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Peter C. Clapman, whose comments are presented below, is CEO of the US affiliate of UK-based Governance for Owners LLP, and currently chairs the Committee on Institutional Investor Governance of the Stanford Law School Institutional Investor Forum.

For links to the referenced draft and other comments, see



Comments of

Peter C. Clapman

August 5, 2008


I have a number of comments responsive to the Gordon Paper.  I believe Professor Gordon has analyzed the issues extremely well and his conclusions are very much on target about the potential problems with a mandatory "Say on Pay" advisory vote on executive compensation..


Indeed, although Professor Gordon and I have never discussed these issues, his conclusions are very much in accord with the views expressed in my article: “Shareholder Rights: Next Steps? Be Careful What You Wish For" in the recent 2008 Directors & Boards Annual Issue.


As Professor Gordon appropriately notes, there already is considerable shareholder input into the process for determining executive pay.   Most equity compensation already requires shareholder approval; shareholders have the right, and exercise that right, to "withhold" votes from board nominees, who have approved compensation practices deemed inappropriate whatever measure the shareholder wishes to apply.


Shareholders also have the right to file shareholder resolutions at companies deemed to have excessive compensation practices, and have broadly utilized this right.


The question then, as posed by Professor Gordon is this:   Should the current system be changed to require mandatory advisory votes at all US companies?  The problems he notes are concerns I included in my article, among them, that homogenization of practices are inevitable as guidelines begin to rule the day and control the process.  This will crowd out innovative practices suitable to particular companies, but which do not conform to guidelines.


Professor Gordon also notes that the number of companies where the vote would take place greatly exceed the number of such votes in the UK.  Inevitably, most investors, beyond TIAA-CREF, my former employer of 32 years, and a small number of public pension funds and mutual funds that are willing to devote time and resources to case-by-case review, will outsource the analysis and decision making to the proxy advisory services.  Even the investors that do take their voting responsibilities seriously will inevitably rely on their own guidelines and simply will not devote the time and resources to take on such a daunting task as reviewing all the compensation disclosures and discussions from all of their portfolio companies.


In the final analysis, however, the ultimate question may come down to why some shareholders believe they need this additional lever beyond what they already now have under the latest corporate governance rules and practices.  As someone who greatly respects the corporate governance system in the UK, with its broader reliance on greater shareholder rights, it is understandable and tempting to adopt UK practices, on the assumption that they can work well here in the US.  A more sophisticated analysis would recognize that they are vast structural difference in the markets between the US and the UK, including number of companies, concentration of institutional investors and  regulatory rules, all of which reduce the logic of the US adopting UK practices without a great deal of thought.


As a long-time shareholder rights advocate, I am concerned that at some point---and we may be at that point---shareholders overreach in how much in the way of new rights are claimed, the effect of which is erode rather than enhance director accountability.  Calling a vote "advisory" only, in my view, masks the inevitable effect such a vote would have; any company director that chooses to challenge or not comply with the purport of the vote would inevitably be subject to a "withhold" campaign at the next election of directors.


Thus, I agree with Professor Gordon that the current corporate governance system provides sufficient shareholder input and gives shareholders the needed clout to engage with company directors and bring their views on executive compensation to the board.   This is the better approach in my view than moving to an untried new regime which would likely provoke more needless confrontation between management, boards and shareholders without benefit even for shareholders.



Peter Clapman

Governance for Owners, Inc.





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