DEEP Insight

What Will It Take to Repair Finance? Premium

Finance went too fast and now we have a wreck on our hands. It’s time to fix the brakes and drive responsibly again.

This executive dossier includes the following articles:

Lessons From the Crisis for Corporate Finance Premium

Back to Reality

Campa, José Manuel

As a result of the crisis, many companies have seen their ability to carry out strategic plans greatly reduced due to financial pressures. This article analyzes how the finance function went off track and overstepped its legitimate bounds, leaving many companies exposed and vulnerable. The author proposes three essential attitudes and principles that finance sector professionals must adopt, and the actions to go along with them, to get corporate finance back to where it always belonged -- supporting the company's core business activities through financing and sound financial advice.

What Are the Logics Driving Your Firm? Premium

For Love or Money

Almandoz, John

All organizations have some form of institutional logic defining what is taken for granted and what is appropriate or legitimate behavior. Most banks, for example, tend to be driven by a financial logic focused on profit maximization, which has served shareholders well, but if taken to the extreme, can lead to damaging consequences, as evidenced by the crisis. Drawing on extensive research the author has conducted into community and green banking start-ups in the United States, Almandoz finds that the greater the proportion of founding directors with financial and banking experience, the more likely those founding teams are to pursue profit-maximizing goals rather than demonstrate a meaningful commitment to a community; they hesitate more in their commitment to start a bank, as well as abandon the team for self-interested reasons. As banks seek to redeem themselves in light of the reckless mismanagement that destabilized the entire global economy, the author draws out several lessons for creating a new community bank, which serve as useful reminders for any business seeking to reconcile its mission with the needs of customers, while also reconnecting with communities in vital and lasting ways.

The Real Value of Say-on-Pay Premium

A New Age of Accountability

Giné, Mireia

In light of the financial crisis, shareholder activism is growing around the globe, leading to Say-on-Pay policies, which give shareholders the opportunity to voice their opinions on executive pay, and put pressure on boards to justify and explain pay packages more clearly to shareholders, if not redesign them completely. In several high-profile cases, large companies have failed to obtain approval of pay packages for their CEOs due to such activism. Given the trend toward implementing Say-on-Pay in the United States and several European countries, the author collaborated on research to determine the real effect of such policies on companies and their performance. The research shows that while Say-on-Pay may not curb excessive remuneration, it does provide a host of other measurable, positive benefits for companies and their shareholders, both in the immediate and longer terms. Apart from these benefits, she argues that Say-on-Pay can be an effective way for strengthening corporate governance and accountability within the firm, outweighing the time and costs they require.

Responsible Investing Takes Root Premium

Seeds of Change

Ferraro, Fabrizio

Responsible investment is moving from being a niche in the asset management universe to increasingly becoming mainstream. In Europe, especially, it appears to be taking off. This article identifies some of the key drivers and the challenges that responsible investment poses to investors and managers as they try to take this novel field and embed it into their institutional practices. Looking to the future, the author highlights three areas that he believes will need close attention: new financial strategies to deal with problematic industries; the role of Chief Sustainability Officer will become increasingly strategic; and the transparency requirements being demanded for public companies will need to apply to private ones, too, otherwise the diffusion of these practices will only be partial and their impact greatly reduced. Though much remains to be done, the author believes this is an opportune moment for institutionalizing responsible investment and ushering in a new, more sustainable age of capitalism.

Stepping Out of the Confines of Finance Premium

The CFO Role Just Got Bigger

Sagnier, Pablo; Baón, Luis

The upheaval in the world of corporate finance brought on by the global financial crisis is transforming the role of the CFO, who is assuming bigger responsibilities to deal with the changes taking place inside and outside of companies. Based on a series of panel discussions held with the heads of finance from large global corporations representing various industries, the authors identify the new profiles and functions that are emerging for the new breed of CFO. No longer confined to CAPEX decisions, CFOs are becoming highly sought after for their advice on areas not traditionally considered to be part of their job description, including investor relations and building confidence with employees and other stakeholders. Having enlarged their remit, CFOs are the ones whom others go to for answers and guidance on matters beyond financial concerns. This article lists the greater competencies needed for CFOs to meet the new demands being placed on them.

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