The corporate governance principles unveiled July 21 by a group of 13 corporate and investment management leaders offer an insufficient framework to address corporate governance issues.
While their effort is a step forward, giving recognition to the growth in importance of corporate governance and the role it plays in corporate performance, members could have taken a bigger leap by reaching out for more participation from asset owners and proxy-voting advisory firms, and for more diverse viewpoints.
The set of best practices took only two strong positions: endorsing a majority vote to elect directors, presumably in uncontested elections, and rejecting dual-class share voting.
On proxy access, the principles provide no guidance, only reporting the general current status of the issue.
The principles offer nothing about how a board should address non-binding shareholder proposals that receive a majority vote in favor in repeated annual meetings but directors decline to adopt.
The principles have nothing on the role of say-on-pay voting, which has become an important factor in setting executive compensation policies.
Some principles unfairly shift the balance to the corporate side. One provision calls for investment managers to consider sharing their voting intentions with companies to facilitate a “robust dialogue if they believe that doing so is in the best interest of their clients.” Institutional investors already do so when seeking advantage to persuade a company to change. The principles fall short by not calling for institutional investors, especially asset owners and mutual funds, to make their voting intentions known publicly.
The elite group excluded other, large and small, asset owners, investment management firms and proxy-voting advisory firms. It left out smaller companies that are the primary sources of economic growth, but often less shareholder friendly and less approachable by institutional investors because of stretched resources devoted to corporate governance.
The group developed the principles as a catalyst to accelerate discussion on corporate governance. But there is discussion already taking place between individual corporations and institutional shareholders on topics ranging from compensation to board accountability. The group kept its proceedings secret, providing no transparency to its deliberation. It should have created an online forum by inviting a dialog of the corporate governance community in an open forum of postings to contribute to shaping the principles.
The group does not ask other companies and institutional investors to become signatories of the principles.
The group has no next step in its process. It asks only for feedback though an e-mail listed on the principles website.
The group should reach out to leaders of public companies and registered investment advisory firms and asset owners to ask them to embrace the principles and sign off on them and provide feedback. Responses would enable the group to gauge the quality of its guidelines. The principles are a step forward, but more participation is needed to make them robust. n
