Gretchen Morgenson: 20 Years of Corporate Governance

In her last column for the New York Times, Gretchen Morgenson summarizes the best and worst and most improved of the corporate governance issues she has reported on, quoting VEA Vice Chair Nell Minow:

Nell Minow is a corporate governance expert and vice chairwoman at ValueEdge Advisors, a firm that guides institutional shareholders on reducing risk in their portfolios. She has been rattling cages in the governance field since the mid-1980s and says she’s seen a definite improvement in boardroom makeup and practices.

“When I started in this field, O. J. Simpson was on five boards, including the audit committee of Infinity Broadcasting,” she recalled in an interview. “And at another company, the C.E.O.’s father was on the compensation committee. We’ve come a long way.”

That’s not to say that problems arising from sleepy and clubby boards have been eradicated. “Exhibit A is executive compensation,” Ms. Minow said. “The first C.E.O. pay package I ever complained about was $11 million. The very fact that that has gone completely berserk shows that boards are still a long way from where they should be.”

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

Why companies and CEOs treat their workers like garbage.

A new book,  The End of Loyalty: The Rise and Fall of Good Jobs in America, argues that the primary focus on shareholder value has enabled decisions that are bad for workers and consumers.

This culture, [Rick] Wartzman argues, has “explicitly elevated shareholders above employees.” Looking at issues like the rising disdain for unions, the emergence of Ronald Reagan, and, quite simply, less corporate focus on the common good, Wartzman makes the case that the increasing focus on top salaries and shareholder returns has warped American life.

Source: Why companies and CEOs treat their workers like garbage.

IRRCi Research Competition 2017

The Investor Responsibility Research Center Institute (IRRCi) has opened its sixth annual competition for research that examines the interaction between the real economy and investment theory. Practitioners and academics are invited to submit research papers by October 6, 2017, for consideration by a blue-ribbon panel of judges with deep finance and investment experience.

Two research papers – one academic and one practitioner – each will receive the 2017 IRRCi Research Award along with a $10,000 award. The winning papers will also be presented at the Millstein Center for Global Markets and Corporate Ownership at Columbia University in December 2017 in New York City.

The panel of respected judges includes:
Robert Dannhauser, Head of Capital Markets Policy, CFA Institute
James Hawley, Professor and Director of the Elfenworks Center for Fiduciary Capitalism at St. Mary’s College
Erika Karp, Founder, CEO and Chair of the Board of Cornerstone Capital
Nell Minow, VEA Vice Chair and Huffington Post Columnist

Snap’s Earnings Call Can’t Stop Its Nose Dive, Shares Hit New All-Time Lows

Don’t say we didn’t warn you. Do not invest in non-voting stock. We’re not saying that if this stock had a vote it would not be losing value. We are saying that if the stock had a vote, shareholders could do something about it.

Snap Inc. execs did their best to spin the company’s second straight lifeless quarter on its Thursday earnings call, but shares of the Snapchat parent continue to jackknife in after hours trading.Shares quickly darted down about 13 percent after Snap posted underwhelming revenue and slowing user growth in its second quarter. And as CEO Evan Spiegel and Snap’s braintrust took to the mic, it did little to curb investors’ concerns, with Snap falling another 3 percent to new all-time lows of $11.55 a share.

Source: Snap’s Earnings Call Can’t Stop Its Nose Dive, Shares Hit New All-Time Lows

Norway Sovereign Wealth Fund Is Refusing to Be Silenced – Bloomberg

Norway’s $960 billion sovereign wealth fund, the world’s biggest, is taking a stance against equity indexes including companies that aren’t subject to shareholder control. The move opens a new front in the fund’s efforts to use its considerable—and growing—clout to force companies to improve their ESG act.

Source: Norway Sovereign Wealth Fund Is Refusing to Be Silenced – Bloomberg

A Survey on Corporate Governance

Robert Purse reports on an international survey on corporate governance, concluding that respondents may support stronger standards and possibly a universal code of best practice:

Although 60% of respondents said ‘yes’, it is noteworthy that 40% responded either ‘no’, or ‘not sure’. Whilst we have no direct evidence to support the proposition, we are of the view that high standards of good governance should be self-evident with little room for uncertainty.

Source: A Survey on Corporate Governance

FTSE Russell Index Considers Booting Firms With Lots of Non-Voting Shares – WSJ

A proposal being floated by a large index firm could force finance chiefs at companies like Alphabet Inc., Facebook Inc. and Ford Motor Co. to choose between keeping their places in broad stock benchmarks or changing their share class structures.FTSE Russell is proposing possible restrictions on the inclusion of companies with unequal voting rights in its indexes, but the firm will weigh input from clients and investors before working out specifics.

Source: FTSE Russell Index Considers Booting Firms With Lots of Non-Voting Shares – WSJ