This year’s Board Games report is accompanied by an excellent feature article on the role of proxy advisory firms.
Here’s the story Jane McFarland: Proxy advisory firms flexing some serious muscle.
The story focuses on North America’s biggest proxy advisory firm, Institutional Shareholder Services Inc., and the controversy over the quality and transparency of ISS’s advice, along with the amount of influence the company has.
The story quotes the Clarkson Centre‘s Chairman and Director, David Beatty:
“It’s deeply ironic to me that the whole motion toward shareholder responsibility has ended up in the hands basically of one firm whom people accept advice from,” says corporate director David Beatty, who chairs the board of Inmet Mining Corp. and also acts as an adviser to ISS competitor Glass Lewis & Co. LLC.
“By and large, the votes of $10-trillion of assets under management are determined in the first instance by one company. … It’s too much power in one place, and a total abrogation of power by everyone else.”
Today the Globe and Mail released its 9th annual corporate governance rankings: Board Games 2010: Rankings for corporations
We’re proud to say that this year’s Board Games rankings are based on data gathered and analyzed by our research team here at the Clarkson Centre, as they have been for several years now.
The top end of the rankings is, once again, dominated by the financial industry. Though it’s hard to establish a direct causal connection, the fact that Canada’s financial institutions perform so well in terms of corporate governance may well have something to do with the fact that Canada has managed to ride out the recent financial storm that has battered so much of the rest of the developed world.
Yesterday’s Globe & Mail featured an interesting item on disclosure regarding executive pay. By Janet McFarland: Securities regulator urges more disclosure about executive pay
The story quotes the Clarkson Centre’s own Matt Fullbrook:
Matt Fullbrook, manager of the Clarkson Centre for Business Ethics and Board Effectiveness at the University of Toronto, said the potentially biggest amendment could be a new requirement for companies to disclose how the board of directors considered risks associated with the company’s compensation policies – for example, if a pay practice could potentially encourage an executive to take excessive risks.
Mr. Fullbrook said too few companies put meaningful information in their proxy circulars about the considerations that go into their compensation design.
“It’s a piece that is a glaring omission,” he said.
“Succession planning” in the world of business basically refers to the process of planning for the day when a change of CEO is required.
Here’s a fascinating piece on succession at tech wunderkind Twitter, by Claire Cain Miller, for the NY Times: Why Twitter’s C.E.O. Demoted Himself
Twitter has become one of the rare but fabled Web companies with a growth rate that resembles the shape of a hockey stick. It has 175 million registered users, up from 503,000 three years ago and 58 million just last year. It is adding about 370,000 new users a day.
Yet for all its astonishing growth, Twitter has succeeded in spite of itself — the enviable product of a great idea and lightning-in-a-bottle viral success rather than a disciplined approach to how it’s managed.
Last month, [co-founder Evan Williams] unexpectedly announced that he had decided to step down as chief executive and give the job to Dick Costolo, who had been Twitter’s chief operating officer…
The issue of CEO succession is an interesting one. At young, fast-growing companies like Twitter, it can be an acute problem. Start-up companies in I.T. and biotech are often guided through their first few years by CEOs who are technical geniuses — computer geeks or research scientists — who eventually realize that they don’t have the management skills to shepherd the company beyond its infancy. Giving up control is notoriously difficult for these smart, ambitious people. But doing so is often crucial if the powerful ideas that got the company off the ground are really going to take it somewhere.
Here at the Clarkson Centre, when we do our annual governance rankings, succession planning is one of the relevant measures. Having a formal plan in place for how a CEO is to be replaced is considered important. And hiring the CEO from within the company’s own ranks is considered a plus — it’s a sign that the company is thinking ahead, and grooming potential CEOs well in advance of their being needed.
Voting systems to elect corporate directors vary along two major dimensions. First, shareholders can be offered either a) an entire slate of candidates, who stand or fall together, or b) a list of individual candidates, each of whom stands or falls on his or her own merits. Individual director voting empowers the shareholders to indicate which directors they are happy with instead of just voting for the whole board of directors
Secondly, there is the distinction between ‘plurality’ and ‘majority’ voting. Under the plurality system, each shareholder has the option of either voting for or instead withholding approval from, those directors. Withholding doesn’t technically count as a vote against. But if anyone — even a single shareholder — votes “yes”, then the directors are successfully elected. Under the competing majority voting system, directors need to receive 50% of votes +1 in order to be elected. The latter is generally considered preferable by governance advocates. The Canadian Coalition for Good Governance has been at the forefront and have championed Majority Voting. Here are the CCGG’s Majority Voting Guidelines.
Our research here at the Clarkson Centre shows the trends along both of those dimensions.
First, here’s what our data show regarding the trend from slate voting towards individual director voting:
The prevalence of slate voting has been on a steady decline since 2004, and it’s particularly obvious in the trend shown since 2006. Currently, only about 14% of the companies on the S&P/TSX Composite use a Slate vote for director elections.
Next, here’s what we’ve seen in terms of the trend from plurality to majority voting:
Majority voting adoption of the Corporations on the S&P/TSX Composite has more than doubled over the last 4 years.
For an example that illustrates the struggle to implement best practices in this area, see this recent story, from the Globe and Mail: Linamar board gets the message, finally.
It’s always interesting to read about corporate governance issues from the perspective of someone who doesn’t live the stuff day-in and day-out: in Saturday’s Globe & Mail, Christie Blatchford on the corporate culture of entitlement. On the growing push for CEO/Chair splits in the US. On how bailouts have affected governance of companies such as GM, whose CEO was just ousted. More here: “We now know that the “old-fashioned” governance construct of directors appointing management, and shareholders electing directors, is out-the-window if a company accepts federal funds.” Manulife’s payout to departing CEO “a misreading of the zeitgeist”. Jim Shaw of Shaw Communications profiled, providing a good look into a family-run company. And Livent execs found guilty— after ten years.