Market tumult puts spotlight on governance
Sep 25, 2008
Shareholders focus on say on pay and risk
With members of the US Congress clamoring for say on pay as a condition for agreeing to use federal funds for a bailout of troubled banks, the topics of advisory votes on compensation, CSR and succession planning covered at the annual Directors’ Institute on Corporate Governance this week, held by Practising Law Institute (PLI), were especially apt.
The buzz around say on pay was particularly positive. For TIAA-CREF, executive compensation is always a big concern. Hye-Won Choi, head of corporate governance for the pension fund, said she didn’t want to micro-manage the pay decision. ‘It’s really not the role of shareholders to set compensation,’ she explained. ‘It’s the role of the board.’
Still, the dialogue with shareholders that follows the introduction of an advisory vote at companies that TIAA-CREF follows is what is valuable. ‘The feedback was actually much more important to us than the results of the vote,’ Choi said.
Michelle Hooper, UK lead independent director of AstraZeneca, which has mandatory say on pay, agreed it is a ‘very good opportunity for dialogue.’
Nell Minow, board critic and co-founder of The Corporate Library, said an advisory voting mechanism alone doesn’t move her. ‘We don’t give any points for structural indicators,’ she said. ‘We look only at the decisions the board makes, which is why all of the companies that are in trouble right now did not get a good grade from us.’
The discussion moved to a topic perhaps even more salient to boards and directors: risk. According to Robert Fatovic, executive vice president and general counsel for Ryder Systems, a key precursor to the financial crisis was directors’ lack of attention to the problem. ‘I think last week demonstrated that risk assessment and risk management is not really working,’ he said.
To remedy this situation, he suggested running risk assessments by auditors, improving dialogue and adding more CSR disclosure in the MD&A.
By Janine Armin