Big Changes Sweep U.S. Corporations : Trends: Businesses are feeling the pinch for greater accountability and profitability and it’s being reflected at every level.
Under pressure from legislators, regulators, the public and investors, fundamental changes are taking place in the governance of America’s largest corporations.
The changes are affecting executive salaries and benefits, the performance standards to which chief executives are held, the degree of involvement of directors, and the size and direction of companies.
Pay scales are tied more directly to performance. Boards are more active in management. Bigness is questioned, and many companies are slimming back to core products, shedding acquisitions made in the 1980s.
The changes, as basic as any in corporate governance since World War II, show up in the form of massive terminations of workers; plant closings; fewer products; more innovation, and critical examination of executive effectiveness.
Every so often the changes erupt into headlines, such as when outside directors engineered the removal of Robert Stempel as General Motors chairman, but more often they take place quietly and relentlessly.
If there is any one thing that brings all the changes together it is a new respect for the bottom line and a more critical examination of the techniques used by management to improve the return on earnings and equity.
While many of the changes appear to be voluntary, they may be viewed also as forced by public, investor and political opinion, including anger about the existence of high pay scales simultaneously with poor and eroding results.
Whatever the problems, the prolonged recession and economic malaise, the emergence of a more competitive global economy and the cutting of defense spending, has focused attention on the problems and created a sense of urgency within and without many large companies.
The list of companies compelled to change includes not just banks, real estate and development concerns and insurance companies, but retailers such as Sears, service companies such as American Express, and manufacturers such as General Motors, United Technologies and General Dynamics.
Typical of the changes is contained in a survey released last week that found 28% of large companies surveyed have imposed more rigorous performance standards for executive incentive programs.
Another 40%, according to William M. Mercer, the consulting firm, have changed or are considering changing criteria for measuring performance, “such as using shareholder return measures rather than traditional earnings-per-share measures.”
More top executives also are measured on non-financial yardsticks, such as customers and employee satisfaction and on-time delivery of products and services. Bram Groen, a Mercer principal, attributed at least some of the changes to increased shareholder interest and public criticism.
