Corporate Governance: Stepping Back in Time From October 2013

MrPeabodysWayBackMachinePublisher’s Note: Yes, you’ll find many broken links in the material referenced below. After 5, 10 and 15 years, the internet moves on. Many of the organization’s linked have since gone under. We’re just glad to still be here, offering our readers a sense of the history we have shared. More about the WABAC machine.

Five Years Ago in Corporate Governance

  • The Treasury is injecting $125 billion into nine big banks and making a like amount available for other banks that apply. Those financial giants owed their executives more than $40 billion for past years’ pay and pensions as of the end of 2007, a Wall Street Journal analysis shows. (Banks Owe Billions to Executives, 10/31/08) How much of our $250 billion bailout will go to pay for special executive pensions and deferred compensation, including bonuses? Will our disgust with those who brought us the financial melt-down lead to an upsurge in mutual banks and credit unions?
  • Jackie Cook, the founder of Fund Votes, told SocialFunds.com, “Executive compensation is at the heart of a growing problem between shareholders and management. Corporate structure is supposed to be a system of checks and balances among shareholders, boards of directors, and management. So why does executive pay continue to grow, even in times of economic downturns?” (Executive Pay Comes Under Fire from Activist Shareholders for Contributing to Financial Crisis by Robert Kropp, SocialFunds.com, 10/28/08)
  • “The single biggest overlooked issue in the current crisis is the failure of corporate governance,” said J. Robert Brown, professor of securities law at the University of Denver. A Denver Post article points to why regulating the finance industry is difficult. “Both FSMA, which gutted the Glass-Steagal Act limiting bank speculation, and the 2000 Commodity Futures Modernization Act, deregulating derivatives, followed a major lobbying effort by the finance industry… Lawmakers who favored FSMA accepted twice as much industry money at the time as those who opposed it, according to the Center for Responsive Politics.”
  • According to a survey of 1000 directors by PricewaterhouseCoopers and Corporate Board Member, more than half of directors said there is a scarcity of qualified directors. 37% said they had difficulty finding directors with financial expertise. Three-quarters of those surveyed do not believe that corporate governance is a factor in a company’s stock price.

Ten Years Ago in Corporate Governance

  • Everything You Wanted to Know About Corporate Governance . . . That’s the lead title in series of 10/27/03 Wall Street Journal articles. Unfortunately, while shareholders are mentioned, they aren’t central. “Who are the major players in corporate governance?” asks writer Judith Burns. Her answer? “Board members, senior management, outside auditors, states, federal regulatory agencies such as the Securities and Exchange Commission, criminal prosecutors, legislators and the courts all play a role.” But apparently not shareholders.
  • The 10/13/03 edition of Pensions & Investments carried an editorial, “Recall this holy grail as too timid.” While the editorial praises the SEC for its historic proposal that would grant shareholder nominees access to the corporate ballot under specified conditions, the proposal “doesn’t go far enough.” “Problems include the protracted process, over two annual meetings, for the shareholders’ nominee to be placed in the corporate proxy. Among other problems is that the SEC provides only two events to trigger shareholder access. Neither makes for timely nominations for a company in an operational crisis or, worse, under investigation for fraud.” They checked with Patrick McGurn, of ISS, who noted that if the rule had been in place this past proxy season, shareholders probably would not have triggered the nomination process at any company.
  • The SEC released an historic rulemaking on 10/8/03 that would allow shareholders to place their own nominees for director seats in corporate proxies during the subsequent two years if one of the following two “trigger” events occurs after 1/1/2004:
    • When a demand for proxy access is made by a shareholder, or group of shareholders, owning at least 1% of voting shares outstanding for at least a year, and a subsequent favorable vote on the demand by more than 50% of the votes cast.
    • When 35% or more of votes cast on one or more director nominees were “withhold” votes.
  • Editor’s Initial Comments (without the benefit of having read the text of the proposed rules):
    • The two year trigging event will often mean the corporation has done a lot of bleeding before shareholders can place their nominees on the board. According to Phil Angelides, “It’s like telling a homeowner that they can’t install a home alarm until after their home has been burgled.” Shareholders should be able to use the nomination process to point to nascent problems, not just obvious plundering.
    • The 1% and 5% thresholds are too high. I like an example used by Les Greenberg of the Committee of Concerned Shareholders. It took ten huge funds, including CalPERS and CalSTRS, to come up with 1.6% of the shares at Unocal to raise a simple issue.
    • The limit on the number of nominees is too low. In close to half of all companies listed, the SEC would limit shareholder nominees to one single candidate. I’ve served on boards and believe that one member would likely be a voice in the wilderness, easily ignored.
    • The prohibition against candidates employed by or affiliated with nominating shareholders is far too restrictive. Shareholders should be able to nominate activist shareholders such a Ralph Whitworth of Relational Investors or Andrew Shapiro of Lawndale Capital Management.

Fifteen Years Ago in Corporate Governance

  • John C. Bogle assailed the mutual fund industry at the Investor Responsibility Research Center’s annual conference for its failure to act on corporate governance issues and for failing to ensure that funds are managed in the interest of the shareholder. He noted the short term outlook of funds may change as more turn to indexing, which now represent 17% of institutional investments, since, in effect, they will be holding stocks forever. “It is hard to imagine that the trend toward indexing will not mean that all institutions — including mutual funds — will become far more assiduous, not only in their voting policies and in making proxy proposals where necessary, but in expressing their informed opinions to corporate directors and managers.” (CBS Marketwatch, 10/27)(Reuters) Too bad they don’t have proper incentives. See Agency Capitalism: Corrective Measures.
  • Pensions&Investments celebrates 25 years of reporting.
  • Accton Technology Corporation elected a new General Manager, Lee Hong-Yuh, for the coming year through an unusual process. The vote taken on 9/30 was divided between Accton’s management board (30%), Accton’s management employees (50%) and business partners (20%). The candidates were the company’s six vice-presidents but in the future any employee will be able to nominate any other. Accton’s employees get a 1/3 or more of their salary in stock and own a quarter of the company.
  • Social Choice for Social Change: Campaign for a New TIAA-CREF is calling on TIAA CREF to invest 5-10% of Social Choice Account assets in very-progressive, generally small, companies. This means $100-200 million invested-in perhaps 100 companies. The investment criteria might include a company’s relations with: employees (worker safety, equitable salaries, family-friendly policies, union relations, etc.), consumers (product safety and quality, truthful advertising, no animal-testing, etc.), communities (low-income housing, community development, etc.), and/or the environment (recycling, pollution prevention, life cycle analysis and design, etc.).
  • The Corporate Governance Advisor, 9-10/98, contains one of the best short summaries we have seen in table format comparing corporate governance standards of the Business Roundtable, CalPERS, CII, NACD, TIAA, and ASCS while discussing how 15 firms met or failed to meet the benchmarks.
  • CalPERS indicates they voted for management proposals 78% of the time. Executive stock option plans drew the most opposition. Of 399 proposals considered, CalPERS voted against 44%. In addiiton, they voted against 32% of the proposals to increase capital and 22% of the proposed director stock option plans.

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