These are some relatively quick notes that I’m sharing from the Corporate Directors Forum 2012, held on the beautiful campus of the University of San Diego, January 22-24, 2012. This post may be a cryptic… not complete sentences bt hopefully mor intelligible thN txt msgN.
The program was subject to the Chatham House Rule, so there is little in the way of attribution below but I hope to provide some sense of the discussion. I throw in opinions. Many are mine. Some are those of panelists. Some were from the audience.
Lunchtime Debate: Shareholder Activism: Has it Moved the Needle or Not?
- Moderator Richard H. Koppes, founder, & current administrative officer, NAPPA; director, Valeant Pharmaceuticals International; former general counsel, CalPERS
- Panelists David Hirschmann, CEO, Center for Capital Markets Competitiveness (CCMC), U.S. Chamber of Commerce
- Ann Yerger, executive director, Council of Institutional Investors
Koppes-Yerger-Hirschmann
This is a tough one to report on. I didn’t take out my laptop during lunch, since I both wanted to eat and didn’t want to disrupt others at my table.
I don’t think there is any question that the “needle” has moved over the last twenty years. One share – one vote was a maverick idea; now it is largely accepted as are more independent directors and unclassified boards. Broker voting for directors is gone (although, we still have plenty of “blank votes” going to management) and there is a growing shift to election by majority vote. Even Delaware now has explicit laws confirming the right of shareowner activists to seek proxy access and reimbursement.
Corporate governance should be motherhood and apple pie. Maybe it would be if it were empirically based. To the degree “one size fits all,” we have moved. However, given the complexity of corporate governance issues, maybe the burden placed on corporations as a whole has made true progress more difficult.
Take the issue of majority voting for directors, which the ABA recently rejected as the default. It isn’t a big issue on its own but it should be seen in the context of getting retail shareowners to vote. We need to look at the proxy system as a whole, not just bit by bit. (see The Shareholder Communications Coalition)
Of course, the counter argument is to not let the perfect be the enemy of the good. We may never comprehensively revamp the entire system. Why not do what we can step by step?
Say on pay, what has it gotten us? There seems to be more communication with shareowners. Most view 2011 as a “learning” year. 2012 may be more of a test. There are still plenty of issues around option awards, perks, pay for failure.
Pay ratio disclosure, how meaningful? There’s a lot of difference between the ratios one is likely to find at a fast food company and an investment bank. The information isn’t meaningful. No, pay should be seen in the context of the company. It is meaningful within that context. See Dodd-Frank, Compensation Ratios, And The Expanding Role Of Shareholders In The Governance Process.
Proxy access. We’ll see private ordering. Why put some shareowners at the front of the line? But even China and Russia have it. Contests are expensive and disruptive. On the other side, candidates must win the support of a majority. The barbarians are not at the gate. Going to the nominating committee isn’t working.
ISS. Most of the largest institutional investors have guidelines. They aren’t voting in lock-step with ISS or other proxy advisors. ISS recommended against 12% of say on pay votes but only 1% failed. (I may have the numbers wrong but you get the drift.) There are too many inaccuracies in what ISS recommends. Businesses need more time to review. There is no due process. Standards must be set. (Ah, the irony of those who don’t want to be regulated seeking regulations for others…) ISS standards should be evidence based and should be more like the rule making process.
US boards not refreshing… the nails are in their chairs; they’re not moving. We need a broader net.
SRI, gadflies – companies are more responsive but where do you draw the line? There is an increasing recognition that the E&S of ESG do have value ramifications.
Political contributions. It is a myth that a lot of public money is going into elections. The attention far exceeds the money. Elections and lobbying get lumped together. There are good reasons for companies wanting to lobby anonymously. Who on board is making the decisions? Disclosure.
Use what’s in the toolkit. War is over… more collegial environment. One size fits all will backfire. Use of disclosure will be used to advance other agendas. Risk, damaging, dialogue… familiar themes. It was an exciting exchange but not so exciting that anyone lost their lunch.
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