Good Reads in Corporate Governance: Quarterlies & More

DBAR-2013-cvr-tocThe Annual Report 2013” from Directors & Boards has lots of great articles, as always, but my favorite in the current issue is James Kristie’s The Year in Review

“It was a full agenda for activists, regulators, and reformers — and the boards that had to react to them. A month-by-month timeline of year 2012 and the people, companies, organizations, initiatives and events that kept corporate governance in the headlines.”

Kristie looks back at 2012 and does it better than anyone else… of course he does take his time getting to it, but it is well worth the wait.

Also of note in the current issue is  The Eclipse of a Classic Board, excerpted from The AIG Story.

Greenberg was growing impatient with the new universal regime in corporate America where outsider directors came to rule over territory the did not always understand. He knew his corporate world had changed and believed it was not for the better. But the worst was yet to come.

Should we run out and get the book or should we wait for the movie?

Directors & Boards names Lynn Stout’s The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public as its governance book of the year. Well deserved. While I haven’t met anyone other than Stout who agrees with everything she wrote, she did get us all talking. John Wilcox adds his voice to the mix in an accompanying review in which he concludes:

Stout’s myth of shareholder culpability is no more valid than the myth of shareholder primacy she so ably discredits.

Robert Rock questions the value of board portals and concludes they have enhanced corporate governance but warns of pitfalls as well. Ted Dysart and Bonnie Gwin discuss Boards and the Permanent Revolution in Governance, naming five challenges:

  • As risks of service rise, the pool will shrink, but I think that’s only true if you limit the pool to current and former NEOs.
  • Expanding diversity will become more challenging due to preference of those with operating experience and low turnover. Perhaps challenging but certainly surmountable.
  • Investors will increasingly make their way onto boards — and they won’t necessarily be activists. They need a full article on this subject, as far as I’m concerned.
  • Pressures, speed and complexity will leave little room for underperforming directors. Let’s hope so.
  • Boards will continue to thread the needle between compliance and judgment. Yes, they are really going to have to work at what is becoming a job, rather than an honor.

The Corporate Board (July/August) looks at The Board Challenges of Global Governance and the demands for boards to act as global fiduciaries. David Hooper reviews the SEC’s blessing of the use of “social media.” Speaking of “younger generations,” Hooper concludes that “companies will now be forced to use social media to disseminate information to these users.” He acknowledges the need to keep up with cutting-edge technologies in this space but doesn’t mention shareowner forums. Additional articles provide advice to boards on Rebounding From a Say On Pay Loss, Evaluating Your Board As a Team and Sustainability: What Should Boards Do?. All very timely.

Back in the Notes and Events section I couldn’t help but reflect how long it takes to move the corporate governance framework when, in the Retrospectives section along with a quote from Nell Minow and Kit Bingham from 20 years ago about the board’s duty to ask tough questions, was a quote from my own Toward Democratic Board Elections, which appeared 10 years ago.  I’m still looking forward to a much more dynamic form of proxy access than we have seen to date. Maybe the first instance will be at Reeds, Inc. (REED). The key is to shift from the controlling board to the collaborative board, not dominated by a single person or group.

Let’s not forget Corporate Governance: An International Review. The September issue may be out but I haven’t gotten it in the mail yet and am still reading the July issue. Although much more of an academic journal than the other two, practitioners will still find much of use. A study of management earnings forecasts in Australia finds independent directors with strong reputations and financial expertise enhance the governance of high growth firms.

An article on share repurchases at US firms finds that strong shareholder rights and a high percentage of CEO stock ownership discourages repurchase-based earnings management.

A study on CEO pay concludes that firms would be well-advised to either reduce CEO pay or do a better job explaining why certain compensation designs may be favorable to both the interests of the company and of stakeholders. Another study reported in the Review finds that ownership and board composition are complementary mechanisms using typology categories of agency, resource dependency and behavioral. Additional research on comparative corporate governance (between countries) purports to demonstrate, once again, that one size does not fit all.

CBM 3Q 2013 maghomeWhat Do Investors Want? (Corporate Board Member, 3rd quarter 2013) caught my eye right away. The article discusses several recent actions, such as Timken, BMC Software, and Hess. Investors want companies to unlock shareowner value and to be transparent in their governance. They want boards independent of management, more environmentally and socially responsible.

I think the real takeaway for directors should be the revelation that funds are beginning to withhold more votes. CalSTRS voted against 36% of all director nominees in the year ended June 2012. SWIB opposed 24.6%. Sure, most directors still got elected… 81% of incumbents still got at least 90% support, according to ProxyPulse, but the trend is clear. What may further clarify the mind is when we start winning proxy access proposals with low enough thresholds to actually be used. Once shareowners have real options, they might like the incumbent candidates even less. For example, I’m hoping that will eventually be the case at Reeds, Inc. where 2 out of 5 directors don’t even own stock in their own company.



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