A New Voice in Corporate Governance
With this post, The Conference Board Governance Center is launching the Governance Center Blog, which will provide real-time analysis of breaking topical corporate governance issues and links to the most influential resources in the corporate governance space. The blog’s main purpose is to provide directors, the C-level suite, general counsel and corporate secretaries with the latest information on such issues as executive compensation, separation of chair and CEO, shareholder proxy access, and financial reform, to name just a few.
Depending on the news cycle, the blog will be updated at least three times a week, by Corporate Governance Editor Gary Larkin, who joins The Conference Board after four years as managing editor of KPMG’s Audit Committee Insights. In addition to posts from Mr. Larkin, the Governance Center will invite key corporate governance experts to be guest contributors.
In addition to the posts, the blog will have links to well-known corporate governance blogs, such as the Harvard Law School Corporate Governance Forum, Corporate Governance Network blog, The Corporate Library Blog and Compliance Week blogs. There will also be links to such resources as KPMG’s Audit Committee Institute, PWC’s U.S. Corporate Governance Web site, the SEC and various corporate governance publications.
We would like to welcome you to become a subscriber to the Governance Center Blog, a free service of The Conference Board Governance Center. All you have to do is click on the subscribe button on the right sidebar.
We look forward to being your No. 1 source for corporate governance news. If you have any questions, are interested in being a guest contributor or have a news tip, contact Gary Larkin at 212-339-0320, gary.larkin@conference-board.org
- Gary Larkin
The Corporate Solution to the Executive Pay Problem?
I’ve never been in favor of government legislating on pay structures, pay levels, pay delivery systems. I have been in favor of government legislating so that shareholders can have their say on pay, and on the directors who make and implement those pay decisions.
I have also long maintained that the model for devising governance best practices that emerged in Britain in the 1990s, where the government tasked industry with coming up with a set of principles on its own, is typically the best way to go. If corporations come up with the solution they are many times more likely to adopt it than if it is imposed on them.
Those best practices – adopted virtually wholesale in the U.K. – led to such revolutionary practices as one-year contracts, and severance based on a single year’s salary, no bonus. This kind of thing made it safe for me to leave Britain and come over here to sort things out in the U.S..
Just joking, I was coming anyway.
Everything went swimmingly for a while in Britain, then it all started going as pear-shaped as it did in the U.S. with successive scandals not quite matching those in the U.S. but certainly coming close. So with all those best practices in place how did this happen?
Because they did just that. Stayed in place. They didn’t develop, they didn’t evolve, they didn’t progress, or adapt or anything really, but just stayed still. And even the policers of them – the Association of British Insurers and the National Association of Pension Funds – may even have gone a little soft on enforcement.
So it is reassuring in some ways that one of the corporate initiatives to have re-announced itself this morning should be well aware that: “An ongoing effort should be undertaken to continuously define, research, develop and communicate principles and best practices.” And not just leave them alone.
This last comes from some agreements that were made by a group of independent directors that calls itself IDEC (Independent Directors Executive Compensation Project) that is led by a director (Pastora San Juan Cafferty) and a consultant (Don Delves). The group wants to prevent government intervention by initiating self-policing. It laid out its principles in Agenda Week thus:
• Accountability. Boards must account for their pay-setting decisions.
• Alignment. Executive compensation should be precisely aligned with performance.
• Fairness. The amounts paid to a given executive should be fair to the individual and, above all, to shareholders.
• Transparency. Boards should make decisions on pay in an open manner and make the bases for these decisions accessible.
The same morning, The Conference Board issued its report, devised by a special task force, on compensation best practices that echoed many of the sentiments that IDEC have put out:
• Paying for the right things and paying for performance: Compensation programs should be designed to drive a company’s business strategy and objectives and create shareholder value, consistent with an acceptable risk profile and through legal and ethical means.
• The “right” total compensation: Total compensation should be attractive to executives, affordable for the company, proportional to the executive’s contribution and fair to shareholders and employees, while providing payouts that are clearly aligned with actual performance.
• Avoid controversial pay practices: Companies should avoid controversial pay practices, unless specific justification is present.
• Credible board oversight of executive compensation: Compensation committees should demonstrate credible oversight of executive compensation. They should be independent, experienced and knowledgeable about the company’s business.
• Transparent communications and increased dialogue with shareholders: Compensation should be transparent, understandable and effectively communicated to shareholders.
Even some of the language is the same. And both groups refer to “real and perceived executive compensation abuses.” Although there are so many real ones I think we’ve got our work cut out to deal with those without worrying about any misperceptions.
All of this is good news, although much of it has been said before. And it could be asked that since we’ve been waiting for the problem to correct itself for a while now with little or no progress why is today different?
Possibly because some companies and directors have already signed on. Possibly because if Say on Pay comes through it might be relatively easy just to check if a company is abiding by these principles. Possibly because government is wielding a pretty big stick at the moment and if corporations don’t want to get whacked by it they might just make the decision that it would be better to exercise a little self-discipline than have some corporal punishment administered from the White House.
So let’s see.
Editor’s Note: The Conference Board’s Governance Center was not aware of the release of the IDEC report prior to its release.