GM’s Board is Half Men/Half Women

Samantha Cooney writes in Motto:

General Motors quietly became the first major industrial company to have gender parity on its board of directors, Forbes reported.

The automaker’s shareholders elected Jane Mendillo, the chief executive officer of the company that manages Harvard University’s endowment, to its board of directors this June, splitting its 12-member board evenly between men and women.

“We simply believe in putting the best people available on our BoD, for the needs of the company and BoD composition,” a GM GM -0.83% spokesperson told Motto in an email. “This wasn’t a ‘managed’ outcome to the 50-50 split as much as it was a thorough vetting of candidates.”

It’s a milestone for the auto industry, which has a well-documented problem with elevating women to leadership positions. The auto industry, according to a Jan. 2016 Government Accountability Office report, ranks as one of the bottom five industries when it comes to representation of women on boards, averaging about 11%.

Britain’s corporate failures invite a governance revolution – Ian Fraser

Ian Fraser writes:

[I]t is now self-evident to almost everyone apart from those who devised the [governance] codes, the wilfully blind “heads of governance and stewardship” at asset-management firms and governance advisers at “Big Four” accountancy firms that, far from making corporate governance any better in the UK, all this codifying is actually making it worse.

The shameful, scandalous and indeed sometimes criminal behaviour of many FTSE-100 firms in recent years, including BAE Systems, Barclays, BP, Eurasian Natural Resources Corporation, GlaxoSmithKline, HBOS, Kazakhmys, HSBC, Royal Bank of Scotland and Standard Chartered, to name but a few, proves that Britain’s elaborate attempts to codify corporate governance have failed.

This is largely because the Codes have given rise to a shallow “box ticking” culture, in which directors are able to tick the relevant boxes but avoid their true responsibilities. When combined with pressure from a dysfunctional and ultra-short-termist investment community, this has ensured that long-term vision, morality and probity has been casually jettisoned by PLCs.Maybe the time has come to accept defeat, abandon the Code and revert to a more robust use the Companies Acts — perhaps updated marginally — to ensure companies and boards of directors not only behave but also remember what they’re there for.

Source: Britain’s corporate failures invite a governance revolution – Ian Fraser | Ian Fraser

Your Mutual Fund Has Your Proxy, Like It or Not – The New York Times

From Gretchen Morgenson:

The voting of fund managers is infected by conflicts of interest, said Erik Gordon, a professor at the Ross School of Business at the University of Michigan. That is because these giant mutual fund operators don’t just own shares in many big American companies; they also do business with them.

“Funds often avoid challenging management on executive pay and corporate governance because they want to be included in corporate defined-contribution benefit plans,” he said in an email. “If a fund irritates a C.E.O. and the C.E.O.’s pals on the board, the fund risks losing business at several companies.”

BlackRock and Vanguard dispute this notion, saying they put their customers’ interests first in their voting. “We weigh all factors that could affect the long-term value of our clients’ assets,” Ed Sweeney, a spokesman for BlackRock, said in a statement, “including the hundreds of public pension plans, nonprofits, foundations, endowments, educational institutions and individual investors we serve.”

…On matters involving executive pay, in the most recent 12 months, [Black Rock and Vanguard] overwhelmingly supported compensation practices at the companies in the Standard & Poor’s 500-stock index. BlackRock supported executive pay at 98.3 percent of those companies in the most recent year, and Vanguard voted in favor of pay practices in 98.1 percent of its votes. (Vanguard disputed this, saying it voted yes a mere 96 percent of the time.)

By the way, both companies supported the pay practices at Wells Fargo, whose executives are under fire for overseeing a pervasive program that prompted many employees to set up sham accounts to generate fees and make quotas.

As head of BlackRock’s investment stewardship unit, Michelle Edkins oversees its voting. On executive compensation, she stressed that the firm voted against pay practices or compensation committee members at 10 of the 50 companies with the highest-paid chief executives this year. She also said that BlackRock discussed compensation matters with half of those companies.

Beyond pay, BlackRock and Vanguard both supported management by voting against most proposals requiring that a company’s board be led by an independent chairman. Shareholders in favor of this idea contend that such a move would reduce management’s grip on the board and bring more accountability to corporations.

BlackRock voted nay on 95 percent of such proposals, Proxy Insight found, while Vanguard rejected 100 percent of them.

Source: Your Mutual Fund Has Your Proxy, Like It or Not – The New York Times

Ciara Torres-Spelliscy on Citizens United and Corporate Political Contributions

corporate-citizenThe Supreme Court’s Citizen United decision, giving corporations the right to unlimited political contributions usually kept secret from voters and shareholders, was just the most recent in a series of rulings giving corporations “personhood” rights. In her new book, Corporate Citizen?: An Argument for the Separation of Corporation and State, Stetson law professor Ciara Torres-Spelliscy documents corporate efforts to dramatically enlarge their political and commercial speech and religious “rights” through lawsuits, campaign contributions, and lobbying. They also use these “rights” to limit their liability for the damage they do to investors, employees, customers, and the community. In an interview with VEA vice-chair Nell Minow, Torres-Spelliscy discussed the impact corporate money has on preventing progress on issues like climate change and what options there are for reducing the distortion effect of corporate money from government.

How did you first get interested in this issue?

I first ran into the issue of money in politics as a senior at Harvard in a class called “Democracy” which was taught at the Harvard Law School. I had to read Who Will Tell The People by William Greider and that introduced me to the issue of corporate lobbying and campaign finance.

Can you give some examples of corporate money distorting the legislative process in (1) Obamacare, (2) climate change, and/or (2) post-Enron era/post-financial meltdown reforms?

As I discuss in Corporate Citizen?, corporate money can distort the legislative process by curtailing what is on the agenda of Members of Congress and by narrowing what lawmakers think is even possible. So for example, when the U.S. was revising its health care system, instead of going with a public option where the government provides health care for all, which is basically the approach of most western democracies, instead what American got with Obamacare was essentially a mandate for people of a certain income level to purchase private health insurance from private companies. This served the interests of private companies, but not necessarily the public. But because of years of lobbying–including derailing the efforts of President Bill Clinton to reform health care in the 1990s–the public option wasn’t really even seriously considered as a starting point for the Obama Administration.

One of the most troubling conclusions I came to when writing Corporate Citizen? was that the American Congress seems utterly incapable of dealing with climate change. This is a potentially deadly mistake that even the U.S. military recognizes as an existential threat. When I asked environmentalists why Congressional inaction on climate was the case, I got very similar answers from scientist Gretchen Goldman, environmental lawyer Deborah Goldberg and the former head of Greenpeace, Phil Radford. They all described how industries–especially the oil and gas industries–were particularly effective at lobbying to get Congress and regulators to do as little as possible to protect the environment. A common theme each mentioned was the attempt by businesses to manufacture doubt about the underlying climate science by paying scientists to spout the industry position that climate change is not caused by man, even though the scientific consensus is that climate change is caused by human activity. This is very similar to recent revelations that the sugar industry paid scientists to cast doubt on the link between sugar and heart disease. The impact is similar, the public is confused about what the truth is, and meanwhile elected officials are provided cover for failing to act. I find this lack of urgency on the issue of climate change personally troubling as I live in Florida, close to the coast. If nothing is done about climate change federally, my community and my home could be literally under water.

Even after corporate interests like the U.S. Chamber of Commerce, the Business Roundtable and the National Association of Manufacturers lose a legislative fight like with the passage of Dodd-Frank, they don’t give up waging the war. After Dodd-Frank became law, these trade associations were active challenging many regulations that were promulgated under Dodd-Frank through litigation. For example, these trade associations were successful in stopping Dodd-Frank’s proxy access rule, the conflict mineral rule and a rule on reporting payments to foreign governments by extractive industries. Frequently, the arguments raised in these cases tried to expand corporate First Amendment rights by making elaborate claims about how a given regulation was unconstitutional.

After the Citizens United decision, what are the options at the state or federal level to limit the amount or increase transparency in corporate political contributions and lobbying expenses?

As I explicate in Corporate Citizen?, because Citizens United was decided on Constitutional First Amendment grounds, it severely curtails the options for state and federal regulators to limit corporate money in politics–especially if the money is spent independently of candidates. But there is some room for Congress and the states to maneuver. For one, because of a case called Beaumont from 2003, states can still ban corporate contributions that are given directly to candidates’ political campaigns. And the federal government and states can vastly improve their disclosure of the sources of money in politics–ending the dark money problem. The Supreme Court in Citizens United ruled in favor of disclosure by a margin of 8 to 1. This frees federal agencies like the Securities and Exchange Commission (SEC), the Internal Revenue Service (IRS), the Federal Communications Commission (FCC) and the Federal Election Commission (FEC) to all improve transparency of political spending.

Do other countries limit corporate political contributions?

According to Transparency International, Belgium, Estonia, France, Hungary, Latvia, Lithuania, Poland and Portugal all ban corporate political contributions, as does the United States at the federal level under the Tillman Act of 1907. The catch is in over half of the 50 states in America, corporations can give money directly to state candidates. And furthermore, as I noted in Corporate Citizen? because of Citizens United, corporations are free to spend an unlimited amount of money on political ads (making the underlying federal contribution ban nearly meaningless).

What is “dark money?” How do litigation and bankruptcy proceedings give us insight into the size and use of “dark money?”

So-called “dark money” is money that is spent in politics–typically to buy political ads–without revealing to the public who paid for the political expenditure. Dark money can be revealed through bankruptcies if the debtor was a source of dark money. Clever investigative reporters have discovered that when they pull the matrix of creditors in certain bankruptcies like that of Corinthian Colleges and coal company Alpha Natural Resources, they find dark money conduits are listed. This means that these corporations were spending dark money before they went bankrupt. Also on occasion, courts will order a dark money spender who is violating a disclosure law to actually tell the public where their money came from. This happened in Montana with a group called Western Tradition Partnership (which later changed its name to American Tradition Partnership). As I explain in Corporate Citizen? this group had bragged to donors that only they would know who had influenced the election. This promise of anonymity was one Western Tradition Partnership couldn’t legally keep.

What citizenship rights have not been granted to corporations?

Corporations cannot run for office, though one corporation tried in Maryland a few years back and was rebuffed. Corporations also cannot vote in a US election. And they still cannot give directly to federal candidates under a case called Beaumont.  But in terms of their First Amendment rights, corporations have gained very robust political speech rights starting with Bellotti in the 1970s and continuing to the present day with Citizens United. Depending on who replaces Justice Scalia on the Supreme Court, corporations could continue on a trajectory of gaining more expansive First Amendment rights.

How does the US tradition of state control of corporate governance make it more difficult to address corporate involvement in politics?

Corporations are creatures of state law, which means that states compete to attract corporate charters and the revenues that go with them.  This places states in a race to the bottom in terms of corporate governance rules.  Generally each state wants to be as permissive as they can be towards corporate managers so that the managers will locate a given corporation in their state. So states may be reluctant to be a first actor to institute stronger shareholder protections to allow investors to have more transparency of corporate political spending or shareholder votes on corporate political spending. Though interestingly there is some movement after Citizens United. In Maryland, corporations that spend in state elections, must inform investors of this fact, and in Iowa, boards of directors must vote to approve corporate political spending.

What does the Hobby Lobby case mean for the idea of corporate citizenship? Would it have been decided differently if it was a public company with outside shareholders?

Hobby Lobby grants religious rights to for profit business corporations for the first time. Before this only churches and other religious nonprofit organizations enjoyed such rights.  By its terms, Hobby Lobby appears to be limited to closely held corporations.  Much will depend on how the Supreme Court changes after the death of Justice Scalia.  Hobby Lobby (like Citizens United) was decided 5-4 with Justice Scalia in the majority.  If a more progressive Justice is appointed to his seat, then over time some of these 5-4 decisions which empowered corporations could be eventually overturned by a newly reconstituted Supreme Court.  On the other hand, if the new Justice believes similar things as Justice Scalia, then a new Supreme Court could continue to expand corporate First Amendment rights.  A new frontier would be expanding Hobby Lobby to apply to publicly traded corporations.  That has not happened yet. But it could especially as firms continue to litigate over issues like their ability to discriminate against transgendered or gay individuals.

Is there a case to be made that corporate personhood rests on an obligation to be accountable to shareholders through disclosure and the ability to remove directors?

One of the things that is peculiar about Citizens United and Hobby Lobby is that the Supreme Court in both cases seems to ignore the corporate form when it ruled.  A corporation is a distinct legal entity from its board, officers, shareholders, or employees.  But the excuse that the Supreme Court used to give corporations more rights is that corporations are just a group of human beings.  What’s odd about this from a corporate law and election law point of view is the underlying human beings already had religious rights and political speech rights.  Why the Court has to give extra rights to the corporate entity on their behalf is not clearly articulated by the Justices.  Respect for the corporate form would require more robust protections for investors to ensure that managers only make political or religious positions that are consistent with the wishes of the owners of the company.

What is the best hope for solving this problem?

The antidote to expanding corporate political power is placing more power in the hands of American voters. While certain regressive states have made it harder for voters to exercise the franchise though restrictive voter ID laws or cutbacks in early voting, there is some forward motion to empower voters as well. As I wrote inCorporate Citizen?, California and Oregon have adopted automatic voter registration. And since the book was written, Connecticut, Vermont, and West Virginia have passed similar laws empowering American voters. More states should follow suit– placing voters back at the center of the democratic process.


A shorter version of this interview appears on Huffington Post.

SEC to Companies: Come Clean on CEO vs. Worker Pay Gap

In a lagged and dilatory but thought-provoking move in the US corporate governance and transparency landscape, SEC approved Dodd-Frank’s requirement on disclosing CEO vs. Worker Pay Gap after five years of procrastination (Congress passed the Dodd-Frank financial reform bill in July 2010. Dodd-Frank created the disclosure requirement but left the SEC to determine exactly how the rule would be implemented).“The rule, which is mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, would provide investors with information to consider when assessing CEO compensation, while providing companies with substantial flexibility in calculating the ratio.”The SEC required companies to disclose the median compensation of all its employees, excluding the CEO, and release a ratio comparing that figure to the CEO’s total pay. Companies would have to report the pay ratio starting in 2017.

Source: SEC to Companies: Come Clean on CEO vs. Worker Pay Gap

Wells Fargo CEO Says He Accepts “Full Responsibility” — Whatever That Means

The New York Times reports that Wells Fargo CEO John Stumpf plans to take “full responsibility” for the massive fraud at the bank, though it is hard to imagine what that means unless he plans to resign and/or contribute some of his pay to the $185 million settlement. He should announce changes to the board as well, though we do not expect that.

At the WSJ, Andrew Ackerman writes:

While the agencies haven’t prosecuted any Wells Fargo employees, it’s premature to conclude individuals won’t eventually face federal charges. Individual accountability is typically part of follow-on actions brought by civil bank regulators. Meanwhile, the Justice Department is in the early stages of its own investigations, The Wall Street Journal reported last week.

Still, the widespread—and sometimes laudatory—attention the Wells Fargo enforcement case is receiving seems at odds with what the settlement actually contains.


Compensation for Stumpf and the now-departed executive who oversaw the fraudulent transactions.

Wells Fargo scandal puts focus on ‘clawbacks’ of executive compensation – LA Times

VEA Vice Chair Nell Minow is quoted in an LA Times story about Wells Fargo:

Yet it’s likely “nothing” will be done with the compensation of Tolstedt and other executives because the decision is being made by Wells Fargo, said Nell Minow, vice chair of ValueEdge Advisors, which promotes strong corporate governance.

“At the end of the day it’s still a judgment on the part of management and they’re judging themselves,” she said.

Minow said the “best bet a company has for getting some of the money back is to characterize [Tolstedt’s] departure as a firing for cause, which they have ample reason to do.”

Wells Fargo and Tolstedt declined comment.

Source: Wells Fargo scandal puts focus on ‘clawbacks’ of executive compensation – LA Times

What Do Investors Want from Boards?

What do investors want from a board of directors? Much is written on this topic, yet rarely do we get the opportunity to hear directly from the people who vote or influence the vote of shareholder proxies.


Ed Garden — Chief Investment Officer and Founding Partner at Trian Fund Management, L.P.

Robert McCormick, Esq. — Chief Policy Officer at Glass Lewis & Co.

Glenn Booraem — Fund Treasurer and Head of Corporate Governance at Vanguard Group

Host: TK Kerstetter speaks with the panel on what boards do well, what they need to improve, and how investors see boards and their communications with shareholders.

MPs to probe FTSE chiefs’ pay as top City investor demands reform

Sky News has learnt that the Business, Innovation and Skills (BIS) Select Committee will announce on Friday that it is to probe boardroom pay following a string of revolts this year by investors in companies such as BP and Smith & Nephew.

The MPs will publish the terms of reference of their inquiry on the same day that the City’s biggest institutional shareholder – Legal & General Investment Management (LGIM) – outlines its determination to secure sweeping changes in boardroom behaviour.

Sources said that LGIM wrote to all FTSE-350 chairs several days ago to highlight a series of changes to pay practices that it wants to see adopted in the coming months.They include a recommendation that remuneration committee chairs should have served on boards for at least a year prior to their appointment to the role; considering re-tendering remuneration consultancy contracts if more than 20% of investors oppose pay reports; and publishing the “pay ratio between the CEO’s total single figure and the median employee”, according to a copy of the guidelines seen by Sky News.

Source: MPs to probe FTSE chiefs’ pay as top City investor demands reform

Why prosecuting Wells Fargo executives won’t solve anything.

A thoughtful assessment of the difficulty in prosecuting corporate executives from Samuel W. Buell:

As is almost always true with the big corporate scandals, the problem at Wells Fargo was not bad apples but a diseased orchard. Too often, as in this case, the owners and managers of the orchard can’t be prosecuted because, while creating an environment of high rewards and low or no penalties, they didn’t break laws themselves or, in all likelihood, even know laws were being broken.

It is tempting to think we should make a crime of this kind of bad management. But it is questionable whether such a law could pass constitutional muster. Consider the vagueness, especially in the context of the largest corporations, of things like managing too aggressively, incentivizing employees too strongly, or monitoring legal compliance too loosely. Constitutional questions aside, we ought to hesitate to condemn with the harshest of sanctions the very risk-taking behaviors corporations and capitalism are by definition designed to promote in the first place.The problem is the large corporation, not the people inside it—who turn over and over across scandal after scandal. It is time to put aside fixation with prosecutions as the cure-all for America’s corporate ills. The brilliant American innovation of the large, modern public company has had a major role in bringing our nation historically unprecedented wealth. But these corporations are plainly out of the control of those tasked with managing and regulating them. The corporate institution itself—its scale and the rules for how it operates—is what needs a hard and deep new look.

Source: Why prosecuting Wells Fargo executives won’t solve anything.