Corporate boards going under microscope?
5 January 2009:
After all, board members of publicly traded companies have extraordinary powers. They hire and fire the CEO. They control executive pay. They oversee a company's risks and its auditing functions.
Yet in an age when chief executives so commonly enjoy celebrity perks and status, independent (meaning non-employee) board members at even the biggest companies are rarely in the public eye.
Corporate boards, though, are facing the prospect of greater scrutiny:
Say on pay: In recent years, so-called "say on pay" shareholder proposals have sought to give investors an advisory vote on executive pay packages put forth by the board. These proposals failed at Indianapolis-based WellPoint and other companies last proxy season.
But "say on pay" could see renewed momentum, according to Broc Romanek, editor of TheCorporateCounsel.net, a board advisory Web site.
This year 67 percent of shareholders at Silicon Valley tech company Sun Microsystems voiced support for an annual advisory vote on executive pay – the highest-ever vote total for a "say on pay" measure, according to the Connecticut state treasurer's office, which filed the resolution on behalf of the state's retirement fund.
At New Jersey-based Jackson Hewitt Tax Service – one company that already has enacted a "say on pay" shareholder vote – 38 percent of shareholders voted against an executive pay packages proposal, Romanek noted.
Broker voting: In 2006, the New York Stock Exchange proposed changing its rules to no longer allow stockbrokers to vote on shares held by their clients in certain circumstances.
This may sound like an arcane rule change, but it's potentially important. The rule change would no longer allow brokers to vote client shares when it comes to electing members.
Romanek said brokers have tended to vote with management, so taking away that block could make for closer votes – and give more power to those shareholders who do vote.
The Securities and Exchange Commission, which has to approve the rule change, has yet to act on this one. "It's too early to tell what a SEC under new Chair (Mary) Shapiro (and President-elect Barack Obama) will do on broker votes," Romanek wrote in an e-mail.
Rethinking the board: I asked Eleanor Bloxham, a corporate governance consultant, what the top concerns of public companies and directors were these days.
"A lot of people are quite concerned about individual risks and their own liabilities," said Bloxham, founder of The Value Alliance Co. and the Corporate Governance Alliance, a board advisory firm in Ohio. "More directors are recognizing they are perhaps going to be subject to litigation in the future."
Her comment underscores an important truth of Corporate America: Outside directors (people who are essentially part-time employees) are responsible for governing highly complex global enterprises. Outside directors typically have other duties, such as being CEOs of their own companies.
"The whole idea that they can actually oversee the companies, I think, comes into question," Romanek said. "The problem is, how do you do it better?"
There are no easy answers. But as the nation deals with one of its most painful economic downturns – a crisis in which multiple public companies played a role – it's a needed discussion.
Source: Indystar
