There was a time when countries thought it demeaning to borrow from other peoples’ models of capitalism. Not so today, when even the United States is looking overseas in its attempt to address boardroom excesses of one kind or another.
Next week leading Democratic Congressman Barney Frank is expected to introduce legislation to allow shareholders to ratify executive pay awards, which follows a UK precedent.
Meanwhile, the Securities and Exchange Commission is to examine how Europe and other foreign jurisdictions permit shareholders to exercise voting rights as it confronts demands to give shareholders access to company proxies.
Proxy access is politically difficult, but importing a UK-style system that makes it easier for shareholders to fire underperforming executives would do a world of good for American corporate governance.
The transatlantic traffic on this issue is, incidentally, increasingly two-way. Mark Anson, chief executive of Hermes Pensions Management, tells me he recently visited Christopher Cox, the SEC chairman, in Washington to press the case for democratising the election of directors to US boards.
This follows an initiative last October whereby Hermes, Norges Bank Investment Management and the Netherlands funds ABP and PGGM wrote to the SEC to warn that a lack of shareholders’ rights in the US was a factor in the growing attractiveness of non-US markets for international capital. Norges Bank has also had a recent meeting at the SEC.
Mr Anson, a former chief investment officer of the giant Calpers fund in California, said he had had a reasonably constructive response and that Hermes and the other funds, which together speak for more than $750bn (£380bn), were keen to work constructively with the SEC on proxy access.
It was extraordinary, he added, that a country that took such pride in its democracy completely failed to apply democratic principles to its capitalism.
I am less confident that a vote on executive pay will work in the US.
The shame gene more often goes missing from US boards than in the UK, which matters if the vote is non-mandatory. Those like Aflac, the insurance company that is voluntarily introducing a non-binding vote on executive pay, will tend to be the good guys. So the vote will need buttressing.
One approach would be to rectify the lax rules in US exchanges’ listing agreements on director independence, which fall well short of standards in the UK.
Take Pfizer, where last year Hank McKinnell’s early departure was accompanied by a severance package of more than $200m. Given the dismal corporate and share price performance on his watch, the board had sanctioned a classic reward for failure.
Note that the senior independent director at the time, Stanley Ikenberry, who was also a member of the compensation committee, had been on the board since 1982. Anthony Burns, chair of the compensation committee until recently, had been on the board since 1988.
If the UK nine-year cap for independent status had applied, six of the 11 directors deemed independent under US rules would not have been regarded as independent.
UK governance is not yet the acme of perfection, but the US might benefit by borrowing this aspect of it.
As I head off on a short trip to Tokyo this weekend I take my leave in
another sense. This is is my last Monday column. But I shall continue to
write regularly elsewhere in the FT. I have enjoyed it – I hope you have
John Plender is chairman-designate of Quintain plc.