Nell Minow: The Unfinished Business of Corporate Governance

Nell Minow

Writing in the March/April edition of The Corporate Board, Nell Minow titles her latest bit of advice, The Unfinished Business of Corporate Governance. Here’s the lead in:

After a decade of frantic corporate governance reform, business leaders may believe that governance has reached the pinnacle of responsibility and effectiveness. Not so fast, says Nell Minow, one of America’s most respected governance observers. Corporate data disclosure can still be manipulated, boards can still be opaque or unaccountable to investors, and work is still needed on corporate pay setting and transparency.

The woman who, with Robert Monks, practically started the corporate governance industrial  complex by founding ISS, LENS and the Corporate Library (now GMI Ratings), warns us to look at incentives and externalities, not just the traditional indicators. Another pearl of wisdom:

No study has successfully drawn a credible connection between independence on the board and reduced risk or enhance returns. That is not because independence is unimportant. It is because our indicators of ‘independence’ are inadequate and flawed.

Most of her article is devoted to little known SEC rules that took effect in 2007 requiring directors who resign from boards to give a reason, including if it was the result of a disagreement with management or other directors. If the director has provided any written correspondence on their resignation, it must be filed by the company. Yes of course, most will use very uninformative boilerplate language to ensure investors there was no disagreement. However, Minow cites cases where more substance is revealed.

My takeaway: If directors really do become “independent,” more importantly if they become dependent on shareowners to get them elected, we might see much more interest in these filings.

Minow lists some key governance issues issues for 2013 as: executive compensation, quality of board/individual directors, political expenditures, sustainability and transparency analysis, and board effectiveness.

Despite the growing importance of nominating committees, directors are often picked by the CEO and serves at his or her pleasure… I believe that courts will not extend the benefits of the business judgement rule to directors who fail to get the support of at least 50 percent of the sharehoders.

She concludes by noting the “genius” of corporate governance is found in the system of check and balances, which imposes the highest standard of care and loyalty – the fiduciary standard on boards.

Still, that does not mean very much if shareholders cannot replace directors who do not meet that standard.

Also included in the March/April edition of The Corporate Board:

  • Say On Pay Voting: 10 Myths And Realities By Charles Nathan
  • Boards And Retiring Ceos As Partners In Transition By Paul W. H. Bohne
  • The Board Role In Corporate Dealmaking By Paul Aversano And David Mulder
  • Cause Marketing Done Right By Andrew M. Grumet, Esq.
  • Conversations: Ed Whitacre Remaking General Motors from the boardroom.
  • In Review: Index to actions, regulations and surveys.
  • Written: Excerpts of articles and speeches.
  • Directors’ Register: Recent board elections.

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