Archive | March, 2011

Will the SEC Enforce Rule 14a-8?

The SEC has a reputation of enforcing regulations against two-bit players in the financial arena while tiptoeing around the big boys. Back in December, Apache Corp. (APA) announced plans to flaunt US securities laws. The Commission’s response has been three months of unbroken silence.

Apache’s CEO, Stephen Farris, is somewhat of a crusader against Rule 14a-8. In a 2007 comment letter to the SEC, he argued that precatory proposals should be banned. Readers of this blog will remember how he had Apache Corp. sue shareowner John Chevedden last year to block one of his shareowner proposals (see Pyrrhic Victory? Apache Delays Shareowner Proposal, Loses Attempt to Require Broker Letters From DTC March 10, 2010).

That lawsuit allowed Apache to exclude Mr. Chevedden’s proposal from their proxy materials for 2010, but it gave the corporation no basis for excluding future proposals. It was a very narrow decision.

Not surprisingly, for 2011, Mr. Chevedden has submitted a new proposal to Apache, and he has strengthened his evidence of eligibility to address any concerns raised by the court in last year’s lawsuit.

This time around, Apache should include Mr. Chevedden’s proposal with their proxy materials. Instead, they are acting as if last year’s narrow decision was a license to exclude proposals from Mr. Chevedden on an ongoing basis. This year, they have skipped the no-action process. They have skipped the courts. In a December 29 letter to the SEC, Apache merely informed the Commission they would be excluding Mr. Chevedden’s proposal for 2011.

To understand the merits of Apache’s latest action—or the lack thereof—let me provide some background. I won’t go into the convoluted argument Apache’s lawyers made in last year’s Apache vs. Chevedden lawsuit. It was the same argument Hain Celestial had made in a no-action request to the SEC in 2008 concerning another of Mr. Chevedden’s proposals. SEC staff had denied that request. A Houston firm bringing a case before a Houston judge with representation from a prominent Houston law firm, Apache hoped to have more success with the argument than had Hain Celestial. Chevedden couldn’t afford a lawyer and defended himself remotely from California.

As it turned out, the judge rejected Apache’s convoluted argument, but she found a reason to allow them to block Chevedden’s proposal anyway. The reason was contrived, but it is important for understanding what is going on today. I will briefly explain:

Under Rule 14a-8,  shareowners must prove their ownership of shares in order to submit a proposal. They can do so with a letter from their bank or broker. But many financial institutions are conglomerates with multiple affiliated or subsidiary companies. Under Rule 14a-8, does a verification letter have to come from the specific firm that holds the proponent’s shares, or can it come from a parent, affiliate or subsidiary? Stated another way, does the letter have to be under the “right” letterhead? In the seventy year history of Rule 14a-8, I don’t think this novel issue has ever been raised. I believe such a requirement would needlessly complicate the process of submitting proposals. For example, if a proponent holds shares through Fidelity Brokerage Services, shouldn’t a letter on Fidelity Investments stationary suffice? The court disagreed, but its decision hinged on more than that:

Mr. Cheveddden held his shares through a bank called Ram Trust Services (RTS). Apache’s lawyers had visited the RTS website and noticed that RTS has a wholly owned broker subsidiary, Atlantic Financial Services (AFS). They then hypothesized that, perhaps, Mr. Chevedden actually held his shares through the broker subsidiary and not RTS. They then proposed—and the judge accepted that—the letter evidencing Mr. Chevedden’s share ownership should, perhaps, have come from AFS and not RTS. Here is what the judge said:

The record suggests that Atlantic Financial Services of Maine, Inc., a subsidiary of RTS … may be the relevant broker rather than RTS. Atlantic Financial Services did not submit a letter confirming Chevedden’s stock ownership. RTS did not even mention Atlantic Financial Services in any of its letters to Apache.

On these peculiar grounds, the judge ruled that Apache could ignore Mr. Chevedden’s 2010 proposal. But she was explicit that the ruling was narrow, applying only to the facts in that particular case:

The ruling is narrow. This court does not rule on what Chevedden had to submit to comply with Rule 14a-8(b)(2). The only ruling is that what Chevedden did submit within the deadline set under that rule did not meet its requirements.

After the judge’s ruling, Mr. Chevedden followed-up with RTS. They confirmed that they did in fact directly hold Mr. Chevedden’s shares. Their 2010 letter made no mention of AFS because AFS played no role in the custody of Mr. Chevedden’s shares. For purposes of Rule 14a-8, RTS was the record holder of Mr. Chevedden’s securities. The judge ruled “narrowly” against him because she thought, perhaps, AFS might be the real record holder.

Apache’s “success” has prompted other companies to submit frivolous no-action requests targeting Mr. Chevedden’s proposals, claiming they may do so based on the Apache vs. Chevedden decision. In all cases where Commission staff have so far made decisions, they have rejected these requests (see Retail Proponents Survive Eligibility Challenges March 9, 2011). Now KBR has hired the same lawyer that represented Apache in Apache vs. Chevedden to file a similar lawsuit before the same judge. They are no doubt hoping for a similarly flawed ruling. This has become a farce.

Apache was able to ignore Mr. Chevedden’s 2010 proposal, but as I have mentioned, he has submitted another one for 2011. This time, he provided a verification letter from RTS that makes it absolutely clear that they are the owner of record for his shares. There should be no issue here. He has addressed the court’s contrived concern, so the proposal should be included in Apache’s 2011 proxy material. Instead, Apache is simply ignoring this latest proposal, and they have informed the SEC of their intention. They are flaunting Rule 14a-8.

What is the SEC going to do? It has been three months now, and all we have heard from them is silence. On March 2, Apache filed preliminary proxy materials with the SEC that did not include Mr. Cheveden’s latest proposal. In a week or two, they should file their final proxy materials.

Apache is forcing this issue, and they clearly expect the SEC to back down. If that happens, expect copycat firms to next year also bypass the courts and the no-action process and similarly ignore Mr. Chevedden’s proposals. Rule 14a-8 is being trampled, placing every shareowner’s ability to submit proposals at risk.

Yesterday, the United States Proxy Exchange wrote a letter to the SEC. It walks through Apache’s latest frivolous excuses for excluding Mr. Chevedden’s proposal this year, discrediting them one by one. On behalf of the shareowner community, it asks the SEC to enforce Rule 14a-8.


Continue Reading · Adds Advocates

Right in the middle of proxy season, we are thrilled to welcome a few new Advocates on the site.  Here’s the rookie lineup straight from MoxyVote’s blog:

  • Bill Davis is an independent shareholder activist who works to address corporate governance issues and increase shareholder involvement. Davis was recently nominated for a lifetime achievement award by the Social Investment Organization for his shareholder engagement and advocacy efforts. Be sure to read his resolution at Canadian Imperial Bank of Commerce (CM).
  • NorthStar Asset Management, a Boston based SRI asset management firm, files and supports shareholder resolutions focused on corporate governance practices, corporate environmental policies, and diversity and anti-discrimination efforts within the workplace. Be sure to check out their human rights resolution at Ecolab (ECL).
  • The Center for Social Philanthropy (C-SocPhil) provides innovative research, resources, and tools to encourage long-term social and environmental philanthropic impact. They’re supporting shareholder resolutions to encourage individuals and larger organizations to vote for initiatives that support their socially responsible outlook.
  • FreedomWorks is headquartered in Washington, DC and works with hundreds of thousands of grassroots volunteers nationwide. Through their volunteer activist network, FreedomWorks engages in activities that promote individual liberty through decreased government involvement and corporate initiative. Be sure to check out their opinions for resolutions on the Duke (DUK), General Electric (GE), and Pfizer (PFE) ballots.
  • PAX World Investments has several mutual funds geared toward SRI and ESG investing. Through their proxy voting and advocacy efforts, PAX World supports shareholder initiatives focused on corporate social responsibility and sustainability efforts. Keep an eye out for future ballots with PAX World’s vote recommendations.

Florida SBA has also been added to the mix at MoxyVote and that’s critically important because they are the 4th largest public pension fund in the United States and they own a little bit of thousands of companies. Now, when you turn to MoxyVote for voting advice they won’t just have one advocate’s position on one issue on your ballot. You’ll also get voting advice on directors and corporate sponsored measures at most of the companies you might own.

I’m glad to see the growing lineup. Please keep in mind, if you don’t find the advice you need on MoxyVote, you can always go to to find more advice from institutional investors. Then you can come back and vote with Moxy.


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SEC's Commissioner Luis Aguilar on Portfolio Data Reporting

Deregulated markets were instrumental in the misallocation of our country’s capital and other scarce resources, which resulted in trillions in mispriced assets, devastated the savings of American families, and resulted in painful levels of unemployment that persists to this day. Just as a few examples . . . American families who had saved for decades — did everything right — could no longer afford to send their children to college. Hardworking men and women entering their retirement years have had to continue working because their retirement nest eggs significantly diminished. Businesses large and small watched their lending costs soar and loan commitments disappear. The negative effects on capital formation in our country were devastating…

It is clear that understanding the principles of regulation and implementing those principles through robust oversight is Continue Reading →

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Aspirational Pay for CEOs

Goodyear CEO, Richard Kramer, saw a 69% rise in his annual compensation to $8.5 million in 2010, according to an Associated Press calculation from a regulatory filing. The company reversed a 2009 decision to freeze executive officers’ salaries, Bloomberg reports. Meanwhile, the largest US tire maker reported a loss of $216 million for 2010, which included a $160 million charge to close a 1,900-employee plant in Union City, Tennessee.

Goodyear is a prime example of the many US companies that are granting bonuses to its executives despite suffering a loss in revenues. US likely to tweak its executive compensation schemes, Corporate Secretary, 3/30/2011.

Apparently Kramer is being paid base on aspirations, rather than actual performance. That’s one of my aspirations too, get paid for my dreams, rather than reality. Nice work if you can get it. Corporate Secretary also reports, UK firms may begin to lengthen executive remuneration schemes from three years to five, a change that would put pressure on other major companies to change the way they reward senior managers.

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Most Public Pensions Can Pay For 30 Years

March 29, 2011 ( – While the recent recession hurt public pensions, they do not face an immediate liquidity crisis, according to a recent report from the Center for Retirement Research at Boston College (CRR).

Using the most stringent framework, where assets and benefits earned to date are put in an “old” plan and normal cost payments cover all future accruals, CRR found most plans have enough assets to last for at least 15 years. Using a more realistic “ongoing” framework, where normal costs are used to cover benefit payments, it found most plans have enough for at least 30 years.

CRR said exceptions include Connecticut SERS, Illinois SERS, Illinois Universities, Kentucky ERS, Louisiana Teachers, New York City Teachers, and Rhode Island ERS.

In its Issue Brief, the CRR noted that most state and local plans improved their funding discipline and management in recent decades, so they had a relatively solid foundation in place before the financial crisis hit. In addition, states have already begun responding to their shortfalls by increasing employee contributions and reducing benefits for new employees.

However, the report concluded the outlook of public pensions is closely tied to the recovery of the economy and the stock market. The CRR Issue Brief is here.

via – Public Pensions not Facing Immediate Crisis.

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Fix CEO Compensation by Broadening Incentive Pay

The defenders of executive compensation argue that senior executives make the most significant contribution to a company’s success; ergo, outsize compensation is justified. But the NBER Shared Capitalism Research Project has shown the opposite: Distributing rewards across the corporation—sharing them with workers—is the most efficient way of making businesses more successful. Motivated employees are more productive and spur innovation in products and processes…

Freeman, Blasi, and Kruse propose a simple way to encourage companies to follow the Googles and Wegmans of the world: Allow them to deduct incentive pay as a cost of business only if they offer the same incentive program to all workers. In other words, don’t give tax breaks to companies that provide stock options and bonuses to only a few executives. This would correct a major loophole in the tax system with which corporate executives have been enriching themselves at the expense of their stockholders and taxpayers. (The U.S. Tax Code does not allow the deduction of salaries beyond $1 million as a business expense, but it does allow companies to deduct as a cost of business any amounts paid as incentive compensation.)

This proposal is not as radical as it may seem. It is, rather, American capitalism at its best, the extension of a system that has engendered the success of such major companies as Google (GOOG), Apple (AAPL), and Procter & Gamble. The same principles already apply to pension and health-care plans—these are deductible as a cost of business only when they cover every employee. Compensation should be subject to the same rules, which will encourage more companies to extend incentive pay to all workers. And most importantly this change would make U.S. businesses more productive while benefiting workers.

via How to Fix Oversize Executive Compensation – BusinessWeek, 3/25/2011.

According to Corey Rosen, National Center for Employee Ownership:

The ideas here make sense. We have become infatuated with the idea that companies rise and fall based on a few key people. Yet study after study (and the rhetoric of CEOs insistent that “people are our most important asset”) show that the level of employee engagement at work is the single most important determinant of corporate performance. Engaged employees come up with the ideas, large and small, that move companies forward. Companies that share ownership widely grow 2-3% per year faster than would have been expected to otherwise, for instance, their employees have three times the retirement assets, and they are much less likely to go bankrupt.

As I recall, much of the research into employee ownership and worker participation showed tremendous gains when these factors were linked. There was a raft of experiments in the 1970s and 1980s. I, myself, was somewhat involved with Rath Meatpacking when it became the largest worker-owned firm in the United States. In many of these situations productivity shot up but management shut them down because employee participation took power away from them… especially middle management. I like the ideas advocated by Freeman, Blasi, and Kruse. Unfortunately, the Business Roundtable and the US Chamber of Commerce are likely to express strong opposition.

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Airgas: More Reasons for Proxy Access

The Airgas situation demonstrates that continued investor engagement is needed in order to assert shareholder power in the hostile takeover setting. Popular perception holds that classified boards and poison pills are both in sharp decline, and there is some truth to this notion at large-cap US firms. However, nearly 90% of US firms have charter provisions that allow their boards to adopt a pill at any time, without shareholder approval. Classified boards, moreover, are far more common at smaller companies and recent IPOs than at established large-cap firms. For more on the implications of the Airgas/Air Products battle for US governance reform, see my report, available as a free download from the GovernanceMetrics online store.

via Lessons from the Airgas Battle – The Corporate Library Blog.

The report concludes:

Shareholders, especially those with holdings outside the S&P 500, are left with one option if they wish to retain power in the hostile takeover setting: use the tools available, including proxy voting, shareholder proposals and “vote no” campaigns against directors, to work toward the elimination of the classified board.

Similar sentiments earlier this year at theRacetotheBottom [Delaware Validates “Just Say Never:” Air Products v. Airgas (The Need for Shareholder Access) (Part 3)]

Airgas in conjunction with Selectica and Yucaipa have as a practical matter mostly eliminated the market for corporate control. Without the market for corporate control, management becomes even more entrenched. These decisions, therefore, make it even more important that shareholders have a mechanism to remove directors who do not respond to shareholder interests. Cases like Airgas all but prove the need for shareholder access.

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Kodak Agrees to Green Century Request for Political Transparency

Green Century Capital Management, Inc., a Boston-based investment adviser to the environmentally responsible Green Century Funds, announced that Eastman Kodak Company (Kodak) joins 79 other companies that have agreed to greater political transparency and accountability, according to the Center for Political Accountability (CPA).

Kodak will provide increased transparency on its payments to trade associations and other tax exempt groups and will provide more information on its accountability structures governing its political giving.

The agreement resulted from a dialogue Green Century had with the company in conjunction with the CPA, a nonprofit, non-partisan advocacy organization leading the political disclosure and oversight effort. Green Century stressed the importance of ensuring shareowners are aware of the full spectrum of political spending made by their firms, especially those made through trade associations like the U.S. Chamber of Commerce.

Companies are not required by law to disclose political contributions or payments to trade associations for political purposes. Moreover, trade associations are not required to disclose the specifics of their political spending or their membership. This secrecy leaves institutional investors, individual shareholders and even member companies in the dark.

In light of the Supreme Court ruling in Citizens United v. Federal Election Commission, which permits corporations to spend freely on independent advertising for and against political candidates, many investors believe this type of disclosure is more Continue Reading →

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Ontario to Require ESG Disclosures of Pensions

The Canadian province of Ontario is scheduled to become the first in the country to oblige its pension plans to publish a Statement of Investment Policies and Procedures (SIPP) and publicly state whether the SIPP takes ESG (environmental, social and governance) issues into account. The SIPP introduction could act as a major boost to the take up of responsible investing in Canada…

via Responsible Investor, 3/30/2011. I hope this requirement spreads to the U.S. as well.

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PhD Student Wanted to Research Uk Stewardship Code Implementation

Oxford Brookes University Business School wants to test the proposition that Shareowner Engagement is having an impact. They are looking for a PhD student to investigate the Stewardship Code, which “aims to enhance the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and the efficient exercise of governance responsibilities.”

Proposed areas of research include how institutional investors adopt the Code; whether the Code leads to increased shareholder engagement and better governance; whether and how shareholders make use of the information supplied by institutional investors. If I were twenty years younger, I’d be there.

To find out more about the project and to apply, contact either Dr. Sandra Einig or Professor Laura Spira.

via Doctor of Stewardship Wanted « Manifest – The Proxy Voting Agency.

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How I Voted at Schlumberger

Schlumberger, one of the stocks in my portfolio of about 50 companies, has an Apr 06, 2011 Annual Meeting coming up. I’ve decided to vote early this time, since I’m in New Orleans and may be too busy to research much while there. I checked in with, ProxyDemocracy and OTPP.

MoxyVote had no recommendations as of 3/29, as I post this, but I expect they will soon. OTPP voted against the proposal to increase authorized common share capital. I voted with them on that issue. At ProxyDemocracy I see that Trillium voted against all directors. Maybe they’re doing it because Schlumberger is second only to Halliburton in providing fracturing services to natural gas companies? I don’t know.

Florida SBA voted against Tony Isaac and K. Vaman Kamath. AFSCME voted against Chairman and CEO Andrew Gould. I went with these recommendations. Maybe it is just me but $9 million in options awarded to Gould last year on top of the rest of his pay for a total of about $15 million just seems over the top.

For say when on pay, I went with annual, along with disclosed votes by CBIS, Florida, Trillium and AFSCME. When I checked on 3/27 ProxyDemocracy was showing that CalPERS voted with management for a frequency of every two years. However, after contacting CalPERS I learned they actually voted for annual voting on SWOP. Both parties looked into the glitch and as of 3/28 it was fixed.

I also voted against the officers compensation proposal. As I said before, $15 million for Gould seems over the top to me. I’m not sure where the cut-off point is for reasonable pay but as long as shareowners approve such packages the averages will keep ratcheting up and the disparity between the top 1% and the rest of us will continue to grow. We need to ratchet down the Lake Wobegon effect.

For all other proxy items, I voted with management using the MoxyVote platform.

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Proxy Season Foresight #3

The two big items on the governance proposals front this year, according to The Corporate Library are, management proposals:

  • the advisory vote on executive compensation (SOP), and
  • the advisory vote on the frequency of the advisory vote (SWOP)

So far, only two companies have received majority votes against approval of executive pay, those at Jacobs Engineering and Beazer Homes…

One of the earliest votes was Monsanto, with 35.08% of shareholders disapproving of executive pay. “We won, ‘soy ’ there,” said Monsanto. But to describe this as a “victory”, once you’ve “rounded up” (sorry, you can’t not, can you?) the nay sayers, it’s a bit of a Pyrric victory…

However, there have been four other annual meetings more recently with votes against Say on Pay in the region of 47% to 49%…via Proxy Season Foresight #3 (From remarks for a BSR webinar 16 March) – The Corporate Library Blog.

Tomorrow, I’ll post my vote at Schlumberger. Frankly, I just can’t bring myself to vote in favor of $15 million in pay for anyone. There has to be a limit to this craziness. We’ve got to stop the bracket creep.

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Rising Concern about China

Public concern is growing about China’s increasing economic power, according to a new global poll conducted for BBC World Service.

Negative views of China’s growing economic power rose–and are now in the majority–in France (up from 31% to 53%), in Canada (up from 37% to 55%), in Germany (up from 44% to 53%), in Italy (up from 47% to 57%) and in the USA (up from 45% to 54%). Negative views also grew significantly in countries such as the United Kingdom (up from 34% to 41%), and Mexico (up from 18% to 43%).

China is expected by many to overtake the USA in economic importance to their country over the next ten years. Asked to rate on a scale of 0 to 10 the importance of their economic relations with the USA, China, and the EU now, and in ten years’ time, people on average give China a score of 6.85, but a score of 7.29 in ten years–more important than the USA and the EU.

The poll suggests that a growing perception of China as acting unfairly is alienating some of its largest trading partners, while its military expansion is being watched by its neighbours with a wary eye.”

via Rising Concern about China’s Increasing Power: Global Poll – World Public Opinion.

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Review: Risk Management and Corporate Governance

Risk Management and Corporate Governance: Interconnections in Law, Accounting and Tax by Marijn Van Daelen (Editor), Christoph Van Der Elst (Editor)

After the recent financial crisis more and more pension and other funds are adjusting their portfolios for risk. This book offers a fascinating look at the juxtaposition of corporate governance and risk analysis. Bob Tricker has often proclaimed the 19th century the entrepreneur’s, 20th century management’s, and 21st that of governance. It could also be the century when risk and probability finally enter everyday consciousness and is finally taught in grade school.

The law of probabilities defined by Fermat and Pascal in 1654 started us down the road. Authors represented in this small volume bring us up-to-date regarding how far we have come on the journey from passive prisoners of providence to attempting to measure and manage all possible events.

In the 17th century the Dutch East India Company was forced by shareowners to publish balance sheet statements and profit and loss statements. Today, shareowners call on Starbucks to “Adopt a Comprehensive Recycling Strategy for Beverage Containers.” Talk about drilling down. The London city directory mentioned 11 accountants in 1799; we’ve come a long way.  The authors provide a brief tour of history, which includes a wide variety of risk models, such as Value at Continue Reading →

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SWOP Reaches Tipping Point

The debate over the best frequency for “say on pay” votes has reached a tipping point, as a majority of S&P 500 and Russell 3000 firms have urged their investors to support annual advisory votes on executive compensation.

As required by the Dodd-Frank Act, this year’s corporate proxy statements include a “say when” vote that asks investors to express their views on whether advisory votes on compensation should be held every year, every two years, or every three years. The percentage of annual recommendations has been growing in recent weeks, as more boards have heeded the large majority votes by investors for annual votes at early season meetings.

So far, 105 (60.7 percent) of the 173 large-cap firms that have filed proxy materials had endorsed annual votes, as compared to the 56 companies (32.4 percent) where management endorsed triennial votes, according to ISS data as of March 22. Seven firms have favored a biennial frequency, while five issuers made no recommendation.

via A Tipping Point on Pay Vote Frequency – Governance.

See also Shareowners Going “Off the Reservation” on SWOP and Addressing CEO Pay.

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CalPERS Airs Dirty Laundry: Reforms Promise New Day

Could CalPERS have avoided the current corruption scandal if, like CalSTRS, it had adopted a staff recommendation in 2007 requiring private equity firms to disclose fees paid to “placement agents” like Alfred Villalobos?

A member of a small group that formed lasting relationships while serving with Villalobos on the CalPERS board during the 1990s, Kurato Shimada, chaired a committee that bottled up the staff recommendation, never bringing it up for a vote.  (CalPERS corruption: the cabal and the culture « Calpensions)

Things might have gone differently had CalPERS acted on my my petition dated September 18, 2006. Back then I asked for amendments to California Code of Regulations, Title 2, and any statutes necessary, to place strict limits on campaign contributions, fromthe types of firms doing business with CalPERS, of no more than $250 and meals and gifts valued at no more than $50 as I had done earlier on February 21, 1998.

Additionally, I asked that CalPERS require through regulations that members of the board of administration must comply with the same governance standards CalPERS attempts to impose on corporate boards. The old guard has passed from CalPERS. The current board commissioned a Report of the CalPERS Special Review that reveals systematic abuse of the public trust by a few board members over many years, as well as by the former CEO.

CalPERS is now endorsing legislation to severely limit gifts and to place further restrictions on post-employment opportunities of civil service money managers. CalPERS board member J.J. Jelincic, who I consider a good friend, has expressed Continue Reading →

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Taxes: Only for Little People & Little Companies?

General Electric, the nation’s largest corporation, had a very good year in 2010.

Articles in this series will examine efforts by businesses to lower their taxes and the debate over how to improve the tax system.

The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.

Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.

In January, President Obama named Jeffrey R. Immelt, General Electric’s chief executive, to head the President’s Council on Jobs and Competitiveness. “He understands what it takes for America to compete in the global economy,” Mr. Obama said.

(G.E.’s Strategies Let It Avoid Taxes Altogether –, 3/25/20110)

I guess “what it takes” is buying off Congress, avoid investing in the United States, treating your tax department as another profit center, and “looking to exploit opportunities to reduce tax.”

There has been a big movement lately to publish the names and pensions of former public employees earning more that $100,00 a year. I’d like to see this movement for transparency taken a bit further. Let’s publish the income taxes paid by all public companies. While we’re at it, let’s publish everyone’s tax returns. Maybe the only way to solve our deficit problems is to shame those that live on the edge of the law.

Far too many seem to have no shame when it comes to taking all they can get without regard to society. Transparency might just prompt citizens to create a society that rewards companies and individuals for paying their fair share of taxes and making a substantial contribution to the larger society.

I’m eager to see where the NYTimes takes their series. Don’t forget to read at least some of the comments. They provide at least some hint of growing outrage that has yet to be harnessed politically. Whereas Tea Party activists are typically driven by a strong anti-tax position, I think an even larger movement could be formed around transparency and fairness when it comes to paying taxes. Much of the anti-tax rhetoric is really a gut reaction to unfairness. If GE doesn’t need to pay any taxes, why should I? Unfortunately, it is a strategy of mutually assured destruction.

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Video Friday: Financial Crisis & CEO Input Into Board Selection

In response to growing concerns on the spread of the financial crisis, the Yale School of Management, in partnership with the Wall Street Journal and CNBC, organized a roundtable discussion in New York on September 23, 2010 that brought together business leaders and scholars from Yale, Wharton, NYU, and the Columbia and Harvard business schools to discuss the unfolding situation in the markets and the economy more broadly, as well as the proposed federal bailout plan. Click Here. Hat tip to Simoleon Sense; I didn’t realize it had been posted.

For a completely different take on the financial crisis, Arthur Benjamin asks, what if we put probability and statistics at the top of the pyramid instead of calculus?

On This Week in the Boardroom (TWIB), co-hosts TK Kerstetter, President, Corporate Board Member, and Scott Cutler, Executive Vice President, NYSE Euronext review what nominating/governance committees should know about including the CEO in the board recruitment process. Additionally, hear why Hewlett Packard’s new CEO and nominating committee are under fire by proxy advisory firms. For our take on these issues, see The Appearance of Legitimacy: Board Elections and HP Nomination Committee Under Fire.

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Responsible Investor: Walden's ShareOwner Proposals

Shareowners recognize that with more than 100 members the Chamber’s board is effectively ungovernable, leaving the door wide open for management. There are board committees on different issues, such as the environment, but committees do not govern, they recommend…

A company’s obligation to its shareowners also goes beyond disclosure. Companies also have an obligation to shareowners to oversee the activities of their trade associations. They can have a major impact on companies and pose a range of risks. It is important to understand the principal-agency relationship between companies and trade associations. Principals are responsible for the actions of their agents.

Shareowners look forward to hearing from Accenture, and the other 34 companies, in the very near future. Where do each of you stand as a company and what actions are you planning to take to reduce the dissonance between what you say you are and how that relates to your membership on the US Chamber of Commerce’s board? We know that you sit in many places. We need to know where you truly stand! (Can big US companies stay with the Chamber of Commerce when it contradicts their own policies?, Responsible Investor.)

Stephen Viederman, the author of the post on RI, is a Strategic Advisor to the Christopher Reynolds Foundation and one of the few people I encountered early on in the field of social investing who was also keenly aware of the importance of corporate governance… the rules.

Also interesting:

What if I told you I’d found a political group that for a hundred years had managed to be absolutely right on every crucial political issue? A political lodestone, reliably pointing toward true policy north at every moment. (Why the Chamber of Commerce Has Been Wrong on All the Issues — For 99 Years and Counting, Bill McKibben

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Starbucks tweets AGM: Holds Results

Starbucks Corporation (NASDAQ:SBUX) held its annual meeting in front of a 2000-strong crowd in its hometown Seattle yesterday – and if you weren’t able to be there in person you could tune in to a video webcast and live tweeting session to stay in the loop. via Starbucks tweets annual meeting, holds results | IR Web Report.

Post by Dominic Jones reveals technological capabilities but very poor coverage of the actual results of voting… the actual business of meetings. See also: Starbucks: How I Voted.

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Effective Chair-CEO Relations

The number of U.S. companies that separate the chairman and CEO roles is at a historic high: 40% of the S&P 500 now separate the roles, up from 23% a decade ago, according to Spencer Stuart. Of the 40%, 19% may be classified as independent Chairs, up from 9% five years ago. A new report published by the Millstein Center for Corporate Governance and Performance at the Yale School of Management is among the first to outline how chairs and CEOs work effectively together in these interdependent roles, providing useful guidance as the chair-CEO leadership structure becomes more prevalent.

The Effective Chair-CEO Relationship: Insight from the Boardroom, authored by management expert Elise Walton, is based on interviews with 35 chairs, CEOs, and stakeholders. Participants identified key factors that contribute to a successful working relationship between the chair and CEO: good chemistry, a clear framework for the relationship, and having effective people and practices in place.

“Separate board leadership is still emerging in North America,” said Walton. “There is no Continue Reading →

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SHARE to Develop Best Practices on Human Rights

The Shareholder Association for Research & Education (SHARE) is launching a two-year project aimed at developing tools to assist investors in ensuring their pension investments uphold the highest standards of human and labour rights. The Investing in Decent Work project will focus the challenges investors face in identifying and addressing issues related to the use of forced labour, precarious employment and occupational health and safety…

SHARE will also identify best practices to enable companies to meet and exceed widely-accepted international labour standards and improved disclosure to help investors manage risks and identify opportunities related to workplace issues. (SHARE project will examine role of workplace issues for investors)

I’m delighted to see this development to assist Canadian institutional investors. Many US funds I am familiar with, like CalPERS, have endorsed the United Nations Global Compact, Sullivan Principles, etc. Although I sure they attempt to be conscientious in implementing such principles, I’m sure most would welcome the development of best practices to ensure intentions are carried out.

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EU Offers Prize for ESG Integration

The overall objective of this call for proposals is to enhance market reward for sustainable and socially responsible enterprises, so facilitating the transition towards a sustainable economy.

The specific objective is to build the capacity of mainstream investment actors to better integrate environmental, social and governance information into their valuations of enterprises. This call for proposals is also an opportunity for the investment community to further align its practices with the expectations of European public policy.  Latest news from DG Enterprise and Industry.

Yes, the European Unions wants to drive ESG into the heart of investing considerations. The deadline for responses is set for May 20. Can anyone imagine the United States offering a prize of over $350,000 to prompt the integration of environmental, social and governance issues into the valuations of mainstream institutional investors? Please let me know when you see it. Hat tip to SHARE newsletter. Don’t miss out; subscribe now.

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Corporate Governance and the Business Life Cycle

Corporate Governance and the Business Life Cycle (Corporate Governance in the New Global Economy), Igor Filatotchev (Editor)

Most of the empirical literature on corporate governance is rooted in agency theory. While the principle-agent relationship and monitoring play a central role, governance is also concerned with entrepreneurship and contextual issues. The editor has chosen a good cross section of articles to help develop a framework to understand organizational governance and its life-cycle evolution. Part 1 addresses general interrelationships; part 2 moves us to IPOs; part 3 more mature firms; and part 4 declining firms and buy-outs.

One of the more interesting chapters is by Matthew D. Lynall, Brian R. Golden and Amy J. Hillman, which points to the importance of dominate power at the time of board formation. Path dependence suggests a board composition that meets environmental needs at one Continue Reading →

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LinkedIn: Connecting to Profits

Social network LinkedIn has reached more than 100 million users and released some surprising facts, including which companies are most connected to the site…

Dominic Jones says Campbell Soup is a standout. Here is an old-economy company among other most connected companies, which include Cisco, Amazon, eBay, Apple, Cisco and EMC.

Venture Beat reportedon a study by a doctoral student at Pace University that concludes that companies with more followers on social networks tend to perform better on the stock market. Another study has also found that social media improves stock liquidity, especially for small companies.  Of course, these conclusions seem rather obvious because the more attention a company gets, the more potential buyers it has for its stock, and share prices are simply a function of supply and demand.

IR Web Report Group Group News | LinkedIn. Dominic Jones sure seems to be using social media tools. See also, Wanted: Tech-Savvy Directors.

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Philippine BOVESPA, Race to the Top

The Philippine Stock Exchange Tuesday said it has secured the support of the International Finance Corp. to establish the Maharlika Board, a listing segment for companies to voluntarily commit to corporate governance practices beyond those required by law.

The IFC, the investment arm of the World Bank, is helping the PSE set up the Maharlika Board through IFC’s Global Corporate Governance Forum. (Philippine Bourse Corporate Governance Project Gets World Bank Support)

To the best of my knowledge, Brazil pioneered this approach. In 2000, the Sao Paulo Stock Exchange, BOVESPA launched three new market segments: “the Special Corporate Governance Levels 1 and 2” and the “Novo Mercado,” with each market segment requiring progressively stricter standards of corporate governance. Adoption of this approach around the world could create a race to the top.

Corporate governance is a health check for business, according to Philip Armstrong, head of the Global Corporate Forum of the International Finance Corporation.

In an interview with Business Nightly on Tuesday, Armstrong shared that the Philippines received only $2 billion out of the over $60 billion in foreign direct investments in the region largely because of perception that governance standards here are not as high as in other competing markets. (Corporate governance a health check for business: IFC rep,, 3/23/2011)

These new efforts could improve that situation.

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Australia ‘Say on Pay’ Enhancements Too Radical

Shareholders of Australian public companies have been having their say on pay by law since 2005. The Australian Parliament is currently considering amendments to its say on pay rules that are aimed at increasing the impact on companies of significant shareholder votes against.

The ‘two-strikes’ test is a key proposed change included in the Corporations Amendment Bill 2011 (the Bill). If 25% or more of all shareholder votes are cast against a company’s remuneration report, this ‘first strike’ requires that the company respond to the negative vote in the following year’s compensation report…

The Bill requires that strike two triggers a shareholder vote within the meeting to decide whether the directors must stand for re-election. The vote on director reelection is called a ‘spill resolution’, If the director re-election resolution is supported by 50% or more of votes cast, the directors must stand for re-election at a “spill meeting” within 90 days…

A review of the comments that were submitted reveals that although the requirement that companies respond to the first strike was generally well received, the board spill resulting from a second strike was almost universally panned by investors and corporate spokespersons alike. The thrust of much of the opposition to spill votes was that director elections should not be triggered by fewer than 50% of shareholder votes. (Australia proposes ‘say on pay’ enhancements – SHARE – Shareholder Association for Research and Education)

Generally, I find myself coming down on the side of empowering shareowners at just about every turn. However, I agree this Australian measure would go too far. A second 25% vote could trigger a second report but I don’t think anything less than a rejection by a majority of shares voted should trigger a vote to “spill” the board. McRitchie, defending the rights of entrenched boards, who would have dreamed?

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Are High Paid CEO$ Looking for Acceptance?

People who feel more secure in receiving love and acceptance from others place less monetary value on their possessions, according to new research from Edward Lemay, assistant professor of psychology at UNH, and colleagues at Yale University.

Lemay and his colleagues found that people who had heightened feelings of interpersonal security — a sense of being loved and accepted by others — placed a lower monetary value on their possession than people who did not.

In their experiments, the researchers measured how much people valued specific items, such as a blanket and a pen. In some instances, people who did not feel secure placed a value on an item that was five times greater than the value placed on the same item by more secure people.

“People value possessions, in part, because they afford a sense of protection, insurance, and comfort,” Lemay says. “But what we found was that if people already have a feeling of being loved and accepted by others, which also can provide a sense of protection, insurance, and comfort, those possessions decrease in value.”

“These findings seem particularly relevant to understanding why people may hang onto goods that are no longer useful,” Lemay says. (The more secure you feel, the less you value your stuff, ScienceDaily, Mar. 3, 2011) Could they also be relevant to understanding why many CEOs seek pay way beyond what they can meaningfully use for their own needs?

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Wanted: Tech-Savvy Directors

Corporate boards of directors should devote as much attention to IT matters as they do to accounting rules, but they rarely do, according to a report released earlier this month by the Deloitte Center for Corporate Governance.

Today’s companies need “tech-savvy directors” who can make sure the IT strategy is aligned with the overall strategic plan, as well as monitor the various risks associated with IT, the report said.

“The growing complexity and pervasiveness of IT is increasingly making IT literacy an essential competency for directors,” the Deloitte Center report said. Boards should give as much scrutiny to a major IT project as they would to any other major capital expenditure, it noted.

But most directors acknowledge that they don’t spend enough time on IT oversight, perhaps because they aren’t comfortable with technology, according to the report. (via Wanted: Tech-Savvy Board of Directors – Computerworld)

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Carl Rosen Supports Pan-European Code

Carl Rosen, executive director at the International Corporate Governance Network, told the Financial Times he would support a stewardship code setting out shareholder duties for all 27 member states.

However, he suggested a pan-European approach to governance legislation is likely to face resistance from the UK, where the Financial Reporting Council issued its new Stewardship Code last year.

“In the UK people say ‘we do not need a code, we already have one’, but I think it will be helpful to have a push from the EU,” Mr Rosen commented.

Lutgart Van den Berghe, chairman of the policy committee at the European Confederation of Directors’ Associations, voiced a similar opinion on the potential value of a pan-European code.

She said both company directors and shareholders should shoulder some of the blame for the financial crisis.

The European Commission is set to publish a new green paper on corporate governance next month.

According to reports, it will focus on the structure of company boards, shareholder engagement and the effectiveness of the current ‘comply or explain’ system.

via Corporate governance experts support pan-European code – Odgers Berndtson.

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