The truth about Jeff Immelt and General Electric’s corporate jets

VEA Vice Chair Nell Minow was asked to comment on reports that former GE CEO Jeff Immelt not only flew in a corporate jet but on some trips had a second GE jet follow with no passengers in case he needed a back-up.

Corporate governance hawk Nell Minow told CNBC it is difficult to know how many global companies use similar practices.Many companies have shifted to using fractured ownership of private jets, which makes oversight more difficult.

“Whatever benefit General Electric saved or extra layer of security they achieved, it was not worth the hit to their reputation,” Minow said.

Source: The truth about Jeff Immelt and General Electric’s corporate jets

Harvey Weinstein’s contract ‘protected him from sexual harassment allegations’

Reminiscent of the notorious Dennis Kozlowski contract at Tyco that provided that the only reason Mr. Kozlowski could be fired for cause was if he was convicted “of a felony that is materially and demonstrably injurious to the company or any of its subsidiaries or affiliates, monetarily or otherwise,”

Harvey Weinstein had a contract drawn up in 2015, in which the board of his film company could not terminate his employment over sexual harassment claims if he paid off women to silence them – as long as he paid out the money himself, according to reports. 

This is per se malpractice by the board and any director who agreed to it should be barred from ever serving on a board again and liable for damages as an accessory to abuse.

Source: Harvey Weinstein’s contract ‘protected him from sexual harassment allegations’

Investors Object to Virtual-Only Annual Meetings

Some companies are hoping to avoid in-person challenges at the annual meeting by scheduling virtual-only online session. The Council of Institutional Investors, whose members have $3 trillion in assets under management, has also spoken out strongly opposing virtual only meetings and the pension funds of New York City are voting against directors serving on board Governance Committees of companies moving to virtual-only meetings. Of course, in-person meetings enhanced by virtual participation for those who cannot otherwise attend is entirely different and should be encouraged.

The Sisters of Saint Francis of Philadelphia have taken the lead in challenging these decisions with shareholder resolutions at ConocoPhillips and Comcast. The Conoco resolution has already been cofiled by the Church of the Brethren Benefit Trust and the Needmor Fund, a Walden client. The Sisters have also filed a similar resolution with Comcast.

Walden’s Tim Smith stated, “The decision to move an annual meeting to cyberspace has moved far beyond a minor internal management decision and become an important governance matter for companies. Imagine if companies facing major controversies had decided to forgo physical meetings. If a company faces debate on their comp package or its climate change position or has votes on shareholder resolutions it is also a problem to have a disembodied discussion on line for a stockholder meeting.“

Fighting Short-Termism with Worker Power – Roosevelt Institute

In a new paper, Susan R. Holmberg asks:

“Can Germany’s co-determination system fix American corporate governance?” Prioritizing immediate increases in share price and payouts at the expense of long-term business investment and growth—a behavior we refer to as short-termism—has driven the inequality crisis in America and weakened our economy. By comparing the German stakeholder system of co-determination to corporate governance in the U.S., we find that emboldening workers with legitimate stakeholder power can help hold back the forces of short-termism.

Workers especially, who are investing in companies with their own labor on a daily basis, have a legitimate claim as corporate stakeholders, and it will serve companies, and society more broadly, if we—on the left at least—felt empowered enough to stake this claim.

Source: Fighting Short-Termism with Worker Power – Roosevelt Institute

PWC: Climate Change of More Concern to Investors than to Corporate Directors | HuffPost

VEA Vice Chair Nell Minow interviewed PwC’s Paula Loop for the Huffington Post:

A report released on October 17, 2017 from PwC finds that on some subjects there is a wide disparity between the directors who oversee corporate strategy and the investors to whom they owe the legal duties of care and loyalty. These findings are reflected in the title of the report, issued by PwC’s Governance Insights Center, The governance divide: Boards and investors in a shifting world.

The report concludes that “directors are clearly out of step with investor priorities in some critical areas,” especially with regard to climate change and sustainability and board composition. “I definitely think there is a gap,” said Paula Loop, who leads the Governance Insights Center. “There are some areas where we made some improvements, where we’ve done some bridging of the gaps but there are some areas where the gap has widened as well.”

The report revealed some surprising dissatisfaction by board members with their fellow directors. There is a significant increase with now 46 percent of the more than 800 corporate directors who responded to the survey admitting that at least one of their fellow directors should not be on the board. The reasons for dissatisfaction were evenly divided between five different categories: overstepping boundaries with management, lack of appropriate skills/expertise, ability diminished by age, reluctance to challenge management, and an “interaction style” that “negatively affects board dynamics.” Loop said, “It gets back to having a board assessment process and to really think about refreshment of the boards. We try to do the follow up discussion: How do you provide feedback to board members? Why haven’t you addressed this issue? Why is it that your board can’t do the right thing to make sure you have the right people on the board or provide coaching to the people on the board that you don’t think are doing a good job? It really gets back to board leadership.”

She noted that board quality is also a significant priority for shareholders. “Something that institutional investors have been talking quite a bit about is board composition, making sure you have the right people in the boardroom. Investors want to understand what your skills matrix is, what are the different things these individuals bring to the room and whether or not you are doing some kind of an assessment process.” She pointed to the New York City Comptroller’s Board Accountability 2.0 project, with Scott Stringer and the $192 billion New York City Pension funds asking for better board diversity, independence, and climate expertise.

But while institutional investors like pension funds raise concerns about board diversity, 24 percent of directors said that they didn’t think that racial diversity was a priority in board composition. Loop said, “We asked whether or not they thought that age diversity was important in the boardroom and 37 percent of them told us that they thought that age diversity was very important. Interestingly enough, 52 percent said they already have it. But in the S&P 500 only four percent of the directors are under the age of 50. So you do wonder, what’s their definition of age diversity?” The report’s findings on gender diversity show little progress. “All but six companies in the S&P 500 have at least one woman on their board, and 76 percent of those have at least two women. But only 25 percent have more than two women, and gender parity is rare. Only 23 companies in the Russell 3000 have boards comprised of 50 percent or more women.” Unsurprisingly, the report found that women directors thought efforts for diversity were moving too slowly, while the male directors thought there was too much focus on diversity.

For me, the most surprising finding was the overwhelming majority of directors who said their board did not need sustainability or climate change expertise. The core priority directors should have is sustainable growth, and it is impossible to do that without directors who are familiar with all aspects of sustainability, from the supply chain to the company’s reputation, technology, and product development. But investors and directors in agreement on the importance of cybersecurity expertise as a board priority. Loop said that many directors acknowledged this as an area where they need to spend more time and get more expert guidance. Only 19 percent said they had enough already.

And on the ever-popular topic of CEO pay, the report found that 70 percent of directors believe that executives are generally overpaid, although they are themselves responsible for it. Perhaps that is the most telling finding of all.

Source: PWC: Climate Change of More Concern to Investors than to Corporate Directors | HuffPost

Silicon Valley Vs. Wall Street: Can the New Long-Term Stock Exchange Disrupt Capitalism? – WSJ

Silicon Valley’s high-tech denizens complain the public stock markets are marred by a narrow focus on short-term earnings and profits.Now they are actually doing something about it, by launching a new framework for corporate governance, investing and trading called the Long-Term Stock Exchange. Backed by top Valley figures such as venture capitalist Marc Andreessen and LinkedIn co-founder Reid Hoffman, the LTSE says it plans to seek regulatory approval by the end of this year to become the newest U.S. stock exchange….Its key feature: a system in which the voting power of shares increases the longer investors own them. Firms listed on the exchange would need to use such a structure, often called “tenure voting,” while abiding by numerous other rules, such as a ban on tying executive pay to the company’s short-term financial performance.

Source: Silicon Valley Vs. Wall Street: Can the New Long-Term Stock Exchange Disrupt Capitalism? – WSJ

A Buy-Side Perspective on Stock Ownership Guidelines – Nasdaq MarketInsite

The lion’s share of large-cap companies in the United States now require named executive officers (NEOs) and board members to attain a certain level of stock ownership within a defined time period, and then to maintain that ownership during the course of their tenures.

The rationale for stock ownership guidelines (SOGs) is that when officers and directors have actual “skin in the game,” their interests will be more aligned with shareholders, and they will have more incentive to focus on long-term value creation.

It’s not just large-cap companies that are adopting SOGs though. According to the National Association of Corporate Directors, 46 percent of public companies with revenue between $50 million and $500 million now have some form of SOGs for board members (up more than 25 percent from 2012)…Most institutional investors draw a sharp distinction between shareholders and option holders. Since public companies are operated and governed for the benefit of shareholders, there’s an inherent rub from the perspective of many fund managers when those who are doing the operating and governing aren’t, themselves, shareholders.

Source: A Buy-Side Perspective on Stock Ownership Guidelines – Nasdaq MarketInsite

Big Investors Want Directors to Stop Sitting On So Many Boards – WSJ

Here’s some progress. Overboarding used to mean at least seven or eight boards, and we often pointed to Frank Carlucci, who served on 20 and averaged a board meeting a day.


Giant money managers voted against the re-election of Ronald Havner, Jr. in May to the board of a real-estate company. Their reason: He runs a different company and sits on two other boards.After about 56% of voting shares were cast against Mr. Havner remaining an AvalonBay Communities Inc. director, he said he would resign, an offer rejected by the rest of the AvalonBay board. BlackRock Inc. and State Street Corp.’s money-management unit were among the large investors that voted against his re-election.

Mr. Havner, who is chief executive of Public Storage , also decided not to stand for re-election at California Resources Corp.’s 2018 annual meeting “due to concerns raised by investors relating to the time commitment required” for those roles, the company said in a regulatory filing.Mr. Havner “has taken steps to reduce the number of boards upon which he serves,” said a lawyer for Public Storage and PS Business Parks Inc., a related company.

Major institutional investors, governance advisers and boards themselves are cracking down on so-called overboarding, trying to ensure that directors don’t spread themselves too thin. Overstretched directors lack time to adequately monitor management, these critics contend.

Source: Big Investors Want Directors to Stop Sitting On So Many Boards – WSJ

OpenInvest: Put Your Money Where Your Heart Is

VEA Vice Chair Nell Minow interviewed Joshua Levin for the Huffington Post:

A new service allows even small investors to pick companies based on their values by swiping right. It is called OpenInvest, and it is available on iTunes. Joshua Levin, co-founder and chief strategy officer, explained how it works.

Where did this idea come from?

It comes from staring down “the giant paper packet.” If you own individual stocks, this is the thing that arrives at your doorstep, allowing you to vote in major company decisions. These shareholder votes are absolutely one of your most powerful tools to shape the world, often driving major corporate decisions on how to treat people and the planet – everything from climate change policies to treatment of LGBTQ employees and more. The corporations we all own are more powerful than governments and also happen to set the political agenda.

Yet no one fills these things out. It feels like you need a law degree and a free weekend, and none of your friends are doing it, so what’s the point?

Even worse, if you own funds, you’ve most likely signed away your voting rights. For example, in 2015, Vanguard voted against all 200 sustainability-related shareholder resolutions, according to Barron’s.

The shame in all this is that we actually have collective ownership of the economy. Individual investors directly and indirectly own nearly 80% of US equities markets. We’re literally in charge. The CEOs work for us and report to us. They are awaiting our commands. But no one is using their power due to unnecessary confusion, intermediaries, and red tape.

4-B

By disrupting this system, we are kicking off the world’s first digital democracy. We’ve spent years cutting through complexity and special interests on the back-end, to deliver a seamless and engaging democratic system on the front. People will only see the votes that matter to them, get a 2-sentence summary of the issue, vote with a swipe (as easily as picking a date on Tinder), and then share with others.

Does it just offer NYSE and NASDAQ stocks, or are other kinds of securities available?

Yes, OpenInvest portfolios are structured as a blended portfolio of equities listed in the S&P 500 index (which only has stocks listed on either the NYSE or the Nasdaq), but are reflective of the retail investor’s values, combined with a green or traditional bond fund. By design, each user’s equities portfolio will track the performance of the S&P 500. It’s like each person has their own index fund.

The SEC and state regulators have a lot of requirements about the information that has to be provided to investors.  How do you make that work on a “swipe right” system?

OpenInvest is an RIA and Fiduciary that serves the best interests of our clients. We took great pains to provide a robust and fully compliant proxy policy for our users, which explains our approach in full and is amended into our SEC filings. When clients receive a distilled summary of a vote, it is a prompt with a link to learn more through the official corporate proxy statement. When they swipe, the client is informing our vote, which is cast in accordance with this policy. It’s like a digital conversation with a client, who we already know very well. This makes it sound simple, but it took years to develop and is patent pending.

What kinds of priorities can people put into the system to shape their portfolios?

We currently have 11 “themes” – which are both positive and negative filters – that an investor can choose from and mix and match to suit their values. They can also swipe individual names in and out to further customize. The current themes include Carbon Emissions, Fossil Fuels, Deforestation, LGBTQ Rights, Tobacco, Weapons Manufacturers, Women in the Workplace, Divest from Trump, Supporting Refugees, Divest from Dakota Access Pipeline, and Human Rights in the Supply Chain.

What other kinds of information will you be adding? 

Most of our upcoming themes are top secret. But we are on the brink of launching a screen that helps people divest themselves of the prison-industrial complex. We are also adding significant amounts of financial education and video content. How does the rebalancing work?  Is it affected by the limits customers place on their holdings?

The key to maintaining both diversification and values is technology. For example, when the Wells Fargo consumer fraud scandal occurred, many of our customers picked up their smartphones and swiped Wells right out of their portfolios. On the back-end, our systems instantly break apart and rebalance their portfolios to keep them diversified and tracking the performance of the benchmark. It’s the first time anyone can be a social activist investor, while always holding a passive portfolio.

By design, customers can select all of our screens and still hold a sufficiently diversified portfolio that broadly tracks the market. We do have some “power users” who divest from so many things that we have to engage them as a fiduciary. We let them know that they are at risk of creating significant variance (tracking error) from the benchmark, and we do not recommend that they proceed from a financial standpoint. However, if they would like to proceed, we can help them implement. We’re very happy to empower people; they just need to go in with their eyes open.

Do millennials have different priorities for investing than the previous generations?

 

When polled, 84% of millennials want to invest in companies that share their values, according to a Morgan Stanley study. Our internal data also shows, for example, that 63% of Americans under 40 care deeply about climate change, so that greatly affects their investment choices. However, millennials are also the most diverse American generation to-date. They desire customization to their particular values, as well as a visceral connection to their impacts, and an amazing digital experience. Recent tech developments are finally making this possible. We are putting socially responsible investing at the fingertips of the generation who will mainstream this movement.