Tag Archives | director

Board Seats for Franchisees: Democratic Paradigm

Franchisees DemocracyMcDonald’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.

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The Handbook of Board Governance: Part 3

The Handbook of Board Governance - book coverI 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 3 of the book, Risk Governance, Assurance and the Duties of Directors. See prior introductory comments and those on Part 1 and Part 2. 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: The Rise and (Precipitous, Vertiginous, Disastrous) Fall of the Fiduciary Standard

Nell Minow starts us out in Part III with a brief essay: The Rise and (Precipitous, Vertiginous, Disastrous) Fall of the Fiduciary Standard. Yes, she’s unhappy with a deteriorating fiduciary standard. Most readers will agree. Minow is not only the ‘queen of good corporate governance,’ according to BusinessWeek, but is also known at the Movie Mom. Nowhere else in The Handbook of Board Governance are you likely to find references to superheroes and kryptonite.

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The Handbook of Board Governance: Part 2

The Handbook of Board GovernanceI 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 bookWhat 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 →

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Director, Harvard’s Business and Environment Initiative

Duties & Responsibilities Harvard University logo

The Business and Environment Initiative at Harvard Business School seeks to deepen our collective understanding of the urgent environmental challenges confronting business leaders and to help them use the tools of business to design effective solutions. We aspire to help leaders create the economic and political institutions that will enable firms and societies to thrive while maintaining the physical and biological systems on which they depend. Continue Reading →

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Proxy Access Lite: Victories at Whole Foods, H&R Block

Proxy Access Road Building (photo by Erik Johansson)

Proxy Access Road Building (photo by Erik Johansson)

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 →

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Recent Research in Corporate Governance: Part 1

Recent Corporate Governance Research Part 1 2015Now that proxy season is finally winding down, I had a few minutes to take a quick glance at recent research reported on SSRN. Below I am simply including a few citations and abstracts of studies that might be useful for shareholder advocates in the U.S. I’m sure I included some that are strictly academic and missed many more that would be useful. I would welcome  guest posts on such research from authors, critics or other interested parties. Please contact me via e-mail or by leaving comments below. Continue Reading →

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Bess Joffe Takes Corporate Governance Post at TIAA-CREF

Bess Joffe photo

Bess Joffe

tiaa-cref

TIAA-CREF

TIAA-CREF, the $569 billion financial services provider, appointed Bess Joffe as managing director of corporate governance, effective August 4. She will report to Jonathan Feigelson, senior managing director, general counsel and head of corporate governance, and will be based in London. Joffe will help lead TIAA-Cref’s corporate governance program and policies, including active ownership, public advocacy, thought leadership and proxy voting. Continue Reading →

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Apple Inc. (AAPL): How I Voted – Proxy Score 89

silver-apple-logo-apple-pictureStockUnderValueExtraxtionApple Inc. (NASD:AAPL) is one of the stocks in my portfolio. Their annual meeting is coming up on 2/28/2014. ProxyDemocracy.org was down for maintenance when I checked and voted on 2/19/2014, so no voting advice there. I checked a few other sources such as CalPERS, Florida SBA and OTPP but none had disclosed their votes on their sites as of yesterday. I voted with 89% of the Board’s recommendations. View Apple’s Proxy Statement. Continue Reading →

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Video Friday: Board Assessment

Leblanc

Dr. Richard Leblanc

Dr. Richard Leblanc created this week’s video to discuss his board assessment tool that addresses a key deficiency in corporate governance: namely the review of board and individual director performance. Surveys show that many or most boards of directors self-review their own performance, and possibly the performance of individual directors, or do not do so at all. Management often unduly influences and facilitates internal board reviews, setting and managing questions and data, and Continue Reading →

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Quick Bites on CorpGov

UnknownDon’t miss the following great reads:

 Activist shareholders’ top priorities for 2014. A must read for directors and shareowners alike. Here’s the first paragraph.

Many of us free ride on actions taken by active, long-term shareholders. These unsung heroes goad managers and boards to reach better decisions, make available desirable employment opportunities and, overall, push them to act like good corporate citizens. These active investors accomplish these things by talking to companies, preparing proxy proposals for all shareholders to consider, and offering recommendations on director elections and company-sponsored proxy measures.

Ralph Ward digs past the standard bullshit in his 2014 Boardroom Insider. Always plenty to chew on in a few short pages. Here’s a tidbit, which I hope will leave you wanting more, which includes more tips than you’ll find in pages and pages of other publications aimed at directors. Continue Reading →

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Reeds Inc. (REED): The Case for Proxy Access & How I Voted

ReedsIn mid-July I e-mailed investor relations at Reeds Inc. $REEDGojiGinger_Kombucha ([email protected]) asking if REED had a classified board or plurality requirements for director elections. Can shareowners call a special meeting or act by written consent? What supermajority requirements are in place re M&A or other actions? No response. This surprised and disappointed me since they were prompt in answering previous e-mails: Make kombucha; we’re already working on it. Try one with coconut water and ginger; good idea. Where can I find Reeds Kombucha in Sacramento?; here’s a list.

According to FactSet Research Systems, “insider/stake ownership” at REED is 33.5% of the company’s float. Being almost a controlled company, maybe they don’t feel the need to respond to inquiries from ‘outside’ shareowners about the firm’s corporate governance.  They not only didn’t answer me, they blocked me from following their Twitter feed. Maybe management and the current board think the less outside shareowners know, the better for them? Continue Reading →

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3D Advisory Panel Named

CalPERS and CalSTRS are working with an Advisory Panel of leading corporate governance experts to develop a new digital resource devoted to finding untapped diverse talent to serve on corporate boards.

The Diverse Director DataSource, known as “3D,” will offer shareowners, companies and other organizations a facility from which to recruit individuals whose experience, skills and knowledge qualify them to be a candidate for a director’s seat.

“The Diverse Director DataSource is an important tool for finding untapped, experienced Continue Reading →

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Routes to Becoming a Director

Toronto’s Globe & Mail ran one of the better articles I have seen on the subject (How to land a seat on a corporate board, 9/7/10). It seems the Institute of Corporate Directors has seen a 25% rise in executives enrolling in its director education program, a series of courses to prepare graduates for serving on a corporate board (see Classes & Research). The article focuses on Sarah Raiss and how she came to serve on two corporate boards.

Raiss began preparing a decade ago, serving for years on boards in schools and hospitals to get experience and contacts. She went through the ICD certification program in 2006 and was recruited two years later. The article goes on to provide advice from Korn/Ferry International on what Board’s are looking for, as well as from a study involving interviews with managers and CEOs of 42 large U.S. industrial and service firms. As kiss-up as they sound, here’s the tactics they identified that lead to success:

  • Flattery as advice seeking: Congratulate an influential member about a recent success: “How were you able to close that deal so successfully?”
  • Arguing, then agreeing: “At first, I didn’t see your point but it makes total sense now. You’ve convinced me.”
  • Sidestream compliments: Praise an influential board member to his or her friends, hoping word gets back to them.
  • Get on a wavelength: “I’m the same way. I’m with you 100 per cent.”
  • Conform to opinions: Covertly learn of chairman’s opinions from his/her contacts, and then conform with their opinions in conversations with others who can influence the decision.
  • Point out connections: Reference religious or political connections the individuals have in common.

Now, with proxy access, there may be another way. I’m sure taking board training, having C-suite and nonprofit board experience are still positives, but maybe a little less kissing up will be involved.

CalPERS and CalSTRS are building a database of potential directors from diverse backgrounds. “The database is a gateway to a broader universe of untapped talent, which can be overlooked as a result of a narrowly focused board profile,” according to Ashley Taylor, who is heading up the project. Individuals have already begun submitting resumes to: [email protected].

Another option for CalTRS and CalPERS might be to explore directors who resigned in dissent from their board. Cassandra D. Marshall’s Are Dissenting Directors Rewarded? (August 28, 2010) used a hand collected sample of 278 boardroom disputes reported in 8-K filings during 1995-2006 and showed that firms which have disputes are small, highly levered, have poor profitability, and have boards dominated by management. For all types of directors across all types of disputes, directors who resign in protest experience a net loss in board seats of 85% over the five year period following the dispute. Although the market, often driven by entrenched managers and boards, don’t reward dissent, maybe funds seeking proxy access candidates will find a gold mine of individuals with backbone.

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New Resources: Sustainability Quotes, Crisis Timeline, Cal Corp Law & Proxy Access Avoidance

Quotes – The Business Case for Sustainability & CSR Reporting: Selected Quotes from the Business Community July 2010. Tim Smith of Walden Asset Management, offered up  a helpful resource providing a selected set of quotes from CEO’s and company CSR reports on the business case for Sustainability and CSR reporting highlighting how they contribute to shareowner value.   Business leaders explain in their own words why their companies are stepping up on Sustainability issues and how they contribute to the business and its bottom line. The research was done by Carly Greenberg, a Summer Associate at Walden and a student at Brandeis University. You can download it from the Socially Responsible Business/Investments section of our Links page.

Sullivan & Worcester recently announced a free resource for law and corporate librarians, researchers and reporters. The Financial Crisis Timeline is a full chronological directory of the Federal Government’s actions relating to the financial crisis since March 2008. Links take the user to government press releases or government web pages.  You can also find on our Links page in the History section, for future reference. (Hat tip to Dan Boxer, University of Maine School of Law)

Keith Bishop, a partner in Allen Matkins, recently started a blog devoted to California corporate and securities law issues. For future reference, you can find it on our Links page in the Law section. As I recall, Bishop first came to my attention after 1991, when the Rules Committee of the California Senate appointed him the Senate Commission on Corporate Governance Shareholder Rights and Securities Transactions.

For companies seeking to aviod proxy access, J.W Verret (Truth on the Market) posted the second of two strategies. Proxy Access Defense #1 involved adopting poison pills.

In Selectica, summarized by Pileggi here, the Court held valid a poison pill with a 4.99% trigger.  At first glance this seems to be a great twist for those of us who remain skeptical of the federal government’s intrusion into this foundational issue of state law.  Boards could just lower the pill trigger to 4.99%.  Then even to the extent shareholders could afford to obtain a 5% interest in a company, those who did not already own a 5% interest at the time of the pill’s adoption would not be able to obtain an interest sufficient to nominate onto the corporate proxy.

Even after enactment of Dodd-Frank, Verret speculates this tactic might work at most companies, since the threshold being considered by the SEC for small companies is 5%. The latest strategy offered up by Verret in Proxy Access Defense #2 is even more insidious:

The Delaware General Corporation Law gives the board and the shareholders the co-extensive authority to adopt bylaws setting the qualification requirements necessary to become a director.  There is very little case law interpreting this provision, other than the general rule from Schnell v. Chris-Craft that powers granted to the corporation may not be used in an inequitable manner.  Qualification requirements based on experience, education, and other background-like variables would likely survive scrutiny, particularly where they are adopted well in advance of a threatened proxy fight.

The key element in such a bylaw would be that the Board would serve as the ultimate interpreter of the provisions.  For example, a qualification provision could require directors to have 20 years of experience at a comparable company in the same line of business.  The Board, then, would determine whether that requirement has been met, and only after the proxy contest has actually happened.  Under the holding in Bebchuk v. CA, a shareholder challenge to such a facially neutral bylaw would likely not even be justiciable until a shareholder nominee actually won the contest.  And yet, the prospect that the Board will invalidate the director may discourage nominees in the first instance.

I wonder if Professor Verret also offers advice on how to circumvent tax codes, the Occupational Safety and Health Act, or the Americans With Disabilities Act. Harvard must be pleased to have such a distinguished scholar. Hopefully, most companies will seek to work with their shareowners but I suppose there will always be companies like Apache that may find Verret’s strategies appealing. No, I’m not adding these posts to our Links page. Hopefully, they will fall under the category of fantasy.

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Annual Elections & Short-Termism

Annual elections of directors, do they ensure accountability to shareowners or encourage companies to concentrate too much on short-term returns. I was surprised to read the following in Responsible Investor (UK: stewardship elusive as pension funds buck governance code, 7/21/10):

Hermes, Railpen and the Universities Superannuation Scheme – with combined assets of £106bn (€126bn) – have written to companies in the FTSE 350 saying they would back them if they ignore the Financial Reporting Council’s recommendations on annual elections. The trio are worried that annual elections – a key, though controversial, plank of the FRC’s new Corporate Governance Code – could lead to a “short-term culture” and undermine collective decision-making.

The article goes on to say the National Association of Pension Funds, Confederation of British Industry and Standard Life Investments also favor terms of three years. The Council will review the code in three years, should US investor groups do the same?

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Resignations Could Spell Trouble

Outside directors have incentives to resign to protect their reputation or avoid increased workload when they anticipate the firm will perform poorly or disclose adverse news.

In find no real surprise in the research of Fahlenbrach, Low, and Stulz who find strong support for the hypothesis that following surprise director departures, affected firms have stock performance, worse accounting performance, a greater likelihood of an extreme negative return, a greater likelihood of a restatement, and a greater likelihood of being sued by their shareholders.

Surprise departure of an outside director increases the probability of an earnings restatement by almost 20% and the probability of being named in a federal class action securities fraud lawsuit by 35%. The authors suggest analyzing the impact of different types of compensation schemes on directors’ incentives to quit to protect their reputation.
(The Dark Side of Outside Directors: Do They Quit When They are Most Needed?, March 1, 2010)

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Review: Rethinking the Board's Duty to Monitor

In “Rethinking the Board’s Duty to Monitor: A Critical Assessment of the Delaware Doctrine,” to be published in 2011 in the Florida State University Law Review (current version available ssrn.com), Prof. Eric Pan of the Cardozo Law School substantially advances the discussion of how corporate governance needs to be improved in order to minimize the macroeconomic impact of poor decision-making at the firm level and the need for costly bailouts. Moving beyond the recent “hot” topics of maximizing director independence, enhancing minority shareholder proxy access and improving the executive compensation process, he focuses on considerations directly impacting the outcome of board deliberations.

This is an essential complement to such topics in that it addresses actual board performance in consideration of issues of business policy – that is, once directors are installed, we need to ensure that they do a good job in addressing company business. Prof. Pan recognizes that the problem of board performance is not solved once we get the “right” people in place.

He correctly observes that to the extent that present Delaware law addresses director performance in its management oversight role at all, it does so by focusing on failure to “monitor” management in order to prevent major legal violations, and almost entirely absolves directors from any responsibility for adverse business outcomes, no matter how disastrous for the single firm or for the economy, so long as appropriate process was utilized. The implications of the Caremark and Citigroup decisions for the former and latter propositions, respectively, are well described. The implications of poor oversight by the Citigroup board for that firm and our economy need no further description. Prof. Pan argues quite persuasively that we need to expand the board’s duty to monitor created in Caremark to encompass management decisions leading to poor business outcomes, even if no laws are violated, irrespective of the process which is utilized.

Rather, boards should be held responsible for business as well as legal outcomes. Courts should shift the burden onto directors to show they made an effort to be informed and to respond to developments leading to such outcomes.

This reviewer has argued in “Dawn Following Darkness: An Outcome-Oriented Model for Corporate Governance,” 48 Duquesne Law Review 33, reviewed on this site in an April 22, 2010 post, that fixing this gap in corporate law with such burden shifting in order to avoid disastrous decisions by our largest firms is a fundamental but overlooked step in the financial reform overhaul currently in process.

Like this reviewer, Prof. Pan argues for a regimen where directors have some – in his view, seemingly undefined – financial responsibility when their firms suffer major losses as a result of management decisions which are not meaningfully challenged by the board, even where there is no legal violation. Presumably, this would apply to situations requiring public bailouts such as the recent financial industry debacles. Prof. Pan would enhance his case by attempting to enumerate specific circumstances, such as a need for governmental assistance, in which such responsibility should attach.

As contemplated in Prof. Pan’s article, the new responsibilities would apply to all firms (or at least to all publicly traded ones). This reviewer strongly disagrees with such breadth.

In that all concerned, including Prof. Pan, agree that such a change would likely reduce business risk-taking, we need to apply it only in cases involving companies of sufficient size and interconnectedness and events of sufficient magnitude, where poor decisions can have significant external effects for the broader economy.

A third concern is that the duty to monitor as advocated in this paper, will usurp the board’s discretion in determining the appropriate degree of monitoring and inhibit risk-taking. We do not want the duty to monitor to prevent corporations from conducting certain activities which may actually be beneficial to the company and its shareholders. In other words, the board may conclude that it is in the best interest of the corporation for it to expose itself to extreme amounts of business risk.

The Citigroup court correctly notes that the present business judgment rule is intended to permit entrepreneurial activity – i.e. risk-taking. While it obviously worked too well for Citigroup, especially today when we face a nascent economic recovery, we should not inhibit risk-taking – and often employment – any more than necessary. There are many large public (and private) companies where the consequences of a poor decision will be limited to that firm and its shareholders without any material ramifications for the economy.

The situation addressed by the Delaware Supreme Court in upholding under the business judgment rule, the actions of Disney’s directors despite their signing off on a wasteful compensation and severance package for a former President illustrate where the current regimen of deference to director business judgment is working effectively. Even though this decision turned out to be a very poor one for Disney, it had no implications elsewhere.
In any event, as Prof. Pan notes in his discussion of how as a result of resistance at the state level, recent innovations in corporate law have largely been under the guise of the federal securities laws, it will be difficult to implement any of the changes he suggests. As such, what is proposed should be as narrow as possible in order to increase the likelihood of its enactment.

Prof. Pan makes a major contribution to the corporate governance discussion by focusing on actual governance issues as opposed to process, compensation and board composition issues, and his ideas should be heeded by those considering changes in this area. However, it is preferable for those ideas to be refined to ensure that they are properly targeted (by firm and event) so as to cause as little disruption to business risk-taking as is possible.

Publisher’s Note: Thanks to guest reviewer Martin B. Robins, an adjunct professor in the Law School of Northwestern University. He is presently, and for the past 10 years has been, the principal of the Law Office of Martin B. Robins where his practice emphasizes acquisitions and financings, technology procurement and licensing, executive employment and business start-ups. The firm represents clients of all sizes, from multinational corporations to medium sized businesses to start-ups and individuals.

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Require Affirmative Proof in Specified Circumstances of "Too Big to Fail Companies" in Order to Meet the Business Judgment Rule

“There is no such thing to my mind as an innocent stockholder. He may be innocent in fact, but socially he cannot be held innocent. He accepts the benefits of the system. It is his business and his obligation to see that those who represent him carry out a policy which is consistent with public welfare.” — US Supreme Court Justice Louis Brandeis

We seem to have moved very far from Brandeis’ ideal for shareowners, even to the point where directors too, are absolved of all responsibility, as long as they follow a very minimal set of process rules. In an effort to prompt discussion of a poor corporate governance as a critical but largely ignored cause of the financial crisis, Martin B. Robins shifts our focuses to outcomes in his draft Dawn Following Darkness: An Outcome-Oriented Model for Corporate Governance.

After reviewing and largely rejecting several currently proposed reforms, as insufficient by themselves, he suggests that directors at highly interconnected firms that are too big to fail assume a greater amount of direct responsibility for seriously adverse outcomes. Such responsibility would take the form of a reversal of the present burden of proof placed on plaintiffs in actions alleging breach of a directors’ duty of care.

Under his proposal, D&O insurance at such firms, if allowed at all in order to order to reach agreement on reforms, could have a high deductible payable by individual directors. One half the premium would also be paid by the directors and procurement of such insurance would need to be approved in advance by shareowners holding at least 60% of the firm’s voting equity.  Directors could escape liability by affirmatively demonstrating they have properly overseen management along the lines of Smith v. Van Gorkom.

Robins writes that he is generally satisfied with current public policies regarding director liability, except where inadequate corporate governance can “impact those outside the corporation,” which seems to me rather broad, since a great many firms externalize costs, but which he restricts to something like what most of us would consider companies that are “too big to fail.” Smith v. Van Gorkom emphasized the need for directors to “inform themselves ‘prior to making a business decision of all material information reasonably available to them.”

However, as Robins points out, to encourage directors to continue to undertake risky but potentially value-maximizing strategies in good faith, the Delaware Legislature promptly enacted title 8, section 102(b)(7) of the Delaware Code to allow corporations to include in their certificates of incorporation language “eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty [other than duty of loyalty or intentional misconduct/bad faith] as a director.” Apparently, more members of the Delaware Legislature are dependent on management than on shareowners, since shareowners would have been unlikely to provide such a total escape from liability.

Robins believes, “the time has come to reconsider this policy of simply absolving directors who properly inform themselves of relevant information of any responsibility for the ultimate use of such information.” Blind deference to the judgment of rating agencies, when you know they have drastically reduced their standards should no longer suffice.

SEC protections are largely built around requirements of disclosure and the prohibition of deceit. Boards are generally fully protected by the business judgment rule, except when their firm is “in play.” Then, they are expected to heighten their focus with respect to potential changes in control. Noting that non-M&A matters like credit underwriting and investment standards can also have great impact, Robins calls for the development of “comparable jurisprudence governing oversight of operational matters.”

Perhaps to build up the value of his own proposed reforms, he appears to attack say on pay and proxy access, which “call upon attenuated logic to believe that shareholders will recognize poor performance by directors early enough to prompt them to exercise authority to cause their removal and timely installation of a new board which will insist upon a reversal of the ill-founded management policies before they do serious damage.” While I would not be so quick to dismiss efforts to align the interests of directors and shareowners, as well as to create mechanisms of accountability, I fully embrace the assertion by Robins that “we need a standard that encourages critical thinking instead of herd behavior.”

We need a legal regimen which forces directors at systemically important firms to familiarize themselves with what management is doing, and ask the tough questions of management before policies are implemented, to see if the downside risk of those policies is understood (or has been considered at all) and to change course when even an originally well conceived strategy is no longer suitable. Ultimately, we need to force directors to consider on an ongo- ing basis whether their firms’ managements should be in their positions at all, in order to screen out dishonest, reckless or incompetent persons.

As mentioned at the beginning of this post, Robins sets out proposed legal changes, at the state level, which include a set of “triggering events” to limit applicability to companies that are too big to fail.  He outlines conditions where compliance with Smith v. Van Gorkom would not suffice in any civil action alleging bread of any duty of care, including undismissed criminal and civil proceedings, bankruptcy, large write downs, etc.

I disagree with some of the details of Robins’ arguments and recommendations. Implementation of too big to fail reforms, especially by increasing director liability, seems doomed to failure if we must rely on adoption on a state by state basis. Perhaps I’m a cynic, but I think we have much more of a race to the bottom, rather than a race to the top. Management and self-sustaining boards control the state of incorporation, not shareowners.  Robins’ arguments, if not his recommendation, provide additional support for a federal corporation law. Maybe the recent carnage and public desire for change will prompt state courts and legislatures, especially in Delaware, to take a fresh look in attempt to preempt federal action. Both courses should be pursued. Public comments to the Delaware Court of Chancery, Charles M. Elson at the John L. Weinberg Center for Corporate Governance at the University of Delaware and the SEC Chair, and the SEC Investor Advisory Committee might help move such reforms along.

Additionally, while I like the idea of forcing directors to meet a high deductible for D&O insurance in circumstances outlined by Robins, what’s to stop any additional costs from being built into their compensation structure? I also disagree that “failures that arise from faithful management must come from the markets” for all but too big to fail companies. By the time markets recognize board decisions that are stupid, egregious or irrational, shareowner value has generally plunged and correction by markets, involving full blown proxy contests, are very expensive compared to other remedies, such as proxy access.

Robins is too modest in his proposal, many elements of which should be extended well beyond the scope of companies that are too big to fail, especially the ideas of flipping the business judgment rule presumption and requiring affirmative proof of reasonable care, going beyond process, if specified events have occurred. Nevertheless, applicability of these reforms at companies that are too big to fail would represent a good start, with the hope of later expansion. Dawn Following Darkness: An Outcome-Oriented Model for Corporate Governance warrants wide circulation and consideration. I urge readers to include Marty Robins, and his outcome-oriented model, in their discussions around corporate governance reforms that could reduce the likelihood of the next financial crisis.

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Free Webinar: Director Elections 2010 – A Shareowner's Guide

Join The Corporate Library on April 28 for a free webinar with Chief Analyst and co-founder, Ric Marshall. New SEC proxy disclosure rules and changing director election standards have greatly expanded the ability of shareholders to influence election outcomes for individual corporate directors, but for many investors they have also increased the complexity and uncertainty of the voting process.

Current subscribers of The Corporate Library’s Board Analyst database will benefit by learning more about the individual director screens employed by our top analysts in evaluating individual director and board effectiveness, while non-subscribers will have an opportunity to better inform their own analysis and decision-making by learning more from these same insights. Time: 1:00 – 2:00 PM EDT. Register; I certainly did.

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