The correlation between corporate governance and financial performance is elusive, however public companies contend the structure of processes, policies and laws that affect the way corporations are directed can mean the difference between success and failure. “It’s difficult to draw a direct link between governance and a company’s financial performance,” said David Polk, director of corporate communications at pharmaceutical company Amgen. “At Amgen we believe best practices in governance, in addition to our strong culture and values –which have been a part of our company since its inception over 30 years ago – have played an important part in the company’s success through the years.” Amgen like other public companies has put in place strict codes of conduct, codes of ethics, set policies on executive compensation and established a number of committees that enhance the successful stewardship of the biotech giant by its Board of Directors. These include Audit, Compensation and Management, Corporate Responsibility and Compliance, Equity Award, and Governance and Nominating committees. Since its founding more than 30 years ago the Thousand Oaks-based company has grown to more than $14 billion in revenues, led by 5 senior executives and 13 board members. While quantifying the link between financial growth and these corporate governance structures is difficult, John Pitstick, CFO of online marketing firm ValueClick, contends the downside to not having these structures in place for a company can be devastating. “It’s tough to make that direct link. But for us as a public company in the industry that we’re in – where we’re dealing with a lot of data, a lot of IT systems – I think there is certainly a massive downside if we are not doing the things we should be doing and are doing to protect data, to keep our systems secure, and all the other things that relate to corporate governance,” he said. For starters, Pitstick said, with reputation in the industry being so valuable, if there was a data breach at ValueClick customers would undoubtedly second guess doing business with the company. The set of systems, internal controls and processes aimed at minimizing mistakes and the risk of fraud that Value Click abides by directly affect the company’s continued success. “In my view, the downside of not doing this right is pretty significant. There are things that could really create a pretty negative impact to our shareholders and our employees and all our stakeholders. That’s kind of the way I view corporate governance.” ValueClick, a company with a market cap of more than $1.1 billion is governed by 5 senior executives and 7 board members. According to Pitstick, as the company has grown and evolved, so too has the role of corporate governance within the company. ValueClick has now established a Corporate Governance Department within the organization, comprised of six full-time employees dedicated to the ensuring compliance with corporate governance mandates including those set forth by Sarbanes-Oxley. “It’s become a significant department within the company, and a significant investment. It’s something that gets quite a bit of visibility,” he said. Beyond Sarbanes-Oxley regulation this group also keeps the company aligned with regulatory frameworks that deal with how to process credit card information, and healthcare related information, as well as a host of industry specific regulations from IAB, The Interactive Advertising Bureau and the NAI, The Network Advertising Initiative, which deal with the protection of data. In terms of corporate governance, Pitstick said Value Click also made the determination to split up the roles of the CEO and the chairman of the board to add an additional level of oversight. Many companies, allow the Chairman of the Board and the CEO to be the same person. “People who specialize in corporate governance recognize it as the preferred structure, (that split between those roles). It’s just one more way we’ve tried to address and keep current with some of the best practices out there,” he said. ValueClicks’ audit committee chair is also a critical figure in ensuring the company’s corporate governance success, he said. “The chairman of the audit committee is a gentleman by the name of Jim Peters who was a partner at Ernst & Young. He was there for I think 35 years so he comes from a background in auditing and corporate governance,” Pitstick said. “That corporate governance team that I mentioned reports directly to Jim Peters, so it’s another way for the board and the audit committee to make sure they’re providing independent oversight.” Whether or not a dollar figure can be placed on the value of corporate governance, CEO of staffing firm On Assignment, Peter Dameris, believes the correlation between corporate governance and financial performance does exist. “I do think there is a correlation, I think in companies that you see that don’t have a lot of accounting charges, or have to restate earnings, or have a lot of announcements about an extraordinary event, inherently are better managed, they are on top of their business, they know about what’s going on and are not catching things after the fact,” said Dameris. On Assignment, based in Calabasas, has revenues of more than $400 million. Dameris also contends the increasing demands on corporations to enhance and strengthen internal processes as they pertain to corporate governance has been very beneficial, albeit more costly. “You know the world is not perfect, executives are paid to manage risk and before, a lot of boards and a lot of shareholders were not fully informed as to the risks that management was taking and I think that some of the corporate governance regulation, especially as it pertains to disclosure, is enhancing people’s awareness of how much risk is involved so I think that’s very valuable.” Companies Where Executives Are Also on the Firm’s Board 1 Bank Of Santa Clarita: James D. Hicken (CEO) 2 Capstone Turbine: Darren R. Jamison (CEO) 3 The Cheesecake Factory: David Overton (CEO) 4 DineEquity: Julia Stewart (CEO) 5 DreamWorks Animation SKG: Jeffrey Katzenberg (CEO) 6 First Commerce Bank: John J. Feldman (CEO) 7 Image Entertainment: Theodore S. Green (CEO), John W. Hyde (Vice-Chairman) 8 Interlink Electronics: Steven N. Bronson (CEO) 9 IRIS International: Cesar M. Garcia (CEO), Thomas H. Adams (CTO) 10 Ixia: Atul Bhatnagar (CEO) 11 K-Swiss: Steven Nichols (CEO), George Powlick (CFO) 12 MannKind: Alfred E. Mann (CEO), Hakan S. Edstrom (COO) 13 Mission Valley Bancorp: Tamara G. Gurney (CEO) 14 Move: Steven H. Berkowitz (CEO) 15 National Technical Systems: William McGinnis (CEO) 16 PS Business Parks: Joseph D. Russell, Jr. (CEO) 17 Public Storage: Ronald L. Havner, Jr. (CEO) 18 Ryland Group: Larry T. Nicholson (CEO) 19 Salem Communications: Stuart W. Epperson (Chairman) 20 Superior Industries Int’l: Steven J. Borick (CEO) 21 THQ: Brian J. Farrell (CEO) 22 Vitesse Semiconductor: Christopher R. Gardner (CEO) 23 Walt Disney Company: Robert A. Iger (CEO)
