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Announcing Proxy Votes Improves Corporate Governance


Shareowners Upholding Industry

Yesterday, I posted a recent letter to the editor of Pensions & Investments praising their editorial, Winning Over Proxy Voters, which argues that institutional investors have a fiduciary duty to announce their proxy votes in advance of annual meetings, if doing so is likely to influence voters. If institutional investors heed their call, it will speed the development of open client director voting (CDV) and more intelligent proxy votes.

As corporate power grows and the power of government falls, mechanisms to govern corporations become more important. As government power falls, their power to regulate corporations falls as well. Further, as the influence of corporations over governments increases (e.g. lobbying) the will of governments to regulate corporations also falls.  – CHR for Social Responsibility

Historically, most retail shareowners toss their proxies. During the first year under the “notice and access” method for Internet delivery of proxy materials, less than 6% made use of their proxy votes. Those that do vote own disproportionately more shares (about 25-30% of total retail shares). The voting rate hasn’t improved much, if at all. This contrasts with almost all institutional investors voting, since they have a fiduciary duty to do so. Unfortunately, it isn’t time/cost efficient to read through the entire proxy to vote a few retail shares intelligently. Continue Reading →

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Cisco Systems (CSCO): How I Voted – Proxy Score 56

ciscoCisco Systems, Inc. $CSCO is one of the stocks in my portfolio. Their annual meeting is next week on Tuesday, 11/13/2013. ProxyDemocracy.org had collected the votes of 2 funds when I checked on 11/13/2013 (there have been more since). I voted with management 56% of the time.  View Proxy Statement.

Warning: Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime) Continue Reading →

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Cisco Systems: Proxy Proposal #5 – 11 Q&A

ciscoI received a series of questions about my 11/5/2013 post Cisco Systems: Prime Target For Proxy Advisor Contest. Since other $CSCO shareowners might have similar questions, I am posting the questions and our responses below regarding proxy proposal #5, APPROVAL TO HAVE CISCO HOLD A COMPETITION FOR GIVING PUBLIC ADVICE ON THE VOTING ITEMS IN THE PROXY FILING FOR CISCO’S 2014 ANNUAL SHAREOWNERS MEETING.

Question 1. I understand that your goal here is to increase retail investor participation – a goal we share. I certainly agree that individual investors are at a significant disadvantage without professional advice on their proxy voting.

Response: That’s not the main goal, but it would be an additional benefit. The main goal is to solve the shareowners’ “free-rider” problem, which hurts institutional investors too. For most investors it is not worth paying for good voting advice, unless you own more than 5% of the shares. (The Agency Costs of Agency Capitalism: Activist Investors and the Revaluation of Governance Rights, Ronald J. Gilson and Jeffrey N. Gordon, January 1, 2013) Continue Reading →

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Cisco Systems: Prime Target For Proxy Advisor Competition

ciscoCisco Systems (CSCO) faces challenges as never before. For example, see Here’s What Happened When Cisco Lost A $1 Billion Deal With Amazon. Meeting those challenges will take a concerted effort by management and the board of directors. Shareowners, who elect the board and vote on major proxy issues facing our company, also play an important role in Cisco staying competitive and profitable. Yet, most shareowners are passive. Most of us don’t even bother to vote our proxies and who can blame us? This year’s Proxy materials are over 80 pages long. Who has time to read, digest and make decisions on all that information? Finally, we could have the help we need with a proxy advisor contest paid by all shareowners (through Cisco) and chosen by a vote of shareowners.

Proxy Advisors and Research Providers Continue Reading →

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Proxy Advisor Competition at Cisco OK'd by SEC


Mark Latham came up with a brilliant idea in the late 1980s: Shareowners should use their corporation’s funds to pay for external evaluations of governance and performance of the board and management. Shareowners would vote to choose among competing organizations to provide this service.

It was a simple concept but SEC rules made subsequent proposals unnecessarily complex and excluded advice on director candidates, often among the most critical decisions on a proxy. Continue Reading →

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Review: A Real Look at Real World Corporate Governance

Larcker-Tayan-real-world-corpgovThis book follows the theme of Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences also by David Larcker and Brian Tayan. Larcker is the James Irvin Miller Professor of Accounting, Stanford Graduate School of Business. Brian Tayan is a member of the Corporate Governance Research Program at the Stanford Graduate School of Business. While Corporate Governance Matters (see my review)  focuses on debunking “best practices” in corporate governance, A Real Look at Real World Corporate Governance takes more of an abbreviated case study approach, delving into how several decisions were made by boards at specific companies. Continue Reading →

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Make Auditors Work for ShareOwners: Take Action

The Public Company Accounting Oversight Board (PCAOB) published a concept release that asks for public input on how to get auditors to become more independent, more objective, and more skeptical – and especially whether a mandatory rotation system for audit firms would achieve that objective. While mandatory rotation has been considered and dismissed in the past, PCAOB Chairman James Doty wants to take a fresh look at the idea to see if it might reduce the pressure on auditors to put concerns about the Continue Reading →

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Why Routinely Approve Auditors?

Ever since the demise of Enron, I’ve wondered why the vote by shareowners to approve auditors is considered such a routine nonevent. Ask anyone who used to work for former big five firm Arthur Andersen LLP. Yet, “ratification” of auditors remains among the last holdouts of broker voting.

Who watches the watchers in the world of big business? That question is asked by corporate governance consultant Pirc in its Annual Stewardship Review. Reviewing voting results over the last five years, they couldn’t find a single instance of any vote of more than 20% against an auditor appointment. According to Alan MacDougall, managing director at Pirc:

We’re surprised that even after the financial crisis, shareholders don’t seem to make the connection between value destruction and the fairly closed world of auditing UK plc.

John Gray, a member of the investment panel of the London Borough of Tower Hamlets pension fund, says trustees and local authority panels need to devote far more time to their fiduciary duties. He shows faith in the newly formed Association of Member-Nominated Trustees.

The FT article ends with a quote from Lord Myners: “You don’t wash or service a rented car because you expect to give it back. I still get the impression that shareholders treat their holdings like a rented car. For the efficient use of capital, that attitude has to change.”

via FT.com / FTfm / FTfm Structured Products – Review questions positon of auditors.

Pirc makes valid points that his American counterparts should also be raising. Where was/is the outpouring of votes against the auditors who dropped the ball in their audits of American banks during and proceeding the financial crisis?  Shouldn’t we be voting down auditors who so obviously failed us?

The best solution I have seen is Mark Latham’s proposal that would allow shareowners to recommend auditors from a pool of qualified applicants, rather than asking us to approve one chosen by management.  For an example, see Latham’s proposal to USG dated November 17, 2002 at VoterMedia.org.

I also like the idea of an Association of Member-Nominated Trustees. The closest the US comes to that, as far as I know, is the effort led by CalPERS and CalSTRS to develop a primarily digital resource, the Diverse Director DataSource (or 3D), devoted to finding untapped diverse talent to serve on corporate boards. (see 3D Advisory Panel Named)

It would be good to see this group or another also take on the additional aims of the UK’s Association, which include:

  1. To support the development of member nominees and to enable them to perform their role to the best of their ability.
  2. To provide member nominees with a collective voice, and if desired, to lobby on pension matters with the Regulator, within the pensions industry and through the professional associations and trade bodies.
  3. To provide or guide access to training services which meet member nominees’ needs.
  4. To help identify and champion best practice among pension schemes – including scheme governance, performance and communications.
  5. To provide a networking environment through which member nominees can share their experiences and challenges with other member nominees in confidence.
  6. To provide support for sponsors through targeted services – including for example a member nominee selection process.
  7. To conduct research or studies which may help MNs become more effective in their performance.

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SEC Seeks Comment on Investor Education

On April 19, the Securities and Exchange Commission published a request for public comment on the effectiveness of existing investor education efforts as part of a review mandated by the Dodd-Frank Act.

Section 917 directs the SEC to conduct a study of retail investors’ financial literacy and submit its findings to Congress by July 21, 2012. Among other things, Section 917 states that the study must identify “the most effective existing private and public efforts to educate investors.”

The Commission is seeking public comment to better understand the details and effectiveness of current programs, and help ensure that the study includes all Continue Reading →

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Journalism that Enables Democracy: Support VoterMedia for Kight Foundation Grant

VoterMedia.org has applied for a $200,000 grant from the James L. Knight Foundation in the Sustainability category, which is for new economic models supporting news and information. New ways of conducting and consuming journalism require new ways of paying for it. The Knight New Challenge is open to ideas for generating revenue, as well as ways to reduce costs. Entrants publish free open-source code for others to use as well.

VoterMedia.org is led by Mark Latham. He and other volunteers are creating a new  economic model for supporting pubic interest journalism in voter communities, beginning in student unions and municipalities. My hope is that once VoterMedia takes hold, it will spread to corporate governance as well.

Using the VoterMedia Internet platform, voters allocate community funds to competing media sources, primarily blogs. Although funding generally flows through governments, funds are allocated by voters, preventing those governments or incumbent politicians from controlling the media.

Allocated funds can lead media to become a more effective check and balance on the government, engaging voters, increasing accountability and reducing the risk of corruption, like the recent scandal in the city of Bell, California. Voting provides a crowd-sourced reputation system for media sources. The same model could encourage much more in-depth coverage of corporations than we currently see from sources such as ISS and Glass-Lewis, who can only spend a short amount of time on each of thousands of companies they cover because of limited resources, paid by a comparatively few number of shareowners instead of the whole community.

Please review VoterMedia’s grant application and leave feedback on the James L. Knight Foundation site in the comment field. Your suggestions can help improve the proposal, since proposals can be revised base on your feedback. Take a look at the other proposals as well and vote for your favorites. Although you must register with the Knight Foundation site to leave comments or rate proposals, the process only takes a minute or two. Like commenting on an SEC proposal, such as proxy access, your actions here could have great importance.

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Rating the Raters

I applaud CalPERS for proposing that credit rating agencies (CRAs) should be hired by investors instead of by corporate management. This proposal was in CalPERS’ October 4, 2010 comment letter to the SEC:

“Current legislation through the Dodd-Frank Act … appoints the Comptroller General through Section 939D, to study an alternative means to compensate the CRAs in order to create incentives for them to provide more accurate credit ratings, including statutory changes that would be required to facilitate the use of alternative means of compensation.

CalPERS believes an alternative payment model should include the following:

  • Issuers still pay for services rendered to obtain a CRA ratings. CRA revenues should be pooled and allocated to CRAs based on periodic voting process by “customers” – investor constituents.
  • The voting process will be administered through a “proxy like” process and paid by CRAs.
  • We believe this model should be transitioned over a 4-5 year period with increasing amounts of revenue at risk.
  • Revenue at risk to CRAs will:
    – Create a market based results oriented feedback loop to CRAs;
    – Motivate CRAs to improve and maintain ratings process as opposed to relying on regulator edicts and audits;
    – Motivate CRAs to be more conservative in ratings new financial instruments or companies professing new business models;
    – Align the interests of CRAs with investors, who are true customers or user of information as opposed to issuers.
  • Investors will utilize information gained from increased transparency and their customer experience to assess CRA relative skills, abilities and performance.”

This is similar to proposals I have made for investors to allocate corporate funds to competing proxy advisors. In my 2007 article “Proxy Voting Brand Competition” (available at votermedia.org/publications), I suggested that organizations hired by investors in this way could also provide other services such as compensation consulting, finding potential candidates for board seats, and auditing financial statements. Like these services, the determination of credit ratings would be more trustworthy and effective if performed by organizations loyal to investors rather than to corporate management.

If the competition for investor-allocated corporate funds is open to all types of service providers, then investors can choose which services and providers are most valuable, thus maximizing the benefit of this system.

At VoterMedia.org, we have developed, tested and implemented methods for allocating funds by vote among competing service providers. There are many possible ways of designing such a system, and some work much better than others. The paper “Global Voter Media Platform” (at votermedia.org/publications) explains the factors that determine success, and describes our test implementations.

As we have seen in our shareowner proposal campaign, CEOs and boards generally oppose such reforms. This is not surprising, since the proposals would increase accountability of CEOs and boards, thus reducing their power. These reforms will need more support from investors, whether via proposals in corporate proxies or via proposals to regulators.

We welcome CalPERS’ powerful voice in the push for corporate accountability by aligning the incentives of “infomediaries,” such as credit rating agencies, with the investors they are supposed to serve!

This guest post by Mark Latham, Founder of VoterMedia.org is also posted on his VoterMedia Finance Blog.

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Investment Clubs Get Moxie

BetterInvesting, the nonprofit association serving the retail investor primarily through education and investment clubs, announced a strategic partnership with Moxy Vote. BetterInvesting will promote the use of Moxy Vote’s free online proxy-voting service. According to Kamie Zaracki, CEO of BetterInvesting:

We’re excited to work with Moxy Vote. Since 1951, our association has been advocating that investors aren’t simply holders of stock shares — they’re owners of companies who should participate in the ownership by voting their proxies. Moxy Vote makes this easier for retail investors by providing a single site for maintaining proxy information, voting and obtaining information on the issues from their 40 participating Advocate organizations. This partnership will help us fulfill our mission of providing sound education that helps shareowners make better investment decisions.

In their press release, Moxy Vote co-founder Mark Schlegel says:

BetterInvesting has served the investment education needs of more than 5 million people over its history and as a result brings a wealth of experience and insight on how Moxy Vote should market its services to retail investors. Moxy Vote wants to put more information into the hands of retail investors, who hold 30 percent of publicly traded shares, and give the so-called little guy a needed voice in the boardrooms of the companies they own.

This is an excellent development that could very well strengthen both organizations and the overall clout of shareowners IF the partnership is fully embraced by both. I have little doubt that Moxy Vote stands ready to serve but will BetterInvesting actually begin to stress the importance of proxy voting or corporate governance among its members. Do a search on their site for proxy voting or corporate governance and you find virtually nothing.

BetterInvesting has traditionally emphasized how to analyze and buy stock and mutual funds. Little effort has been devoted to what investors can do as owners. For example, I haven’t seen any evidence the organization spends any effort describing governance basics, such as analyzing CEO compensation, possible advantages of annual director elections, why the move to majority voting requirements, how to file a proxy resolution or even what resources are available to help you decide how to vote proxies. If investment club members begin to see themselves as owners, rather than speculators, the partnership could be truly transformative. We should all be watching to see how both organizations follow through.

I hope this is just the start. BetterInvesting could also form partnerships with groups like the United States Proxy Exchange (USPX) and VoterMedia.org. USPX, for example, is training members on how to present proxy proposals at annual meetings so that proponents don’t have to bear the expense of flying across the country to make a 2 or 3 minutes statement at annual meetings. If investment clubs took on this effort with USPX, we could soon have “field agents” at every annual meeting. Investment clubs could also rate and provide seed funding to bloggers and others who provide investor education. Those rated at the top would get the most funding. See prototype.

According to the press release:

Since 1951, BetterInvesting, the brand identity of the National Association of Investors Corporation, has helped over 5 million people become better, more informed retail investors. BetterInvesting, based in Madison Heights, Mich., helps its members build wealth through local, regional and national learning events as well as through Web-based tools, software, member publications and online resources. As the nation’s largest nonprofit organization dedicated to investment education, it provides investing knowledge and practical investing experience through local investment clubs, local volunteer chapters, online courses and an active online community. BetterInvesting and its subsidiary, ICLUBcentral, currently serve over 120,000 investors.

Moxy Vote offers a free online platform at www.moxyvote.com that simplifies the proxy voting process for retail investors. It does this by providing information on the issues at stake and offering the functionality to actually process a vote. Shareholder Advocates can rally like-minded shareholders to vote alongside of them for their causes.  Moxy Vote has been profiled in the Wall Street Journal, New York Times, Investor’s Business Daily, Kiplinger’s and a number of other publications. It has also received favorable reviews from industry experts such as Nell Minnow, Jim McRitchie and Mark Latham.

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Video Friday

VoterMedia.org is a website that helps a community connect with its elected leaders, by letting voters allocate community funds to competing blogs. It motivates the bloggers to become community media. In this video, students at the University of British Columbia talk about how VoterMedia has helped their student union, which is called the Alma Mater Society, or AMS. In the not too distant future, we hope to be viewing videos of shareowners discussing how VoterMedia and various bloggers have helped transform their companies.

No matter what you think of the following protest at a Target store, expect to see many more like it as a result of the Supreme Court decision of Citizens United. If anything good comes out of that decision it will likely be that it raises awareness of corporate influence over politics. Now, maybe many more will favor reforms to limit their influence. Until then, just as news programs are starting to divide between left and right, we can expect shoppers to channel their money to whichever side they believe is politically correct. See also, 3 shareholder groups call on Target, Best Buy to review political giving after Minn. donations, LATimes, 8/20/10.

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Corporate Accountability, Web 2.0 & CorpGov Functions at Public Funds

Bill Baue and Marcy Murninghan have authored a recent working paper that deserves wide circulation and thoughtful consideration. The Accountability Web: Weaving Corporate Accountability and Interactive Technology can be downloaded from the website of the Corporate Social Responsibility Initiative at the Harvard Kennedy School of Government. Since I’m trying to get you to read the paper, I’ll provide just a small taste. Then I’ll show how it might be applied to the corporate governance functions at public pension funds, as an example.  Let’s start with a very abbreviated version of the introduction in the Executive Summary:

Corporate accountability and Web 2.0 share a common thread: both are rooted in interaction and thrive on engagement. This overlap creates opportunities for corporate accountability and Web 2.0 to join forces to create mutual benefits for firms and their stakeholders. However… current business use of Web 2.0 tools focused more on improving performance and increasing efficiencies inside the firm, and on brand management, customer relations, or crisis management outside it.

At a time when our economy is navigating a crisis, and public trust of business activity is in short supply, the intersection of concerns about corporate sustainability, accountability, transparency, and ethics with the proliferation of Web 2.0 communication tools offers an opportunity for new forms of collaborative leadership and participation… an evolution in the concept of who is “inside” and who is “outside” the organization.

Accountability 1.0 is marked by one-way proclamations, campaigns, and PR communications. Accountability 2.0 rests on the assumption of two-way communication, cooperation, and mutual engagement.

Almost anyone will find the tale they weave informative, even entertaining. For example, from a section titled “The Progression of Corporate Accountability,” they start with what may be the first case of stakeholder activism, soon after the Dutch East India Company launched their initial public offering.

Dutch religious pacifists, appalled by the reliance of the company’s business model on the “generous application of warfare, blockade, piracy, assassination, imprisonment, plunder, terror, slavery, [and] bribery,” campaigned by lamplight house-to-house to gather signatures for a notarized public petition, to boycott investment, and to make a show of selling shares in protest (Baue 2008; Davis et al. 2006:175-6).

Let’s take a quick look at the paper’s recommendations, greatly abbreviated here:

  1. Adapt, Don’t Just Adopt. Don’t just extend your existing model, use Web 2.0 for engagement/dialogue to enhance accountability.
  2. Cultivate Participation. Build community and technology in parallel; don’t assume if you build it, they will come.
  3. Develop Clear Terms of Engagement. Electronic media is susceptible to misunderstanding. Set guidelines for critiquing practices and policies, not people. Use assessment and feedback mechanisms to identify keys to success and flag problems.
  4. Foster Mutual Accountability. Model self-accountability, when asking other parties to hold themselves accountable, to create a culture of mutual accountability.
  5. Use Blended Engagement. Augment Web-based communication with face-to-face meetings, choosing the medium based on which is most likely to serve the objectives.
  6. Broaden the Media Palette. Social networking, augmented reality (AR) and wikis tools may be pushing the envelope too quickly, try them internally first to unfreeze thinking.
  7. Build Communities of Inquiry and Practice.  Utilize experts with experience in building communities of inquiry and practice to convene, facilitate, moderate, and/or curate online engagement.

Like corporations navigating the financial crisis, public trust of public pension funds is also in short supply. Many have suffered scandals around placement agents, face huge deficits because of falling portfolio values, are resented by taxpayers who have lost their own defined benefit plans, and are always vulnerable to funded attack by money managers who want the profits that would incur if public employees were converted to defined contribution plans.  The most powerful adversaries of public pension fund might be organizations, like the Business Roundtable and the US Chamber of Commerce, that represent top corporate managers. The more coordinated and powerful shareowners are, the likely directors will represent their interests in corporate boards rather than acceding to every whim of management. The percentage of the profits taken by top management has gone from about 5% to 10%. It isn’t hard to imagine they want to keep it and public pension funds have taken a leadership role in weakening the power of the imperial CEO… for example, by advocating the roles of CEO and board chair be split.

Public employees want to keep their defined benefit plans. They know their pension funds are under attack but they often have little understanding of how corporate governance plays a role in the earnings of their plans or the dynamics of initiatives, legislation and other attacks that may be orchestrated by forces not easily identified, especially after the Supreme Court’s decision in Citizens United. Web 2.0 and Accountability 2.0 could offer public funds a way to integrate their corporate governance concerns about sustainability, accountability, transparency, and ethics with their own internal governance.  These tools offer an opportunity for new forms of collaborative leadership and participation with their own stakeholders… an evolution in the concept of who is “inside” and who is “outside” the organization. By utilizing such tools, funds may not only increase the understanding of stakeholders (which might expand beyond unions and direct members to taxpayers and others) but they may also benefit from what Baue and Murninghan call “cultivating communities of inquiry and practice.”

Now let’s try to apply these recommendations to the corporate governance functions of public pension funds. At some funds, these functions may be largely contracted out or carried out by one individual. Other funds may have dozens of contractors as well as dozens of in-house staff. Therefore, I’ll divide them into basic and expanded activism practices. Most of these practices will be Web and Accountability 1.0 but some will move into 2.0 and be informed by the paper. I’m drawing heavily for large portions of the list from Council of Institutional Investor (CII) publications.

Basic Activism Practices

  1. Obtain useful information necessary to make activism decisions;
  2. Commit staff time to implementing an activism strategy;
  3. Adopt proxy voting guidelines that follow or improve upon a recognized corporate governance framework (see those of  CII and CalPERS, for an example);
  4. Make the proxy voting guidelines available for public comment prior to adoption… using a 2.0 strategy, provide for and cultivate interactive comment and discussion, reaching out to unions and other interested parties who are also connected with members and taxpayers;
  5. Make sure fund proxies are voted by fund staff or by a specialized proxy voting service in accordance with the fund’s proxy voting guidelines;
  6. Adopt a process to handle “No” votes on directors;
  7. Provide for an override mechanism so the fund can vote individual proxies on a case-by-case basis, even if voting is otherwise delegated;
  8. Factor into share lending practices a mechanism to retain voting rights on a targeted basis;
  9. Obtain and post on the web an annual report on the fund’s proxy votes… using more of a 2.0 strategy, facilitate comment and discussion again after the fact, since there are often unanticipated proposals each year and we often learn a lot during proxy season;
  10. Disclose the fund’s proxy voting guidelines on the web site, or alternatively on CII or other web site;
  11. Go public with issues or views on proxy votes through press releases, Twitter, a blog or other mechanisms that move toward 2.o;
  12. Withhold votes from directors of specific companies and/or committees;
  13. .

    Expanded Activism Practices

  14. Develop a methodology and strategy for communicating and engaging with portfolio company directors or executives… making use of pre-season webinars and other 2.0 mechanisms as forms of blended engagement to reach out to more companies efficiently;
  15. Coordinate action with, or support the actions of other shareowners through international networks like ICGN, national networks like CII, as well as state and local networks like the Los Angeles Area Pension Trustees Network;
  16. Weigh in with Congress, the SEC and others to improve investors’ legislative and regulatory environment… use or work with constituent groups to use web-based tools for electronic messaging and other advocacy efforts;
  17. Monitor the discretionary voting by investment managers of shares held for other clients to ensure alignment;
  18. File binding and/or precatory shareowner proposals… foster mutual accountability by modeling self-accountability before introducing proposals that are also applicable to fund governance;
  19. Solicit support (not proxies) for shareowner proposals or opposition to management proposals;
  20. Disclose shareholder initiatives to stakeholders and the public… solicit feedback and dialogue from stakeholders though surveys, webinars and other methods before filing to ensure support or at least acquiescence;
  21. Use contract provisions based on standards of behavior to ensure that financial advisors are responsive to corporate governance principles;
  22. Employ managers and investment consultants who build shareowner value by emphasizing corporate governance reforms as part of their investment strategy;
  23. Use the legal system, such as filing class-action suits under the “lead plaintiff” provisions of the Private Securities Litigation Act of 1995 (see On Beyond CalPERS: Survey Evidence on the Developing Role of Public Pension Funds in Corporate Governance by Stephen J. Choi & Jill E. Fisch);
  24. Work with CII members and others to develop a backbench of potential director candidates with a wide variety of skill sets;
  25. Disclose proxy votes in advance of AGMs on web site, through RSS feeds, ProxyDemocracy.org, MoxyVote.com, and other such sites as the develop;
  26. Develop your reputation as a voting “brand” (see Proxy Voting Brand Competition at http://votermedia.org/publications). One way to enhance your brand is to provide a brief reason for your vote. As sites compiling votes become more popular, canned votes and reasons will sway fewer votes as disclosures become more sophisticated and value their brand following;
  27. Develop education tools and games to help members with investments to supplement their pensions making use of mutual fund activism comparisons like those available at ProxyDemocracy.org;
  28. Use Twitter and/or a blog to broadcast votes and invite discussion, especially from stakeholders;
  29. Build communities around fund activism that will provide feedback, identifying success and flagging problems;
  30. Run a short slate of directors;
  31. Campaign to deny management a quorum in especially circumstances where the rules or procedures are inherently unfair (see Guest Commentary From Glyn Holton: Emergency at Intel and Intel Virtual Mtg Out for 2010 But Exploring Future with USPX
  32. Utilize corporate governance measures as part of an overall investment strategy. For example, GMI and The Corporate Library have both done studies showing that an index of funds weighted by certain corporate governance measures (mostly measuring risk) should lead to outperformance over traditional indexing;
  33. Work with the SEC to encourage the development of proxy advisory firms (PAFs) by amending rule 14a-8(i)8 to allow shareowner proposals that would allocate corporate funds to PAFs that undertake to offer proxy voting advice, including advice on director nominees, that is made freely available to all of a companies shareowners. See examples from Mark Latham that could be substantially modified based on more recent experience with university and municipal governance to make them more easily implemented. For more recent language, click here (Consider that RiskMetrics probably spends an average of less than $4,000 researching each proxy and think about how much more company specific recommendations can be made if $50,000 is allocated to PAFs by shareowners, partially from corporate funds.);
  34. Model self-accountability to your own stakeholders in ways similar to how you think corporations should be responsible to shareowners by transitioning from one-way communication to two-way or multi-directional interactivity.
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Latham at Stanford: Governance Reform for Corporations and Democracies

On November 16, 2009, the Arthur and Toni Rembe Rock Center for Corporate Governance at Stanford University presented a lunch-time lecture with Mark Latham, Director of VoterMedia.org and MarkLathamProxyDemocracy.org. Latham is also a member of the SEC’s Investor Advisory Committee, as a representative of individual investors. He has written extensively on how the internet can be used to allocate resources to facilitate voter education using a democratic marketplace model. Previously, Latham was a professor at UC Berkeley and a money manager with Salomon Brothers and Merrill Lynch. LathamLunch

Mark Latham has spent the last seven years developing new tools for voters (investors and citizens) to hold elected leaders accountable in corporations and democracies. The financial crisis, changes at the SEC and the decline of mainstream media are opening doors for implementing these ideas. Latham’s lunch-time talk at Stanford’s law school attracted mostly a young crowd of students to a presentation that was much more discussion than lecture.

Latham briefly discussed his role on the SEC Investor Advisory Committee and some of the recent developments that have laid fertile ground for his ideas, including:

  • the financial crisis and our poor systems of accountability,
  • 25% of the stock market is held directly by individuals but the other 75% held through institutions is also held for our benefits. We should have more input into how proxies are voted
  • broker voting no longer applies to director nominees
  • most large companies have instituted majority voting requirements for electing directors and that is now filtering down to medium and small companies, and
  • proxy access will bring more focus on proxy voting and the need to facilitate more intelligent voting with minimal effort.

He described something of the developing battle for the hearts and minds of investors as proxy "plumbing" or "mechanics" issues are explored by the SEC and interested parties. The Business Roundtable is lobbying hard for a system that allows management to communicate directly with shareowners. One component they have been pushing is client directed voting, CDV. Various proposals by Stephen Norman, the corporate secretary of American Express, have outlined that under CDV, investors would give their brokers general instructions on how they wanted their shares cast on all matters, routine and not routine. One frequently cited variant involves five options, including:

  1. always voting as management recommends;
  2. always voting against management recommendations;
  3. abstaining on all matters;
  4. voting according to the brokerage firm’s voting policies; or,
  5. voting shares in proportion to the way the brokerage’s other clients have voted their shares.

If investors did not declare a preference, the default choice would be proportional voting, and investors could always override these choices with their own. Latham noted the need to expand the concept of CDV to include options provided by ProxyDemocracy.org, TransparentDemocracy.org, MoxyVote.com and others as they develop.

A lively discussion ensued on issues such as: LathamAud

  • Why should we think recommendations by these groups, or indeed the current advisors to institutional investors are any good?
  • How important is making money and what part would other values play in CDV options?
  • Would these organizations not only lead to greater participation by retail shareowners but also greater financial literacy?
  • Are there various legal issues that need to be addressed around free speech, fiduciary duties, and/or proxy solicitation? (download, for example, a request to the SEC re guidance)
  • How will these sites drive the selection of mutual funds and the limited options available to most workers through 401(k) type plans?KimCranston

I spotted Kim Cranston, President of TransparentDemocracy.org, in the back of the room and had a few minutes to chat with him after the event. Their site covers both civil and corporate elections and is designed to will help you…

  • Learn more about the contests on your ballot,
  • See how organizations and individuals recommend that you vote,
  • Create a printed ballot based on your opinions that you can use to mark your real ballot,
  • Share your opinions with friends.

A video recording of the session with Mark Latham will be posted on the Arthur and Toni Rembe Rock Center site by early December. The next stop for Latham was the Institute of Governmental Studies at the University of California at Berkeley.

Mark Latham"We can support public interest journalism with our tax funds, by letting voters allocate the funding to competing media organizations. This would prevent the government from controlling the publicly funded media and their messages. Such a system has been implemented for three years at the University of British Columbia’s student union, and tested in Vancouver’s 2008 civic election. Each voter community can fund its own media: each municipality, state, country, student union, labor union, corporation etc. The city of Berkeley may be a good fit for the next implementation."

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Handbook of Social Capital

When Tocqueville visited the United States in the 1830s, it was our propensity for civic association that impressed him as the key to making democracy work. "Americans of all ages, all stations in life, and all types of disposition:’ he observed, "are forever
forming associations. There are not only commercial and industrial associations in which all take part, but others of a thousand different types–religious, moral, serious, futile, very general and very limited, immensely large and very minute…. Nothing, in my view, deserves more attention than the intellectual and moral associations in America." Robert D. Putnam’s famous 1995 essay, Bowling Alone, introduced many to the concept of social capital.

Gert Tinggaard Svendsen and Gunnar Lind Haase Svendsen have edited an informative and greatly expanded update. The "Handbook Of Social Capital: The Troika of Sociology, Political Science and Economics" examines how three disciplines work together in developing and shaping networks. Economics primarily focuses on transaction costs. Political science focuses on institutions and sociology focuses on the norms that regulate behavior.

Life is easier in communities with high social capital. Networks of civic engagement foster generalized reciprocity and trust. Communication and coordination amplify the growth of reputations, facilitating collective action. Well worn templates and success lead to future collaboration and broaden our sense of empowerment. I read the essay’s mainly thinking of how these concepts might be applied to internet sites, such as the Investor Suffrage Movement, Proxy Democracy.org, Shareowners.org, TransparentDemocracy.org, MoxyVote.com, and VoterMedia.org.

One concept discussed by the editors was that of bridging vs. bonding. Bridging implies open networks across social cleavages, inclusion, and generalized trust. Bonding implies closed, inward looking networks based on particularized trust. Bridging seems more important for organizations attempting to facilitate shareowner action.

According to Elinor Ostrom and T.K. Ahn, "trust is the core link between social capital and collective action. Trust is enhanced when individuals are trustworthy, are networked with one another and are within institutions that reward honest behavior." One interesting study found that reciprocal agents using conditionally cooperative strategies have a higher chance to interact with one another and the surrounding population than agents who defect. "Information regarding a potential transaction partner’s trustworthiness is crucial when trustworthy individuals try to initiate cooperation."

Reputation is everything. "Self-governing systems in any arena of social interaction tend to be more efficient and stable not because of any magical effects of grassroots participation itself but because of the social capital in the form of effective working rules those systems are more likely to develop and preserve, the networks that the participants have created and the norms they have adopted." For example in in development projects, even "primitive" irrigation systems developed with the involvement of farmers often outperform those using more modern concrete and steel headworks. Investment by participants makes the difference.

In other words, in project planning we need to focus as much on the incentives of participants as we do on the physical or virtual technical infrastructure. Simply agreeing on a set of rules put in place with by others may get something up and running but doesn’t engender participation or long-term success.

Poulsen discusses research on cooperation, such as the "Prisoner’s Dilemma." Cooperation often falls over time because reciprocally minded subjects give up contributing if they feel like they are the only ones doing so. Punishing or expelling nonparticipants can generate higher and more stable cooperation but only if group members have information about each other’s contributions.

The chapter, "Corruption," by Uslaner found unequal distribution of resources in a society to be at the heart of the problem. Inequality leads to low generalized trust and high in-group trust, which leads to corruption, which leads to more inequality. Corruption thrives on particularized trust, where people only have faith in their own kind or small circle. "The policies that work best to reduce inequality and promote trust – universalistic social welfare policies – also depend upon honest governments to deliver the good and upon a social compact to provide benefits such as universal education and health care to the rich and poor alike."

Rothstein carries the theme forward by noting the services for the poor tend to become "poor services," whereas if all are included, middle and upper classes will demand higher quality. Popular movements of protest and self-help stand in contrast with charities dominated by middle and upper classes. "Needs testing and bureaucratic discretionary power are often more difficult to reconcile with principles of procedural justice, compared with universal public services. Since selective welfare institutions must test each case individually, they are to a greater extent subject to the suspicion of cheating, arbitrariness and discrimination, compared with universal public agencies."

That should give potential readers a rough idea of some key discussions. While the Handbook is geared toward an academic audience, especially those concerned with economic, political and social development, the more general reader will also find important insights in the cross-disciplinary approach.

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Corpocracy and How to Get Our Democracy Back

One book on corporate governance made Ralph Nader’s list of Nine Books That Make a Difference: A Reading List for the Holidays. Here’s his brief review:

Corpocracy by Robert A.G. Monks (Wiley Publishers) summarizes its main theme on the book’s cover-“How CEOs and the Business Roundtable Hijacked the World’s Greatest Wealth Machine-and How to Get it Back.” Corporate lawyer, venture capitalist and bold shareholder activist, Monks gives us his inside knowledge about how corporations seized control from any adequate government regulations and especially from their owners, their shareholders, and institutional shareholders like mutual funds and pension trusts. This is a very readable journey through the pits and peaks of corporate greed and power that shows the light at the end of the tunnel.

From a review of the same book, Philip L. Levine writes “Robert A.G. Monks has pulled away the covers, revealing who is in bed with whom, and very clearly articulating how we got to the unbalanced and unhealthy state we find ourselves in.” Nell Minow also sings the book’s praises:

Robert Monks is a true visionary, and this assessment of corporate control of every institution set up to provide oversight or assure accountability will provoke a series of “aha” moments from anyone who has wondered why we permit corporations to determine everything from pollution levels to the outcome of elections. With mastery of the languages of finance, economics, business, politics, culture, and values (in all senses of the word), Monks ties together the Babel of vocabularies with analysis that is utterly clear-eyed and recommendations that are creative but utterly rational.

Sir Adrian Cadbury, most noted for the Cadbury Code, a code of best practice which served as a basis for reform of corporate governance around the world, wrote a lengthily review posted at Amazon.com. (Or course, it wasn’t nearly as long as my rambling review.) Below are a few bits:

The balance of power between boards and CEOs in the United States remains a paradox, given the country’s regulatory history of preventing accretions of power in relation to trusts and to banking. Nowhere else would it be possible to elect a director on a single vote, nowhere else could shareholder votes be invalidated by “ballot stuffing”, nowhere else are shareholders so limited in their ability to raise issues at AGMs, which some directors may not even bother to attend. The prevailing concept of CEO/chairmen selecting their outside board members, thus compromising their independence, strengthens the hand of the CEO at the expense of that of the board.

In spite of setbacks, he believes that this essential accountability can be restored. He sees no cause for new laws, agencies or fiscal measures, though the existing statutory and regulatory framework should be effectively enforced. He argues that it is the major investing institutions that carry the obligation to themselves and to society to restore trust in the capitalistic system… The obligation, however, of the great foundations, among the investing institutions, to play their part in bringing about reform goes beyond the calculus of financial gain. It lies at the heart of their creation. They directly assist their chosen causes, but that is within the wider context of a market system which provides them with the ability to do this. They have a responsibility to maintain the means by which they fulfil the aims for which they were founded.

I was lucky enough to get a pre-print, which I read in a couple of sittings within a few days of its arrival. Corpocracy: How CEOs and the Business Roundtable Hijacked the World’s Greatest Wealth Machine — And How to Get It Back both delights and informs in a way only Bob Monks can, because he has been at the center of so many of the important battles to make corporations more accountable. His lifework has been delineating the underlying dynamics of corporate power to devise a system that combines wealth creation with societal interest. No one else can write as well about “How CEOs and the Business Roundtable Hijacked the World’s Greatest Wealth Machine” because no one else has been as engaged as Bob Monks from so many angles.

His insights into pivotal points of view and decisions are enlightening. For example, he points to the role of Douglas Ginsburg, a leader in the field of law and economics, in instilling a belief that it is okay for corporations to violate environmental laws, as long as they account for possible sanctions in their budget. Under Ginsburg’s view, according to Monks, people aren’t motivated by moral or social obligation but by simple desire and cost-benefit analysis. Then there is Bob analysis of Lewis Powell’s court decisions. His finding of a constitutionally protected right to “corporate speech” provided the judicial framework for management “to commit untold corporate resources to influence public opinion and public votes – resources so huge and unmatchable that individual contributions are now all but meaningless in state and nationals elections.” And, of course, the Business Roundtable hold a special place in Bob’s heart. The “BRT has come to function in significant part as an agent for the CEOs…who have established themselves as a new and separate class in the governance of American corporations, answerable to virtually no one, accountable only to themselves.”

Monks appears to be a believer in the forces of markets but regulated to ensure a level playing field. Without that, the overall effect has been to turn the stock market into “a gigantic, round-the-clock casino that runs the biggest game the world has ever seen.” Market values and goals have become national goals. Corpocracy is another top-notch effort from the individual who continues to have greater lasting impact on the field than anyone else. Still, I would have placed a different emphasis in the “How to Get it Back” portion of the book..

Monks may be A Traitor to His Class, but he is also a gentleman, reluctant to force change. Through many books, Monks repeated what became almost a mantra that “no new laws” are necessary. I don’t recall seeing that in Corpocracy, although Cadbury repeats the phrase in his review. I think Bob is weakening on this point. However, he still seems too confident in the power of persuading elite leaders of the need for change. I’m with John Edwards, when he said recently, “It is unrealistic to think that you can sit at a table with drug companies, insurance companies and oil companies and they are going to negotiate their power away.”

When Les Greenberg, of the Committee of Concerned Shareholders, and I started preparing our petition on proxy access in July of 2002, I remember e-mailing Bob, asking if he would sign on with us. It was late in the week when Bob e-mailed back that he had a meeting scheduled with then SEC chairman Harvey Pitt on Monday. If we could get him the proposal over the weekend, he might be able to discuss it at his meeting. We did. My impression is that Bob’s primary focus was on Pitt’s 2/12/02 response to a letter Ram Trust Services had sent 13 years earlier where Pitt clarified the SEC’s stance that proxy voting is in fact an investment adviser’s fiduciary responsibility, generally governed by state law. I think Monks was asking Pitt for regulations to enforce that duty through required disclosures. Pitt was apparently won over by Monks, Amy Domini, and others.

My little story has two points. First, most of us don’t routinely meet with SEC chairmen. Bob’s history of involvement in corporate governance has been as one member of the elite meeting with other members of the elite. Like the fictional character, Forrest Gump, Monks met with many historical figures and has influenced important development. Unlike Gump, Monks has done so with candid intelligence and a deep awareness of the significance of his actions. Second, like the earlier Avon letter, the Ram Trust letter and follow-up eventually led to regulations. Monks may espouse “no new laws or regulations are needed” but several of his most important actions have led down that path.

Perhaps Monks is correct, as Cadbury points out in his review, that foundations have a special obligation to reform the market system which sustains their existence. That’s where Monks places much of his emphasis in the “How to Get it Back” portion of the book. In his flights of fantasy, Bob dreams of a president who will use his/her powers to end conflicts of interest and compel good governance in contractors. “The framework is in place. The laws exist,” he insists.

Yet, two pages later he notes the need for legal changes. He reminds us the First Amendment “was not meant to protect the Church from government intrusion, but rather to protect the government… We need similar protection today from the dominant institution of our own time, the corporation.” He defines corpocracy as “government by the corporations; that form of government in which the sovereign power resides in corporations, and is exercised either directly by them or by elected and appointed officials acting on their behalf.” I can’t help but believe that the tide won’t turn until the rabble of individual investors demands change. Individual investors have a vote in electing government representatives — the sovereign power; institutional investors don’t.

Lucian Bebchuk and Zvika Neeman, in a recent paper entitled Investor Protection and Interest Group Politics, also proceed on the assumption “that individual investors, who invest in publicly traded firms either directly or indirectly through institutional investors, are too dispersed to become part of an effective organized interest group with respect to investor protection.” Yet, their own model contains the following hypotheses.

Therefore, educated individual investors are critical if we have any hope of electing public officials who will protect politics from corporate influence and who will revise the legal framework so that it better combines wealth creation with societal interest. Roger Headrick’s “win” last year at CVS/Caremark, based on a margin decided by broker votes, lead to additional calls for the SEC to approve NYSE’s proposal to bar brokers from casting uninstructed investor votes in board elections.

According to Broadridge Financial, broker votes on average account for about 19% of the votes cast at US corporate meetings. However, the elimination of broker voting, if the SEC ever gets around to approving it, just takes 60-70% of retail shareowners out of the picture. It doesn’t address the more fundamental issues. How can we get shareowners to think of themselves as long-term owners rather than as betters at what Bob calls the biggest casino the world has ever seen? If they know they are owners, what tools can we make available so that voting is not only easier but also more intelligent? There are dozens of possible reforms. Here are seven worthy of further attention:

1. Proxy Assignment

Drawing from the other six, this may be the easiest to implement with a relatively large possible impact. That’s why I’m working on it. We need system(s) or perhaps just instructions, so that lazy but somewhat conscientious shareowners can assign their votes to others based on reputation, rather than tossing their proxies in the shredder. I surveyed brokers and determined that making such assignments will not be a problem at most. Now I simply need to find an institution or two willing to take the proxies. Of course there are lots of technical and legal details but they don’t appear insurmountable.

2. My Proxy Advisor

That’s the working name for a project Andy Eggers started. Andy is working on a PhD in political science at Harvard. The project is now housed within a nonprofit, Proxy Democracy, which Andy also founded. Here’s part of what he has posted as a brief description:

Before each voting deadline, we find out how respected institutional investors with a variety of voting philosophies have chosen to vote their shares. We’ll help you figure out which funds have similar voting philosophies to yours. When a fund you agree with makes a decision on a stock you own, we’ll send you a free alert. You’ll have a week or two to look at their decisions and cast your own ballot.

The system appears to depend on funds posting how they voted or intend to vote prior to the shareholder’s meeting…with Andy’s software crawling the internet to gather the information. This may work well in high profile cases. However, we’ll need more institutions to routinely post votes in advance.

3. Proxy Exchange

Glyn Holton outlined how a “proxy exchange” could allow shareowners to transfer voting rights among themselves or to trusted institutions to increase voter effectiveness (see Investor Suffrage Movement). His proposal lays out a fairly complex system involving four classes of participants:

4. A US Shareholder’s Association

Shareholders in Europe “are gaining the upper hand, nudging up share prices and sometimes forcing out an executive or forcing the sale of the company. Most recently, the Children’s Investment Fund turned dissatisfaction into deal-making at ABN Amro, leading to rival bids for the bank, the largest in the Netherlands, reports the New York Times. (Boards Feel the Heat as Investor Activists Speak Up, 5/23/07)

The Times goes on to discuss the costs of such activist campaigns that appeal to shareholders through newspaper ads. Antonio Borges, chairman of the European Corporate Governance Institute and a vice chairman at Goldman Sachs in London, says sacrifices for short-term gain would remain exceptions because short-term investors could only sell their shares at a profit if they find new investors who believe in the long-term potential of the revamped company.

In reading the article, what struck me is the growing assemblage of activist funds and shareholder associations in Europe. Where is the US equivalent of the VEB (Vereniging van Effectenbezitters or Dutch Investors’ Association) or the UK Shareholders’ Association? In the US, BetterInvesting is the largest nonprofit organization dedicated to investment education.

Although their goals include helping their members to “learn, share, grow and more fully experience the rewards of investing success,” I find no mention on their site equivalent to the UK Shareholders’ Association’s vow to “protect your rights as a shareholder in public companies and promote improved standards of corporate governance.” It might make for more interesting investment clubs in the US if members acted as owners, instead of just stock pickers at the casino.

The US hasn’t had an effective advocate for retail shareholders since United Shareholders Association. Deon Strickland , Kenneth Wiles and Marc Zenner documented that USA’s 53 negotiated agreements are associated with a mean abnormal return of 0.9 percent, a $54 million shareholder wealth gain. Although Peter Kinder, President, KLD Research & Analytics, Inc., tells me USA “was a significant factor in turning ‘good governance’ into a checklist of factors that made easy or easier ‘maximizing shareholder value’, i.e., flipping or extorting the corporation” — something we obviously have to guard against in any new iteration.  I’ve repeatedly contacted the National Association of Investors Corporation (NAIC) but they do not appear interested in governance issues. As I recall, USA was originally funded by a shareholder’s lawsuit. Maybe we need another.

5. Shareholder Advocacy Trust

Richard Macary’s AVI Shareholder Advocacy Trust presents an innovative mechanism to combine small shareowners to advocate changes in corporate governance. The Trust sets out its goals, makes its case to shareholders, and then is dependent on contributions. The Trust depends on a monitoring/activist agent who is so compelling that shareholders freely pony up contributions to support work that might pay off. Free rider issues abound.

The Trust is not a “for profit” vehicle nor can any contributor expect to get any kind of return on their contribution. In a way, it’s similar to contributing to a campaign or political action committee where you agree with their platform or want to see a specific candidate elected, so you contribute. Your only upside in that scenario is that if your candidate wins, you believe it will be good for you or your position, be it lower taxes, a cleaner environment, less regulation, etc. The trust is also set up to compensate the managing trustee, who is essentially the coordinator, director and general contractor of the effort. The trustee is very much like a general contractor in that he, she or they will essentially hire and direct all of the professional and advisors needed to execute upon the trust’s goals.

6. Collectively Paid Proxy Research

Because of the expense and free rider issues, the only reason most institutions vote are the federal regulations Bob Monks helped to create that require pension and mutual funds to vote stock in their beneficiaries’ interests. Of course another of Bob’s important contributions was founding Institutional Shareholder Services, increasing the research done on proxy issues and its availability. The biggest obstacle to voting now is not the time it takes to vote but the research needed to make an informed vote. Most people realize that just going along with the board of directors for lack of an easy alternative is not a meaningful vote. But understanding the proxy issues requires too much time and expertise, especially for individuals.

On that front, the Corporate Monitoring Project and VoterMedia.org, both initiated by Mark Latham, have shown the way to empower voters with better information. Latham’s system allows shareholders to allocate collective corporate funds to hire a monitoring firm to advise them on the issues and how to vote. Latham’s system would eliminated free rider issues and creates an incentive to pay for much more research.

“Comprehensive analyses of proxy issues and complete vote recommendations for more than 10,000 U.S. companies are delivered by ISS’s seasoned U.S. research team consisting of more than 20 analysts.” We can thus estimate about four hours of analysis per proxy, costing perhaps $2000 including ISS infrastructure costs. Considering the amount of money we shareowners pay CEOs and boards of directors who are elected and compensated based on our voting, and the amount of capital at stake in the typical company they manage for us, we should be spending more than $2000 to guide our voting.

Mark proposes use of shareowner resolutions to choose an advisor from among competitors. Any proxy advisor could offer its services, specify its fee, and have its name and fee appear in the ballot. The winner would give proxy advice to all shareowners in that company for the coming year. The advice would be published on a website and in the next year’s proxy. The company would pay the specified fee to that advisor. The voting could even be designed to hire more than one advisor, with a separate yes/no vote on each candidate. Advisor name brand reputation can make these voting decisions feasible without another level of paid voting advice. (see Proxy Voting Brand Competition, Journal of Investment Management, Vol. 5, No. 1, (2007).

7. Provide Full Public Disclosure of Votes as Tabulated

This is more of a technical fix, rather than a monumental reform that will bring in more individual investors but I thought I’d just stick it in here at the end of “how to’s” Bob might have discussed. Yair Listokin’s Management Always Wins the Close Ones highlights the need for open ballot counting.

Informational asymmetries between management and potential opponents should be mitigated by allowing anyone to obtain a real-time update of the voting. The status quo allows management to obtain frequent vote updates, while shareholder opponents of management often have no comparable knowledge. This allows management to win votes when underlying shareholder preferences are against a proposal because management can tailor its expenditures as needed; if management sees that it is well behind, it can undertake an extraordinary effort, while its opponents have no obvious way of responding. If all parties had the same knowledge about the likely outcome of the vote, then managerial opponents could respond and potentially neutralize management’s efforts to push the vote in a particular direction.

Obviously, anything we can do to make corporate elections less rigged will also help to bring shareowners out to vote. Why bother if the fix is in? My hope is that once shareowners get used to voting in their best interests in corporate elections, that behavior will also carry over to civic elections. Activists in either social institution will likely carry over to the other.

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