Does Your Employer Have The Right To Select Your Physician And Review The Results Of Your Annual Checkup?

Have you been following the recent debate over President Donald Trump’s health? His personal physician recently summarized his annual checkup by declaring that the President is in “excellent health,” and is “absolutely … fit for duty.”

But others who reviewed the President’s lab results assert that he must “ … increase the dose of his cholesterol-lowering medication and make necessary lifestyle changes … (to reduce his) moderate risk of having a heart attack in the next three to five years …”

Embedded in this debate is the natural awkwardness of revealing any individual’s private health information to others. After all, wouldn’t you feel uncomfortable if the results of your annual checkup were revealed to others and then openly debated by them?

Even federal Senators, state Governors, and other high-ranking elected officials are not subjected to such personal scrutiny. Only the President has been required to submit to it.

In the private sector, though, similar debates have simmered for years about whether publicly traded companies should monitor and disclose the health risks that are faced by their Chief Executive Officers. Apple, for instance, was sharply criticized for keeping many of the details regarding Steve Jobs’ mortal illness confidential. And its Board never insisted on selecting Jobs’ primary care physician.

In contrast, the railroad transportation firm CSX is now opting for a policy of full transparency. Its Board of Directors, responding to the sudden death of its recently deceased CEO, recently decided to “ … require the railroad’s chief executive to submit to an annual physical exam that will be reviewed by the board … (to be performed by) a medical provider chosen by the board …”

This policy inevitably raises an important governance concern. Namely, are companies entitled to select their CEOs’ physicians, and then to review their private health information? The need for such transparency may be understandable, but is the policy itself appropriate?

After all, CEOs are not the only key employees within firms. There are undoubtedly dozens, or even hundreds, of workers within each company who may be deemed key members of the work force.

Should companies have the right to monitor all of their private health information? Where does an employee’s right to privacy outweigh a company’s need for information? And which employees, if any, should be subjected to such scrutiny?

Today, this question may only affect the President of the United States, the incoming Chief Executive Officer of CSX, and a few other key employees of various firms. In the near future, though, it may affect all of us.

Climate Change: Winning While Losing

Is it possible to win while losing?

Yes, of course it is. Think about Sylvester Stallone’s character Rocky Balboa, for instance. He actually lost the championship match in his very first film. But the loss established and enabled the character — not to mention the actor who played him, the Academic Award winning movie, and the sport of boxing itself — to repeatedly win throughout the forty year run of the Rocky franchise.

And how about this year’s Presidential primary season? Bernie Sanders may soon be ready to cede the Democratic Party nomination to Hillary Clinton, but the progressive movement that he spearheads will probably thrive for years to come. Likewise, even if Donald Trump loses the November election, many experts believe that he will permanently transform the Republican Party.

This “winning while losing” phenomenon occurs in the business world as well. Consider, for example, what happened last week to Chevron and Exxon Mobil, the two global energy giants that are headquartered in the United States. Shareholder activists at both firms lost very similar fights at their corporate annual meetings. But while losing their immediate battles, they may have managed to achieve a victory for the long term.

So what were they fighting about? According to MarketWatch, the activists wanted to require the firms to perform annual “stress tests to determine the risk that … climate change pose(s) to their business.” Just as global banks in the United States perform stress tests to address risks in the world’s economy, these individuals hoped to require global energy companies to conduct similar tests to address climate change factors.

Their proposals were voted down by shareholders, but Chevron’s proposal drew 41% support, and Exxon Mobil’s drew 38% support. Apparently, these represent the highest climate proposal voting totals in the history of the firms. In fact, according to Sustainable Brands, Chevron’s 38% support total occurred after their “investors overwhelmingly rejected the (same) proposal at last year’s meeting with a 96.8 percent “no” vote.”

An increase in support from 3.2% to approximately 41% in one year? Now that is a win, even though any vote total less than 50% is recorded in the corporate records as a loss.

Either way, there’s an important lesson to learn from these events. Whether or not you believe that climate change represents an existential threat to the global environment, the number of investors who express concerns about the topic seems to increase each year.

And let’s face it. A stress test is merely, by definition, a hypothetical exercise. So why wouldn’t any global energy company (or any other organization, for that matter) consider engaging in such an activity? If there is no harm in doing so, and if 40% of its investor base might approve of it, why not give it a try?

Exercise Caution: A New S&P Index

At first glance, the announcement was an impressive one. At the swanky Word Economic Forum in the Swiss resort town of Davos last week, the Canada Pension Plan Investment Board joined Standard & Poor’s in announcing the creation of the new S&P Long-Term Value Creation Global Index.

Standard & Poor’s, of course, is the global provider of financial information that maintains a corporate mission of providing “data and research … (that is) independent, transparent and cost effective.” Presumably, S&P achieves its mission by utilizing its own expert professional staff to create clearly defined financial metrics without undue influence from — or overt reliance on — asset management and investment advisory firms.

In fact, that’s exactly what S&P is claiming to do with its new Long-Term Value Creation Global Index, comprised of 246 companies that purportedly “have the potential to create long-term value based on sustainability criteria and financial quality.” S&P continues:

The S&P LTVC Global Index is constructed by combining qualitative and quantitative measures into a single metric to determine the potential for long-term value addition. The Economic Dimension Scores provided by RobecoSAM are included in the qualitative assessment to gauge corporate governance effectiveness.  The quantitative assessment consists of drivers of long-term investment returns – Return on Equity, Balance Sheet Accruals ratio and leverage ratio.

Okay … but what is RobecoSAM? And are those investment metrics expertly and transparently designed to focus on long term value creation? In addition, doesn’t more than one balance sheet accrual ratio actually exist? And more than one leverage ratio as well?

Apparently, RobecoSAM is an asset management company. And one can find those investment metrics in elementary primers of standard accounting financial statements. And yes, there are many accrual and leverage ratios in active use by financial specialists.

In other words, S&P’s new Global Index of Long Term Value Creation simply takes a set of qualitative metrics that is computed by a single asset management company, and combines it with a set of generic and undefined financial metrics. Although S&P’s press release appears to imply that its qualitative assessment function encompasses other activities, it doesn’t specifically describe any additional work.

To be sure, the Canadian Pension Plan Investment Board should be commended for attempting to promote a long term value perspective in the financial industry. And S&P should certainly be encouraged to continue its mission of developing expert metrics that are “independent, transparent, and cost effective.”

Nevertheless, when the qualitative component of an S&P index emphasizes the metrics of a single asset management firm, it doesn’t bode well for the firm’s mission of independence. And when an index provides no detailed description of its investment metrics or its other qualitative assessment activities, it doesn’t bode well for the firm’s mission of transparency.

One could argue, of course, that such effortless approaches to constructing indices may help S&P achieve its mission of cost effectiveness. Nevertheless, given these other concerns, financial investors might wish to exercise a bit of caution while reviewing the S&P Long-Term Value Creation Global Index.

Hong Kong On The Hudson

A funny thing is happening on the way to China’s future economic domination of America and the western world. Contrary to expectations, some of China’s most successful corporations are choosing to plant roots in the West instead of the East.

Alibaba, for instance, represents China’s e-commerce version of the American firm Amazon. It was initially expected to list its first major public offering of stock on the Hong Kong Stock Exchange, the second largest exchange in Asia after the Tokyo Exchange. But last week, news outlets reported that Alibaba will choose to raise up to $15 billion on the New York Stock Exchange or the NASDAQ instead.

Weibo is expected to raise $500 million in the United States as well. Weibo represents China’s version of Twitter, a service with more than 60 million active users.

Interestingly, Hong Kong appears to have lost Alibaba because of its regulatory insistence on the principle of investor control over boards of directors. Alibaba prefers to have its own managers and founders control its Board, a position that appears to be acceptable to the NYSE.

Investor control over corporate boards, of course, represents a bedrock principle of corporate governance. And yet major Chinese firms appear to be finding more flexible interpretations of this principle in the United States than in China.

Thus, New York may be evolving into “Hong Kong On The Hudson,” a moniker that does not refer solely to the prevalence of initial public offerings by Chinese firms on the NYSE or the NASDAQ. Apparently, it also refers to the willingness of stock exchange officials in the United States to accept management structures that are no longer acceptable in China.

If you were Mary Jo White, Chair of the United States Securities and Exchange Commission, would you permit the NYSE to win Chinese business by interpreting principles of corporate governance in a flexible manner?