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Photograph by Benjamin Child

May 8, 2017

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 Directors (NACD).


If you would like to receive your own complimentary email copy going forward, you may sign up here.


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 Kaushik Basu.

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 Future

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 here.)


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:

In 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 outside shareholders.

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 tables?


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 antiquated.

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 management.

Eleanor Bloxham:

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 stakeholder: humankind.

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 reinvent itself.


III – News Highlights, by Eleanor Bloxham

The Wells Fargo debacle is instructive for all boards on several levels.

  • 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 Senate 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 disreputable firms).

  • He says he’d like to see more individuals held accountable and serve jail time.

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.

  • 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.

  • The 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.

In a Pew Study on the future of jobs:
  • 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.”

     Well said.

Counter to the best interests of human dialogue and information sharing, some companies are refusing to meet with shareholders in person, even annually.
  • 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.”


A Public Citizen report shows that “Sixty-four percent of political 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.

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