Big corporations are trying to silence their own shareholders – The Washington Post

David H. Webber, professor at the Boston University School of Law, writes about efforts funded by corporations to reduce the number of shareholder proposals. Note that a very small number of these proposals are filed each year, at a very small percentage of companies, and that even a 100 percent vote in favor is almost never binding on management. And yet, somehow advisory votes by shareholders are so terrifying that the snowflakes in the corporate boardroom get the vapors even thinking about them.

Corporate lobbyists at the Business Roundtable — led by JPMorgan Chase chief executive Jamie Dimon — are heralding an effort to sharply limit the ability of investors to have a say in their companies through shareholder proposals. If successful, it will reduce stockholders’ ability to shape the companies they own and hold corporate managers accountable. As with political voting rights, these corporate voter-suppression efforts demonstrate that even the most basic rights need constant vigilance to protect them.Shareholder proposals — governed by the Securities and Exchange Commission — allow shareholders to suggest ideas to be voted on by their peers at the annual meeting. As with voter-suppression tactics generally, the Business Roundtable would not eliminate shareholder proposal rights. Tactically, that would be too crude. Instead, it would interpose a series of technical requirements that would have the same effect as a ban. Most notably, the Roundtable would drastically raise the ownership threshold needed to file a proposal.But shareholder proposals are effectively tools for significant corporate change, akin to ballot initiatives that have played such an important role in American democracy. In recent years, shareholder proposals have called for better assessment and disclosure of climate change risks and for improved diversity in hiring….A recent SEC study shows that New York City’s efforts [to get companies to adopt proxy access provisions] led to a total increase of $10.6 billion in shareholder value at targeted companies…Even when unsuccessful, shareholder proposals can become important mechanisms for registering discontent and helping companies adjust policy…Shareholder proposals mainstreamed diversity as an investment issue, recently pounced on by State Street — a traditional investment house with $2.5 trillion in assets under management — which adopted a new voting policy favoring women board members, symbolically underscored by the company’s commission of the “Fearless Girl” sculpture on Wall Street….None of this is to say that shareholder proposal rules are perfect. Certain revisions might be worth considering. But nothing justifies the stratospheric threshold that Dimon and the Roundtable are backing. Apparently, they’re not interested in protecting shareholders — only in protecting themselves.

Source: Big corporations are trying to silence their own shareholders – The Washington Post

Leading Investors Launch Historic Initiative Focused on U.S. Institutional Investor Stewardship and Corporate Governance

The Investor Stewardship Group, a collective of some of the largest U.S.-based institutional investors and global asset managers, along with several of their international counterparts, today announced the launch of the Framework for U.S. Stewardship and Governance, a historic, sustained initiative to establish a framework of basic standards of investment stewardship and corporate governance for U.S. institutional investor and boardroom conduct.

The Investor Stewardship Group represents some $17 trillion in assets under management, largely comprising the retirement and long-term savings of millions of individual investors around the world, and is being led by the senior corporate governance practitioners at institutional investor and investment management firms. At launch, the Investor Stewardship Group comprises BlackRock, CalSTRS, Florida State Board of Administration (SBA), GIC Private Limited (Singapore’s Sovereign Wealth Fund), Legal and General Investment Management, MFS Investment Management, MN Netherlands, PGGM, Royal Bank of Canada (Asset Management), State Street Global Advisors, TIAA Investments, T. Rowe Price Associates, Inc., ValueAct Capital, Vanguard, Washington State Investment Board, and Wellington Management.“

In markets around the world, there are well-established governance and stewardship codes. The Investor Stewardship Group’s goal is to codify the fundamentals of good corporate governance and establish baseline expectations for U.S. corporations and their institutional shareholders,” said Anne Sheehan, Director of Corporate Governance at the California State Teachers’ Retirement System. “The Group brings all types of investors together and enables us to speak with one voice on these fundamental issues.”The initial standards focus on corporate governance principles for listed companies and investment stewardship principles for institutional investors. Taken together, the standards form a framework for promoting long-term value creation for U.S. companies and the broader U.S. economy.

“This initiative reveals the depth and breadth of agreement amongst institutional investors,” said Rakhi Kumar, Managing Director and Head of Asset Stewardship at State Street Global Advisors. “The stewardship principles encourage all investors to take responsibility for owning the stewardship process and being accountable to those whose assets they manage. We encourage all institutional investors to join the Investor Stewardship Group to further these corporate governance and stewardship principles.

”The Framework is the result of a two-year effort by a broad range of investors. As an ongoing, dynamic effort, the Investor Stewardship Group is calling on every institutional investor and asset management firm investing in the U.S. to sign the Framework at

Noted Glenn Booraem, Principal & Fund Treasurer at Vanguard, “We believe that the principles detailed in the Framework will further the productive dialogue and, most importantly, continue to drive positive change among institutional investors and the companies in which they invest. By articulating this set of shared behavioral expectations, we seek to promote our common objectives to create sustainable, long-term value for all shareholders.”

The Framework goes into effect January 1, 2018 to give U.S. companies time to adjust to its standards in advance of the 2018 proxy season.

The Framework’s principles are as follows (for additional information on these principles, please visit


Principle A: Institutional investors are accountable to those whose money they invest.

Principle B: Institutional investors should demonstrate how they evaluate corporate governance factors with respect to the companies in which they invest.

Principle C: Institutional investors should disclose, in general terms, how they manage potential conflicts of interest that may arise in their proxy voting and engagement activities.

Principle D: Institutional investors are responsible for proxy voting decisions and should monitor the relevant activities and policies of third parties that advise them on those decisions.

Principle E: Institutional investors should address and attempt to resolve differences with companies in a constructive and pragmatic manner.

Source: Leading Investors Launch Historic Initiative Focused on U.S. Institutional Investor Stewardship and Corporate Governance

In Trump Era, Weil’s Millstein Sees Promise for Corporate Governance | The American Lawyer

One of the great statesmen of corporate governance, Ira Millstein, answered questions about boards and the changes likely to come from the new administration in an interview with The American Lawyer, excerpted below:

How would you characterize the state of corporate governance today?

I’m very proud of how far we’ve come. Directors understand they have a job to do. Investors are seeking long term gains. But corporate governance keeps evolving. We happen to be at one of the big [moments of] change. The biggest challenge I think we have is that the country has gone rather short-term. Today we have hedge funds and insurance companies and all the rest who profit by holding stock in corporations. The stock becomes almost a commodity. They go short-term and look for faster gains, rather than invest as if they were in it for the long-term.You can’t pass a law to say don’t do that. Capitalism is capitalism. I believe in the market and I believe in capitalism. What you have to think about is, who can change this? The board is the last resort.

Do you foresee any way the new administration can impact corporate governance?

I don’t think there’s a lot they can do to change how boards operate. There is a big wave of discontent in this country. Trump caught it. The lawyers, media and banks missed it. Trump got elected by people who are not happy, because they’re out of jobs and they can’t find the work they used to be able to get. I’m now thinking that there is something boards can do about this. They should listen to the fact that, unfortunately, only a tiny piece of the American public trusts the corporate sector.I’ve been thinking about what they could do to make it easier for people who are dispossessed. If competition requires them to move out of this country, then do it, but in doing it, why not think about how you can help the people who are dispossessed. Maybe you can start educating people about what’s coming. I don’t think we can, as a private sector, continue to disregard this. It’s too important.I think the private sector has a role to play here. I’m not urging companies to set aside a bundle of money to do good. I’m urging boards to think of this as a matter of reputation. I think that is good business.

Source: In Trump Era, Weil’s Millstein Sees Promise for Corporate Governance | The American Lawyer

The Dark Side of Blockholder Philanthropy

Does the market respond unfavorably to generous CEOs? This paper from Thomas Shohfi “suggests that large philanthropists aren’t very good monitors, and that other investors realize it.”

Who would you rather own a business with, Mahatma Ghandi or Ebenezer Scrooge? Behavioral economics research points to considerable benefits of co-ownership with Gandhi, as counterparties (like suppliers, customers, and potential employees) work harder and offer better contracting terms when dealing with philanthropic principals. Understandably, these contracting parties feel better about not driving the hardest possible bargain, as the proceeds to a firm co-owned by Ghandi go at least partially towards noble causes.Corporate governance research based in agency theory, however, points to Scrooge being a major shareholder also having benefits. That is, small shareholders typically rely on the self-interest of large shareholders to monitor their shared investment. For those small shareholders, having Scrooge as a blockholder may be comforting, as he would likely be a very close monitor of managers (for his own benefit). Research in this mold has found that self-interested blockholder monitoring is particularly effective at discouraging wasteful investments in R&D, M&A, and PP&E. In this line of thinking, where the self-interest of large investors (and their associated monitoring of managers and the firm) comforts small investors, the market could view large investors’ philanthropy as troubling. If this philanthropy signals weakening self-interest on behalf of the newly charitable blockholder in question, smaller investors could worry that, as the monitor they rely on is less interested in wealth, this monitor will subsequently provide less monitoring of their shared investment. Sticking with our original analogy, this is akin to Scrooge taking a big step towards being Ghandi (i.e. Scrooge on Christmas morning). If you relied on Christmas Eve Scrooge’s preferences for wealth to keep an eye on an investment you two shared, this display of Scrooge’s new wealth preferences (giving wealth away à la Christmas morning Scrooge) could certainly have you worried! (citations omitted)

Source: The Dark Side of Blockholder Philanthropy

The Business Roundtable’s Proposal to Silence Shareholders

The Business Roundtable, once again proving that they only like capitalism when the providers of capital are silent and powerless, has released a proposal to “improve” the shareholder proposal process. They say this is necessary because

the current shareholder proposal process is dominated by a limited number of individuals who file common proposals across a wide range of companies but own only a nominal amount of shares in the companies they target. These investors are pursuing special interests — many of which have no rational relationship to the creation of shareholder value and conflict with what an investor may view as material to making an investment decision. As a result, the current process is often used to promote the self-interest of a minority of shareholders, frequently at a significant cost to the company. 

The BRT’s claims that these “improvements” are necessary are unpersuasive, including the alleged “costs” of proposals and a completely inapposite analogy to “proxy access” eligibility. A non-binding proposal is in an entirely different category than nominating a director who may be elected to the board.

If the BRT would pay less attention to the proponents and more attention to the level of support the proposals get from a wide range of investors, they would understand that this is what is referred to as a market test. It is an outrage that they want to limit even further the shareholder proposal process, when even a unanimous vote in favor is advisory only. The best way for corporate executives to reduce the number of proposals and votes in favor is to adopt corporate governance best practices and develop better lines of communication with investors.

Source: Responsible Shareholder Engagement and Long-Term Value Creation | Business Roundtable

Wells Fargo to Claw Back $41 Million of Chief’s Pay Over Scandal –

Wells Fargo announced on Tuesday that it would claw back compensation valued at $41 million from its embattled chairman and chief executive, John G. Stumpf, as the financial consequences of the scandal over illegally created sham accounts at the bank reached the executive suite.The action represented one of the first times since the 2008 financial crisis that a chief executive has been forced to give up compensation. Many large companies have adopted clawback provisions at the urging of regulators and shareholder advocates, but boards have been hesitant to invoke them.

And it came one week after a blistering Senate hearing in which lawmakers criticized the company and its board for not holding its leaders financially accountable for the scandal.

Carrie Tolstedt, who led the Wells Fargo community banking division now engulfed in scandal, will surrender stock grants valued at about $19 million, the board said as it announced an investigation into the company’s practices.

Source: Wells Fargo to Claw Back $41 Million of Chief’s Pay Over Scandal –

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.

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.