An update on the Commonsense Principles for corporate governance, first published in 2017:
The Commonsense Principles 2.0 built on the strong foundation of the 2016 Principles to reflect the evolving conversation and drive forward a more developed understanding of, and agreement on, the key tenants of corporate governance that support long-term value for all shareholders.
Notably, 2.0 speaks to additional areas where boards and investors can be better positioned to drive long-term value creation. These updates and enhancements include recommendations regarding board tenure, transparency around staggered boards, proxy access, engagement on important proxy proposals and consideration of anti-takeover provisions. Finally, the updated principles call for enhanced transparency on the part of both companies and asset managers to ensure greater understanding between shareholders and the companies in which they invest.
Some noteworthy additions to the Commonsense Principles made in version 2.0 include:
Board members should be prepared to serve for a minimum of three years
If board elections are not annual, companies should explain whyCompanies and shareholders are encouraged to engage early on important proxy proposals
Companies should allow some form of proxy access
Poison pills and other anti-takeover defenses should be put to a shareholder vote and re-evaluated by the board on a periodic basis
Asset managers should disclose if they rely on proxy advisors to inform their decision-making
Asset managers should disclose their conflict of interest policies in their proxy voting and shareholder engagement activities
Portfolio managers should be compensated based on performance over an appropriate term, given the strategy and investment time horizon for the portfolio
Asset owners should promote sound, long-term oriented governance in their direct interactions with both companies and asset managers
Asset owners should use benchmarks and performance reports consistent with their investment time horizon to affect governance outcomes with asset managers and evaluate the asset managers’ performance on both investment returns and governance
Importantly, the developments enumerated in the Commonsense Principles 2.0 are not meant to be a final statement on these topics. Rather, they represent the growing consensus around key issues that will drive this conversation forward.