Mr. Peabodys WayBackMachine

Corporate Governance WABAC Machine

MrPeabodysWayBackMachineCorporate Governance Publisher’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

Shareowners.org Launched. Finally a social networking site that will actually accomplish something. Yes, you can “friend” people and post to their “wall.” However, right now, ShareOwners.org will help engage typical investors by sending their comments in support of the group’s agenda directly to their members of Congress. Over the long run, ShareOwners.org’s broad four-part agenda focuses on the need for stronger regulation (including a beefed-up SEC), increased accountability of boards/CEOs, improved financial transparency and protection of the legal rights of investors. At some point, shareowners will also be able to vote their shares directly through ShareOwners.org. Unfortunately, the site went dark a few years later and nothing has arisen to take its place. 

Yale Governance Forum June 2009: Restoring Trust. Sorry, with all the iterations of corpgov.net, I seem to have misfiled a lot of photos. They don’t seem to transition well but you can still read about the proper balance of regulation and other concerns during the great recession.

Public corporations in the US are generally characterized by strong management and atomistic shareholders. We suffer from information asymmetry to the degree that it is almost impossible for shareowners to monitor. Unfortunately, independent board members also lack knowledge of the business and management. Frequently, they don’t devote as much time to job as they should.

Ten Years Ago in Corporate Governance

The Cost of Entrenched Boards. Lucian Bebchuk and Alma Cohen find that:

  1. Staggered boards are associated with an economically significant reduction in firm value (as measured by Tobin’s Q);
  2. There is evidence consistent with staggered boards’ bringing about, and not merely reflecting, a lower firm value; and
  3. The correlation with reduced firm value is stronger for staggered boards established in the corporate charter (which shareholders cannot amend) than for staggered boards established in company bylaws (which can be amended by shareholders).

AFL-CIO Presses for Expensing Stock Options. After the Enron collapse, ex-CEO Ken Lay, ex-CEO explained to Congress the biggest accounting loophole: not expensing stock options. While regulators have proposed to fix this problem, rich Silicon Valley executives are fighting to keep their stock options off the books. The AFL-CIO is letting its members know, “that’s bad news for the retirement savings of America’s working families who depend on companies having honest accounting.”

Virtual Shareholders Meeting. ICU Medical held its annual shareholders meeting solely online. Even though Delaware law has permitted virtual only meetings since 2000 and Inforte was the first (and only, until ICU) company to do so, Delaware companies have been loath to go that route due to fear of shareholder wrath.

Independent Chairs Mandated at Mutual Funds. In an attempt to curb conflicts of interest at mutual funds that resulted in trading and sales scandals at more than 20 companies, the SEC voted 3-2 to require mutual funds to have an independent chair. The move will mean big changes when the rule take effect in 18 months, at least on paper for the $7.5 trillion industry, since an estimated 80% of funds have boards led by insiders. (Independent Chairman at Mutual Funds: SEC Rule, SRI Media, 6/23/04) The question remains, will independent chairs and boards with 3/4 independent majorities really get control of their external money market managers? Putnam Investments’ board is chaired by an outsider. But the company, a unit of insurance broker Marsh & McLennan, was the first charged with fraud for having turned a blind eye to trading abuses.

Proxy Season Comparisons. ISS issued a summary of the proxy season to date and one result has been a flurry of analyses by the usual pundits. Keith L. Johnson of SWIB is quoted by Barry Burr in Pensions & Investments (All Investor Eyes on Busy Proxy Season, 6/14/04) saying, “There are a lot more shareholder resolutions.” Similarly, “It is probably the busiest we’ve ever seen in terms of shareholder resolutions and activism, ” according to Charles Elson, of the Center for Corporate Governance. ISS’ own Patrick McGurn calls this year “the end of the routine proxy season.”

Fifteen Years Ago in Corporate Governance

Roert F. Carlson has been “re-elected” to another term on the Board of Administration of the California Public Employees’ Retirement System. An election for the retiree’s seat on the CalPERS Board was scheduled for this fall but potential challengers declined to file. Carlson has served on the Board since 1970 and was expected to be unbeatable, considering the many advantages of incumbent candidates. He was among the Board majority who recently voted to strengthen that advantage by seeking the adoption of regulations denying candidates the right to indicate their “positions on issues of general concern to the System’s membership” in future statements included with the ballot. (see CalPERS muzzles critics: Ballot rules protect board, keep others in the darkSacramento Bee) In addition to being a CalPERS Board member, Carlson also serves on the board of nine Franklin-Templeton Group mutual funds. 

Directorship (6/99) includes an article ripping into stock option accounting practices. Warren Buffett equates the cost of options issued to employees in the same manner at those sold and traded to the public. “Employee options are sometimes forfeited – that lessens the damage done to shareholders – whereas publicly offered options would not be. It is true, also, that companies receive a tax deduction when employee options are exercised; publicly-traded options deliver no such benefit. But there’s an offset to both these points: Options issued to employees are often re-priced, a transformation that makes them much more costly than the public variety.”

Morningstar, questions the independence of directors after finding that among the 82 largest fund families, the more that directors were paid, the more shareholders shelled out in expenses. “Shareholders in most publicly traded corporations can expect various parties — institutional investors, independent watchdog groups and securities analysts, to name a few — to help a company’s board keep an eye on what insiders are doing. But the fund industry leaves the job almost solely to independent directors — a disparate bunch.” 

EDS shareholder resolution for annual election of all directors won 38% of the vote at the May 25, 1999 shareholder meeting. Proponent John Chevedden said that this is a good vote for a first submittal given that GM’s pension fund owns 25% of the stock and that EDS does not have confidential voting. 

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