Shareowners learning the importance of corporate governance, the hard way


The topic of corporate governance excites few, far fewer than it should, and of course much fewer than say a big (but ultimately boring) story like Facebook’s (FB) pending IPO; though even Facebook and also Google (GOOG) have some newsworthy corporate governance issues. Corporate governance is only hot when there is an Aubrey McClendon type figure making the news — Chesapeake Energy (CHK) shareowners deserve to be outraged — or when a shareowner proxy vote overcomes all odds and leaves corporate directors and management in an awkward position, think Citigroup (C) getting a “no” on its say-on-pay.

Another issue with corporate governance is one that all topics and issues face: ephemerality. Attention spans are generally not much longer than the holding horizons of high-freq traders. I’m not going to say much more than to recommend reading the following enlightening articles in the hopes you will and that they might compel you to vote your proxies (as you are better informed), submit a shareowner proposal, write to a board of directors, or give more governance-related articles a chance.

‘Tainted,’ but Still Serving on Corporate Boards (NYT DealB%k) By Andrew Ross Sorkin; the title says it all.

The original sin of executive pay (Paul Hodgson of GMI Ratings via WaPo) Hodgson argues all CEOs are paid like entrepreneurs, but not all CEOs are entrepreneurs, and a key element of compensation, stock options, were never intended to be paid out as magnanimously as they have been. CEOs are managers, says Hodgson. I couldn’t agree more with his conclusion, which is a very fair one in light of the practices he shares; please read the entire article.

Where perks are always very limited …” ( First, Footnoted is good stuff. Michelle and her team do a lot of heavy lifting (reading and analysis), which no doubt companies wish would be left buried in filings and footnotes. Second, this particular article is worthy because it’s damning evidence of misinformation that companies don’t hesitate to use on their very own shareowners (think for a moment the composition of the shareowner base, from a company’s own managers and rank and file to the institutional owners investing on behalf of pension funds and endowments, and the hedge funds that very well could be managing money for pensions and endowments).

End Corporate Demockary – Part I ( via This is a fairly comprehensive (though not unwieldy in length) first part look at corporations and governance by an investor and shareowner rights proponent, Jim McRitchie, whom has been banging the table about the importance of governance at for more than ten years before Facebook even existed. If you leave with just one takeaway, let it be to not succumb to the “Wall Street Walk.”

Why Mutual Fund Managers May Not Act in Your Best Interest (Portfolioist) This piece is not exactly corporate governance — though I’m always scratching my head about what role mutual fund directors really serve — but it’s an important read nonetheless since not every investor is aware of the potentially bad deal that many a mutual fund represents. If one is not about to invest on their own, they can only hope their portfolio manager does not fit the description as portrayed by Jeremy Grantham (of GMO) and reviewed by Geoff Considine at Portfolioist. No surprise, naturally, that mutual fund proxy voting is part of the larger corporate governance problem.

Furor Over Executive Pay is Not the Revolt it Appears to Be (“Deal Professor” via NYT DealB%k) About 55% of shareowners voted against executive pay at Citigroup. Prof. Davidoff: “The only surprise about this vote was that so many shareholders still voted in favor.” I agree. It would have been even more powerful to see a higher AGAINST vote. And in due time we shall know. However, as someone “in the trenches” of reviewing proxies and submitting proposals, let me tell you a “win” is a win (even if say-on-pay is non-binding).