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May 2008 News and Commentary. 2008: April, March, February, January, 2007: January, February, March, April, May, June, July, August, September, October, November, December. News Archives. Corporate governance defined. Disclaimers, Copyright and publisher James McRitchie's potential Conflicts of Interest as of 8/9/07. Book bites. Proxy Democracy. The Institute of Internal Auditors ( IIA) will hold its International Conference July 6 - 9, 2008 at the Moscone Center in San Francisco. Register here. It will be the largest gathering of internal auditors anywhere in the world covering topics related to business, governance, risk, control, auditing, accounting, and more. CorpGov.net publisher, James McRitchie is looking to share expenses for a room on at least the night of July 7th. Please let me know if you have space available. Self-Invigilation at Exxon On the Harvard corpgov blog (My Resolution at ExxonMobil), Robert Monks explains his relief that Resolution #5 received 39.5% of the vote, marginally shy of last year’s 40%, given how much effort Exxon made at soliciting investors to vote against it. "The realities of the proxy process are that an issuer has vast advantage. There are many large holders who want to provide 401(k) or other services or who have analysts who want continued favorable access. It is difficult under existing conditions for such holders to consider seriously their fiduciary obligations. Under those conditions, it is gratifying that we can – in a year in which EXXON’s recorded financial performance may be the best ever recorded – hold steady at 40%. If this is a base, we can work on expanding it." Be sure to watch the CNBC video where Monks deftly responds to an acquisition that he may be "tilting at windmills." Exxon needs to be an integrated energy provider with investments in renewables, such as windmills, as well as oil, which is a dwindling resource. In his own immedicable fashion, Monks goes on to insist that Exxon's CEO can't be "self-invigilating"... you can't be your own guard against cheating when you mark your exam. The board can't be independent if the CEO is the main source of their information and sets the agenda for the group that is supposed to monitor him. Informative and with good humor, not to be missed.
Hearing Set for SEC Nominees: Your Input Needed The Senate Banking Committee has scheduled a hearing for Tuesday, June 3rd on a number of nominations, including the two Democrats (Luis Aguilar and Elyse Walter) and the Republican Troy A. Paredes for positions on the SEC. As far as I can tell, only institutional investors have real access to those putting together the agenda and they may not want be "carrying water" for individuals. I urge readers to use the Committee's contact form to ensure individual investors aren't locked out of proxy access. Here's the brief message I sent:
Business Ethics: Why Do Good People Do Bad Things? What is “ethics?” What role should it play in business decisions? How do companies develop an ethical culture? How do ethical companies compete against competitors who may not be ethical, i.e., are ethical companies at a competitive disadvantage? Conversely, do ethical practices really increase shareholder value? These are a few topics discussed with an expert panel at a meeting of the Silicon Valley NACD. Watch a recap interview with Jim Balassone, Executive in Residence, Markkula Center for Applied Ethics, hosted by Richard Cameron Blake, Wilson Sonsini Goodrich & Rosati. Exxon Vote At the oil company's annual meeting, 39.5% of shareholders voted for Robert A.G. Monks' resolution to create an independent chairman, almost exactly the 40% margin the proposal received last year. Royal Dutch Shell and BP already separate the positions. I was being overly optimistic last week when I predicted a win for shareowners. Never underestimate the power of management having billions of corporate dollars at their disposal to contact and twist the arm of shareowners. Well, there's always next year. Proxy Democracy was just getting off the ground this year. By next year, perhaps thousands of individual shareowners will be checking in for proxy voting advice and that may just help make a difference. A proposal to require Exxon to set goals to reduce greenhouse gas emissions received 30.9% of the vote. Another requiring Exxon to do set a policy to increase support for renewable energy research received 27.4% of the vote. (Exxon Shareholders Reject Proposal To Split CEO, Chairman Positions, WSJ, 5/28/08) 40.7% voted for a measure to provide an advisory vote on executive pay. (Exxon Mobil's shareholders sound off, MarketWatch, 5/28/08) Peter O'Neill and Neva Rockerfeller Goodwin issued the following statement on the voting results: Our goal from the outset of this effort was to get shareholders more engaged with ExxonMobil management and vice versa. In view of the unprecedented outreach effort mounted by ExxonMobil to solicit votes from institutional and retail investors, we have succeeded in doing that in a way that appears to herald the long-overdue beginning of two-way communications between our company and its owners. While it is ironic that this is what it took for ExxonMobil to start interacting with shareholders, it is at least the beginning of a dialogue – and that is what we were seeking. Below are preliminary numbers I've culled from various, mostly reliable, sources. (Update with slight differences: Corporate Library post)
Pensions Should Also Look at Their Own Governance Several large state funds, including Korea’s National Pension Corporation (NPC Korea) and the National Social Security Fund in China, are now developing corporate governance guidelines and/or proxy voting policies. Thailand’s Government Pension Fund (GPF Thailand) has already compiled a corporate governance rating system for Thai companies inspired by the OECD Principles for Corporate Governance. Alexandra Tracy warns that, "As Asian pension funds seek to become active investors, poor internal governance also weakens their credibility when they raise corporate governance questions with investee companies." She goes on to provide some excellent advice. (Asia’s state pension funds: en route to better governance, Responsible Investor, 5/28/08) The Purpose of the Corporation In Why We Should Stop Teaching Dodge v. Ford (Virginia Law & Business Review, spring 2008), Lynn Stout argues credit for the concept that corporations exist only to make money for shareholders should go to law professors, not the courts. Dodge v. Ford is best viewed as a case that deals not with directors’ duties to maximize shareholder wealth, but with enforcing the fiduciary duty of controlling shareholders to minority shareholders. Among her many points are the following:
Because different shareowners have different investment time frames, tax concerns, attitudes toward risk, etc. it is impossible to discern a single, uniform measure of shareholder wealth to be maximized. Stout posits that Dodge v. Ford is tought because of its convenience to professors. Like parents who invoke storks when asked about sex by young children, Dodge v. Ford becomes a very short-hand response to the question, "What do corporations do?" "After all, explaining the true purpose of corporations is even more challenging and uncertain than explaining reproduction." "The normative question of what corporations ought to do becomes even more daunting when the answer involves discussion of avoiding externalities, maximizing the value of returns to multiple residual claimants and encouraging specific investment in team production." Stout concludes that law professors should "resist the siren song of Dodge v. Ford. "We are not in the business of imparting fables, however charming." The same issue of the Virginia Law & Business Review also includes something of a defense of Dodge v. Ford by Jonathan R. Macey in the form of A Close Read of an Excellent Commentary on Dodge v. Ford. Macey begins with a quote from section 2.01 of the American Law Institute's Principles of Corporate Governance. "A corporation should have as it objective the conduct of business activities with a view to enhancing corporate profit and shareholder gain." I find that argument unconvincing. What a corporation should do is often different than what it must do. Additionally, enhancing profits is also much different than maximizing profits. However, Macey goes on to make an excellent point that the real problem is lack of enforceability. The real lesson of Dodge v. Ford is one for attorney's on how to advise their clients. Instead of appearing to disregard shareholders, Ford probably could have honestly argued that paying higher wages and offering cars for a lower price would be good for shareowners... in the long run. If so, he probably would have won the case and denied the Dodge brothers of at least some of the capital they needed to start their competitive business. While I don't consider Macey's argument to be proof that corporations have a duty to maximize shareowner wealth, he does provide rationale for continuing to teach Dodge v. Ford. Is there a duty to maximize shareowner wealth? After reading both articles, it isn't clear to me. I can think of several companies, like Patagonia, which don't seem to make any pretense that making as much money for shareholders is at the top of their list of things to do. Patagonia's mission statement says nothing about shareholders. "Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis." Maybe the Virginia Law & Business Review could offer a second installment from these fascinating authors. My own general conclusion is that a legal duty to maximize shareowner wealth is unlikely but that prudent corporate directors and managers will ensure their actions enhance shareholder value ... at least over the long term. Otherwise, they'll be out of business. For another interesting take, see Does Dodge v Ford Motor Co Remain Canon? by Stephen Bainbridge.
Individuals Can Influence Governance LAtimes article, How investors can be influential (5/25/08), provides advice to small investors on what to look for in proxy statements filed with the SEC.
The article goes on to suggest that investors vote, write to the board chair, and propose resolutions. "Companies with the best governance practices are more profitable, pay shareholder dividends that are more than four times as high (as a percentage of share price) and have stock prices as much as 50% higher relative to earnings than companies with poor governance practices, according to a study conducted by Institutional Shareholder Services, which advises big investors on ways to maximize value." For helpful links, see Proxy Voting/Monitoring and Shareholder Action. An International Perspective on Shareowner Democracy Shareholder Democracy on Trial: Some International Perspective in the Effectiveness of Increased Shareholder Power by Lisa M. Fairfax, which appears in the Spring 2008 edition of the Virginia Law & Business Review, argues the international experience with shareowner democracy undercuts critiques of shareholder democracy in the USA. "Experiences in other countries suggest that shareholder democracy can achieve its desired result of enhancing financial returns and reducing corporate misconduct." Fairfax examines recent developments:
Then she reports on similar efforts around the world:
And finally, she examines US critiques of shareowner democracy and informs such critiques through the international experience:
While the arguments advanced by Fairfax often hinge around possibilities and suggestions in the data, she does layout a valuable framework for continuing dialogue and exploration, as well as at least some substantial evidence that enhancing shareowner power is likely to benefit almost everyone. Exxon Mobil According to the Economist, "the involvement of the Rockefeller family gives added piquancy to one of the two most significant shareholders-versus-board battles of this year's proxy season. (Carl Icahn's proposal to replace the board of Yahoo! is the other.)" Of the 78 adult direct descendants of John D. Rockefeller Jr, 72 have endorsed a by resolution Robert Monks to split the jobs of chairman and chief executive at Exxon Mobil. Exxon strongly opposes the resolution and has tried to stem growing enthusiasm for it ahead of its annual meeting on May 28th by writing for a second time to shareholders urging them to vote no. Over 60% of the firms in the S&P 500 have a combined chairman and chief executive. Around 25% have a “lead director” who chairs the compensation and audit committees (but Exxon does not). Only 16% have an independent director as chairman. Contrast that with Britain, where over 95% of public companies now split the two jobs, a shift that is generally agreed to have improved corporate governance and performance. Their support for the resolution is driven by a desire to maximise the long-term value of their Exxon shares. The Rockefellers worry that Exxon does not spend enough time analysing risks to the business, such as climate change and the need to replace reserves as countries are becoming more nationalistic about their natural resources. (A family affair, 5/22/08) The Council of Institutional Investors and the Conference Board’s Commission on Public Trust and Private Enterprise favor the splitting of the two roles. RiskMetrics Group, Glass Lewis and Proxy Governance as well as CalPERS and many other large institutional investors are advising ExxonMobil shareholders to vote for the proxy. A survey of chief financial officers and senior comptrollers by Grant Thornton finds that more than 82% percent believe that the roles of chief executive officer and chairman should be held by different people. (CFOs Want Split in Chairman, CEO, Directorship, 5/22/08) According to Friends of the Earth, ExxonMobil and its predecessors' products are responsible for emitting roughly 5 percent of all human-generated carbon pollution since 1882. (A different kind of democracy, San Francisco Chronicle, 5/23/08) Monks has been working the same resolution for six years now. It got 40% of the vote last year. This year I'm sure it will get more than 50%. Since it is nonbinding, the next question will be what action the board will take.
Originator of SRI Dies The market for responsible and ethical investments is set to explode to over €500bn (US$788bn) by 2014 but the sector may risk a "green bubble burst," like the dotcom bust, if sufficient care is not taken, according to a report by Frost & Sullivan. A similar report by RI Metrics, which researched asset managers representing over $12trn of assets under management, showed ESG performance to be growing in importance among investors, but said the industry was “a long way from best practice.” Typical of the shift are actions taken by John Chiang, state controller for California, who joined the nationwide campaign by institutional investors to call for federal climate change legislation, and the London Pension Fund Authority, which has decided to screen out managers who fail to comply with ESG criteria and the UN Principles for Responsible Investments (UN PRI). (Responsible investments come of age, Global Pensions, 5/21/08) One man played a key role in bringing the movement about. The Rev. Dr. Luther E. Tyson was working for the United Methodist Church in Washington, D.C., in 1967 when he received a letter from a woman in Ohio asking whether he knew of any mutual funds that did not invest in companies that provided weapons or supplies for the Vietnam War. Since no such investment options existed, he decided to create one. Starting with $100,000, he and three cofounders developed one of the world's first mutual funds designed to be socially responsible, the Pax World Fund. The fund also does not invest in liquor, tobacco, or gambling industries. Today, Pax World Fund manages nearly $2.5 billion in stocks and bonds. (Luther E. Tyson, 85; applied social activism to mutual fund investing, Boston Globe, 5/22/08) Back to the top Seattle Quake Hits Alaska The ground shook in Seattle at the Alaska Air Group's Annual meeting. The deep tremors in the corporate governance world were the work the continuing dedication of a group of employee shareowners. This is the sixth year the group has challenged management with an internet-only proxy contest for election and with shareholder proposals. In prior years they won binding proposals that did away with a staggered board and super majority vote requirements. This year their record of wins continued to show the way to other shareowners thinking about low cost, highly effective campaigns. Following up on the previous proposal to do away with super majority vote requirements, the most significant victory this year was a binding bylaw proposal for Cumulative Voting Rights (“CV”). CV empowers shareowners to cast as many votes as there are open seats for election to the board of directors but to focus those votes on fewer than all seats. A shareowner of 100 shares in a meeting where there are 5 open seats has 500 votes. CV simply empowers the shareowner to cast all their votes for one or more of the nominees. So, for example, they could vote all 500 for one candidate or 250 each for two candidates. The CV “Binding Proposal” won by 51.21% of the vote. Foley and Nieman attribute their binding vote victory on CV in part to recent e-proxy rules, which open the Internet to all shareholders for low cost proxy contests. This has turned the Corporate World on it head. Or, as the group says, "Turned it Right Side Up for the First Time!" Foley offers to help others win similar victories. "Votepal would love to assist others interested in running proxy contests for corporate board seats at other companies to hold directors accountable and expedite changes in proxy rules and voting." They invite shareowners to contact them at reachus@votepal.com. See also OurUnion.org. CEO Fired Without Severance Pay Mace Security International announced that its Board of Directors removed Mr. Louis D. Paolino as a director and as Chairman of the Company's Board of Directors. The Board of Directors also terminated Mr. Paolino as CEO during a May 20, 2008 Special Meeting. Mr. Paolino was terminated by the Company for willful misconduct under Paragraph 7(a)(iv) of the Employment Agreement, which allows for termination without the payment of any severance or termination payment. The actions of Mr. Paolino that the Board has determined as willful misconduct, generally relate to the Board's belief that Mr. Paolino has not followed the instructions of the Board or sufficiently performed his supervisory duties. The published financial statements of the Corporation will not be restated or revised due to the Board's determination of the existence of willful misconduct by Mr. Paolino. CorpGov Bits By firing its actuarial consultant last week, the New York State Legislature shone a light on one of the public sector’s deepest secrets: All across the country, states and local governments are promising benefits to public workers on the basis of numbers that make little economic sense. (Actuaries Scrutinized on Pensions, NYTimes, 5/21/08) Investors will cast their votes tomorrow on a shareholder proposal by Amalgamated Bank’s LongView Funds at the annual meeting of Invacare Corporation. The resolution proposes that members of the Board of Directors be elected by a majority of the votes cast, instead of Invacare’s current use of a plurality vote standard. “Meaningful director elections form the foundation of sound corporate governance,” said Scott Zdrazil, Director of Corporate Governance for Amalgamated Bank. “We believe a majority vote standard is democratic, reasonable, and enables shareholders to register a meaningful vote.” (press release) If activist shareholders and company critics have their way, health-care reform and executive compensation will be the hot topics at WellPoint’s annual meeting. “Pay decisions are one of the most direct ways for shareowners to assess the performance of the board,” said James McRitchie, publisher of CorpGov.net, a California-based Web site that focuses on corporate governance issues. “We don’t know what goes on in board meetings. We don’t really have an accurate way of knowing which board members are doing their jobs and which are not. “However, we can see how well the company is doing and we can also see how well the CEO is being paid.” (WellPoint annual meeting: Exec pay hot topic, Daniel Lee, IndyStar.com, 5/20/08) Carl Icah's entry last week into the Yahoo Inc. takeover battle doesn't contain the usual dissident slate of co-workers and college buddies, according to the WSJ. Icahn's selections amount to "a celebrity, all-star slate," says Scott Fenn, managing director for policy at Proxy Governance. Nominees are led by former Viacom Inc. Chief Executive Frank Biondi, Internet billionaire Mark Cuban and Harvard law professor Lucian Bebchuk. Other prominent picks include venture capitalists and former heads of sizable telecom and advertising companies. (Icahn's Gate Crashers Could Be Asked to Stay, 5/21/08) J. Robert Brown argues (Proxy Contests, Shareholder Access and "Special Interest Directors," 5/23/08) against the argument that proxy access will lead to "special interest" directors. "Merely facilitating shareholder nominees will not result in the election of 'special interest directors.' Instead, the shareholder nominees will need to attract support from other owners. To do so suggests the need to nominate high quality individuals who have broad appeal. Certainly this is true with the Icahn slate." AFL-CIO's Capital Stewardship program updates the 2008 AFL-CIO Key Votes Survey scorecard. TIAA-CREF, a $400-billion provider of financial services, promotes itself with the tag line "financial services for the greater good." Its record of actively investing in the worst companies financing the genocide in the Darfur region of western Sudan, tells a different and far less noble story. (Tell TIAA-CREF You Do Not Want Your Retirement Money to Support Genocide, Chronicle of Higher Education, 5/16/08) Royal Dutch Shell faced an investor revolt at its annual meeting when just under half of voting shareholders failed to back a plan to award three executives €1m (£795,000) bonuses to stay in their jobs. The pay protest was one of the most significant for a UK company since GlaxoSmithKline’s investors rejected its policies for senior executives in 2003. One-third of Shell shareholders who voted on the bonus plan opposed it. Combined with those who withheld their votes, 49.5% of voting shareholders rejected the bonuses. The Shell rebellion adds to a chorus of dissent over so-called “retention payments” – bonuses for executives to dissuade them from leaving a company. (Shell Investors Rebel Over Retention Pay, Financial Times US Chamber takes out ad to support embattled SEC Chair Chris Cox. Court cases apply the Supreme Court's Stoneridge holding relatively broadly - including (somewhat surprisingly) to situations where there is some affiliation between the defendant and the issuer, such as an employee. (Stoneridge in Action, TheCorporateCounsel.net Blog, 5/21/08) GovernanceMetrics International puts out a good news roundup. In Focus looks at recent governance developments. Featured in the current issue: Majority Voting in the US; Samsung Hamstrung: Chairman Indicted; German Shareholders Take Action; Avoiding the Next Credit Crunch: A Collaborative Approach; Focus on CEO Succession Planning; Social Networking Sites and Shareholder Activism; “Say on Pay” Under Scrutiny; Money Talks: Using CEO Pay to Maximize TSR; Japanese Regulators Increase Vigilance; Focus on Nordic Nominating Committees; Japanese Firms Phase Out Poison Pills. Back to the top Trillions Advocate Addressing Climate Change More than 50 leading investors, including the nation’s largest public pension fund and the world’s largest listed hedge fund, called on the U.S. Senate to enact strong federal legislation to curb the pollution causing global warming. In advance of the upcoming Senate debate on the Lieberman-Warner climate bill early next month, the group issued a letter to Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell, calling for a national climate policy to reduce U.S. greenhouse gas emissions by at least 60 to 90 percent below 1990 levels by 2050. The request is similar to reductions that would be achieved under the Lieberman-Warner bill. The group of investors was organized by Ceres and the Investor Network on Climate Risk (INCR). The 52 signers include institutional investors, asset managers, treasurers and controllers such as CalPERS, Deutsche Asset Management, F&C Asset Management, the Man Group (the world’s largest hedge fund), and treasurers and controllers for California, Connecticut, Maryland, New York City, New York, North Carolina, Oregon, Pennsylvania, Rhode Island and Vermont. (Investors Managing $2.3 Trillion Call on Congress to Tackle Global Climate Change) Risk Metrics: If You're Going to Advise Others, You'd Better be Buff CRO took a look at Risk Metrics, which through its ISS division advises institutional investors on proxy policies and voting. Conclusion: They mostly follow their own advice.
However, their Governance Principles call for the Chair to be an independent director “unless the Board concludes that it is in the best interests of shareholders to do otherwise.” The company notes that it is evolving as a young public company and plans an evaluation of the Independent Chair role later this year. They do have an Independent Lead Director. (Now a Public Company, RiskMetrics Gets Transparent about Governance Issues) Disclosure: The publisher of CorpGov.net is a Risk Metrics shareowner. Momentum Grows for Independent Chair at Exxon Universities Superannuation Scheme, the UK’s third-largest pension fund, and Railpen Investments, the seventh-largest UK pension fund, came one day after four other leading UK investors said they would support Proxy Item 5 (by Robert A.G. Monks) at Exxon Mobil calling for an independent chairman of the board. The company’s annual meeting takes place on May 28, 2008 in Dallas, Texas. Those announcing previously were F&C Asset Management, Co-operative Insurance Society, Morley Fund Management, and West Midlands Pension Fund. Four leading global proxy advisory firms— PIRC Ltd., RiskMetrics Group, Glass Lewis, and Proxy Governance, Inc. -- have each recommended support for Proxy Item 5. Considerable investor interest in the independent chairman proposal at ExxonMobil has mounted in the wake of several news conferences in April, featuring members of the Rockefeller Family, Robert A.G. Monks, California Controller John Chiang, Connecticut Treasurer Denise Nappier, and Maryland Treasurer Nancy Kopp. (Pressure rises on Exxon over chairman role.
Vote Your Mutual Funds or Pay Later Daisy Maxey, writes that "Proxy votes are fund shareholders' main route for making their voices heard on special items, such as a change in the control of a fund, its advisory agreement or its investment objective, as well as on shareholder proposals concerning social or environmental issues. Yet many shareholders seem distracted." Shareowners aren't voting. That means funds are having to spend more telephoning to get out the vote and has even led to postponed meetings. Of course, those extra expenses must eventually be paid by fund holders. "Fidelity recently proposed lowering the amount of shares outstanding needed to reach a quorum in some cases. Some funds that previously required a majority of shares outstanding for a quorum on change now require less than that for some proposals." Maxey reminds her readers that if they hold in street name and don't vote, their broker will. "Such 'uninstructed broker votes' routinely are cast with management and can tip the scale on resolutions in the fund manager's favor. In a March 19 vote on the genocide-related proposal, 47% of shares outstanding of Fidelity Select Health Care Portfolio didn't vote. Some 15% of the votes that Fidelity did count were either 'broker nonvotes' or abstentions, both of which counted against the proposal." (Drop in Voting Adds to Costs, 19/08) Unfortunately, when things go wrong, most shareowners either sell, file a lawsuit, or complain that regulators have failed. They don't think of themselves as the primary regulators of corporations. Too many shareowners assume that ownership should bring rewards without obligations, like bank deposits or betting slips at the racetrack. June 1 Deadline Looms for SEC Dave Lynn at TheCorporateCounsel.net Blog says White House Chief of Staff recently sent a memorandum to agency heads stating that all rules expected to be finalized by the end of the administration must be proposed by June 1, except in extraordinary circumstances. "Given this latest directive and the lack of full slate of Commissioners at the SEC, it doesn't appear likely that we will see much in the way of controversial proposals (e.g., shareholder access) coming up for a vote in the next couple of weeks." (Pencils Down for Rule Makers?, 5/19/08) In general, tha'ts a good thing. However, it would be nice for the SEC to at least put an end to broker voting. We're tired of elections with management's thumb on the scale. Meanwhile, an editorial in Financial Week notes that Paul Atkins, soon to leave the SEC, was "among the most openly anti-regulatory regulators ever to serve on the commission" and takes him to task for curtailing aggressive enforcement efforts. The editorial also charges that Treasury Secretary Henry Paulson's proposed transfer of the SEC's limited oversight of investment banks to the bank-friendly Federal Reserve would be a step backwards. (Toothless Watchdog, 5/12/08) The next administration will be a welcome sight to anyone who believes in transparent, well regulated markets. Upstate New Yorkers Get the Word on ProxyDemocracy Marlene Kennedy reminds her readers at the Times Union in Albany, New York (Getting help with proxy votes, 5/16/08), that proxies have grown fatter with disclosures, such as how executive pay is determined. They are also carrying more proposals from shareholders eager to steer the company in one direction or another on environmental, social and governance issues. Institutional investors, which hold 59% of US equities, hire advisory firms, like Risk Metrics (ISS) to research proposals and other election issues. "But the little guys -- you and I -- don't have the same luxury." She points to CalPERS as a source of information but then cites Mark Latham's seminal Proxy Voting Brand Competition, which appeared last year in the Journal of Investment Management, as a source of inspiration for ProxyDemocracy. Developed by Andrew Eggars, ProxyDemocracy aggregates information about how CalPERS, Calvert, Domini, and CBIS, an investment manager to Catholic institutions worldwide, say they will vote their proxies. That information can help the individual investor become better informed on how to vote. Kennedy concludes, "Efforts like these still require that shareholders do some homework. But it could be more likely that with these tools, they'll be better citizens of their investment." ProxyDemocracy can also help you choose mutual funds that reflect your values by seeing how they have voted before you make your investment. Webb Quits HKEx Over Governance Issues Shareowner-activist David Webb resigned his directorship at the Hong Kong Exchanges & Clearing Ltd. over what he said was political interference and poor management at the bourse operator. In an interview with Bloomberg, Webb said, "The current direction is to look at lower corporate governance standards to attract foreign listings on the basis that we're easier.'' The Hong Kong Exchanges denied Webb's claims, saying it's committed to following its corporate-governance code "in word and spirit.'' (Hong Kong Exchanges Seeks Replacement After Director Webb Quits) In his resignation letter, posted by HKEx, Webb outlined a series of general grievances against the board, accusing the exchange of poorly enforcing its listing rules and of "back door" policy decisions made by "inexperienced and inexpert officials." He accused the government of meddling in decisions. Webb said he was particularly riled when exchange officials met with "third parties" -- government officials -- while keeping board members in the dark. "It was ridiculous for them to say, 'I'm going out for a meeting now, but I can't say with whom, and you just have to assume I'm doing the right thing.' " Webb noted in his resignation letter that he would not be relinquishing his watchdog efforts, and could better fulfill his mission independently. One of his projects, he said, is to compile a "who's who" of executives at Hong Kong's publicly listed companies, as a reference to investors and the news media. (HKEx Refutes Claims of Interference After Director Resigns in Protest, WSJ, 5/16/08) Webb gave me a peak at that database some time back. I was amazed as to how extensive it was and of the interlocking nature of many relationships. I sincerely hope that David does continue his watchdog efforts, which are both unique and invaluable. He tells me he will. See his resignation letter. As I have done many times before, I urge all readers concerned with HKEx and corporate governance in China to visit his webb-site and subscribe to David's newsletter. UN Global Compact Office Responds On May 12, an open letter signed by over 80 civil society organizations, several members of US Congress and individuals, including CorpGov.net publisher James McRitchie, was sent to Georg Kell, Executive Director of the UN Global Compact Office. The letter expressed our concerns regarding PetroChina's participation in the Global Compact given its complicity in the ongoing genocide in Darfur. Beatty Winding Down at Canada's Good Governance David Beatty is winding down a five-year term as founding managing director of the Canadian Coalition for Good Governance. The group's measurement of corporate performance, using a complex array of questions, shows a 14-fold increase -- from just two to 28 -- in companies on the TSX that earn the highest-possible rating. Beatty sees two remaining priorities for his unnamed successor. One is to develop standards and improve transparency in how executive compensation is determined. The other is to deal with lax law enforcement and failure to punish corporate wrong-doing. (TSX company boards improve standards, transparency, The Vancouver Sun, 5/16/08) Beatty will retire on 6/16/08. Apply for the job here. Shareowner Culture in India Lacking Shilpa Nayak, Director of Maxim Wealth Advisors, laments, "Most Indian companies and promoters have still not accepted the shareholder culture in earnest. Of course, shareholder reports and corporate governance have made large strides over the past two decades. And we may be leagues ahead of many other emerging markets in many aspects of corporate governance, but the true spirit of the shareholder culture still remains elusive." "Most companies, including some very large ones, are run and controlled very closely by the promoter family. They may own 50% or more of the equity, but deep down in their minds, they own 100% of cash profits. "Managers in trust" for the other shareholders is a concept which just does not find acceptance among Indian promoters." (Shareholder culture in India remains elusive, Economic Times, 5/14/08) As evidence, he cites that few companies ever even consider dividends or stock buy-backs. e-Forums Karey Wutkowski follows up on what has happened to the idea of company sponsored e-forums, now that SEC regulations have cleared up some liability questions. The article mentions Hyperdynamics as circulating a "splashy press release" about launching a forum that never materialized. The only company she names as having had such a forum is Amerco during their last proxy season. Participation was "very modest," with fewer than 100 posts and few direct questions for management. The board is inactive at this point but Amerco plans to relaunch the site soon, with more publicity and direct involvement by company insiders. The article goes on to discuss the deception practiced by Whole Foods Market CEO John Mackey who posted anonymous messages on Yahoo Finance bulletin boards and the more promising work of Investment banker Gary Lutin, who has conducts issue-specific e-forums. (Lifting the Lid: US companies shrug off shareholder e-forum idea, Reuters, 5/16/08) Disclosure: The publisher of CorpGov.net is a Whole Foods shareowner. Back to the top CEO Pay as the Basis of Index Enhancement Graef Crystal, one of the nation's foremost experts on CEO compensation, says CalPERS should convert its large indexed investments into a modified index that favors overperforming companies that underpay their CEOs. He studied 504 U.S. companies with market capitalization of $3 billion or more. It turned up 18 low-performing, high-paying companies, and 29 high-performing, low-paying companies. The underperforming-overpaying companies lagged the S&P 500 by at least 15% in fiscal 2007, while their CEOs received total pay that was higher than a competitive rate by 50% or more. Likewise, the overperforming-underpaying companies beat the S&P 500 by at least 15% and paid CEOs at least 50% below a competitive rate. Crystal argues convincingly that selling the 18 poorly performing companies and plowing the proceeds into the 29 high-performers would not only help CalPERS earn considerably more money, it would also do more to drive better pay policies than the current movement for "say on pay." (Calpers Ignores Good Governance Credo It Touts, Bloomberg, 5/15/08) Crystal is right, but this is just one measure. Other studies have shown similar findings with regard to other governance indicators, as well as environmental and personnel policies. CalPERS, CalSTRS and others should consider various index enhancing strategies, including Crystal's. Mercer Says CEO Pay Down After reviewing pay data in annual proxy filings for 350 companies of varying sizes and industries in the Fortune 1000, Mercer finds the CEOs of 50 large U.S. companies—companies with median annual revenue of $66.2 billion—took a sharp cut in total direct compensation in the last fiscal year, with a mean of $14 million, down 15.8% from the previous year. The pay tally includes an executive’s base salary, annual cash bonus and the expected value of long-term incentives such as stock options and performance shares granted in the fiscal year covered by the proxy. The tally does not include things such as the value of CEO perks or retirement benefits. CEOs of companies with median revenue of $16.2 billion fared about the same, while those of companies with median revenue of $3.2 billion had compensation down 4.6% from the prior year. Lower pay reflects a slowing economy. “Companies are correlating their payouts more closely to performance,” said Diane Doubleday, global leader of Mercer’s executive compensation group in San Francisco. (CEO pay way down at large companies, Financial Week, 5/15/08)
Countrywide Mistakes Rejecting the arguments of Countrywide executives and directors that they were unaware of lax loan operations that led to ballooning defaults, Judge Mariana R. Pfaelzer of Federal District Court in Los Angeles ruled Tuesday that she found confidential witness accounts in the shareholder complaint to be credible and that they suggested “a widespread company culture that encouraged employees to push mortgages through without regard to underwriting standards.” The suit names 14 current and former directors and officials as defendants. (Judge Says Countrywide Officers Must Face Suit by Shareholders, Gretchen Morgenson, NYTimes, 5/15/08) How far into the weeds of risk analysis must directors go? Stay tuned. Obama Wins Endorsements According to a report in the WSJ, William Donaldson, who was SEC chairman for about 2.5 years from early 2003, along with Clinton and Reagan appointees Arthur Levitt and David Ruder, will join former Fed Chairman Paul Volcker in endorsing Sen. Obama for president. Unlike McCain or Clinton, Obama has said he would consider raising the capital-gains tax rate from its current 15% -- a move that could have a profound effect on the financial industry. Obama also enjoys a strong lead in contributions from banking and finance companies, as well as SEC employees. The article ends with the following: Sen. McCain has repeatedly said his expertise is foreign policy, not markets. Words he uttered to reporters in December, "The issue of economics is not something I've understood as well as I should," are likely to haunt him this fall. (Obama to Receive Endorsement Of 3 Former SEC Chairmen, 5/14/08) Later in the day he picked up an endorsement from Edwards. Proxy Access Still Needed Jay Brown argues use of notice and access makes getting out the votes harder. According to Broadridge, only 4.58% of the retail shares receiving notice and access at 80 companies studied actually voted. In short, there is nothing in the e-proxy process that displaces the need for proxy access. (E Proxies and the Need for Access, theRacetotheBottom, 5/14/08) I'd like to see something about the psychological and social changes that may result with the passing of small and medium individual shareowners from the scene as participants in governance. What role have they traditionally played? How will there absence impact our view of businesses, our voting in civic elections, the American Dream? Something in me sees this as significant, although I haven't been able to do much to articulate it. More Reports in English Partners for Financial Stability (PFS) finds growing online disclosure of ESG information offered in English, on websites of the ten largest listed companies in Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia (Central European countries) the Ukraine, Brazil, Russia, India, and China (BRIC). As of April 15, 2008, 26% of CEE companies offered online ESG reports in English while 42.5% of BRIC companies offered ESG reports online in English. (Sustainability Investment News, SocialFunds.com) Action by PetroChina Sought through UN Global Compact Three days before PetroChina’s annual meeting of shareholders, over 80 civil society organizations including human rights, corporate accountability, religious and anti-genocide groups from 17 countries, including CorpGov.net, have signed an open letter to the United Nations Global Compact. The letter calls upon the UN Global Compact to use its influence with PetroChina, a compact participant, to help bring an end to the humanitarian crisis in Sudan. PetroChina, the listed arm of China National Petroleum Corporation (CNPC), Sudan's largest oil industry partner, is indisputably linked to the regime perpetuating the five-year humanitarian crisis in Darfur which many consider to be genocide. The Global Compact is currently the world’s largest and most widely known voluntary corporate responsibility initiative, with over 4,000 corporate participants. It is often criticized by civil society organizations because of its purely voluntary nature. In its recently published 2007 Corporate Social Responsibility (CSR) Report, PetroChina proudly cites its entry to the Global Compact. PetroChina’s CSR report mentions the Global Compact 12 times, while there is no mention of PetroChina’s support for the Sudanese government that has committed human rights violations in Darfur. The letter asks the UN Global Compact to influence PetroChina and CNPC to independently, or collectively with other foreign oil companies operating in Sudan, request that the Government of Sudan (GoS) fully and promptly implement all provisions of United Nations Security Council Resolution 1769, ensure free and unfettered access for humanitarian aid workers to the people of Darfur, provide full and unrestricted land access for peacekeeping troops (including land for UN bases), cease support for the Janjaweed militia without delay, and genuinely engage in the Darfur peace process. Further, the letter asks for the Global Compact to influence PetroChina/CNPC to make all possible efforts to contribute to the success of Sudan’s Comprehensive Peace Agreement, including utilizing leverage on its business affiliates, on the GoS, and on the Government of South Sudan to ensure that the CPA is implemented without further delay. Democracy in Whose Interest? A WorldPublicOpinion.org poll of 19 nations finds that, in every nation polled, publics support the principles of democracy. Asked whether their nation is "run by a few big interests looking out for themselves" or whether it is run "for the benefit of all people," in 15 of the 18 nations asked, respondents say that it is run by big interests. On average 63 percent say it is run by big interests and only 30 percent say it is run for the benefit of all people. Established western democracies [Mexico, (83%) United States (80%), Britain (60 %), and France (59%)] were among those with relatively high numbers saying their government is run by and for big interests. Asked, how much "the government should take into account world public opinion" when "developing its foreign policy," on a 0-10 scale (with 0 meaning "not at all" and 10 meaning "a great deal,") the mean response is above 5 in every nation polled. The average across all 16 nations is 7.1--only slightly lower than the average preferred level for government responsiveness to public opinion at home (8.0). The lowest levels of support for world public opinion are found in India (5.8), the Palestinian Territories (5.9), the United States (6.6), and Russia (6.6). The highest are found in Indonesia (8.4), Mexico (8.2), and Nigeria (8.2). When asked how much attention their government does pay attention to world public opinion, using the same 0-10 scale, the mean assessment is lower than the preferred level in every nation polled. Across the 16 nations asked, the mean assessment is 5.1. The lowest mean estimates of government responsiveness to world public opinion are found in the United States (3.9), Egypt (4.1), and Ukraine (4.5). The highest are found in China (6.6), Indonesia (6.6), and South Korea (5.9). World Publics Say Governments Should Be More Responsive to the Will of the People, 5/12/08.
Coming Legislation on CEO Pay Broc Romanek's recent blog includes part of a post by Mark Borges, of CompensationStandards.com on Senator Clinton's New Executive Compensation Bill. While the measure is unlikely to be enacted this year, it provides a good look at what we are likely to see under a new administration. Marzion Interim CEO at CalPERS Kenneth W. Marzion has been named as Interim Chief Executive Officer at CalPERS. Marzion, a 32-year veteran CalPERS leader, most recently served as Assistant Executive Officer o the Actuarial and Employer Services Branch, responsible for providing services to more than 2,500 state, school, and public agency employers. His career includes posts in three other divisions, including the Fiscal Services, Member Services, and Benefit Services Divisions. (press release, 5/12/08) Back to the top Focus Lists @ Proxy Democracy The AFL-CIO’s key votes survey has examined how institutional investors vote on resolutions relating to labor issues since 1997. A Center for Political Accountability study examines mutual funds’ voting on political disclosure resolutions; the Investor Environmental Health Network scored mutual funds on their support for 15 shareholder resolutions on toxic chemicals; and Ceres released a similar report using a focus list based on climate change resolutions. Now, at Proxy Democracy, you can build your own focus list and then see how different mutual funds score. Once your list is assembled, you can keep it to yourself or share it with other readers. I quickly assembled a corpgov list, which relies heavily on votes to split CEO positions and to require majority votes for directors. Andy Eggers developed a focus list based on CalPERS sponsored resolutions. Joshua Humphreys designed a list based on Resolutions by Foundations in 2008. The Humphreys list has very few registered votes as of yet because Proxy Democracy captures a lot more votes after the fact than before the votes are counted (not many announce their intended votes in advance). If you want to build a list based on lots of votes, start with resolutions filed last year. Since there are thousands of votes to choose from, you might try limiting those you choose to widely held firms where there are 35 or more registered votes. I didn't start with this strategy when building my list but you can benefit from my experimentation. Try it out. Let me know if you develop a focus list of interest or of any lessons you learn in building lists. SRI President, Week, & Survey The Obamas' reportedly sold their Vanguard Wellington Fund after learning it was invested in Schlumberger, a French oil-field-services company that does business in Sudan. They put the $180,000 in proceeds into the Vanguard FTSE Social Index Fund, a socially responsible fund that invests in large and midcap stocks. (Obama - Socially Responsible Investor, This Week in SRI, 5/10/08) The first ever National Ethical Investment Week (NEIW) is being held from May 18th - 25th in the UK to encourage everyone to consider green and ethical investments. NEIW will help advisers reach out to clients who may be hearing about green and ethical investments for the first time. It will also help advisers highlight their ability to advise on green and ethical investments and provide opportunities to develop knowledge and expertise. In the results of experiments reported in the WSJ, consumers were willing to pay a slight premium for the ethically made goods. But they went much further in the other direction: They would buy unethically made products only at a steep discount. However, researchers also discovered that if a company invests in even a small degree of "ethical production," buyers will reward it just as much as a company that goes much further in its efforts. Takeaway: Companies should segment their market and make a particular effort to reach out to buyers with high ethical standards, because those are the customers who can deliver the biggest potential profits on ethically produced goods. (Does Being Ethical Pay?, 5/12/08) Backdating Unsettled at Zoran and CNET Networks In pair of rulings that may have significant implications for scores of stock-option backdating lawsuits, a federal judge has rejected settlements reached at Zoran and CNET Networks. Under the Zoran settlement, the company agreed to reprice or cancel options received by two executives (an economic benefit of $1.65 million, the parties asserted), and pay $1.2 million to the investors' lawyers. Zoran also agreed to adopt various governance changes, including a more structured grant process, the appointment of a new independent director, and increased officer and director education. U.S. Judge William Alsup of the Northern District of California stressed the role of federal judges to protect absent shareholders against “collusive settlements,” concluded that the terms were “far too modest,” given the $16 million in damages claimed by an expert for the investor plaintiffs. “The corporation would recover no cash, all the cash going to counsel. The cancellation of underwater options is the only concession of any value and even that is small,” the judge wrote. In the CNET case, Alsup said it was premature to consider the merits of the settlement until the investor plaintiffs completed their pre-trial evidence gathering and presented more information about the viability of their claims and potential damages. (Judge Rejects Two Stock Option Settlements, Risk & Governance Blog, Ted Allen, 5/12/08) Perhaps they should also be looking into possible collusion between plaintiffs and defendants. Industry Practice Class-action attorney William Lerach, of the firm formerly know as Milberg Weiss, who starts his two-year prison sentence on May 19th, admitted that he paid off plaintiffs in some of the 150 shareholder lawsuits he brought to court. After he was sentenced in February to an additional two years of probation, 1,000 hours in community service, and payment of $250,000, he told the Wall Street Journal that plaintiff kickbacks schemes, like the ones he was involved in, were "industry practice." “Everybody was paying plaintiffs so they could bring their cases.” We know "industry practice" played a significant role in back-dating and credit-risk (subprime) scandals. It would be good to know just how widespread kickbacks are in class-action lawsuits. I've also heard that, at least in some instances, companies have encouraged lawsuits in order to settle for lower amounts with less than aggressive plaintiffs. Unfortunately, investigation into these practices takes a partisan tone, since Democrats have traditionally relied heavily on trial lawyers for political contributions. Once investigations actually begin in earnest, Republicans could also end up being embarrassed if companies actually sought partnerships to bring weak suits. I hope members on both sides of the aisle will put partisanship behind them and get to the bottom of industry practices. Chevedden Reports John Chevedden & associates continue their relentless pursuit of shareowner rights. As part of my continuing exploration, I've also noted those listed at Proxy Democracy as resolution supporters before the meetings. As time progresses, Proxy Democracy will collect more intended votes and expand what is already a very useful tool.
Separate Roles for Good Times and Bad "The problem lies in the impression that splitting the roles of chairman and CEO -- a rarity for big U.S. companies -- is some kind of a punishment for the boss. The fact is, the separation makes sense in both good times and bad... Waiting until the music stops to split the two jobs suggests that, in better times, chief executives should get chairmanships. That's the wrong message." Separate Lives, Always (5/10/08), a commentary in the WSJ argues that separate chairmen allow CEOs to spend full-time running their companies for shareholders. "That is one reason why governance rules in Britain, for instance, have made splitting the roles de rigueur -- and why investors should back shareholder moves, like those at Exxon Mobil, that encourage it in the U.S. too." Voting Insurance In Director Elections and the Influence of Proxy Advisors, Stephen Choi, Jill Fisch and Marcel Kahan, "find that all the proxy advisors, but particularly ISS, base their recommendations largely on factors that shareholders take into account (independent of the recommendation) in casting their vote. Once these factors are controlled for, overall voting outcomes are substantially similar whether or not a proxy advisor has issued a recommendation. Our analysis demonstrates that the reported influence of ISS is substantially overstated. Our evidence is consistent with the view that proxy advisors act primarily as agents or intermediaries which aggregate information that investors find important in determining how to vote in director elections rather than as independent power centers." As Stephen Bainbridge puts it, "ISS and its ilk" provide an "insurance policy." "If its clients get sued by DOL (in the case of pension funds) or shareholders (in the case of mutual funds) over voting, they can point to their use of ISS to justify their voting decisions. This understanding of ISS’ role is broadly consistent with their findings. Clients use ISS as CYA insurance to justify what they already want." He's right. More ideally, such firms would base more of their recommendations on research findings. I think we'll get there. Exxon For Owners Picks Up Steam The filers of a shareholder proposal (proxy Item #5, by Robert Monks), at Exxon Mobil Corporation (NYSE: XOM) – including descendents of John D. Rockefeller – commenced an investor road show and website to make their case to both institutional investors and proxy voting advisory services. The initiative, known as “Exxon For Owners,” leads up to the May 28, 2008 ExxonMobil annual meeting in Dallas. Members of the Rockefeller Family said they are “very pleased” that RiskMetrics Group’s ISS Governance Service is recommending shareowners support of proxy Item #5. How should you vote on the directors or proposals 2-19? Go to Proxy Democracy and type in XOM, the most popular look-up as of this morning, you'll see that CalPERS recommends voting for all resolutions except 3, 4, and 6. From there you can also link directly to the proxy statement filed with the SEC. e-Proxy Considerations IR Magazine says that with retail voter participation plummeting at companies using e-proxies, attention is focusing on the possible inadequacy of the notice being used to let investors know shareholder materials are available online. Retail shareholder voting has dropped from 19.2% last year to 4.6% The notice reads like "it was written by a lawyer or a bureaucrat or a lawyer who is a bureaucrat," complained one corporate counsel at Corporate Secretary magazine’s East Coast Think Tank in New York. (E-proxy process marred by confusion, 5/9/08) Forbes magazine apparently wants to blame the SEC for autodialer phone calls during proxy season begging shareowners to vote. "Next year, under a proposal now before the Securities and Exchange Commission, the phone assault could get worse. Under that proposal, even the election of directors might be considered non-routine, meaning even more companies would need individual shareholders to vote." (Annoying Phone Calls? Blame The SEC, 5/7/08) That proposal, of course, is to do away with "broker voting," which allows your broker to vote for directors when you fail to cast your own vote... and they vote for directors endorsed by management. Forbes notes that you can avoid those annoying phone calls by signing up at your brokerage or mutual fund as an objecting beneficial owner or "OBO." Better would be to vote. If you don't want to spend a lot of time researching the issue, go to Proxy Democracy and type in the name or ticker symbol. Hopefully, you'll see how a fund you trust, such a CalPERS, voted or will vote. You can then simply vote like your trusted brand. Thanks Broc Romanek Thanks to Broc Romanek and his post, CorpGov.net: The First Governance Site. Nice to get the recognition, especially from someone who offers such a fantastic resource himself. Actually, there was a pay site on corporate governance before mine, but they soon went out of business. A quick look back at the archives didn't jog my memory as to their name but I did notice that several publications I followed back in 1995 - 1997 are also out of business. I sometimes wonder what keeps me going -- it sure isn't the monetary return (I still need to monetize the site) -- just hoping to leave the world a little better when I check out. Back to the top Evelyn Davis Speaks Her Mind (What Little There Is of It) at Ford ”Tata sells cars that are $2,500 to the lowest of the low outcasts of India,” Evelyn Davis said at the Ford AGM, adding that Jaguar represented elegance and exclusivity. “How could the board sell us out to an outfit like that who sell to people like that.” (Evelyn Davis thinks Tata sells cars to “low outcasts,” Reuters Blogs, 5/8/08) Why does this total nut-case continue to be covered by the press? I recall at one of the SEC’s roundtables leading up to the last proxy access proposals she went on with a rant about being prettier than Nell Minow. Why did the SEC pick her to represent individual shareowners? Why does the press give her so much more attention than more thoughtful individuals such as Les Greenberg or John Chevedden? Now she wants the board of Ford to resign because they sold Jaguar to Tata and because Tata sells cars to Dalits, untouchables? This latest rant tops her bad behavior at the SEC Roundtable. Crass, crass, crass. Has she no empathy, no manners, no shame, or no friends to advise her as to proper behavior?
CII Lowers Threshold for Proxy Access Proxy Access: “Companies should provide access to management proxy materials for a long-term investor orgroup of long-term investors owning in aggregate at least 3 percent of a company’s voting stock to nominate less than a majority of the directors. Eligible investors must have owned the stock for at least two years. Company proxy materials and related mailings should provide equal space and equal treatment of nominations by qualifying investors. To allow for informed voting decisions, it is essential that investors have full and accurate information about access mechanism users and their director nominees. Therefore, shareowners nominating director candidates under an access mechanism should adhere to the same SEC rules governing disclosure requirements and prohibitions on false and misleading statements that currently apply to proxy contests for board seats.” Rationale: The “3% for 2 years” formulation is fully consistent with the Council’s underlying position that large, long-term shareowners should have a reasonable degree of access to company proxy materials to nominate director candidates. (Policy adopted 4/11/08) CII's previous policy advocated a 5% threshold, with an ownership holding period of at least three years, so the recently adopted threshold is far preferable. I would prefer that shareowners have the option to adopt lower company specific thresholds. The CII thresholds may be fine for large institutional shareowners, which would still need to work in combination in most cases. However, the threshold virtually locks out nominations by smaller shareowners. ESG: Changing the Norms of Fiduciary Duties Peter Kinder's KLD Blog, Socially Responsible Investing: The Next New Thing is Already Here, presents the idea that "new institutional entrants have different motivations than traditional SRI investors. They see environmental, social and governance factors – the ESG criteria – as value drivers or inhibitors. Their concern is with performance – or more precisely, risk – not alignment of their investments with their values. They look at companies such as PetroChina and their questions aren’t just about whether doing business with Sudan’s government is right or wrong. The new entrants ask what risk doing business in Sudan poses to the company’s reputation, or whether it risks material losses from the ongoing genocidal war." "Responsible Investors" is the term favored by the United Nations Environmental Program's Finance Initiative. UNEP FI’s Principles for Responsible Investment commit their signatories to consider environmental, social and governance (ESG) factors in their investment decision-making. They now have over 160 signatories representing over US$13 trillion. Kinder speculates that climate change is one of the main drivers, as funds recognize many of their real estate assets will literally be under water in the next decade or so. "Increasing knowledge about non-financial criteria will change the norms of fiduciary duties – what a fiduciary must consider when making investment and portfolio decisions... The financial services industry is learning what SRI has known all along: Environmental, social and governance factors affect investments. So, they will also affect your fiduciary duties." Shareholder Activism: Call for Papers Corporate Governance: An International Review (CGIR) invites paper submissions for a special issue on shareholder activism. The popular business press extensively discusses the pros and cons of shareholder activism, but scholarly thought has yet to weigh in substantively. They are interested in learning more about the antecedents and effects of shareholder activism, as well as more in-depth understanding of the various forms and features of this phenomenon. Research questions that are of particular interest include the following:
This list of topics is suggestive rather than exhaustive. They are open to a wide range of approaches from different disciplinary backgrounds (e.g., finance, management, economics, or sociology). CGIR welcomes a wide variety of theoretical perspectives and methodological approaches. Since the overarching mission of the journal is to develop a global theory of corporate governance, international comparative studies are especially welcome. Priority is given to research which spans multiple governance environments. Papers must be submitted via the CGIR website and should indicate that the manuscript is intended for this special issue. Contributors should follow the CGIR Author Guidelines. The deadline for submissions is March 31, 2009. For queries about this special issue, contact the special issue guest editors, Huimin Chung or Till Talaulicar. Troy Paredes Nominated to SEC President Bush nominated Washington University Law School professor Troy Paredes to the SEC to replace Paul Atkins, a Republican SEC commissioner who announced he will step down once his successor is in place. Paredes would serve a five-year term ending in June 2013. Paredes graduated in 1992 with a degree in economics from the University of California at Berkeley and received his law degree from Yale Law School in 1996. (Bush Nominates Law Professor Troy Paredes To SEC, DowJones, 5/6/08) In a paper entitled, On the Decision to Regulate Hedge Funds: The SEC’s Regulatory Philosophy, Style, and Mission, Paredes concludes, "To mitigate the risk of overregulation, the SEC should increasingly consider using default rules instead of mandatory rules. Defaults at least give parties a chance to opt out if the SEC goes too far. Indeed, in some cases, perhaps the SEC could exercise an even lighter touch and simply articulate best practices." His paper, Blinded by the Light: Information Overload and its Consequences for Securities Regulation, puts forth the notion that investors are suffering from information overload brought about by too much regulation. "The basic intuition of information overload is that people might make better decisions by bringing a more complex decision strategy to bear on less information than by bringing a simpler decision strategy to bear on more information." "He is skeptical about regulation,” said Peter Wallison, an American Enterprise Institute fellow and former Treasury Department general counsel, in published reports. (New SEC nominee said to be skeptical about regulation, Financial Week, 5/7/08) Just what we need, a regulator who doesn't believe in regulating. I'm already a bit skeptical. C Dir The UK’s Institute of Directors (IoD) is the subject of FT's A tough test for would-be directors (5/8/08), which describes their Chartered Director (C Dir) program. To date, 660 have achieved the title, fewer than 100 a year since its inception. “Getting my PhD was a doddle compared with this,” says Suzy Walton, an occupational psychologist, non-executive director of several organizations, former member of Tony Blair’s delivery unit in the UK cabinet office – and a newly minted C Dir. “These were the toughest set of exams I have ever done. I practically had to move into the IoD while I was preparing for them. I know all the best places to sit and work there.” "If you fail just one module of the certificate exam you can retake that module, but if you fail more than one you have to do all the formal training again and re-sit the whole suite of exams,” Walton explains. Being a C Dir formally marks you out as a senior (and therefore potentially legally liable) director, ahead of MBAs or colleagues who have no other equivalent professional training. You will not be able to plead ignorance if and when the insolvency lawyers come knocking. CorpGov Bits The Difference Makers The Millstein Center for Corporate Governance and Performance at the Yale School of Management partnered with the Mutual Fund Directors Forum to found the “Conference of Fund Leaders,” a peer network of independent mutual fund chairs and directors. The CFL will provide a unique opportunity for the independent leaders of fund boards, which hold about 1/3 of all US equity, to come together with their peers to discuss governance issues; proactively present their views on policy matters important to fund investors and independent directors, regulators and lawmakers; and promote research into the value and impact of effective, independent leadership at mutual funds. (press release, 5/5/08) RiskMetrics Group (ISS) recommends investors support a shareholder resolution filed by CalSTRS with Tulsa-based ONEOK, Inc., seeking a report on its greenhouse gas emissions. SocialFunds.com ran a nice article by Anne Moore Odell on Proxy Democracy. "Over 50 million households in the US own stocks or mutual funds, and in the great majority the proxy statements go straight to the trash (or recycling, let's hope)," said Andy Eggers. "Our tools are designed to make it easy as possible for people to be represented in this process, whether it's by quickly figuring out whether there's anything worth paying attention to at an upcoming meeting or by buying a mutual fund that has a voting record they can get behind." (Proxy Voting Made Painless, 5/7/08) Mark Latham notes, "To me the most notable one is the “Compare Fund Voting Records” section at the bottom of the page For mutual fund owners. Especially powerful is how anyone can create their own 'Focus List' of past proxy votes. The site can then rank funds on how they voted and publish that analysis to everyone who browses the site." Wow! Re upcoming Yahoo meeting, 'We are hoping to turn that into 'Independence Day' for Yahoo's shareholders,' said Eric Jackson, president of Ironfire Capital. Jackson was credited by many in playing a role in former CEO Terry Semel's resignation after the last annual meeting. Jackson's latest revolt may find two powerful allies in Yahoo's two largest shareholders, Capital Research Global Investors and Legg Mason, whose portfolio managers have both publicly expressed their disappointment with the Yahoo board's demand for $37 per share. (Yahoo board may face shareholder mutiny at annual meeting, Thomson, 5/7/08) FT asked several experts about "retention" bonuses. Lucian Bebchuk expressed what seems to be a consensus opinion. Retention bonuses are bonuses in name only. "They are no different from paying an additional fixed salary for an additional period... such value should commonly be provided in the form of performance-based pay. Consider the current plans of Royal Dutch Shell to pay retention bonuses worth about €1m (£787,000)($1.55m) to three executive directors provided that they would stay in the company until 2011...why not do so by providing them with some additional equity-based compensation or an award linked to financial performance over the next three years? (Curse of the ‘stick around’ bonus, 5/6/08) Key Vote Survey The AFL-CIO Key Votes Survey rates the voting practices of investment managers by surveying how they voted on proposals representing a worker-owner view of value. (see 2008 AFL-CIO Key Votes Survey Preliminary Scorecard) This worker-owner view emphasizes management accountability and good corporate governance. These proposals are assessed by the AFL-CIO Proxy Voting Guidelines and managers are ranked by the percentage of votes cast in accordance with the guidelines. The guidelines were developed to assist trustees in exercising their ownership rights in ways that achieve long-term value by supporting important shareholder initiatives on corporate accountability. They include board of directors proposals, corporate governance, proposals concerning employee relations, executive compensation and corporate responsibility issues. The Proxy Voting Guidelines also provide an in-depth discussion of fiduciary duties of plan trustees described under the Employee Retirement Income Security Act (ERISA). For more info, see the AFL-CIO Office of Investment page. Democratic Businesses Christian Science Monitor opinion editor Josh Burek talks with Traci Fenton of WorldBlu about democratic businesses. "Businesses that embrace a democratic style are building healthier workplaces – and better bottom lines," says Fenton. Practices most likely to become standards in the future are the following:
Last April, WorldBlu inaugurated its List of Most Democratic Workplaces. They were small to midsize firms. This year, a Fortune 500 company, DaVita Inc., is among the 2008 winners. And she expects more in the years to come. "It's time we close the gap between demanding democracy as the way we want to live – but not the way we get to work." "Organizational democracy doesn't mean that business leaders give up all control. It simply means that a company is committed to a system that empowers people – rather than just the CEO – to generate solutions and make decisions." DaVita, an El Segundo, Calif. company, is the largest independent provider of dialysis services in the United States, with more than 30,000 employees and annual sales of nearly $6 billion. The following are some of the democratic practices the firm has embraced:
Over the past five years, DaVita's stock has soared 279%, while the S&P 500 Index has returned 52%. Democracy seems to be working. Fenton concludes, "If more Fortune 500 companies operated democratically, it could mean less corporate malfeasance, happier employees, and a more stable economy. And it would allow a powerful alignment between the political system much of humanity embraces and the places we work in each day." (Even Big Companies are Embracing a Democratic Style, 5/6/08) Thanks to Les Greenberg for bringing the article to my attention. Disclosure: The publisher of CorpGov.net is a DaVita shareowner.
Know Your Fiduciary Duties The U.S. Department of Labor's Employee Benefits Security Administration (EBSA) will sponsor "Getting It Right - Know Your Fiduciary Responsibilities," a free compliance assistance seminar, on June 10 at Embassy Suites Denver Southeast, 7525 E. Hampden Ave., Denver, Colorado. This seminar is part of EBSA's national fiduciary education campaign to increase awareness and understanding of basic responsibilities associated with operating private sector retirement plans. Apparently, one duty for employers is that they must comply with their contractual obligations to make contributions to its ERISA plan, and such a contractual obligation constitutes an "asset" of the ERISA plan. Administrators for three ERISA plans for employees of Burruss Holding Company, argued that employer contributions for the plans were not assets until they were paid. The 4th Circuit found that contributions become plan assets when they are due and payable. (Unpaid Contributions Constitutes ERISA Theft, PlanSponsor.com, 5/5/08) Back to the top Chevedden Reports John Chevedden and his associates continue their relentless pursuit of shareowner rights.
The Future of Corporate Law: Symposium and Webcast - May 5th In the current issue of The Delaware Lawyer, a variety of practitioners and academics (including Lucian Bebchuk, Robert Thompson, Michael Dooley and Charles Elson) present brief appeals for reform of Delaware’s corporate statutes. Many of them, joined by professors Jennifer Hill, Brett McDonnell, Faith Kahn, Elizabeth Nowicki, and Ann Conaway, discussed their proposals for reform at the Delaware General Corporation Law for the 21st Century Symposium on May 5th at the Widener University School of Law in Wilmington. Most Americans have become "forced capitalists" as companies have moved from traditional defined benefit pensions to 401(k) plans for employees, said Vice Chancellor Leo Strine Jr., a judge in Delaware's Court of Chancery, at the lunch address. These forced capitalists invest in the market through intermediaries or money managers, Strine said. He calls it "separation of ownership from ownership." (Experts look at corporate law statute, Delawareonline.com, 5/6/08) Robert Thompson noted that "self-help" measures are important for shareholders. Delaware statutes have gaps with regard to that need. If Delaware doesn't address the need directly, it will likely lead to a patchwork of Federal provisions. Shareholders must be able to check directors when they are conflicted or entrenched. There has to be an effective way to exercise their franchise which cannot be redirected by the board. Delaware should write statutes which make Federal preemption less likely. Rick Alexander argued that five mergers were shot down by shareholders recently. The market is doing its job. Directors have a lot of information that isn't publicly available. There are legitimate differences. We're not going to maximize the economy by going with what 51% of stockholders think. What about the rights of the other 49%? Directors take their jobs very seriously. They know that failure to adopt resolutions that get a majority may cost them their jobs because ISS will recommend voting against them. Jennifer Hill said the US hasn't looked much to developments in other countries. The federalist system provides competition for corporate charters in the US. Common law may be better than civil law. However, the idea that the US operates similarly to other common law countries is a misconception. In the UK and Australia changes happens much more frequently. SOX didn't give shareholders participatory rights, only some additional protection of their rights through disclosure and liability. In Australia and the UK a raft of recent laws have strengthened rights with provisions such as "say on pay." Bainbridge and Stout argue shareholders don't want rights. However, for Hill, News Corporation's move from Adelaide was instructive. Institutional investors wanted charter provisions to render inapplicable certain Delaware laws in order to maintain Australian rights where corporate constitutions can be changed by shareholders, meetings can be convened by 100 members, and no poison pills are allowed. If you missed the live webcast, you can still view it in the archives. SEC: Lame Duck Commission Republican SEC Commissioner Paul Atkins announced that he intends to leave the Commission once a successor is appointed and takes office. Atkins has been a leading opponent of greater protections for, and participation by, investors, such as hedge fund registration and greater proxy access. (Another commissioner checks out at the SEC, FinancialWeek, 5/5/08) It seems that Bush will now get to appoint almost all the commissioners who will serve under the next administration. CalPERS Should Remain Active Kelly Candaele, a trustee of the Los Angeles City Employees Retirement System (LACERS) makes an argument that Wall Street cannot police itself. She goes on to provide a very brief history of activism by CalPERS and some of the rationale behind it. Given "millions in campaign contributions from members of the financial services and investment industry, it is wishful thinking to expect dramatic initiatives from Barack Obama, Hillary Rodham Clinton or John McCain." "With the changes at the top, there will undoubtedly be calls for CalPERS to adopt a more subdued investment and advocacy approach. That's bad counsel. With a clear need for economic and corporate reform, CalPERS needs to remain in fighting shape." (CalPERS should maintain its activism, LATimes, 5/5/08) Aflac Pay Approved in First "Say on Pay" Vote In the first “say on pay” vote by a U.S. public company, Aflac investors gave 93% support to the firm’s executive compensation practices, according to news reports. There was only 2.5% opposition at Aflac’s May 5 annual meeting. The Columbus, Georgia-based insurer decided to hold an annual advisory vote after receiving a shareholder proposal on the issue in late 2006. (Aflac’s Pay Practices Get 93% Support, Risk & Governance Blog, 5/5/08) The fact that Aflac shares have risen 3,800%, compared to 549% for the S&P 500 since 1990 probably has something to do with the affirmative vote. Verizon Communications, Par Pharmaceutical, Blockbuster and RiskMetrics have pledged to allow such votes in the future and many others are sure to follow. FASB to Expand Disclosure Requirements for Contingent Liabilities An "exposure draft" expected to issue in about two weeks from the Federal Accounting Standards Board could have enormous SRI implications. The guideline would expand the obligations of reporting companies to disclose contingent liabilities in their financial reports — think climate change, product toxicity, human rights! Here are a few pithy excerpts from the summary FASB posted in advance of the release:
The above courtesy of Sanford Lewis, Strategic Counsel on Corporate Accountability, and lead author of Toxic Stock Syndrome, which demonstrates that sectors affected by product toxicity risks are doing a poor job of informing shareholders of market risks they face due to toxic chemicals in their products.
Spain Joins Norway in Requiring More Women Directors Spain passed a law that requires firms to raise the share of women on boards to 40% by 2015. Norway already has such a quota and some of the most qualified have collected as many as 35 directorships. Unlike their Norwegian counterparts, Spanish companies will not face financial penalties if they do not meet the 40% requirement, although they may be penalized when the government awards public contracts. The Economist notes the gap between male and female employment rates in Spain is over 20% points. Spanish women spend far more time on domestic chores, including childcare, than men. Thanks to long lunch breaks, you get home at 9pm or 10pm. The magazine concludes it may be better to help women gain enough experience to be good candidates for directorships to begin with. Encouraging more reasonable hours would be a start. However, it also notes that a bigger share of women in their 20s are now joining the workforce in Spain than in America. (Jobs for the girls, 5/1/08) Buzzword Governance After reading The Role of Independent Directors after Sarbanes-Oxley If you are looking for guidance on your responsibilities as a director under Sarbanes-Oxley (SOX), you'll find them outlined in the Pocket Guide simply with the titles of 11 sections. You get only a hint of what you need to know. Even if you bother to search out the two articles footnoted, there will still be many gaps in your knowledge. While "Sarbanes-Oxley and Cost Engineering" might be a great guide for how SOX impacts "the world of engineering, architecture, and construction," there are better references for directors. The one page chapter, "Global Governance Comparison," is no better. We are told that "corporate governance various (varies?) from country to country." "Japan, China and South Korea have dramatically different corporate models than those of the United States, Britain and Australia but readers are not given the faintest clue as to how those models differ. We learn that in Germany "a Vorstand is the management board of a corporation where the Aufsichtsrat or Supervisory Board controls the Vorstand." The reader is left clueless as to the composition and roles of these boards, other than that one "controls" the other. Regarding board independence, the authors cite studies that found "having separate committees to nominate, compensate, audit, and govern are more effective ways to monitor governance rather than having the board itself regulate these items." Good advice, as far as it goes. However, the three page chapter, "Committees," simply lists 17 types of committees. It provides no clue as to which are required and what their composition should be. For example, under SOX, only independent directors can serve on audit committees and at least one must be a "financial expert." The NYSE requires a compensation committee for its listed companies; the NASDAQ doesn't. However, the NASDAQ requires that only independent directors may participate in the decisions. Such basic governance requirements are missing from the Pocket Guide but are readily accessed in the Dravis book. At the outset of this review I said the Pocket Guide could be a "useful supplement." The book's "strength" lies in providing a laundry list of buzz words. The buzz words are as likely to be derived from management as from governance discussions. For example, in the chapter on "Best Governance Practice" we are given a few bullet points each on SMART Objectives Technique, KISS Technique, and SWOT technique. (Why is the third heading not fully capitalized?) The chapter on "Commitment to Quality" touches on the following: Business Process Improvement Technique, Six Sigma Technique, Total Quality Management Technique, Five Whys Technique, Cause and Effect Technique, and Taguchi Technique. Other chapters give us a few words on the Learning Organization, Capability Maturity Model Integration, Software Engineering Institute (how Carnegie Mellon institute fits into the typology isn't explained), Total Quality Management (repeating one sentence of the two sentence explanation from the previous chapter, in case you missed it), Pareto Principle, and Total Cost of Ownership Technique. If you might be embarrassed as a director by never having heard of the Taguchi Technique or one of the others, the Pocket Guide will typically provide very brief explanations that might actually be helpful. You can read this one while waiting to board at the airport. It could be 15 minutes well spent. If you only have three minutes, read the appendix and glossary in the back. Following the Pareto Principle, you'll get 80% of the book's value in 20% of the time. Back to the top Dogs Ten minutes on the phone talking broadly about "say on pay" for executives, what do she quote?...of course, the dog comment. Still Ashley Milne-Tyte does a great job in a few minutes. I'm glad she got out the fact that ten years ago CEO pay took 5% of earnings; now its 10%. The best solution for the executive pay problem is for shareowners to replace directors who don't exercise proper oversight. Under the majority vote model coming into vogue, shareowners can vote these directors out of office, but they can't replace them with directors of their own choosing. For that, we need "proxy access," where shareowners can place their own candidates on the corporate proxy. InvestorRelationships Broc Romanek is editing a new publication, InvestorRelationships.com, to add to the growing family of TheCorporateCounsel.net, CompensationStandards.com, DealLawyers.com, and other sister sites. Where he finds the time, I'll never know. Like the other publications, InvestorRelationships.com is top-notch. Romanek tells me "it's had an incredible response rate... more than anything we have ever done." It is free until the end of the year, so there is no excuse for not signing up. Starting as a quarterly for 2008, it may be published more frequently in the future. As a brief aside, Romanek also interviewed me and plans to post it on May 5th. Listen here. Back to our discussion of InvestorRelationships.com, "Practical guidance for those in investor relations, shareholder services and corporate governance." Although the first issue is primarily aimed at investor relations officers and corporations, shareowners and those who provide them services will also benefit. In addition to the "practical guidance," he also includes a section entitled "Notables: All the Latest," which provides an excellent roundup of recent news and announcements, mostly from regulators like the SEC and FASB but also from gatekeepers and advisors like Risk Metrics (ISS). The goes over some statistics on e-proxy, which he updated later on his blog. Then he gets into the pointers. Some of this is practical advice that will only be of real interest on the IR/corporate side, such as even though only an average of 0.70% of shareowners are asking for paper, "it is much wiser to print more books than needed rather than have to go back and start the presses again." "Creating a communications strategy to explain e-proxy to shareholders should be a standard practice, but has been rarely done so far. Post a set of FAQs and explain why the company is using e-proxy in the “Letter to Shareholders” (i.e., tout the cost savings and the benefit to the environment)." However, the best practices can also be very useful to shareowners. For example, he advises not to neglect employee-shareholders. "A separate campaign strategy should be considered when targeting employees... ensure them of the confidentiality of the voting process." Reading advice like that can also prompt similar action from union affiliated shareowners. The second article is even more forward looking, The Coming Online IR Campaigns: The Future of Director Elections. Tips point to "campaign-like" IR websites and proxy materials of the future, such as using "multi-media to help shareholders 'connect' with each candidate. This can come in the form of each candidate having their own video or audio file (or series of them) during which the candidate explains why they are running, what their qualifications are and anything else they bring to the table." Romanek sees listing endorsements from "RiskMetrics’ ISS Division, as well as other proxy advisors like Glass Lewis and Egan Jones" as a coming best practice and provides excellent advice concerning how to comply with various SEC provisions, such as Rule 14a-6(b). I'll stop there. I just wanted to give readers a sense of my own excitement about this new publication. Sign-up now. RiskMetrics Reports on Season Trends Resolutions calling for advisory votes on pay have received less support at a number of firms this year versus last, according to a RiskMetrics Group analysis of preliminary vote results through April 30. AFSCME's Richard Ferlauto says it might be attributed to e-proxy; “There’s some preliminary data showing a drop-off in retail voter participation, and our understanding of retail voter trends is that they’ve supported ‘say on pay’ when they’ve cast their ballots.” However, a drop-off in retail voter participation would amplify the voting of mutual funds and other institutions that generally do not back pay vote proposals, proponents say. Another potential explanation for the decline is that investors are more focused on business strategy in light of the bear market, and on righting the ship at those firms that have suffered heavy losses as a result of the credit crisis. So far, “say on pay” proposals have garnered majority support at only two companies—computer maker Apple and Lexmark International, compared with seven last year. Early season data suggest that fewer investors and issuers are settling this year on governance proposal filings. (Analysis: Early Season Trends, Risk & Governance Blog, 5/2/08) Buenrostro's Impending Departure From CalPERS According to Global Proxy Watch, as reported in Directorship, "Board members asked Buenrostro to set an exit two months ago, around the time new trustees took their seats at a Feb. 21 meeting." "Longtime Buenrostro champion Robert Carlson had retired in January." "Chief executive since 2002, Buenrostro, 58, has kept CalPERS at the vanguard of global corporate governance advocacy. But a take-no-prisoners leadership style prompted ongoing concerns about staff morale. He also drew global controversy, most famously at the 2004 International Corporate Governance Network annual conference in Rio de Janeiro, where arm-twisting tactics left a rift between CalPERS and other funds." (CalPERS CEO Departure Prodded by Board, 5/2/08) Both Directorship and Stephen M. Davis, who publishes Global Proxy Watch, are very credible sources and this explanation also rings true from my own understanding of Buenrostro's tenure. Both CIO Russell Read and CEO Fred Buenrostro are now set to leave on June 30. (CalPERS CEO out June 30, SacBee, 5/3/08) Time for us all to move on. Another item that hit the news recently is the possible loss of almost $1 billion in a real estate land investment through LandSource. Again, I haven't heard any credible connection between this development and the announced departures of Fred Buenrostro or Russell Read, the chief investment officer. (see Calpers Takes Hit on Land Deal, WSJ, 5/1/08) ExxonMobil to Face Rockefeller Family A total of 15 Rockefeller Family members filed or co-filed four shareholder resolutions urging ExxonMobil to look beyond its current focus to more effectively address a rapidly evolving energy industry, including the growing market in renewables and alternative fuels that competitors Shell, Chevron, BP, Total and Petrobras now are expanding into to a much greater extent than ExxonMobil. The shareholder resolutions will be voted on when ExxonMobil holds its annual meeting on May 28, 2008 in Dallas. A majority of Rockefeller Family members support Robert Monks' proposal to separate the positions of chairman and CEO. The other resolutions would Establish a Task Force to Study the Consequences of Global Warming on Poor Economies, Reduce Greenhouse Gas Emissions for Products and Operations, and Adopt Renewable Energy Policy. See press release and listen to press conference, 4/29/08. Who's got a longer term view of the company? Webb and Harris Show Courage on Tibet This is the article by Senior Counsel Paul Harris originally commissioned by Hong Kong Lawyer, the journal of the Law Society, the Editorial Board of which approved, but then U-turned and decided not to publish. In the interests of freedom of speech and debate that are cornerstones of HK's success, Webb-site.com is publishing it instead. David Webb's site generally provides an independent commentary on Hong Kong's corporate and economic governance. Sign up for his e-mailed newsletter if you're interested in Hong Kong or China... and who isn't? He's also got a funny side. Retirees May Have to Return to Work Half of all middle class Americans have about a quarter less saved for retirement than they realize, said Matthew Scanlan, head of Americas Institutional Business at BGI and co-author of The Future Shock of Retirement study. And, while some academicians show that Americans are ready for retirement, the BGI research takes the same statistics and challenges those assumptions. BGI's research showed that Social Security and home equity represent a significant component of total wealth - among the middle wealth decile in the study, 40% of total wealth comes from those sources - and, when BGI manipulated the data to account for the reduction of government benefits and home equity, the study found that about one-half of middle class Americans could lose 25% of retirement wealth. (Retirement Might be Worse than We Think, PlanSponsor.com, 4/30/08) Demographic trends that threaten Social Security and Medicare, a trend toward DC plans in which risks are transferred to the individual, and a significant reduction in individual responsibility in the form of low (negative) savings rates all bode for a frightening future.
Human Resources Jim Kristie, editor and associate publisher of the influential Directors & Boards magazine, writes in the May E-Briefing that "good judgment seems to have been short-circuited in the Circuit City boardroom." (Simply Appalling, 5/2008) A centerpiece of the turnaround plan at Circuit City was laying off experienced salespeople, to be replaced with lower-paid hires. The kicker for Kristie was that "those who lost their jobs could reapply for their old jobs, at the lower pay, but had to wait 10 weeks to do so."
Tongue in check, Krisite adds that he was waiting for the follow-up announcement that all board members had resigned "to allow management to replace them with a newer, younger board, which would be paid a lower retainer and fees than the old directors received. Less experienced? Who cares about that? And the current board, after a cool-down period, would be allowed to reapply for their old seats, at the lower scale, of course." Of course, the turnaround at Circut City seems is going nowhere. I had a similar experience. While at the Department of Toxic Substances Control in California, I headed rulemaking, legislative and environmental review functions, as well as serving as the ethics officer. Toward the end of my career there, one of the major issues was how to handle the pending exodus of "baby-boomers," so I was put in charge of "workforce planning." A major task was to convince those nearing retirement, especially those in upper management or with specialized knowledge, to identify themselves. That would facilitate a smoother transition through mentoring, training and other forms of knowledge transfer. However, upon learning of my own pending retirement the director put a stop to my performance-based cost of living adjustment. My performance up to that time had been excellent but, apparently, she decided to measure my anticipated performance, in retirement. Yes, she saved the Department $1,000. However, staff quickly realized that if you don't want to lose $50,000 in benefits over the course of your retirement, keep you mouth shut. Workforce planning became more difficult. Of course, this was just one example of a pattern of crass treatment. As Kristie concludes, "When a company takes steps that are repellent in its treatment of its human resources — its work force and its customers — is it really a business anymore? Or a business that should stay in business?" Sign up for the Directors & Boards e-Briefing. Each issue contains thoughtful commentary, research, a calendar of events and news briefs with excellent links. Toxic Stock Syndrome & Risk Speaking of toxics (as above), the Investor Environmental Health Network has released Toxic Stock Syndrome by Sanford Lewis, Esq. with Richard Liroff, Ph.D., Margaret Byrne, M.S., Mary S. Booth, Ph.D. and Bill Baue, which finds annual securities reports fail to disclose financial risks known to corporate managers. Topics include lead paint, bisphenol A, nanotechnology, asthmagens, European regulation. In the wake of high profile toy and pet food recalls and growing public concern about chemicals in baby bottles, cosmetics, and other products, a record 21 resolutions on toxic chemicals and product safety have been introduced by corporate shareholders during the 2008 proxy season. This compares to just 13 such resolutions in 2007 and 12 in 2006. (press release, 4/29/08; running list of resolutions, their filers, and outcomes) On a somewhat related note, see The Legal Ramifications of Climate Change on Business from Weil, Gotshal & Manges LLP. As detailed in the Bulletin, the law and public policy related to climate change is rapidly emerging at the local, state, federal and international level as well as in the marketplace and has the potential to affect many businesses across the globe. CalSTRS wants ONEOK to report on its greenhouse gas emissions by the end of this year. Shareholders will vote on the proposal May 15. (CalSTRS seeks emissions report from pipeline firm, SacBee, 4/28/08) The credit crunch has pushed risk management to the top of corporate directors’ list of concerns. Investors are increasingly demanding that boards better understand management’s strategy for identifying and mitigating threats to the company, and that they question that strategy to protect shareholders from excessive exposure to the unforeseen. As a result, governance experts expect more companies to establish stand-alone board risk committees (à la UBS) to better tackle the challenge. (Risk climbs to top of corporate to-do list, Financial Week, 4/28/08) Back to the top News from 2008: April, March, February, January News from 2007: December, November, October, September, August , July and June There's plenty of news stored in Archives. The news may be slightly older but, frankly, many of the issues covered are sitll current.
Equal access? The SEC's recent rulemakings, S7-17-07 Shareholder Proposals Relating to the Election of Directors (comments) and S7-16-07 Shareholder Proposals (comments) offered conflicting solutions to what was a nonexistant problem after the decision in AFSCME vs AIG. Unfortunately, they opted for no access and choice-free elections. The SEC's prior rulemaking, S7-19-03 (comments, Editor's: 1, 2 & 3) would have been a weak first step. Compare the petition Les Greenberg and I filed to allow shareholder proposals to elect directors: Petition File No. 4-461, which the Council of Institutional Investors said "re-energized" the "debate over shareholder access to management proxy cards to nominate directors." See Equal Access - What Is It?, Inside Track interview, ad. Evolution at Solicitation of Public Views Regarding Possible Changes to the Proxy Rules and Sharehol Back to the top Contact: James McRitchie, Editor (916) 869-2402 All material on the Corporate Governance site is copyright © since 1995 by Corporate Governance and James McRitchie except where otherwise indicated. All rights reserved. Back to the top
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, 5/21/08)
with the Corporate Governance NETwork!