A Proxy Process Forum, sponsored by ASCS, was held in New York city on June 20th. This was an opportunity to followup on the new fees which apply to mailings made during the 1997 proxy season as part of a one-year pilot program and to focus on multiple additional issues. In other ASCS news, they will be mailing out their second Current Board Practices questionnaire within the next couple of weeks. Only those who respond will get copies of the report…that’s one way to ensure a high return rate.
Shareholders and Stakeholders benefit or suffer together, according to a new study by SCA Consulting, reports Patrick McGurn, Director of Corporate Programs for ISS. Further, “there appears to be a strong link between consistent returns to shareholders and stakeholders and corporate governance.” See 6/20/97 ISS Friday Report.
Investor activists target high tech firms
Report from Morningstar Mutual Fund conference in Chicago: the average turnover rate for stock mutual funds is 80% to 90% a year, which costs shareholders money in the form of higher expenses and, often, higher capital gains distributions, which can cost shareholders more in taxes.
Shareholder resolutions addressing executive compensation nearly tripled from 1995 to 1997. Rep. Martin Olav Sabo (D-Minn.) is sponsoring a bill that would limit the deduction for executive compensation to 25 times the pay of the lowest-paid worker. See Putting the brakes on CEOs’ riches.
The National Investor Relations Institute (NIRI) launched Investor Relations Quarterly: The Journal of Corporate Value. contact: Beth Carty, 703-506- 3573.
On June 16th the WSJ reported “Directors of the California Public Employees’ Retirement System today are expected to endorse corporate-governance standards for the first time.” First, CalPERS has already adopted corporate governance standards applicable to global, British, and French markets. Second, taking a page from their own advise, the CalPERS Board didn’t rubber stamp staff’s recommendation. They will study the issues and make a few changes. The Board is unlikely to adopt its “U.S. Corporate Governance Principles” until August. Staff hopes to distribute the Principles widely and move beyond the process concerns of the 1995 “report card” to an evaluation of the substance of corporate governance practices in U.S. based firms. Given their high profile and activist stance, it would be prudent for corporate boards to obtain copies of the draft report and to provide feedback to the CalPERS Board before August. To obtain a copy contact their Office of Public Affairs.
So what’s wrong with the report so far? Its certainly well organized and written. I would probably add the recent quote from William T. Allen about the most basic responsibility of the board being the duty to monitor (see a few paragraphs below) but more substantively the most glaring error is ageism. I can see no sound basis for a fundamental requirement that boards adopt an “age range criterion” for its directors, unless it is to rule out the obviously immature. Nor can I embrace the notion that on the ideal board no more than 10% of the directors are over age 70. Boards consisting of 11 WASP male engineers over 70 are not likely to prove effective under most circumstances but I would caution against being too prescriptive. I believe what CalPERS staff were seeking with this requirement is diversity. A fundamental requirement might be that board nomination policies consider the value of diversity and that the ideal board achieve diversity with regard to experience, gender, race and age.
A second problematic notion is that the draft contains a long list of characteristics, largely drawn from CII’s policy, which would preclude a person from being defined as an independent director. One significant new addition is term limits. While term limits in California government may have served to shake lose politicians who had grown to own their offices, its long term benefits are less obvious. Institutional memory is vanishing and there is a growing reliance on experts who are not accountable to the electorate. I’m not sure how much is actually gained from such laundry lists. It may be better to adopt TSE’s broad policy that independent directors should be “free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the director’s ability to act with a view to the best interests of the corporation, other than interests and relationships arising from shareholding.” Whatever policy is adopted, the concept of term limits should be dropped.
These are some initial thoughts on this important document. I would appreciate hearing the reactions of our readers. Write toJames McRitchie.
Back to the topWe are delighted to add to The Bank of America’s Journal of Applied Corporate Finance and The Public Retirement Journal to the publications we scan. See our growing list of “Stakeholders.”
An excellent article appears in NACD’s Director’s Monthly. Richard A. Rosen, with Paul, Weiss, Rifkind, Wharton & Garrison, provides the first in a two part series on Corporate Governance in the 1990s. Rosen includes a quote from a speech from William T. Allen, former Chancellor of the Deleware Court of Chancery. In Allen’s opinion, “the duty to monitor the performance of senior management in an informed way” is “a most basic responsibility” of the board of directors. It is no longer acceptable to simply “select senior management, create incentive compensation schemes, and then step back and watch.”
More than 1/2 of executives use the Internet a few hours a week, typically as a way to keep tabs on the office from home. They consider the Internet slow, too little known by the business world and not secure enough, said the survey of 3,466 executives and managers by the American Management Association. In contrast, Internet users in general log on an average of 10.5 hours a week for business purposes, according to a separate recent survey. The rare executive who is a heavy Internet user — logging on more than 10 hours weekly — is typically under 35 and female, working in communications, public relations or a computer-related field. Executives tend to view the Internet as a library of contemporary information. Web users who retrieve news online say the Internet now accounts for about 20% of their total news intake, comparable to radio and nearly comparable to print sources. (credit: B2B eNews)
Too late to list under conferences. The Public Retirement Journal is sponsoring a seminar entitled “What Has Happened in Public Sector Benefits This Year? How Does It Affect You?”
Date: June 19, 1997
Place: CalPERS Auditorium, 400 “P” Street, Sacramento
Cost: $135, includes continental breakfast, lunch and training binder.
Topics Include: Pooling of Employer Assets and Risks, Inflation Protection (SB 234, Hughes), Medicare Part B and PEMHCA, Medicare and Social Security Reform, Alternative Retirement Plans, The New Legislature, Term Limits, Employer Surplus Accounts, PERS Investment Portfolio.
Our editor, Jim McRitchie, will be attending.
For reservations call Tom Branan at (916) 455-7322 or Dave Cox at (916) 456-5282.
Maybe there is less concern about the framework for proxy voting than we thought. Corporate Agenda reports the SEC received only 400 responses to its proxy survey. Among the reforms under consideration is the idea of opening up communications for both companies and investors, “letting them talk privately with each other as long as they don’t have a proxy solicitation,” says Brian Lane, SEC’s director of corporation finance.
Back to the topCambell Soup will publish its second annual board self-evaluation, according to Directorship. “Board members will assess each other as individual contributors, overall board performance as well as the record of the CEO and top management.” Also from Directorship, “out of 873 CEOs of Fortune 1000 companies, 296 sit on one board, 490 sit on two to four boards, and 87 sit on five or more boards.
BofA’s chairman and CEO David Coulter actually tried to inspire a shareholder activism at the company’s annual meeting…he urged them to write “to the newspapers and to your elected officials supporting our right to price our products and services without the government’s assistance.”
ADM must adopt a new definition of outside directors, form a new nominating committee for board members, and establish an audit committee made up of independent board members to ensure company compliance with its own bylaws and federal law. It also must conduct confidential shareholder voting according to a settlement reached with shareholders. (seePhiladelphia Inquirer)
Shareholders at Clemente Growth Fund won a vote requesting the board to solicit bids for a new advisor. Andy Zipser’s article in Barron’s brings “democratic” corporate governance to life.
Received for Review. Studies in International Corporate Finance and Governance Systems, ed. Donald H. Chew, Oxford University Press, 1997. Compares market based and relationship based models. Positioning Pensions for the Twenty-First Century, ed. Gordon, Mitchell and Twinney, Pension Research Council of Wharton, 1997. Discusses retirement options for the future.
A recent ISS Friday Report carried a review of several surveys on the issue of executive pay by Patrick McGurn. Both the public and execs believe “top officers of large U.S. companies” are paid too much and that corporate execs face little downside for corporate results. Solutions, however, differ. Seven in ten public respondents said exec pay should grow no faster than that of lower workers. Limiting the number of options, as a percent of shares outstanding – something already required to qualify under the IRS $1 Million cap – is favored by execs.
The Philadelphia Municipal Pension Fund has adopted a new proxy voting policy to vote against requiring directors to own specified amounts of company stock, fearing the many qualified directors will not be able to afford it. The Fund also opposes efforts to limit terms of nonemployee directors because companies could lose experienced and knowledgeable directors. (P&I)
Those discussing proxy reform are unlikely to reach agreement, according to several participants. Some pension funds and religious groups want the SEC to stop acting as a referee on “ordinary business” matters. Corporations want to raise the level of ownership required to file proposals, caps on the number of proposals, and increases in voting levels required for resubmissions. (P&I)
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