Step Into the Corporate Governance Way Back Machine

Time to step into the way back machine to see what we were reporting on 5, 10 and 15 years ago.

Five Years Ago @ The Main Topic was Proxy Access 

Julie Fox Gorte, PhD., Senior Vice President of Pax World Management Corp. is among the first to begin the dialogue on how responsible investors should respond to the SEC’s proposed rulemaking,  S7-16-07, which raises the threshold for submitting proxy access proposals from the current $2,000 of shares held for a year to 5% of the shares held for a year. Andrew Shalit of Green Century Capital Management terms it the “hedge fund proxy access proposal, because if it passes, hedge funds will be the only ones with proxy access.”

“Perhaps it is time to bring democracy to the corporate boardroom, where the typical election — like Saddam’s Iraq and the former Soviet ‘republics’ — consists of a ballot of management’s handpicked candidates running unopposed for the privilege of representing shareholders,” writes Gorte. The 5% threshold is too high. “The result is the same: shareowners will have no access to the proxy ballot and directors will be nominated by corporate management rather than by the shareowners they are supposedly elected to represent.”

  • Banking Committee Chairman Christopher Dodd, put SEC Chairman Christopher Cox on notice that he would consider a legislative proposal for proxy access if the SEC cannot resolve the issues. Dodd and other Democrats on the panel also expressed doubts about the merits of the proxy-access proposal, since it would require shareholders owning at least 5% of the company’s stock to push for such a change, which would keep “even large institutional investors such as Calpers” from filing. (Dodd Warns on Access, ISS Corporate Governance Blog, 7/31/07)
  • Cox said the electronic shareholder forum part of the proposal, designed to facilitate greater online interaction among shareholders and between shareholders and management, could be one way to put together a group that collectively owns five percent of a company’s stock. (US lawmaker says could consider proxy legislation, Reuters, 7/31/07)

Ten Years Ago @

  • How Companies Lie: Why Enron Is Just the Tip of the Iceberg, by A. Larry Elliott and Richard J. Schroth, contend that “gamesmanship has replaced business management competence as executives and their boards have focused on managing the stock first, the business second and strategic value last.”
  • Led by the Rose Foundation for Communities and the Environment, foundations with more than $3 billion in aggregate invested assets petitioned the SEC on 8/21/02 to improve requirements for accurate and consistent disclosure of environmental risks.
  • Even as corporate profits fell 13% in 2001, CEO pay rose by 7%, according to a survey by consulting firm Mercer. The survey, which looked at 350 of America’s largest corporations, found hat the rise in pay was mainly due to stocks and stock options. In 2001, stocks made up 59% of top executives’ pay, up from 57% in 2000 and 44% in 1997, according to the Mercer report. Additionally, corporate profits reported to the Internal Revenue Service fell from $660 billion in 1996 to $658 billion in 1998, while profits reported to shareholders rose from $753 billion to $817 billion over the same period. (see Statistics on CEO compensation show opposite of pay for performance, 8/26/02, The Kansas City Star)

The Committee of Concerned Shareholders, and James McRitchie, Editor of CorpGov.Net, have jointly filed a Petition for Rulemaking with the Securities and Exchange Commission.

The Petition seeks to create corporate democracy and true accountability. Petitioners ask the SEC to amend its Rule 14a-8(i) so that ALL Shareholders, using the Shareholder Proposal process, will be able to nominate Director-candidates and the names of those Director-candidates must be placed on the corporation’s ballot.

The myth is that the Management reports to the Board. The reality is that the Board reports to the CEO. Strengthening the definition of “independent” Directors will have little impact, as long as they owe their positions to the CEO. (Our petition would later be praised by the Council of Institutional Investors as having “re-energized” the “debate over shareholder access to management proxy cards to nominate directors.”

Fifteen Years Ago @

Representatives of CalPERS and CalSTRS indicated the systems would reexamine current polices and would probably modify them to disclose votes in closed session taken on investments. The announcements came after continued pressure from the press (including Corporate Governance) and Senator Schiff who held a hearing on “pay to play” and related issues. At the hearing Senator Schiff focused on the fact that elected officials on the boards receive substantial contributions from investment firms and other contractors and yet disclosures of potential conflicts of interest are not required during deliberations nor are votes ever made public if taken in closed session. (When I provided testimony of possible conflicts of interests at CalPERS, I remember one Senator peering over his glasses and asking if I thought Senators should be also be banned from accepting gifts. I said something like, “Yes, of course.” The Senator grimaced.)

KPMG’s research found long-term incentives comprise 45% of most CEO executive pay packages (median value of $1,138,000). Base salary comprised only 30% of total compensation (median value of $694,000), bonuses comprised 25% (median value of $626,000). Total median CEO compensation was $2,219,000. The study, Executive Compensation Practices in Manufacturing, Retailing & Distribution Companies – 1997 examines the base pay, annual incentive and long-term incentive practices of 218 top publicly held companies in nine industries: automotive, chemicals, consumer products, energy, food and beverage, industrial products, retail, transportation and utilities. (KPMG)

Options now account for 40% of senior management pay, according to a recent study by Stanford C. Bernstein, as reported in The Eonomist 2/28 p. 77. Buybacks have also hit a record. Microsoft incurs a $1 billion liability each time its shares rise by around $4 to pay for options it has issued. The buybacks “largely represent a direct transfer of wealth from shareholders to employees,” according to the researchers.

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