 |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
 |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Current News. News Archives. Disclaimers, Copyright and Conflicts of Interest. Your purchases Dems Pull Ahead on Contributions Securities and investment firms contributed more to Democrats than Republicans this year for the first time in a dozen years, according to the Center for Responsive Politics. The figures exclude Levin Fund donations. My conclusion? It is still early in the year and the money is primarily focused on primaries at this point. ISS Survey Shows Concerns are Global ISS survey finds a majority of investors in every market consider corporate governance to be "very important" or "important" to their firms. Answers range from a high of 90% of Chinese investors, to a low of 61% in Continental Europe. In almost every market studied, a majority of investors say that corporate governance is more important today than it was three years ago and will become even more important in the next three years. The article discusses the spread of methods to address pay concerns. In 2002 the UK began to require companies to submit remuneration reports to a shareholder vote. A year later, the Netherlands took the same practice one step further by requiring companies to submit remuneration reports to a binding vote by shareholders. In 2005, Sweden and Australia both adopted requirements for non-binding shareholder votes on remuneration reports. This year, remuneration reports have become a topic of debate in the U.S. AFSCME filed five shareholder resolutions this season seeking an advisory vote on compensation committee reports. The ISS study shows that investors in the US, Canada, and the UK are the most likely to cast proxy votes outside their home markets, with 73% of US. 67% of Canadian, and 60% of UK investors voting at least 50% of the shares they hold outside of their home market. (The Globalization of Corporate Governance, 5/31/06) CorpGov.Net has popped up high in any search of “corporate governance,” since before Google. Open an account and start delivering relevant ads to thousands of influential readers each day. Click "Advertise on this site" in the ad above. Home Depot Broc Romanek Editor of TheCorporateCounsel.net posted an interview with Rich Ferlauto, Director of Pension Investment Policy for AFSCME, which includes a discussion of the Home Depot annual meeting. (Early Contender: Governance Poster Child of the Year, 5/31/06) Paulson Bush's nomination of Henry M. Paulson to become his next Treasury secretary and "principal economic adviser" is winning praise from most, including this publisher. Goldman Sachs is taking a leading role in recognizing that a healthy environment is necessary for the well-being of society and is the foundation for a sustainable and strong economy. Maybe Paulson, an avid environmentalist, can convince Bush that global warming is something to be addressed. I also like Paulson's 2002 call for action to restore investor confidence. While I no longer hold out any hope for proxy access during the Bush administration, I'd be delighted if Paulson can shift the top slightly from "I" to a bit more of Goldman Sachs' culture of "we." TIAA-CREF Forms New Social & Community Investing Department TIAA-CREF has formed a new Social and Community Investing Department within its Asset Management area. The department will focus on a series of investment programs and oversee the screening methodology used by the CREF Social Choice and the TIAA-CREF Social Choice Equity Funds. In addition, the new department will work on socially responsible investment product development and the formulation of policies around key social issues. The department's investment programs will seek out investment opportunities that are competitively priced and offer broad social appeal. "The new Social & Community Investing department gives us another way to fulfill our financial commitment to our participants while continuing our leadership in the area of socially responsible investing," said Scott C. Evans, head of TIAA-CREF's Asset Management Division. "Our participants tell us that, after financial returns, social factors are very important in how they make their investment decisions. This department furthers our mission to meet the financial needs of the institutions and individuals we serve, and enables us to expand our offerings in this area." (press release, 5/30/06) The department - which will report directly to the Chief Investment Officer -- will be headed by TIAA-CREF Managing Director Scott J. Budde and include Amy Muska O'Brien, TIAA-CREF's Director of Social Investing hired in 2005. Significantly, Amy Muska O’Brien also recently joined the SIF Board. This is another step forward for TIAA-CREF after years of lobbying, says Neil Wollman of the Make TIAA-CREF Ethical coalition. After years of lobbying, TIAA-CREF also agreed a year ago to do shareholder advocacy on issues of social responsibility. We have argued for them to apply such influence to six target companies--including Wal-Mart, Coke, and Nike---which engage in egregious corporate behavior. We continue to wait for a decision on that after years of previous attempts for divestment. In a less positive development, an IT manager in charge of customer relationship management implementations at TIAA-CREF before being fired, seeks redress in a whistleblower lawsuit. (Former IT Manager Seeks Redress with SarbOx Whistleblower Lawsuit, eWeek.com, 5/30/06) US Warms to CSR More Slowly than UK The May 2006 issue of Corporate Governance: An International Review carries an article by Ruth V. Aguilera, Cyntihia A. Williams, John M. Conley and Deborah E. Rupp, Corporate Governance and Social Responsibility: a comparative analysis of the UK and the US. One are of divergence charted was the amount of constraint on executive power in the UK vs the US. In the UK, 90% of large firms split Chair and CEO positions. In contrast, in 80% of US firms the roles are combined. Differences in pay are consistent with this corporate governance strategy with much higher CEO pay and stock-based incentives in the US. The authors find that pension and insurance companies that dominate the UK equity market have long-term payout obligations and more readily adopt long-term low turnover strategies, which include CSR. Investors engage in more substantive ways using "quiet diplomacy" and take a more "relational" approach. Dominance of short-term mutual funds and SEC Regulation Full Disclosure in the US work against such strategies. Proxy access could have moved the US in the direction of the UK, but that movement has stalled. Justice research has consistently shown that employees' perceptions of the fairness of their organization's actions have a strong impact on their attitudes about and actions toward the firm. Employees who perceive a great deal of fairness are more likely to be committed, trusting, loyal, hardworking and good citizens at work. The authors extend that theory, suggesting that employees care not only about fairness to themselves, but also about the external CSR actions of firms. In American firms, dominated by short-term investors, instrumental motives will predominate and decision makers will initiate CSR programs only when they contribute directly to the short-term bottom line. British Government "best practice" codes and the Myners Committee Report that urged investor intervention, plus the threat of legislation have promoted greater sensitivity to social and environmental issues. Will the US follow the UK's lead? The authors conclude, "we expect the US institutional investors' norms towards CSR engagement to develop more slowly than they have in the UK." Institutional assets jump 13.5% Worldwide institutional assets of the 500 largest money managers increased 13.5% last year, while the firms’ U.S. institutional tax-exempt assets grew roughly 8%, Pensions & Investments’ annual money manager survey shows. International markets and emerging markets handily outperformed domestic markets during the year, largely prompting worldwide assets to grow at a more significant clip than domestic assets. The combined assets of the nation's exchange-traded funds (ETFs) were $334.87 billion in April, according to the Investment Company Institute (ICI). Assets of all exchange-traded funds rose in April by $13.58 billion, or 4.2%. Over the past 12 months, ETF assets increased $113.89 billion, or 51.5%, according to ICI. Next Election Might Bring Power to Shareholders Jeff Brown of the Philadelphia Inquirer "gets it." In When pay keeps going up even if performance does not (5/28/06), Brown asks why corporate boards, which are supposed to represent shareholders, keep pushing executive pay up? It's a matter of mutual back-scratching. He cites CEO Compensation, Director Compensation, and Firm Performance: Evidence of Cronyism?, which found that companies paying CEOs excessive amounts also pay directors excessive amounts. Most important: Companies that pay too much also tend to perform worse than their peers. Why do shareholders tolerate this? Sure, many are conflicted or don't care but even those who do, don't have the tools. The solution, according to Brown, is to "change federal regulations to make it easier for unhappy shareholders to nominate candidates for corporate boards. Currently, boards nominate their own candidates, and many boards are under their CEO's thumb. Washington does not care much about this kind of change right now. Something to think about in the next big election." Let's hope we do more than think about it. Corporate Governance Guide Available Perkins Coie released the third edition of its popular guide to corporate governance issues, The Public Company Handbook: A Corporate Governance and Disclosure Guide for Directors and Executives. John Chevedden and his associates are keeping the pressure on this year. What follows is a report on recent votes.
Pay to Play Law Needs Strengthened Dan Morain writing Finance Law Is Virtually Ignored, for the LATimes, finds that firms seeking pension business with CalPERS and CalSTRS easily skirt a rule on revealing donations to state board members. The laws loopholes have come into focus as Treasurer Phil Angelides and Controller Steve Westly — both members of the pension boards — vie for the Democratic nomination for governor. The law requires them to file statements with the secretary of state listing their contributors. However, those filings don't give details on donors' interests in state affairs. So Rep. Adam B. Schiff (D-Burbank) pushed in 1998, when he was a state senator, to create a parallel filing system that would do so. CalSTRS Fiduciary Counsel, Ian Lanoff, dropped a bomb on the proceedings when he indicated he has repeatedly advised CalSTRS board members that they are prohibited, by provisions in the California Education Code, from assisting contributors and should recuse themselves from such votes and deliberations. It was clear the strength of Lanoff's conviction came as a surprise to CEO James Mosman who indicated that constitutional officers on the CalSTRS Board had received different advise from their own counsels and did routinely participate in deliberations and votes involving contributors. It was also clear that potential conflicts of interest are not routinely discussed during such deliberations. I was one of the only members of either system to testify in support of greater disclosure. Passage of SB 1753, which took effect in 1999, hasn't helped. CalPERS, could find only two such disclosures since then, totaling $11,250, one to Angelides and one to Westly. The California State Teachers Retirement System, known as CalSTRS, found none. Crane Wants to Keep CalSTRS Position David Crane, Gov. Arnold Schwarzenegger's legislative affairs secretary, is offering to quit his $90,000-a-year post if lawmakers agree to keep him on the CalSTRS board where he gets $100-per-diem. He faces stiff opposition in Senate confirmation hearings from teachers' organizations and union leaders because of his refusal to take a stand against a measure by Assemblyman Keith Richman's to convert defined benefit plans to hybrid plans (part 401(k) and part traditional pension) for newly hired employees. Crane defended his decision, saying CalSTRS should not take positions on legislative proposals that don't affect current teachers or retirees. (CalSTRS trustee's shocker, Scramento Bee, 5/25/06) These are companies which took a shareholder proposal, made it a binding company proposal and obtained the required shareholder approval at April and May 2006 annual meetings. This is clearly better than a majority vote on a shareholder proposal.
Carbon Beta Basket Innovest, in partnership with UBS, has created a "carbon beta basket," a fund that will hold 50 stocks in five industries. The fund managers would monitor global warming regulations and would buy and sell the stocks on the basis of how the companies would be affected by those rules. According to the NYTimes, geen energy is no longer just an SRI play. Pure profit-and-loss players are moving in, potentially raising the level of the game. They are betting that Washington will someday clamp down on emitters of carbon dioxide and other gases that are believed to contribute to global warming. And they are certain that there is money to be made in holding the shares of low emitters and shorting the shares of big ones. (Wall St. Develops the Tools to Invest in Climate Change, 5/24/06) In a related item, Finally Feeling the Heat, Gregg Easterbrook's op-ed item says he is now switching sides regarding global warming, from skeptic to convert. Earth's surface, atmosphere and seas are warming; ocean currents are slowing; ice shelves are melting faster than projected; spring is coming ever sooner; rainfall patterns are changing; North American migratory birds are ranging father north; the ability of the earth to self-regulate to resist warming appears to be waning. While natural variation may play roles in climatic trends, overwhelming evidence points to the accumulation of greenhouse gases, mainly from the burning of fossil fuels, as the key. ...Mr. Bush should speak to history by proposing a binding greenhouse-credit trading system within the United States. Waiting for science no longer justifies delay, as results are now in. Universal Owners: Challenges and Opportunities The papers and most of the power point presentations from the April 2006 conference, Universal Owners: Challenges and Opportunities (sponsored by the Sloan foundation and supported by the Soda Foundation), are now available at the website of the Center for the Study of Fiduciary Capitalism. Dear Editor Home Depot Home Depot's board has awarded Robert L. Nardelli $245 million in his five years as CEO. During that time, the company's stock slid 12% while shares of its archrival, Lowe's, have climbed 173%. Why would a company award a chief executive that much money at a time when the company's shareholders are arguably faring far less well? (With Links to Board, Chief Saw His Pay Soar, 5/24/06) Model Help David Ellerman, one of my early inspirations, has a new book, Helping People Help Themselves : From the World Bank to an Alternative Philosophy of Development Assistance (Evolving Values for a Capitalist World)
Shareholder Questions The National Association of Corporate Directors posted a fairly comprehensive compendium of questions that shareholders ask at annual meetings that was compiled by PriceWaterhouse Coopers. John Chevedden and his associates are keeping the pressure on this year. What follows is a report on recent votes.
Delaware Bill to Facilitate Majority Voting Broc Romanek, Editor of TheCorporateCounsel.net reports on legislation amending the Delaware General Corporation Law to address some of the majority voting issues raised recently by investors. Broc interviews John Grossbauer of Potter Anderson & Corroon, a member of the Council that worked on the draft bill. Listen to the podcast. Options Backdating Widespread The WSJ reports on studies to detect highly improbable option grant patterns by David Yermack, an associate professor of finance at New York University's Stern School of Business and Erik Lie, an associate professor of finance at the University of Iowa. John Emerson, an assistant professor of statistics at Yale University, developed a computer program to calculate probabilities for the grants. Mr. Lie suggests that options backdating could be pandemic. His data on thousands of option grants show that, on average, they perform far better than normal in the periods after option dates. Typically, options for top executives can be granted only by the board or its compensation committee, and are supposed to carry a "strike," or exercise, price equal to the market value at the time the options are approved by directors. A recipient sometimes must wait a year or more for the option to "vest," then can cash out the option if the share price is above the option's strike price. Backdating -- deliberately moving the grant date earlier, to a more beneficial time when the price was lower -- in effect gives the executive an instant paper profit, undermining the incentive purpose of options. Companies caught backdating risk disclosure and securities-fraud violations. Executives who perpetrate such a scheme can face wire fraud and other criminal charges. Most of the unusual options grants appear to have occurred from the mid-1990s through August 2002, when the Sarbanes-Oxley corporate-governance act tightened disclosure requirements, curtailing the potential for retroactively dated grants. Under accounting rules that were long in effect until recently, issuing a below-market option should trigger extra compensation expense, reducing a company's net income. Companies that failed to record that expense may have to restate their financial results, in some cases going back many years. Backdating also could run afoul of complex tax laws, requiring companies and individual to pay back taxes and penalties. For the gruesome details at various companies, see Five More Companies Show Questionable Options Pattern, 5/22/2006. See also, Companies embroiled in backdating scandal, AP, 5/21/20006. Exec Pay at Home Depot WSJ of 5/20/06 carries article on AFSCME's proposal that would give Home Depot investor s an advisory vote on the compensation committee's executive-pay plan. Home Depot shares have slid 11% since Bob Nardelli took the helm in 2000, while shares of archrival Lowe's Cos. have nearly tripled. Over that same period, Mr. Nardelli has pocketed more than $100 million in compensation, including nearly $32 million last year. (This Week Ahead: CEO Pay) Exxon Mobil's Shareholder Revolt on Global Warming Interesting blog at KailyKos.com regarding pension fund issues with Exxon Mobil. Pension fund trustees and institutional investors, said they were concerned Exxon Mobil's handling of the climate change issue left it trailing behind its major oil peers, such as BP and Royal Dutch Shell. The blog references Big Tobacco. "Like the oil companies are doing today, Big Tobacco spent millions of dollars in a disinformation campaign to dissuade people from the clear scientific evidence that smoking was harmful to your health. The upshot of all that corporate fraud and deceit? Billions of dollars paid by Big Tobacco to settle lawsuits brought by smokers and numerous State Attorney Generals." "Exxon's continuing efforts to muddy the waters of the global warming debate are seen by these investors as a dangerous sign that the value of their Exxon shares in the future will plummet unless management adopts a different strategy regarding climate change, and the sooner the better." Their prediction is "a bill presented to Congress (by Republicans, naturally) at some future date proposing to absolve the oil companies from all legal liability arising from greenhouse gas emissions and the effects of global warming." Pill Bylaw Could Set Precedent Unite Here's pension fund seek a bylaws amendment at Hilton to state the "corporation shall not maintain a shareholder rights plan, rights agreement or any other form of 'poison pill' making it more difficult or expensive to acquire large holdings of the corporation's stock, unless such plan is first approved by a majority shareholder vote." According to analysis by ISS, it has the potential to establish a legal precedent that could help clarify issues surrounding "binding bylaw" proposals. Investors generally vote in favor of shareholder proposals regarding poison pills. In 2005, the average level of support for those proposals was 60.1% of votes cast. Given that many shareholders fail to vote at annual meetings, they will need significantly more than a majority of votes cast to constitute a majority of Hilton's outstanding stock. If that happens and Unite Here and Hilton are expected to end up in court. (Union's Pill Proposal Could Set Precedent, Corporate Governance Blog, 5/19/06) Addressing Global Warming Faces Setback Just when many of us thought everyone has now recognized the need to address global warming, a group funded by Exxon Mobil, General Motors and Ford has begun an advertising campaign that tries to convince viewers it is natural and that setting limits to address carbon dioxide will take us back to the stone age. The Competitive Enterprise Institute's campaign coincides with the release of a documentary, AN INCONVENIENT TRUTH, about the threat of climate change that features former Vice President Al Gore. In response, CalPERS has joined with treasurers in six states and other investors to request a meeting with the independent directors at Exxon Mobil to discuss its failure to pursue alternatives to petroleum-based fuels. (CalPERS Steps Up Pressure on Exxon, LATimes, 5/18/06) Goldman Sachs recently ranked oil companies on their environmental and social performance, which it concludes are important drivers of future performance and valuation. On climate change, Exxon Mobil scored 12th in its industry, far behind competitors like BP, Shell, and Total. For long-term investors, such underperformance is troubling. According to Goldman Sachs, "the companies that have the potential for creating significant value are those that have the most strategic options available to embrace a low-carbon world." “A new report by IRRC, Corporate Governance and Climate Change: Making the Connection, rates 100 companies, including 20 companies in the oil sector, against a 14-point best-practice checklist. ExxonMobil received only 35 points out of a possible 100 in this analysis, again falling well behind its competitors.” (Investor Network on Climate Risk) McRitchie Testifies on Risk to ID Theft and Election Rules at CalPERS The Sacramento Bee's Gilbert Chan reported on one issue included in my testimony, CalPERS seeks election savings. Others were equally substantive. Pay More Aligned, Still Problematic Knowledge@Wharton has a good overview in CEO Pay: A Window into Corporate Governance. According to a survey prepared by Mercer Human Resource Consulting for The Wall Street Journal, total direct compensation for CEOs at 350 top corporations grew 16% in 2005. That was down from a 41% increase in 2004, but well over the 3.2% hike in wages and benefits for U.S. workers overall last year. Median direct compensation, including salaries, bonuses, restricted stock grants, and gains from option exercises and other long-term incentive payments, was $6 million. Pay for CEOs at the 10 businesses with the highest shareholder returns grew by 51.3% to more than $10.2 million. The 10 CEOs whose shareholders took the biggest hit last year suffered a 72.5% drop in compensation to less than $1.6 million, according to The Journal. One of many problems pointed out is that fact that board often use the same consulting firms to assist in setting salaries as corporate management uses in human resources planning or pension design, says Wharton management professor Martin Conyon. "One can imagine a scenario where the consultants would err on the high side on executive pay because they don't want to lose this other lucrative business. If you lowball the CEO's pay this year, your probability of being hired next year is jeopardized." A study in April by The Corporate Library titled, Pay for Failure: The Compensation Committees Responsible, found 11 companies that over the past five years paid out $865 million to CEOs who lost a total of $640 billion in shareholder value. Those on the list are: AT&T, BellSouth, Hewlett-Packard, Home Depot, Lucent Technologies, Merck, Pfizer, Safeway, Time Warner, Verizon Communications and Wal-Mart Stores. The most common metric is total stockholder return, but that does not take into account how well the company is doing when judged against its peers, says Paul Hodgson, senior research associate at The Corporate Library. When United Healthcare's McGuire passed well beyond the $1 billion mark with his options package, that raised eyebrows, says Shirley Westcott, managing director of policy at Proxy Governance. (I guess so!) AIG to Factor Climate Change AIG, the world's largest insurer, became the first U.S.-based insurance company to adopt a policy to manage the risks and capture the business opportunities posed by climate change. AIG unveiled the new policy on May 15. Ceres has been seeking improved U.S. insurance industry practices on climate change through the Investor Network on Climate Risk, a group of 50 institutional investors that manage nearly $3 trillion in assets. AIG's Policy and Programs on Environment and Climate Change states that the company is "actively seeking to incorporate environmental and climate change considerations across its businesses, focusing on the development of products and services to help AIG and its clients respond to the worldwide drive to cut greenhouse gas emissions." The policy acknowledges the harmful effects of greenhouse gases, which include auto emissions, factory pollutants and other gases that trap heat inside the earth's atmosphere and cause water temperatures to rise. Warmer water has in turn spawned hurricanes, which have hit the US Gulf Coast with record storms in 2005, causing more than $100 billion in damages. AIG had $2.1 billion in insured losses from hurricanes in 2005, and 2006 is expected by hurricane forecasters to be another destructive season. (AIG Adopts First Policy on Global Climate Change, Planet Ark, 5/17/06) "I commend AIG for being the first U.S. insurance company to address climate risk," says Ceres president Mindy Lubber. "This is an important step that signals to the market and policy makers that climate change is a critical insurance issue. We look forward to working with AIG to expand on this commitment." (Ceres Praises AIG as First U.S. Insurer to Adopt Climate Change Policy, 5/17/06) Unprepared for Retirement PBS aired a Frontline documentary, Can You Afford to Retire? Clearly, many baby boomers will have a longer life expectancy and not enough income to last because of the shift from defined benefit to defined contribution plans. According to the Department of Labor, in 1978 workers put in only 11% of total contributions to retirement savings, and corporations put in 89%, the announcement said. By 2000, the employee share had leapt to 51% and the company share had fallen to 49%. Experts say Americans with pensions or 401(k)-type plans need to accumulate at least six to ten times their annual pay before they reach retirement to maintain their standard of living. This requires saving 15% - 18% of their salary, every year, over 30 years. Most will be lucky to save half that amount and will run out in about seven years. Glassman to Quit SEC Cynthia A. Glassman, a member of the SEC, announced that she would not serve a second term after her current one expires next month, leaving one of the three Republican seats on the five-member commission open. On several occasions during the tenure of William H. Donaldson as S.E.C. chairman, Ms. Glassman sided with a fellow Republican commissioner, Paul S. Atkins, to vote against initiatives favored by Mr. Donaldson, a Bush appointee, and the two Democrats. (Commissioner Is Giving Up Seat at S.E.C., NYTimes, 5/16/06) Broc Romanek, Editor of TheCorporateCounsel.net, says that among the names being circulated for Glassman's replacement is Kathy Casey, majority staff director for the Senate Banking Committee's chairman, Sen. Richard Shelby (R-Ala.). Sentenced for Tickets A former board member of the Ohio State Teachers' Retirement System (STRS) who was found guilty on two counts of ethics violations was sentenced to probation, and ordered to pay fines and do community service. The Columbus Dispatch reports that Hazel Sidaway, a retired teacher, was sentenced to two years of probation, fined $670, and ordered to pay $5,382 in court costs. In addition, she was ordered to complete 200 hours of community service. Sidaway, 62, apologized to Judge Carrie Glaeden of Franklin County Municipal Court for accepting tickets to a Cleveland Indians game in 2001 and the Broadway production of "Hairspray" in 2003 while on the payroll of the STRS. The free tickets Sidaway received were from investment consultants who had contracts with the State Teachers Retirement System. Her attorney said his client wasn’t aware of the ethics law when she accepted the tickets. "At the time there were no red flags raised. There should have been, but there weren’t," he said. But Judge Glaeden questioned that. "With all due respect, anyone who works for state government has to be hiding under a rock if they had not heard of an ethics law." (Ex-pension board member sentenced, Columbus Dispatch, 5/12/06) Acxiom Battle Coming NYTimes reports on proxy fight shaping up at Acxiom. "In one corner stands Charles D. Morgan, Acxiom's leader, an executive at the company for 30 years. In the other corner is ValueAct Capital, Acxiom's largest shareholder, which contends that Mr. Morgan has billed Acxiom for his personal pursuits, stacked its board with pals and spurned its value-enhancing management ideas." ValueAct holds 11.9% of Acxiom and had tried to persuade Mr. Morgan to give them a board seat to improve Acxiom's performance. Last fall the company said no shareholder would ever serve on its board. Then, ValueAct made a $25-a-share offer for the entire company -- a significant premium, which Acxiom's board rejected. The article goes through a litany of sins at ValueAct:
Another disturbing fact in the case is the caliber of director that appear to be complicit: Thomas F. McLarty III, former White House chief of staff to President Bill Clinton; William T. Dillard II, chief executive of Dillard's Department Stores; Mary L. Good, dean of the school of Information Science and Systems Engineering at the University of Arkansas; Ann Die Hasselmo, a former president of Hendrix College; and Stephen M. Patterson, vice chairman of the trustees of Hendrix. (Start Your Proxy Fight, 5/14/06) Cost Effective Corporate Governance The May 22, 2006 edition of BusinessWeek carries an article on the growing number of firms deciding to list of other than U.S. exchanges. Of the top 25 global IPOs in 2005, only one took place in the US. In 2000, 9 out of the top ten listed with the NYSE or NASDAQ. For example, Peach Holdings recently raised $231 million through an IPO on AIM, the London Stock Exchange's Alternative Investment Market. Going public in the U.S. would have cost $100,000 to get on the Nasdaq plus and estimated $2 million to comply with Sarbanes-Oxley. To go public on AIM, the company spent all of $500,000, including a fee of $7,600 to the exchange. (London Calling, Fobes, 5/8/06) The authors argue “globalization and electronic trading have made US investors mobile as never before.” If more trading moves overseas, jobs and economic growth will follow. Others are pushing to rollback SarbOx, especially applicability of Section 404 provisions to small companies. (Sarbanes-Oxley Section 404 Roundtable, AEI) (SEC Deserves Failing Grade, CFO.com, 5/10/06, House Committee Chair Wants 404 Reform and The 404 Debate) Assuming good corporate governance matters, and the data continue to show that investors think it is important (especially in emerging markets), what we should really be exploring is how to achieve good governance at the lowest cost. Despite all the compliance requirements of SarbOx, many investors see the UK as having “higher” standards. For example, in 2005, GovernanceMetrics International reported that UK companies had the highest overall average rating (7.39), followed by Canada (7.14), United States (7.03). My hypothesis is that it is more cost-effective to give shareholders the power to hold directors and CEOs accountable than it is to require. Robert A.G. Monks explained why eight years ago: "American 'activists' must use confrontation and public relations to embarrass boards and managements into considering remedial action. In the UK, the shareholders are given full power by statute and there is public acceptance that owners be accorded ultimate right of decision. Ten percent of the shareholders can call an Extraordinary General Meeting ('EGM'); a majority of the quorum present at any meeting can discharge one or all of the directors. (Corporate Governance - Corporate Performance Making the Link) With Sarbox, and even with majority voting requirements to elect directors gaining popularity, the US still hasn't caught up to the UK and I would think there are more efficient routes. Bebchuk Sues to Protect Shareholder Rights Harvard Professor Lucian Bebchuk filed suit in Delaware Chancery Court, challenging CA's assertion that Bebchuk's pill- limiting bylaw proposal is illegal under Delaware law. In recent months, companies such as American International Group (AIG) and Time Warner agreed to amend their bylaws in response to his proposals. Bebchuk's proposals obtained about one third of the votes at Chevron and General Dynamics -- an unusually large show of support for novel and binding stockholder proposals. Bebchuk's "poison pill antidote" is designed to limit the potential costs to shareholders that could result from an indefinite use of a poison pill takeover defense by preventing boards from maintaining a pill without shareholder approval. Furthermore, a poison pill antidote requires that decisions to extend the life of a pill must be made by a supermajority of the directors or even unanimously. In response to Bebchuk's poison pill antidote proposals, Bristol-Myers Squibb agreed to amend its by-laws to incorporate such an arrangement, and Halliburton placed the proposal on the ballot for its coming annual meeting. However, CA (formerly Computer Associates) notified the SEC and Bebchuk that it plans to exclude Bebchuk's proposed bylaw from its 2006 proxy statement, based solely on its assertion that the proposed bylaw is impermissible under Delaware law. Bebchuk filed suit to prevent CA from using this assertion to exclude his proposal. (Press Release, 5/11/06) Pension Disclosure Lacking Thanks to Broc Romanek for bringing my attention to Susan Mangiero's Pension Risk Matters Blog. She examines best practices and encourages meaningful debate about the $10 trillion global pension industry upon which millions of individuals depend. Her most recent blog finds that a systematic identification of who does what and why with respect to employee benefits is simply not a reality as things stand today. This makes it difficult (perhaps impossible) to effect change. ERISA mandates the distribution of a Summary Plan Description (SPD) to each plan participant and beneficiary currently receiving benefits. Required information includes "the name, title and address of the principal place of business of each trustee of the plan." Education and experience are not mandatory disclosure items. Westly Involved in Pay to Play? In California, two prominent members of the CalPERS and CalSTRS boars are competing for the for the Dempcratic Party slot in their run for governor. State Controller Steve Westly launched a television advertisement Tuesday that implicitly accuses Treasurer Phil Angelides of proposing a "$10 billion tax increase." (Westly ad airs on eve of Angelides debate, SacBee, 5/10/06) An article in the LATimes notes that "soon after taking office in January 2003, state Controller Steve Westly began helping three venture capital firms land multimillion-dollar investments from California's giant pension system, according to public records including e-mails and officials' calendars." The article provides examples of the three funds that donated a combined $213,000 to Westly since he ran for controller in 2002. Westly spokesman Yusef Robb said any suggestion that the controller intervened for those individuals because they were campaign donors "is ridiculous and insulting to the men and women at CalPERS, whose hard work and integrity has created the nation's largest and most respected public pension fund." Yet, CalPERS invested $80 million in companies that have indirectly donated to Westly. (Westly Helped Firms Tap State Fund, 5/10/06) Corporate Governance Roundtable The June 6-7, 2006 forum "is designed to capture some of the more creative and innovative corporate governance approaches being explored." Corporate Governance Benchmarking Network (CGBN) Mini Study/Roundtable. I've never attended, so cannot vouch for efficacy but could be informative. Tollgrade Investors Vote to Repeal Classified Board 'Investors voted in favor of a proposal by Amalgamated Bank’s LongView Funds at the May 9, 2005 annual meeting of Tollgrade Communications. The proposal, which the company confirmed won a majority of votes cast, urges the board of directors to repeal its system of classified elections, and instead require each director to stand for election every year. “If Tollgrade takes steps to act on the advisory vote, the company’s actions will be in keeping with a trend towards this reform,” said Chris Smith, Corporate Governance Research Analyst for Amalgamated Bank. According to the IRRC, 86 boards took steps in 2004 and 2005 to amend their bylaws and repeal staggered elections. Chemical Concerns in the Mix More than a dozen shareholder resolutions, covering issues from product toxicity to environmental health to chemical security, were filed for the 2006 proxy season, targeting both chemical manufacturers and companies that distribute consumer products that contain potentially harmful substances. ISS adopted a policy that recommends shareholders generally favor resolutions that companies disclose their policies on toxic chemicals. In January shareholder pressure helped prompt General Electric (GE) to disclose how it spent $800 million on PCB-related cleanup efforts from 1990-2005. Shareholders will soon consider a resolution filed by a group of institutional investors that calls on DuPont to report on its options to accelerate the elimination of perfluoroctanic acid (PFOA) used in Teflon. (Shareholder resolutions target toxic chemical issues, Pesticide & Toxic Chemical News, 4/17/04) Board in Focus at Sharper Image The company will drop four of seven current directors in response to a challenge from Knightspoint Group. They will also expand its board to include three members from Knightspoint and three business leaders with no ties to the San Francisco-based company. Stock price has climbed more than 50%, since Knightspoint began its rebellion two months ago, in anticipation of improved profits even as sales have continued to plunge. (Sharper Image Agrees to Shake Up Its Board, LATimes, 5/10/06) ISS Ratings Available to Bloomberg Subscribers Bloomberg users will be able to access free of charge ISS' CGQ Index score, CGQ Industry score, board, audit, compensation and takeover defense sub-scores and 6-months of historical data for all 8000 companies in the database via the function CGOV on the Bloomberg Professionsal service. For investors wishing to download full data files for US companies, international companies or the complete ISS global database, a subscription service is also being made available to Bloomberg subscribers. (ISS Corporate Governance Ratings Now Available Via Bloomberg) ICI Reports on Holdings Americans held a record $14.3 trillion in retirement assets, of which $3.4 trillion were invested in mutual funds, at the end of 2005, the Investment Company Institute reported. Investors held $7.3 trillion in IRAs and DC plans at year-end 2005, accounting for more than half of the entire retirement market. Registered investment companies managed a record $9.5 trillion at year-end 2005. (That figure climbed to $10.0 trillion by March 2006.) Exchange-traded funds grew rapidly in 2005. ETF assets grew 31 percent to $296 billion by year-end. Closed-end funds maintained their share of the investment market, rising 9 percent to $276 billion. (ICI Reports That Americans Own a Record $14.3 Trillion in Retirement Assets) Nepotism Brightpoint, a cell phone distributor has spent millions of dollars in recent years buying goods and services -- from personalized stationery to temporary labor -- from businesses with direct ties to relatives of Brightpoint CEO Robert Laikin and CFO Anthony Boor it seems. Experts in corporate governance say such arrangements are rife with potential conflicts of interest and often are examples of boards of directors not fulfilling their duty to scrutinize a company's operations. "It's certainly a red flag and certainly something that the shareholders should be bringing to the attention of the board of directors, and the board of directors should be closely scrutinizing," said James McRitchie, publisher of CorpGov.net, a corporate governance watchdog Web site. "If you're buying basic services from immediate family members, it just doesn't say much about your aggressiveness across the board in maximizing the value for shareholders," said Beth Young, senior research associate at The Corporate Library, a corporate governance research firm. Brightpoint defended the transactions, pointing out it properly approved and disclosed them. The company also pointed out that 40% of all companies in the Standard & Poor's 500 have some kind of related-party transactions, according to a 2004 study by RateFinancials. (Brightpoint finds blood is thicker than water, Daniel Lee, Indianapolis Star, 5/8/06) And from Footnoted.org (A family of senior vice presidents…5/5/06), Lifetime Brands disclosed a long list of relatives of CEO Jeffrey Siegel and former Chairman and CEO Milton Cohen who were drawing paychecks from the company. Other than name and job title, it provided few details:
Career Education Writing for the NYTimes, Gretchen Morgenson reports on a proxy battle at Career Education between the former CEO of one of its units, American InterContinental University, and the board. Steve Bostic ran three resolutions last year -- to require the company's directors to stand for election annually, to eliminate the company's poison pill and to allow shareholders with one-third of the company's stock to call a special meeting -- each received approval from about two-thirds of the stock outstanding. And 62 percent of the company's stock outstanding was voted in opposition to the three directors standing for election. Career Education appointed two new independent directors, terminated its poison pill and instituted stock ownership guidelines for senior management and the company's directors. This year, at a cost of him of $2 million, he is running a slate of candidates and estimates Career Education is spending more than $4 million of the company's money to try and defeat them. The company has taken out full-page newspaper advertisements. CEO John M. Larson, sent a letter to shareholders urging them to reject Mr. Bostic's slate. ''We do not believe it is in your best interest for our momentum to be interrupted -- or worse, potentially permanently impaired -- by distractions from Steve Bostic, a dissident who owns approximately 1 percent of CEC's stock and is choosing to become a perennial agitator against your company, management and board in order to forward his own self-serving agenda,'' the letter said. One interesting quot e at the end of the article from Bostic, ''The problem is, the individual shareholder has got to take this on and it really shouldn't be that way. Most people don't have the passion and energy to do it. But major institutions do not pursue actions against a company. They vote with their feet and just leave, and that's bad for the rest of the shareholders.'' (Can a For-Profit College Learn a Lesson?, 5/7/06) Who speaks for shareholders? In this case, it appears one lone individual who owns 1% of the company is doing all the heavy lifting. ISS is recommending shareholders vote out three sitting board members in favor of a slate of dissident investors. "This looks like the death knell for this board," said Jack Ablin, chief investment officer, Harris Trust and Savings Bank, which uses Rockville, Md.-based Institutional Shareholder Services as its governance consultant. "Institutions really listen to ISS." (Poor report card for Career Education, Daily Herald, 5/7/06) Corporate Babble on the Rise CEO letters to shareholders have reached new highs for "the use of Orwellian double speak which contradicts and distorts reality," says L.J. Rittenhouse, President of andBEYOND Communications. "Only 24% of the companies in our 2005 survey were awarded top marks in candor down from 57% in the 2002 survey. While many executives are certifying their results to comply with Sarbanes-Oxley, they are also publishing virtually unintelligible shareholder letters. If they cannot candidly articulate their goals and results, then how can they credibly walk their talk?" The survey of a cross-section of Fortune 500 companies confirmed a strong positive link between candor and stock price performance. In each of the past four years, the 25 top-ranked companies in candid disclosure have outperformed the 25 bottom-ranked companies. The 10 Top-Ranked Companies in the 2005 Rittenhouse Candor Rankings(SM): Wells Fargo, Alcoa, JetBlue Airways, PepsiCo, Walgreens, Jack in the Box, Continental Airlines, Charles Schwab, Harley Davidson, and Xerox. End to Broker Vote Nears...for Directors For more than 10 years CorpGov.net has recommended elimination of broker votes for anything other than obtaining a quorum. Now, a New York Stock Exchange committee agrees, at least with respect to director elections. A decades-old NYSE rule gives brokers the right to vote shares held in investors' accounts on "routine" matters, when shareholders don't provide instructions. Fail to vote and your broker votes on your behalf...always mindlessly in favor of whatever management recommends. Many of us have long questioned the idea that director elections are considered routine, but we don't see why even routine votes on proxy resolutions should be plagued with by uninformed broker votes. According to the WSJ, the proposal could go to the Big Board as early as June, where it is likely to be adopted. The absence of broker votes would give fund shareholders more leverage. "This strengthens shareholder rights," said Mercer Bullard, a University of Mississippi law professor and founder of the investor-advocacy group Fund Democracy. Proponents of broker votes as well as the NYSE, a unit of NYSE Group Inc., have argued it would be harder for companies to reach an annual-meeting quorum. Phil Goldstein, of Opportunity Partners, says "if the quorum requirements are too high to meet without a phony voting scheme, that is a problem for state legislatures and/or corporations, not the NYSE." (End to Broker Votes Might Be Near, WSJ, 5/3/06) Allen Advises MPFs Jamie Allen, secretary general of the Asian Corporate Governance Association in Hong Kong, observes that many of the pension fund schemes under Hong Kong’s Mandatory Provident Funds appear to operate in black box. Members have no idea who the trustees are, or what they do, and there is no way to verify that they are acting in the best interest of their members. He belives investment managers stand to benefit by pursuing corporate-governance agendas regarding the companies in their portfolios. This is especially true of state pension systems, which much invest passively in their home markets and, therefore benefit from fighting for better corporate governance. MPF master trusts should ensure they have experienced and independent trustees, develop a policy on corporate governance and on share voting, create a dedicated unit for corporate governance and consider setting up corporate-governance funds. Finally, he argues that MPF providers will benefit if they can chang e people’s perceptions of their MPF scheme’s inner workings as a black box. The low percentage of voluntary contributions suggests that people don’t trust MPF plans. (Pension funds warned of governance problems, FinanceAsia.com, 5/4/06) Foundation Failure The Chronicle of Philanthropy reports that only two of those surveyed, the Ford Foundation and the Rockefeller Foundation, have policies specifically designed to ensure such consistency between investment and program goals. Both Ford and Rockefeller consult members of their grant-making staffs before casting proxy votes on resolutions that relate to social issues. Social activists who have tried to persuade grant makers to support shareholder resolutions say one reason many foundations have resisted change can be found in the makeup of their boards, a lot of corporate executives. The Bill & Melinda Gates Foundation owns more than $450-million worth of stock in pharmaceutical companies that have been considering shareholder resolutions designed to make HIV/AIDS drugs more available in poor countries. Apparently, the foundation does not believe it should get involved in proxy voting, and has established a "wall" between its program staff and the outside company that manages the foundation's investments. (Meshing Proxy With Mission, 5/4/06) Corpgov Greater Impact on Financial Institutions Corporate governance tends to weaken financial institutions' credit ratings more than the issue affects companies in other industries, according to a new report released on Wednesday by Moody's Investor Services. Banks suffer from some governance shortfalls including larger than average boards and a tendency to appoint as directors representatives of corporate clients or local real estate developers or lawyers, Moody's said. (Banks' governance can weigh on ratings-Moody's, Reuters, 5/3/06) Tide is Turning According to Marc Lane, writing for Forbes, the tide is turning toward shareholder democracy. "In most companies, shareholders can either vote for management’s hand-picked slate of directors or withhold their votes." Yet, over the last several months, about 100 of America’s largest public companies have acted to head off shareholder proposals by adopting majority voting policies or bylaws. Majority election proposals are on the agenda at more than 100 shareholders’ meetings this proxy season. The goal, according to Lane, "is to hold management’s feet to the fire, to put an end to wink-and-nod deal-making, and to tie executive compensation to performance." "Outsized executive compensation has been linked to fraud, earnings restatements and shareholder litigation. And repairing the broken process that allows pay and performance to diverge is probably the most important reform measure on boardroom tables." The 2006 season is also empowering shareholders to voice their views on a host of emerging social issues. Lane writes that his own research finds that "tracking corporate behavior over an eight-year period...companies earning the highest marks in advancing social justice and treating the environment with respect outperformed the Russell 3000." "This proxy season’s battle over the boardroom is already seeing the balance of power tip toward shareholders. Activists who lead the charge will help restore public trust in the capital markets, boost shareholder value and promote positive social change." (Corporate Boards Feel Shareholder Heat, 5/2/06) Let's hope Mr. Lane is right. Personally, I like Les Greenberg's advice concerning the next step: After all that time and effort expended, pension funds have yet to learn that the shortest distance between two points is a straight line --- if Shareholders seriously wish to hold corporate Directors accountable for their actions, Shareholders have to offer serious alternate candidates in a proxy contest. They could start with smaller corporations and work their way up the food chain. The bigger fish would take serious notice. Fear is a great motivator. We speak from experience. The filing of a bare bone proxy statement and making about 30 vote soliciting telephone calls to institutional proxy voters could have a substantial impact. Our group of individual investors, who met on a Yahoo financial message board, ran such a campaign against a NYSE listed company, contacted 80% of the eligible voters, won 24% of the vote for our slate of Director-candidates and caused the departure of a CEO of questionable competence. Our out-of-pocket expenses were less than $15,000. One would think that well-financed pension funds could do even better with some of the 14,000 companies that have publicly traded securities and are in need of better corporate governance. If one truly desires the impact of a telegram, one does not send a post card. Boeing holders approve binding simple majority vote proposal at May 1st annual meeting by more than 93% vote. A company stock plan won a 63% vote – an unimpressive percentage for such plans recommended by management. (as reported by shareholder activist John Chevedden) Individual Shareholders Go Where Institutional Investors Fear to Tread Dissident shareholders put General Motors on notice they intend to put up an alternative slate of directors at the company's annual meeting in June. John Lauve, a GM shareholder from Holly, Michigan, filed a non-management proxy solicitation with the SEC in advance of the meeting. In a letter to the SEC, Lauve said: "The clear record of the current Titanic directors has been market rejection, junk credit rating and financial losses." According to the filing, the Nominees are John Chevedden, James Dollinger, Dean Fitzpatrick, Lucy Kessler, John Lauve, Louis Lauve III, Steve Mahac, Erik Nielsen, Larry Parks, Danny Taylor, William Walde, & William Woodward M.D.. GM lost 10.6 billion dollars in 2005. Last month, GM chairman Richard Wagoner announced that GM executives had opted voluntarily to trim salaries. Wagoner's salary was cut in half, $5.5 million in 2005, down from the $10 million in 2004. Chief Financial Officer John Devine received a package valued at nearly $3.9 million, down from $6.4 million in 2004. The board cut their own compensation by 50% and shareholder dividends were cut 50% to one dollar per share. (Dissident shareholders plan challenge to GM management, AFP, 4/29/2006) Several shareholder proposals will be on the ballot at General Motors' annual meeting, mincluding one by longtime shareholder activist Evelyn Y. Davis to put a moratorium on stock option awards. Other proposals deal with changes in corporate governance, such as a recommendation to separate the chairman and chief executive positions and changing the director-election process to a majority rather than a plurality system. GM recommended shareholders vote against these proposals. (GM CEO Wagoner got $5.5M in total 2005 compensation, MarketWatch, 5/1/2006) Chevron's Liability According to Corporate Govrnance Watch, Chevron failed to disclose a large potential liability to its shareholders in its SEC filings. Global Environmental Operations, estimated the cost of cleaning up 18 billion gallons of toxic "water of formation" spilled into Ecuador's rainforest from 1964 to 1992 would be at least $6.14 billion. That doesn't include personal damages to the thousands of victims in the region, nor compensation for the decades that the local population has lived in a degraded habitat – both of which together could double or even triple the clean-up cost. Amazon Watch filed a complaint with the SEC. (Chevron and the Ecuadorian rainforest, 4/30/06) PCAOB to Defend Itself The Public Company Accounting Oversight Board will defend itself vigorously against any legal challenge mounted against its authority granted under the Sarbanes-Oxley Act. The Free Enterprise Fund is challenging the PCAOB’s power under Sarbanes-Oxley to oversee the accounting industry, arguing that it violates the US Constitution. (PCAOB to defend itself from legal challenge, Accountancy Age, 5/1/06) Majority Vote ISS' Corporate Governance Blog reports this season's first binding proposal seeking majority voting received more than 49% of votes cast at Honeywell, according to AFSCME, significantly higher than the 20% received by a binding AFSCME proposal at Paychex in October. Before the April 24 vote, the best showing for a majority vote resolution at a company with a resignation policy was the 45% at Hewlett-Packard in March for a non-binding proposal by the United Brotherhood of Carpenters and Joiners. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
and ad clicks help pay the bills.