Archive | June, 2011

Will Netflix Listen to Shareowners?

eBay moved to eliminate supermajority requirements in its bylaws at its first regularly scheduled meeting after shareowners approved a ballot measure by John Chevedden. So far, no real word from Netflix on whether or not they will heed the will of shareowners.

It is great to see this issue covered by Bocco Pendola in Seeking Alpha.

This push to move from a supermajority to simple majority vote came after shareholder activists, led by John Chevedden, got the proposal on the ballot at eBay’s recent annual meeting of shareholders. If you follow the link to the official SEC filing of eBay’s proxy statement, you’ll see that the company opposed the proposal. eBay shareholders, however, voted in favor of it, prompting the eBay board to adopt the proposal just two months after it held the meeting.

This move by eBay puts considerable pressure on Netflix (NFLX)… Netflix notes it “will consider” ratifying the proposal ” in due course.” Like an online auction, the clock is ticking.

via Will Netflix Follow eBay’s Lead in Heeding Its Shareholders? – Seeking Alpha, June 29, 2011.

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ISS Vote Results and Executive Pay

ISS released a summary of the vote results for shareholder proposals on leading governance, environmental and social topics. Investors overwhelmingly endorsed company pay programs, 91.2% support on average (based on “for” and “against” votes). Shareholders voted down management “say on pay” proposals at 36 companies, or just 1.7 percent of the almost 2,200 companies in the Russell Continue Reading →

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Breaking the Hold on Rating Agencies

Into the second day of the Yale Governance Forum 2011 and I began to relax among friends, not being quite as conscientious about taking notes but here are a few tidbits from an interesting discussion between Kurt Schacht and Jules Kroll.


Jules Kroll

Schacht introduced Kroll by noting that everyone has taken aim at the credit rating agencies. Questions were raised about internal controls, professional standards for analysts, failure to disclose how they arrive at ratings, “Chinese walls” that failed to hold. Yet, business seems to be back to usual. The issuer pays model is still in question.

Kroll made a name and a Continue Reading →

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ETF's: Danger or Positive

The factors that brought about the tech bubble, the collateralized debt obligations crash and the rest are being replicated with ETFs: floods of cash and tidal surges of ingenuity in the markets advancing faster than the regulators’ event horizon.

via Fair exchanges?, Inside Investor Relations, 6/29/2011

‘ETFs, indexes and ‘closet indexers’ among mutual funds already make up about 40 percent of the market, I’m told that if you get up to about 60 percent, there really is no market anymore,’ Bob Monks points out. Others disagree. Additionally, Jon Lukomnik says ‘indexes provide active ownership discipline: where you can’t use exit, you use voice.’

See the FSB five page advisory report entitled Potential financial stability issues arising from recent trends in Exchange-Traded Funds (ETFs) found through Why ETFs give an uneasy sense of déjà vu,, 5/5/2011.

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Regulatory Reforms on Board Composition Have Been a Plus

New research from Cesare Fracassi of the Department of Finance at the University of Texas at Austin and Geoffrey Tate of the Department of Finance at the University of California, Los Angeles finds that board composition should be a continuing target of regulatory reforms.

Our results suggest that having directors with external network ties to the CEO may undermine the effectiveness of corporate governance.

We find that firms in which a high percentage of independent directors have external network ties to the CEO make more frequent acquisitions than firms with fewer CEO-director connections. Moreover, these acquisitions destroy shareholder value on average, particularly in firms which also have weak shareholder rights..

We find evidence that external governance mechanisms can substitute for weak internal governance. The negative reaction to merger bids among firms with many network ties between independent directors and the CEO and the reduction in Tobin’s Q are strongest in firms with weak shareholder rights.

More at External Networking and Internal Firm Governance, HLS Forum on Corporate Governance and Financial Regulation, June 29, 2011.


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Governance in the Cloud

Fay Feeney

The fourth session of the Yale Governance Forum 2011 was was a breakout. All four sessions looked great. I choose the one on social networking held under Chatham House Rule. Under the rule those reporting must not attribute what was said to specific individuals on the panel or in the audience. This discussion was especially interactive, with a great deal of participation from the small audience, as well as the panel. And, just to mix it up, I also added my own thoughts and commentary to these notes.

The panel, moderated by Fay Feeney, started with a YouTube video from Socialnomics on the Social Media Revolution. The message was clear. Social media represents a fundamental shift in how we communicate. They will find you. Will you shape Continue Reading →

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CalPERS Candidate Forum July 6th

CalPERS Auditorium Looking Toward Board Seats will sponsor a “CalPERS Candidates’ Forum,” moderated by the League of Women Voters of Sacramento County, on Wednesday, July 6, 2011 from 6:00 p.m. to 8:00 p.m. The forum will take place in the CalPERS Auditorium, Lincoln Plaza North, 400 P St., Sacramento, California. Free parking will be available under the building. Enter on the Q Street side between 3rd and 5th Streets.

As discussed below, no new information is forthcoming from CalPERS regarding the candidates. Candidate statements and videos remain unchanged for the runoff. Although you may find some new information on candidate websites, you know these are essentially ads, created to put candidates in the best light possible. At our forum you can put candidates on the spot with tough questions and compare them side by side.

Democracy is a two way street. It works best when an educated electorate fully participates and evaluates the candidates – their experience, qualifications, platform, dedication – whatever you place as high priorities. Hopefully, engagement with members continues after the election to ensure directors are truly representing our interests.

In the first round of the current election only 14% of members voted. Perhaps low turnout is attributable to a low interest or knowledge, a declining sense that voting as a civic duty, the difficulty of voting, or limited contact with the candidates. Whatever the reason, I personally can’t remember a time when the stakes were higher.

Both candidates running in the Special Runoff Election, to fill the Member-At-Large Position B vacancy, have confirmed their attendance. The forum is open to all CalPERS members, media and the general public and is free of charge. Attendees will have the opportunity to submit questions to the candidates via question cards, available upon arrival. League volunteers will group and consolidate questions submitted in order to avoid repetition and cover a broad range of material.

No food or drinks will be allowed in the Auditorium. Seating is limited. Please minimize the use of perfume and cologne out of respect for those with asthma or chemical sensitivities. In addition, please arrive several minutes in advance so the program can start on time without distraction.

Since there was no majority vote winner in the balloting held earlier this year, a runoff election will be held between the two candidates who received the highest number of votes, Michael Bilbrey and Richard H. Ross. As a result of a random drawing, Bilbrey’s name will appear first on the ballot.

CalPERS members as of June 1, 2011 are eligible to vote in the runoff election. Ballot packages will be mailed beginning June 30, 2011 and must be postmarked or received by CalPERS on or before July 28, 2011 in order to count. Unofficial election results will be available online in mid-August 2011.  Below are links to documents previously posted by CalPERS and you can click on candidate names to go to their campaign sites.

Richard H. Ross

Michael Bilbrey

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Corporate Governance Challenges

This was the third session of the Yale Governance Forum 2011, one that I’ve already noted was the best yet of the several I’ve attended. Like the first session, the third was held under Chatham House Rule. There’s no secret as to who the panelists were, but under the rule those reporting must not attribute what was said to specific individuals on the panel or in the audience.

With this group, I found that difficult, since discussions of specific countries are readily (if sometimes mistakenly) attributable to panelists from that country. The Continue Reading →

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Power Struggles Over Pay

Gary Larkin’s recent post, 2011 CEO Succession Report: Dismissals Up, Outside Hires on the Rise, informs Conference Board readers that Institutional Shareholder Services has launched an executive compensation database service for its client subscribers. Say on Pay rules were the driving force behind the new service.

The database includes historical CEO and NEO (named executive officer) compensation data for more than 4,000 U.S. companies, together with Say on Pay data Continue Reading →

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Strine as Chancellor

The Delaware Senate confirmed the governor’s appointment of Leo Strine, Jr. as the new Chancellor of the Delaware Court of Chancery. Strine has been a vice chancellor on the court for more than 12 years. I think he would have been anyone’s reasonable choice.  (Delaware Senate Confirms Strine as Chancellor., Delaware Corporate & Commercial Litigation Blog, 6/22/2011)

For my take on Strine, who leans somewhat against giving more power to shareowners, see my event coverage, Strine Rocks Stanford.

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Can Investors Behave Long Term?

The second session, Can Investors Behave Long Term?, of the Yale Governance Forum 2011 was held “on the record.” In some respects, that makes it even more difficult to report. I’m not a quick note taker, so would welcome comments from any who attended the forum, especially panelists, concerning what transpired.

Marco Becht

Keith Ambachtsheer

As I recall, Keith Ambachtsheer, author of Pension Revolution: A Solution to the Pensions Crisis, started us out after a brief introduction from Marco Becht, who served as the moderator. Ambachtsheer noted that all shareonwers are not the same. The wealthy, insurance industry, pensions, and others should be contrast with “guns for hire” who seem to need to be active. There is growing realization by many investors, such as  Keith Johnson Continue Reading →

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What is Short Term? A Conversation Retesting Assumptions


Ira Millstein




The first session of the Yale Governance Forum 2011 was held under Chatham House Rule. Panelists were announced in advance, so that is no secret, but under the rule those reporting must not attribute what was said to specific individuals on the panel or in the audience. This was a discussion where, often, members of the audience were as assertive as those on the panel.

Be forewarned, what you’re getting here is largely my take-away, complete with all my Continue Reading →

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Executive Compensation: Its Complicated

Andrew Liazos, writing for CFO magazine, argues that a law enacted years ago in response to Enron poses new tax risk for deferred compensation in that Section 409A could inhibit desirable restructuring of executive pay in response to possible “say on pay” no votes.

A 2009 notice from the IRS granted special relief to TARP recipients, stating:

the application of 409A(a) in these circumstances would produce a disincentive for TARP recipients to comply with the Special Master’s advisory opinions and act in accordance with the public interest, severely diminishing the Special Master’s ability to fulfill his intended role and damaging the entire TARP program.

However, no such relief has been granted to other companies now that say on pay is Continue Reading →

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Post-Modern Portfolio Theory: IRRC Research Award Available

The IRRC Institute announced a competition for research that examines the interaction of the real economy with investment theory. Two papers – one academic and one practitioner – will receive the new “IRRC Institute Research Award” along with a $10,000 award. Of course, we would like both prizes to go to readers. One of many books you might want to read in preparing your paper is Corporate Valuation for Portfolio Investment: Analyzing Assets, Earnings, Cash Flow, Stock Price, Governance, and Special Situations by Robert A. G. Monks and Alexandra Reed Lajoux.

The following panel of renowned judges with broad finance and investment experience will carefully review submissions and select two winning papers: Continue Reading →

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Regulatory Weakening of Disclosure Opposed

I was delighted to see a post from the new contributor to, Suzanne Rothwell, that actually took a strong stand against a House measure, which would boost the number of shareholders that trigger registration to 1000 shareholders (up from 500) and would “exclude employees and accredited investors from the calculation. This is a surprising initiative that would dismantle another post-1929 Market Crash reform that has worked well for many years to protect investors.”

Much more at The Need for Continuing Disclosure by Private Companies – The Mentor Blog, 6/15/2011.

According to a recent post by Broc Romanek, Ms. Rothwell recently retired from Skadden Arps after a decade of service in DC. “Previously, she served for 20 years in increasingly responsible positions with FINRA, including Associate Director and Chief Counsel of the Corporate Financing Department. At Nasdaq, she served as Special Counsel on the PORTAL Market and the development of trade reporting for debt securities.”

Great to see some real strong advocacy on The Mentor Blog. I look forward to more.

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Rising Stars of Corporate Governance

The Millstein Center for Corporate Governance and Performance at the Yale School of Management announced the recipients of its fourth annual Rising Star of Corporate Governance Award yesterday. This award recognizes global corporate governance professionals under the age of 40 who are making their mark as outstanding analysts, experts, directors, managers, or advocates. According to Ira M. Millstein, Senior Associate Dean for Corporate Governance at the Yale School of Management:

We have the privilege to recognize young and upcoming corporate governance professionals from around the world through this Rising Stars award. We are entering into a new era of corporate governance and this year’s honorees are among the next generation of leaders who will help define it.

The Rising Stars of Corporate Governance for 2011 are: Continue Reading →

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CEO Compensation Rose Sharply in 2010

In the aftermath of last year’s passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act and its requirement that public companies hold shareowner votes on executive compensation in 2011, many sustainable investors and other shareowner activists anticipated that this year’s proxy season could result in a watershed year for corporate governance. As Lisa Woll, CEO of the Social Investment Forum (SIF) said following the bill’s passage, “The most recent financial crisis highlighted for all Americans the urgent need to instill greater discipline among corporate boards and in financial markets…say on pay will help address these failures and strengthen America’s financial markets.”

via Institutional Shareowner, 6/10/2011. I’m on my way to the Yale Governance Forum so no time to blog. (Follow the conference on Twitter at #YaleGovForum. See my Continue Reading →

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SRI in the Rockies BaseCamp Comes to NYC

First Affirmative Financial Network announced yesterday that it will host a regional BaseCamp in New York City on Wednesday, June 15th from 9:00am to 6:00pm EDT. The one-day regional mini-conference is designed for investors and financial professionals who want to see their money working to change the world through sustainable and socially responsible investing.

Hunter Lovins—author of “Climate Capitalism,” founder and president of Natural Capitalism, Inc. and Natural Capitalism Solutions, and renowned promoter of sustainable development for over 30 years—will give a presentation called “Capitalism in Continue Reading →

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Gifting at CalPERS

CalPERS was in the news negatively again. The Fair Political Practices Commission is investigating more than four dozen CalPERS board members and employees over allegations they failed to accurately report gifts. Coincidently, I had a recent discussion with one of the board members under investigation before these allegations surfaced about current legislation.

It turns out,  even though I was a state ethics officer for many years, I hadn’t kept up with recent changes in the law. It used to be that if you provided something of value at a conference, like giving a speech, you didn’t have to report the free meal provided to you Continue Reading →

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Target & Citizens United

I’m on vacation, visiting friends in Boaton before Yale Governance forum but this looks noteworthy:

More than 100 protesters bearing signs with messages such as “Hands Off our Elections,” “Corporations are not people,” and “No Mouth, No Soul, No $peech” rallied outside of the not-yet-opened Target store in the East Liberty neighborhood of Pittsburgh, Pa.

Several of the demonstrators – acting as proxies on behalf of Target shareholders – entered the shareholder meeting to interrogate CEO Gregg Steinhafel about the corporation’s expenditure of $150,000 to support an extreme right-wing candidate during the 2010 elections.

Questions about corporate money in politics in the wake of the Supreme Court’s ruling in Citizens United v. Federal Election Commission dominated the shareholder question and answer session.

via Target CEO “embattled and annoyed” by critics « CitizenVox.

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Journalism Awards: Deadline June 10

Tomorrow (June 10) is the last day to enter the Corporate Governance and Responsible Investment Journalism Awards 2011. These awards are intended to recognise those journalists who are helping record and clearly explain the issues emerging in these vitally important areas.

There are two categories to enter – the Corporate Governance Journalism Award, and the Responsible Investment Journalism Award. The winner in each category will receive a cash prize of £1,000 which will be presented at an awards event in London on 14th July.

To download an entry form for the awards please visit:


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Yale Governance Forum

I’m packing today, heading out to Boston tomorrow for meetings there and in New York prior to the sixth annual Yale Governance Forum, June 16-17, which has attracted  more than 200 leaders from the global corporate governance community. The two-day event, hosted by the Millstein Center for Corporate Governance and Performance at the Yale School of Management, convenes leading institutional investors, corporate directors and executives, regulators, ratings agencies, academics, and practitioners from around the world to discuss current issues in the field. It is a very balanced mix, with no one segment predominant. Follow the conference on Twitter at #YaleGovForum. See my coverage of the 2009 and 2008 events.

Says Ira Millstein, Theodore Nierenberg Adjunct Professor of Corporate Governance at the Yale School of Management.

Corporate governance has long been thought to promote long-term behavior by corporations. This conference tests whether, in the real world, that assumption is right, or whether the market’s seemingly inexorable drive toward short-term gain requires still another upgrade of governance practices.

Investor T. Boone Pickens will outline steps that board directors should take to oversee energy risk. Andrew Ross Sorkin of the New York Times will review market practices that promote long-term behavior. Thomson Reuters CEO Tom Glocer and former Pfizer CEO Jeffrey Kindler will discuss how Continue Reading →

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Comments on SOP Advice: Rolling In

Sometimes the comments are as informative as the original post. The United States Proxy Exchange asked for comments on their/our draft say-on-pay voting guidelines aimed at retail investors.

So far, that plea for help has attracted comments from growing list leading thinkers in the investment community. Thanks to each of you for taking the time to offer your advice. I’ll post some juicy tidbits to get readers thinking that no one should miss out on this opportunity to be heard. I encourage each of you to read the paper, the comments and to submit your own thoughts on the topic.

Please keep in mind, we are looking for guidelines that can help retail shareowners make intelligent decisions in a reasonable amount of time, such at 10 to 20 minutes. Second, while many of us agree Continue Reading →

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WSJ Reports Inaccurately on SLAPP Suits

Jessica Holzer, writing for The Wall Street Journal informs readers this morning, Firms Try New Tack Against Gadflies: Corporations Look to Block Shareholder Activists’ Proposals by Challenging the Size of Their Stakes –

Companies have long viewed shareholder activist John Chevedden as a pain. The retired aerospace worker and his network of like-minded activists are behind more than 100 proposed changes in corporate governance filed each year for other shareholders.

Two companies have found a new way to block his proposals: They successfully sued Mr. Chevedden, arguing he had no right to offer shareholder proposals because he hadn’t proved ownership of enough of their stock.

While Ms. Holzer did some degree of minimal background work in preparing her article, her reporting is neither fair nor balanced. She certainly did not dig beneath the surface. If companies really think RAM Trust Services is falsely reporting Mr. Chevedden’s ownership, why don’t they sue Continue Reading →

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Stock-based Comp Dis-aligns Shareowners & Mgt

Writing in the Harvard Business Review, Roger Martin from U. of Toronto explains that CEOs are rewarded for share price volatility not performance. (The Nasty Truth about CEO Pay, 6/3/2011) The financial crisis worked out great for them. Martin explains with great tables comparing the returns for a CEO, whose company performed with the averages, vs one that was able to steer through the storm.

Who is the more valuable CEO? Whose compensation should be higher? Should it be Thrill-a-Minute Tom, who saw massive volatility and a net loss of 6% over the period? Or should it be Steady Eddie, who avoided ups and down, protected investors’ capital Continue Reading →

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