More than a decade ago, a series of prominent corporate accounting fraud scandals—Enron, WorldCom, and Tyco—shook the investment world. The incidents prompted accounting and reporting reforms and changed the approach investors took to monitoring corporate governance.
Today, major institutional investors that own significant stakes in most large, public companies want more information than that contained in quarterly and annual financial reports. They want assurance that the business is managed well; its culture and values, approach to human capital, environmental performance, and social responsibility record all impact the bottom line. Increasingly, shareholders want a voice in company governance and the ability to influence business practices, according to Christina Montgomery, IBM’s vice president, assistant general counsel, and secretary. Montgomery leads the IT stalwart’s corporate governance team and is a key link to its investors.
In this climate, blue-chip corporations have boosted efforts to reveal more about themselves to investors. Companies need to clearly spell out what makes them sound components of an investment portfolio. “Investors and asset managers hold your company for the long haul if you are on an exchange,” Montgomery says. Prominent shareholders, especially those who manage index mutual funds, want to make sure their investments will be stable, strong performers over many years. Working with the board of directors, investor relations, and marketing and communications teams within IBM, Montgomery has developed innovative ways to provide that assurance, highlight the company’s accomplishments, and communicate its goals.
Public corporations are obligated to provide investors with certain information—quarterly reports, annual reports, and proxy statements—at various times throughout the year. IBM has become more proactive when it comes to informing its investors about governance matters in recent years. “We were always an open conduit but would only actively reach out on governance matters during proxy season,” Montgomery says. “Now we reach out formally at least twice a year, once during proxy season and once in the offseason.” And when the company announces a major business development initiative, it takes pains to explain the philosophy behind it in depth.
For example, one key concern for shareholders stemming from the corporate fraud scandals of the last decade was to ensure that boards of directors were independent minded, not rubber stamps for C-suite decision makers. So when IBM announced an agreement to acquire open-source enterprise software company Red Hat, IBM’s largest acquisition ever, for $34 billion, the company explained in detail how the board was involved in making the decision.
IBM’s annual environmental report, released for 28 consecutive years, provides shareholders with updates to corporate environmental policy and risk mitigation. The document chronicles progress toward various goals, including CO<sub>2</sub>0 emissions reduction, recycling, and use of renewable energy, and highlights recognition by environmental groups. This initiative has established the company as a leader in corporate environmental responsibility.
Investors also want to know how environmental strategy impacts financial performance. For example, the annual environmental document recently covered how IBM’s blockchain technology is being used to track the flow of plastic in oceans, providing an example of how the technology can be applied toward new business opportunities. Proxy statements have also become an outlet for distributing environmental updates, such as the company’s increased use of renewable energy in the supply chain. Communicating IBM’s accomplishments to shareholders demonstrates the company’s commitment to environmental matters and sustainability.
Montgomery also ensures that IBM’s efforts to broaden employee skills and make the workforce more diverse are well understood. A central concern: Will the company have workers with the skills to support long-term growth? One recent example is how the company nurtures workers for “new-collar” jobs through the Pathways in Technology Early College High Schools (P-TECH) program that it sponsors with technical high schools. P-TECH students combine study and apprenticeships with a two-year college-degree program in a STEM field at no cost. The company helps fund the curriculum at 200 schools around the world.
Studies have shown that a diverse workforce results in a more successful company, and investors have taken note. In fact, State Street Global Advisors demonstrated its interest in gender diversity through the Fearless Girl campaign, which featured a statue of a young girl facing down the famous Wall Street Bull statue in downtown Manhattan. The campaign was not just a publicity stunt. The investment giant’s Gender Diversity Index tracks stock performance of large U.S. companies with the most women serving in corporate leadership, an indicator of how seriously large investors take this issue. With a female CEO and several C-Suite executives, IBM is a leader in empowering women leaders, Montgomery notes, and investor relations efforts make that point clear.
Her colleagues have taken note of Montgomery’s leadership as well. “Christina Montgomery brings an invaluable perspective to IBM and always finds novel ways to tackle complex problems,” says Cravath, Swaine & Moore partner Steve Burns. “Her combination of intellect and common sense make her an extraordinary business lawyer, and it is a pleasure working with her.”
Investors can peruse a summary of multiple programs in IBM’s annual corporate responsibility report. In 2018, the company also held an investor webcast for social responsibility that Montgomery said was well received. Both outlets covered how the company protects data privacy. A critical principle: “Client data and the insights produced on IBM’s cloud, or from IBM’s AI, are owned by IBM’s clients.”
Such policies help demonstrate that the company has thought through the risks of new technologies and has taken steps to reduce those risks. Montgomery will continue to get the word out about such policies and find ways to assure investors that top management and the board will stay focused on social responsibility so investors can confidently consider IBM a solid long-term investment.