Category Archives: Corporate Governance

Corporate Governance is Dead

Posted by on December 28, 2010 6 comments

I am sorry to be the bearer of bad news but it’s true. Corporate Governance as we know it is dead. Gone. Pfffft. As 2010 comes to a close, we must all come to terms with the fact that this old clunker has seen its day. Its rusted hood ornament and fins are of a bygone era, an artifact of another time.

Not to be confused with its evil twin, that mutant beast on a short corporate leash also euphemistically referred to as “corporate governance,” this latter day zombie is a corrupt, tired and wholly irrelevant concept that has no value in today’s world of investing.

Perhaps an explanation is in order. The corporate governance I refer to was once an important, vital tool for holding corporations accountable to their shareholders. Executives were threatened by the concept. Uttering the words corporate governance was akin to dissing one’s mother at the country club.

In its heyday, corporate governance was an effective weapon for reigning in corporate excess, challenging management on a range of issues and a platform for debating important issues effecting shareholder value and stakeholders as a whole. In the late 1980s, the Council of Institutional Investors was but a seed of an idea in the head of California’s State Treasurer, Jess Unruh. JP Stevens, a textile manufacturer was facing unruly mobs of shareholders at its annual meeting because of its abhorrent labor practices. Multinational corporations were called to account for their complicity in Apartheid South Africa. Corporate Governance was in its infancy. Things changed.

The 1990s saw Corporate Governance maturing a bit. Some of the youthful exuberance remained but there was a bit of seriousness injected into its core. CalPERS, the largest pension fund in the U.S. got on the bandwagon, waging battles in annual meetings and boardrooms across corporate America. The nascent idea that executive pay should somehow be tied to corporate performance was bravely advocated. Corporate Governance was now in its adolescent years.

The 21st century arrived and Corporate Governance was in full swing. Barrel-chested, dapper and full of itself, Corporate Governance had come into its own. “Adults” were referring to corporate governance in the same sentence as shareholder returns, valuations and other big and important investment terms. Ominously, executives and corporate lawyers were using the language of Corporate Governance in conversations about the public enterprise. Institutes were formed at major Universities, international conferences were held and Corporate Governance became a profession. Middle age had set in but a mid-life crisis was looming.

In the mid-2000s, the Corporate Governance binge was on. A new beast, the hedge fund, and its drunken cousin, the private equity fund, had embraced Corporate Governance not as a good in and of itself but as a means to an end, in this case profit maximization. Even more disturbing was the embrace of Corporate Governance by the governed – corporate executives and their ilk. Yes, NAMBLA had merged with Mothers Against Child Abuse.

Corporate Governance has begun a period of self-evaluation. One indicator of this is the recent spate of mergers in the proxy adviser world. ISS goes through its seemingly endless series of mergers and acquisitions. MSCI, now stuck with a minimally profitable enterprise is no doubt wondering how to offload this doddering venture. Governance Metrics merged with the Corporate Library. Recent reports have announced the acquisition of Proxy Governance by Glass Lewis. Each of these events speaks to the unspoken fact that there is little money to be made in the proxy advisory world. CalPERS is refocusing its governance work in a way that suggests that its adventures over the last two decades is winding down.

More importantly, the arcane discussions about executive pay, director responsibility and risk are proving to be ever more irrelevant in a world concerned about the influence of the corporate enterprise on society and the environment. Corporate Governance as a tool for addressing these problems has lost its edge. While these discussions remain important to the initiated, its backward-looking approach and its failure to influence the ills of global corporate conduct speaks to its ultimate irrelevance.

Like all things once good, Corporate Governance has seen its day. Now I’m off to get my shovel before things start to smell.

Chevron Wants you to Believe in Them: Do You?

Posted by on November 11, 2010 No comments

I don’t watch much TV; maybe a half hour in the evening. But I already feel bombarded by one advertisement lately. It is Chevron’s new ad that juxtaposes a blue collar guy complaining about how much money big oil makes and questioning where it goes, with a pleasant woman who supposedly works at Chevron talking about all the good the company is doing with its oodles of cash.

Hmmm. Ok. My internal “greenwash” detection alarm goes off every time I see this, but let’s take a closer look and try to see both sides. Here are a variety of views on the matter:

“Chevron’s super-expensive fake street art is a cynical attempt to gloss over the human rights abuses and environmental degradation that is the legacy of Chevron’s operations in Ecuador, Nigeria, Burma and throughout the world,” said Ginger Cassady, a campaigner at Rainforest Action Network. “They must think we’re stupid.”

“We hear what people say about oil companies – that they should develop renewables, support communities, create jobs and protect the environment – and the fact is, we agree,” said Rhonda Zygocki, vice president of Policy, Government and Public Affairs at Chevron. “This campaign demonstrates our values as a company and the greater value we provide in meeting the world’s demand for energy.  There is a lot of common ground on energy issues if we take the time to find it.”

The new ads don’t directly address Chevron’s environmental record, and multi-billion-dollar lawsuit that alleges that the company is responsible for oil pollution in Ecuador, reports The Wall Street Journal.

Nationally, according to an extensive analysis of OSHA data, BP had 518 safety violations over the last two decades, compared with 240 for Chevron.  – ProPublica, October 26, 2010

After years of denial or uncertainty, many of the world’s largest corporations have started taking global warming seriously and are looking for ways to fight it…That’s the conclusion of a report released Tuesday by Ceres, a coalition of institutional investors and environmentalists based in Boston. The report found that some businesses – including…Chevron…– have taken specific steps to rein in emissions of greenhouse gases and pursue cleaner forms of energy. – San Francisco Chronicle, March 22, 2006

…the Yes Men, supported by Rainforest Action Network and Amazon Watch, pre-empted Chevron’s enormous new “We Agree” ad campaign with a satirical version of their own. The activists’ version highlights Chevron’s environmental and social abuses – the same abuses they say Chevron is attempting to “greenwash.” “They say we’re ‘interrupting the dialogue,’” said Andy Bichlbaum of the Yes Men, referring to Chevron’s terse condemnation. “What dialogue? Chevron’s ad campaign is an insulting, confusing monologue – with many tens of millions of dollars behind it.”

“Yesterday’s spoof was a comedy of errors, but what’s happening in Ecuador is no joke,” said Mitch Anderson, a campaigner at Amazon Watch. “While Chevron spends tens of millions every year to greenwash their image and fool the media, Ecuadorians continue to die from their toxic legacy.”

Well, the fact is, I agree. I agree that a glossy multi-million dollar ad campaign is a disgusting joke given Chevron’s history of flagrant human and environmental rights violations. But I also agree that there should be a dialogue with this company because the fact is, Chevron is not going anywhere, and it represents the ultimate “dirty tech” opportunity – see “Talk Dirty to Me” below.  Making fun of Chevron makes for some good laughs and snarks, but I’m not sure that it makes for much progress.

According to the statistics above, Chevron appears to be only half as bad as BP. Isn’t that terrific!? I can’t resist the sarcasm either, but to paraphrase a union leader, “They may be bastards, but they are our bastards.”

The Annual Meeting is Dead. Long Live the Annual Meeting!

Posted by on September 9, 2010 No comments

The Rise of the Virtual Investor

A few days ago, I wrote about the brouhaha that has erupted over Symantec Corporation’s plan to hold an online-only shareholder meeting on September 20th. The U.S. Proxy Exchange and CorpGov.net have taken exception to Symantec’s plan to hold it’s meeting only on the Internet, suggesting that this effort is an affront to important shareholder rights.

As was noted in its post on the subject, CorpGov.net’s James McRitchie wrote, “[s]ome investors have expressed concerns that virtual-only meetings would deprive them of the opportunity to meet with company representatives face to face. They believe that physical meetings allow investors to better express their positions – and that management and the board listen more closely when communications are made in person.’

If the primary purpose of attending a shareholder meeting is to confront company executives face-to-face and to engage in a bit of verbal jousting, then by all means, fight the good fight and get executives to see the light and stay with in-person meetings. But is that what investors actually want from an annual meeting?

Let’s review the annual meeting process for a moment.

An annual meeting is convened to consider management and shareholder proposals and allow for both company representatives and shareholders to engage in a presentation of views about matters pertaining to the corporation. To suggest that the parties engage in a discussion is a bit of an overstatement as most executives simply try to get through the process as quickly as possible while shareholders either read their proposals that have already been published in the company proxy statement or raise issues of concern to them. The proxy ballots have already been tabulated and the company representatives already know where things lie. On occasion, the meeting becomes a forum for shareholder theater where the wrongs of the company are put on full display. An hour or so later, everybody goes home.

The virtual shareholder meeting is a game changer. What it does is remove the human element from this process. Indeed, it enables wily CEOs to avoid one of the few times they have to go mano-a-mano with the company’s owners. More importantly, it forces investors to develop meaningful strategies for expressing their views and influence the annual meeting process.

As I have noted in a number of previous posts on this subject, the annual meeting process has devolved into a form of Kabuki Theater, a drama in which the outcome is already determined before the play begins. Taking this process off the table forces shareholders to engage in creative forms of engagement, which they have largely failed to do.

Let me suggest a couple of shareholder approaches in a virtual world:

  1. Social Networking: Facebook and LinkedIn shareholder pages discussing the issues
  2. Investor Blog: An in-depth discussion of the issues surrounding the annual meeting
  3. Online Commenting: Make noise as a commenter on other blogs, investor forums and other online publications
  4. Microblogging: Twitter like hell. Got a quick thought, Tweet it. Find an article of note, put it up.

None of these tasks are easy and they take time and thought. But herein lies the challenge to investors: Do you simply want to rain on the CEO’s parade or do you want to improve the company’s performance and shareholder value? I argue that the virtual meeting is a wake up call for investors to develop substantive strategies for effecting corporate change.