Archive | February, 1998

Archives: February 1998

The Employee Ownership Report is critical of Edwin Welles’ assessment in 2/2/98 Inc. that only executives can “truly” affect a company’s performance, therefore broad option grants have little value. In “Deciding How Much Ownership is Enough,”NCEO notes that data from American Capital Strategies has shown firms with more than 10% broad employee ownership outperform the market. NCEO argues that giving employees token ownership can create cynicism; 5% is a minimum and the average is 8-10% of pay per year. (see Employee Ownership Report, 3-4/98)

Also from the Employee Ownership Report. A DOL advisory group recommends defined contribution plans should have limits placed on investments in the employer. (seehttp://www.col.cob/pwba/public/adoun/acemer.htm) GAO report, “401(k) Pension Plans: Extent of Plans’ Investment in Employer Securities and Real Property” disagrees. (call 202-512-6000 for a copy of publication GAO/HEHS-98-28) U.S. Court of Appeals for the Sixth Circuit held that voting rights in an ESOP are not a plan asset (Grindstaff v. Green, CA 6, No. 96-5628, 1/8/98).

Names That Made Corporate Governance, is an excellent summary by Vineeta Anand of some of the contributions made by 8 individuals to the field (Millstein, Hanson, Monks, Regan, Goldin, Leban, Clapman, Walker). This article is not to be missed by anyone interested in the roots of the movement. (Pensions?, 2/23) Next, I’d like to see a list of the most influential books and/or articles on corporate governance. Any nominations? contact: [email protected]

U.S. corporate codes on global labor practices is the subject of an IRRC study, The Sweatshop Quandary: Corporate Responsibility on the Global Frontier. “No matter how strongly or comprehensively the companyÍs policy is worded,” Meg Voorhes, the director of IRRC’s Social Issues Service, notes, “our field research showed that without strenuous efforts by top management to communicate its policies to contractors and ensure that contractors meet these standards, there are likely to be breaches in their observance.” This is by far the best report we have seen on this subject; it does not shy from addressing the complexities of the problem. Also provided, the complete text of more than 50 codes of conduct from corporations as well as the White House Apparel Industry Partnership prototype “code of conduct” and monitoring principles.

31 of 100 companies on Fortune’s “Best 100 Companies in America to Work For” have at least 10% of the stock owned by employees, instead of 10% as we might expect from statistical averages. (see Employee Ownership Report, 3-4/98)

Pensions? weighs in on CalPERS gifts and travel (see CalPERS Board Bans Political Contributions: News and Analysis). “The vast majority of trustees and pension administrators won’t sell their funds out for a few trips or drinks. It’s a shame the public doesn’t know that.” Their editorial notes, “these trips of trustees probably would be far more productive if trustees – not money managers – could set the meeting agendas, because the managers pay for most everything.” According to P?, “public pension fund boards need to start paying the full cost of sending trustees to those exclusive resorts they attend from Moscow to Tokyo. They need to pay for those big bar tabs some trustees run up, too.” (Pensions & Investments, 2/23)

Risk: Part I – Double or Quits? sets the reader up with the first part of a critical look at modern portfolio theory (MPT) and its extension, the capital asset pricing model (CAPM) by questioning the fundamental assumptions. Is there really a correlation between specific and systematic risk, so that specific risk can be reduced to near zero through diversification? Are expected excess returns really proportional to risks?

The article introduces Glyn Holton, of Contingency Analysis, who reminds us of the “fallacy of false concreteness” when we apply such risk models to systems which extend beyond the original assumptions of the theories. The seed is planted that “systemic risk,” such as a rogue trader or a “contagion,” may bring down the entire system. Yet the “answers” must wait for Part II. Part I, focuses, instead on two icons, Mark Mobius and Hazel Henderson, and their perspective on how global risks might be better managed.

Mobias eschews models but tries to analyze companies from the ground-up, considering risks as varied as war, industry, management, etc. He finds the “perceived risk is often different from the actual risk.” Interrelationships and their impacts are likely to increase (noting Thailand). Government controls magnify opportunities for hedge funds, but increase subsequent volatility. A good example is the attempt to prop up exchange rates. The solution, for Mobias, lies in the direction of transparency…full and fair disclosure, not in attempting to fix variables such as interest rates, exchange rates, and money flows.

Hazel Henderson distinguishes between markets and commons. The rational economic model deals fairly well with the money economy but can only deal with the commons by “turning it into the property of all.” “The market is an open system with divisible use of resources.” The commons is indivisible and “requires win-win rules to make them operate equitably and efficiently.” The risk profile of the commons is “always higher,” because it requires cooperation to protect it. Henderson claims that “most of the GNP growth of the last quarter-century has been at the cost of externalizing environmental and social problems,” with taxpayers being the “insurers of last resort.”

Derivatives and the “latest commons – global financial cyberspace,” leave no one responsible for the whole system. Part of the solution may be taxing currency speculation. She agrees with Mobias that a central bank defending simply presents traders with an opportunity to make money. Reducing risk through diversification would, for Henderson, mean looking for companies that “reduce to a bare minimum the flow of energy and materials…investment in the solar-age, information-rich economy.” Henderson’s intrigued with screening to find those firms who practice good political risk management…managing their resources and points positively to the Domini 400 Social Index contrasted with the S&P 500.

“If you follow the herd and say you have to stick to the prudent-man principle, which is basically neo-classical, short-term profit maximising, at some point they are not going to perform as well as companies which have taken a longer view.” Her solutions lie in a mix of market products, such as “The Virtuous Circle Global Sovereign Bond Fund,” and international public/private partnerships, such as a Global SEC. (International Fund Strategies, 12/97)

We look forward to the next issue of International Fund Strategies and are proud to have added them to our growing list of “stakeholders.”

Patrick McGurn’s recent article in The ISS Friday Report(2/20) address one of the more serious problems facing corporate America, corporate “overhang,” or the potential dilution from stock options outstanding plus those available for grant as a percent of the total outstanding shares. He cites several studies which show levels increasing. 14% in one study already exceed 20%. Another finds the rate averages 15% forThe Red Herring’s Technology 250. McGurn concludes the cure may be to “promote responsible use of awards that truly tie shareholders’ and option holders’ fortunes by linking compensation to company performance” through mechanisms such as “premium-priced options, step options, and other types of ‘real value’ awards.” Perhaps, as frustrations increase, pressure will build to revisit the source of this problem, in the accounting treatment of such schemes. In the meantime, McGurn’s advise would be well taken.

CalPERS continues to make headlines by banning political contributions from those doing business with the System. Board President William Dale Crist, who proposed the reforms, said there “has been no evidence or even suspicion of corruption” at the System. This, despite a series of articles in the Sacramento Bee and LA Times, as well as an FBI probe. Representatives of state Treasurer Matt Fong and state Controller Kathleen Connell abstained from voting on the campaign contribution ban. Treasurer Matt Fong scolded his colleagues, calling their action “window dressing” and called, instead, for full disclosure. (see 2/20 LA TimesExcite News,CalPERS press release). For more in-depth coverage of the issues, see CalPERS Board Bans Political Contributions: News and Analysis.

Back to the topCalPERS named Electronic Data Systems, Louisiana-Pacific, Sybase, Advanced Micro Devices, International Flavors & Fragrances, Michaels Stores, A. Schulman, Stewart & Stevenson Services, and TBC. For the first time, the fund incorporated EVA calculations to find “companies where poor market performance is due to underlying economic performance problems as opposed to industry or extraneous factors.” Resolutions from CalPERS are pending at 5 of the firms. (2/24,WSJ, A4)

TIAA-CREF announced it will sell its funds to the general public. TIAA-CREF’s mutual-fund lineup consists of six funds: stock funds TIAA-CREF Growth Equity, Growth-and-Income and International Equity Funds; TIAA-CREF Bond Plus Fund; TIAA-CREF Money Market Fund, and TIAA-CREF Managed Allocation Fund, which blends the style of the other five portfolios. (2/24,WSJ, C27)

Pension, 401(k) retirement plans and charitable foundations and endowments grew by more than 10% in 1997, to nearly $5.1 trillion, according to an annual survey by Nelson Information, Inc. To order Nelson’s Directory of Plan Sponsors, call 800-333-6357 or 914-937-8400, e-mail [email protected], or visit http://www.nelsons.com. (PR Newsire)

We’ve added Pensions World to our list of “stakeholders” and look forward to reporting on items carried in this authoritative publication.

The Conference Board reports U.S. investment in the equities of foreign corporations more than quadrupled from $91.5 billion in 1988 to $397.7 billion in 1996 and then rose to $423.5 billion by mid-1997. The largest 25 U.S. pension funds held $110.8 billion in international stocks as of September 30, 1996, roughly 30% of the foreign equity held by all U.S. investors in 1996. These funds have increased their international holdings from 4.8% of their assets in 1991 to 11.2% in 1996.

Foreign corporations are also coming to the U.S. and learning to live with the “increasing expectations of improved transparency and disclosure demanded by U.S. investors,” says Dr. Carolyn Kay Brancato, editor of the report and Director of The Conference Board’s Global Corporate Governance Research Center. “There is a staggering increase in the number of non-U.S. companies who now trade their stock in U.S. markets through the American Depositary Receipt (ADR) process,” says Dr. Brancato. By the end of 1997, the securities of an estimated 1,400 foreign companies from more than 44 countries were traded in U.S. public equity markets.

Financial assets of U.S. institutional investors were six times those of the United Kingdom and 10 times higher than those of France and Germany in 1995. While the biggest institutional investors in major U.K. and U.S. companies were domestic pension funds (42.4% and 35% of institutional investor financial assets, respectively), this was not true for France (0%) or Germany (5.9%), according to 1995 OECD data. Managed funds were more important in France (49.8% of its total institutional financial assets) and Germany (33.2%). Insurance funds were least important in the U.S. (23.8%), but played a dominant role in Germany (61%).

Almost 70% of institutional financial assets in the U.K. were held in equities in 1995; in U.S. 36%; France 22%; Germany 12%. U.K. companies have a high proportion of their equity (44.1%) controlled by their largest 25 financial institutional shareholders, while the U.S. proportion is 27.5%. When cross-shareholdings are added in, however, concentration of ownership in Germany and France is higher than even in the U.K. In Germany, the percent of equity in the largest 25 corporations held by the largest 25 investors is 47.2% (14.5% held by institutions plus 32.7% held in cross-shareholdings); in France the proportion is 48.3% (23.5% held by institutions and 24.8% held in cross-shareholdings).

“As these cross-shareholdings are unwound, and French and German companies seek to move from debt financing to look for expansionary equity capital in the global markets, this will have a profound effect on the nature of international capital requirements. It will also give global equity investors, especially those in the U.S. who play such an important role in this market, more clout to shape the international corporate governance debate of the future,” Dr. Brancato concludes. (To order the report, call 212 759 0900 or e-mail [email protected].

Link added to John Wachowicz’s Wachowicz’s Web World: Web Sites for Discerning Finance Students…an incredible resource.

Three bills requiring CalPERS to begin divesting its tobacco investments over the next few years have been introduced.CalPERS opposes.

The Benefits and Program Administration Committee ofCalPERS passed several resolutions designed to bar campaign contributions to fiduciaries from interested parties, prohibit fiduciaries from soliciting contributions of any kind from interested parties, and require monthly reporting of gifts from interested parties. Recommendations will go to the full Board, which is expected to adopt the recommendations with few changes. The reforms come on the heals of recent articles and editorials in the LA Times and Sacramento Bee on conflicts of interest and high living by Board members. Recent election returns were reported and minor adjustments to procedures recommended. No action was taken on a recommendation from a member to require run-offs when winning candidates receive less than a majority vote. Currently, Board members can be elected by a tiny minority of members since only about 20% vote and they typically split their votes among an incumbent and 20 other candidates.

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Joseph Sargent points out that most academic studies on poison pills “only take into account completed transactions. In doing so they omit examples where takeovers were rebuffed because companies refused to redeem their poison pills – which, to many shareholders, is precisely why pills should be abandoned in the first place.” In addition, the Georgeson & Company research is criticized for failing to address the use of dead hand pills which provide that only continuing directors are able to redeem the pill. (January ISSue Alert)

February’s Directorship included an article outlining the widely quoted findings of Georgeson & Company researchers on poison pill voting. They find shareholders of companies with poison pills received $13 billion in additional takeover premiums during the five-year period from 1992-1996, and shareholders of companies without pills gave up $14.5 billion in potential value. The edition also included the 1st of a two part series by James W. Casparie on the importance of corporate governance among venture capital firms. Casparie is critical of VCs who bring in “freshly-minted” MBAs to sit on boards and provides good advise on recommendations for improvement in several areas.

Suicide of the entire board is what one shareholder called for at a poorly performing company. IRRC points out, however, the proposal would be “ineligible for a number of reasons, one of which is that the value of the shareholders’ investment has fallen well below $1,000, the minimum threshold for submitting a resolution.” IRRC’s Corporate Governance Bulletin also projects the issues of the 1998 season (lists all to date), summarizes the SEC reform controversy, addresses trends in board practices, and highlights corporate governance developments in Germany, UK, Australia, Thailand and Japan.

In addition, the issue provides a needed comparison of U.S. guidelines on corporate governance from the Business Roundtable, NACD, TIAA-CREF, CalPERS, CII, GM and Campbell Soup. Years ago we hoped to index hundreds of such guidance documents online but although many firms have adopted policies, few have put them online. We’ve bookmarked some in our Library under Codes and Principles. Please let us know as you if you find others.

Pactrick McGurn indicates in the February 6th edition of The ISS Friday Report that shareholders are increasingly seeking seats on corporate boards. This is a trend which to us would appear to be at the heart of a movement to more democratic forms of corporate governance. “Prior to 1997, McGurn reports, “campaigns for board seats typically hinged on a dissident’s offer of a control premium. In essence, proxy fights served as a referendum on the underlying offer.” Several examples are cited, including Northstar Health Services, SLM Holding, Talley Industries, TCC Industries and TIS Mortgage Investment. He notes the trend is continuing in 1998 with Apria Healthcare Group, Mesa Air Group and several others. In addition, shareholder activists are also joining boards, such as John Pound’s recent appointment to CML and his involvement in their strategic review.

Director’s Monthly, the NACD publication, included brief excerpts from presentations made at their 1997 Corporate Governance Review meeting. At a panel on Shareholder Resolutions, Charles Elson described the recent shift from political activism to corporate governance. He sees as critical to that shift, the rise of institutional investors, recommendations from organizations such as NACD (several “blue ribbon” commissions) and the activism of shareholder groups, particularly IRAA. Patrick McGurn points to several trends. First, direct action resolutions seeking to change a fundamental corporate strategy or direction and the new entry into the field of “highly motivated financial investors – mutual fund and investment managers.” Second, a shift from “precatory” to binding bylaw resolutions. Third, McGurn points to higher success rates, 35 in 1997. Last, he mentions the new focus on performance, noting that if you’ve been targeted by one shareholder you are likely to be in the sights of others as well.

Cost-free assistance is being offered to issuers and shareholders in meeting obligations under Rule 17Ad-17 by Shareholder Communication Corporation, according to a recent report in the January Corporate Secretary. To contact SCC about its Free Compliance Program, call (212) 805-7000 or send e-mail to [email protected]. The same issue includes an article by Patrick McGurn, Director of Corporate Programs for ISS, “Some tips for establishing a working relationship with ISS.”

The January 30th edition of The ISS Friday Report notes theAssociation of British Insurers (ABI) has launched its Institutional Voting Information Service on the internet. Both ABI and the National Association of Pension Funds (NAPF) have entered into contracts with ISS to market ISS services to their members.

ADP Investor Communications Services has opened a site which will allow shareholders to indicate a willingness to receive proxy materials and voting instructions via the internet. Registration is at http://www.investordelivery.com/. Last year 56% of shares were voted electronically or via telephone.

Venture capital keiretsu? That’s the term used by Kleiner Perkins’ partner John Doerr to describe how Kleiner Perkinsencourages its companies to help each other by forming “buy-sell, licensing, or endorsement arrangements.” However, according to Red Herring‘s Alex Gove, “all the major venture capital firms foster cooperation among their portfolio companies.” He goes on to describe similar efforts by theMayfield Fund and Accel Partners but then focuses on Ken Fox of the Internet Capital Group (ICG). ICG plans to invest 50% of its fund into three “core” companies and issue ICG shares to all of its portfolio companies. “Sharing the ownership of the company will give the entire portfolio a concrete financial incentive to work together.” American Keiretsu inRed Herring describes Four models for cross-company networking for venture capital.

David Ikenberry, a finance professor at Rice University in Houston, found a stock’s price jumps an average 3.5% on the day it announces a buyback. Companies with buyback programs outpaced control firms by producing 45% greater return during the first 4 years. (see Stock Buybacks Boom at abcnews.com)

The text of a letter from Corporate Value Partners, LP to the Chairman of the Nominating Committee of the Board of Directors of The Reader’s Digest Association, Inc. is reprinted by PR Newswire.

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Union activism received an endorsement from an editorial inPensions & Investments as well as an admonition to advance the objective of earning the highest return for the appropriate level of risk, “not some other agenda that might be addressed better through other means.” The same issue reports that executive pay is the top corporate governance issue this year (by number of shareholder submissions, 71) and environment and energy is the top social policy issue (64 submissions). The issue also contains an excellent short summary of highlights of the role of pension funds in the corporate governance “revolution” by Ricki Fulman. (2/9/98)

More lobbying via the internet. SmokeScreen Action Network is making it easy to send letters to NYCERS trustees on tobacco divestment. I’m told their vote comes up March 5th and that NYCERS owns more than $300 million in tobacco stocks.

An interesting proposal to increase the independence of directors at mutual funds has been posted to the internet byChris TobeMutual Fund Governance – CFA’s as Independent Directors proposes that mutual funds be required to have an independent CFA on their board to represent shareholders. He believes this could improve performance and lower costs.

The LA Times continued its coverage of the conflicts of interest at CalPERS in its 2/5 edition. Apparently their previous coverage (see 6th story below) is having an impact. Senators Adam Schiff and Tom Hayden are drafting bills to prevent board members from meeting privately with anyone who has a deal before the board. Schiff’s legislation would also require reporting of campaign contributions, more open meetings, and would reform the way that six of its members are elected by plan beneficiaries. Hayden is looking to limit the role of money in influencing the process.

The article by Paul Jacobs also notes the FBI is continuing its probe of CalPERS and CalSTRS board members. James Burton, CalPERS CEO faxed a memo to trustees advising they “are under no legal duty to agree to be questioned” until they “receive a subpoena to testify before a grand jury.” Although this may be simply conveying the board’s alternatives, it didn’t have the ring of cooperation one might expect.

The LA Times carried an editorial the same day titled “Not Quite Clean Enough: CalPERS must tighten its rules to erase any doubts.” The Times calls for reforms in the areas of gifts, travel, contacts with investors and disclosures.

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The newly redesigned internet site of IRAA declares “IRAA has asked William Steiner and his group to no longer be associated with the organization due to their conflicts of interest and methods of activism.” The statement goes on to explain the split is due to Steiner’s confrontational tactics and that “IRAA will still make use of shareholder resolutions but only as a last resort.” The new site has a much cleaner look and additional features, such as a discussion group (bulletin board) feature. See also https://www.corpgov.net/messages/32.html.

Dawn Yoshitake explains the advantages of “structured yield products exchangeable for stock,” or STRYPES for a CEO wishing to unload a portion of their stake–“without diluting the holdings of his existing shareholders and putting pressure on the stock price.” Developed by Merrill Lynch, STRYPES lengthen the dilution or payout process by paying a periodic cash coupon, much like a dividend. “After a predetermined period, the selling shareholder can either convert the note into shares of common stock or pay the cash equivalent of those shares to investors.” (How CEOs can cash in quietlyc/net, 2/8/98)

First majority shareholder vote of the season came at King World Productions where the LongView Fund won 52.4% of votes to declassify the board. LongView has also submitted a binding shareholder poison pill resolution at SuperValu. (IRRC, 1/30/98)

Zero Corporation? John Chevedden wants to declassify the board…see our Bulletin Board.

Mike Quevedo Jr., a business manager of the Southern California District Council of Laborers, was appointed to the CalPERS Board by the State Senate Rules Committee and Assembly Speaker Cruz Bustamante. Quevedo is also the co-chairman of the Laborers’ Pension Trust which serves laborers in 11 Southern California counties.

Top story of the month is from Paul Jacobs of the LA Times. His 2/2/98 “Firms Lobby, Woo State Pension Officials, Win Pacts” raises disturbing questions about the integrity of decisions made at CalPERS, the nation’s largest public pension fund and a world leader in corporate governance.

Jacobs recounts a series of investments made by the fund, often after being rejected by staff, where the decisions to invest apparently hinged on individual board members being lobbied by investment firms. Examples include $60 million invested in a real estate partnership that employed the son-in-law of a board member. In another case “a pension fund trustee who was also a top deputy to Los Angeles Mayor Richard Riordan, took the lead in committing $75 million to a Los Angeles firm co-founded by the mayor.” Jacobs cites several such deals.

Assemblyman Dave Elder authored legislation in 1991 intended to stop such lobbying. However, the bill carried no penalties and CalPERS attorneys reportedly concluded the law applies only to competitively bid contracts, not to decisions affecting individual investments. Elder suggests the Legislature “ought to remove the ambiguity.” The LA Times is expected to print another article by Jacobs soon, with further revelations on CalPERS.

The second Jacobs article on abuses of power at CalPERS was published 2/4/98 and is entitled “Trips, Perks for State Pension Fund Trustees Raise Questions.” Jacobs recounts a pattern of expensive global trips paid by businesses who contract with CalPERS, free meals, a charity golf tournament financed by CalPERS real estate consultants, and using System connections to raise money for nonprofits and political campaigns.

According to Jacobs, 112 foreign and out-of-state trips were taken by CalPERS board members in the last 3 years; a third were subsidized “entirely or in part by private interests, often by companies that do business with CalPERS or would like to do so.” The pace seems to be accelerating, with 13 overseas trips and 29 to other states last year. President Crist takes credit for calling the shots on board travel and for raising “a lot of money” for Kathleen Brown when she ran for governor in 1994. Jacobs reports that Brown received at least $150,000 in contributions from CalPERS contractors but Crist indicates, “I always tried to be clear I was speaking as a faculty association person.” Crist was chair of the political action committee of the California Faculty Association at the time.

Robert Stern, co-director of the Center for Governmental Studies in Los Angeles, notes in the article that members of the California Coastal Commission are required to abstain from decisions if they have solicited contributions of $250 or more during the previous 12 months from applicants. CalPERS board members are under no such obligation. However, reforms of board policy may be taken up this month.

Will there be an outcry from the public or CalPERS beneficiaries? Last year the Senate held an oversight hearing on the issue without much information coming forward. CalPERS made some reforms in what can be the subject of closed sessions and what eventually gets disclosed. The Jacobs articles may put the pressure on for further reforms. A question many may be asking is, does the CalPERS Board meet the same high standards of disclosure and independence that it seeks from corporations in its lead role in the field of corporate governance? Let us know what you think. Write to[email protected] or post a note to our Bulletin Board.

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Options are the subject of 3 articles in the current issue of Inc. According to Mark Edwards of iQuantic, compensation consultants to high-tech companies, “while the typical Fortune 500 company grants options equal to about 1.25% of its outstanding shares each year, the number for the typical high-technology company is 3.5%–almost three times greater.” For software and internet companies the rate is between 5% and 8%. Patrick McGurn, of ISS , is quoted as saying, “In Silicon Valley the attitude right now is, ‘If I [the CEO] go for a little more dilution each year, my investors won’t figure it out.'” The total value of options outstanding in U.S. public firms has increased 10-fold since 1985, from an estimated $60 billion to $600 billion. That doesn’t count pre-IPO firms, where the practice of granting broad-based options is most pervasive.

Motherhood, Apple Pie, and Stock Options offers a good primer. CEO’s Notebook: Stock Options & Equity offers some tips, such as one from Mark Zweig, founder of a $4.2 million publishing and consulting company. “If there’s no sanction involved in selling their stock, you create an incentive for someone to leave,” says Zweig. “To get the full value of their stock, employees who leave the company voluntarily have to wait two years before joining or starting a competing business.” The article also points to sources for more information on equity compensation, such as NCEO andF.E.D.Know Your Options discusses nonqualified plans vs incentive stock options (ISOs) as well as phantom-stock plans (stock-appreciation rights).

According to an article by Richard Ferlauto, multiemployer plans and labor may be submitting between 70 and 100 resolutions during the 1998 proxy season. Areas include board performance, executive compensation, director independence and conflicts, binding bylaws, political soft money reporting, outsourcing and sweatshop issues. (see 1/30, ISS Friday Report)

An editorial in Pensions & Investments calls on pension fund executives to work with Congress and DOL to “reconcile the advantages and disadvantages” of defined benefit and defined contribution plans and to “speak out more in the debate to improve Social Security” by “relating the advantages of a privatized system.” P? warns the $4.1 trillion held by the 1,000 largest funds is a target for those with other agendas and their potential to influence corporate governance can lead to potentially risky areas such CalPERS‘ announcement they may seek to put their own representatives on corporate boards.

Release of the final report on corporate governance by the Hampel committee seems to have done little to forge a consensus. Hampel’s report is expected to be added to the earlier Cadbury code and Greenbury report, now part of theLondon Stock Exchange‘s listing requirements. The Hampel report encourages publication of proxy votes and statements by shareholders on how often they vote. However, the final report failed to call for separate voting on pay or to provide for abstention with regard to directors. Institutional shareholders are encouraged to “make considered use of their votes” but the report fell short of recommending that voting at company meetings should be compulsory. Sarah Wilson, managing director of Manifest, a corporate governance analyst, noted that “institutions own more than 80 percent of shares, fewer than 40 percent of these are voted – clearly more needs to be done.” Britain’s Trade and Industry Secretary Margaret Beckett said she would issue a “green” or consultative paper on company law in the spring.

We’ve added a link to Bernstein Litowitz Berger & Grossmann LLP in our Legal Services section of Links.

All material on the Corporate Governance site is copyright © 1995-1997 by Corporate Governance and James McRitchie, except where otherwise indicated. All rights reserved.

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