Corporate Governance Reform Hits a High Note

A fortnight after Michael T. Dan, chairman, president and chief executive officer of the Brink’s Company said that the share [...]

October 15 2007 by Francis Adams


A fortnight after Michael T. Dan, chairman, president and chief executive officer of the Brink’s Company said that the share repurchase authorization by the company’s board of directors for the purchase of up to $100 million of the company’s outstanding common shares demonstrates our ongoing commitment to increasing value for all of our shareholders came the call that Dan’s roles as the chairman, chief executive officer and President be separated. 

Hedge-fund manager Pirate Capital LLP and investors including New York-based MMI Investments LP asked the Richmond, Virginia-based company to give shareholders more power over corporate decisions, allow them to call special meetings and require the chairman to be independent. They said better corporate governance measures like these would create substantial shareholder value. 

Could calls for such moves be demands for corporate governance reforms within Corporate America or could they be more to do with investors trying to promote their self-interests. “The groups making the call may have a short-term agenda in suggesting such a change,” says Thomas Lehner, Public Policy Director at Business Roundtable, the Washington-based organization comprising 160 of the leading U.S. companies and their chief executives. Such initiatives should not be characterized as in the interest of €˜shareholders’.  The questions one must ask are: who are these shareholders; how much interest in the company do they have; and what is their agenda? He adds. 

Business Roundtable recently released its fifth annual survey of corporate governance practices. The survey, conducted among the Business Roundtable members, revealed two important trends: 

  1. Increase in the number of independent directors serving on corporate boards  
  2. Significant rise in the number of companies that have adopted majority voting for directors 

It also found that, in the last year, board members of 38 percent of the companies in the survey met with shareholders. According to Anne Mulcahy, chairman and CEO of Xerox Corporation and also the chairman of the Business Roundtable Corporate Governance Task Force: “The spotlight on governance reform in Corporate America is well placed and speaks to the accountability corporations share in creating long-term value for stakeholders.” 

The results from the survey, she added, “demonstrate the importance of governance in leading a successful company through independent boards, performance-based compensation, and smart business practices that align with the influential role Corporate America plays in our world today.” 

“The inclusion of independent directors on board is a positive thing,” says Frank Piantidosi, CEO of Deloitte Financial Advisory Services, who also was recently appointed to the board of Transparency International. “Outsiders bring a very different perspective to an organization. It is similar to the areas of focus and expertise that I bring to Transparency International. Having those perspectives and that level of experience from the outside and understanding of different standpoints is very healthy and positive for the board,” he says. 

The survey results also highlight shift in views of CEOs on crucial governance issues, such as: Board independence, majority voting rights for directors, increase in independent directors meeting in executive session at every board meeting, and pay-for-performance of senior executives. 

Critics, however, want more reforms as they feel that shareholders should have more say in corporate board nominations. Shareholders have, over the past few years, used class action settlements in order to force corporations to implement governance reforms that companies have declined to adopt voluntarily.  

Earlier this month, 39 law professors led by Lucian Bebchuk, director of the corporate governance program at Harvard Law School appealed in a letter to the U.S. Securities and Exchange Commission to allow shareholders to decide how much influence they have over nominations to corporate boards. 

“Shareholders are not monolithic – they come in different shapes and sizes. Some are individual investors, some are union and pension funds, some are private equity looking to make a quick profit regardless of the long term consequences, and some are foreign governments investing in US companies. That is why such requests are considered by the Board of Directors - because they alone have the fiduciary responsibility to represent ALL shareholders, and make decisions accordingly,” argues Lehner.  

“One of the dangers we have warned about is shifting corporate governance away from boards into a referendum-style of governance which we did not think as a good idea,” says Lehner adding, “That’s because often times we see different shareholder groups with different agendas and if you subject their decision-making to a referendum-style it can end up being very divisive and driving down value for shareholders.” 

Shareholder advocates though say that despite all the reforms, the missing link in corporate governance continues to be board accountability to long-term shareholders.