July 2014: 5, 10 & 15 Years Ago in Corporate Governance

Mr. Peabodys WayBackMachineCorporate 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

This morning, the SEC held a hearing on proxy access. By a three to two vote, Commissioners voted for proxy access. Democracy in corporate governance will dramatically improve with our right to nominate and elect directors, even if limited to 25% of the board. Directors may actually begin to feel dependent on the will of shareowners.

While waiting to see the actual language of the rule proposal, please take a few minutes to read and submit comments on a rulemaking petition that a group of ten filed with the SEC on Friday, May 15th, to amend Rule 14a-4(b)(1). The petition seeks to correct a problem brought to our attention by John Chevedden. See petition File 4-583 http://www.sec.gov/rules/petitions.shtml. Send comments to [email protected] with File 4-583 in the subject line.

The problem is that when retail shareowners vote but leave items on their proxy blank, those items are routinely voted by their bank or broker as the subject company’s soliciting committee recommends.

I’m very fortunate to collect a pension from CalPERS and to have input into their policies, both directly as an individual and indirectly as a member of my CSEA Retirees, Inc., which is loosely affiliated with SEIU. CalPERS has long been a leader in corporate governance but that hasn’t stopped me from suggesting additional measures they could take to improve both corporate governance and their own internal governance. I’m submitting two resolutions at CSEA’s General Council this fall and thought I’d post them here, in case readers want to consider introducing similar resolutions to their own unions.

  1. Resolution 1 (download in Word) seeks to increase the availability of information on CalPERS proxy votes and encourage CalPERS involvement in organizations like Investor Suffrage Movement & Proxy DemocracyShareowners.org and TransparentDemocracy.
  2. Resolution 2 (download in Word) seeks to increase the availability of information during internal elections at CalPERS so that members have a better understanding of where their own board candidates stand on the issues…

Beta versions of TransparentDemocracy.org and VoterMedia.org facilitate civic and proxy voting by brand reputation. Much of the information listed on both sites is most directly related to past elections. However, both systems allow users to input information for upcoming contests…  

Checking in at Shareowners.org on Friday 7/10/09 and I see this social networking community on shareowner issues has already grown to 250 members. That seems like quite a few on a relatively obscure subject in two weeks time…

I’ve discussed the newly appointed SEC Investor Advisory Committee previously. The Committee will hold its first meeting on Monday (7/27/09). They’re inviting input. Comments were due 7/19/09 but the work of the Committee certainly won’t be completed at this first meeting. Therefore, I’m hoping they will review all comments… even those that are late. Of course, I’d like to get the issue of “blank votes” on their agenda…

MMA Praxis votes in advance of corporate meetings are now reported on ProxyDemocracy.org. Proxy “season” is at something of a lull right now but you can see how several funds are voting at Schering-Plough’s meeting on their planned merger with Merck & Co., Inc. In this case all funds reporting, AFSCME, Calvert Social Index, MMA Core Stock, MMA Growth Index, and Trillium all favor the merger. On the ProxyDemocracy site you can also see MMA Praxis Funds Activism Profile and voting guidelines.

If your fund isn’t one of the 10 whose votes are reported through ProxyDemocracy, ask why. Choosing to announce votes in advance through ProxyDemocracy is simple, inexpensive and is a win-win all around. More than 90% of retail investors didn’t vote their e-proxies last year. For mail-in proxies, the numbers are only slightly better.

Ten Years Ago in Corporate Governance

“Voting ownership is bad, economic ownership is good,” summarizes the results of a study that compared hundreds of dual-class companies with the larger universe of single-class companies from 1994 through 2001. “What you’d really like to do is give managers a lot of economic ownership in a company, but no votes, which is the opposite of what you see in most dual-class companies.” Metrick conducted the study with Paul A. Gompers, professor of business administration at Harvard Business School, and Harvard economist Joy Ishii. Their paper is entitled, Incentives vs. Control: An Analysis of U.S. Dual-Class Companies. (The Effects of Dual-class Ownership on Ordinary Shareholders[email protected])…  

According to Don Morrison, “there is a negative correlation between executive pay and common sense. The higher the conpensation, the bigger the blunder” and the “greater the temptation to think you’re the smartest guy in the room.” The results can be catastrophic…

Six key Democratic members of Congress called for the Securities and Exchange Commission to issue new rules that would provide large investors more access to the process of nominating a board of directors…

A shareholder proposal subjecting any future Goodyear (GT) poison pill toshareholder vote wins 48% shareholder support. This poison pill vote proposal won 48% of the yes and no votes at Tuesday’s 9:00 a.m. shareholder meeting in Akron. This is a particular strong vote because Goodyear responded to this proposal by terminating its poison pill early – June 1, 2004….

Joel Bakan has authored a book as well as a documentary movie. No, the movie isn’t as entertaining as recent documentaries by Michael Moore but Bakan isn’t overtly trying to influence current elections. Bakan briefly describes the historical evolution of the corporation from its small beginnings in the 1600s to its banishment by the English Parliament in 1720 through to its current domination of government and society…

Nell Minow, cofounder of The Coporate Library and the most quoted and quotable of corporate governance experts recently noted, “We’re in the part of the movie where the empire is striking back.” “Certainly the corporate community is coming back very strongly to roll back or prevent reform.” Will corporations continue to be ruled by the “dark side” or will more democratic values finally be embraced?…

Fifteen Years Ago in Corporate Governance

Marjorie Kelly, editor of Business Ethics (May/June 1999), appears to believe that a key to shifting our current course would be our ability to recognize shareholder ownership as a myth. Once its fallacies are openly recognized, we can get on with the reforms that are needed. However, the conclusions of Blair and Stout are instructive. The shift in the balance of power to shareholders is “the result not of directors’ sudden recognition that shareholders are in fact ‘owners’ of the corporation but of changing economic and political forces that have improved shareholders’ relative bargaining power vis-à-vis other coalition members.” Capital can move at the speed of light to another company/country where labor costs are cheaper.

Although Kelly’s analysis certainly has merit, the power of shareholders appears likely to continue to increase, relative to other stakeholders. The OECD recently published its Principles of Corporate Governance. While the document gives a nod to other stakeholders, in substance it leans to the rights of shareholders. Arthur Levitt, Chairman of the SEC, recently remarked that “corporate decision-making has become more accountable to the true owners of every public company: the shareholders.” (Remarks at 1999 Directors’ College) The Brazilian Institute of Corporate Governance leads off their new code of best practices with the following first principle: “The mission of the board of directors is to maximize shareholder value.” Pick up any trade publication in the field and the direction is obvious…

SmartMoney’s Lewis Braham discusses new strategies to attract investments in Funds With the Personal Touch. Ron Baron, who manages the mid-cap Baron Asset Fund (BARAX), not only invites shareholders to meet the CEOs of the companies the fund owns, he also connects shareholders to the Web sites of companies in the fund and encourages shareholders to buy their products and services. Braham mentions that Domini Social Investments became the first to disclose its proxy voting decisions on its Web site. In addition, William Fries of Thornburg Value (TVAFX) and Thornburg Global Value began disclosing new stock positions in his portfolio on Thornburg’s Web site as soon as he finished establishing them. The common theme is that these funds are beginning a movement which treats shareholders as owners.

Ira Millstein will chair a Private Sector Advisory Group. Anne Simpson, formerly with PIRC Ltd., has been hired to staff the project from the World Bank’s Washington headquarters in Washington, DC…

Pensions&Investments asked 23 experts in various fields about the future of investing. Only Robert A.G. Monks brought up the subject of corporate governance, indicating he thought it would become “a major factor on which money is invested.”

Ralph Ward’s Boardroom INSIDER, 7/99 discussed Thomas Pipe & Steel’s innovative approach to finding a director, an ad in the Wall Street Journal. It worked for them and Ward sees it as a possible future trend.

Stephen Davis, GPW editor, criticized the recent TSE sponsored report “Five Years to the Dey.” “It relied almost exclusively on CEOs themselves grading how they have performed in adopting the Dey Committee’s 14 voluntary guidelines.”

 

 

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