Below is the Corporate
Governance Alliance Digest, with compliments from Eleanor Bloxham, CEO of
The Value Alliance and Corporate Governance Alliance, and John M. Nash,
Founder and President Emeritus of the National Association of Corporate
If you would like to receive your
own complimentary email copy going forward, you may sign up
In this edition, we are
pleased to present a conversation with Robert A.G. Monks, a short excerpt
from our upcoming book, Reinventing the Board of the Future,
and other highlighted news.
Top news from the
Financial News (a wake-up call), by Eleanor Bloxham:
- Millions of Americans
– “black, white, and Hispanic – now live in households with per capita
income of less than $2 per day,” according to Nobel prize winning
economist and Princeton professor Angus Deaton.
- In New York City alone,
65,000 human beings do not have a place to live (homeless), more than
double what it was in 2002.
- "As the consequences of
rising domestic inequality feed through to geopolitics, eroding stability,
the need to devise new rules, re-distribution systems, and even global
agreements is no longer a matter of morals; increasingly, it is a matter
of survival," says former World Bank chief economist and Cornell professor
On May 5, the
Financial Times showed graphics that illustrate both higher disposable
income inequality and lower life expectancies in the U.S. compared to
other developed nations.
Find below this edition of
the Digest, which includes:
I - A
conversation with Robert A.G. Monks
II - An excerpt from our upcoming book, Reinventing the Board of the
III - Highlighted news
I - A conversation with
Robert A.G. Monks, by Eleanor Bloxham
Robert A.G. Monks is an influential advocate for corporate governance and
a pioneering shareholder activist, author, and advisor to institutional
investors, a co-founder of ValueEdge Advisors, who also co-founded
Institutional Shareholder Services. (Read his full biography
In February, Robert A.G.
Monks and I discussed his views on shareholder advocacy related to
environmental, social and governance issues.
Here’s what he told me:
recent weeks, some commentators, like Marc Gunther, have been
“trivializing the efforts” of shareholders who file shareholder
resolutions. But if we step back and look at the bigger picture,
shareholders have only two major rights: to file shareholder
resolutions and to bring lawsuits. Filing resolutions isn’t easy
because in far too many instances these resolutions never make it to
the proxy. Instead they are “censored by companies and the SEC.”
Filing resolutions is an important part of the “corporate governance
dialogue.” It has afforded intelligent conversations and
“correlative consequences.” It’s important to look at filing proxies
in the broader context of corporate governance today.
Because of institutional investors that raise questions, we can see
changes in the ways companies govern. Here are three substantive
examples of their influence.
The work by institutional investors on environmental, social and
governance issues has changed the dialogue of influential activist
shareholders. One example is Carl Icahn, who has included governance
messages in his interaction with companies, and addressed governance
deficiencies in companies, while at the same making money for
Judicial settlements, class action settlements, have resulted in not
only monetary damages, but changes in governance practices and
members of boards of directors.
And the marketplace seems to be rewarding companies like Blackrock
that take a position on governance issues while companies like
Fidelity, “that are least concerned with shareholder rights” seem to
be losing market share. (This may or may not be related.) Harvard
refused to take a position on fossil fuels. Is it a coincidence that
its performance versus other Ivy Leagues was at the bottom of the
II – An excerpt from our upcoming book, Reinventing the Board of the
Future by Eleanor Bloxham and John M. Nash
A Book for Board Members and their Stakeholders -- Employees, Customers,
Suppliers, Investors, Lenders, Regulators, Legislators and Communities
Question 1: Are Boards of Directors Antiquated?
John M. Nash:
I believe in today’s world that boards as we historically know them are
We now live in a global environment and our financial institutions have
become so complex that the duties and responsibilities of boards need to
be re-defined. Knowledge and accountability standards need to be raised
along with time and commitment requirements.
The issue as I see it with respect to antiquated is where were the
directors at financial institutions i.e. Goldman Sachs with respect to
systemic risk? Were they ever discussed with respect to derivatives,
credit default swaps, subprime loans which should have been a red flag?
What about the marketing of the subprime securities to investors which
Goldman knew were about to default? My take is these financial instruments
were too complicated for directors to comprehend. They relied on
Boards are indeed antiquated. Over the last four decades, boards have
unwittingly sown the seeds of capitalism’s demise and without intending
to, damaged the great economic promise of the United States. In the U.S.
boards have eschewed their purpose of creating sustainable economic value
in favor of short term gains, and used those gains to enrich only
shareholders and a few top executives.
Failing to recognize how their lemming-like approach to oversight has
destabilized the economy and democratic processes, the actions of boards
in conjunction with politicians have destroyed the middle class and
created increasing income and wealth inequality. Unknowingly boards’
actions and failures to act have created economic and democratic chaos,
not only in the U.S. but across the globe.
Consider the causes of the tech boom and bust fueled by stock options and
their manipulation. The focus on stock price that resulted in the Enron
and WorldCom scandals. How stock price, stock and stock option based pay
fueled the largest financial crisis since the great depression. And how in
their myopia companies under boards’ directions have forgotten their major
Customer service has gone the way of the dinosaurs, typified by the
airlines, phone companies, and large banks. Today families will be dragged
off a plane, endangered by lack of land-line phone service, or see their
house taken away unfairly or their credit rating destroyed, all in the
name of profits.
Employees have been treated as mere cogs in the profit machinery, typified
by Disney, fast food and retail outlets, which have failed to pay all
wages owed --and failed to pay at a level sufficient to feed a family. By
hurting employees’ economic stability, companies have suffered, losing
their customer bases, whom in their search for profits, they have also
devalued over time.
Like environmental polluters who will not clean the rivers they have
spoiled unless pressed, rich technology companies and the billionaires
they have spawned have failed to put real energy into providing solutions
to the coming tsunami of job losses their firms have helped create.
The dimensions of the problems economies and people face are enormous. But
the mind that creates a problem can’t solve it.
Boards today must put on a new mind. The board of the future will need to
III – News Highlights, by Eleanor Bloxham
The Wells Fargo debacle is instructive for all boards on several
- If you read the
OCC report on the agency’s role in the debacle, you saw an
example of what a good report can contain: a clear acceptance of
accountability. In unequivocal language, the report stated: “The OCC did
not take timely and effective supervisory actions.”
- If you read the
Wells Fargo board report on the debacle, you saw a report
that was nearly
universally condemned and does just the opposite: it
spends most of the report trying to justify what went wrong and why the
board could not have been expected to do any better. This rightly garnered
condemnation. It also failed to discuss 700 whistleblower cases.
- A revelation in the board report: since at least 2002, the Board's Audit
and Examination committee received quarterly reports that detailed
suspicious activity related to sales, employee misconduct and related
calls to ethics hotlines. In 2002, there were
“mass terminations” due to
sales conduct and the Community bank created “a sales integrity task
force” that year.
- And the OCC report revealed: “Since 2005, the bank’s Board received
regular Audit & Security reports indicating the highest level of
EthicsLine internal complaint cases [and] employee terminations ... were
related to sales integrity violations.”
- Important lesson from the case: A shareholder proposal in 2004 also could
have alerted the board. In 2004, Northstar Asset Management raised issues
related to Wells’ loan sales and asked the bank's board to “conduct a
special executive compensation review” because, according to banking
regulators at the time, Wells Fargo had “not adjusted compensation
policies to discourage abusive sales practices” and did not have adequate
audit procedures in place. The board dismissed the request, saying that
Wells Fargo’s “compensation and commission policies are designed to
encourage appropriate sales practices” and that the bank had
“comprehensive monitoring and audit procedures.”
Final note: Most board members agree: nearly all boards would benefit by
moving more swiftly and decisively, no matter the issue. If nothing has
moved the needle so far, the Wells Fargo case stands as an example of why
this is important.
Jay Clayton was sworn in as head of the U.S. SEC. If you watched his
confirmation hearing, you were struck by the following:
- He wants more companies to go public but did not appear well versed in SEC
duties and securities laws related to shareholder protections (which also
protect good companies and the markets from being tarnished by
- He says he’d like to see more individuals held accountable and serve jail
Private vs. public goods came into sharp focus in a
Financial Times report
on a “a utility [that] poured raw sewage into London’s rivers causing an
environmental disaster, but all the while awarded huge dividends to its
investors… [raising] questions over whether England’s decision to allow
private players to run the public water system for profit is working.”
The House Financial Services Committee has sent the Financial Choice Act
to the House for a vote. If you haven’t had a chance to read the 600 pages
of the new act, this
report by Public Citizen provides a description of
the major components.
Pew Study on the
future of jobs:
- One result of the bill, if passed, could be more board members targeted
for no vote campaigns, since the bill would, in effect, eliminate the
ability of shareholders to submit resolutions. See this
examination of the
issue by shareholder advocate James McRitchie.
retail industry weighed in: the “CHOICE Act gives big banks and card
networks a green light to raise costs on every business in America that
accepts debit cards.”
- The bill could harm financial services companies and non-financial
services companies alike by allowing bad actors to flourish, thus harming
the markets, individuals and the economy.
More information here.
- A scientific editor said: “Seriously? You’re asking about the workforce of
the future? As if there’s going to be one?”
- Frank Elavsky, data and policy analyst at research firm Acumen LLC said:
“The most important skills to have in life are gained through
interpersonal experiences and the liberal arts. … Human bodies in close
proximity to other human bodies stimulate real compassion, empathy,
vulnerability and social-emotional intelligence.”
Counter to the best interests of human dialogue and information sharing,
some companies are refusing to meet with shareholders in person, even
- Board members (and specifically governance committee members) of companies
like ConocoPhillips, Comcast, Duke Energy, Ford Motor Company, HP, Intel
and Biogen that engage in this behavior and adopt “virtual only” meetings
put themselves at risk for no votes from the New York City funds and from
other investors. The Council of Institutional Investors, representing $3
trillion in assets under management, strongly opposes attempts by
companies to evade in-person annual shareholder meetings.
While the Interfaith Center for Corporate Responsibility encourages a
“webcast option, that facilitate the participation of all shareholders,”
the Center views virtual only meetings “with alarm,” a tactic, among
others to “actively discourage in-person attendance and participation by
shareholders” that “[fosters] a dangerous insularity that exposes the
company to … risk… [that] will be used by management and board to avoid
challenges, filter out negative feedback, cherry-pick questions, and
downplay opposition to business decisions and plans.”
Public Citizen report shows that “Sixty-four percent of
spending disclosure shareholder resolutions at companies where mutual fund
companies own more than five percent of common stock would have received
majority support in 2016 had those mutual funds voted their shares in
support of the resolutions.”
This edition of the Corporate Governance Alliance Digest is copyrighted.
If you wish to quote from or use the ideas in this Digest, please
acknowledge the Digest and its authors appropriately. Copyright 2017. All
rights reserved. The Value Alliance Company.