CorpGov Bites

Lots of news I haven’t had time to fully digest but that I find interesting. Hat tip to SIF members for sending me several of these.

Charade at Symantec (USPX) On September 20, 2010, Symantec Corporation set the pathetic precedent of being the first Fortune 500 company to hold a virtual-only annual meeting without shareowner-approved safeguards to protect participant rights. From the start, the USPX has recognized that the issue of virtual annual meetings cannot be addressed one corporation at a time. There are approximately 13,000 annual meetings held in the United States annually. At some point, the trickle of firms that incorporate virtual technology into their meetings will become a flood. The USPX is organizing shareowners in a comprehensive response. We are drafting a white paper detailing the legal, technology and procedural issues raised by virtual meetings. That will be followed with a members forum through which shareowners will draft shareowner-approved guidelines for the conduct of virtual meetings.

With proxy access and say on pay, this is no time to decrease direct contact between shareowners and corporate officials. We need more dialog, not less.

Epistolary Pistols Fired in All Directions (Deal Flow Media, 9/21/10) touches on several initiatives:

  • Knott Partners bluntly told the board of Westway Group that extending warrant expirations for two board members looks like a breach of fiduciary duty.
  • Lawndale Capital made no bones about telling toolmaker P&F Industries that it should part ways with chairman and chief executive Richard Horowitz when his employment contract expires. Analysis of executive compensation. P&F site.
  • Alimentation Couche-Tard remonstrated Casey’s General Stores in a statement that says the company is trying to confuse shareholders.
  • letter from The D3 Family Funds to RadiSys Corp.’s chairman placed the company’s stock performance in a compassionate light and suggests plans for responding to sour market conditions: “If you have lemons, make lemonade.”

Will New Proxy Rules Pose Board Risks? (CFO, 9/22/10). “My guess is that we will not get completely hare-brained people going on boards of directors,” Timothy Hearn, partner with Minneapolis-based law firm Dorsey & Whitney. Duh.

Wall and Main Streets — The Pensioners’ Perspective (theStreet, 9/22/10) Eric Jackson blogs on CII’s latest conference. Neel Kashkari of Pimco on the “new normal.”

Reality check: 90% of investor relations websites ignore social… (SocialMedia, 9/22/10). More than 90% of 200 investor relations websites reviewed by IR Web Report in the past month failed to direct investors to these channels.

Access to the Mutual Fund Proxy (HLS corpgov blog). Jennifer Taub highlights the little discussed analysis of the SEC’s proxy access rulemaking on mutual funds as issuers.

The SEC estimated at investment companies there will only be six director nominees under 14a-11 per year and half of these would be at closed-end funds. Under 14a-8(i)(8) the SEC estimated a total of 24 shareholder proposals regarding procedures for including shareholder nominees for director in the proxy. Concludes Taub,

Adding some competition to the board nomination process may increase board dependency upon fund shareholders. This may create more bargaining power in board negotiations with fund advisers over fees, expenses and other related matters. Given that boards are loathe to use the “nuclear option” and fire the fund adviser, gaining extra leverage to negotiate more strongly on behalf of fund investors is essential.

Since mutual funds hold 24% of US corporate equity, changes in how they are governed could have a multiplier effect, even more so than proxy access at other corporations.

Hiring A Chinese Employee Without A Chinese Entity. Good Luck With That. (China Law Blog, 9/22/2010) “Under Chinese law, only Chinese entities are allowed to have employees based in China. in addition, China does not generally allow for the hiring of independent contractors.”

Singapore: shareholders’ access to company financial information (Corporate Law and Governance) The Singapore High Court gave judgment earlier this month in Lian Hwee Choo Phebe v Maxz Universal Development Group Pte Ltd. [2010] SGHC 268, available on Singapore Law Watch here. It provides an excellent overview of recent case law concerning Section 216 (personal remedies in cases of oppression or injustice) of the Companies Act (Cap. 50, 2006 Rev Ed), against the background of the Court of Appeal decision Over & Over Ltd. v Bonvests Holdings Ltd. [2010] 2 SLR 776. It also discusses the extent to which shareholders have access to company financial information.

Outbound Acquisitions by Indian Companies (India Corporate Law, 9/18/10) Professor Afra Afsharipour‘s  Rising Multinationals: Law and the Evolution of Outbound Acquisitions by Indian Companies argues that Indian corporate law plays a number of important roles in the emergence of Indian multinationals. First, legal reforms since economic liberalization have set the stage for outbound acquisitions by Indian multinationals. Second, Indian legal reforms and legal history have shaped outbound acquisitions both in terms of transaction structure and transaction size. Third, legal constraints on Indian firms’ mergers and acquisition activity impose substantial restrictions not only on the methods that Indian multinationals use in pursuing outbound acquisitions, but also on the future potential of Indian multinationals. Reforms are needed.

French companies improve corporate governance disclosures (Manifest, 9/20/10) 2010 AMF report finds some of the key findings on corporate governance are:

  • 60% of companies reporting non-compliance with some of the AFEP/MEDEF Code’s provisions, with one-fifth of these not including any explanations;
  • An average of 55% of boards are comprised of independent directors, while 88% of audit committees and 79% of compensation committees are chaired by an independent director. Some companies in the same however did not identify which directors the board considered to be independent;
  • 9 companies in the sample have introduced (or intend to introduce) a lead independent director or deputy chairman with responsibility for governance;
  • Two-thirds of companies undertook a board evaluation during the year.

The SEC and Diversity in the Boardroom: Commissioner Aguilar Speaks (theRacetotheBottom) Jay Brown offers additional insight in a multipart series. “Directors are nominated and vetted by the board. They typically run unopposed. Unsuprisingly, boards tend to self perpetuate, with little shift or change in diversity or background. This is, in short, an example of market failure.”

Sexual Harassment — and the Board (The Bloxham Voice, 9/13/10) Did you know that if current statistics remain static, the likelihood your daughter will be sexually harassed at work is 1 in 4 (and your son slightly less than 1 in 10) according to a Vanity Fair poll in its October 2010 issue – p. 92.

The New Fiduciary: Stewardship and Sensibility (9/21/10) How will investor boards respond to these new demands and duties that fundamentally reshape their role as fiduciaries? Marcy Murninghan discusses changes in financial regulations that place new responsibilities on institutional investors, requiring new forms of engagement, education, and behavior. Short but comprehensive, especially with the links. UK’s Stewardship Code is key as far as I’m concerned. The US would do well to learn.

How institutional investors should step up as owners (McKinsey Quarterly, 9/2010) A movement is afoot in Canada, France, the Netherlands, the United Kingdom, and other markets to encourage institutional investors to become better “stewards” of the companies they invest in, by adopting a more active and long-term stance.

Thinking beyond the public company (McKinsey Quarterly, 9/2010) Broker–dealers, and investment banks remained partnerships or sole proprietorships until recently for good reason. Skilled salaried managers with good information could defraud their companies, customers, and shareholders by trading on their own account and engaging in other forms of self-dealing. To keep the incentives of such firms aligned with those of society, managers had to be owners, and their ownership stakes had to be illiquid and constitute a large percentage of their net worth.

At the grassroots level, would-be microfinanciers and community bankers should seriously consider mutual forms, such as credit unions, that accommodate social goals more readily than joint stock companies do. Modest steps such as these toward a broader portfolio of organizational forms might help rebalance risk and reward in these volatile times.

Charging Forward (Columbia Law School, 9/2010) Excellent summary of the financial crisis. After reading it, at least we’re slightly ahead in our response than were our predecessors after the Great Depression. I’m hoping we’ll have another substantial round of legislation after the Financial Crisis Inquiry Commission‘s report in December. However, an even greater split in Congress wins could forestall progress. People just don’t realize what was averted. We may be in for a long period of stagnation and decline if little more is done.

A Drop in the Bucket (Columbia Law School, 9/2010) Conventional wisdom says the campaign finance decision rendered in Citizens United v. Federal Election Commission is destined to change the world—or at the very least elections as we know them. Corporations equated to humans! Elections overrun by foreign money and influence! Democracy hijacked! Perhaps a closer look is in order.

Citizens United could just be the jolt that wakes up a sleeping public. Disclosure, when it comes, will at least bring some influences into consciousness. So far, it looks like shareowners will be battling corporation by corporation to require a vote on excessive political spending, more frequent say on pay, majority vote requirements for directors, and lower thresholds for proxy access… just to name a few. If Congress can’t even muster the votes to repeal the Bush tax cuts on the wealthiest 2% when the divide between rich and poor is greater than ever, it is hard to know when corrective measures will come. We already have less mobility between income quintiles that just about any other developed country and the highest proportion in poverty since records have been kept. The dominant voice of corporate CEOs in politics doesn’t seem to be doing much for the well-being of our economy and Tea Partiers seem more intent on throwing things and people overboard than sitting down and working out solutions. Hopefully, it won’t have to get too much worse before reasonable cures are applied. Full disclosure seems like a reasonable step everyone should be able to agree to.

Why Humanity Comes First at Work: Learning About Bridges to 21st Century Socialism (Solidarity Economy, 09/19/2010) Nice diary of a trip to Mondragon Cooperative Corporation, a 50-year-old network of nearly 120 factories and agencies, involving nearly 100,000 workers in one way or another, and centered in the the Basque Country. Brings back memories for me of when I headed California’s Cooperative Development program. A greater diversity of corporate forms would foster greater innovation in all.

Why CSR is Essential in the Real World of Business (, 9/20/10) The Chinese wall separating markets and politics is a myth, one perpetuated by special interests who cynically call for government to solve social problems while working behind the scenes to undermine it. One response by outraged citizens would be to pass legislation that clearly states that corporations are not persons and have no right to free speech. A more modest alternative would be to require corporations to account in detail for every lobbying dollar they spend.

Institute to sanction members on corporate governance (Next, 9/23/10) The Institute of Chartered Secretaries and Administrators of Nigeria (ICSAN) has said it would prosecute its members who violate corporate governance rules in the country.

Pension funds declare support for FRC’s Stewardship Code (RI, 9/23/10) A group of 11 UK pension funds with combined assets of £180bn (€210.1bn) have written to the Financial Reporting Council expressing their support for the new Stewardship Code. The funds said they hoped the “next stage of development” should cover other asset classes beyond public equities and address the absence of an independent monitoring mechanism to assess investors’ adherence to the principles.

Conservative governance thinking (PIRC Alerts, 9/23/10) Highlighted Conservative Treasury select committee member Jesse Norman MP as one to watch. His four proposals for reform are –

  • To make institutional investors legally accountable for the
  • proper exercise of voting rights;
  • To make it easier for shareholders to nominate directors;
  • To give non-executive directors alone responsibility to choose remuneration consultants and auditors;
  • To require trustees to act solely in the long-term interests of their beneficiaries.

UK to review governance regime to favour “responsible shareholders” (RI, 9/22/10) UK Business Secretary, Vince Cable, has announced a “comprehensive review” into corporate governance and short-termism this autumn in a bid, he said, to put responsible shareholders “back in the driving seat”. Campaigning group FairPensions said Cable’s comments should be welcomed but pointed out that shareholders lack the necessary tools to be active owners because they have limited access to the necessary data from companies about forward-looking risks.

Complimentary Pearl Meyer & Partners Compensation Planning Survey. All participants in the Compensation Planning Survey will be eligible to run unlimited custom analyses of the data free of charge! Simply select the organizations of most interest to your firm using our on-line reporting system – you’ll get back a timely custom report displaying the survey totals as compared to your peer group and your organization.  The online custom report feature will be ready for your use by mid-October.  Once this tool is available, participants will be notified via email. Click here to complete the brief online questionnaire. Also get their client alert on Dodd-Frank.

Ceres and CalPERS Announce Initiative to Accelerate Corporate Action on Global Sustainability Challenges (CSR Press Release, 9/22/10) The initiative will include roundtables and forums in California and other parts of the country with companies and investors. Much of the activity will evolve around The 21st Century Corporation: Ceres Roadmap for Sustainability (pdf), a comprehensive Ceres report that outlines the urgency, vision and competitive advantages for companies to fully embrace sustainability and 20 key expectations for achieving such a goal.

UN body calls on all institutional investors to disclose RI stance (RI, 9/21/10) UNCTAD found almost half the world’s largest funds disclose at least one or more indicators based on the United Nations Principles for Responsible Investment. But no evidence could be found of RI practices at 51 of the top 100 funds, representing $3.4trn assets (or 39%) of the 100 funds’ total AUM. UNCTAD observes that as well as improving the accountability of companies to shareholders, policy makers should consider “improving the accountability of institutional investors to their beneficiaries.” See 95-page report (pdf), the Investment and Enterprise Responsibility Review.


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