Friday, November 9, 2012
Corporate Governance Symposium - Governance Issues of Critical Importance to Institutional Investors
The focus of the 2012 Corporate Governance Symposium, which was held on November 9, 2012, was “Governance Issues of Critical Importance to Institutional Investors.” The Symposium began with a panel of institutional investors comprised of large money managers, pension funds, private equity and hedge fund investors, and proxy advisory firms, during which each panelist shared what mattered most to them. In addition, The Honorable Jack Jacobs, Justice from the Supreme Court of Delaware, provided his views. (The names and affiliations of the entire panel are listed below.) The Symposium then continued with the presentation of four academic papers on topics that are of critical importance to institutional investors today. Three of the papers focused on various aspects of effective board composition and one focused on proxy advisory firm performance in the recent “Say on Pay” votes. (A short description of each of the papers and their respective authors follows.)
The Symposium provided attendees with cutting edge governance discussion and debate.
The Institutional Investor Panel was comprised of the following members:
- Janice Hester-Amey, Portfolio Manager, CalSTRS
- Glenn Booream, Principal, Vanguard Group
- Martha Carter, Managing Director, Global Research, ISS
- Scott Goebel, Senior Vice President and General Counsel, Fidelity Management & Research Company
- The Honorable Jack Jacobs, Justice, Supreme Court of Delaware
- Andrew Letts, VP Compliance & Governance, State Street Global Advisors
- Robert McCormick, Chief Policy Officer, Glass Lewis & Co.
- Eric Rosenfeld, Chief Executive Officer, Crescendo Partners
- Josh Targoff, Chief Operating Officer and General Counsel, Third Point, LLC
- Lopa Zielinski, Senior Counsel & director, TIAA-CREF
Moderator: Charles Elson, Director of the Weinberg Center and Edgar S. Woolard, Jr., Chair of Corporate Governance
The academic papers that were presented:
- “Do Independent Expert Directors Matter?”
Ronald W. Masulis, Australian Business School, University of New South Wales
Christian Ruzzier, Departamento de Economía, Universidad de San Andrés
Sheng Xiao, Social Sciences Division, University of Minnesota (Presenter)
Shan Zhao, Grenoble École de Management
The generally weak correlation between board independence and firm performance is a major empirical puzzle. One possible explanation is: director independence alone is not enough. To explore this possibility, the paper examines the full employment histories of independent directors at S&P 1500 companies. The paper defines an independent expert director (IED) as an independent director who has worked in the same 2-digit SIC industry as the company where he/she serves as an independent director. The paper shows the proportion of IEDs on a board is positively and significantly correlated with firm performance. The paper finds the higher the proportion of IEDs, the less earnings restatements and the more cash holdings. Firms with IEDs have higher CEO pay-performance sensitivity, higher CEO turnover-performance sensitivity, and more patents with more citations. Stock market investors react positively to IED appointments. The paper also finds the higher the CEO power, the less likely IEDs will be on board.
The discussant for this paper was Sanjai Bhagat, University of Colorado at Boulder.
- “Matching Directors with Firms: Evidence from Board Structure Following Corporate Spinoffs”
David J. Denis, University of Pittsburgh
Diane K. Denis, University of Pittsburgh (Presenter)
Mark D. Walker, North Carolina State University
The paper analyzes board structure surrounding corporate spinoffs. The paper’s findings indicate that there are substantial differences in the composition of the boards of spun off units and post-spinoff corporate parents. There is little overlap in the two boards and the majority of the unit directors have no prior connection to the parent company. Placement on either the parent or unit board is strongly associated with a director having expertise that is unique to that firm’s industry. These findings are consistent with the spinoff allowing the parent and unit firms to tailor their boards to the specific assets and operating needs of their firms. The paper also finds that prior ties between individual directors and the CEO have a meaningful impact on the composition of both the parent and the unit board.
Winner of the John L. Weinberg Center for Corporate Governance Best Paper Award
The discussant for this paper was Fred Bereskin, University of Delaware.
- “Who Chooses Board Members?”
Ali Akyol, University of Melbourne
Lauren Cohen, Harvard Business School and NBER (Presenter)
The paper exploits a recent regulation passed by the US Securities and Exchange Commission (SEC) to explore the nomination of board members to US publicly traded firms. In particular, the paper focuses on firms’ use of executive search firms versus simply giving choice rights to internal members (oftentimes simply the CEO), in nominating the new directors to serve on the board of directors. The paper shows that companies that use search firms to find their board members pay their CEOs significantly higher salaries and significantly higher total compensations. Further, companies with search firm directors are significantly less likely to fire their CEOs following negative performance. In addition, the paper finds that companies with search firm directors are significantly more likely to engage in mergers and acquisitions, and see abnormally low returns from this M&A activity (CEO compensation and monitoring along with acquisition strategy being perhaps the most attributable to board decision-making).
The discussant for this paper was Kenneth Davis, University of Wisconsin Law School.
- “Shareholder Votes and Proxy Advisors: Evidence from Say on Pay”
Yonca Ertimur, University of Colorado at Boulder
Fabrizio Ferri, Columbia University (Presenter)
David Oesch, University of St. Gallen
The paper investigates the effect of proxy advisors’ recommendations on shareholder votes, stock prices and firm behavior in the context of mandatory “say on pay” votes, a novel and complex item requiring significant firm-specific analysis. Proxy advisors are more likely to issue an Against recommendation at firms with poor performance and higher levels of CEO pay, but rather than following a “one-size-fits-all” approach, they take into account firm-specific circumstances. Proxy advisors’ recommendations are the key determinant of voting outcome but the sensitivity of shareholder votes to these recommendations varies with the institutional ownership structure, the rationale behind the recommendation and certain firm characteristics. The paper documents a small but significantly negative market reaction to the release of negative recommendations. More than one third of the firms receiving a negative recommendation publicly question the proxy advisors’ methodologies, but this protest has no effect on the recommendation and the voting outcome.
Winner of the John L. Weinberg Center for Corporate Governance Best Paper Award
The discussant for this paper was Robert Thompson, Georgetown University Law Center.
Thursday, October 11, 2012
Director-Shareholder Engagement – Limits and Possibilities
Board/Shareholder engagement is a topic that has been increasingly receiving attention in the US. Many governance organizations and experts have been discussing this topic in an attempt to highlight the issues and challenges that have been expressed by the various
constituencies including the directors, institutional shareholders (both US and global), activist shareholders, corporate management, regulators, lawyers, etc. While the constituencies do not always agree on the potential solutions, many agree that the time is ripe for a continuing and fruitful dialogue. Join us at the Weinberg Center for Corporate Governance on October 11th from 9:30 to 11:30 as we convene a panel of experts to attempt to find the most workable solutions. The panel information is provided below:
1. Donna Anderson, Vice President and Corporate Governance Specialist, T. Rowe Price
2. Glenn Booraem, Principal at Vanguard and Controller, Vanguard Funds
3. Peter Gleason, COO and Director of Research, National Association of Corporate Directors
4. Deborah Gilshan, Corporate Governance Counsel, Railpen Investments
5. Jeremy Goldstein, Partner, Executive Compensation & Benefits, Wachtell, Lipton, Rosen & Katz
6. Jon Hanson, Founder and Chairman, The Hampshire Companies (Director HealthSouth, Inc., Prudential Financial Inc. et. al.)
7. Catherine Jackson, Corporate Governance Advisor, PGGM Investments
8. Floyd Norris, Journalist, New York Times
9. The Honorable Henry Ridgely, Justice, Supreme Court of Delaware
10. Sarah Teslik, Senior Vice President Policy and Governance, Apache Corporation
11. Marc Rome, Vice President for Corporate Governance, Chesapeake Energy Corp.
Moderator: Professor Charles M. Elson, Director of the Weinberg Center and the Edgar S. Woolard, Jr., Chair of Corporate Governance
Tues., May 8, 2012
Punting Peer Groups : Resolving the Compensation Conundrum
- Kenneth Bertsch, Chairman and CEO, Society of Corporate Secretaries and Governance Professionals
- The Honorable William Chandler, Partner, Wilson Sonsini Goodrich & Rosati (former Chancellor, Court of Chancery)
- Bonnie Hill, Co-Founder, Icon BLUE; Director, California Water Service Group, AK Steel Holding Corporation, Home Depot, Inc., Yum Brands, Inc.
- The Honorable Sam Glasscock, III, Vice Chancellor, Court of Chancery
- Ira Kay, Managing Partner, Pay Governance
- Thomas L. Kelly, General Partner, CHB Capital Partners; Director, Ensco, PLC
- Aeisha Mastagni, Investment Officer, CalSTRS
- Robert McCormick, Chief Policy Officer, Glass Lewis
- Patrick McGurn, Special Counsel, ISS-MSCI
- Robert Rock, Chairman and Publisher, Directors & Boards; Director, Alberto-Culver Co., Penn Mutual Life Insurance Co., Quaker Chemical Co., Advanta Corp.
- Nelson Schwartz, New York Times
- David Swinford, President & CEO, Pearl Meyer & Partners, Inc
- Lopa Zielinski, Director of Corporate Governance and Senior Counsel, TIAA-CREF
Thurs., Apr 12, 2012
Dual Class Stock – Cost, Benefits, and Future under Delaware Law
- Frederick H. Alexander, Partner, Morris, Nichols, Arsht & Tunnell LLP
- William Bratton, Nicholas F. Gallicchio Professor of Law; Co-Director, Institute for Law and Economics, University of Pennsylvania Law School
- David L. Cohen, Executive Vice President, Comcast Corporation
- Geoff Colvin, Editor, Fortune Magazine
- J. Michael Cook, retired Chairman and Chief Executive Officer, Deloitte & Touche LLP; Director, International Flavors & Fragrances, Comcast Corporation
- Michael Geltzeiler, Chief Financial Officer and Group Executive Vice President, NYSE Euronext, Inc.
- Scott Goebel, Senior Vice President and General Counsel, Fidelity Investments
- The Honorable John Noble, Vice Chancellor, Court of Chancery
- Michael Useem, William and Jacalyn Egan Professor of Management, Director, Center for Leadership and Change Management, The Wharton School, University of Pennsylvania
- Ann Yerger, Executive Director, Council of Institutional Investors