A small group of leaders of large corporations and investment managers together with an activist investor and a public pension plan convened a group to develop a set of broad corporate governance principles. According to the group, good corporate governance is critical to economic growth and a better financial future. A statement accompanying the principles noted that the group’s small size was not meant to be exclusive, but instead intended to allow the participants to “sit around a room and have a mature conversation about this important topic – something that would have been very difficult to do in a much larger forum.”
The group elected to develop a set of broad principles that are not overly prescriptive because of the diversity of corporations. The principles cover: the composition and internal governance of boards of directors; board responsibilities; shareholder rights; public reporting; board leadership; management succession planning; compensation management; and the role of asset managers.
Principles Related to Boards
The principles lay out a number of issues related to boards including:
- The benefit of having a subset of directors with experience directly related to the company’s business
- The importance of collaboration and collegiality on the board
- The importance of developing a board with “complementary diverse skill sets, backgrounds, and experiences.”
- The importance of recruiting directors who can devote a sufficient amount of time to the company
- Encouraging companies to pay directors at least in part with stock
- The importance of a robust self-evaluation process for the board
- The importance of strong, independent board leadership regardless of whether the chair of the board is independent.
The principles also lay out a number of suggestions for asset managers, including:
- Asset managers should exercise their voting rights thoughtfully
- They should devote sufficient time and resources to evaluate matters up for a shareholder vote in the context of long-term value creation
- They should actively engage with management and the board of a company to exchange ideas about issues up for a shareholder vote
- Proxy voting and corporate governance activities should receive senior level oversight
- Decision-makers at asset managers should have access to company personnel
- Asset managers should raise issues as early as possible to promote a constructive dialogue
- Proxy voting firms should be relied on for information, but all asset managers should base their votes on their own voting guidelines and policies.