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New York Surrogate Gideon Tucker (1826-1899) is credited with originating the maxim that “no man's life, liberty or property are safe while the legislature is in session." Were Surrogate Tucker around today, he might have added boards of directors to those who should be wary of legislative action.
There are numerous weird bills rumbling around the hallowed halls of Washington these days, but one of the bills that is making me unhappy is the Cybersecurity Disclosure Act of 2017. The good news is that the bill is very short.
The bad news is threefold. Continue Reading
Congratulations to our esteemed colleague, Bob Lamm, for winning this prestigious award! While we all know that Bob is the guru in the governance space, it’s great that he was recognized for all of his achievements (to date!). Well deserved! WEST PALM BEACH, Fla. (Nov. 29, 2016) – Gunster, one of Florida’s oldest and largest… Continue Reading
It remains to be seen whether the new administration will actually drain the swamp or do away with political correctness, but one hope that some of us have – regardless of our views on the election – is that the SEC may finally get around to some issues that have been on the back burner for years.
One such issue is a long-overdue overhaul of the rules surrounding shareholder proposals, including the submission and resubmission thresholds for proposals under SEC Rule 14a-8. Many organizations, including the Society for Corporate Governance, have repeatedly urged the SEC to update these rules, which have been in place for many years. However, the SEC has been reluctant to plunge into the area due to the likely political firestorm that would result.
Now, another organization has jumped in. At the end of October, the Business Roundtable published “Modernizing the Shareholder Proposal Process”, a rational and well thought-out series of suggestions for bringing shareholder proposals into the 21st Century.
In the wake of the election of Donald Trump as the next President, there has been a lot of speculation about the effect of a Trump administration on securities law and corporate governance. Looking into a crystal ball is always risky, but here are some observations.
Conflict Minerals: It’s too soon to tell whether Dodd-Frank will be repealed in its entirety, if it will die the death of 1,000 cuts, or if it will stay pretty much as is. What I will say is that few will cry if the conflict minerals provisions are eliminated (and I will not be among those few). Complying with the conflict minerals rules is time-consuming (and therefore costly), and it’s questionable whether many people care. Perhaps of equal or greater importance is that there is some evidence that the conflict minerals requirements are actually hurting the people they were supposed to help.
Pay Ratio: More of the same here. There is some support for pay ratio disclosure among labor pension funds, but that's about it. Companies don’t like it (duh…), and mainstream investors have no use for it. Given how the Democrats seem to have fared in the industrial states, it’s not clear that they would fall on their collective sword to save this one. Continue Reading
The morning after a surprising election outcome seems as good a time as any to bear in mind the old saw that the more things change the more they stay the same.
And so it goes with corporate governance trends. Lost in the piles of paper and ink (real and virtual) expended on the Wells Fargo scandal is an article that appeared in The Wall Street Journal a few weeks ago suggesting that the beleaguered bank will benefit from its post-oops decision to separate the positions of CEO and Chairman of the Board.
I’ve studied this issue for several years, and I can state with confidence that there is no proof that separating the positions or having an independent Board Chair does anything to improve performance or to avoid problems. The most that can be said is that the studies are inconclusive.
We are pleased to provide a posting from our colleague, Holly L. Griffin, an attorney in Gunster’s Labor and Employment practice group. Within the course of one week, the SEC took administrative action against two companies for language contained within severance agreements which restricted employee rights to obtain a monetary award for reports of potential… Continue Reading
This posting is a reprint of an article, co-authored by Bob Lamm and David Scileppi, that appeared in the Daily Business Review on July 15, 2016. Recent months have been difficult for the initial public offering market. In fact, year-to-date, IPOs are down nearly 60 percent compared to last year. One of the bright… Continue Reading
The United Kingdom has a new Prime Minister. Her name is Theresa May, and she’s a member of the
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Conservative Party. Remember that, because what you are about to read will probably lead you to think otherwise.
In a speech made a couple of days before Ms. May became Prime Minister, she said that she would pursue the following actions if she were to become Prime Minister: Continue Reading
In a June 27 speech to the International Corporate Governance Network, SEC Chair Mary Jo White engaged in a bit of full disclosure herself:
“I can report today that the staff is preparing a recommendation to the Commission to propose amending the rule to require companies to include in their proxy statements more meaningful board diversity disclosures on their board members and nominees where that information is voluntarily self-reported by directors.”
As noted in her remarks, the SEC adopted the current disclosure requirements on board diversity in 2009. However, the requirements were added to other board-related disclosure requirements at the last minute, when it was reported that Commissioner Aguilar refused to support the other requirements unless diversity disclosure was also mandated. As a result, the diversity requirements were never subjected to public comment, did not define “diversity,” and seemed to require disclosure only if the company had a diversity “policy”. When companies failed to provide the disclosure because they had no policy, the SEC clarified that if diversity was a factor in director selection then, in fact, the company would be deemed to have a policy, thus requiring disclosure.
Two news items from the front lines:
First, you may recall my mentioning that the Council of Institutional Investors was considering adopting a new policy that would limit newly public companies' ability to include "shareholder-unfriendly" provisions in their organizational documents (see "Caveat Issuer", posted on February 13). I just came back from Washington, DC, where I attended the Council's Spring Meeting, and the new policy appears to have been adopted as proposed. While the text of the new policy was not made available at the meeting, and has yet to be posted on the Council's website, it appears to provide that while some of these provisions can be in place when a company goes public, others -- such as plurality voting for directors in uncontested elections -- should be absent from the get-go.
By the way, my hotel room had a lovely view of the Jefferson Memorial, and the cherry blossoms were about to pop.
In other news, the SEC has announced, by way of a Sunshine Act Notice, that at an open meeting to be held on March 30 it “will consider whether to issue a concept release seeking comment on modernizing certain business and financial disclosure requirements in Regulation S-K”. Looks like the disclosure effectiveness program may be moving forward. Watch this space for details.
Despite the wave of corporate governance reform that began after the enactment of Sarbanes-Oxley in 2002 – and that continues pretty much unabated today – companies going public have gotten a pass. Whether the process of going public takes the form of a spin-off or a conventional IPO, newly public companies have been able to emerge into the world with a full (or nearly full) arsenal of defensive weapons that can help them stave off an unwanted acquisition.
The rationale for this leniency is that newly public companies are like tadpoles that need to be given time to turn into frogs (or princes) before they are gobbled up.
That seems to be changing.
Governance wonks can rest easy. In fact, we can all go home and think about another career. The reason? CalSTRS – California State Teachers’ Retirement System – has issued a “fact sheet” entitled “Best Practices in Board Composition”.
It’s interesting that CalSTRS calls it a fact sheet, since much if not most (if not all) of what it says is opinion, belief or aspiration rather than fact. However, I suppose calling it an “opinion sheet” or an “aspiration sheet” would have resulted in fewer hits.
The document lists five “best practices” (though the fifth has four sub-items; perhaps that means there are nine best practices?). No indication is given as to whether the practices are listed in order of their best-ness. However, it’s notable that the first practice is “independent leadership” – in other words, having “an independent chair that is separate from the Chief Executive Officer”. I’ve done lots and lots of research on this point, and the most that can be said is that there is no conclusive evidence of any connection between an independent board chair and performance. Again – that’s the most that can be said. (If you don’t believe me, take a look at this Yale study.)
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?