Engagement is, or should be, the common theme of our three videos. CalPERS argues it gives them a seat at the table. Professor Damodaran extols the importance of engagement as a possibility. As a shareholder, what avenues are open? In Davos, I think they looked through the wrong lens. Instead of engagement, they focused on an assumed end-goal that rules out other human values.
CalPERS: A Seat at the Table
When it comes to dealing with climate change and other issues affecting corporate governance, engagement gives CalPERS a voice, leverage, and a seat at the table. Learn more about the impact CalPERS is making through engagement on their Global Governance webpage and read their fact sheet, The Importance of Corporate Engagement on Climate Change.
What I find even more interesting is the beginnings of discussion at CalPERS on income inequality. This Global Governance Update is informative on several issues. For a dissenting view, see 350.org, Student Activism and The End of Reason by G. Benjamin Bingham of 3Sisters Sustainable Management, LLC. I’m somewhere in-between.
In Practice: Corporate Governance
Aswath Damodaran teaches corporate finance, valuation and investment philosophies at the Stern School of Business at New York University. In this video he uses HP as an example and looks at how to make judgments on the quality of corporate governance, based upon public filings. How much power do you hold as a stockholder in this company? Is it a rubber-stamp board? What are the qualifications of directors? Connection to CEO? Who chairs the board? How to find information about the effectiveness of the board. Who owns and what is their effectiveness in monitoring? Does the company have golden shares? Slides
This is good basic knowledge for anyone investing, rather than speculating. I wish the SEC would spend more time treating retail investors as shareowners, rather than as shareholding consumers. Let’s get away from the Blanche DuBois theory of corporate governance, we can’t always depend “on the kindness of strangers,” whether corporate boards or mutual fund managers. We need to take responsibility for how our companies are governed.
Corporate Governance and Shareholder Value
On the last day of the World Economic Forum, the FT’s Martin Wolf reports on a debate about corporate governance and the question of whether shareholder value maximization had failed as a source of long-term wealth creation and social benefit.
According to a vote of those attending the panel, it failed but those arguing its success swayed more to change their vote in favor. Perhaps this was the wrong question, since for most companies at most times there is no mandate to maximize shareholder value. Perhaps a better question would involve something on how well investors are holding boards and managements accountable. Is increased engagement between companies and their shareowners a positive development? See Shareholder Engagement: Bridging the Divide Between Boards and Investors.