of six research categories.
Samsung’s governance structure is marked by a web of cross-holdings which ensure the control of the Lee family over the Samsung conglomerate. The Lees’ influence was evident in January 2007, when the company appointed Lee Jae-yong, the 39-year-old son of the family patriarch, to the newly created position of chief customer officer. The appointee’s prior business experience was a failed internet venture. In May 2007, the Seoul appeals court upheld the convictions of two executives of a Samsung affiliate for breach of their fiduciary duties because they helped Mr. Lee Sr. transfer control of the company to his children. These and other governance issues not only hamper the ability of outsiders to exercise control over the company, they also act as disincentives to challenge the company’s internal dynamics, which will be necessary to spur product and marketing innovations.
South Korea’s largest daily newspaper, Chosun Il Bo, quoted an anonymous Samsung executive on July 13 as saying that U.S. investor Carl Icahn might make a hostile takeover bid for the company. Samsung’s stock rose on this news, despite a 36 percent fall in quarterly operating profit announced the same day. On July 17, Icahn denied the report as “erroneous rumors.”
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