Your questions and comments about the Corporate Governance site and corporate governance issues are welcome. For older letters, visit the archives. Unfortunately, due to the high volume of letters and emails, I haven't kept this portion of the site up-to-date. Maybe I'll resume in 2008.

Date: 12 Jan 2000
To: jm@corpgov.net
From: Gregory F. Maassen
Subject: Corporate Governance NETwork

Your site brought me into contact with the World Bank. I'm now working there as corporate governance consultant on technical assistance projects. Again, its proves your network site works. Thanks.

Date: 03 Jan 2000
To: jm@corpgov.net
From: Hank Boerner
Subject: NETwork listing

You have a terrific web site. We have been a listed resource on Corporate Governance NETwork for more than a year now. Some emails and calls have come in, with interesting discussions following. Great networking tool. We appreciate your efforts. Hank Boerner - Rowan & Blewitt NYC.

From: "Gregg McGilvray"
Date: Wed, 7 Jan 1998

I was wondering if your firm is affected by or has any comment concerning the near total dominance of ADP in the beneficial and registered proxy industry?

We at ICE Proxy Services perceive this as the demise of the proxy industry and have already suffered as a result of this transaction. We understand that ADP is also talking to Dean Witter, the last remaining independent proxy provider. This would provide ADP with over 99% of the beneficially held accounts for shareholders who own stock in US publicly traded companies. If combined with ADP's Share Link and Street Link product which includes the registered shareholders this would mean that ADP would be able to communicate with nearly 100% of an issuers shareholders. Even the issuer itself would not have access to such information!

We at ICE Proxy Services feel that access to this data would not be in the best interest of the issuer community, would preclude any firm from entering the proxy industry, and drive us out of business. In addition the transfer agents and proxy solicitors would be in immediate jeopardy as it would be a natural progression for ADP to control the entire proxy voting and corporate governance environment. We have contacted the US Department of Justice concerning this matter and are awaiting a response.

We would appreciate your support and comments concerning this situation. You may contact me at gregg@iceproxy.com and the justice department at antitrust@usdoj.gov Thank you.

Gregg McGilvray, Managing Director
ICE Systems, Inc.
1111 Broadhollow Road Suite 202
Farmingdale, NY 11735
(516) 753-0400

Date: March 21, 1997
From: James McRitchie jm@corpgov.net

Dear Mr. Donlan:

I can't say that I understand your remark on politics not being a good model for corporate governance or governance in general. Perhaps you favor the exchange of ideas as long as everyone agrees that none of the ideas will be implemented?

Your decision not to submit a response to the SEC questionnaire sounds like you are "putting your head in the sand." If you feel the SEC has gone too far in its interference with how companies are governed, why not tell them so? Do you vote?

You ask, "in what way is selling your stock not an effective avenue of shareholder democracy?" The analogy I would draw upon would be a citizen who leaves his country and renounces his citizenship because he is dissatisfied with the actions taken by his representatives in government. While that act may be logical, depending on the circumstances, it is not an act of democracy. Democracy is the exercise of governance either directly or through representatives. The citizen who leaves their country is not exercising control; instead, he is abandoning it. An investor takes a similar action by doing the "Wall Street Walk".

You write, "one of the major reasons a business is not like a country is that a country's citizens are the consumers of its government's 'services,' while shareholding has nothing to do with consuming a company's products and services." It is true that citizens enjoy the privileges of citizenship as consumers, whereas shareholders may not patronize their company's products or services. However, the right to participate in governance is more fundamental to the role of both citizen and shareholder. There would be no consumption of government services unless citizens or their representatives choose to make such services available.

Regarding Digital, obviously "shareholder mix" campaigns can only take a company so far. There are many other factors involved in stock performance.

Date: March 17, 1997
From: Thomas G. Donlan tgdonlan@BIX.com

Dear Mr. McRitchie:

That was an interesting concept in "Business Ethics" that shareholders ought not to be able to "suck out the wealth" of corporations. On one level, it's not too dissimilar to my notion that corporations have a life of their own and ought not to be completely subject to shareholder votes. On the other hand, the shareholder can always suck all his wealth out of a corporation merely by selling his stock at the market price, which represents the sum of corporate wealth and the discounted value of future earnings.

I don't think politics is a particularly good model for corporate governance, and possibly not for government at all. If I may abuse Thomas Jefferson for a moment, I would rather buy and sell shares of citizenship in a world market than be governed by voters. (Jefferson, of course, claimed to prefer newspapers without government to government without newspapers.)

I won't be submitting anything to the SEC questionnaire because I don't think the SEC should set rules for shareholder proposals or any other form of corporate governance. If Company A wishes to put any question to the shareholders, let it do so. If not, so be it. If you don't like it, sell the stock, or don't buy it. As you say, I believe decisions in this area are better left to owners than the government. I would agree that the government also had no business making rules about shareholders communicating with other shareholders. If you and I want to gang up on company A and force it to do our will, the appropriate limit on our wish is our ability to induce people to sell us stock. The role of the government is to be certain that all shareholders are treated alike at all times, so that you and I can't force the company to pay us and only us a special dividend.

I doubt that companies will really gain from increasing shareholder participation; I think they'd be better off listening to their customers. But that's a matter for the companies themselves, and for their investors, to judge.

In what way is selling your stock not an effective avenue of shareholder democracy? What do you mean by the "Wall Street Walk?"

Brancato and Useem have a lively theoretical notion of corporate managers campaigning to change the flavor of their shareholders, but again, I think all that effort would be better spent on campaigning to attract the favor of customers. One of the major reasons a business is not like a country is that a country's citizens are the consumers of its government's "services," while shareholding has nothing to do with consuming a company's products and services. Digital Equipment is about as good an example of a company's failing to keep pace with the demands of its customers as I can think of, and -- by the way -- my newspaper says the stock is back to $30 a share.

I find the CII cite interesting, just as I do Lens investors claim that they have outperformed the S&P. I'm going to take a good look at both.

Regards,

Date: March 17, 1997
From: James McRitchie jm@corpgov.net

Dear Mr. Donlan:

Thanks for your response. There is much to be learned from the comparison of political and corporate governance. We need to continuously examine the legitimacy of our institutions. For example, a recent critique by Marjorie Kelly, the Editor of Business Ethics, calls into question the fundamental right of shareholders to have corporations managed exclusively for the purpose of maximizing their returns. (see Why All the Fuss About Stockholders?) "Equity capital is one relatively minor source of funding, vital at a certain point. Yet it entitles holders to suck out all wealth, forever."

The "finance" view of corporations which idealized the "market" for corporate control (characterized by the 1980s) and the takeover bid as "the most effective opportunity for shareholder democracy" is gradually being replaced by a more "political," more democratic model. True, the finance model attacked the "principle-agent" problem head-on, but at substantial adjustment costs. It is also true that "stakeholder" concerns, better expressed in the political model, can divert focus from the primary goal of performance and wealth creation. However, this is all the more reason that you should be urging your readers to participate in the SEC Questionnaire on Shareholder Proposals. For example, I recommend doubling the dollar amount of stock required to be eligible to submit a proposal to reduce frivolous introductions. However, I do not believe the subject matter for proposals should be as restrictive as it currently is. I may not agree with many of the proposals which fall into the category of "ordinary business" but I believe decisions in this area are better left to the owners than the government.

CalPERS, and other corporate governance activists, probably were too focused on specific institutional changes rather than on changing the framework. The 1992 SEC rule changes regarding communication were their most effective reform. While I opposed the rise of anti-takeover defenses, I now believe the more political model which has resulted will eventually allow for the freer flow of information and greater wealth creation. Just as our country gained vitality by widening the franchise, corporations will also benefit from greater shareholder monitoring and voice.

Since you seem to think little of corporate governance initiatives, I assumed that you believed disgruntled owners should sell their stock, or take the "Wall Street Walk," rather than use corporate governance mechanisms to fight for changes. Sorry, if I mischaracterized your opinion.

Regarding how a company changes its ownership from value investors to growth investors. Actually, I would now rephrase Brancato's terms. I think it is clearer if we think of shareholder mix campaigns as moving from a base of traders and market timers to long-term investors. Placing an ad might be one way, but the advise from both Brancato and Useem goes something like the following:

Identify current long-term holders and analyze the investment strategies of these patient owners.

Investigate your peer group and their shareholder base.

Comb the data to find investors with similar characteristics to your long-term investors who have not yet invested in your company.

Target such investors with personal visits and other forms which communicate that your company can meet it objectives. As Brancato puts it, "communicate with the desired shareholders in the same highly organized manner as a company might design and undertake a major marketing effort for a new product."

Measure success to determine how the base is changing. Hopefully, you will then be able to track the reduction in the cost of capital as your stock price stabilizes and valuation increases.

Useem also notes the value of reverse "shareholder marketing programs" for selling goods or services to individual shareholders. Customers are more likely to hang on to their stock. Expansion of employee stock ownership plans is another way to increase the proportion of long-term investors.

Brancato cites the case of Digital Equipment as a typical shareholder mix campaign. "Targeted institutions were buyers of 21 million shares, but sold only 7 million. By contrast, nontargeted institutions were buyers of only 3 million shares but sellers of approximately 7 million shares." At the same time, Digital's stock price moved from $30-35 to $60-65. No one claims the price rise was due to the shareholder mix campaign, but Brancato notes it could have played "an important role in helping to reinforce positive fundamentals to ensure not only fair valuation in the stock price but also reduced volatility."

Regarding the premium on companies with "good" boards and corporate governance practices. Yes, this is an area crying out for better research. One of the more interesting recent studies is "Does Coordinated Institutional Activism Work? An Analysis of the Activities of the Council of Institutional Investors." They find that firms on the Council's list experienced below average share performance in the year before being listed but experienced an average 8% price increase above the S&ampP 500 in the two years after listing. Importantly, their methodology sidesteps the problem of previous studies which focused on public governance events (proxy proposals), since many firms are more likely to respond to quiet diplomacy than public pressure.

Date: March 15, 1997
From: Thomas G. Donlan tgdonlan@BIX.com

Dear Mr. MacRitchie:
Thanks for your long and interesting letter.

The English Parliament, rotten boroughs, and John Adams notwithstanding, a company is not a country, and analogies may not apply. Indeed, my biggest objection to the corporate governance movement is that it opens corporate affairs to the democratic impulse to vote benefits to "stakeholders" at the expense of the company and its investors.

Incidentally, I'm not aware of having endorsed random walk theory, market timing or any other investment strategy. Although Barron's has covered many strategies and interviewed practioners of every black art, we have endorsed none. Fundamental analysis and stock-picking is probably the personal favorite of most Barron's writers.

As for Apple Computer, the advice is simple: If you don't like the company, don't own it. I feel sorry for the investors who did not get out while the getting was good, back in the days of John Scully. Though there was an ill-timed article in Barron's to the contrary, I'm on record as saying in 1987 that Apple's game wasn't worth the candle since it kicked out Steve Jobs. Whatever's the matter with Apple, I doubt that shareholder democracy would do as much for it as some of the rejected purchase offers would have.

I will be interested to review the literature you cited. In particular, I will be fascinated to find out how a company goes about changing its ownership from value investors to growth investors. Does it place an ad?

And if investors will place an 11% premium on companies with "good" boards and corporate governance practices, by all means, let companies adopt such practices, and let their stock be bid up 11%. If you see any examples of this actually happening, let me know. But I doubt that most investors, especially the individual investors who are the core of Barron's readership, care about anything except the 11%.

Regards,

Thomas G. Donlan

Date: March 11, 1997
From: "James McRitchie" jm@corpgov.net

Your March 10th editorial "Who's On Board: Who Do Corporate Directors Really Represent?" reminds me of questions raised during the founding of our nation. At that time about a third of Parliament held crown posts. The rest were "elected" but in a way that cried out for reform. For example, thirty voters in Lewes sent two members; private patrons controlled "pocket boroughs;" growing commercial centers, such as Birmingham and Manchester, had no representation; neither, of course, did women, minorities, or those without property. In response to the Stamp Act, Americans charged their assemblies had not approved the levies. "No taxation without representation," became the now famous cry.

Thomas Whateley responded to the American question of accountability with the doctrine of virtual representation: "None are actually, all are virtually represented; for every member of Parliament sits in the House, not as a Representative of his own Constituents, but as one of the August Assembly." John Adams' rebutted, the legislature "should be an exact portrait, in miniature, of the people at large...it should think, feel, reason and act like them."

While Whateley stood with the tyrants, he did instruct representatives on how to act, Adams only tells them who to be like. In the field of corporate governance we need both the leadership inherent in Whateley's statement and the democratic principles of Adams. However, your editorial appears to reject any move toward democratic reform; "if the stock price gets low enough, a takeover bid is the most effective opportunity for shareholder democracy." Since when is a takeover an act of democracy? Isn't it time to shift corporate governance from palace coups and revolution to democracy?

How would your advise work for Apple Computer shareholders? According to CalPERS two of Apple's directors sit on four or more boards. They question if Apple's directors have the time and dedication to turn around Apple. They are also concerned that three board members don't even own stock. Apple's 1996 compensation plan was to provide senior executives bonuses correlated with performance. However, when losses continued to drain the company, Apple changed the plan so that senior managers would get a bonus if Apple reported a profit in the fourth quarter. They did it by taking a one-time gain from inventory adjustments. In the three quarters that didn't count last year (for executive pay) Apple lost $841 million and more losses are expected.

Shareholder's might well wonder if Gilbert Amelio really earned his bonus of $2,334,000. Apple may still be salvaged. I don't see any reason why shareholders should sell their stock at $17 (down from $70) or sit on their hands until another company buys Apple, when there is an alternative of getting involved in corporate governance. Its obvious the shareholder proposal process needs reform. Your readers should be encouraged to fill out the current SEC questionnaire regarding Rule 14a-8 and the shareholder proposal process. To facilitate response to the survey we have loaded the entire text on the Corporate Governance site under the title SEC Questionaire on Shareholder Proposals: Rule 14a-8(c) as well as our draft response, for discussion purposes.

Carolyn Kay Brancato, of the Conference Board, isn't crying out for reform but she is advising corporate executives to seek the right kind of shareholder (see her book Institutional Investors and Corporate Governance). Yet, Barron's does not even go this far. You continue to editorialize in favor of the Wall Street Walk and traders who try to time the market. As Dr. Brancato notes, although corporations may want to attract traders at some point in their development, there are clear benefits to targeting shareholders who are "willing to tolerate a drop in this quarter's earnings." She points to an analysis by Georgeson which shows that companies have improved their stock prices by shifting their shareholder base from value to growth investors.

In another study titled "Putting a Value on Corporate Governance," the authors found that investors would pay an average of 11% more for stock in well governed corporations (defined as those with a clear majority of outsiders on the board; truly independent directors with no management ties; directors who hold significant stock holdings and who are paid, to a large extent, in stock; directors who are formally evaluated; and boards that are responsive to investor requests). Those more likely to value good governance were investors with low turnover in their portfolio, "value" investors, and those with high net worth...sounds like a profile of the average Barron's subscriber.

Many around the world have recognized the value of more democratic corporate governance. Malaysia recently held its first conference on corporate governance. Trade Minister Abu Hassan noted that shareholders should "consider their shareholdings in a company as ownership rather than as a mere investment, and use their voting power to bring about changes when needed, rather than simply selling their shares." Isn't it about time Barron's started thinking of its readers as investors who are more interested in owning companies than in trading stock?

Date: Mon, 24 Feb 1997
From: "Wollman, Dr. Neil J." NJW@Manchester.edu

We would appreciate if you would publicize the below two campaigns. Thank you.

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In 1987, Humboldt State University (California) initiated the Pledge of Social and Environmental Responsibility. It states "I pledge to investigate and take into account the social and environmental consequences of any job opportunity I consider." Since that time, dozens of colleges and universities have enacted the voluntary pledge, which allows students to define what "responsible" means to them.

In 1996, Manchester College began coordination of the campaign effort, which has taken different forms at different institutions. At Manchester, it is a community-wide event coordinated by a diverse committee. Students sign and keep a wallet-size card stating the pledge (50-60% typically do), while students and supportive faculty wear green ribbons at commencement, with the pledge being printed in the formal commencement program. The pledge helps educate and motivate students to contribute to a better world, and can be a focal point for other types of consciousness raising both on and off campus.

Contact Neil Wollman at NJW@Manchester.edu for an explanatory brochure or for questions/comments; or write GPA, MC Box 152, Manchester College, North Manchester, IN 46962. The Campaign also has a web site, at http:/www.manchester.edu (click on "index," then "Graduation Pledge Alliance"). Please keep us informed of your pledge efforts.

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College faculty have launched a nationwide campaign to persuade TIAA-CREF, the Teachers Insurance and Annuity Association-College Retirement Equities Fund, to begin "positive investing" of their pension funds. They are calling for the investment of $75-100 million from the Social Choice Account, a socially responsible fund, in companies that are models of social and environmental responsibility.

TIAA-CREF is the nation's largest private pension system. In 1989, faculty successfully lobbied the group for the creation of the Social Choice Account, which screens for tobacco, alcohol, nuclear, military, environmental, and Northern Ireland concerns. The Campaign is now asking that 5-10% of assets in the Social Choice Account be invested in companies that are models of corporate responsibility with regard to employees, the environment, consumers, and local communities.

For a brochure and other campaign materials, contact Social Choice for Social Change: Campaign for a New TIAA-CREF, Box 152, Manchester College, North Manchester, IN 46062, (219)982- 5346/5009, or e-mail Neil Wollman at NJW@Manchester.edu or Abigail Fuller at AAF@Manchester.edu. The Campaign also has a web site, at http:/www.manchester.edu (click on "index," then "Social Choice for Social Change"). If you do contact TIAA-CREF or take other actions without sending for further information from us, please do let us know, as we are trying to monitor campaign activities. Thank you.

jm@corpgov.net
From: Edouard Cognard redenjeux@lesechos.fr
Paris, 22 feb 1997

Dear Mr. McRitchie:

Hello. My name is Edouard Cognard and I am a french reporter with the Paris' issued monthly magazine ENJEUX Les Echos.

I am trying to gather some information around the socially responsible investment phenomenon and around the corporate governance activism (as far as the both are linked, aren't they ?), in order to explain in my columns how it could appear in France. Indeed, I presume that North America's socially responsible pension funds which are looking for their assets' geographical diversification will push for reforms everywhere they decide to invest... even across the Atlantic ocean.

Your web site is a very helpful resource. I would like to know more about you : are you a consultant, a writer as Jon Entine ? Is it possible to reach you by facsimile or phone, or to meet you ? I would like to know who is the author of the contribution entitled : 'Ending the wall str Walk : why corp governance now ?'.

I plan coming to San Francisco (march 20th - 25th) in order to achieve my journalistic search by interviewing the most representative persons I would find there. Thank in advance for any assistance that you can give.

Sincerely,

Edouard Cognard
ENJEUX Les Echos
46, Rue La Boetie
F - 75008 Paris
Facsimile : 33 1 42 25 26 40

ed: Yes, there is a link but you will find that many involved in corporate governance do not want to talk about it. Pension and other funds have fiduciary responsibilities which take priamcy over social issues. Social responsibility must be approached from the standpoint of long term shareholder interests. For example, the 2/19/97 WSJ reports that James Burton wrote to Maxxam that cutting down its stands of old-growth redwood trees will "significantly harm the long-term value of Maxxam." "You will be perceived as a pariah, unable to easily raise new capital when needed." CalPERS and STRS own 4.48% of Maxxam stock. James Mosman, the CEO of STRS is quoted as saying, "I'm very reluctant, if not almost adamant about not divesting individual stocks based on social-type issues." "I don't think we have any evidence of that at this time."

Thanks for the kind words on the site. Ending The Wall Street Walk: Why Corporate Governance Now? is mine. Of course, it builds on the work of many others. I'm a part-time writer/consultant. I'm also a mid-level bureaucrat with the State of California. I'm easiest to reach by e-mail but through e-mail we can make arrangements for other forms of communication. Send me a list of people you plan to visit or a basic outline of your storey and I will try to help.

Perhaps our readers will also have some suggestions.

jm@corpgov.net
From: Steve Harvey harveys@govonca.gov.on.ca
Date: Wed, 4 Dec 1996

I am leading the development of non-profit company in Ontario, Canada which will oversee the management of some 1,000,000 acres of public forest being used to produce timber for harvest by industry. I am working with the forest industry who will pay the cost of managing the forest and people who live in the area and use the forest for recreation and other activities (Goldie Hawn among many others has a cottage in the area).

My challenge in developing a Board of Directors and criteria for membership in the non-profit is trying to strike a balance of power which addresses industry's need to control costs and ensure continued access to the forest for harvest with the need of the public which has an interest in the way the forest is management; an interest which is only partially addressed by public forest management policy. Are there any examples of similar challenges and responses to these challenges?

ed: I was able to give Mr. Harvey some advise but am sure he would welcome additional feedback.

From: Richard L. Ayers
981 Terracepark St.
Date: November 4, 1996

To: Richard L. Hinckley
Nevada Power Company
6226 West Sahara Avenue
Las Vegas NV 89151-6226

Dear Mr. Hinckley,

Please find enclosed information and material for inclusion in your proxy for your 1997 Annual Meeting, which I also plan to present.

Sincerely Yours

Richard L. Ayers
Shareholder

ed: A copy of the letter from Mr. Ayers came through the mail. In most cases we will post only notes sent electronically, since we do not have the resources to scan or retype everything received. However, I made an exception for Mr. Ayers since his approach is so unique (he requests that shareholders vote against his resolution). Our posting is strictly informational; Corporate Governance takes no position with regard to the motion presented. However, we do find it interesting and hope our readers will as well. Mr. Ayers used the same approach last year. See Ending the Wall Street Walk.

with the Corporate Governance NETwork!

Contact: jm@corpgov.net

All material on the Corporate Governance site is copyright ©1995-2000 by Corporate Governance and James McRitchie except where otherwise indicated. All rights reserved.