And it’s about time…principles matter; in business and in our personal lives. For some time you’ve heard me rant on the lack of principles exhibited by many companies and the TBTF banks that endangered our economy in 2008; the lack of principles that eroded our financial systems and the fraud that resulted because of the lack of ethics and accompanying greed. Companies pay lip service to governance, principles and ethics and often pay them no heed in their relentless pursuit of profit.
Principles matter, yet they cannot be just words on paper, mandated from the top and not followed by a company’s leaders which is what occurred with the ethics policies that Enron, Citigroup, Wells Fargo and countless others proclaimed they had.
So it was with some surprise that I read about a group of thirteen or so well known CEO’s and heads of investment firms which had teamed up last year to develop “common sense standards for corporate governance.” The venture, which was kept quiet for some time included JP Morgan Chase CEO Jamie Dimon, Berkshire Hathaway CEO Warren Buffet, General Motors CEO Mary Barra, and the CEO’s of Verizon, General Electric, Vanguard, Blackrock, and others.
It may be just a little and too late, still, it’s worth paying attention to see what if any changes this group and their initiative can make on the present sad state of corporate values, shareholder and director policies and overall corporate governance. In an open letter and nine-page document on the group’s website they state, “Corporate governance in recent years has often been an area of intense debate among investors, corporate leaders and other stakeholders. Yet, too often, that debate has generated more heat than light.”
Among other items, the group is behind “clawback provisions,” board diversity, and fair director compensation models designed to keep director goals more in line with those of company investors.
Several governance experts and institutional investors have applauded the effort as a “call to action for U.S. companies, large and small.” Ken Daly, CEO, National Association of Corporate Directors, is one of them, and says, “We are pleased to see that the principles supported by this esteemed group promote the same concepts of transparency, long-term value creation, and independent board leadership that NACD champions. … Our robust portfolio of governance resources—developed for directors, by directors—can assist boards in implementing these practices.”
Yet, some believe as do I that this group, which wields tremendous power, can go even further on several issues that have proved contentious to effective governance, such as splitting the CEO’s and Chairman’s roles, proxy access and director retirement age. I was glad to see the group was by and large not in favor of dual-class voting (in which people with a privileged category of shares get more say than the average investor). The group said, “If a company has dual-class voting, which sometimes is intended to protect the company from short-term behavior, the company should consider having specific sunset provisions based upon time or a triggering event, which eliminate dual-class voting.”
One recommendation which obviously met with my approval was, “that the board of a public company should be able to meet with any employees outside of the presence of the chief executive to get an unvarnished view of the way the company is being run.”
In their open letter, they state:
The health of America’s public corporations and financial markets — and public trust in both — is critical to economic growth and a better financial future for American workers, retirees and investors.
Millions of American families depend on these companies for work — our 5,000 public companies account for a third of the nation’s private sector jobs.
Our future depends on these companies being managed effectively for long-term prosperity, which is why the governance of American companies is so important to every American. Corporate governance in recent years has often been an area of intense debate among investors, corporate leaders and other stakeholders
We represent some of America’s largest corporations, as well as investment managers, that, as fiduciaries, represent millions of individual savers and pension beneficiaries.
This diverse group certainly holds varied opinions on corporate governance. But we share the view that constructive dialogue requires finding common ground — a starting point to foster the economic growth that benefits shareholders, employees and the economy as a whole. To that end, we have worked to find commonsense principles.
We offer these principles, which can be found at www.governanceprinciples.org, in the hope that they will promote further conversation on corporate governance.
While some of the companies represented have been humbled by their own ethical lapses resulting in high-profile whistleblowing (e.g., Alayne Fleishmann with Chase mortgage securitizations and Courtland Kelley with GM safety issues), the group nonetheless does have the capacity to implement much more on the issues of ethics and sound corporate governance, and I still give them credit and respect for this beginning. If other corporate leaders stood their ground and actually followed the high road and embraced it in their culture, we would all benefit.
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