Directors & Boards, Annual Report 2008 article (excerpt)
Clapman retired as senior vice president and chief counsel for
TIAA-CREF in 2005 after 32 years with the retirement funds investment
organization, where he headed the corporate governance program. He
currently is a partner of Governance for Owners LLP, a U.K.-based
investment organization that offers global investment and governance
products and services to institutional investors, and is president and
CEO of its U.S. corporate governance operations. In 2007 he authored
“The Clapman Report,” a set of best practice principles for managing
pension, endowment, and charitable funds, an initiative of the
Stanford Law School Institutional Investor Forum, for which he chairs
its Committee on Institutional Investor Governance.
Next steps? Be
careful what you wish for
In the name of
advancing shareholder rights, let’s not harm shareholder interests.
By Peter C. Clapman
Whether shareholders should have an advisory
vote on compensation and at which companies — the so-called say on pay —
also raises these concerns [about long term investor interests]. One
approach, which I favor, would be for shareholders to utilize the
shareholder proposal process in selective cases at companies that have
demonstrated poor practices. The other approach would be to require such a
vote at all companies, as is the practice in the U.K. Congressional
legislation to require such votes at all companies has been introduced.
say on pay
In my view,
universally applied say on pay is more problematic than helpful. For all
practical purposes, a shareholder right to say on pay already exists, since
the option of withholding votes from compensation committee members is not
only available but is being widely exercised. Thus, there is a link between
this issue and majority vote. Compensation disclosure under recent SEC rules
is increasingly complex and lengthy. Considerable work is needed to
intelligently assess such disclosure in individual company proxy statements.
There is a fair likelihood that companies would begin to standardize pay
practices for ease of disclosure, rather than to exercise appropriate
judgment as to the particular factors that should best apply to their
If applied to a universe of 10,000-plus
public companies in the U.S. (in contrast to far fewer companies in the
U.K.), most shareholders simply will not devote the necessary staff
resources to vote intelligently as individual shareholders and will
outsource the voting decision. The inevitable consequence would be to
transfer considerable discretionary power over individual company
compensation practices to the proxy advisory firms. I question that such an
approach will serve the long-term best interests of shareholders.
My conclusions on
current-day issues of corporate governance stem from my beginning premise
that “good corporate governance” means working to achieve the right balance
among management, boards, and shareholders. That balance may mean that
adding new shareholder powers does not necessarily equate to advancing
shareholder interests. For long-term shareholders, adding new shareholder
powers that go too far may actually be contrary to good corporate
governance. At some point, by eroding the authority of boards, we risk
lessening rather than enhancing boardroom accountability.
The author can be
contacted at firstname.lastname@example.org.
This article appeared in the
Annual Report 2008 special edition of Directors & Boards.
Copyright © 2008 Directors &
Boards, P.O. Box 41966, Philadelphia, PA 19101-1966. All rights reserved.