Many of us free ride on actions taken by active, long-term shareholders. These unsung heroes goad managers and boards to reach better decisions, make available desirable employment opportunities and, overall, push them to act like good corporate citizens. These active investors accomplish these things by talking to companies, preparing proxy proposals for all shareholders to consider, and offering recommendations on director elections and company-sponsored proxy measures.
Ralph Ward digs past the standard bullshit in his 2014 Boardroom Insider. Always plenty to chew on in a few short pages. Here’s a tidbit, which I hope will leave you wanting more, which includes more tips than you’ll find in pages and pages of other publications aimed at directors.
The simplest route to learning why someone wants to be a director is to ask. However, surveys on these motivators tend to be vague. Venture capital people are hatching their investments, of course. But many other drivers given for board service sound just a bit too noble. The opportunity to give back… the joy of helping young companies… exposure to fresh ideas. Networking is occasionally noted, and board fees rarely. This all suggests that the men and women who govern our corporations tell us what they think we want to hear.
Here’s a challenge to the academic and business consulting readers of Boardroom INSIDER — for 2014, how about some serious motivational research on what drives people to join corporate boards? This requires some digging into the real drivers. Maybe not asking why you serve on outside boards, but why you think those other guys do. This demands some depth research on the hidden motivators, and factors that push talented people toward one board, and away from another. What role do belonging to the ultimate“In”club, and the reward factors play? Until we know more about why our business leaders truly want to be directors, we will never know how they can become better at it.
Small ISS Change Shakes Up Boards, reported WSJ on 12/26/2013. ISS is ending what I considered a misinterpretation of shareowner wishes. No more silent majority rationalizations.
Starting in 2014, Institutional Shareholder Services Inc. is changing its guidelines to recommend ousting directors who don’t implement a shareholder proposal that got a majority of the votes cast at the 2013 meeting. Previously, ISS recommended “no” votes on directors only if the proposal received a majority of all the shares outstanding—a more forgiving standard for directors because many shares go uncast.
Great to see this following change at our largest and possibly most influential company. Apple Facing Criticism About Diversity Changes Bylaws, Bloomberg 1/5/2014. Maybe the wording of my proxy access proposal helped… (“The business case for boardroom diversity runs deep, with studies finding higher returns on sales, invested capital and equity. Yet, Apple’s board consists of seven white males and one Chinese-American woman, all aged 52 to 72.”) but that might be wishful thinking on my part. Excellent from work Trillium Asset Management LLC and the Sustainability Group. Apple is now adding the following language to the charter of the board’s nominating and governance committee:
The nominating committee is committed to actively seeking out highly qualified women and individuals from minority groups to include in the pool from which board nominees are chosen.
Sidley Austin LLP announced expansion of its Corporate Governance practice with the addition of Holly J. Gregory. Ms. Gregory joins Sidley as a partner and a global coordinator of the Corporate Governance practice. They certainly picked up a corporate governance expert and luminary.
Ms. Gregory serves by invitation on the ABA Corporate Laws Committee and as co-chair of the Delaware Business Law Forum. She was founding co-chair of the ABA Business Law Section’s Subcommittee on International Corporate Governance Development. Additionally, she is an adjunct professor at Columbia Business School where she taught a course on corporate governance in the Fall 2013 semester. She is recognized for her governance work, including being named by Euromoney as the best in Corporate Governance at its inaugural Americas Women in Business Law Awards 2012. She also was named among the “100 Most Influential Players in Corporate Governance” (NACD 100) by Directorship Magazine in 2013 and all prior years since its inception, and as a “leading practitioner in corporate governance” in The International Who’s Who of Corporate Governance Lawyers for 2013 and in prior years.
John C. Wilcox, chairman of Sodali Ltd., has timely article in the current issue of Directors & Boards, Directors: Prepare to Be Targeted. One idea that hasn’t caught on yet, so isn’t included in Wilcox’s discussion – voting against all members of the governance committee of any company choosing to intimidate shareowners through lawsuits, instead of filing “no-action” requests with the SEC when they want to exclude a proxy proposal.
These trends point to one conclusion: Boards must be more transparent and more willing to communicate with shareholders. Companies can no longer rely on director credentials and compliance with governance norms to convince shareholders that the board is functioning effectively.
UK Institutional investors to launch new forum for long-termism and collective action.The ‘Investor Forum’ (“The Forum”) has been launched by the Collective Engagement Working Group, which has published a report and recommendations.
The Collective Engagement Working Group, chaired by James Anderson, Partner at Baillie Gifford, was established in April 2013 and was supported by the ABI, IMA and NAPF. The Working Group was formed in response to the Kay Review on equity markets and long-term decision making. Its objective was to identify how investors might be able to work together in their engagement with listed companies to improve both sustainable, long-term company performance and overall returns to end savers.
Activists push for voting secrecy to rein in U.S. executive power, by Ross Kerber. Activists, including CorpGov.net publisher, James McRitchie, filed resolutions with about a half dozen companies to restrict who can see how votes are tallying up in the days and weeks before companies hold their annual meetings. Last June Broadridge suspended its practice of furnishing interim vote reports to shareowners running exempt solicitations, while continuing to furnish such reports to company management. Confidential voting works in civic elections.
The activists say leaders such as Dimon currently get an unfair edge by tracking tallies, which in turn helps them use company resources to make their case. “That’s dirty pool,” said Robert Rehm, a Verizon Communications shareholder who also recently retired as a director of the Association of BellTel Retirees, which represents former Verizon workers. “It’s not the democratic way.”
SharkRepellent study shows underperformers three times more likely to be targeted by activists than out performers. No surprise but should be helpful.
The study, which looks at all activist campaigns with primary campaign type Board Control, Board Representation, Maximize Shareholder Value or Remove Officer since 1-1-2006, shows that median one-year underperformance leading up to the week prior to campaign announcement is 22.2% versus same-period Russell 3000 return, and three-year underperformance is 41.0%.
Citizens for Responsibility and Ethics in Washington (CREW) filed a lawsuit against Aetna for violating the Securities Exchange Act of 1934 by sending out false and misleading proxy statements to shareholders in 2012 and 2013. While I favor going through the SEC, we are currently witnessing a growing number of companies who bypass the no-action process and who resort to what amounts to SLAPP suits against shareowners for filing proxy proposals. (see Shareholder Proposals by “Proxy”: More Federal Court Lawsuits Against Chevedden) Now turnaround seems like fair play.
The tax forms of the Republican and Democratic Governors Associations indicate Aetna contributed far more to those groups than it reported between 2006 and 2012. Aetna also claimed its 2011 contribution to the Chamber of Commerce was for “voter education,” when the money was spent to run negative ads in hotly contested congressional elections, and the contribution to the American Action Network was not reported at all. Additionally, Aetna’s board reviews only that information included in the reports, meaning the board — like the public — remains in the dark about all contributions not specifically listed in the reports.