Proxy Update – Commonsense Principles of Corporate GovernanceMorrowSodali
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.
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.
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