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The Goldcorp Inc. merger with Newmont Mining Corp. has many people bemoaning the loss of yet another large, independent Canadian company to an opportunistic acquirer.
With the consequent loss of many Goldcorp executive and other head office jobs, the real tragedy is that too many Canadian companies have aimless, dysfunctional, or outright bad managers who rarely face the ramifications of their poor decisions.
Its not just left-leaning people who are frustrated with those at the top receiving enormous salaries, bonuses, performance incentives, stock options and other emoluments. So do professional, institutional and ordinary shareholders.
Numerous studies have shown that there can even be an inverse relationship between executive compensation and share price or total stock performance. A major landmark study by MSCI in 2016, for example, covered 800 U.S. companies in the 2006 to 2015 period.
Goldcorp’s performance is just one stinker among many. Its share price hit $54.91 on Sept. 4, 2011, then has headed mostly downhill ever since. As recently as Feb. 12, 2017, it was at $22.76. The current offer, by ravenous Newmont Mining of Denver, subject to changing share prices and other developments, is for about C$15.26 per share of Goldcorp, not much above its 52-week low of $11.
Goldcorp is a significant holding in many shareholders’ portfolios, including pension funds managed on behalf of Canadians.
Every sector has different performance criteria, other than profits and share price gains, and there are some metrics that gold mining companies have in common: growth in total reserves; cost of acquired or discovered reserves per ounce of gold, silver or other metals; production level of metals and growth rate of same; and estimated or realized cash production or all-in sustaining cost.
Perhaps another standard of evaluation would be avoidance of torpedoes or land mines, such as legal, political, regulatory, accounting, insolvency, illiquidity or criminal events. One would presume that the board of directors of a large, previously admired company such as Goldcorp would be evaluating the chief executive on such criteria. One would be wrong.
The presidents of the company each in turn earned millions of dollars, costs escalated, and expensive properties were acquired, which later had to be written down. Eventually, each CEO was turfed – after the damage was done and thousands of shareholders suffered.
Goldcorp is not an isolated example. One of its peers, Barrick Gold, had similar management and strategic dysfunction and merged late last year with a much better-run South African miner, Randgold, and lost most of its upper management in the subsequent consolidation.
Economists and some public policy pundits wonder why Canadian and American investors have begun to avoid being direct shareholders. Corporate scandals are one reason; bad decisions by upper management at those firms, abetted by compliant, deferential boards of directors is even more important.
Ultimately, badly run companies get taken over and the poor managers get turfed eventually – although they usually receive generous golden parachutes, insulting shareholders even more after they have suffered. Departing Goldcorp chairman Ian Telfer is expected to receive US$12 million.
It doesn’t have to be this way.
Boards are legally responsible and accountable to shareholders. One of the important tasks of these boards is assessing the performance of the company and its top management. This can and should determine the compensation of those managers, and their continued employment.
One way to compensate and reward such managers is to give them a relatively modest salary, by today’s standards at least, and additional bonuses in the form of stock in the company held in restricted form – unsalable until the manager leaves. Another is to give cash or stock or stock option awards based on the performance of the company, according to pertinent, appropriate metrics and objectives.
Governments shouldn’t meddle in how corporate boards assess and reward upper echelon executives.
But those boards must try harder to not give scarce shareholder cash to those who really don’t deserve it, and ask harder questions to ensure the right decisions are made in the first place.
The private sector is a central part of society. If it doesn’t function well, the whole country suffers – and it has. If these directors and executives don’t want more direct and draconian involvement by politicians, they need to focus on making certain that Canadian companies outperform expectations rather than disappointing shareholders and the public.
Ian Madsen is a senior policy analyst with the Frontier Centre for Public Policy.
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