Mike Tyrrell is Editor of SRI-Connect – an online research marketplace for professional institutional investors, analysts & companies interested in sustainable development. He is keen to open up the site to corporate governance analysts & corporate governance research. Mike kindly gave permission to reproduce the interview on CorpGov.net.
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Q1: Introduce us briefly to CorpGov.net
I originally started the site in 1995 to convince CalPERS to start a formal corporate governance unit and to hire me to head it. They started the unit but hired someone who already worked for them with a similar skill set.
That worked out for the best, since it allowed me to run for the CalPERS board (unsuccessfully) and gave me the freedom to criticize them for poor governance practices when warranted. I helped them reform their election practices and established a forum so CalPERS members could meet and ask questions of board candidates before voting. Because of that, the board is more accountable to its members and I have been free to evolve the site from one geared to issues facing institutional investors to a broader focus on issues ranging from retail investors to societal concerns.
Q2: Which CG practices at companies do you think send the strongest invest/divest signal to investors?
Losing lots of money is an obvious signal but another, less noticed signal is issuing dual class shares. These companies want money from investors but they don’t want shareowners; they don’t seek any further involvement from investors. Companies with dual class shares seek ‘flippers’, not ‘owners’. Their shareholders have no real commitment to the company. They are just looking for the next big thing and will soon move on.
Silicon Valley companies are among the worst offenders when it comes to dual class shares. I am also troubled by the Valley’s contribution to hollowing out the middle class. When I was growing up, companies did IPOs to raise money so they could build factories or recruit and train staff. In return for their investment, shareowners elected the board and ensured management was accountable.
Today, selfish entrepreneurs can scale up using money from one of a few trusted venture capital brands on Sand Hill Road. Many IPOs aren’t done to raise capital for growing the business; they are done to allow early investors to bank their gains.
Under this Silicon Valley model, it could be argued that shareowners are merely placing bets on how much of his future wealth Mark Zuckerberg might care to share with them as dividends and how high the stock price will go before the next ‘genius’ comes along. Shareowners have little actual power to do anything, other than buy and sell shares – and these shares become little more than betting slips.
Facebook has a market cap of $184B with about 6,000 employees. In contrast, Alcoa has over 60,000 employees and a market cap of less than $13B.
I’m hoping the Silicon Valley model is a temporary phenomenon, thanks to the relatively new scaling opportunities offered by the internet. Most ‘genius’ is simply early adoption. Once the internet becomes more fully commoditized, investors might start to realize there is value in more democratic and equitable governance structures. Engaging the brainpower of employees, investors and customers could lead future companies to be both more democratic and more profitable.
Q3: Please select two pieces of recent corporate governance research that you think are ‘must-reads’ by all analysts.
The Agency Costs of Agency Capitalism: Activist Investors and the Revaluation of Governance Rights, Ronald J. Gilson and Jeffrey N. Gordon (January 1, 2013) is an interesting paper.
- It was written to show why it is important to maintain the current timing for Schedule 13D filings to disclose when an activist has accumulated 5% of a company.
- More importantly, it shows the limits of corporate governance involvement by competitive index type funds that will spend some money to evaluate alternatives but generally have no incentive to take an activist role. Don’t expect them to do the heavy lifting to save us.
Second, Getting Women on to Corporate Board: A Snowball Starting in Norway, which I recently reviewed on CorpGov.net.
- The edited volume includes plenty of examples of excellent research on why companies with women on their boards behave differently and can outperform.
- However, for me, the real insight was in learning the Norwegian initiative was initiated not for financial reasons but to address societal needs for justice, democracy, participation, equality and human rights.
The bottom line is too often money. Money does little good if there is social chaos or the environment is severely degraded. The vast majority is better off when social justice prevails in a salubrious environment.
Q4: What will be needed to turn Corporate Governance from a compliance process into a research community?
When funds start using corporate governance research findings as an investment strategy and start making alpha returns, that should help. See Corporate Governance Indices Coming Soon.
But that’s a simplistic answer.
More importantly we need to decide what kind of world we want to live in — to visualize the world of our dreams and then to go out and create it. The best way to predict the future is to invent it.Our institutions, our businesses and our laws are social constructs, which can all be changed. Too often they are they are viewed as fixed realities.
I used to do a lot of work with cooperatives, heading a program in California that assisted consumer, worker and producer cooperatives. While there are many reasons why cooperatives have a greater tendency to embrace sustainability, our social institutions have mostly confined them to niche markets. Their marginalization is the result of a power struggle.
Research is important, but rational argument is often overrated.
I’ll never forget a compilation of research I read back in 1977. I was studying organizational structures at the time — trying to find the ideal form of workplace for human development — so I studied German co-determination, UK co-ops and employee owned firms, Yugoslavian and Chinese works councils, etc.
I came across this fantastic study, a review of the entire literature on its subject by Suresh Srivastva and others, entitled Job Satisfaction and Productivity. It was funded by the National Science Foundation and concluded that although the scientific evidence strongly supports models which encourage ownership of the workplace and work by the workers, creating such participatory structures runs contrary to the desires of most decision-makers, “whose status is derived from dominating their subordinates.”
All the research findings in the world won’t lead many of those in power to give up their fantasies of domination, even if it means destroying the people and things they love. It seems to me there is already plenty of research showing that such needs for domination are unhealthy. Yet, there are more slaves today than ever in history (thankfully, not proportionately) and many believe we can simply dominate the forces of nature rather than working in harmony with them.
Yes, we will always need research but, right now in history, there is a greater need for vision and people willing to work toward a new reality where incorporation is seen as a privilege granted by society that carries an obligation to society to serve the public good. Democratic mechanisms and values need to permeate our social institutions, especially those involved in production, so that we can achieve our full potential.
Q5: What impact do you think Social Media will have on Corporate Governance?
Eventually, social media will play a strong role in corporate governance.
- My site (CorpGov.net) was the first popular site to facilitate broad discussion. Unfortunately, I deleted direct comment capability because I was getting hundreds of spam comments to review.
- ProxyDemocracy.org, which allows shareowners, especially retail shareowners, to see how some SRI, public pension and union funds are voting in corporate elections as they happen is another landmark site.
- Also, the more academically oriented Harvard Law School Forum on Corporate Governance and Financial Regulation is important.
- ShareOwners.org, the United States Proxy Exchange and MoxyVote.com promised to open up further dialogue and provide gathering platforms for coordinated action.
- The latest such effort is Sharegate.com. Like others before it, however, it seems to be faltering. (Update: It is being upgraded with hope of coming back stronger.)
Unfortunately, organisations and individuals are rarely willing to pay much for corporate monitoring. Private index funds or enhanced indexers have little incentive to spend money on corporate governance. Whatever they spend becomes a cost to only them, whereas any gain is a gain to all, including their competitors.
My latest effort in this area has been to introduce the idea of holding contests for proxy advisory services where the company would pay for the services based on a vote by shareholders on who provided the best advice. Under the current subscription model, only subscribers pay for analysis but most shareholders don’t subscribe. Poor funding necessitates something of a box-ticking approach, whereas contests at single companies can provide the financial incentive to encourage more tailored company-specific analysis.
Robert Monks was successful in creating a fiduciary duty for proxy voting among institutional investors and in establishing ISS to provide recommendations so institutions didn’t have to do all that analysis themselves. However, too many funds still see voting as a duty, rather than a value enhancing effort and too many investors have been encouraged to think of themselves as holding betting slips rather, than ownership stakes entitling them to a real voice in corporate governance. They don’t see their vote as an important asset. Yet, clearly corporate elections make a difference.
A proxy analysis competition, of the type designed by Mark Latham (VoterMedia.org) (which we most recently proposed at Cisco Systems and which comes up next at Caterpillar) promises to devote a lot more effort to such analysis, at least at companies where such competitions are held. (Update: Caterpillar won ‘no-action’ relief at the SEC, so we will need to redraft the proposal before submitting it again to other firms.)
Q6: Who, for you, are the rising stars of corporate governance?
I’m going to take this as an opportunity to point to a few people who aren’t necessarily ‘rising stars’ by virtue of being young. However, more people do need to know about their work. They are all from North America. Yes, I do need to expand my horizons.
Rising star: John Chevedden
One would be John Chevedden. More than anyone, John is carrying on the fight for individual investors in the tradition of the Gilbert brothers who helped establish fundaments rights, such as that of having shareowner proposals included in company proxies.
Over the years, the Gilberts introduced hundreds of proposals on issues such as elimination of staggered boards and limits on executive compensation. They filed more than half of all proposals introduced by retail investors.
John has taken up issues such as:
- the right to hold special meetings,
- requiring independent chairs and
- equal treatment with respect to who gets to see votes as they come in during corporate elections.
Chevedden and his allies, including me, are today sponsoring more than half the proposals from individuals. Also note that individuals are sponsoring more proposals than labour unions and public pension funds combined.
Recently, companies have resorted to suing him and his allies in court simply for filing proxy proposals. At first, companies were winning. However, recent decisions in Boston and New York indicate that this seems to be turning around. If we had continued to lose, it could have meant the end of meaningful involvement in corporate governance by retail shareowners.
Rising star: Mark Latham
Another rising star is Mark Latham. I’ve already discussed his proposal for a proxy advisor contest. Mark and I first filed such proposals in 1999. but were thwarted by unfriendly SEC regulations and a cumbersome model for contests. Mark used his own money to experiment and refine the process through a series of grants to hold contests among those covering student government elections, primarily at the University of British Columbia, but also in civic elections and cooperatives. Through redesign, implementation time has been cut in half and revised SEC regulation are now much more favourable for similar contests for proxy advisors at publicly traded firms.
Rising star: Maris Jensen
I’ll also include a young woman I haven’t even met but whose work should make it easier to research the SEC’s database of corporate filings.
Maris Jensen has created Rankandfiled.com. This site is like the difference between turning on your computer and seeing a dot on the screen and using a graphical user interface. You’re too young to remember those days (Editor: Not quite, but thank you, Jim). This made computers accessible to the average person and not just techno-geeks.
Similarly, Maris’ site allows users to click points on a stock chart to open SEC filings. More importantly, her system crawls though the data to graphically exhibit information like:
- corporate subsidiaries,
- the relationship of “influence” among the company’s officers and directors
- even a heat map visualizing the distribution of word frequencies in a company’s management discussion and analysis section over time.
I’m still playing with it but Rankandfiled.com has great potential as a tool for analyzing the SEC’s pile of ‘big data’.