To bridge corporate governance faultlines exposed by the financial crisis, institutional shareholders – particularly in the US – will seek broader voting powers but refrain from nominating preferred business executives to board positions, according to Peter Montagnon, chairman of the International Corporate Governance Network (ICGN).
Speaking before the opening of the annual ICGN conference in Sydney, Montagnon said the organisation’s members would push for greater transparency into the business operations and risks of investee companies to prevent the type of neglectful governance displayed by companies in the run-up to the crisis.
“In the US, the rights of shareholders were very limited. In the UK, shareholders did have power, but didn’t use it effectively,” Montagnon said.
Action was underway to further empower US shareholders, with the Securities and Exchange Commission (SEC) launching a debate aimed at enabling shareholders to directly elect members of company boards.
“In the US, shareholders don’t elect their own [company] representatives; they have little or no power to appoint them,” Christianna Wood, chief executive of Capital Z Asset Management and former senior investment officer at CalPERS, said.
Shareholder rights advocates also aimed to expand the so-called ‘say on pay’ provisions, in which US shareholders would be entitled to vote on the remuneration of company executives, beyond companies participating in the Troubled Asset Relief Program.
This month the SEC also banned brokers from automatically voting in accordance with company recommendations on behalf of their clients – unless clients instructed them to do so.
Carl Rosen, head of corporate governance at Sweden’s $28 billion AP2, noted that about 20 per cent of America’s stockmarket was owned by foreign investors and that the ICGN had been lobbying for these changes for at least 10 years.
Investors in the Australian market already held these voting rights, but they did not ensure good corporate governance among companies, Michael O’Sullivan, president of the Australian Council of Superannuation Investors, said.
“There has been an apathy problem, where some institutional investors have voted with management without proper consideration. But it is getting better, O’Sullivan said.
“It’s not difficult for them to have themselves nominated,” he said, referring to company executives nominating themselves or peers to board positions, “but it’s difficult to bind the recommendations of the nominations committee.”
But unlike the business community, big pension funds with mutual investments in large companies would not collectively nominate executives to board positions – even when these nominees could improve the performance and governance of the companies, Montagnon said.