“G” is the most important letter in “ESG” investing. “G” or “Governance” refers to the men and women who comprise corporate management teams and Boards. Management – the CEO in particular – matters a great deal as to the long-term success of any company. Too frequently CEOs and Boards put Executive Compensation ahead of corporate interests.
Too many CEOs prioritize personal compensation over the best interests of the companies they lead. We often see CEOs that execute M&A deals for acquisitions that inherently have a great deal of risk (risk that is usually a function of an irrationally high purchase price). We recently wrote of the example of Adobe’s Chief Executive Shantanu Narayen (our article here), who appears to have agreed to acquire Figma for approximately 50x forward ARR (an outrageous valuation by any measure), as that acquisition is likely to bolster Narayen’s incentive-based compensation more so than it will bolster ADBE shareholder value. I’m skeptical as to whether ADBE will follow through on deal execution. It depends largely upon how many large ADBE shareholders have voiced their displeasure. Many shareholders have recently voiced their displeasure with Adobe as ADBE shares have traded off some 23% over the past 5 days.