Boardroom Governance with Evan Epstein

David Larcker and Brian Tayan: Seven Myths of ESG.

Episode Summary

For the 50th episode of this podcast, I’m delighted to feature Professor David Larcker and Brian Tayan from the Stanford Graduate School of Business. David Larcker is the James Irvin Miller Professor of Accounting at the Stanford Graduate School of Business and a Senior Faculty at the Arthur and Toni Rembe Rock Center for Corporate Governance. His research focuses on executive compensation, corporate governance, and managerial accounting. Brian Tayan is a member of the Corporate Governance Research Program at the Stanford GSB. He has written broadly on the subject of corporate governance, including boards, succession planning, executive compensation, financial accounting, and shareholder relations. Through their research efforts, they strive to engage academics and professionals to bridge the gap between theory and practice, and promote corporate governance as an independent area of teaching and scholarship in business schools worldwide. They are the authors of “Corporate Governance Matters” (3 editions) and “A Real Look at Real World Corporate Governance.” In this podcast, we talk about their latest article entitled “Seven Myths of ESG”, where they set about debunking some of the most common and persistent myths about what ESG is, how it should be implemented and its impact on corporate outcomes, “many of which,” they contend, “are not supported by empirical evidence.” Their objective is to provide a better understanding of ESG so that companies, institutions and regulators can “take a more thoughtful approach to incorporating stakeholder objectives into the corporate planning process.” If you like this show, please consider subscribing, leaving a review or sharing this podcast on social media. You can find all the show notes on the website boardroom-governance.com and please feel free to subscribe to the Boardroom Governance Newsletter at evanepstein.substack.com

Episode Notes

1. Intro.
2. (2:10) - Start of interview.
3. (2:57) - David's "origin story". He grew up in coal mining town in southern Illinois. He went to college at what is now known as the Missouri University of Science & Technology. He later worked as an engineer and got his PhD in accounting from the U. of Kansas. He was a Professor at Kellogg for about 7 years, at Wharton for about 20 years and he's been a Professor at Stanford's Graduate School of Business since 2005. On how he started working with Brian on corporate governance research through the Corporate Governance Research Initiative.
4. (4:23) - Brian's origin story. He grew up in Menlo Park, went to Princeton for his undergrad, and Stanford for his MBA. Prior to Stanford, he worked as a financial analyst at Stanford University's Office of the CEO and as an investment associate at UBS Private Wealth Management. On how he got matched with David Larcker to launch the corporate governance research initiative.
5. (7:16) - On collaborating with Stanford law school on corporate governance research through the Rock Center for corporate governance.
6. (9:30) - On their book "Corporate Governance Matters." First published in 2011, second edition in 2015 and third edition in 2020.
7. (13:44) - About the origin and structure of the Corporate Governance Research Initiative, which includes a long list of (free) research findings and materials, including their Closer Look Series, Quick Guides & Research Spotlights, Core Concepts, Surveys, Journal Articles, Working Papers, Case Studies and a Glossary of Terms.
8. (17:00) - On their latest article "The Seven Myths of ESG"
9. (18:01) - Myth #1: We agree on the purpose of ESG.
10. (22:52) - Myth #2: ESG is value increasing. ["The evidence is extremely mixed." "We do not know the financial impact of ESG."]
11. (26:46) - Myth #3: We can't tell whether a claimed ESG activity is actually ESG. [the extreme version is "greenwashing."]
12. (30:16) - Myth #4: A company’s ESG agenda is well-defined and board-driven.
13. (34:49) - Myth #5: G (Governance) belongs in ESG.
14. (38:09) - Myth #6: ESG ratings accurately measure ESG quality.
15. (43:52) - Myth #7: Mandatory disclosure will solve the problem.
16. (48:25) - On tying executive compensation with ESG metrics. "There is not as much as you would think (and it's mostly tied to the annual bonus)."
17. (53:13) - Brian's favorite books:
    1. The Bible.
    2. U.S. history, from the founding to the late 1800s.
18. (53:56) - David's favorite books:
    1. The Bible.
    2. Biographies of rock starts and the Grateful Dead.
19. (54:24) - Who were your mentors, and what did you learn from them? For Brian: David Larcker. For David: his father. Also Nick Donatiello.
20. (55:40) - Quotes that you think of often, or live your life by. For Brian: "My dad has always taught me to keep my head on straight and I just kinda go that way." For David: "No matter how smart you think you are, there is going to be someone smarter that will come around" (stay humble).
21. (55:41) - What is an unusual habit or an absurd thing that you love? for David, motorcycles. He rides his Harley.
22. (57:56) - The living person you most admire? Brian: Charlie Munger. David: Elon Musk ("pretty interesting character"), plus Brian!

David Larcker is James Irvin Miller Professor of Accounting at the Graduate School of Business of Stanford University; Director of the Corporate Governance Research Program; Senior Faculty, Arthur and Toni Rembe Rock Center for Corporate Governance. His research focuses on executive compensation, corporate governance, and managerial accounting, examining the choice of performance measures and compensation contracts in organizations. His current research projects address the valuation implications of corporate governance, the impact of proxy advisory firms on shareholder proxy voting, and modeling the cost of executive stock options.

Brian Tayan is a member of the Corporate Governance Research Program at the Stanford Graduate School of Business. He has written broadly on the subject of corporate governance, including boards of directors, succession planning, executive compensation, financial accounting, and shareholder relations. Previously, he worked as a financial analyst at Stanford University's Office of the CEO and as an investment associate at UBS Private Wealth Management. He has actively managed a private investment partnership since 2006, specializing in long-term, conservative growth through equity investments. Tayan received his MBA from the Stanford Graduate School of Business and his BA from Princeton University.

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