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--Copyright, Andrew Clearfield, 2005
Web Log |
This page is devoted to occasional thought pieces pertaining to corporate governance, investor/management relations, capital markets, and the general state of affairs regarding publicly quoted companies and shareholder capitalism.
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The Futility of "Just Voting 'No'"
Yesterday I received a breakdown of the votes cast in the News Corp. AGM. Of the 1,029,579,988 shares eligible to be voted, more than 816 million were voted, but more than 552 million of these were cast on behalf of the controlling group of Rupert Murdoch with his ally the Saudi prince Al Walid, and sometime rival John Malone adding his support. Of the minority shareholders, 264 million shares were voted, with from 43% to 51% voting to 'Withhold' from the four directors and 62% voting against the motion to increase outside directors' remuneration. This was reported by Mr. Murdoch as a vote of 'no more than 15% against any director,' and was considered a victory for the incumbent management.
No one covering the meeting for the press bothered to break the vote down, and to consider that a majority of the 70% of shareholders who had voted had demonstrated their lack of support for the board. (Presumably this was due to issues arising from the implementation of News Corp.'s poison pill, because there were no other issues.) I don't know whether the distinguished board members bothered to do the arithmetic, and realize how much credibility they have lost with shareholders. Certainly, no one has yet compelled them to do so. Aside from the fact that even had an absolute majority of votes been to withhold, the four directors would still have been re-elected, the inadequacy of such protest votes would still have been manifest. Given the way shareholders' meetings are run today, merely voting one's shares against management is an ineffectual tool in attempting to bring an erring management to account.
This is not to say that shareholders should not bother to vote their shares: of course they should. This is the device by which the shareholder will must ultimately be ratified. But along the way and by itself, it is rarely sufficient. Among other things, a 'No' vote on an agenda item which has been prepared to further someone else's interests, concerning some other issue entirely is a blunt tool at best with which to get one's point across. And it is a deeper level of shareholder action on the part of the institutional owners who control so much of America's assets which one must hope for, if one is to avoid the spectacle of a powerful media magnate and his board airily dismissing a covenant underscored in their company's previous proxy statements as "a self-imposed guideline" revocable at will.
Investors who care about how their companies are run need to engage the companies, actively and regularly, speaking with the chairman or his representatives, and if a problem persists, with any board members they can persuade to listen. This should be an ongoing process, even before the company turns up on a proxy advisor's bad list. If consultations fail, shareholders who care about the governance of their portfolio companies need to be prepared to sponsor or support shareholder resolutions to press further to solve the issue. Often, the threat of a vote is sufficient, and the discussions resume with a more fruitful outcome. But if they do not, concerned shareholders must be prepared to go forward with their motion. They also need to ally with other shareholders sharing the same concern, and sound out regulators and other authorities on their views. At some point they also have to consider whether the glare of publicity from the press may further their aims. And ultimately, there has to be the willingness, even if it is seldom exercised, to go to the courts for redress if the law is on their side. In short, governance activity is a process, and not merely an occasional action, after which the investor can rationalize that he did what he could by voting, and that is the end of the matter.
Expensive? Probably. (Although not so much as one or two star investors' salaries.) Time-consuming? Unquestionably. But not nearly as expensive as a corporate catastrophe, a share-price crash, a bankruptcy work-out, or the steady decline of an under-performing company following years of misgovernance by entrenched management. Not all governance problems lead inevitably to disaster, of course. But the correlation is too strong to be ignored, the risk is there, and it should be incumbent upon all prudent investors who are too large to simply run away from trouble to meet that risk head-on, and to fight to minimize it.
Catullus: News Corp: Written in Wind and Running Water
Over 2,000 years ago, the Latin poet Catullus, betrayed by his mistress, made the sour observation that "what a woman in passion tells her lover should be written in wind and running water." Down through the centuries, many lovers of both sexes, disappointed by promises unkept, have echoed these sentiments. Nonetheless, it took deliberate action on the part of all the Common Law legislatures—so-called "heartbalm statutes"—to make such lovers' promises unenforceable at law. But now we have News Corp.'s lawyers making the interesting argument that a company chairman's word is even less to be relied upon than a lover's promise. They are arguing that a chairman's promises to his shareholders regarding their company's governance are inherently unenforceable, even without a statute being necessary.
The case, Unisuper et al. v. News Corporation, is now before the Delaware Court of Chancery because in 2004, when Rupert Murdoch wanted to transfer the domicile of News Corp. from Australia to Delaware, he encountered substantial opposition from his minority shareholders, especially the Australian institutions. They threatened to scuttle the move because they felt that the Australian rules on corporate governance gave them more protection than the minimum guaranteed by the State of Delaware. Murdoch's initial impulse was to tell them to pound sand, but as more major U.S. and European institutions began to weigh in, Murdoch became fearful that he would not attain the required 75% assent.
So three weeks before the vote, he reversed course, and promised the company's shareholders that the company would retain various protections that shareholders had enjoyed in Australia, including inter alia the right to vote on any poison pill within one year of its enaction. This was not merely some offhand remark made by the company's chairman: a board resolution was passed, and the text was broadcast in press releases, on the company's website, in filings to the U.S. courts and regulators, and in an amended proxy statement to shareholders. Relying upon the promise, shareholders dropped their opposition to News Corp.'s move. The concessions were repeated at the meeting where shareholders voted to support the change in domicile.
The day after News Corp. began trading as an American company, however, and as predictably as a shark following a porpoise in the act of birth, John Malone of Liberty Media announced he had doubled his voting stake in the company to 18%. Since the Murdoch family has only 28% the company was understandably alarmed, and in accordance with the agreement with shareholders, enacted a poison pill having a duration of only one year.
Fast forward to last August. On the 11th, with the AGM set for October 21st, and the agenda not yet sent out, Murdoch announced that the News Corp. board had decided to extend the poison pill by another two years, in flat violation of the promise to shareholders. He said nothing about the promise, and made no justification for this precipitous action, three months before the pill was due to expire. There was absolutely nothing to prevent his putting the pill on the agenda for the AGM.
Those shareholders not away on vacation were understandably up in arms, but nothing was said to calm them down, or to justify the company's unilateral abandonment of the agreement. With time running out before the AGM, a delay occasioned by the difficulty in consulting other institutional shareholders during the vacation month of August, and the necessity to enlist several plaintiffs to make any action more credible, a subgroup of the shareholders opposing violation of the agreement went to court to seek an injunction against the poison pill extension on October 6th.
The plaintiffs alleged that News Corp. had made an agreement with shareholders in order to obtain their assent for the transfer of domicile, that even if the court were to find that this agreement did not constitute an enforceable contract, that plaintiffs had relied upon the company's promise to their detriment ("promissory estoppel"), and that News Corp. had either made the promise in bad faith, or that they had been in violation of their duty to shareholders by failing to keep their promises. The shareholders expressed no opposition to the pill itself, and indeed, many would be likely to support it if it were allowed to come to a vote, if the purpose were to prevent only a creeping takeover iof the company, without a full bid. But they were never given the option of agreeing to the pill, or to its duration. Now, they simply want to compel News Corp. to keep its corporate governance promises.
News Corp.'s response has been interesting. They have argued that the promise was not a promise, merely a statement of a change in current practice, presumably addressed to no one in particular, revocable at any time for any reason, and that shareholders had no business considering this a promise. Further, they have argued that a board cannot bind itself by a promise to shareholders, and that absent a change in the company by-laws, shareholders are being unreasonable in assuming that a promise made by a board and by its chief executive was in any way to be depended upon, no matter how solemnly given, in any circumstances whatsoever. The promise is literally not worth the paper it is printed upon.
To institutional investors, accustomed as they are to exchanging millions of shares of stock and tens or hundreds of millions of dollars upon a simple phrase spoken over the telephone, this position is triply dismaying. If business cannot be conducted without negotiated contracts in every instance, no one can trust anyone, and transactions must slow almost to a stop. If the research and due diligence they are obligated to perform on behalf of their beneficiaries cannot rely upon verbal assurances, almost any investment not based entirely upon a company's already audited results could be deemed 'imprudent.' And if any discussion involving corporate governance must require a change in a company's charter or by-laws, most of the advances made in governance in most countries since the 1930s may be discarded, and any future discussions would have to take place entirely through an army of lawyers and with the threat of an outright proxy battle. In order to avoid the minor inconvenience of consulting and possibly having to persuade their shareholders, News Corp. is instead proposing that relations between shareholders and boards henceforth take place under circumstances more appropriate for war than for a discussion between property owners and their managers. It is a complete throw-back.
News Corp. has tried to argue publicly that the plaintiffs in this action are few and unimportant, with no more than 1% of the company's equity, and that the majority of shareholders support their behavior in this matter. Aside from the fact that the justice of a case should not depend upon a referendum of all possible parties in interest, there is the fact that many more shareholders are upset by this case than the company will admit. First of all, at least two of the plaintiffs—the Netherlands' ABP, the world's largest pension fund, and Britain's Hermes, the largest institutional investor in the U.K. and possessor of by far the largest and most proactive corporate governance staff in the world—are not to be so casually dismissed. Britain's USS, the U.K. counterpart to TIAA-CREF, and Australia's UniSuper and PSS/CSS are similarly not to be written off casually as 'small institutions.'
Institutional Shareholder Services and Glass Lewis, American-based, and the two largest proxy advisors in the world, were so concerned by the the revocation of the shareholders' agreement that they both recommended that shareholders withhold their votes from the four board members up for re-election this year on that basis alone. As the company reported, 15% of the votes cast were "Withhold" votes (U.S. practice does not currently permit a "No" vote). To put this in perspective, Murdoch and allied interests, and Liberty Media, had already announced that they were voting for the four board members. Of the remaining 50%, at least 30% voted to withhold, and this does not allow for the individual shareholders, most of whose votes were not cast, or were cast by their broker/nominees in automatic support of management. This means that a majority of institutional shareholders were angry enough to demonstrate their lack of support for four non-cotroversial board members' re-election because of the board's actions in reneging on their promise—in an election where board members customarily receive 98 - 99% of votes cast.
Yet so far, neither the majority of American institutional investors nor the media have shown much interest in the court case. Perhaps this is because investors, not being lawyers, are not sensitive to the the legal implications of a negative decision here. The financial media certainly won't pay attention to anything that doesn't seem to move markets on a day-to-day basis, especially when they may be angering a media mogul by looking too closely at a case of personal importance to him.
One must also consider the possibility that for many American managers, News Corp. may still be in the ghetto reserved for foreign stocks. Just as a major outperformance by a foreign holding is seen as less important by many American fund managers than a more minor move in a domestic holding, governance problems which would outrage an institutional investor if they took place in the U.S. are frequently ignored when they are situated beyond our borders: many Americans simply do not take the rest of the world seriously. There is also the fact that some of the trustees of American public pension funds are elected officials, or have political ambitions. Politicians are generally chary of any course of action which might give them unfavorable media coverage, and News Corp. is a major media company.
Whatever the reason, foreign investors have been far more vocal in expressing their displeasure than their American counterparts, although the displeasure of American investors is clear. You hear it when you discuss the matter with them, you can deduce it from their "Withhold" votes, and you can infer it from News Corp.'s disappointing share price performance, which lags that of its peers even in this out-of-favor sector. Presumably, shareholders continue to mistrust Murdoch, and are afraid, above all, that whatever accommodation he does reach with Malone will be at their own expense.
But most frightening of all, and going far beyond the situation in News Corp., would be to enshrine in the law the notion that whatever a chairman says to his shareholders when he is trying to win their votes, is of no more consequence than what one "in the throes of passion" may say to a lover, and that like the words of Catullus' Lesbia, it should be recorded only "in wind and rapidly running water."
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When Governance Engagement Works:
Fresenius Re-visited
The efforts of a small group of active investors attempting to engage Fresenius on that company's proposed reorganization appear to have borne fruit. Although the group, led by the U.K.'s largest pension-fund manager, Hermes, apparently had no chance of actually derailing the transformation of Fresenius into a quoted, limited partnership (KGaA), they were important enough and credible enough to be able to persuade the company to make some important modifications in its proposed new structure. These changes were approved by the shareholders at the company's Extraordinary General Meeting in Frankfurt on Tuesday. This case clearly illustrates the utility of investors engaging in a continuing dialogue with a company's board and senior management, rather than simply voting their shares against something they find objectionable.
Hermes, working together with the Netherlands' largest pension fund, ABP, had been in discussions with Fresenius since the end of July, after the company proposed the reorganization, with its attendant loss of shareholder rights. Although initially the effort seemed doomed, as the company's dominant shareholder, a family foundation (Stiftung) was determined to hang on to its absolute control of the company without participating in any likely equity capital-raising, Hermes continued discussions, while at the same time attempting to rally other shareholders to its side. The foundation needed to ensure that it would have 75% of the votes cast at an EGM called for the purpose, which was probably why they decided to call the meeting for the end of August, when the European vacation period is at its height. This timing, during the notoriously absent-minded month of August, also endangered the minority shareholders' campaign, as it often proved impossible to even discuss the initiative with key decision-makers among the various institutional shareholders. After a major conference call in mid-August between Hermes' negotiators and Fresenius' controlling shareholder ended with nothing resolved, the situation looked bleak.
But the negotiators persisted, hinging their arguments on the fact that under the limited partnership, shareholders would no longer have any power of review over board decisions made during the previous year. The company was willing to continue talking, knowing that it was discussing these matters with important shareholders like Hermes and ABP, and with the threat of CalPERS voting against the change as well. They also knew that Hermes and ABP would show up at the EGM, and speak against the transformation, which was not exactly good publicity for the company. As the discussions came down to the wire, proposals for some kind of special structure were mooted, and voilà!—a compromise was found: the board's Audit Committee, already composed of a majority of independent directors, would have responsibility for overseeing governance, and would have to report to the shareholders (i.e., the limited partners) each year, at the AGM. This change is not as cosmetic as it sounds, for one of the few powers the limited partner-shareholders in a KGaA have is to accept or reject the report of the Audit Committee. At the EGM, Hermes introduced the motion for these changes, it was supported by management and the Fresenius foundation, and that was that.
German press reaction, normally critical of attempts by shareholders to assert their rights, was very supportive in this case. A confrontation was headed off, some common ground was found, and while the controlling Stiftung was allowed to extend its control in perpetuity without buying the company back from shareholders, the principle of some accountability to shareholders was maintained. More importantly, perhaps, the dissidents were seen as behaving responsibly, with attention to the best interests of the company, and not as the 'plague of locusts' one prominent Social Democratic politician complained about a few months ago. If this was not a thumping triumph for the cause of shareholder rights, at least it was a demonstration that a group of well-known foreign investors with a legitimate complaint could successfully negotiate with a German management without being pulverized by the advancing Panzer divisions of Deutschland AG.
What are the lessons from this case? One is that it helps to be a large investor, known for its corporate governance activity. The stakes of Hermes and ABP were not large enough per se to compel company attention, less than 2% in each case. But their reputations as influential and concerned investors were significant, and that, coupled with their willingness to engage in a sustained dialogue with the company, was sufficient to keep the talks going. Another lesson is that principled and purist opposition is frequently not enough. Those institutions simply determined to vote 'no,' as they were advised by the various proxy advisors and shareholder associations, in the end had little or no effect upon the outcome. Those willing to engage were able to have some pratical effect.
Corporate governance is fortunately not usually about power politics. If it were, the only successful governance initiatives would be those led by a raider with a multi-billion dollar credit line, and a team of bailiffs willing to enforce any court orders it might obtain. Most companies know much better than to get into an open fight with their shareholders, unless management believes that it is fighting for its survival, and sometimes not even then. But the shareholder requests must be reasonable, those negotiating must have credibility and a reputation for responsibility, and the company must realize that its own reputation is likely to be at risk if it refuses to negotiate in good faith. |
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The Reorganization of Fresenius: Is there a Case for Reasoned Inaction?
There is an investor-led campaign to reject the reorganization scheme proposed by the German health-care company, Fresenius, which is the world's largest provider of kidney-dialysis machines and services. Management is proposing that the company abandon its current status as a public corporation (an AG in the German abbreviation) in order to become a publicly-quoted limited partnership (KGaA) with its controlling shareholder—a holding corporation— as the general partner. As justification for the move, the company has cited its declining trading volumes on the Frankfurt bourse, and the fear that the company could fall out of the DAX 30, the narrow index which attracts most investor attention in Germany. How would the proposed transformation help? In becoming a limited partnership, the company will be able to exchange all its preferred shares (about 1/3 of the free float) for ordinary shares, increasing its index weight, and issue more shares without having to participate in the capital increase or risk loss of control. Thus the company is trying to have the best of both worlds, increasing the capitalization without losing control.
As so often is the case in these beautiful schemes dreamed up in some investment banker's fur-lined office, what the corporate client gains, minority shareholders lose. Ordinary shareholders are being asked to give up their theoretical rights as shareholders in a corporation in order to see themselves heavily diluted in a quoted partnership. Preferred shareholders will have to pay a premium equivalent to half of the average price differential between the preferred and the ordinary in order to receive ordinary shares. The share price of the ordinary will likely decline due to the historically greater discount demanded by the market in a partnership, as there is not even the remote possibility of a contest for control. It is not even clear that liquidity in the shares will improve under the new mode of organization, given that the link between shares outstanding and trading volumes is imprecise, to say the least. In short, this is a scheme which seems to benefit minority shareholders not at all.
To add insult to injury, the company is attempting to ram the measure through at an Extraordinary General Meeting in Frankfurt on August 30th, when most of Europe is and has been on vacation, and even workaholic Americans are more likely to be found at beach houses than at their desks reading tedious proxy advisories, let alone at foreign shareholder meetings. It is difficult to believe that this measure was so urgent that management could not have waited a month to bring it before shareholders.
So why, then, is this sad but all-too-common sort of event the occasion for a column on "reasoned inaction?" In a brief conversation with a colleague and friend of mine, he disclosed that his fund was planning to vote with management. Why? Because the controlling shareholder would be the same no matter what, and because it had done a 'pretty good job' running the company. Also, he was afraid that otherwise management would have to launch an even greater share offering than that contemplated under the present scheme. My first reaction was to try to refute his arguments. For starters, if I had an extra dollar for every time I have been told during my investment career that a company was already controlled and that whether I had a voting share or not didn't matter, when it subsequently turned out that it did matter, I would be able to take my wife out to dinner at one of New York's best restaurants, and not have to be too careful about the wine we ordered, either. I have also learned that in business at least, it is better to trust those we are not obligated to trust, than those whom we have no choice but to trust—especially when they frequently remind us that we must trust them.
But my friend is not only intelligent, he is also dedicated to the cause of better governance, so I tried to understand the arguments he might bring to bear on this issue. One is that there is not much point antagonizing those who will probably prevail in any case, and who will also continue to run the company even if they lose the vote. The controlling holding company will walk into the EGM with 51% of the outstanding votes. True, they need 75% of those cast in order to prevail, but this means that of the outstanding minorities, more than 50% have to vote against management for them to lose. Given that the turnout at German meetings is seldom more than 25 - 30%, and that some shareholders will inevitably vote with management, this makes the 75% hurdle less high that it might seem at first glance. On the other hand, if one could rally, say, 40% of the minority shareholders to actually vote against the proposal, given the general apathy of the other minority shareholders, this could be sufficient to make the 75% threshold unreachable, and management would have to either abandon the proposal or make significant concessions in order to win over the dissenting shareholders. The question is: what could management concede that would really be of help to the minority ordinary shareholders? Lowering the exchange premium for the preferred shareholders hardly helps the holders of ordinaries— they would suffer the same dilution and their company would receive less cash, requiring further capital raising in a short time. The company could make all sorts of governance concessions, but most would be unenforceable, given the legal responsibilities defined by the KGaA ownership structure. Of course, if you don't at least threaten to oppose management, then they will be under no pressure to concede anything, but how much can really be gained here?
Another argument in favor of inaction could be that the limited partnership is actually superior to the joint-stock corporation when there is a controlling shareholder. It is true that controlled corporations have been subjected to many abuses due to the fact that an unchecked management was able to play with minority investors' money, while hiding behind the limited liability of the corporation, and the fiction that the governance of the company is subject to review and approval by all the shareholders. By contrast, the typical KGaA has been a family-run company with no Burle-Means agency problem, just getting its feet wet with the idea of independent shareholders. The advantage to this intermediate structure is that the general partners are still personally liable for the debts of the company. If they mess up, they will be ruined just as they would have been in the private partnership or family business, and this prospect should focus their minds on the prudent management of the company as few compensation schemes can. The problem in the case of Fresenius is that the general partner will be another corporation, privately held and itself subject to no outside supervision or market scrutiny. Neither the individual managers nor the controlling family foundation will be directly liable for anything, yet meanwhile the company's board will be entirely removed from shareholder control. It may be that the limited partnership structure gives the company a bit more flexibility in decision-making than the two-tiered board structure of the German AG, but most AGs have little difficulty working around it. The real difficulty comes when a company's management has lost control of increasingly fragmented shareholders, and then does something stupid— but this is exactly when shareholder rights should come to the fore. Perhaps I am missing something, but from a minority investor's viewpoint, I cannot see how the KGaA structure would be preferable, so far as governance is concerned.
The real question is whether it is realistic to expect management, and especially the family foundation, to relinquish any measure of control no matter how pressing the capital requirements of the company might be. If the controlling group would rather see the company curtail its investment plans or become overly dependent upon debt than open up the capital further and suffer partial loss of control, then minority investors may indeed have to decide whether to see control imprinted by this or some other such structural gimmick, or face the prospect of an investment gone ex-growth. In the case of Fresenius, this would mean either the issue of more non-voting capital in multiple subsidiaries (there is a limit to the proportion of voting to non-voting shares an AG can issue in Germany), more reliance upon debt, or the creation of even more exotic structures to protect the existing control. Faced with these alternatives, the KGaA might actually be the lesser evil. This may ultimately be the logic behind my friend's decision not to oppose this proposal. If so, it is a sad commentary upon the lack of trust German managements have in market forces, that they might actually prefer to throttle their own companies' growth, rather than share control with minority shareholders. |
The ICGN Conference: some afterthoughts
In the generally warm, fuzzy aftermath of the International Corporate Governance Network's recent Annual Conference at the Guildhall in London, two sobering reflections continue to dog my memories of what was otherwise an extraordinarily successful conference. On the face of it, the conference was a resounding success. Despite the terrorist attacks of July 7th which paralyzed London transport and prevented several speakers from arriving in the U.K. at all, more than 500 delegates showed up over the two days of the conference. The programmed speeches and panels went on almost without a hitch. The turnout was almost as high on July 8th, despite the fact that many could have used the fear of follow-on attacks and continued interruption of four Underground lines as justification for not attending. The talks were interesting and useful, the level of professionalism high. For those of us who have fought to establish governance activity as a legitimate exercise of property rights on the part of shareowners, the conference was exhilarating. The corporate governance movement has clearly come of age. And yet . . .
The first cloud over this generally sunny landscape is that almost none of the conference attendees represented 'mainstream' fund managers. Despite best efforts by the hard-working and able conference organizers, the ICGN Conference has remained a conference by corporate governance practitioners, for corporate governance practitioners. Those U.K. hedge funds which have recently become in involved in governance initiatives, such as TCI and Atticus, were not there, nor were aggressive relational investors, such as Carl Icahn and Guy Wyser-Pratte. Most of the big U.K. unit trusts, the American mutual funds, or any of their Continental counterparts were conspicuous by their absence. Those which were present were represented almost entirely by governance specialists, rather than by portfolio managers or senior executives. Global giant Fidelity had no employees in attendance, nor did Capital Research. Most major securities law firms were not represented. Nor were many issuing companies in evidence, despite the presence of several of their most prominent members as speakers: companies and their advisors clearly are convinced they already know how to 'do' corporate governance.
The other shadow cast over the conference was that there was a general air of complacency on the part of the speakers. The cause of better corporate governance was taken as sui generis, something like accounting standards which may be fought over and involve considerable political maneuvering, but for which the need is accepted by all. It was assumed by almost all panelists that the cause would continue to grow, and that there would be more and more general acceptance of better standards. Not only was there no discussion of the widely-entertained argument that the cost of complying with many of the new governance regulations has far exceeded any benefits which might flow from them, there was no discussion of how to meet the still-persistent argument that there is no economic benefit to be associated with improved corporate governance. It was as if a gathering of prelates dedicated to issues facing the Church completely ignored the subjects of declining church attendance, and the intellectual challenge of secularist philosophies.
Yet the idea of investor involvement in corporate governance still meets with wide opposition in corporate circles, and major fund managers are persistently skeptical of governance initiatives, and of their capacity to do shareholders any good. As I pointed out in my panel, governance specialists often have a difficult time persuading their own investment staff to cooperate with them, a point which many in the audience acknowledged. Despite all the recent examples of spectacular disasters, the cult of the corporate 'strongman' is still very much alive. What the corporate governance movement needs are better studies, more quantitative proof for its positions, and a publicity machine to get the message out that bad governance destroys shareholder wealth, and that investors need to pay attention to governance issues the same way they look at sales growth, return on capital employed, book value, and any of the other variables deemed key to judging the quality of an investment. Until that message is clearly transmitted to investors, corporate governance will continue to be spoken of at best in the same breath as employee safety requirements, non-discrimination in employment, or any of the other burdens society heaps upon private enterprises for non-economic reasons. At worst, some still relegate it to the domain of do-gooders, tree-huggers, radical anti-capitalists and others who would impose utopian or crackpot ideas upon a society which has wisely decided to reject them.
The ICGN is the world's premier corporate governance organization, created ex nihilo in only ten years. That is its achievement and its glory. The organization has been at the forefront of developments which have raised governance from the concern of a few crusty dissident shareholders to a legitimate issue occasioning press comment, legislative concern, and occasionally compelling erring and even malevolent managements to change course. Moreover, corporate governance has become a concern in many countries where there has been no tradition of shareholder rights at all, where the prevailing notion of the treatment of minorities was, "Let the outsider beware." The ICGN has been godfather to a whole industry. But its greatest challenge remains that so few outside the governance field have heard of it, or care. An organization which supposedly represents more than $15 trillion should make every abuser of shareholder rights quake in his or her shoes, and every issuer of corporate securities sit up and take notice. The truth is that most of them could not care less, and so far, they have been right. |
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