Lucian Bebchuk has given more thought to the issues surrounding the Big Three Index Funds than other researchers. He and Scott Hirst recently provide a “comprehensive theoretical, empirical, and policy analysis of index fund stewardship.” Reference also Strine: Big 4 Responsible to “Forced Capitalists,” as well as The Untenable Case for Keeping Investors in the Dark by Bebchuk, et al. as we examine further strategies to make large investors work more effectively for those who use their services. Continue Reading →
Tag Archives | John Wilcox
Moderator: Harvey J. Goldschmid, Dwight Professor of Law, Columbia Law School; Former Commissioner, Securities Exchange Commission.
Panelists: Continue Reading →
Delaware Court of Chancery has made important rulings concerning stock option plans for directors and the issuance of stock to directors in Noerr v. Greenwood and Linton v. Everett. According to Edward P. Welch and Andrew J. Turezyn, the cases “counsel directors and their legal advisors to consider carefully such issues as fairness, disclosure to shareholders and approval by disinterested directors and/or shareholders after full disclosure.” (The National Law Journal via Law Journal Extra, 10/13)
The Florida State Board of Administration, the nation’s fourth-largest public pension fund, sued Sears, Roebuck & Co. for $3.5 billion, saying the retailer’s executives should have known about the company’s controversial handling of bankrupt debtors. “The people that are home free are the directors and the CEO, who caused Sears that loss,” said Horace Schow II, the Florida fund’s general counsel. “They ought to cough up something.” (see Houston Chronicle, 12/22)
SEIU Master Trust filed a resolution with Columbia/HCA to give all candidates for director equal access to the proxy. The binding resolution would amend Columbia’s bylaws. Currently, only candidates who have been nominated by the board are listed in the annual proxy statement. Shareholder nominees are not disclosed. (for more info. contact: Joni Ketter, SEIU, 202-898-3374.)
CalPERS reported 1996 costs of 13.7 basis points for investment operating costs. The fund also indicated it earned a 24.3% return during the year ended 9/30. Domestic stocks, which comprise two-thirds of the $126 billion fund’s assets, earned a 38.9% during the 12-month period compared to the benchmark of 38.4% for the Wilshire 2500 Index.
The Communications Workers of America announced that Walt Disney Co agreed to elect its board members every year instead of every three years as it does now. Before agreeing to the change, Disney tried to block a CWA proposal and urged the SEC to allow it to omit the proposal from their proxy statement for the 1998 annual meeting. Business Week, recently ranked Disney as the nation’s worst corporate board.
Business Week joins the chorus calling for the SEC to “return to what it started to do in the first place: reverse the Cracker Barrel policy and review employment-related resolutions on a case-by-case basis, as it once did. Everything else should stay the same.” (see 12/29 edition) The Business Rountable and theAmerican Society of Corporate Secretaries both generally endorsed the proposal. Opposition comes from a broad shareholder coalition of religious, environmental, labor and social investment groups, joined by Nell Minow of LENS and Ralph Whitworth of Relational Investors, according to IRRC(12/12).
John Gilbert is interviewed by CNNfn. At 83 he’s still going strong, although he’s cut back from 75 meetings every year to “only” about 35 or so. Charles Elson, professor of corporate law at Stetson Law School discusses the Gilbert brothers role in the landmark 1947 case, S.E.C. vs. Transamerica, that helped define shareholder rights.
Molly Ivins brings corporate governance news to her readers. Her Dec. 17, 1997 column mentions Doug Henwood’s book,Wall Street: How It Works and For Whom and the SEC’s “proposed new rules that will damage the tiny move for corporate democracy.”
Bernard Black’s Shareholder Activism and Corporate Governance in the United States reviews a wealth of unpublished sources and provides needed insight to a struggling field but fails to give much of a glimmer of hope to those of us who believe corporate governance monitoring efforts could yield substantial rewards. (See Black)
Disclosure of Corporate Governance Practices by Australian Companies, a report by the Center for Corporate Law and Securities Regulation, University of Melbourne is noted in our bibliography. (see Ramsay)
Catalyst survey found the number of women holding a place among the top five earners at Fortune 500 companies more than doubled since 1994. But only 20% of female corporate officers — the people in the senior ranks of a corporation — hold “line positions,” compared with 41% of male corporate officers. Line positions are jobs that directly involve corporate profits and losses and that traditionally lead to the highest positions in business. (see PBS)
Guy P. Wyser-Pratte, president of Wyser-Pratte & Co. Inc., announced today that he has filed amended preliminary proxy materials for the Pennzoil Company meeting, including a proposal to elect himself to the Pennzoil board. As a result of Pennzoil’s cumulative voting system, Mr. Wyser-Pratte may be elected to the board by slightly more than 20% of the shares that vote. Wyser-Pratte’s by-law proposals would require a unanimous board vote for anti-takeover defensive actions taken by the board, unless such actions have been approved by a shareholder vote. Other proposals by Wyser-Pratte would reportedly allow the holders of 10% of the shares to call a special stockholders meeting, would make it easier for shareholders to make proposals and nominations at shareholder meetings, and would facilitate business combinations with large shareholders and their affiliates.
Masters’ Select International fund will ask five highly regarded international investment managers to pick 8 to 15 of their favorite stocks. Masters’ Select Equity used this technique for domestic stocks and gained 23.4% from 1/31 through 12/11. That was better than the 17.3 % gain for its peer group of large growth funds. Such a strategy would also facilitate closer monitoring of governance issues. However, this possibility wasn’t addressed by 12/14 New York Times article “When Mutual Fund Stars Converge.”
Hong Kong’s coming Mandatory Provident Fund is the major subject of December’s Company Secretary. Total pension assets in Hong Kong, currently estimated at US$15 billion are expected to rise to $75 -$300 billion in ten years. The MPF will require every employer to provide a qualifying retirement scheme if enabling legislation is enacted during this session. In addition, the issue describes an Institute-funded research project currently being conducted. Over 6,000questionnaires were sent out to company secretaries and directors. Many of the questions address the Consultancy Report on the Review of the Hong Kong Companies Ordinance.
December’s Corporate Agenda includes a profile of Eli Lilly. In 1993 their board ousted its CEO of 32 years. Four years later market capitalization has risen from $12-13 billion to $70-75 billion. The active board and members of senior management go on a 2-3 day annual retreat to review the year and discuss strategic planning.
The issue also includes an article by Lucy Alexander on poison pills. She cites Georgeson’s study finding that pills have resulted in an 8% premium for take-over targets over the last 5 years. IRRC’s Robert Newbury questions their methodology and TIAA-CREF’s Peter Clapman says “the economic evidence is still very ambiguous.” The Corporate Governance Advisor includes a related article by Terence Gallagher and Walter Gangl on Pfizer’s TIDE (Three-year Independent Director Evaluation) plan. Incorporated into the plan are requirements that the board maintain its majority of independent directors, that the pill will be reviewed every 3 years by the corporate governance committee (comprised solely of independent directors), and that the committee may review a number of listed factors such as shareholder opinions, relative valuations academic studies, etc. The author’s believe the TIDE plan represents “a new generation” addressing investor concerns. While that view may be questioned by institutional investors, the plan does encourage dialog between investors and corporations.
Women now hold almost 9% of board seats in the Fortune 1000 (up from 6% in 1992 and 7.6% in 1994), according toDirectorship.
Criticism of Business Week’s recent board ranking is rampant. Many thought the survey questionnaire was a guessing game. Another criticism was that respondents were asked to use corporate performance as one measure to rank boards…then the evaluation announces that “good governance appears to pay off”…circular reasoning. (IRRC’s CG Highlights 12/5/97) The same issue carries continuing coverage of the SEC proposal to overhaul rule 14A-8.
Ira Millstein and Paul MacAvoy have completed a study based on 1991-95 data which demonstrates that corporations with active and independent boards appear to have performed much better than those with passive boards. (see Millstein)
A recent Stanford study found that interlocking directors have less influence in large firms and in those firms whose chief executive belongs to a Business Roundtable or Business Council. (see Business Wire)
Global Proxy Watch reports that Proxinvest and Andre Baladi &Associates will launch a fund aimed at European shareholder-friendly firms. They expect to start with $34 million from French institutional investors and to attract additional funds from U.S. and U.K. once the fund is up and running. Selection criteria include an assessment of whether a company structures its board and motivates directors to produce shareholder value, discloses sufficient information to investors, and produces exceptional shareholder returns. (contact Stephen M. Davis of Davis Global Advisors) Davis also reports there have been over 85 corporate governance conferences this year so far.
Election results are out for the CalPERS at-large directors. Incumbents Charles P. “Chuck” Valdes and William B. Rosenberg were reelected by wide margins.
Unions are examining the voting records of 91 money managers to identify practices which conflict with AFL-CIO proxy voting guidelines. “While some union fiduciaries have been activists in corporate governance, many others have been virtually asleep on the subject until now with no idea of how money managers have been casting proxy votes for plan assets, some union officials said.” (Pensions &Investments, 12/8)
In another storey from P&I the Swiss Pensionskasse Schweizerischer Elektrizit?tswerke (PKE pension fund) will post its investment management structure, asset mix, manager mandates, performance results and volatility quarterly on itsinternet site.
Directors & Boards editor James Kristie has created the first corporate governance timeline with 100+ entries. Sure to be a useful reference, the timeline starts with Morgan’s appearance at the Pujo hearings of the U.S. Congress in 1912 and ends with this year’s SEC’s announcement of potential significant modifications to its shareholder proposal rules. Complementing the timeline in the latest issue of Directors &Boards are several historical-oriented features including:
- An examination of the all-time top 10 legal cases that have impacted the way boards operate. Charles Elson takes us through the cases that confirmed business is carried on primarily for the profit of shareholders, director decisions must be made on an informed basis, action against director requires causation, exec compensation must bear some relation to services performed, the rights of shareholders and the power of the board, judicial review of takeovers, director duties regarding compliance, the private enforcement of proxy rules, and the applicability of insider trading;
- A 10-year quest for director accountability. John Wilcox takes us through 3 stages of institutional activism from defining a role, to reform of the proxy rules, to a focus on financial performance and board accountability. Wilcox calls for a compilation of reports from all a board’s standing committees as an effective accountability mechanism for boards to shareholders;
- Louis Lowenstein argues that although U.S. mechanisms to motivate shareholder groups and those which facilitate control of the board are weak, disclosure systems more than make up for these weaknesses; and
- A history of executive compensation (with its own timeline from the 1800s to the present). The recent emphasis here is on the mega-grants of stock options which may bring about a rank and file uprising, government intervention shareholder resistance or an expanding pool driving pay levels down.
For more information on Directors &Boards see their listing on our Stakeholders page or call James Kristie at 215/405-6081.
The SEC has extended the comment period on charitable giving by public companies. The SEC is studying these issues in connection with HR 944 and 945. One bill would require public companies to disclose their charitable contributions; the second would require each to allow its shareholders to participate in deciding which charities the company should contribute to and how much to contribute…much like the system developed at Berkshire Hathaway. See comments to date as well as Washingtonpost.com. Another option, not being studied, might be a similar requirement for political contributions…of course, to be fair, the same limitation would need to apply to labor as well.
Stephen Davis, of Davis Global Advisors, reports that in a 1996 survey of European shareholders by the Centre for European Policy Studies and Davis Global Advisors “none of the respondents – including those who said they vote up to 100 per cent of their domestic securities – cast ballots for more than 10 per cent of the shares they hold in outside markets.” To address this issue and others the International Corporate Governance Network voted to convene two working groups charged with drafting best-practices principles by June 9, 1998, 30 days prior to their next annual conference held in San Francisco. (Company Secretary, 10/97)
Catching up on other news from Stephen Davis, the National Association of Pension Funds (NAPF), representing about 30% of institutional investment in Britian, called for a number of reforms including:
- Shareholders should vote each year on the report of a corporate board’s remuneration committee.
- Nonexecutive directors serving more that 9 years should no longer be considered independent.
- Confidential voting.
- Directors should be required to undertake formal training within 12 months of appointment.
For a more complete list of highlights and commentary, see the Global Proxy Watch (10/3/97).
A binding anti-pill proposal by the Union of Needletrades, Industrial and Textile Employees hit a setback when U. S. District Court dismissed a lawsuit from UNITE challenging the use by May Department Stores of discretionary authority to vote down the proposal. The proposal apparently would have won approval if the company was denied discretionary voting authority. Judge Koeltl notes, the case “provides a clear example of the disruption and confusion that would be created by an interpretation of SEC Rule 14a-4(c)(1) that forced the company to include any and all potential shareholder proposals in its original proxies.” For a much more complete report see IRRC’s CG Highlights 11/21/97. In the same issue, IRRC reports that “smaller, more active boards that meet less frequently were held up as the ideal at a Nov. 18 American Society of Corporate Secretaries issues seminar in New York.”
Czech Republic enacted law establishing country’s 1st securities commission. (The ISS Friday Report, 11/28)
Forbes ran a cover article on 12/1 on Turning employees into stakeholders which focuses on Science Applications International Corp. in San Diego. “Employees own 90% of the company; the other 10% is held by consultants or employees who left in the early days before SAIC instituted a requirement that departing owners sell their shares back to the company…Its four different employee-ownership programs are among the most sophisticated in the country.”
Graef Crystal writes “If ever there were a case for indexing stock options to the market (i.e., causing the price that must be paid to exercise an option to rise and fall with changes in the broad stock market), that case exists with Fisher at Kodak. Assuming that he has not made any option exercises thus far in 1997, his option shares, on Nov. 11, 1997, contained a paper profit of $21 million. That’s a lot of money for performing at only 34 percent of the market during your tenure as CEO and for destroying 23 percent of your shareholders’ wealth in the last year alone.” (The Business Journal, Portland 12/1)
Investor Relations Magazine will hold its first annual Canadian awards ceremony on Thursday, February 26, 1998. Winning companies will be chosen for their outstanding performance in key areas of investor relations including financial reporting, corporate governance, takeovers and other areas. (see Canadian Corporate News)