- A 12-Step Program to Truly Good Corporate Governance, Latham & Watkins, Corporate Governance Commentary, May 2011. Summary: With apologies to the addiction recovery plan by the same name, this commentary lays out 12 specific steps boards should take to strive for good corporate governance. It states: “Good corporate governance is an admirable, but elusive, goal. Everyone is in favor of it, but there is far from universal agreement about what it is and how to get there.” Some of the steps focus on enhancing value creation for shareholders, affirming the board’s primary role as a strategic adviser, limiting the board’s size to enhance its effectiveness, and selecting board nominees based on their key competencies. The final step Latham & Watkins stresses is to “recognize that investors voting with their feet is a far more efficient discipline for corporate managers than corporate governance theories, which are unproven as generators of economic value.” It concludes that Truly good corporate governance is about the complex of relationships of the people who lead the enterprise and the systems and policies that influence their behavior. What it does not resemble is a set of rigid rules derived from inept analogies to political models or to different types of legal relationships, such as the laws of tangible and intangible property or agency.
- Bridging Board Gaps, Report of the Study Group on Corporate Boards, April 2011. Summary: Sponsored by the Columbia Business School and the Alfred Lerner College of Business and Economics at the University of Delaware and funded by The Rockefeller Foundation, this report is the result of a study group co-chaired by Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, and Glenn Hubbard, dean of the Columbia Business School, that convened over the past year to look at the gaps between governance ideals and governance realities that were exposed during the recent financial crisis. One of the reasons for the study is the passage of the Dodd-Frank Act last year, where federal agencies have to conduct 81 studies, submit 93 reports and pass more than 500 rules. The introduction to the report states “… boards need a renewed focus on their aspirational purpose and guidance for achieving it. They need to recognize the gaps between governance ideals and governance realities – recognizing which gaps can be closed and which may continue, given the process and structure fundamental to our market’s operation.” The report asks probing questions centered around such areas as purpose, culture, leadership, information flow, advice, debate, and self-renewal (regarding board membership change based on environment and strategy change).
- California State Teachers’ Retirement System Corporate Governance Principles, CalSTRS, April 22. Summary: Updated for the first time since September 2009, these principles were reorganized this year. The principles focus on such areas as the roles and responsibilities of the board, the audit committee and external auditor, executive compensation, director compensation, and governance structure (including anti-takeover measures, voting structure, shareholder rights, sustainability). The key message in the report is: “By presenting the CalSTRS Corporate Governance Principles, CalSTRS hopes to advance best practices in corporate governance. As the ultimate long-term shareholder it is important that our investments are sustainable for generations to come and we want to encourage corporate companies, investors, and stakeholders to have a continued dialogue on principles like these and others.”
- 2011 Corporate Governance Report, State Board Administration of Florida, March 2011. Summary: This annual report from one of the largest institutional shareholders (the SBA voted on 3,566 proxies in the fiscal year 2010 ending June 30) breaks down SBA of Florida’s proxy votes for 2010. It gives voting statistics on all issues as well as its reasons for bringing forth certain shareholder resolutions and why it voted the way it did on other shareholder resolutions. The SBA publicly advocated for proxy access, which was included in the Dodd-Frank Act and challenged in court by the U.S. Chamber of Commerce and Business Roundtable, majority voting, repealing classified boards, installing independent board chairs and eliminating the supermajority vote for certain measures. It also explained and defended its use of proxy advisory firms to assist in making voting decisions. “As a client, the SBA routinely critiques the proxy recommendations, research models, analytical framework, and governance policies of each of our external proxy advisory firms. Such client feedback is vital to maintaining relevant and accurate proxy recommendations.”
With proxy season in full gear, a myriad of corporate governance issues once again is front and center at many annual meetings. Whether it’s board structure, diversity, corporate social responsibility, executive compensation or shareholder dialogue, these issues are either included in shareholder resolutions or have become disclosures in the proxy statement.
What better way to truly enjoy the proxy season than with some light reading on those issues and what it all means for boards and everyone else in the corporate governance space. In the past couple of weeks, I have been reading some meaningful commentaries and corporate governance reports about the 2011 season. One is a commentary from a well-known New York law firm on how to achieve “truly good corporate governance.” Another is a report from a blue ribbon panel on the future of corporate boards. And two others are the annual corporate governance reports from two important institutional investors.
Although it’s a bit early for summer reading, I thought it’s never too early for important corporate governance reading especially in the middle of proxy season. Here are the four aforementioned publications that I believe are worth reading …