I don’t think we’ve gone back in time all year… too busy with proxy season. Join us as Mr. Peabody and Sherman prepare to go back in time to visit corpgov.net 5, 10 and 15 years ago. Yes, many links are broken. The world and the internet move on… still, it is worth a few minutes to reflect on where we’ve been.
Five years ago in Corporate Governance
The Business Roundtable and Chamber of Commerce made their case and the Court found the SEC rulemaking on proxy access arbitrary and capricious “for having failed once again… to adequately assess the economic effects of a new rule.”
There was no need for the SEC to try to determine the optimal level of shareholder nominating power. The area would have been free for state law and issuer-specific experimentation if the SEC had simply held, seventy years ago, that issuers were required to disclose the existence of all properly nominated director candidates on the issuer’s proxy statement and to provide shareholders with a chance to vote on the election of such candidates.
Sen. Carl Levin, D-Mich., and Sen. Sherrod Brown, D-Ohio, announced they introduced legislation to end tax breaks for stock options. As pointed out by Paul Hodgson – Chief Communications Officer of The Corporate Library:
Since they are considered performance-related pay, stock option expense is subject to corporate tax relief under Section 162(m) of the IRC. However, the tax relief is given on the actual expense of the stock options, based on the profits made by the executives at the time the options are exercised. This, Sen. Levin and Sen. Brown have discovered, is a much larger figure than the expenses recorded in company accounts, which estimates the cost of the option at its grant date. This differential, the senators claim, is a huge corporate tax break, and closing the loophole would net the Treasury about $25 billion.
The Story of Stuff people did a great job of creating a video about Citizens United, asking for a Constitutional Amendment limiting corporate influence… very ambitious but unlikely to provide a solution anytime soon.
Videos are now available from the “CalPERS Candidates’ Forum,” moderated by the League of Women Voters of Sacramento County, on Wednesday, July 6, 2011 in the CalPERS Auditorium. I sponsor these CalPERS forums as publisher of PERSWatch.net because I think there is far too little coverage of these important elections in the press. This is my attempt to help CalPERS member be more informed voters. I think there is some overlapping interest with readers of CorpGov.net, since CalPERS is such a leader in the field of corporate governance.
Economics of Good and Evil: The Quest for Economic Meaning from Gilgamesh to Wall Street, by Thomas Sedlacek, explores the path dependency of modern Western economics through mythology, religion and fables. I wish the book had been published and influential forty-five years ago when I was a freshman economics major.
The False Promise of Pay for Performance
Many, including this reviewer, called Bebchuk and Fried’s Pay without Performance: The Unfulfilled Promise of Executive Compensation the best corporate governance book of 2004. James McConvill’s The False Promise of Pay for Performance: Embracing a Positive Model of the Company Executive, largely a critique of Pay Without Performance, deserves similar attention.
CII on Majority Vote
As we reported last month, the American Bar Association (ABA) Committee of Corporate Laws has issued a discussion paper on majority elections for corporate directors and invites public comment by Aug. 15 to: E. Norman Veasey. Resolutions have been voted at more than 50 companies so far this year. The Council of Institutional Investors posted its June 15th letter to Veasey on their website.
ISS Buys ICCR
Institutional Shareholder Services, the nation’s largest proxy advisory firm, has reportedly agreed to pay more than $10 million to acquire the Investor Responsibility Research Center, which was founded in 1972, has been struggling to compete since becoming a for-profit entity four years ago.
Though most IRRC staff will be offered jobs at ISS in Rockville, MD, all the proceeds of the sale will go to create the a new IRRC Institute for Corporate Responsibility, a new independent nonprofit think-tank. The institute will be started with existing IRRC board members, who will search for an executive director. ISS asked for one board seat, but no decision has been made on the size of the board. (Institutional Shareholder Services buys IRRC, Pensions & Investments, 7/13/2005)
Virtual Meeting Law
The 7/21 ISS Friday Report carried additional reactions to newly adopted Delaware law which allows corporations to hold shareholder meetings solely in cyberspace. Dwight Mater of Bell & Howell says “it’s easier for shareholders.” Karen Hampton of Ford says webcasting of meetings will increase. Charles Elson, of the Center for Corporate Governance at the University of Delaware, indicates he likes to “see people eye-to-eye. Yet the world is changing.” Larry Hamermesh, a law professor at Widener University says meetings could get out of control “if you have 5,000 people online who all want to be heard.” (ISS Friday Report, 7/21)
Many seem to miss the point. I don’t know of anyone who opposes Internet broadcasting of the meetings or voting online. Of course it’s easier for shareholders to attend online and all companies should facilitate access. Professor Hamermesh comes close to the point. However, the problem isn’t that meetings will get “out of control.” By meeting solely in cyberspace it will be much easier for management to ensure there are no unexpected or embarrassing questions, no surprises. When 5,000 shareholders online want to be heard someone will need to select which questions will be addressed. Prescreening and prescripting become much more likely. The problem is that management will be more in control of the process than ever before.
Who Does ICI Represent?
The Investment Company Institute is paid by companies in the industry, but half of the dues come out of shareholders’ pockets, according to a lawsuit filed by Linda Rohrbaugh and Richard Krantz. Their suit seeks a return of money paid for representation because, according to the plaintiffs, ICI represents fund companies, not shareholders. A commentary by Lewis Braham, Staff Editor for BusinessWeek, says “ICI should either increase representation for shareholders or give them back their money.” Currently, 39 of the 45 members of ICI’s governing board work for fund-management companies. The other six are “independent directors” of member funds. Yet, ICI’s code of best practices says 2/3 of a mutual funds directors should be independent.