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Group Suggests Commonsense Corporate Governance Principles

A small group of leaders of large corporations and investment managers together with an activist investor and a public pension plan convened a group to develop a set of broad corporate governance principles.  According to the group, good corporate governance is critical to economic growth and a better financial future.  A statement accompanying the principles noted that the group’s small size was not meant to be exclusive, but instead intended to allow the participants to “sit around a room and have a mature conversation about this important topic – something that would have been very difficult to do in a much larger forum.”

The group elected to develop a set of broad principles that are not overly prescriptive because of the diversity of corporations.  The principles cover: the composition and internal governance of boards of directors; board responsibilities; shareholder rights; public reporting; board leadership; management succession planning; compensation management; and the role of asset managers. 

Principles Related to Boards

The principles lay out a number of issues related to boards including:

  • The benefit of having a subset of directors with experience directly related to the company’s business
  • The importance of collaboration and collegiality on the board
  • The importance of developing a board with “complementary diverse skill sets, backgrounds, and experiences.”
  • The importance of recruiting directors who can devote a sufficient amount of time to the company
  • Encouraging companies to pay directors at least in part with stock
  • The importance of a robust self-evaluation process for the board
  • The importance of strong, independent board leadership regardless of whether the chair of the board is independent.

The principles also lay out a number of suggestions for asset managers, including:

  • Asset managers should exercise their voting rights thoughtfully
  • They should devote sufficient time and resources to evaluate matters up for a shareholder vote in the context of long-term value creation
  • They should actively engage with management and the board of a company to exchange ideas about issues up for a shareholder vote
  • Proxy voting and corporate governance activities should receive senior level oversight
  • Decision-makers at asset managers should have access to company personnel
  • Asset managers should raise issues as early as possible to promote a constructive dialogue
  • Proxy voting firms should be relied on for information, but all asset managers should base their votes on their own voting guidelines and policies.