Wayback Machine: Five, Ten and Fifteen Years Ago in Corporate Governance

Five years ago in Corporate Governance

Whole Foods Market Inc. (WFMI) says federal securities regulators are recommending that no action be taken against the grocery chain over anonymous postings on financial-news Web sites by its chief executive. Mackey’s postings, including many to CorpGov.net publisher James McRitchie, surfaced when they were included among a trove of documents that Whole Foods turned over to the Federal Trade Commission, which was examining whether the purchase of Wild Oats violated antitrust standards. (Whole Foods Not Penalized Over CEO’s Web Postings, WSJ, 4/28/08) DisclosureThe publisher of CorpGov.net is a WFMI shareowner.

WSJ, using data from Broadridge Financial Solutions, reports that 80 companies that have switched to e-proxy. Only 4.6% of individual shareholders voted under e-proxy, a sharp decline from the 19.2% when the companies sent out traditional paper ballots.

“The decline in the participation of individual shareholders could give larger institutions and corporate activists greater sway on company matters.” “Companies may be less willing to use e-proxy when there are contested issues, including shareholder proposals that the company opposes. That’s because individual investors, when they vote, usually vote on the side of management.” (Shareholder Voting Declines as Companies Adopt Web Ballots, 4/23/08)

Separately, the latest settlement over stock-options backdating came yesterday from chipmaker Broadcom, which agreed to pay $12m to settle charges that it falsified reported income by backdating stock option grants over five years. The company neither admitted nor denied wrongdoing. (New backdating charge, FT, 4/23/08)

Only 14% knew that trade associations are not required to disclose their corporate members nor the candidates and political organizations receiving their contributions. Yet, 88% said corporations should be required to publicly disclose all corporate funds for political purposes. Two-thirds of the directors agreed that scandals related to corporate political giving have “damaged the public’s confidence and trust in corporate America.”  (Survey Assesses Director Views on Political Disclosure, Risk & Governance Blog, 4/11/08)

Home Depot will pay $14.5 million in legal fees and expenses and adopt a sweeping array of corporate governance reforms to settle combined shareowners’ suits that the company’s board of directors had for nearly 20 years backdated the stock options granted to executives; fraudulently manipulated the company’s “return to vendor” (RTV) program; and provided hugely disproportionate payments and benefits to former board chairman and CEO Robert L. Nardelli. (Home Depot Settles Shareholder Suits With Changes in Board Policies, $14.5 Million in Legal Fees, Law.com, 4/7/08)

Phillip Goldstein, the hedge fund manager who successfully sued to overturn the SEC’s hedge-fund registration requirement announced plans to sue again…this time over a rule about hedge-fund advertising that has been blamed for prohibiting them from even having a web site. (Breaking the Hedge-Fund Silence, NYTimes, 3/10/08)

Ten Years Ago in Corporate Governance

The California Supreme Court has ruled that CalPERS violated several state laws. The decision also extends to CalSTRS, the nation’s 3rd largest pension fund.

According to the press, the justices let stand a January appeals court ruling in a lawsuit brought by former state Controller Kathleen Connell who had challenged the authority of the pension fund’s 13-member board to boost salaries for about 30 investment managers.

Right after CalPERS voted to amend regulations to raise their own pay, in volition of limits specified by the California Government Code, I filed for a determination on the legality of the regulations with the Office of Administrative Law. This was the poor man’s route to a legal judgment that has been recently terminated because of California’s budget crisis.

A study by GovernanceMetrics International, an independent corporate governance ratings agency, confirms the correlation between corporate performance and an attention to governance.

For years, the voices of reason have advocated expensing stock options. I recall Robert A. G. Monks likened the current practice to a favorite Abraham Lincoln joke. How many legs does a dog have if you count the tail? Four; counting the tail doesn’t make it a leg. The Financial Accounting Standards Board finally found its legs and voted unanimously that stock options should be treated as an expense when issued.

The Securities and Exchange Commission announced that SEC staff will review current regulations on director elections and submit possible changes to the full commission by July 15th. I urge readers to e-mail comments to Mr. Jonathan G. Katz, Secretary, SEC on this important issue. Put Petition File 4-461 in the subject line and include your name and professional affiliation. If attaching a document, indicate the format and please cc: jm@corpgov.net & Information@ConcernedShareholders.com. See SEC Rulemaking Petition File No. 4-461.

Companies that voluntarily disclose more detailed information about their corporate governance practices yield higher shareholder returns than less transparent companies, according to a new study by Sibson Consulting and Spencer Stuart based on 2001 annual reports and proxies of 385 large- and mid-sized public companies, most of which were released in the first half of 2002.

As the profit of mutual fund investors tumble, mutual fund directors got an aberage 8% pay raise in 2002. Director pay at the top 50 fund companies increased 8%, with $113,000 their median compensation, according to Management Practice.

Fifteen Years Ago in Corporate Governance

Companies with at least 20% employee ownership were found to be more organizationally stable than non-employee ownership companies, in a recent study by Margaret Blair of Brookings and Douglas Kruse and Joseph Blasi of Rutgers. None of the employee ownership companies disappeared due to bankruptcy, liquidation, or private buyouts, while 25% of the matched sample did. Return on assets was also higher at 20.4% vs 16.7%.

Tracking shares, which don’t represent legal ownership of corporate assets and carry practically vote-less rights, have reached about $100 billion in issues, according to a report in the WSJ (4/20).

McKinsey & Co. reviewed 115 acquisitions in the U.K. and the U.S. done in the early 1990s; 60% failed to earn returns greater than the annual cost of the capital.

Apple bars the press from their shareholders meeting which is scheduled for April 22 at 10 a.m. Pacific time at Apple headquarters in Cupertino, Calif. (ABCNews.com)

A report to the OECD chaired by Ira Millstein by titledCorporate Governance: Improving Competitiveness and Access to Capital in Global Markets, recommended that OECD issue voluntary “best practices” guidelines for boards, formulate standards for transparency and accountability, and consider the right to vote and participate in annual meetings an asset that provides opportunity to influence the direction and management companies.

New Shareholders’ Bill of Rights adopted by the Council of Institutional Investors calls for indexing options granted to directors and managers to peer or market groups.

The Council of Institutional Investors adopted recommendations calling for options to be indexed against the performance of the overall stock market or an executive’s peer group.




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