I’m a governance nerd. I really believe that corporate governance is important, that it makes a difference, and that there is such a thing as good governance – though I don’t believe that one size fits all.
So it troubles me that in governance, as in life, virtue is usually not its own reward. In fact, no one seems to care about governance unless and until performance deteriorates.
I was reminded of this the other day when reading a story about an investigation by New York Attorney General Schneiderman of governance practices at Cooper Union, a venerated educational institution in New York. It seems that Cooper Union, whose mission is to provide free education, started charging tuition last year because of poor financial condition. (As an aside, Cooper Union’s major asset is the Chrysler Building in New York City - yes, THAT Chrysler Building, which to me and many others is the most beautiful skyscraper ever built.) The story says that the investigation “has signaled that the laissez-faire approach to nonprofit governance is over.” In other words, as long as performance was OK, no one cared about governance. Or so it seems.
Another story made the same point a couple of months ago, albeit in different circumstances, when an institutional shareholder announced that it had submitted a proposal to separate the positions of CEO and board chair at a major company. In the article, the proponent seemed to be saying that the proposal hadn’t been necessary before because the company had been performing well. Now I’m no advocate of CEO/board chair separation, but if you believe that having an independent, non-executive board chair is critical (which the proponent clearly believed), why should it make a difference that the company had been performing well?
And just the other day, an executive told me that while his company doesn’t have Grade A governance, it doesn’t hear anything on the subject from investors because it’s had year after year of improved performance.
So the question is out there: does governance matter? What do you think?
Last week I posted an UpTick about the rollout of ISS’s voting policies for 2015. This week saw what appears to be the completion of that rollout, and we were also blessed with the publication of Glass Lewis’s 2015 voting policies.
On a quick read, neither set of voting policies seems to contain anything shocking, but both sets continue the march towards what the proxy advisors see as shareholder democracy. To paraphrase Jules Feiffer, I sympathize with their aspirations, but in some ways it looks like shareholder tyranny. Both ISS and GL are adamant about two types of by-law amendments: those that make the loser pay in meritless lawsuits and those that arguably impact shareholder rights without getting shareholder approval. ISS also tinkers with shareholder proposals on CEO/board chair separation. GL is also concerned about by-law amendments and continues to rail against companies that don’t satisfactorily implement majority-approved shareholder proposals. GL also continues to focus “material” transactions with directors.
I really do sympathize with at least some of the aspirations of ISS and GL. However, their policies reinforce the notion – with which I’m not at all sympathetic – that shareholders have the right to second-guess each and every decision that the board makes. For example, why does ISS think that shareholders are in a better position than the board to determine the board’s leadership structure? And if the board has no business deciding on its own leadership structure, why give it the power to do anything at all?
We’ll be posting a more detailed analysis of the 2015 voting policies on The Securities Edge within the next few days. For the time being, let us know what you think of them (or of my views).
Britney Spears has nothing on Institutional Shareholder Services, better known as ISS. ISS is rolling out proposed new voting policies for the 2015 proxy season. ISS often uses more words to tout how transparent it is than to explain its voting policies clearly, and the draft policies being considered for 2015 are no different.
One new proposed policy addresses voting on shareholder proposals on independent board chairs. ISS proposes to expand the list of factors that will be considered in developing a voting recommendation and to look at these factors in a more “holistic” manner. (The current policy is to support the proposals unless the company meets all of the criteria.) So this seems like a good thing. However, ISS indicates that the new policy is not expected to change the percentage of independent chair proposals that it will support. The obvious question is, then, how will the new policy really work? Your guess is as good as mine (which frankly isn’t very good).
The other new proposed policy provides additional information regarding the “scorecard” that ISS will use to evaluate equity plans. Like the independent chair policy above, some more criteria are laid out, but it’s impossible to tell how the factors – or, indeed, the new scorecard, will be weighed or will work – thus assuring that companies seeking shareholder approval of equity plans will have to continue to use ISS’s consulting service to find out whether a new plan will pass muster.
I could just as easily have referred to Yogi Berra as to Britney Spears, because if this isn’t déjá vu all over again, I don’t know what is.