At U.S. Companies, Time to Coax the Directors Into Talking
column from Gretchen Morgenson examining the world of finance
and its impact on investors, workers and families.
shareholder meeting season again, corporate America’s version of
is the time of year when company directors venture out of the
boardroom to encounter the investors they have a duty to serve. After
the meetings are over, like so many Punxsutawney Phils, these
directors scurry back to their sheltered confines for another year.
is a bit hyperbolic, of course. But institutional investors argue that
there’s a troubling lack of interaction these days between many
corporate boards in the United States and their most important
investors. They point to contrasting practices in Europe as evidence
that it’s time for this to change.
Catherine Jackson, a senior
adviser at PGGM, said the first time she heard from the board
members of JPMorgan Chase was after the London Whale mess became
Credit Janita Sassen
a very different culture in the U.S.,” said Deborah Gilshan, corporate
governance counsel at RPMI Railpen Investments, the sixth-largest
pension fund in Britain, which has 20 billion pounds, or about $30
billion, in assets. “In the U.K., we get lots of access to the
companies we invest in. In fact, I’ve often wondered why a director
wouldn’t want to know directly what a thoughtful shareholder thinks.”
Gilshan indicated, directors at European companies routinely make
themselves available for investor discussions; in some countries, such
meetings are required. Many directors of foreign companies even — gasp
— give shareholders their private email addresses and phone numbers.
counterparts in the United States seem fearful of such contact. Large
shareholders say that some directors of American companies refuse to
meet at all, preferring to let company officials speak for them.
A 2014 survey by
PricewaterhouseCoopers of 863 company directors in the United States
speaks to this problem. It found that only two-thirds of the directors
communicated with institutional investors and that over half had not
discussed company policies about such communications.
bell-jar boardrooms are finally coming under scrutiny here. Some
companies are responding to investor demands for a role in director
elections by allowing certain long-term holders to nominate board
members, a process called proxy access. Bank of America, Citigroup and
General Electric are among the companies that recently changed their
bylaws to allow owners holding a minimum of a 3 percent stake for at
least three years to nominate directors.
is progress. But in Europe, investors have far more clout. For
example, those holding just 1 percent can nominate directors there.
And while board members at companies in the United States can keep
their seats even if they don’t receive majority support in an
election, directors in some European countries — the Netherlands is a
prime example — must give up their posts in such a circumstance.
Another difference is that shareholders’ votes on
executive pay are not binding at
American companies. At some European companies, they are.
interaction with shareholders is much more codified in Europe than it
is in the United States. In the Netherlands, the
corporate governance code is
based on the principle that a company is “a long-term alliance between
the various parties” involved in it. For example, the code requires a
company’s board chairman to supervise the communication process with
shareholders. In Sweden and Norway, the five largest stockholders at
companies receive invitations to join nominations committees convened
to select potential directors. Yngve Slyngstad, chief executive of
Norges Bank Investment Management,
the $820 billion government pension fund, sits on two such committees:
one at SCA, a Swedish consumer goods company, and one at the truck
makes sure the director selection process is conducted in a reasonable
and productive way and takes into account all shareholders’ points of
view,” Mr. Slyngstad said in an interview. “When the question is ‘How
do you get accountability from the board?’ this was the answer.”
course, not all European practices are more advantageous to
shareholders than those followed in American boardrooms. In Sweden and
Finland, for example, boards are elected as a bloc. That means
investors cannot vote against a single director; they can vote only
against the entire board.
understandable, perhaps, that directors in this country shrink from
interaction with shareholders. It takes time and effort to listen to
an array of views. And many directors fear that shareholders have
agendas that they do not share.
establishing a dialogue with long-term investors can help a company,
especially when it’s confronted with a crisis. When an activist
investor starts rattling a company’s cage, for example, a board that
has had no dealings with large investors must scramble to gain the
support it suddenly wants.
Catherine Jackson, a senior adviser at PGGM,
a Dutch pension fund manager that
oversees $206 billion in assets, recalled when she heard for the first
time from board members of JPMorgan Chase. It was after the billions
of dollars in trading losses at the bank arising from the London Whale
mess became public.
was the first time the bank’s directors felt they had to introduce
themselves,” she recalled. “They hadn’t done this before, quite
seems to be a sense among directors in the United States, large
investors say, that if they opened the door to engagement, they would
be inundated with frivolous directives and resolutions from meddling
evidence from overseas companies suggests otherwise. Among Dutch
companies, whose shareholders have significant say on governance
matters, only 14 shareholder resolutions have been put to votes at
annual meetings in the last four years.
the refusal by many boards in the United States to grant shareholders
access, it may not be surprising that dissatisfaction with directors
is on the rise even though most companies can point to generally
positive financial results during the recovery from the financial
proxy season preview published by
Broadridge Financial Solutions and PricewaterhouseCoopers analyzed the
results of 1,077 public company shareholders’ meetings held in the
last six months of 2014. The study found that 125 directors at 45
companies failed to receive support from a majority of shares voted.
This was a 26 percent increase from 99 directors at 53 companies
during the 2013 mini-season.
Gilshan at RPMI Railpen and Ms. Jackson at PGGM have drafted a policy
on boards’ engagement with shareholders that they hope companies will
make their own. It sets out how directors and shareholders should
communicate effectively and lays out appropriate topics for
discussion. These include executive compensation, board committee
structure, succession planning and the board’s role in overseeing
there isn’t any proof that interactions between directors and large
shareholders raise a company’s value, Mr. Slyngstad of Norges Bank
said it was a matter of common sense.
“Ideally, the large corporations and large investors are able to
develop together a good set of governance practices and platforms,” he
said. “Confident boards and confident board members do not fear the
change in practice. If you’re confident that you’re doing a good job,
version of this article appears in print on March 29, 2015, on page
BU1 of the New York edition with the headline: Time to Coax the
Directors Into Talking.
© 2015 The
New York Times Company