Brookings: Topics - Corporate Governance

Can Executive Compensation Reform Cure Short-Termism?

Andrew C.W. Lund and Gregg D. Polsky — Mon, 18 Mar 2013 00:00:00 -0400

There is an increasingly pervasive view among corporate governance observers that senior managers are too focused on short-term results at the expense of long-term interests. Concerns about “short-termism” have been expressed within the financial industry context and outside of it, but because of the recent financial crisis, much of the discussion has been directed at financial institutions. To combat short-termism, several commentators have advocated executive compensation reform to encourage senior managers to adopt a longer-term perspective. Yet these reforms will likely prove ineffective because of other significant pressures on managers to maintain current stock prices.

Paper highlights include:

A general overview short-termism and the causes and effect of overweighing short-term results relative to long-term consequences when making decisions.
Proposals to redesign compensation structures to combat short-termism.
Questioning the effectiveness of compensation proposals.
A look at the new corporate governance world.
An examination of changes to senior management job security.
Policy proposals for better options to mitigate short-termism.

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Authors

Andrew C.W. Lund
Gregg D. Polsky

Image Source: © Lisi Niesner / Reuters

Business Advocacy in Asian PTAs: A Model of Selective Corporate Lobbying with Evidence from Japan

Mireya Solís — Fri, 15 Mar 2013 00:00:00 -0400

What explains the pattern of selective business interest in preferential trade agreements (PTAs) with active campaigning for and utilization of tariff preferences for some trade agreements, but not others? Under what conditions can business advocates of PTA policy mount an effective lobbying campaign to influence policy outcomes (i.e., shaping decisions on who to negotiate with and what to negotiate about)? These are important questions given that analyses of Asian PTAs frequently assign a negligible role to business interests either out of apathy or lobbying weakness. To understand the pattern of selective business lobbying for PTAs, I develop a theoretical model with three main independent variables: venue selection, preference intensity, and advocacy effectiveness, and apply it to the case of Japan to test its usefulness. My model shows that the conditions for effective business PTA campaigning are exacting: loss avoidance, high technical expertise, and influence-seeking strategies that maximize access opportunities given institutional constraints. And yet when these factors align, business interests do influence PTA outcomes. My research shows that the current trend to characterize the agency of PTA proliferation as either state-led or business-driven needs to be re-examined as it is more useful to think about state-society constellations in favor or against PTAs.

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Authors

Mireya Solís

Publication: Business and Politics

Reimagining a Corporation’s Purpose in the Great Recession Era and Meeting Threats to Free Enterprise

Wed, 30 Jan 2013 14:00:00 -0500

Event Information

January 30, 2013
2:00 PM - 3:30 PM EST

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue, N.W.
Washington, DC 20036

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The current economic climate is obviously a difficult one for U.S. corporations: the economy is sluggish, the housing market has yet to fully rebound, consumer demand is down, and Wall Street’s relationship with Washington appears to have hit an all-time low. To add to these mounting difficulties, corporate America’s current focus appears to have shifted heavily toward maximizing shareholder profits and executive compensation at the expense of long-term corporate growth and business stakeholders, including employees, investors and communities. “Corporate short-termism” and profit by any means necessary are veritable threats to free enterprise and the health of the U.S. capital markets.

On January 30, as part of a series on corporate purpose, Brookings hosted a discussion on the substantial challenges modern-day corporations face as they struggle to rebound in an historically difficult economic environment, which is seemingly bound by different ethics than eras past. Moderated by Governance Studies Vice President Darrell West, a panel of experts explored how the short-term focus of shareholders and investors affects corporate behavior and government policy; how to encourage longer time horizons among shareholders and executives; how companies can best serve the interests of its stakeholders; and how corporate America can best meet the challenges presented by the Great Recession.

Do Performance Reforms Change How Federal Managers Manage?

Donald Moynihan and Stéphane Lavertu — Fri, 12 Oct 2012 13:22:00 -0400

Policymakers on both sides of the aisle say they want government programs to perform better. A central strategy to achieve that goal at the federal level has been the creation of a performance management system, the latest iteration of which was shaped by the GPRA Modernization Act of 2010. This system promotes the collection of information on the performance of federal programs. The expectation is that agency personnel will use this information when managing federal programs, but do such reforms actually make a difference? To address this question, we look at the impact of past reforms: the Government Performance and Results Act (GPRA) of 1993 and the Bush administration’s Program Assessment Rating Tool (PART). Both reforms established new routines intended to encourage federal agency personnel to take a performance-oriented approach in managing their programs.

Using data from two surveys, we found that the involvement of federal managers with GPRA processes and PART reviews generally had little direct effect on purposeful performance information use, i.e., using data to improve management and allocation decisions. These reforms were more strongly associated with passive use, i.e. using measures to further modify goals and measures in accordance with the procedural requirements of the law.

The findings reflect the limits of government-wide reform efforts that depend upon bureaucratic behavior that is difficult for reformers to control and observe. But the findings also offer some insight for the implementation of the Modernization Act.

The Act has sought to institutionalize leadership commitment to performance by requiring leaders to publicly commit to a handful of high-priority goals. Our findings support this approach, as we find that perceived leadership commitment is associated with higher performance information use.

We found that the existence of a dialogue between employees about performance was associated with performance information use. If such dialogues can be institutionalized through the quarterly reviews of performance goals required by the Modernization Act, this will facilitate greater use.

Our results suggest that quarterly reviews can also play an instrumental role in fostering performance information use if such reviews focus on the motivational nature of the task (“why are these goals important?”) and developing actionable knowledge (“what do the measures tell us about how to manage?”).

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Authors

Donald Moynihan
Stéphane Lavertu

Image Source: © Kevin Lamarque / Reuters

Is It Time to Reform Executive Compensation and Stock Option Grants?

Thu, 27 Sep 2012 10:00:00 -0400

Event Information

September 27, 2012
10:00 AM - 11:30 AM EDT

Saul/Zilkha Rooms
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

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In recent decades, executive compensation has increasingly shifted toward a model tied to stock option grants. As a result, many corporations fixate on short-term stock gains, harming the nation’s ability to innovate and build a long-term focused, sustainable economy. This trend in executive compensation raises the question of whether there are better ways to reward executives and make them more accountable to shareholders, stakeholders, and society.

On September 27, Governance Studies at Brookings hosted a forum on executive compensation practices and the links to economic vitality. A panel of experts discussed the changes in corporate pay since 1980 and how they have affected companies’ long-term viability, as well as possible solutions that would encourage executives to focus on long-term business goals and growth.

After the program, speakers took audience questions.

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The Underfunding of Corporate Pension Plans

Robert C. Pozen — Tue, 04 Sep 2012 10:09:00 -0400

The current low level of interest rates poses a big challenge to pension plans with benefits guaranteed by their corporate sponsors. These pension plans have a difficult time earning a decent return from high-quality bonds with relatively low risk.

In response, Congress has recently revised the rules for calculating the obligations of corporate pension plans. But these revised rules allow corporate pension plans to assume that they will earn unrealistically high returns. As a result, many corporate sponsors will not contribute enough to meet their likely benefit obligations to retirees.

The key to calculating a pension plan's obligations is the "discount rate." Actuaries estimate a plan's long-term benefit obligations by studying its benefit schedule and projecting the life span of its workforce. Then they reduce this amount by the discount rate -- the returns that the plan can reliably earn on its investments from the present to the times at which it must pay out benefits to retirees.

Therefore, the lower the discount rate, the higher the plan's estimated obligations. The higher the discount rate, the lower the plan's estimated obligations. If a plan's estimated obligations exceed its assets on hand, the plan's corporate sponsor must make contributions to the plan.

In the past, the accounting regulator required corporate pension plans to utilize a discount rate based on the two-year average of interest rates on top-quality bonds. In July, however, Congress passed legislation allowing corporate pension plans to use a discount rate based on average interest rates over the last 25 years. Since interest rates were quite high during the 1980's, the discount rate for most plans will increase by over one percentage point.

Although a one percentage point increase in the discount rate may seem like a technical matter, the change will lead to much lower required contributions by companies with substantially underfunded pension plans. For example, the required 2013 pension contribution for UPS will drop from $1.62 billion to $47 million, according to David Zion at Credit Suisse. Similarly, he calculates that the required 2013 pension contribution by Lockheed Martin will drop from $2.35 billion to $1.4 billion.

Fortunately, the legislation effectively phases out by 2016 – by then, the discount rate will likely revert to the two-year average for top-quality bonds. But I have a sneaking suspicion that if interest rates are still very low in 2016, corporate sponsors of pension plans will again lobby Congress for a higher discount rate.

Another positive aspect of the legislation is that it raises insurance premiums paid by corporate sponsors to the Pension Benefit Guaranty Corporation (PBGC) -- a government entity that guarantees up to $56,000 per year in benefits for participants in bankrupt companies with underfunded plans. In 2011, the PBGC reported a deficit of $26 billion. The new legislation would increase premiums paid to the PBGC by $9.6 billion over the next decade.

Unfortunately, the combined effect of both aspects of the new legislation is to penalize corporations that have well-funded pension plans at the expense of corporations whose pension plans are severely underfunded. The former corporations will have to pay higher PBGC premiums although the chances of their using PBGC insurance are minimal. The latter corporations will be able to make much lower contributions to their pension plans although they present a significant default risk to the PBGC.

The supporters of this legislation argued that current interest rates are "artificially" low because of policy actions taken by the Federal Reserve under Chairman Bernanke. While there is some validity to this argument, the average interest rate over the last 25 years is a poor indicator of low-risk returns in corporate bonds over the next decade. During the 1980s, the Federal Reserve under Chairman Volcker "artificially" kept interest rates high.

What is the correct "discount rate" that should be used to estimate the long-term obligations of a pension plan?

The answer depends on the timing of its obligations to pay retirement benefits, as under current accounting rules. Consider a pension plan that must pay out 20% of its benefits over the next 2 years, 50% around 10 years from the present, and 30% around 20 years from the present. The discount rate of such a plan should be divided into 3 parts -- with 20% discounted at the interest rate on two-year bonds, 50% at the interest rate on 10-year bonds and 30% at the interest rate on 20-year bonds.

In my view, pension plans should look to the average interest rate over the last five years in determining these discount rates. To illustrate, for the discount rate on 10-year benefit obligations, corporations would use the average interest rate during the last five years on AA-rated corporate bonds with maturities of 10 years. This approach would represent a simple and more accurate way of choosing discount rates, though far from perfect.

In short, the new legislation temporarily reduces the contributions by corporations with substantially underfunded pension plans by using an unrealistically high discount rate. However, this legislation will not improve the financial condition of these plans; in a few years, the corporate sponsors of these plans will have to make even higher contributions to their underfunded plans.

Authors

Robert C. Pozen

Publication: Real Clear Markets

Image Source: JOHN SOMMERS II

Pension ‘Savings’ in Transportation Bill May Be Costly

Robert C. Pozen — Thu, 02 Aug 2012 00:00:00 -0400

The transportation bill that Congress passed this summer is financed, in part, with a budget gimmick: Lawmakers changed the funding rules for corporate pension plans. These changes help the federal budget in the short term by reducing the tax deductions that corporations take for contributing to these plans — thereby reportedly increasing their taxable income.

These changes, however, encourage companies to contribute less to pensions, which raises the long-term risk that a governmental insurer will need to step in to pay benefits. Under the new funding rules, the required pension contributions for public U.S. companies could drop in one year from $58 billion to approximately $33 billion, says accounting expert Chris Senyek.

To understand these accounting changes, consider how corporate pension plans calculate their future obligations to plan beneficiaries. Actuaries begin by projecting the number of current and future employees and their life expectancy to estimate a total plan obligation. The actuaries then reduce this total by applying a “discount rate,” which should represent the risk-free return that plans could be certain of earning on their investments.

The lower the discount rate, the higher the estimated pension obligation. And if the plan has a gap between this amount and its current assets, the company must make up the difference through regular contributions.

The discount rate, then, is an important factor to businesses. Under the old funding rules, companies used a discount rate based on the interest rate for high-quality bonds, averaged over the past two years. Under the new rules, companies may use an alternative discount rate, based on the interest rate for the same bonds but averaged over the past 25 years. Because interest rates today are near historic lows, this new alternative discount rate is likely to be at least 1 percentage point higher than the prior discount rate and, therefore, to lead to much lower required contributions by companies with underfunded pension plans.

Estimates by David Zion of Credit Suisse show that a 1 percentage-point increase in the discount rate would require Lockheed Martin to contribute $1.4 billion to its pension fund in 2013, instead of $2.4 billion under the old rules. According to the same estimates, UPS’s required contributions would drop to $47 million in 2013, compared with $1.6 billion under the old rules.

Unfortunately, these substantial “savings” to companies pose a substantial risk to the Pension Benefit Guaranty Corp. (PBGC), the federal agency that guarantees up to $56,000 per year in benefits for each pension participant. The PBGC would assume the obligations of a pension plan if participating companies filed for bankruptcy or their plans otherwise became insolvent.

These companies pay annual premiums to the PBGC, but what is paid in is insufficient to finance the agency’s ongoing obligations. In 2011, it reported a deficit of $26 billion. Although the new legislation would also increase corporate premiums paid to the PBGC by $9.6 billion over the next decade, this increase would be grossly inadequate to pay for the agency’s overall exposure to risk from underfunded pension plans.

Some argue that the “artificially” low interest rates engineered by the Federal Reserve in the past two years do not accurately reflect expected risk-free returns over the long term. While there is some validity to these arguments, using the 25-year average is similarly unrealistic, since it includes the high interest rates of the early 1980s that were “artificially” engineered by then-Federal Reserve Chairman Paul Volcker.

Fortunately, this reform effectively phases out in a few years. By 2016, the alternative discount rate is scheduled to drop to 70 percent of the 25-year average rate (down from 90 percent in 2012). Moreover, the high rates of the late 1980s will fall out of the 25-year average by 2016, further reducing that alternative discount rate. Since lower discount rates result in larger calculated funding gaps, the supposed “pension relief” produced by this legislation will quickly disappear.

The transportation legislation is, in short, another example of Congress kicking the can down the road. The esoteric changes in funding rules will not actually improve the financial condition of corporate pension plans; instead, the new rules will allow companies with deeply underfunded plans to avoid the day of reckoning when they must deliver on their promises to plan beneficiaries.

Authors

Robert C. Pozen

Publication: The Washington Post

Image Source: Joshua Lott / Reuters

Whose Capital; What Gains?: Why the U.S. Economy Needs to Change Incentives

Lawrence E. Mitchell — Tue, 10 Jul 2012 00:00:00 -0400

If we fail to change the incentive structures of American management and financial markets, our nation’s long-term economic well-being and, with it, our national security, will suffer, writes Lawrence Mitchell. The crisis was decades, and perhaps more than a century, in the making, and is the result of many different factors that can be found in the historical record.

In this new paper, Mitchell argues that common stock has almost never been a source of permanent capital in American industry. And, he writes, the sources of capital gains has also dramatically shifted from the 1950s, when Merton Miller and Franco Modigliani, developed their famous dividend irrelevance theory, from corporate profits in the form of retained earnings to future profits in the form of velocity-induced trading gains. While both of these propositions may seem counterintuitive, the latter will seem plainly wrong, at least to devotees of efficient market theory. But the empirical correctness of the former proposition underlies the contemporary theoretical weakness of the latter.

The net results are that shareholders, or managers on their behalf, are gambling with debtholders’ money, and that the future profits of American industry are being spent today. Both call into question the sustainability of American industry and the future wealth of the United States.

Mitchell makes a number of recommendations in this paper, incuding:

Build long-term investing into the initial investment decision by developing a sliding scale capital gains tax, with highly punitive taxation for short-term trading, diminishing over time to tax forgiveness for long-term holding.
Include returning to largely insider boards (outside directors tend to manage by stock price) and making appropriate accounting changes to rely more heavily on cash flow than income statement accounting.

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Whose Capital; What Gains?: Why the U.S. Economy Needs to Change Incentives

Authors

Lawrence E. Mitchell

Image Source: © Chip East / Reuters

The Problem of Corporate Purpose

Lynn A. Stout — Mon, 18 Jun 2012 00:00:00 -0400

In a new paper, Lynn A. Stout, questions the purpose of the modern public corporation. Is it to maximize shareholders’ wealth? Or are other goals, like serving customers or providing innovative products, valued in their own right?

Stout looks at the history of corporations and their attitude towards shareholder wealth and outlines how this relatively new notion of shareholder value thinking gets the law, economics and evidence wrong.

Stout explains that the current predominant view is that the purpose of corporations is to increase stock price, despite the fact that this shareholder value ideology is a relatively new development in the business culture. It is not supported by the traditional rules of American corporate law; is not consistent with the real economic structure of business corporations; and is not supported by the bulk of the empirical evidence on what makes corporations and economies work.

Indeed, there is good reason to suspect that focusing on “shareholder value” may in fact be a mistake for most business firms. This is because there is no single shareholder value—different shareholders have different needs and interests depending on their investing time frame, degrees of diversification and interests in other assets, and perspectives on corporate ethics and social responsibility. This ultimately harms most shareholders themselves—along with employees, customers, and communities.

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The Problem of Corporate Purpose

Authors

Lynn A. Stout

Image Source: © Lucas Jackson / Reuters

A Sensible Plan to Bring U.S. Corporate Profits Home

Robert C. Pozen — Wed, 13 Jun 2012 15:23:00 -0400

The current system for taxing the international profits of U.S. corporations is highly flawed. It raises very little revenue and encourages companies not to invest in the United States. But Democrats and Republicans disagree about how to fix the broken system.

Current tax policy penalizes corporations when they reinvest their foreign profits in the United States. Corporations currently pay the 35 percent U.S. tax rate on the profits of their foreign subsidiaries, but they can defer those taxes until they bring those profits back to the United States.

Even though a corporation is eligible for a tax credit equal to foreign taxes paid, the decision to repatriate earnings typically requires that corporation to incur a significant tax cost. As a result, corporations usually find it more attractive to defer U.S. taxation by reinvesting their foreign earnings abroad.

One proposed fix, a temporary tax holiday for repatriated profits, is a bad idea. In 2005, corporations were allowed to repatriate their foreign earnings at a tax rate of 5.25 percent. Corporations did indeed bring home over $300 billion in foreign profits that year, five times as much as normal. But very little of that income was reinvested in the United States to create jobs: a National Bureau of Economic Research study suggested that a majority of that income went to shareholders, mostly in the form of share buybacks.

Even worse, another tax holiday would cause corporations to conclude that Congress would allow further tax holidays in the future. This would likely lead corporations to hold cash abroad and wait to repatriate their income until the next tax holiday comes along.

Many Republicans have called for a more fundamental transition to what's known as a "territorial system" for international taxation. Under such a system, foreign-source income would be taxed only in the country where it was earned, and would not be taxed at all by the United States. This approach would reduce the tax burden on American corporations and eliminate the disincentive for corporations to repatriate their foreign profits.

Arguments in favor of a territorial system are based on the premise that profits should not be taxed twice. However, Democrats point out that certain profit would not be taxed at all under a territorial system.

In particular, corporations can fairly easily shift earnings attributable to intangible sources-patents, brand names, or know-how-to tax havens that collect little or no tax. Under a territorial tax system, the U.S. would never collect taxes on that income either.

Although existing tax laws try to prevent such shifting, they are imperfect at best. An IRS study found that U.S. corporations' subsidiaries in Bermuda reported income in 2004 equal to a whopping 646 percent of Bermuda's GDP. Presumably, most of that profit was actually earned in a higher-tax jurisdiction; U.S. corporate profits are roughly equal to 10 percent of U.S. GDP.

To address the income-shifting problem, President Obama has called for an "international minimum tax." Under his proposal, all income of U.S. corporations must be immediately taxed-by the U.S., or some foreign country - at a rate greater than or equal to the (as yet unspecified) international minimum tax rate. So, if a corporation reported profits in a country that collects no corporate tax, the United States would immediately tax those profits at the international minimum tax rate-greatly reducing the appeal of the tax haven.

Though the territorial tax system and Obama's proposed international minimum tax represent vastly different policy objectives, a combination of the two could result in a plausible, coherent compromise position. Here's how it should work:

First, we should adopt the GOP-favored territorial tax system for profits reported in any country that taxes corporate profits at an average effective rate above some minimum threshold, approximately 15 to 18 percent. With that threshold, U.S. corporations would no longer incur an additional tax burden when repatriating profits from most countries where they legitimately conduct business.

Second, we should adopt President Obama's proposed "international minimum tax," equal to that 15 to 18 percent threshold, to minimize profit shifting. Corporations should still be allowed to claim a credit against any actual foreign taxes paid; if a corporation paid 13 percent in taxes to, say, Switzerland, it should only owe to the U.S. the difference between 13 percent and the international minimum tax rate.

In combination, such a compromise would ensure that all foreign profits of U.S. corporations are taxed consistently at a reasonable rate. If foreign profits were reasonably taxed by a legitimate tax-collecting country, such as France, Brazil, or Japan, they would be taxed only by that country. But if other foreign profits were allocated to a tax haven, they would be taxed, at a reasonable rate, by the United States.

Such a policy would require transition rules. Specifically, we should allow corporations to repatriate any existing profits currently held overseas at a low rate, such as 10 percent-not as a one-off repatriation holiday, but rather a transition to a better, permanent approach. Such a transition is needed because it would be unfair to suddenly impose a 15 to 18 percent tax on what had previously been a perfectly legitimate strategy.

In short, no one likes our current system of taxing the foreign profits of U.S. corporations. However, there is little agreement between Republicans and Democrats on reforming this system. Fortunately, we can achieve both parties' policy priorities by combining their two best ideas: a territorial tax system for legitimate tax-collecting nations, and an international minimum tax rate for those nations which collect little corporate tax. Such a policy would be fairer, raise more revenue, and encourage corporations to invest in the United States.

Authors

Robert C. Pozen

Publication: Real Clear Markets

Image Source: © Christina Hu / Reuters

Mobilizing Ownership: An Agenda for Corporate Renewal

Stephen M. Davis — Fri, 01 Jun 2012 00:00:00 -0400

Editor's Note: This report was released in conjunction with an event at Brookings on The Modern Shareholder: How a Short-Term Focus is Harming U.S. Corporations.

With Barack Obama trying to paint Mitt Romney as the embodiment of ruthless capitalism, and Romney countering that the president suppresses free enterprise, Corporate America is center stage as never before in a modern US election campaign. Stephen Davis argues that in the haze of the presidential campaign season, both candidates may be missing promising policy ideas to stimulate growth and responsibility.

For as much effort as policymakers have spent modernizing corporate structures, they have devoted comparatively little attention to the institutional investors they count on to oversee the market, Davis writes. This paper explores a policy agenda that mirrors corporate governance reforms, designed to strengthen the capacity of institutional investors to act as long term owners.

Davis offers a formula for prudent stewardship in the broader capital market and “reforms that put the interests of citizen-investors first hold out the prospect of making better citizens of corporations.” Below are highlights:

Corporations should issue a disclosure statement which provides transparency of things like government arrangements and offers appropriate feedback channels.
Reforms to fiduciary duties in the capital markets by, for example, rediscovering the duty of impartiality or applying fiduciary duty to intermediaries.
Establishing public policy steps to US regulations of investment, which serve both corporations and savers. Davis writes that one important question has to be answered by policy experts first: “Who should mind the industry? Oversight of long-term savings has become a regulatory orphan.”

The benefits to correcting to the world of institutional investment are numerous, Davis writes, and carry the potential of giving corporate boardrooms both capital and a license to innovate, embrace appropriate risk, and address extra-financial drivers of value creation over the long term.

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Mobilizing Ownership: An Agenda for Corporate Renewal

Authors

Stephen M. Davis

Image Source: © Chip East / Reuters

An Intermediate Approach to the Auditor Rotation Issue

Robert C. Pozen — Mon, 09 Apr 2012 00:00:00 -0400

In March, the Public Company Accounting Oversight Board (PCAOB) held hearings about whether to require public companies to change (or "rotate") their external auditor periodically. Similarly, the European Union has proposed mandatory auditor rotation every six or 12 years.

Mandatory auditor rotation is designed to address a potential conflict of interest between a public company and its auditor. Because an auditor is hired and paid by the public company it audits, the auditor's desire to maintain a good relationship with its client could conflict with its duty to rigorously question the client's financial statements.

Advocates of mandatory rotation generally object to the historic coziness between auditors and the management of public companies: the auditors of almost 36 percent of all companies in the Russell 1000 have held that position for 21 years or more. These advocates cite two specific benefits of replacing the auditor every five or 10 years: a term limit for an auditor's engagement with a company would decrease the auditor's incentive to ingratiate itself with management, and furthermore, mandatory rotation would keep the current auditor on its toes, since it would fear that a new auditor would expose any previous errors or omissions.

On the other hand, public companies have vigorously argued that the benefits of mandatory rotation are outweighed by its costs. Because multinational corporations are very complex, an auditor must develop company specific knowledge to fully understand the company's finances. Mandatory rotation would quickly erode this institutional knowledge, reducing audit quality and increasing costs.

In addition, critics point out that mandatory rotation undermines the role of the audit committee/a> in overseeing the audit process, as expanded by the Sarbanes Oxley Act. That Act made the auditor report to the independent audit committee, which now has the power to appoint and terminate the auditor.

Given these competing arguments, I favor a compromise proposal requiring the independent audit committee to periodically issue a request for proposal (RFP) for the audit engagement, but allowing the existing auditor to bid on the RFP. This proposal would reap most of the benefits of auditor rotation without imposing many of the costs.

Even if the existing auditor usually wins the RFP, the bidding process raises the probability that the audit committee would appoint a new auditor. This would encourage the existing auditor to maintain its professional skepticism more vigilantly. The existing auditor would be worried that any deficiencies in its audits would be discovered if a new auditor were subsequently engaged.

Yet an RFP requirement would not impose large costs on a public company from switching its auditor every five or 10 years. The existing auditor would be replaced only if the audit committee decided that this change met a cost/benefit test in the context of that particular company.

Most importantly, an RFP process would reinforce the critical role of the independent audit committee in the eyes of the external auditor, especially one with a longstanding relationship to the same company. The RFP process would make it clear that the independent directors on the audit committee, not company management, were in charge of choosing the auditor and supervising its work.

Nevertheless, commentators are likely to raise three practical questions about this RFP proposal.

1. How often should the audit committee be required to issue a RFP?

In my view, the answer is every 15 years. This period would allow an audit firm enough time to gain the expertise it needed to understand the complexities of a global company. This period would also be long enough to warrant a serious effort by other large audit firms in responding to these RFPs. Audit fees for 15 years might even persuade one or two middle-size audit firms to develop the capability of auditing multinational companies.

2. Will there be enough firms bidding on the RFP other than the existing auditor?

Even if only one firm other than the existing auditor responds to the RFP, that should be sufficient to obtain most of the benefits of a competitive bidding process, as shown by the bidding for many large defense contracts. Of course, audit firms cannot perform both audit and non-audit services for the same public company. But the regulators could allow any qualified firm to respond to a RFP as long as the firm stopped the non-audit services if it won the RFP for the audit.

3. Will the RFP process make audit firms more likely to fold on tough accounting issues?

With a periodic RFP process, the auditor would make great efforts to serve the needs of the audit committee, not company management. Thus, the RFP process would make the existing auditor to be more responsive to the audit committee -- exactly what we want. With the RFP process in mind, the auditor would be more likely to alert the audit committee to close questions on financial reporting and possible areas of debate with company management.

In short, mandatory audit rotation as a blanket rule is probably not cost effective. Instead, the PCAOB should require the audit committee to issue a RFP for the auditor engagement every 15 years, but allow the existing auditor to participate in the bidding process. This process would enhance the auditor's willingness to make tough calls and reinforce its primary allegiance to the audit committee.

Authors

Robert C. Pozen

Publication: Huffington Post

The Case for Local Business Support for Education in Nicaragua

Justin W. van Fleet — Tue, 06 Mar 2012 14:32:00 -0500

Approximately one-third of all Nicaraguan students either repeat or drop out of the first grade. On a test of basic math skills in grade three, 60 percent of students scored in the lowest level or below. Unsurprisingly, a survey of business leaders indicated that the perceived quality of Nicaragua’s primary schools education ranks among the lowest in the world: 134 out of 142.

Considering Nicaragua faces an education quality crisis, external public and private donor financing is relatively low. A Brookings study examining the implications of donors’ new education strategies revealed that five countries, the Netherlands, Denmark, Canada, Sweden and Finland, will pull or severely reduce education support for Nicaragua this year. From 2006-2009, these donors’ contributions averaged 35 percent of the country’s total basic education expenditures. In our assessment of corporate social investments, only 6 percent of U.S. Fortune 500 companies that invest in education direct resources to Nicaragua and less than 10 percent of the largest Latin American companies that invest in education direct support to Nicaragua.

Given this bleak assessment, the time for the Nicaraguan business community to step up and support the government’s provision of education could not be greater. The business case is simple: investing in education in Nicaragua is an investment in both current and future employees, the safety and stability of the communities where businesses operate, the potential purchasing power of consumers, and a company’s reputation.

This week, while visiting business-led education initiatives in Nicaragua, two companies stood out as examples of the private sector supporting education in the country:

Telefónica: The Aula Fundación Telefónica (Telefónica Foundation Classroom) program supports teacher quality in marginalized public schools. A participating school dedicates a classroom to the project and the foundation provides internet connectivity, computers, projectors, audio and a host of other technology resources. Professional development workshops for teachers focus on how to use technology to improve pedagogical practices within the existing curriculum. Teachers are also connected to a network of educators across Latin America and are able to share experiences and successful tactics with each other. While visiting a public school in Managua, Colegio Francisco Morazán, I observed a team of teachers using the Telefónica Foundation Classroom to teach a lesson about planet earth and the seasons of the year. The third-graders were highly engaged in the content and discussions. Primarily in urban regions of the country, Telefónica has committed to expanding the program throughout rural areas over the next several years.

Plasencia: In the town of Esteli, known for its 22 cigar manufacturing plants, one company, Plasencia, has piloted a full-scale education program for its employees. Across the street from a manufacturing plant, the company has built an early childhood development center for employee’s children up to age six. The program uses a project-based, active-learning curriculum, integrates nutrition into the curriculum, has courses for parents on child development, and provides an onsite psychologist for students and parents. For employees, the company pays university tuition, contingent upon good performance in the courses. The goal is for the program to expand to all of the companies’ factories, and through groups like Empresarios por la Educación, an association of businesses for education, expand the model to other factory-based industries throughout the country.

Despite the dire state of funding and the relatively poor quality of education in the country, there is already an understanding from some members the business community – as exemplified by Telefonica and Plasencia’s programs – that they have the opportunity to make a sustainable impact. A forum on best practices on corporate social investments in education, organized by Eduquemos Empresarios por la Educación and PREAL's Business Education Alliance Program (Programa Alianza Educación Empresa, PAEE), brought together business leaders, local think tanks, and the education community. PAEE invited the Brookings Center for Universal Education to present its recent research on corporate social investments in education. Leaving the meeting, there was a clear sense that greater engagement and investments in education by the business community could create a shared business and social value. While not without challenges, I left optimistic that if the business community works with each other and the government, they can be strong advocates for quality education for all young people in Nicaragua and catalyze systemic change.

Authors

Justin W. van Fleet

Image Source: © Oswaldo Rivas / Reuters

Corporations Need a Broader Purpose

Darrell M. West — Wed, 14 Dec 2011 10:00:00 -0500

Corporations have a long and varied history. Many of them were chartered and given special privileges in order to accomplish public purposes. This included things such as building roads, dams and canals. Even when companies were formed for private purposes, many corporate boards and management tended to focus on the long view of building great companies that would serve the long-term interests of shareholders and the nation.

Some observers, however, wonder if the current focus has shifted too much in favor of maximizing short-term shareholder profits. Many corporate leaders focus exclusively on quarterly profits and ignore broader constituencies such as employees, the community, and the nation and world as a whole.

To address this subject, we have launched a three-year project on the purpose of the corporation. As part of this effort, we will undertake research and hold quarterly forums on various aspects of corporate purpose. Our goal is to bring together leaders including lawmakers, corporate executives, university leaders, and representatives from the non-profit sector for discussions regarding the purpose of the corporation. Companies have special privileges and this raises several questions. What is the purpose of the firm? What benefits and obligations accrue to an enterprise as a result of incorporation? And what are the duties and responsibilities of corporate officers and directors?

In our opening forum on December 13, 2011, David Langstaff, the President and Chief Executive Officer for TASC, Inc., delivered a rousing keynote address where he argued that “business leaders need to step forth and be more actively engaged in finding the shared middle ground that we must find if we, together, are going to protect the Commons.” He worried whether our political and economic system could “pull ourselves out of our self-absorbed, myopic tailspin”.

Too many leaders, he complained, focus on short-termism and worry only about meeting the next quarterly financial target. Instead, he argued it is time for leaders to pursue a “virtuous cycle” whereby “business is granted a charter, given protection from liabilities in order to encourage it to take risks, offer employment, develop and distribute new offerings, and contribute to an improved quality of life and standard of living in society, for all its members.”

Langstaff’s speech was followed by an engaging conversation among three academic experts. Constance Bagley, the professor in the practice of law and management at Yale University, said many business schools have a tendency to focus on maximizing shareholder value and that we need a broader conception that includes shareholders, bondholders, and the community at large. She indicated we need better corporate disclosure rules so that companies disclose material circumstances that affect a variety of constituencies. Getting information out would help us deal with the “massive problem of externalities” that we currently face.

Tom Donaldson, the Mark Winkelman Professor at the Wharton School of the University of Pennsylvania, pointed to the Norway sovereign wealth fund as an example of financial investors who have a broader conception of corporate purpose that emphasizes societal values and socially responsible investment based on transparent principles. He argued that excessive systemic risk contributed to the global financial crisis and that it is “striking no one has gone to jail in the context of the financial crisis.”

Lynn Stout, the Paul Hastings Distinguished Professor of Corporate and Securities Law, said many law schools teach only about maximizing shareholder value and ignore broader conceptions of corporate purpose. She said this is driven by ideology coming from the University of Chicago and reflects a “mistaken view” of the law. She noted that congressional tax code changes have led companies to tie compensation to stock price performance and encouraged many business leaders to focus only on shareholders. She pointed out that we have a “hyperactive market” in which the average stock holding period is four months, compared to what was eight years during the 1960s.

The panel of experts was divided on what policy or legal changes were necessary to deal with current problems. Bagley argued that we need a “portfolio churn tax” to encourage longer-term stock holding. Among other proposals, she suggested that we need “patient capital” that does not churn stocks over short periods of time and that management should have incentives to hold stocks for at least six months so that investors don’t “act like day traders”.

In contrast, Donaldson argued there are “limits to what government can do” and regulations always are a “couple of steps behind innovation”. Stout said there was no silver bullet to deal with executive compensation issues, and that it was a mistake when the stock transfer tax was eliminated. She complained that many tax rules “favor Carl Icahn over diversified Moms and Pops.”

Authors

Darrell M. West

Image Source: © Rick Wilking / Reuters

The Purpose of the Corporation

Tue, 13 Dec 2011 13:00:00 -0500

Event Information

December 13, 2011
1:00 PM - 3:00 PM EST

Falk Auditorium
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC

Corporations hold tremendous amounts of private sector capital and have the power to bolster economic prosperity by investing in critical industries and communities. Since the inception of the corporation, policymakers have debated to what degree corporations should be held to a standard of social responsibility. This issue is particularly relevant given the fragile state of the American economy and public concerns regarding economic opportunity. What is the purpose of the corporation in today’s society and economy? How should we think about corporate obligations and responsibilities? How do companies affect society, commerce and government?

On December 13, Governance Studies at Brookings hosted the first in a series of lectures examining the corporation in American society. David Langstaff, CEO of TASC, delivered a keynote address exploring the role of the corporation in today’s economy and how that role may evolve in the future. Following his presentation, a panel of experts, moderated by Darrell West, vice president and director of Governance Studies, examined the purpose of the corporation as it relates to the current state of the economy and political climate.

After the program, speakers and panelists took audience questions.

Transcript

Uncorrected Transcript (.pdf)

Event Materials

20111213_corporate_purpose

Participants

Moderator

Panelists

David Langstaff

CEO
TASC

Constance Bagley

Professor of Management
Yale University

Tom Donaldson

Professor of Business
University of Pennsylvania

Lynn Stout

Professor of Law
University of California, Los Angeles

Corporate Philanthropy and the "Education For All" Agenda

Kevin Watkins — Thu, 08 Dec 2011 16:57:00 -0500

INTRODUCTION

There is no shortage of candidates for inclusion in a list of challenges facing humanity at the start of the twenty-first century. Over the past two decades, globalisation has contributed to impressive gains in poverty reduction. Yet we live in a world of unprecedented disparities in wealth. Progress towards the international development goals in areas such as poverty reduction, nutrition, child survival and maternal health has fallen far short of the targets set for 2015, even in many of the countries that have secured high economic growth. Youth unemployment has reached record levels. While global economic integration and the spread of technology, capital and ideas have increased prosperity, growth has been uneven and unbalanced. Building a new globalisation will require not just new mechanisms for curtailing the power of financial markets, but also a more equitable pattern of economic growth and a new approach to ecology. Climate change and the growing body of evidence on environmental stress point unequivocally towards an economic system that has overstepped the ecological boundaries, with potentially devastating consequences for future generations.

So why put education on an already overcrowded agenda? Partly because education is a fundamental human right, but also because without progress in education any attempt to address the wider challenges facing governments around the world will be in vain. In an increasingly knowledge-based world economy, deep disparities between nations in education will reinforce an unequal and unsustainable pattern of globalisation. Education inequalities within countries will similarly reinforce social and economic fault lines. And without improved education there is little prospect of humanity confronting the technological and social challenges posed by the global ecological crisis.

Read the full paper at The Bellagio Initiative »

Authors

Kevin Watkins

Publication: The Bellagio Initiative

The Private Sector and Sustainable Development: Market-Based Solutions for Addressing Global Challenges

Tue, 01 Nov 2011 13:00:00 -0400

Event Information

November 1, 2011
1:00 PM - 2:30 PM EDT

Falk Auditorium
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC

The private sector is an important player in sustainable global development. Corporations are finding that they can help encourage economic growth and development in the poorest of countries. Most importantly, the private sector can tackle development differently by taking a market-based approach. The private sector is providing new ideas in the fight to end global poverty by partnering with traditional development players such as national aid agencies and NGOs, leveraging supply chains to create economic opportunity for the world’s poorest people, and incorporating social responsibility into their business practices.

On November 1, Global Economy and Development at Brookings will host a discussion on the role of the private sector in development. Doug McMillon, president and chief executive officer of Walmart International, will offer remarks and join a panel discussion featuring Bruce McNamer, president and chief executive officer of TechnoServe and Brookings nonresident senior fellow Jane Nelson, director of the Corporate Social Responsibility Initiative at Harvard University. Brookings Vice President Kemal Derviş, director of Global Economy and Development, will moderate the discussion.

After the program, the panelists will take audience questions.

Audio

The Private Sector and Sustainable Development: Market-Based Solutions for Addressing Global Challenges

Transcript

Uncorrected Transcript (.pdf)

Event Materials

20111101_private_sector_development

Participants

Moderator

Panelists

C. Douglas McMillon

Chief Executive Officer and President
Walmart International

Bruce McNamer

President and Chief Executive Officer
TechnoServe

Increasing the Impact of Corporate Engagement in Education: Landscape and Challenges

Justin W. van Fleet — Tue, 12 Jul 2011 10:31:00 -0400

Editor’s Note: The Center for Universal Education co-hosted a side event with UNESCO and the United Nations Department for Economic and Social Affairs during the High Level Segment of the Economic and Social Council (ECOSOC) at the United Nations Headquarters in Geneva, Switzerland. This meeting brought together business leaders from multinational companies and representatives from governments and ministries of education to discuss engaging the private sector in education. His Excellency Lazarous Kapambwe, President of ECOSOC and the Permanent Representative of Zambia to the United Nations, made opening remarks and Ms. Irina Bokova, Director-General of UNESCO moderated the discussion. Justin van Fleet discussed the challenges and opportunities with corporate engagement in education.

The Current State of Education is Nothing Short of a Global Learning Crisis

Despite progress made since the start of the millennium to refocus efforts on education, progress in education has been slow and uneven with government commitments wavering. The current state of education is nothing short of a global crisis: 67 million children remain out of primary school and resource mobilization to reach the 2015 targets has fallen short by over $16 billion. Just as alarming, yet rarely discussed, are the hundreds of millions of children enrolled in school but not learning. This global learning crisis is characterized by alarming statistics: in some countries after five years of schooling children still have a 40 percent chance of being illiterate. Three out of ten young people in emerging economies cannot do basic math. And despite the rhetoric, education has yet to create truly effective, sustainable and scalable partnerships with the private sector like we have seen in other sectors, such as health.

We’re Missing True Champions from the Private Sector

An examination of private sector philanthropy has demonstrated the lack of a strong continent of champions for education. In the initial "Giving Pledge,” a collection of billionaires who have committed to giving away a substantial portion of their wealth to charitable causes, an analysis by Brookings found no support for quality education in developing countries among the inaugural pledging community. In another study we have underway, we find that 31 percent of the world’s billionaires are in developing and emerging economies – which lends hope for new champions. For instance, an example is the leadership of Azim Premji, who has dedicated a significant portion of his personal wealth to supporting education in India.

In terms of private foundations, a recent analysis by the International Education Funders Group, a new collaborative of private funders of education in developing countries seeking to be a catalytic force in advancing Education for All, revealed that nearly half of the European and North American foundations making grants to education are newly formed. And while this offers hope for new actors in education philanthropy directed toward developing countries, data from the Hudson Institute's Center for Global Prosperity suggests that among U.S. foundations, less than 5 percent of foundation funding to development goes to education.

What We Know About the Corporate Sector

We have some emerging data coming out of the corporate sector to help us see the promises and limitations of corporate engagement in education. We are in the process of surveying global companies and have identified over 200 – nearly 55 percent of non-US based Global Fortune 500 companies – that are engaged in education in developing countries. Over 80 percent are based in developed countries and another fifth are based in developing countries. Of those based in developing countries, we find that over 30 percent make south-south investments in education, from one developing country to another. These south-south transactions in education are particularly interesting and merit further exploration. We are hoping to have some estimates regarding the magnitude of these investments in the coming months.

In the United States, our study projects a $500 million contribution to developing countries education systems each year. These contributions are led in scale by the energy and technology sector. We also find they are highly focused on career-centered education such as science, technology, engineering, math, entrepreneurship and workforce training.

The important thing to remember about corporate engagement in education – and what we must be clear about if we want to make partnerships successful – is that companies are not in the business of social outcomes. They are accountable to shareholders to make a profit and business goals must be consistent with any social goal in their philanthropy strategies. Understanding this notion can help set expectations and assess mutual interests that are compatible to leverage for increased social investment in education. Our research shows companies invest in education in locations where their employees live and work or where there is a strategic market interest. They invest in education where they have market and growth opportunities, where they would like to promote community relations and brand recognition or where they can engage their employees.

Corporate contributions have several limitations that can be summarized as highly fragmented engagement in global education with a limited impact at a systemic level. Contributions tend to be small, short-term and uncoordinated. We found that over 70 percent of corporate contributions are for less than three years of support; half of those are one-time contributions. We found that only one quarter of U.S. companies actually coordinate contributions with the host governments. And more than half of corporations in our research report not coordinating their contributions with anyone – this includes other companies, foundations, donor governments, or host governments at any level. Additionally, these contributions which fly below the radar of national and local education plans, focus significantly on acute labor needs and ignore systemic challenges endemic to the global learning crisis. Some of these neglected areas include early childhood development, early learning, and transitions to relevant post-primary education opportunities. On top of this, corporate contributions to education do not reach the most marginalized. We found that the higher the level of education poverty in a country, the lower the probability of corporate engagement in education. Corporate contributions favor emerging economies at the expense of those countries or regions in greatest need.

The Role of Governments and Multilaterals

But the disconnect is not just on the part of companies and the private sector. The corporate sector has identified several reasons why it may circumvent working with governments or multilateral organizations. Overall, the disconnect can be described as a lack of understanding of business culture. Companies expect partners to demonstrate specific and tangible uses of resources, provide direct and timely feedback about corporate contributions and facilitate additional connections for the business at the local level. Companies find that governments and multilaterals often lack clear plans and deliverables which make the investments difficult to justify. They also find that the high administrative costs make collaboration prohibitive and that visions of potential investments often lack opportunity to scale up successful projects throughout countries and regions.

Moving Toward True Collaboration

Collaboration within the private sector is not impossible and in fact, leveraging assets to have a real impact on education is not only possible, but taking place today. One example comes from the private foundation world. A few years ago, instead of starting a parallel program focused on global education, the Gates Foundation partnered with the Hewlett Foundation to develop a single strategy to promote quality education in developing countries. What emerged was a clear, five-year plan which jointly mobilized $90 million focused squarely on promoting learning in developing countries. This collaboration has allowed us to understand the scope of the global learning crisis by building evidence through programs such as ASER in India and UWEZO in East Africa and has also taken a deep look about what needs to take place in classrooms to really give children a chance to learn. And this is just one instance of leveraging resources and collaborating.

When I look around the table at the unique assets each of you bring to the table, I cannot help but think that if we get serious about leveraging each others' core strengths and collaborating in earnest, the potential for impact is enormous. So what does this mean for companies? Until companies see global education as a core business interest – not just social responsibility or philanthropy – the impact will not be significant. The global learning challenge has a direct impact on society and the bottom line. From the talent of current employees and future employees to the income potential of your consumers, learning is vital. Every CEO should be talking about the global learning crisis, and more importantly, making pledges about what the company brings to the table and is willing to do to support government efforts to cure this silent crisis eroding development potential.

I would urge companies to realize that the talent gap – or whatever the motivation is for your investment in education – cannot be solved by a band-aid approach. Education should be a corporate-wide strategy and priority for employees, communities, and consumers. And every CEO should be aware of how this global learning crisis is directly impacting his or her business’ bottom line and be aware that lack of investment or advocacy to other governments and leaders isn’t just hurting society, but business. Companies should focus on how they can invest in learning, particularly early childhood education, learning in early years and transition to post-primary that is relevant. These investments should pay particular attention to marginalized populations. I would also urge companies to become strategic and innovative with the way they think about deploying their resources and coordinate financing with governments and other corporations or foundations. I extend an open invitation for everyone here to join our Brookings Working Group on Corporate Philanthropy for Global Education and to be part of the Global Compact on Learning which is bringing together donor governments, multilateral organizations, foundations, NGOs and growing number of corporations and developing country governments to chart a new learning agenda leading up to and following 2015. Companies should also engage with the Education for All-Fast Track Initiative, which is taking the private sector contribution to education seriously in support of their mission through a constituency group for private foundations and private sector actors. There are opportunities for real change and not just more of the same.

While it is important to acknowledge that not every government or multilateral organization will find working with the private sector to be of interest, if you wish to engage more with the private sector, I encourage you to develop concrete opportunities for corporate engagement. Look at business interests and the potential for how contributions of cash, in-kind resources, or employee expertise could support you education plans and strategies. Commit to measuring the impact of programs and scaling successful innovations. By working successfully with the private sector, donor governments, host governments and multilateral actors can begin to develop track records of working with the private sector to support sustained learning.

In summary, there is a learning crisis and an education resource crisis. The two go hand-in-hand. And it is the challenge for everyone in the room – and our peers not present at other multilateral organizations, ministries, development agencies and corporations, to take the learning crisis seriously and instead of “more of the same,” really change the way we support education in developing countries to put learning front and center. I look forward to hearing from our other colleagues and then to having a substantive discussion about how we can increase the impact of our efforts.

Authors

Justin W. van Fleet

Does Global Corporate Philanthropy Reach the People Who Need Help?

Justin W. van Fleet — Fri, 10 Jun 2011 12:52:00 -0400

U.S. companies invest generously in education. Collectively, major corporations donate nearly a half billion dollars to help promote education in developing countries. Despite the generous effort, studies show that corporate donations all too frequently fail to reach the populations for whom they’re intended. Fellow Justin van Fleet says if corporate philanthropy is going to work, companies need to analyze how and where their efforts fall short.

Video

Is Corporate Philanthropy Effective?

Harnessing Corporate Philanthropy to Educate the World's Poor

Wed, 06 Apr 2011 10:30:00 -0400

Event Information

April 6, 2011
10:30 AM - 12:00 PM EDT

Falk Auditorium
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC

The crisis of global education financing has prompted many to ask whether the international community can harness corporate money and resources to support education in developing countries. However, little data exists about how multinational companies currently engage in funding global education and the rationale behind these investments. A new report by the Center on Universal Education at Brookings examines these issues based on research, surveys and interviews of U.S. companies and their corporate philanthropy leaders. The report highlights the amount, themes and geographic focus areas of corporate contributions and the underlying motivations driving contributions to education in developing countries.

On April 6, the Center for Universal Education hosted the launch of its new report. The discussion focused on finding opportunities for the global education community to work with the private sector to improve the impact of their investments, as well as how companies can best use their investments to improve both business and social outcomes. Justin W. van Fleet, author of the report, presented major findings and offered an overall assessment of corporate giving to education around the world. Panelists included Paula Luff, director of corporate social responsibility at Hess Corporation; Luanne Zurlo, founder and president of Worldfund; and David Barth, director of education at USAID.

Following the program, the panelists took audience questions.