The Shareholder Activist http://theshareholderactivist.com The Source for Investor Empowerment Mon, 03 Jul 2017 20:05:46 +0000 en-US hourly 1 https://wordpress.org/?v=4.8.2 Call for Papers – Journal of Corporate Finance http://theshareholderactivist.com/corporate-governance/call-for-papers-journal-of-corporate-finance/ Fri, 04 Apr 2014 14:15:42 +0000 http://theshareholderactivist.com/?p=3481
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Call for Papers – Journal of Corporate FinanceSince the Cadbury Report was published in 1992 in the UK, there has been increasing emphasis not just by UK regulators but also by regulators from other countries, including the USA and Continental Europe, of the role of boards of directors in corporate governance. However, 20 years down the line it is still uncertain whether boards of directors are able to fulfill the important role they have been assigned by regulators.

For example, the academic literature on the impact of board composition, in particular the proportion of outside, non-executive directors, is as yet inconclusive as very few studies have found a link between the two. In addition, the 2007/8 financial crisis as well as subsequent, related events suggest that boards of directors have failed in their role of monitoring the executives and managing risk across the organisation.

For example, when Barclays Bank was fined US$450m as a result of the LIBOR-fixing scandal the non-executive chairman of the board, Marcus Agius, decided to resign, willing to take all the blame while Bob Diamond refused to resign. At the time Agius resigned, some of Barclays’ shareholders were said to have stated that “[Agius] was not tough enough to stand up to the headstrong Mr Diamond”.

This example suggests that all too often relations between various members of the board of directors are too cosy. More generally, the recent events suggests that there is still a lot we do not know about board dynamics as well as other issues relating to the functioning, the effectiveness and efficiency of corporate boards.

Topics include, but are not limited to the following ones:

  • Executive and non-executive directors’ networks, social and family ties. Do they impede board independence or do they generate shareholder value?
  • Gender diversity and its impact on financial performance, risk taking and decision making.
  • Behavioural and cultural issues such as excessive loyalty to the CEO and the effect of religion on risk taking.
  • Conflicts of interests in the board room such as those that may underlie insider trading and the framing of information published by the company.
  • Board room committees: useful or waste of time?
  • CEO and board room succession decisions.
  • The labour market for executive directors and/or non-executive directors. Are directors rewarded (punished) for good (bad) decisions? Do labour markets have a memory of directors’ past track record?
  • Shareholder and bank representation on boards.
  • Director versus shareholder primacy.
  • The role of consultants to the board.
  • Corporate decision making and board supervision.

To contact James McRitchie directly, please email jm@corpgov.net

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Corporate Governance Quick Bites http://theshareholderactivist.com/shareholder-policies-investor-regulations/corporate-governance-quick-bites/ Fri, 28 Mar 2014 14:48:42 +0000 http://theshareholderactivist.com/?p=3472
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Corporate Governance Quick BitesHolly Gregory’s post Applying Securities Laws to Social Media Communications is the best I’ve seen on when the SEC’s Enforcement Division is likely to recommend an enforcement case to the Commission based on the potential for liability arising from disclosures by corporate officers through social media.

As widely reported, including by WSJ, Netflix and CEO Reed Hastings both received Wells Notices from the SEC, related to something Hastings wrote on Facebook back in June 2012. (Netflix Gets Wells Notice Over CEO Hastings’ Facebook Post, 12/6/2012)

To date, the SEC has issued no guidance on whether social media channels can satisfy the disclosure requirements of Reg FD, although its Staff has suggested that companies look to a 2008 SEC interpretive release when considering the FD issues raised by social media. I expect many will find Gregory’s interpretive guidance very helpful. I know I did.

GMIRatings posted Event Alerts for Responsible Investors, which discusses 29 companies whose ESG and accounting risk profiles have been affected by recent events, including a substantial increase in the CEO compensation at Netflix. Anyone concerned with how corporate practices can impact the value of companies in their portfolio should get on the GMI mailing list.

I’m frequently on the other side of Martin Lipton when it comes to poison pills and other defenses, which I believe can lead to entrenched oligarchic boards. However, it is always good to keep up with his thinking and to find threads of agreement. His post, Short-Termism Leads List of 2013 Board Concerns (NACD), is well worth reading.

Corporate Social Irresponsibility: A Challenging Concept (Critical Studies on Corporate Responsibility, Governance and Sustainability) edited by Ralph Tench, William Sun and Brian Jones was released in December.

For decades corporate social responsibility has been a heated topic in media reports, public forums, academic debates, governmental policies and business practices. But the overall effects of CSR are poor or failed in practice. Many people have noted that the conceptualization of CSR is problematic, as the concept is undefinable, confusing, non-operational and ineffective. Addressing the conceptual and operational limitations of CSR, this volume proposes that the concept of Corporate Social Irresponsibility (CSI) offers a better theoretical platform to avoid the vagueness, ambiguity, arbitrariness and mysticism of CSR. CSI deserves to be a serious subject of inquiry and demands more scholarly attention. Systematic research on CSI is much needed and urgent, given the recent financial and ecological crises.

With contributions by leading scholars in the UK, USA, Canada, Australia, Norway and Nigeria, this volume sets up an initial theoretical framework for the subject of CSI rooted in theory and practice seeking to understand how the boundaries of CSR and CSI have been constructed in society. This is the 4th volume in the series Critical Studies on Corporate Responsibility, Governance and Sustainability (CSCRGS). I participate as a member of the Editorial Advisory and Review Board for the series.

 recent post, Corporate Governance Roundup, takes readers on a world tour,

From the recently published corporate governance “Action Plan” in the EU and arguments for a hybrid system to improve corporate governance in Japan to the search for a way to align executive pay and shareowners’ interests in the U.S., it’s time to span the corporate governance globe to review important developments from the month of December.

Like the Quick Bites post you are reading now, Matt packs a lot in a few paragraphs.

The SEC declined to grant no-action relief to allow Disney to exclude a proxy access proposal submitted by Legal and General Assurance (Pensions Management), in conjunction with its client, Hermes Equity Ownership. It was a garden variety proposal with thresholds of 3% held for 3 years for up to 20% of director positions.

Disney sought to exclude the proposal under Rule 14a-8(i)(3), arguing the proposal’s requirement that nominating parties provide Disney with information required by the SEC about the nominating party and board nominee was vague and misleading. Disney also argued the proposal was subject to multiple interpretations and its references to “any federal regulations” was vague and misleading. See the December 13, 2012 letter & file.

As reported by theRacetotheBottom,

Rule 10b5-1 trading plans have come under fire recently after the Wall Street Journal published an article noting how much “good luck” corporate insiders have had in terms of generating profits by trading under these plans. Now, the Council of Institutional Investors has sent a letter to the SEC recommending the following changes to the rule (HT: Financial Fraud Law Blog):

  • Companies and company insiders should only be permitted to adopt Rule 10b5-1 trading plans when they are permitted to buy or sell securities during company-adopted trading windows, which typically open after the announcement of the financial results from a recently completed fiscal quarter and close prior to the close of the next fiscal quarter;
  • Companies and company insiders should be prohibited from adopting multiple, overlapping Rule 10b5-1 plans;
  • Rule 10b5-1 plans should be subject to a mandatory delay, preferably of three months or more, between the adoption of a Rule 10b5-1 plan and the execution of the first trade pursuant to such a plan; and
  • Companies and company insiders should not be allowed to make frequent modifications or cancellations of Rule 10b5-1 plans.

I’ve added a couple more entries to our page of corporate governance definitions. Jackie Cook has settled in India and is now updating our page of upcoming AGM dates.

To contact James McRitchie directly, please email jm@corpgov.net

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International Review Focuses on Executive Compensation http://theshareholderactivist.com/shareholder-policies-investor-regulations/international-review-focuses-on-executive-compensation/ Fri, 21 Mar 2014 15:24:44 +0000 http://theshareholderactivist.com/?p=3466
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International Review Focuses on Executive CompensationI received my copy of the November edition of Corporate Governance: An International Review a couple of weeks ago (yes, they usually run late). It is a special issue on executive compensation with the usual diversity of well-researched articles from around the globe. I notice that most, if not all, of the articles are available online for free, so if you don’t subscribe to the best journal on international corporate governance research, this is your opportunity to see a little of what you are missing… although each issue is substantially different.

I suspect the contents are being made available in conjunction with their 20th anniversary.  That’s three years longer than my own site on corporate governance. While my site represents the unedited ramblings of one shareowner concerned with the fundamental rules and fairness of capitalism and democracy, the International Review has always contained the best peer-reviewed research available. Founding editor Bob Tricker did a fantastic job of pulling it altogether, as did subsequent editor Christine Mallin. William Judge continues in that distinguished tradition.

One of the briefer articles in the edition is a review by Nell Minow of Antonio Tencati and Francesco Perrini’s Business Ethics and Corporate Sustainability (Studies in Transatlantic Business Ethics), Edward Elgar, Cheltenham, 2011 , 264 pp, ISBN 1849803714, which I also reviewed here. (As a brief aside, Edward Elgar has become the publisher for studies on international corporate governance.) I thought it worth clipping a few bits of Minow’s review.

 “Sustainability” is another term for what we often call “the long term” and I would suggest it is a better one. “Long term” can be a conveniently dismissive way to “kick the can down the road” or, to use a popular Wall Street acronym, IBGYBG (“I’ll be gone; you’ll be gone”). But the word “sustainability” requires us to evaluate each decision today in terms of what it will mean 10 and 20 years from now…

The problem is allowing for the maximum independence, nimbleness, and flexibility in directing private enterprise to promote innovation and market responsiveness while minimizing the problems of agency costs and collective choice. Reducing operating costs by neglecting the environment or by poor treatment of employees can ultimately be expensive. Trust is any company’s most important asset and reputational risk is a financial risk.

“For better or worse, the concept of CSR is not one that describes an objective reality,” write Josep M. Lozano and Daniel Arenas in “Is Multitasker Dialogue Really Possible? Mutual Resistance and Bias in Relationships between Unions and NGOs.” On the contrary: It is the skewed reality of generally accepted accounting principles (GAAP) and other accounting standards that allow us to be in denial by obscuring agency costs and externalities. Just as the financial meltdown bailout money allowed Wall Street to privatize profits and socialize losses, the failure to attribute to corporations the costs of short-term behavior imposes the externalized expenses on taxpayers. The first step is to change our vocabulary. “Corporate social responsibility” is by definition outside and sometimes contrary to financial returns. But “sustainability” and “risk management” more properly describe the goals by which we should measure corporations to ensure that they provide the most stable long-term benefits for investors, employees, customers, suppliers, and communities.

Here’s a few more tidbits from the Review:

CGIR Decade Award: To commemorate CGIR’s 20th anniversary, our Editorial Board voted for one CGIR paper which has had the greatest influence on the corporate governance field. The winning article was: Why Adopt Codes of Good Governance? A Comparison of Institutional and Efficiency Perspectives by Alessandro Zattoni and Francesca Cuomo. Read all the shortlisted articles here.

In a new CGIR paper, Alessandro Zattoni and Hans Van Ees offer guidance on how to get published in the journal, and explain how you can contribute to the delelopment of corporate governance theory. Read the article here. Publishing in the International Review would certainly give authors several important points toward academic career advancement.

To contact James McRitchie directly, please email jm@corpgov.net

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Campaign for Trust Kicks Off Campaign http://theshareholderactivist.com/shareholder-activism-contributors/campaign-for-trust-kicks-off-campaign/ Fri, 14 Mar 2014 15:37:47 +0000 http://theshareholderactivist.com/?p=3456
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Campaign for Trust Kicks Off CampaignAfter a well-documented 10+ years of declining trust in government, business and the media, Trust Across America (TAA) and its ambassadors are launching the Campaign for Trust™, a two-year initiative to reverse this cycle. Said Barbara Brooks Kimmel, a Co-founder and the Executive Director:

As the leaders in information, standards, data and the Who’s Who of trustworthy business, this is the next step in our initiative that began in 2009. The evidence is irrefutable. Cultures of trust, created by leaders who are credible, respectful and fair bring with them significant economic, social, community and environmental benefits. It is what every employee wants and what every business leader should strive for.

In the fourth quarter of 2012 TAA created The Alliance of Trustworthy Business Experts (ATBE) to collaborate in advancing the cause of trustworthy business through the creation of trust tools and communications outreach. Over 100 global thought leaders from Fortune 500 companies; leading academic institutions; global media and consulting have joined since the mid-October launch.

Much of the work of the alliance will be via strategic partnerships with our Founding Members listed alphabetically: Patricia Aburdene (Co-author of Megatrends 2000: Ten New Directions for the 1990′s); William Benner (WW Consulting); Randy Conley (The Ken Blanchard Companies); Stephen M.R. Covey (Franklin Covey-Speed of Trust); Linda Fisher Thornton (Leading in Context); Bahar Gidwani (CSRHub); Charles Green (Trusted Advisor Associates); Nadine Hack (beCause Global Consulting); Michael Hopkins (MHC International); Gary Judd (Franklin Covey-Speed of Trust); Barbara Kimmel (Trust Across America); Jim Kouzes (The Leadership Challenge); Deb Krizmanich (Powernoodle); Mike Krzus (Co-author of One Report: Integrated Reporting for a Sustainable Strategy); Greg Link (Franklin Covey-Speed of Trust); Linda Locke (Reputare Consulting); Edward Marshall (AuthorBuilding Trust at the Speed of Change: The Power of the Relationship-Based Corporation); Jon Mertz (Thin Difference); Deb Mills-Scofield (Innovanomics™); Dennis & Michelle Reina (Reina Trust Building Institute); Frank Sonnenberg (Author Managing with a Conscience: How to Improve Performance Through Integrity, Trust, and Commitment (2nd edition)); John Spence (Author Awesomely Simple: Essential Business Strategies for Turning Ideas Into Action); Robert Vanourek (Triple Crown Leadership); and Bob Whipple (Leadergrow Inc.).

According to Kimmel,

We will be assembling a Trust Toolbox™ in 2013 to assist businesses in building trust with their stakeholders. Collaborative projects in development include the publication of a book- Trust Inc.: Strategies for Building Your Company’s Most Valuable Asset, a collection of short essays from our global thought leaders; the Trust Directory™ designed for companies who seek advice and counsel; the creation of trust assessments; the development of a Trust Index™; educational Trust Talks™; a monthly publication called the Trust Sheet ™, announcing trust alliance member news from around the world; and the opening of our online Trust Store™, a virtual one-stop shop for trust products.

Kicking off the campaign will be the January 14 announcement of Trust Across America’s 3rd annual Top Thought Leaders in Trustworthy Business. Our 2013 recognition list will honor the late Dr. Stephen R. Covey, whose professional accomplishments in the field of trust were instrumental to the founding of the Trust Across America initiative four years ago.

According to Amy Lyman co-founder of Great Place to Work Institute and author of The Trustworthy Leader: Leveraging the Power of Trust to Transform Your Organization,

The evidence is irrefutable. Cultures of trust, created by leaders who are credible, respectful and fair bring with them significant economic, social, community and environmental benefits. It is what every employee wants and what every business leader should strive for.

Trust Across America, through its new trust alliance, hopes to develop the requisite tools to enhance cultures of trust, and encourages those interested in furthering the cause of trustworthy business to join the alliance. Check out their blog. Support their efforts to identify and get adopted the core values of trust.

To contact James McRitchie directly, please email jm@corpgov.net

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Video Friday: Shareholder Wealth – From Predictable Returns to Casino http://theshareholderactivist.com/corporate-governance/video-friday-shareholder-wealth-from-predictable-returns-to-casino/ Fri, 07 Mar 2014 14:07:28 +0000 http://theshareholderactivist.com/?p=3450
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Reuters’ blogger Felix Salmon shares a surprising list of which companies over the last 90 years have generated the most wealth for shareholders, and which ones have destroyed it.

Will we get to a market that generates sustainable wealth? What role will corporate governance play in moving from an economy built around extraction of wealth from the natural environment to working in harmony with nature?

To contact James McRitchie directly, please email jm@corpgov.net

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Does the Gender of Directors Matter? http://theshareholderactivist.com/corporate-governance/does-the-gender-of-directors-matter/ Fri, 28 Feb 2014 14:44:07 +0000 http://theshareholderactivist.com/?p=3445
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Does the Gender of Directors Matter?Abstract: How does gender-balance affect the working of boards of directors? I examine boards that have been required for two decades to be relatively gender-balanced: boards of business companies in which the Israeli government holds a substantial equity interest. I construct a novel database based on the detailed minutes of 402 board- and board-committee meetings of eleven such companies. I find that boards that had critical masses of at least three directors of each gender in attendance, and particularly of three women, were approximately twice as likely both to request further information and to take an initiative, compared to boards that did not have such critical masses. A 2SLS model confirms these results.

Consistent with these findings, the ROE and net profit margin of these type of companies is significantly larger in companies that have at least three women directors. In addition, boards that included a critical mass of women directors were more likely to experience CEO turnover when firm performance was weak. At the level of the individual directors, both men and women directors were more active when at least three women directors were in attendance.

Miriam Schwartz-Ziv, Does the Gender of Directors Matter? (December 5, 2012). Available at SSRN

Q: What is the main finding of your paper “Does the Gender of Directors Matter?”

A: I find that the gender of directors does matter. Specifically, I find that boards that are relatively gender balanced, which I define as boards that have at least three directors of each gender, are approximately twice as active compared to non-gender-balanced boards. For example, compared to non-gender-balanced boards, the gender-balanced boards are approximately twice as likely to request further information or an update from the CEO when discussing a particular issue. Furthermore, the gender-balanced boards were also those that exhibited better financial performance.

Q: What makes your study any different than the dozens of studies that have already examined the association between the gender composition of boards and financial performance?

A: I think two features of this study are quite unique. First, I examine detailed minutes which are quasi transcripts. These minutes allow me to observe the actual actions boards take at their meetings. Accordingly, I am not confined to assessing when and which actions boards take using only observable outcomes such as financial performance. Because I have the minutes for a period of one year for each firm, I can observe how the gender composition in attendance (which varies somewhat from meeting to meeting) for a given company, impacts upon the frequency a board takes action.

The second unique feature is that I examine relatively gender-balanced boards: They comprise of roughly 37% women.  This diversity is different from most boards around the world which on average usually include only 5%-16% women directors. The latter boards may offer an ill-suited setting for generating an understanding concerning the effects of gender diversity, if board were gender balanced.

Summary: I find that boards with a dual-critical mass, defined as boards that have at least three directors of each gender in attendance, are more active than boards that do not have such a dual critical mass. These results are particularly driven by the existence of a critical mass of women directors. I find that boards with a dual-critical mass are approximately twice as likely to take an action in board meetings – both to request further information and to take an initiative. These findings are also documented for periods in which boards are particularly crucial – when companies are between CEOs. These findings suggest that critical masses of each gender are required to allow boards to benefit from the potential benefits gender diversity may offer. Also above the surface similar patterns are documented: the ROE and the net profit margin of GBCs are found to be significantly larger in firms whose boards include a critical mass of at least three women directors – thereby becoming gender balanced boards. Taken together with the findings documenting a causal positive relation between gender balanced boards and the frequency they take actions, the findings pertaining to financial performance imply that the positive impact of a critical mass of women directors trickles up to the financial performance of the firm.

On the level of the individual directors, the study documents that both men and women directors are more active when a critical mass of three women directors is in attendance. In addition, women directors were found to be more likely than men directors to take actions on supervisory issues, and they were more likely to be active when companies were between CEOs. Last, having more women in board-committees was found to increase the extent of communication. These findings imply that each gender of directors has, to a certain extent, different skills and interests.

On the academic level, this study demonstrate that gaining access to the “black box”, allows a more direct and delicate examination of the work of boards – in this case, of the impact of gender upon it. On the practical level, these findings suggest that, in a steady state, gender-balanced boards seem to have an advantage.

Publisher’s Comment: I’m delighted to see this study based on actual observation. We need more researchers inside the “black box” of boardrooms. For an excellent roundup of recent research, see Women on Corporate Boards: A Global Update by .

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Video Friday: EU on Gender Balance in Boardroom & Apple Shuffle http://theshareholderactivist.com/corporate-governance/video-friday-eu-on-gender-balance-in-boardroom-apple-shuffle/ Fri, 21 Feb 2014 14:40:46 +0000 http://theshareholderactivist.com/?p=3438
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EU on Gender Balance in Boardroom & Apple ShuffleWatch the Bloomberg Businessweek discussion and get an update on the EU debate on female representation in boardrooms. Interview of experts also includes insights on women added value in boardrooms.

As Apple announces the biggest executive changes in a decade, board director and Reuters columnist Lucy Marcus discusses the motives behind quick corporate reshuffles.

To contact James McRitchie directly, please email jm@corpgov.net

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Corporate Governance Guide for Journalists http://theshareholderactivist.com/corporate-governance/corporate-governance-guide-for-journalists/ Fri, 14 Feb 2014 14:27:26 +0000 http://theshareholderactivist.com/?p=3432
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Corporate Governance Guide for JournalistsThe International Finance Corporation (IFC), a member of the World Bank Group, in conjunction with the International Center for Journalists, has produced  A Guide to Reporting on Corporate Governance designed for reporters and editors with experience covering business and finance. The goal is to help journalists develop stories that examine how companies are governed, and spot events that may have serious consequences for the company’s survival, shareholders and stakeholders.

Topics include the media’s role as a watchdog, how the board of directors functions, what constitutes good practice, what financial reports reveal, what role shareholders play and how to track down and use information shedding light on a company’s inner workings.

Journalists learn how to recognize “red flags,” or warning signs, that indicate whether a company may be violating laws and rules. Tips on reporting and writing guide reporters in developing clear, balanced, fair and convincing stories. Three recurring features in the Guide help reporters apply “lessons learned” to their own “beats,” or coverage areas:

  • Reporter’s Notebook: Advice from successful business journalists
  • Story Toolbox: How and where to find story ideas
  • What Do You Know? Applying the guide’s lessons

Each chapter of Who’s Running the Company: A Guide to Reporting on Corporate Governance, (pdf >75 pages) helps journalists acquire the knowledge and skills needed to recognize potential stories in the companies they cover, dig out the essential facts, interpret their findings and write clear, compelling stories:

Each chapter ends with a section on Sources, which lists background resources pertinent to that chapter’s topics. At the end of the Guide, a Selected Resources section provides useful websites and recommended reading on corporate governance. The Glossary defines terminology used in covering companies and corporate governance topics.  I have included an additional link to the Guide on our Education page for future reference so that we can all easily find it in future.

To contact James McRitchie directly, please email jm@corpgov.net

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Corporate Governance Indices Coming Soon http://theshareholderactivist.com/corporate-governance/corporate-governance-indices-coming-soon/ Fri, 07 Feb 2014 14:03:40 +0000 http://theshareholderactivist.com/?p=3423
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Corporate Governance Indices Coming SoonGMI Ratings signed a licensing agreement with Global Index Group to develop corporate governance indices. The new set of indices will incorporate non-traditional risk metrics developed by GMI Ratings.

Mr. James Kaplan, Chief Executive of GMI Ratings, stated:

Following the merger of the three leading governance firms that pioneered non-traditional measurements of investment value and risk, the logical next step was to apply the Accounting and Governance Risk (AGR®) rating to the creation of an index that reflects the impact of corporate governance practices.

The AGR rating reflects accounting and governance practices statistically associated with SEC enforcement actions, litigation, and other events likely to cause precipitous contractions of equity value.  Therefore, GIGHGI is a logical investment vehicle for asset owners and managers who want to reduce exposure to these risks.

Kelly Haughton, Chief Executive Officer of the Global Index Group and, formerly, the creator of the Russell index family, said:

This agreement gives us what we feel is the best data for corporate governance with which to build an index that will allow institutional funds and others to incorporate this important risk factor into portfolio strategies.  For fiduciaries truly concerned about avoiding the next Enron or Lehman, using the index to integrate governance insights more fully into the investment process is an essential step.

GMI and GIG expect to have the index available for licensing within the next 60 days and are already in discussion with one investment management organization interested in licensing the new index to run an index fund.

This is a very important development that could do more to further improvement of corporate governance than most others. If investors can earn higher returns, more companies will feel pressured to initiate reforms in order to obtain capital at lower cost.

To contact James McRitchie directly, please email jm@corpgov.net

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A New Strategy to Fight Citizens United http://theshareholderactivist.com/shareholder-activism-spotlight/a-new-strategy-to-fight-citizens-united/ Fri, 31 Jan 2014 14:37:21 +0000 http://theshareholderactivist.com/?p=3418
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The Shareholder ActivistGuest post from . Author, ‘The Myth of Choice’; law professor at Boston College. This article is adapted from a more substantial essay in the Fall 2012 issue of Democracy: A Journal of Ideas and appeared previously on Huffington Post, 9/15/2012.

We progressives have been in quite a tizzy about Citizens United, especially since the 2012 election cycle was swamped with Super PAC money. Citizens United, you’ll remember, is the 2010 Supreme Court case saying that corporations have the same rights to engage in political speech as you and I do. In response, a number of progressives have proposed constitutional amendments to do away with corporate “personhood.”

Let me offer a different way to attack the case.

The reason why corporate political speech is so corrosive to democracy is that the benefits and prerogatives of the corporate form are marshaled to bolster the speech of a tiny sliver of the financial and managerial elite. The fact that corporations speak is not itself a problem; whom they speak for is.

Instead of amending the constitution to weaken corporate “personhood,” we should focus on changing corporations themselves so that overturning Citizens United would be unnecessary. We should use this historical moment to nudge corporations closer to what the Supreme Court assumed they are in its Citizens United decision — “associations of citizens.” While the constitutional effort is defensive and palliative, a campaign to redesign the corporation itself would be affirmative and transformative. To cure Citizens United, we don’t have to amend the Constitution — we need to rethink corporations.

Here in the United States, the law of corporate governance is among the most conservative and least democratic in the developed world. For example, U.S. employees have no role in corporate decision-making, and U.S. managers are not required even to gather information on the potential impact of their strategic decisions on communities, employees, the environment, or the public interest, except to the extent those impacts might affect shareholder value.

Compare this to the European model of corporate governance, which requires much more robust social obligation on the part of corporations, embodied not only in cultural norms but also in law. The duty to disclose information and consult with employees is much more robust, and many large European companies include labor representatives on their boards. Germany, for instance, requires that half the senior board of large companies be elected by employees rather than shareholders. And at least another 15 European countries have some kind of provision requiring “co-determination,” worker representation on boards of companies headquartered in their national territory.

These efforts have positive effects in terms of economic fairness – German CEOs, for example, make less than their American counterparts – but they are also seen as an important component of economic success. Germany is now the economic powerhouse of Europe. The CEO of the German company Siemens argues that co-determination is a “comparative advantage” for Germany; the senior managing director of the U.S. investment firm Blackstone Group has said he believed board-level employee representation was one of the factors that allowed Germany to avoid the worst of the financial crisis. (References can be found here.)

My argument is simply that progressives should consider a new kind of regulatory effort — building a public-interest element into corporate governance itself, creating the possibility that businesses become a more positive social force on their own.

What specific reforms are needed? First, the law of corporate governance should expand the fiduciary duties of management to include an obligation to consider the interests of all stakeholders in the firm, not just shareholders.

Second, company boards should be expanded to allow for the election of board members who embody or can credibly speak for the interests of stakeholders. Employee representatives would be fairly straightforward to elect — we could simply issue each employee one share of a special class of stock and have a number of board seats elected by that class. Community leaders in the localities where the company has a major presence could nominate a director; long-term business partners and creditors could be represented as well. We could even require companies to include a “public interest director,” whose special obligation would be to vet company decisions from the standpoint of the public.

Concern for stakeholders is becoming a mainstream idea. A recent article in the Harvard Business Review argued,

There’s a growing body of evidence…that the companies that are most successful at maximizing shareholder value over time are those that aim toward goals other than maximizing shareholder value. Employees and customers often know more about and have more of a long-term commitment to a company than shareholders do.

Requiring corporations to take into account the interests of a broader range of stakeholders in corporate decision-making will improve the quality of the decisions themselves. Group decision-makers that are homogeneous in perspective, experience, and values fall easily into groupthink — and there are few group decision-makers more homogeneous and whose mistakes are more costly than corporate boards.

More diverse boards will also have a longer time horizon, which will improve the substance of their decisions. That “short-termism” is a problem is one of the few notes of agreement among business commentators and academics. The problem is caused by the increasingly short time horizon of shareholders, who now hold their stocks, on average, for only about six months; as much as 70 percent of the daily volume is high-frequency trading where investors hold stocks for seconds. Management adhering to the interests of those shareholders thus ends up prioritizing short-term gains even if the result is long-term difficulties.

But the most important reason to make companies more pluralistic is to make corporations more reflective of democratic norms and principles.

As the governance of corporations begins to take account of the interests of their stakeholders, the public voice of corporations would reflect the voices of those myriad stakeholders. Corporate involvement in the political process would be less of a concern, because it would be more reflective of the range of stakeholders contributing to company success. It would be less “them” and more “us.” There is nothing inherently undemocratic in corporate speech, unless corporations themselves are undemocratic.

See also A Brief Comment on Greenfield’s Stakeholder Strategy by Stefan Padfield: ”…granting stakeholders a right of action to enforce the obligation helps negate a typical criticism of more traditional stakeholder statutes, which is that they primarily serve as a further defense for directors against shareholder suit but impose no offsetting accountability… requiring boards to disclose the substance of their deliberations as to each covered stakeholder could produce an independent benefit…”

To contact James McRitchie directly, please email jm@corpgov.net

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