Empty Recommendations on Corporate Governance
On any given day an activist investor or institutional pension attempts to convey some level of concern to the board of directors of a public company. And on many occasions, these concerns turn into controversy, proxy battles, and litigation. Last week, the Conference Board issued a report entitled, “Recommendations of the Task Force on Corporate/Investor Governance.” At first I wasn’t going to download the report because I really didn’t have time to read yet another 300 or 400 page report. However, a couple of the members of the task force caught my attention, most notably founder of Relational Investors Ralph Whitworth. I decided to take a look.
I need not have worried about having to wade through detailed recommendations for reforming the relationship between public companies and their investors, because the report was all of twenty pages, and much of that was taken up acknowledgements, biographies, and sponsorships. Perhaps the distinguished panel was merely being concise in laying out reforms. Although the report has a very serious tone, I found the recommendations to be rather amusing because the report has no substance at all. A collection of institutional investors, corporate directors, lawyers, and academics got together and merely came up with a bunch of pleasant sound bites that appeal to motherhood and apple pie. Here’s a summary of some of the Task Force’s recommendations:
Directors and investors should endorse the proposition that the interests of all stakeholders must be taken into account in order to achieve sustainable shareholder value.
Directors should take into account investors’ viewpoints and investors should hold directors accountable through effective engagement and the election of directors.
To the extent companies are able to satisfy investors about the quality of the board’s oversight, trust between investors and the company will be enhanced.
Investors should disclose their policies for voting proxies and devote sufficient resources so they make informed decisions.
Proxy advisors should disclose any potential conflicts of interest when they provide advice.
Companies and investors should both ensure that their incentive programs and evaluation systems support sustainable shareholder value.
The Conference Board says that it is “a global, independent business membership and research association working in the public interest. Our mission is unique: To provide the world's leading organizations with the practical knowledge they need to improve their performance and better serve society.” Pleasant sounding platitudes won’t improve anything or serve anybody. Of course, most of the task force members will be just as happy to go on collecting their fees and incentives for serving on multiple corporate boards.