Company Name: International Business Machines (IBM)

 

Industry: Internet and Computer Services

 

InvesGuard has just released a Corporate Governance scorecard for IBM. (IBM). Board Effectiveness as defined by the availability of directors is a cause for concern. Its Compensation practices particularly disclosure levels related to perquisites for senior executive management need enhancement.

 

( Click here to view IBM’s scorecard)

 

Board Effectiveness is weakened due to many factors including Board interlocks as well as overstretched directors. Some Audit Committee members are directors of 3 or more public companies. In addition, one out of three Audit Committee member is a CEO of another public company. IBM CEO Mr. Palmisano is on the board of another public company in addition to executing CEO responsibilities at IBM.

 

The root of the problem appears to be the fact that IBM's Corporate Governance Guidelines have not laid down the maximum number of publicly listed companies that board members can serve on. As a result some board members are on a total of 3 or more public company boards. In addition, one out of three Audit Committee members is a CEO of another public company. Time and attention available to either of these two positions i.e CEO as well as board position may be at risk.

 

In its disclosures on Related party transactions, the company has disclosed that in view of the large number of transactions between American Express and IBM, director Chenault who is the CEO of American Express does not sit on any board committees. If the volume or nature of transactions is such that it precludes Mr. Chenault from sitting on any Board Committee, it is difficult to guage the benefit that Mr. Chenault brings to shareholders.

 

On the Social and Environmental front, IBM needs to enhance its reporting. Take the case of disclosures pertaining to Perfluorcarbons(PFCs). PFC’s are gases used in the semiconductor industry for cleaning and etching. Although PFC emissions for the period covered by IBM’s most recent social responsibility report have reduced as compared to the 1995 baseline, no information has been given of a year on year reduction.

 

Some notable social and environmental contributions made by IBM include:

 

1. 30% of IBM's American workforce comprises of women.

 

2. In 2008, IBM purchased 450 million kWh of renewable energy, which represented 8.6 percent of the company’s 2008 global electricity usage.

 

3. In addition to procuring renewable energy for its own use, IBM is working to further the availability and affordability of renewable energy by investing in IT-related research and development.

 

For more details on IBM’s Social and Environmental impact, Click here

 

Latest from IBM:

 

IBM Executive in the middle of Galleon Fund Inquiry no longer with IBM.

 

IBM increasing its operational resilience and flexibility by consolidating its multiple SAP applications and versions.

 

IBM to participate in Army funded research center at University of Illinois

 

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Company Name: BlackRock (BLK)

 

Industry: Investment Services

 

InvesGuard has just released a Corporate Governance scorecard for BlackRock. (BLK). BlackRock scores well in its Internal Control Environment. Its Compensation practices need to be strengthened. It also needs to increase the level of its Social and Environmental reporting.

 

( Click here to view BlackRock’s scorecard)

 

BlackRock has an interesting ownership structure. Although 21.1% of the company stock is owned by its employees and the public (Source: BlackRock), approximately 4.8% and 46.4% of BlackRock’s voting common stock are owned by Merrill Lynch & Co., Inc., a wholly-owned subsidiary of Bank of America Corporation, and The PNC Financial Services Group, Inc. respectively. Both these shareholders are big borrowers under the Government funded TARP program. PNC financial services has borrowed about $3 billion under the government run TARP program and Bank of America has borrowed $45 billion.

 

It is ironic that Bank of America and PNC whose fortunes have been squashed in the current credit crisis, benefit indirectly from the very situation that put them in this position. How? Blackrock has won highly coveted large contracts from the Federal Government to provide asset manager services for assets that the Government took over as a result of this crisis. Bank of America and PNC hold 4.8% and 46.4% respectively of BlackRock’s voting common stock.

 

Given the obvious conflict of interest, Chair of the Federal Reserve, Ben Bernanke wrote to the chair of the Project on Government Oversight outlining controls to prevent any possible conflict of interest.

 

BlackRock’s Compensation practices as well as its Board Composition and Board Effectiveness seem to be weak .

 

BlackRock’s Audit Committee Charter appears to be strong in terms of the powers granted to its Audit Committee members. Off Balance structures on the company’s financial statement are supposed to be reviewed by such members. This is not an often seen requirement of Audit Committee members.

 

BlackRock publishes no information on its Social and Environmental impact.

 

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