Commonsense Corporate Governance Principles 2.0 Launched

Seven CEOs of companies that are members of The Conference Board Governance Center are among 20 who have signed on to the Commonsense Corporate Governance Principles 2.0, which has been endorsed by the Governance Center and the Business Roundtable and will be hosted by the Ira M. Millstein Center for Global Markets and Corporate Ownership at Columbia Law School.

The CEOs of leading public companies, pension funds and investment firms on October 16, 2018 committed to use the Commonsense Principles 2.0 standards to inform the corporate governance practices within their own organizations. The principles are meant to promote a constructive dialogue on good corporate governance to benefit the millions of Americans who work for and invest in America’s public companies, create economic growth, and sustain the health of America’s corporations and markets. They are an updated version of the Commonsense Principles launched in 2016 to build momentum around the corporate governance conversation. (See Gary Larkin’s 2016 post, “It’s Commonsense to Have U.S. Corporate Governance Code”.)

The CEOs of the Governance Center members who are signatories include:

• Randall Stephenson, AT&T
• Larry Fink, BlackRock
• James Quincey, Coca-Cola
• Mary Barra, General Motors
• Jamie Dimon, JPMorgan Chase
• Mary Erdoes, J.P. Morgan Asset Management
• David Taylor, Procter & Gamble

The updated principles incorporate several additions and enhancements, including:

1. Board members should be prepared to serve for a minimum of three years.
2. If board elections are not annual, companies should explain why.
3. Companies and shareholders are encouraged to engage early on important proxy proposals.
4. Companies should allow some form of proxy access.
5. Poison pills and other anti-takeover defenses should be put to a shareholder vote and re-evaluated by the board on a periodic basis.
6. Asset managers should disclose if they rely on proxy advisors to inform their decision making.
7. Asset managers should disclose their conflict of interest policies in their proxy voting and shareholder engagement activities.
8. Portfolio managers should be compensated based on performance over an appropriate term, given the strategy and investment time horizon for the portfolio.
9. Asset owners should promote sound, long-term oriented governance in their direct interactions with both companies and asset managers.
10. Asset owners should use benchmarks and performance reports consistent with their investment time horizon to affect governance outcomes with asset managers and evaluate the asset managers’ performance on both investment returns and governance.

Governance Center Executive Director Douglas Chia said: “We commend and support the persistent leadership of this group to give actionable direction to boards and investors on governing corporations for the long-term benefit of their key stakeholders.”

Millstein Center Executive Director Kristin Bresnahan said: “The Millstein Center is excited to host the Commonsense Principles 2.0. The Commonsense Principles 2.0 represent an important effort to bridge the divide between shareholders on the one hand, and companies and their boards on the other, to promote sound, long-term governance in our public companies.”

We encourage you to review the Commonsense Principles 2.0 and share them with your boards of directors.