I’ve been getting some interesting comments in response to last week’s newsletter and I want to share them. Here are a few of the more interesting e-mails I’ve received. I’ve deleted the authors’ specific designations to safeguard their privacy:
‘You are missing a key fact. The recommendations to shareholders are not management’s recommendations as repeatedly said in your letter. They are Board recommendations; made by the directors, and appropriately so since the directors are elected by the shareholders and answerable to them. Yes, management advises the directors, and maybe convinces the directors of management’s view of what their recommendation should be. But, in the end, it’s Board recommendations that are made to the shareholders.’
‘So the situation may be even more serious than shareholders not following management. Shareholders are not listening to their elected directors. I think that’s what we’ve been seeing increasingly in the past few years. Perhaps rightly so, if the Board has simply passed on, without challenge and scrutiny, management’s recommendations. But it’s unfair to Boards to imply, without discussion, that that’s what all Boards do.’
–Corporate secretary and general counsel of a Fortune 500 company (Corporate Secretary editor’s blog, Janine Sagar, 3/7/2011)
This comment is followed by others, including one from CorpGov.net. Addressing this first comment, I think there are varying interpretations of “management.” Yes, I can see corporate secretaries and corporate counsels might often make the distinction made by the commentator above. Shareowners also distinguish between boards and executives. However, I consider proxy recommendations to be from “management,” executives and board inclusive.
Additionally, the idea that “They are Board recommendations; made by the directors, and appropriately so since the directors are elected by the shareholders and answerable to them” is somewhat laughable. Elected by shareowners? Most corporate boards still don’t even have majority vote requirements for the election of directors… although they actually do in the Fortune 500.
Answerable to shareowners? I don’t think so. Board members, in most cases probably consider themselves answerable to those who asked them to join the board… usually, that means key board members and the CEO. True, in surveys they probably know enough to say they answer to shareowners but everyone knows this is a myth. Once shareowners have proxy access, actual accountability may begin to change but it will take many years, since shareowners will only be able to nominate up to 1/4 of board members and only a few outliers are likely to be targeted in the foreseeable future.