During the first quarter of 2013, stock prices surged and cash balances continue to increase. On the face, corporations are looking healthier than they have in a long time. Given these dynamics, it would appear to be a good time for corporations to use their cash to retire debt, increase capital expenditures, create employment opportunities, or provide a return to their shareholders. However, the U.S. tax laws discourage this activity through a process known as repatriation.
At the end of 2012, many investors received an unexpected gift…special dividends paid by companies in anticipation of changes in the income tax laws. Because of the so-called “dividend cliff”, 483 companies paid a new or increased dividend on a “one-time” basis or paid their 2013 dividends earlier than planned (prior to December 31, 2012). This is theÂ highest number of special dividends paid since 1955Â and almost four times the number paid in 2011.
“I spent my entire academic career studying the Great Depressionâ€¦if we do not act boldly and immediately, we will replay the depression of the 1930’s; only this time, it will be far, far worseâ€¦if we don’t do this now, we won’t have an economy on Monday.” —Ben Bernanke, U.S. Federal Reserve Chairman as portrayed by actor Paul Giamatti in “Too Big to Fail,” discussing the need to pass the Troubled Asset Relief Program (TARP) in 2008
When I heard this statement, my first reaction was not whether TARP was a good or bad idea. Instead, I thought of how interesting it would have been to have Ben Bernanke as a professor (he previously served on the faculties of Stanford, New York University, and Princeton). His students would have gained the perspective of his research in evaluating and discussing the financial crisis and its ramifications. They would have received a special education.
Nationally, higher education and the role of faculty research have come under heavy scrutiny. Much of this scrutiny suggests that time faculty spend on research is additional time that could be spent in the classroom. While that argument seems logical, what is missing from the discussion is how research faculty integrate their teaching and research expertise. Their experiences in the classroom enhance their research and their research findings enhance their teaching. Each improves the other, creating a learning environment that encourages dynamic, critical, analytical thinking.
Mays faculty are known for the quality and impact of their research in both the academic and business worlds. These same faculty bring their energy, curiosity, and skills to the classroom each and every day. Our mission: “creating knowledge and developing ethical leaders for a global society” recognizes that research and teaching go hand in hand to provide students a world-class education and unlimited opportunities — a truly special education.
Like many of you, my mailboxes, physical and electronic, are filling with proxy statements as companies plan their annual shareholder meetings. And, each year, executive compensation seems to attract a greater level of attention in these proxies and meetings. For example, in 2001, ExxonMobil dedicated nine pages and slightly more than 3,000 words to the compensation committee’s report; the associated proxy filed in April 2011 dedicated 28 pages and 12,000 words to this same topic. This year, because of the Wall Street Reform and Consumer Protection Act of 2010 (better known as the Dodd-Frank Act), shareholders will vote on how frequently they will be asked to approve executives’ future pay packages (“say on pay”).
The questions are simple: Are shareholders getting their money’s worth? Are executives making too much? While many shareholders complain when a CEO draws an eight-figure compensation package, many of these same individuals enjoy movies and sporting events where actors and athletes are compensated in a similar manner, regardless of their performance. Viewed in a different way, from January 1, 2010 through December 31, 2010, Apple’s stock price increased by $130 per share and Apple had 900 million shares outstanding. During 2010, this translates to an increase in shareholder value of $117 billion. If Steve Jobs had a hand in creating that value, shouldn’t he be rewarded? (Interestingly, he only received $1 of compensation in each of 2008—2010.)
There is no correct answer to the two questions posed above. Markets exist for top talent, whether in business, entertainment, or athletics. If top talent creates value for shareholders, that talent should be compensated accordingly. Markets, however, are not perfect. Based on performance, some executives are overpaid and others underpaid. What is clear is that shareholders will have a more public forum to express their thoughts.
A quick Google search on the term “corporate sustainability” yields almost 3 million hits. In reading corporate press releases, annual reports, proxy statements, and other shareholder communications, it is clear that the idea of being a good corporate citizen has taken root and is more than a passing fad. Very few would argue that corporations should not consider the social and environmental considerations of their business practices, but the question remains: how do these practices affect cash flow, profitability, and shareholder value?
In the January-February 2011 issue of Harvard Business Review, Michael Porter and Mark Kramer discuss the concept of “shared value,” which recognizes that responsible business practices are not a zero-sum game. While similar in nature to corporate sustainability and corporate responsibility, shared value differs in that the benefits of corporate actions are viewed in conjunction with the costs of those actions, linking social concerns with economic realities. They cite the following examples:
Johnson & Johnson has implemented numerous wellness programs for its employees; the resulting savings of $250 million in healthcare costs provides them with a return of $2.71 for every dollar spent on those programs.
Walmart has saved $200 million in costs by reducing the amount of its packaging of products and reducing the miles driven by its delivery trucks. These changes not only saved money, but they helped the environment.
As more companies demonstrate that shared value is good for the planet and good for the bottom line, expect more shareholders to hold companies accountable for their actions. And expect more companies to embrace these opportunities to do well while doing “good.”
A recent agreement between Facebook and Goldman Sachs to create a special investment vehicle has raised questions as to whether Facebook is attempting to receive the benefits of broad investment without the downsides of being a publicly traded company. With all such discussions, it does not take long for both sides to bring up Sarbanes-Oxley and the costs of being a public company.
What is the answer? As an accounting professor, it is difficult not to say that more accounting and disclosure will result in better functioning capital markets! The Securities and Exchange Commission was created with the idea that, if investors have more complete information that is audited by an independent third party, they can make better decisions. Providing this information and having it audited costs money. Some are concerned these costs keep the Mark Zuckerbergs of the world on the sidelines, limiting their incentive to create new technologies, companies and jobs.
The difficulty is measuring the benefits of increased regulated disclosure. In an academic study, Jefferson Duarte, Stephan Siegel and Lance Young conclude that the increased quality of information and higher audit standards has increased the market cap of U.S. companies by 2 percent; for a company such as ExxonMobil, that translates to $7.6 billion of value. As valuable, but equally difficult to measure, is the cost of another Enron or WorldCom bankruptcy, whose combined market value was more than $260 billion at their peaks Ask those shareholders if they would have like to have had better accounting information and more rigorous audits, despite the cost.
As additional private companies like Facebook seek capital through sources other than the U.S. public capital markets, the issues of Sarbanes-Oxley, regulation and incentives will continue to be raised. Yes, our capital market system imposes regulation and costs on companies. And yes, at least some of those costs are necessary to protect investors and provide them with more reliable information.
Faculty, current students, prospective students, parents, and rating agencies all ask this question. As we think about how to measure the quality of what we do, factors such as student SAT scores, student GMAT scores, placement rates, faculty research, and many others are measured and evaluated. While these measures all have merit, one factor, while difficult to measure, stands the test of time — what level of success do our students experience after their graduation?
This issue of Mays Business Online features a number of our former students who have achieved remarkable success. From our three most recent Outstanding Alumni (Bruce Broussard, Robert Loeffler, and John Van Alystne), to our former students who have started their own businesses and were recognized in our sixth Aggie 100 event, to our Ph.D. student graduates who have achieved success in their academic careers and are educating the next generation of business leaders, it is very clear that our students are truly doing remarkable things following graduation. More importantly than just business success, they are contributing back to their communities to enhance the lives of others. Our former students truly exemplify the core value of “selfless service” that characterizes Texas A&M University and serve as a role model for our current students.
I hope this issue of Mays Business Online finds you well. Please stop by for a visit if your travels bring you to Aggieland.
It is impossible to read the business press without recognizing the importance of small business in the United States and world economies. Through creation of jobs, opportunities, new products, and new services, we all rely on small businesses each and every day. Each of these small businesses starts with an owner, an idea, a dream, and a lot of hard work.
This summer, through our Center for New Ventures and Entrepreneurship, Mays Business School faculty and students touched the lives of two special groups of entrepreneurs.
For the third year, we were proud to be one of six universities to host the Entrepreneurship Bootcamp for Veterans with Disabilities, bringing to our campus 18 courageous men and women who have served our country so admirably. A unique blend of faculty and entrepreneurs spent the week discussing budgets, market research, organizational design, and other facets of business teaching these veterans to prepare and refine their business plans. While short, the history of this program is proud. Of the first class in 2007, almost 70 percent of the students own their own businesses and four of those businesses generated revenues in excess of $1 million last year. While the 2007 class set a high bar, I believe the 2010 group is up to the challenge!
For the first year, three Mays students (Lauren Dunagan, Paul Morin, and Rishabh Mathur) participated in the Entrepreneurship Empowerment in South Africa program, which provides hands-on lessons as the students worked with small businesses in Cape Town, South Africa. During these six-weeks, our students were able to see a part of the world heretofore unknown to them more than 8,000 miles from our campus and meet and mentor people pursuing their dreams. While the students will pay huge dividends for those small businesses, the experiences and knowledge that Lauren, Paul, and Rishabh gained will surely pay dividends in their careers after college.
As always, I hope this issue of Mays Business Online finds you well. Please call or stop by if your future travels bring you to our campus.
In mid-May, I had the honor of congratulating more than 1,100 new graduates of our programs, the culmination of their years of hard and outstanding work. A few days later, we began welcoming the Class of ’14 as we launched the first of 13 new student conferences for our newest Aggies and their parents. The excitement of seeing the smiles on the faces of our graduates as they launch their careers and our newest Aggies as they begin their studies reminds me why this is my favorite time of the year.
Then, the economic downturn that has affected many universities around the country came to Texas A&M. Like all public universities and agencies, the Legislative Budget Board has directed us to plan for a significant potential budget cut that would take effect September 2011. While the university will announce its final plans to meet the budget reductions next month, we will not know with certainty what will need to be implemented until the Texas Legislature passes the final state budget, which will likely occur in late spring 2011.
If these planned cuts become reality, very difficult choices will be made, both at Texas A&M and at Mays. It would be an easier task if Mays had underperforming programs or unnecessary frills. We do not. Mays is a lean organization, it will not be easy, and our faculty, staff, and students will be impacted.
How will this affect us if these cuts are implemented? Our focus must be on minimizing the impact on the educational experience of our students and the research of our faculty and I assure you we will do the best we can. As I met with my colleagues last week to discuss this, it became clear to me that their dedication and passion for our students will make a difficult situation a bit easier for us to handle. I truly feel blessed to be surrounded by such individuals.
As we approach the end of the spring semester, thoughts turn to our students and their plans for the summer. Gone are the days when students were facing two choices: taking a break to recharge their batteries or taking some additional coursework to continue their path to graduation. Now, summer is an ideal time for students to participate in or create their own unique learning experiences, many of which occur across the globe. Here are some examples of how Mays students spend their summer “vacations”:
Internships: Internships (whether compensated or not) provide students with an ideal opportunity to apply the lessons learned in the Wehner Building and Cox Hall in their chosen professions. When they return to campus, they have a new perspective that enriches their classroom experience during the remainder of their studies. Like Heather Henry ’11, a business honors student who recently completed a five-month internship at Disney World.
Study Abroad: Traditional, semester-long study abroad programs have been expanded to include shorter immersions and more self-directed experiences. As Thomas Friedman correctly notes, the world is flat, and our students are benefiting from that. They are taking advantage of relationships and funding provided by our donors and Center for International Business Studies to embark on life-changing experiences. Read the story of Matt Harris ’10, a finance student that interned in Bangalore last summer.
Service Opportunities: One of Texas A&M University’s core values is that of selfless service, and no group of students embraces this value more than Mays students. In recent years, our students have traveled to great lengths to contribute humanitarian aid, like Michael Kurt ’09, an accounting student that spent the summer of 2008 serving those in need in Central and South America.
These stories merely sample the hundreds I could tell about the amazing things our students do and the way they expand their education.
There are many reasons why the fall semester is exciting. A new group of freshmen arrive at our school, bringing energy and enthusiasm. New faculty members join our school and continue to build upon the excellence of our outstanding scholars and teachers. And our current students return to campus, with new perspectives and ideas, some of them changed forever by their summer “vacation.”
As always, I hope this issue of Mays Business Online finds you well. Please stop by for a visit if your travels bring you to Aggieland.