21 Jul 2016

Proxy Update – Commonsense Principles of Corporate Governance

MorrowSodali

On Thursday July 21, 2016 a group composed of 13 executives released a letter and subsequent guidelines detailing their views on “commonsense” corporate governance principles in an attempt to improve how American companies are run.  The group, listed below, includes CEOs of public companies, a number of major asset managers, an activist investor and a public pension fund:

 

Tim Armour – Capital Group Mark Machin – CPP Investment Board
Mary Barra – General Motors Company Lowell McAdam – Verizon
Warren Buffett – Berkshire Hathaway, Inc. Bill McNabb – Vanguard
Jamie Dimon – JPMorgan Chase Ronald O’Hanley – State Street Global Advisors
Mary Erdoes – JPMorgan Asset Management Brian Rogers – T. Rowe Price
Larry Fink – BlackRock Jeff Ubben – Valueact Capital
Jeff Immelt – General Electric  

 

The group’s website, http://www.governanceprinciples.org/, 
states “We offer these principles…in the hope that they will 
promote further conversation on corporate governance.”  
The group emphasizes the importance of thinking and acting for the long term, 
stating “… we think it essential that our public companies take a long-term 
approach to the management and governance of their business (the sort of 
approach you’d take if you owned 100% of a company).”  While the group 
acknowledges the variety of opinions among its members, it believes these 
principles are “a starting point to foster the economic growth 
that benefits shareholders, employees and the economy as a whole.”

Highlights of the principles are outlined below:

  • Directors should be elected by a majority of the votes cast.
  • Boards should undertake an extensive evaluation process, to evaluate themselves, led by the non-executive chairman of the board, lead director or the appropriate committee chair.
  • Director and management compensation should include a significant portion of company stock (for some companies, as much as 50%) to align interests with shareholders.
  • When meeting with shareholders, the CEO should speak to any corporate governance issues at the company.
  • Boards should review their approach to proxy access.
  • Dual-class voting is not considered best practice and if a company has dual-class voting the board should consider instituting sunset provisions which eliminate it in certain situations.
  • The board should disclose why the company has a combined CEO/Chair, or separate roles, and if the board decides to combine the Chair/CEO roles, then a strong independent lead director should be in place.
  • Performance metrics and benchmarks for executive compensation should be disclosed in order for shareholders to assess the firmness of the company’s goals.
  • Clawback policies should be in place for both cash and equity compensation.

Also included among the proposed guidelines were suggestions for asset managers due to their responsibility as significant owners of public companies:

  • Asset managers should consider discussing their concerns and proxy voting intentions with the issuer to begin a constructive dialogue.
  • Data and reports from the proxy advisory firms provide valuable information for the asset manager’s analysis; however voting should be based upon the firm’s own independent guidelines.

The complete list of principles can be found on the group’s website, http://www.governanceprinciples.org/, which includes more detail surrounding board composition, public reporting and compensation.

 

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We will continue to monitor important trends in corporate governance to keep our clients abreast of evolving governance practices.

Please contact your Morrow Sodali representative if you have any questions.

470 West Avenue – Stamford, CT 06902 – 203.658.9400

 

This newsletter is provided as a service to clients and other friends of Morrow & Co.  Please note, Morrow & Co., LLC recently merged with Sodali to create Morrow Sodali. For additional information please visit us at www.morrowsodali.com or call our offices at 203.658.9400

The enclosed material is being provided for informational purposes only and is not intended to provide advice for professional, legal or other purposes. If you wish to remove your name from our mailing list, please send an e-mail to: proxyupdate@morrowco.com.

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