By bizarre coincidence in the week of FinReg and proxy plumbing, I came across a particularly apposite episode of the ancient British sitcom, Are You Being Served? on Maryland Public Television. Grace Brothers department store was facing a hostile takeover and the cast were concerned that they would face a proxy fight. (I paraphrase, of course: Although there were many mentions of shareholders in the script, Mr Humphries, Captain Peacock, Mrs. Slocombe, et al., did not get into the details of proxy fights.) Transparency is not a core value at Grace Brothers, for the cast came up with a plan to impersonate missing retail investors in order to ensure a majority vote for the status quo.
In real life, 30 years after this series was made, the current flurry of activity around corporate governance may not be raising many laughs: Will the attempt to modernize the proxy process actually result in a higher voter turnout, better understanding of long-term value and improved shareowner communications? We’ll have to hope it will “ride up with wear,” as Mr Humphries used to promise… Keep up with this issue on NACD’s regulatory and legislative issues website.
On Wednesday, the SEC announced its decision to review the proxy voting system. This system, referred to by the SEC as “proxy plumbing,” includes shareholder voting, communication, and vote tabulation. The SEC is addressing current concerns in a concept release which will solicit comment from the investor and corporate community for 90 days after publication in the Federal Register. The concept release is intended to generate solutions with regards to three areas:
Enhancing the accuracy, transparency, and efficiency of the voting process
Determining whether the rules should be revised to improve shareholder communications and increase their participation
Determining whether the voting power is aligned with economic interests and whether the SEC’s disclosure requirements provide investors with sufficient information.
The SEC’s proposed solutions seek to improve vote accuracy and communication. It is unlikely that any changes to come out of this effort will be adopted until next year. NACD supports any regulations that bring clarity and accountability to the shareholder voting process. For more information visit NACD’s Legislative & Regulatory Update on NACDonline.org.
Mellody is a very passionate, smart and disciplined leader, and many of her suggestions can add distinct value to all directors, boards and senior executives. Her knowledge nuggets are gleaned from her current board leadership experience at Estee Lauder, Starbucks and DreamWorks Animation—among others.
Here’s a quick summary of Mellody’s key points:
Keep slides to maximum of three pages – not three inches thick!
If an executive or presenter wants to provide more information in the board book, fine—but don’t “re-read” to the board what’s in the board book. That’s insulting and a massive time suck!
Whenever presenting material to the board, start with “the headline is…” Net: Stick to the key takeaways and implications, and allow for an interactive knowledge exchange between the board members and participants.
There are no categorically right or wrong approaches to corporate governance. Mellody is a fan of the NACD Key Agreed Principles, and she suggests that boards take a principles-based approach to providing board leadership oversight of their company. For example, many ask her if co-CEO/Chairman roles do, or do not, make an impact on an investment decision. Short answer: No. There is no right or wrong way, as a categorical decision, to run a company or board. Whatever is best for the company, in the long run, do it and move on.
Lastly, “The Cake.” The executive session is the best part of board meetings. This is where and when the real meaningful dialogue occurs. When asked if the executive session should occur before or after the board meeting: after. Listen and discuss during the formal board sessions, and then opine based on information and insights.
It should be noted that Ariel Investments takes a long-term view when making investment decisions— typically three-five years minimum, and Ariel Investments has held positions for over a decade. If all boards, directors and shareowners (i.e., not traders and share flippers) take a similar approach to evaluating and running their businesses, perhaps capitalism can prove merit once again.