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Increased shareholder activism, lawsuits filed by investors and
continued malfeasance by financial institutions is prompting a
renewed bout of introspection by some executives, board members and
This week, the Conference Board, working with a rival group of Wall Street
a set of suggestions
to improve relations across corporate America.
It is the second such attempt in recent months. In February, a group calling
itself the Shareholder-Director Exchange,
unveiled a protocol intended
to improve relations between board members and investors, who often feel
alienated enough to back activist campaigns.
But the recommendations from the Conference Board look beyond the push from
corporate activists and aim to address a more basic reputation problem: by
and large, the public doesn’t trust big business.
“From accounting scandals to the global financial crisis, events of the past
decade have damaged the reputation of business, contributing to a public
distrust of business in general,” the report reads.
As an antidote, the report suggests a number of steps that at first glance
seem like common sense, but are not always commonplace.
To formulate the recommendations, the Conference Board brought together
company executives, institutional investors and even activist investors.
Among those who participated in its development were the activist Ralph
Whitworth, founder of Relational Investors and a director at
Brian Rogers, chairman of
T. Rowe Price;
Fred Hassan, a partner at the
firm Warburg Pincus; and Charles Elson, a professor of governance at the
University of Delaware.
The group put together an multipronged proposal to get public companies and
their investors on the same page, and restore the public’s broken trust.
The first plea is for a commitment by all parties to listen to one another
and consider varying perspectives of shareholder value. Some investors may
want a short-term rise in the stock price. Others may be looking for
long-term returns. And still other shareholders may be concerned with
minimizing a company’s environmental impact. To create sustainable value,
the Conference Board suggests, companies should listen to all these
Second, the report reminds directors that they should listen to investors —
not only because they have a fiduciary duty to do so, but also because they
can be voted out if they don’t. Though the Conference Board supports the
central that role directors play at public companies today, it seeks to
remind them that they should not disregard the wishes of their shareholders,
even if they disagree.
Investors, meanwhile, should be more transparent about their policies and
positions, the report contends. And instead of simply relying on the advice
of proxy advisory firms like Institutional Shareholder Services and Glass
Lewis, investors should conduct their own research before voting on
corporate governance matters.
Proxy advisory firms, in turn, should do a better job of avoiding the
appearance of conflicts of interest, disclosing in their recommendations to
investors whether they had been paid by that company for consulting
When it comes to compensation, the report is short on specific
recommendations, but it advocates payment policies that support
“sustainable” shareholder value. In other words, bonuses that reward a
short-term sale of the company are unlikely to win the trust of investors,
or the public.
The Conference Board advocates dialogue between boards and investors in
special circumstances, but it distinguishes itself from the
Shareholder-Director Exchange by stating that “it should not be a routine
method of engagement for most U.S. companies and investors.”
“Not all companies or all investors need to engage directly with each other
or engage all the time,” the report reads. “Overengagement can lead to
systemic overload and inefficient use of limited resources.”
Finally, the report calls for changes from the
Securities and Exchange
Commission. On the wish list: fewer comprehensive disclosure
requirements for companies, and more scrutiny of — and changes to — the
proxy voting system.
It’s a noble effort. But like the Shareholder-Director Exchange protocol,
the Conference Board’s recommendations will only have an impact if other
companies, board members and investors take heed.
In this age of contentions corporate governance — where activists make their
companies continue to adopt poison pills with ease — there is still a long
way to go before business has regained the public’s trust.
A version of this article appears in
print on 03/14/2014, on page B7 of the NewYork edition with the headline:
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