By August 31, 2018, California could become the first state in the nation with gender quotas to mandate publicly held companies that base their operations in the state to have women on their boards. The legislation—SB 826—will require public companies headquartered in California to have a minimum of one female on its board of directors by December 31, 2019. That minimum will be raised to at least two female board members for companies with five directors or at least three female board members for companies with six or more directors by December 31, 2021. Continue Reading →
Tag Archives | board
Netflix Approach to Governance: Genuine Transparency with the Board (download) by David F. Larcker and Brian Tayan takes a look at one aspect of corporate governance at Netflix and finds “a radically different approach to information sharing” by management with the Board. Shareholders are largely left out of the equation.
Netflix Approach to Governance: Management
Netflix Approach to Governance has the appearance of a balanced look at how management shares information with the Board. There is no suggestion the approach can be widely copied. Says Larker,
I think it would be hard to put this type of system in place at older and more mature organizations. Innovative organizations that want and need the insights from board members can clearly adapt this type of approach. You need a CEO who wants a high level of discussion about strategy, etc., and is open to alternative points of view.
Transparency works at Netflix, at least in part, because CEO Reed Hastings understands board members would not have the confidence to make tough calls unless they have a better understanding of the company.
Transparency is hard to argue against, unless it leads to directors leaking information that reaches competitors. Larcker and Tayan interviewed CEO Reed Hastings and most of the board members. They describe two key features of what they appear to believe is remmanagement transparency.
Board members attend monthly and quarterly senior management meetings as observers. Communications to the board take the shape of approximately 30-page memos that are heavy on analysis and contain links to all relevant data on the company’s internal computer systems. (Another Netflix Disruption: A Transparent Board)
More frequent meetings with senior staff and more information allows Netflix directors to work more effectively, since they are better able to assess strategic developments. It is hard to tell what impact transparency is having on the company but,
Netflix has been enormously successful over the last five years. Revenues have nearly tripled, increasing to $11.69 billion from $4.4 billion at the end of 2013, while the market cap soared to $133 billion from $4.4 billion.
Directors like the approach.
The overall tone Reed has set, really from early days, is around transparency. … There is no editorializing. There’s no censorship.
It’s just a deep desire to hear rational, well-argued pros and cons of any decision.
No censorship and frank discussions between management and board; if other companies are not operating that way, why not? Equally important, why does that approach not carry through to the relationship between shareholders and the board?
Netflix Approach to Governance: Shareholders
Their research, part of the informative Stanford Closer Look Series, begins with the following sentence:
The hallmark of good corporate governance is an independent-minded board of directors to oversee management and represent the interests of shareholders.
The only other significant reference to shareholders comes later in the following sentence:
While fiduciary rules allow directors to rely exclusively on information provided by management, dynamics such as these can reduce the quality of that information and impair their ability to make good decisions on behalf of shareholders.
Even through the law allows directors to rely on what the CEO and other senior executives tell them, directors make better decisions when the company is more transparent – when they can observe meetings further down the chain and have more direct access to company relevant data. Yet, the Netflix approach to governance appears one-sided. Transparency and dialogue are missing when it comes to management and shareholders.
As I pointed out in a recent post, Netflix has repeatedly ignored shareholder votes. (Will Netflix Ignore Stockholders Again?) While proxy proposals are generally precatory, most companies implement those receiving a majority vote and often those that do not. The Netflix approach to governance appears to ignore proxy votes whenever legally possible.
- In 2014 a majority voted to declassify the board and to require a majority vote to elect directors.
- In 2015 similar proposals were voted and won. A majority of shareholders also voted against director Barton, who, although he lost, was up for reelection this year.
- In 2016 a majority of shares were voted in favor of proxy access, reducing supermajority vote requirements, and declassifying the board.
- In 2017 a majority of shares were voted in favor of proxy access, to declassify the board, to require a majority vote for electing directors and to eliminate all supermajority voting requirements. As far as I know, none of those proposals were implemented by the Board.
- In 2018 a majority of shares were voted in favor of the following:
- Reduce Ownership Threshold for Shareholders to Call Special Meeting (57%)
- Adopt Proxy Access Right (58%)
- Provide Right to Act by Written Consent (52%)
- Adopt Simple Majority Vote (85%)
- Amend Bylaws (72%) This was a binding proposal to require directors in uncontested elections to be elected by a majority of shares voted
Given the Netflix approach to governance with regard to shareholders, I expect the only proposal that will be adopted from this year is the binding proposal to require a majority vote in uncontested directors elections. The vote in favor surpassed the bylaw requirement of a two-thirds threshold.
Although I do not question the scholarship of Larcker and Tayan, their discussion of the Netflix approach to governance would benefit from an examination of shareholder relations with the board. We hope that is on their agenda for a closer look.
Netflix Approach to Governance: Other Views
- Netflix Shareholders Again Fail to Change Rules to Elect Board Members by Simple Majority Vote
- Consider Director Conduct at the 2018 Netflix annual meeting when you vote regarding directors in 2019
- Netflix Rejects Claims That Exec Bonuses Hurt Shareholders
- Netflix investors, once again, seek change in proxy access, voting rules
Tesla 2018 annual meeting is June 5, 2018. Tesla, Inc. (TSLA) designs, develops, manufactures, and sells electric vehicles, and energy generation and storage systems in the United States and internationally. If Tesla is to survive and thrive, it needs a more independent board. The vote of shareholders will be crucial in deciding Tesla’s future.
Most shareholders do not vote because reading through 50+ pages of the proxy is not worth the time for the small difference their vote will make. I have done the work for you.
Below, I tell you how I am voting and why. If you have read these posts related to my portfolio for the last 22 years, have values aligned with mine, and trust my judgment (or you don’t want to take the time to read most of the post), go immediately to see how I voted my ballot. Voting will take you only a minute or two. Every vote does count. I voted against the Board’s recommendations 100% of the time on the Tesla 2018 proxy. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A). Continue Reading →
McDonald’s shareholders will vote on a proposal to give franchisees a seat on its corporate board of directors at their annual meeting in May. See ‘McD’s must let investors vote on proposal to give franchisees a board seat.’ (Crain’s) Could similar, more inclusive, proposals use preferred shares to create new forms of stakeholder democracy? A report at Twitter could assess viable options. (#WeAreTwitter Record Date Approaches)
Under the proposal, McDonald’s would have to issue franchisees a special class of stock with the right to elect one director, but carrying no economic interest in the company. Each franchisee would get one share of stock with one vote for each restaurant the franchisee owns.
I continue my review of The Handbook of Board Governance: A Comprehensive Guide for Public, Private, and Not-for-Profit Board Member. With the current post, I provide comments on Part 2 of the book, What Makes for a Good Board? See prior introductory comments and those on Part 1. I suspect the book will soon be the most popular collection of articles of current interest in the field of corporate governance.
The Handbook of Board Governance: Director Independence, Competency, and Behavior
Dr. Richard Leblanc‘s chapter focuses on the above three elements that make an effective director. Regulations require independence but not industry expertise; both are important elements. Leblanc cites ways director independence is commonly compromised and how independence ‘of mind’ can be enhanced. He then applies most of the same principles to choosing external advisors. Throughout the chapter he employees useful exhibits that reinforce the text with bullet points, tables, etc. for quick reference. Continue Reading →
I like some of the work Yves Smith has have been reporting on CalPERS, which obviously needs not only watching but needs to be constantly reminded of its duties, fiduciary and otherwise. Yes, failing to disclose private equity fees is problematic (I’m also glad JJ Jelincic is on the board Pension Pulse: CalPERS’ Partial Disclosure of PE Fees?)… but not long ago former board members were collecting enormous fees from CalPERS and it wasn’t just Villalobos. Continue Reading →
Women in California companies continue to make slight progress. More of California’s largest 400 public companies public companies than ever have women chief executive officers (CEOs), and fewer have no women in their C-suites and boardrooms. However, the annual University of California, Davis, study shows women still hold just one in eight of the senior executive and director positions in corporate California.
Overall, women hold 12.3% of the highest-paid executive positions and board seats in the state’s 400 largest public companies — a scant 0.75% point increase over last year, according to the UC Davis Study of California Women Business Leaders.
At that rate it will take fifty years for women in California companies to reach parity. I’ll be long dead. In the meantime, I’ll continue investing a disproportionate of my portfolio in companies with women at the top, betting such companies have better corporate governance and will outperform my other investments. Continue Reading →
More of my notes from the Society’s 2015 National Conference in Chicago, 6/24-27. Part 1, Part 2 and Part 3. Sorry to be posting so long after the event but I still find them useful… and going through my notes may help me remember some of the more interesting points.
Believer: My Forty Years in Politics @ I’m not sure why David Axelrod was a featured speaker. Has he played a key role regulating corporations? Maybe he was there to inspire. I found him inspiring and interesting. “The future is not a gift, its an achievement.” (Bobby Kennedy) There are those who run for office because they want to be someone and those who run because they want to do something. He is troubled by cynicism and went to work for Obama when he ran for US Senate. Continue Reading →
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
Received for Review – Corporate Concinnity in the Boardroom: 10 Imperatives to Drive High Performing Companies
“ . . .a really important book about how to maximize the performance of companies and provides rare, clear common sense guidance for Boards of Directors that is worth its weight in gold.” –Hap Klopp, Founder and former CEO, The North Face, author, lecturer, serial entrepreneur
Nothing should be more important than building exceptional, sustainable leadership teams, effective governance platforms, and a strategy to make them work well together. According to her publisher, forward-thinking board members, C-suite executives, family business owners, and investors who are committed to excellence and continuous improvement in governance will be well served by embracing the framework that advisor Nancy Falls outlines in her new book Corporate Concinnity in the Boardroom: 10 Imperatives to Drive High Performing Companies. Continue Reading →
In response to proxy access proposals filed this year, both Whole Foods Market (WFM) and H&R Block (HRB) have adopted proxy access. While I had filed standard proposals seeking the ability of shareholders with 3% of shares held for 3 years to be able to nominate up to 25% of the board, both companies adopted bylaws allowing nominations only up to 20% and limiting nominating groups to 20, whereas my proposals had no such restrictions on the number of participants in nominating groups. Continue Reading →
LinkedIn Corporation (LNKD), together with its subsidiaries, operates an online professional network worldwide. It is one of the stocks in my portfolio. Their annual meeting is coming up on 6/3/2015. ProxyDemocracy.org had the vote of two funds when I checked and voted on 5/28/2015. I voted with management 17% of the time and assigned LinkedIn Corporation a proxy score of 17.
View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the LinkedIn Corporation 2015 proxy in order to enhance corporate governance and long-term value. Continue Reading →
As noted in the promo for the event:
Board membership is difficult enough these days, even when the relationship between board and management functions well. But when faced with runaway management teams, the situation can quickly devolve, increasing business and legal risks for the company and its board members. What key principles should guide directors and their advisors when a management team ignores the board’s advice or refuses to keep the board fully informed on important business developments and strategic issues? What practical steps should board members consider when facing management teams who will not heed strategic advice? That elevate their own interests above those of the company? Or that engage in questionable and self-serving practices? Should a board member take control of the situation? Call a litigator? Fire the CEO? Resign?
Norges Bank, a long-time proponent and supporter of proxy access, issued Proxy Access at US Companies. Since it is very brief, I reproduce the text below. As reported by FT, Norway’s oil fund joins push for proxy access in US and others, Norges will also start publicizing its voting intentions before annual meetings. I hope others will follow their excellent example.
Proxy Access at US Companies: Position Paper
The Walt Disney Company $DIS, which operates as a worldwide entertainment company, is one of the stocks in my portfolio. Their annual meeting is coming up on 3/12/2014. ProxyDemocracy.org had the votes of four funds when I checked and voted on 3/8/2015. I voted with management 79% of the time and assigned them a proxy score of 79.
View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the Walt Disney 2015 proxy in order to enhance corporate governance and long-term value. Continue Reading →
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. Continue Reading →
Costco Wholesale Corporation (COST), which operates membership warehouses, is one of the stocks in my portfolio. Their annual meeting is coming up on 1/29/2015. ProxyDemocracy.org lists the votes of 6 funds from 5 fund families. You can also find votes from CalSTRS and OTPP. I voted with management 36% of the time and assigned them a proxy score of 36. Continue Reading →
Sign up today for the 10th anniversary, Directors Forum: Directors, Management & Shareholders in Dialogue, which brings together a unique blend of institutional investors, directors, management, regulators, consultants and contractors in an intimate setting designed for genuine access and interaction between speakers and attendees. January 25 – 27, 2015 in beautiful San Diego.
I attend several events each year that attempt to bring members of the corporate governance industrial complex together. This is definitely one of the best. I hope to see you there to discuss some of the most important issues in corporate governance.
Continue Reading →
The Hain Celestial Group, Inc. (NASD:HAIN), which manufactures, markets, distributes, and sells organic and natural products, is one of the stocks in my portfolio. Their annual meeting is coming up on 11/20/2014. ProxyDemocracy.org had collected the votes of two funds when I checked on 11/18/2014. Sorry for the late post. Today is the last day to vote online. I voted with management 14% of the time and assigned them a proxy score of 14. View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the HAIN 2014 proxy in order to enhance corporate governance and long-term value.
Public dissent by directors should be encouraged, not penalized. If we don’t learn where directors stand on the issues and how they differ from each other, how do we know who to vote for? Two actions by CalPERS fifteen years apart are instructive. Continue Reading →
Symantec Corporation (NASD:SYMC), which provides security, backup, and availability solutions worldwide, is one of the stocks in my portfolio. Their annual meeting is coming up on 10/28/2014. ProxyDemocracy.org had collected the votes of three funds when I checked on 10/22/2014. I voted with management 55% of the time and assigned them a proxy score of 55. View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the Symantec 2014 proxy in order to enhance corporate governance and long-term value. Continue Reading →
Back by popular demand, the Society of Corporate Secretaries & Governance Professionals and the John L. Weinberg Center for Corporate Governance at the University of Delaware invite you to attend the second Delaware Law Issues Update. The conference will feature members of the Delaware judiciary and will be held at the University of Delaware. Continue Reading →
Based on a proposal discussed in a recent issue of the Stanford Law Review, this recent Economist article promotes outsourcing corporate boards as a solution to corporate governance failures of the type we have experienced historically. As proposed, outsourcing would consist of replacing individual directors with a new category of professional firms – identified as BSPs or Board Service Providers – that companies would retain to supply them with a “full complement of board members.” The article claims that, despite some reforms over the past decade, boards are (still) fundamentally flawed. Specifically, here is how the article characterizes boards: Continue Reading →
Those were the opening sentences of another excellent editorial at Pensions & Investments (Test of Governance Wills, June 30). See their cartoon at right, which is very close to portraying the truth about Nabors. (P&I’s other outstanding recent editorial was Winning over proxy voters, May 12.) Continue Reading →
A Hong-Kong based venture capital fund has appointed artificial intelligence to its board of directors. Robot directors? Friday’s video is a fun response to this publicity stunt from governance expert Lucy Marcus.
The California Public Employees’ Retirement System (CalPERS) is conducting two elections this fall for the State and public agency representative seats on the CalPERS Board of Administration. Current terms for both positions end in January 2015. The election for the school board member representative seat will not be conducted because the incumbent, Rob Feckner, was unopposed. George Diehr, Ph.D., the incumbent in the State member position announced he would not seek reelection.
ITC Holdings $ITC, is one of the stocks in my portfolio. Their annual meeting is coming up on 5/21/2014. ProxyDemocracy.org had collected the votes of no funds when I checked and voted on 5/15/2014. I voted with management 50% of the time. View Proxy Statement. Read Warnings below. My proxy voting recommendations follow. Continue Reading →
The March/April edition of The Corporate Board contains several excellent articles. I e-mailed a couple of quotes from their ‘Spoken & Written’ section to a CEO who needs a real board, instead of a rubber stamp. Continue Reading →
EMC Corporation $EMC is one of the stocks in my portfolio. Their annual meeting is coming up on 4/30/2014. ProxyDemocracy.org had collected the votes of four funds when I checked and voted on 4/22/2014. I voted with management 13% of the time. View EMC’s Proxy Statement, which is user friendly. Continue Reading →
Corporate boards are exceeding legal oversight requirements on environmental and social issues, with more than half of S&P 500 companies providing board level oversight of environmental and/or social issues above and beyond that required by law. Board Oversight of Sustainability Issues finds that many industries subject to scrutiny – paper, forestry, healthcare, utility companies – are among the most likely to have board oversight of sustainability issues. But, the retail sector lags despite criticism for recycling and labor and human rights practices. Continue Reading →