Posts Tagged ‘Accountability’

Directors Should Communicate with Shareholders

Editor’s Note: John Wilcox is chairman of Sodali and former Head of Corporate Governance at TIAA-CREF. This post is based on a Sodali publication by Mr. Wilcox.

To demonstrate their effectiveness, corporate boards should increase transparency, provide an annual report of boardroom activities and take charge of their relations with shareholders.

With shareholders continuing to press for ever-deepening levels of engagement, companies must find a way to answer the most basic question of corporate governance: “How effective is the board of directors?” It is a question that can only be answered by the board itself, but it presents directors with a challenge as well as an opportunity. The challenge is to overcome the mindset, habits and perceived risks that have long kept boardroom activities under wraps. The opportunity, on the other hand, is to define governance and strategic issues from the board’s perspective, manage shareholder expectations, take the engagement initiative away from shareholders and reduce the likelihood of activism. Directors should give careful consideration to this opportunity. Over the long term, it will be far better for companies to control the process by which board transparency is achieved rather than waiting for yet again another set of governance reforms that could further erode the board’s authority.

…continue reading: Directors Should Communicate with Shareholders

2014 CPA-Zicklin Index of Corporate Political Disclosure

Posted by Bruce F. Freed, Center for Political Accountability, on Tuesday October 7, 2014 at 9:17 am
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Editor’s Note: Bruce F. Freed is president and a founder of the Center for Political Accountability. This post is based on the 2014 CPA-Zicklin Index of Corporate Political Disclosure and Accountability by Mr. Freed and Sol Kwon; the full report is available here. Work from the Program on Corporate Governance about corporate political spending includes Shining Light on Corporate Political Spending by Lucian Bebchuk and Robert Jackson, discussed on the Forum here. A committee of law professors co-chaired by Bebchuk and Jackson submitted a rulemaking petition to the SEC concerning corporate political spending; that petition is discussed here.

Dozens of leading American corporations have embraced political transparency without the prodding of shareholder proposals. This is a new and important finding in the fourth annual CPA-Zicklin Index of Corporate Political Disclosure and Accountability released by the Center for Political Accountability on September 24.

At the same time, the Index found that companies that have already adopted disclosure and accountability continue to strengthen their policies, making them more robust and comprehensive. All this is happening in the face of intense opposition by several of the leading business trade associations.

…continue reading: 2014 CPA-Zicklin Index of Corporate Political Disclosure

Radical Shareholder Primacy

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday September 24, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from David Millon, the J.B. Stombock Professor of Law at Washington and Lee University.

My article, Radical Shareholder Primacy, written for a symposium on the history of corporate social responsibility, seeks to make sense of the surprising disagreement within the corporate law academy on the foundational legal question of corporate purpose: does the law require shareholder primacy or not? I argue that disagreement on this question is due to an unappreciated ambiguity in the shareholder primacy idea. I identify two models of shareholder primacy, the “radical” and the “traditional.” Radical shareholder primacy makes strong claims about both shareholder governance rights, conceiving of management as the shareholders’ agent, and also about corporate purpose, insisting that corporate law mandates shareholder wealth maximization. Because there is no legal basis for either of these claims, those who deny that shareholder primacy is the law are correct at least as to this model. However, the traditional version of shareholder primacy accords to shareholders a special place in the corporation’s governance structure vis-à-vis the corporation’s nonshareholder stakeholders, for example, with respect to voting rights and the right to bring derivative suits. Beyond this privileged position in the horizontal dimension, there is no maximization mandate and corporate law does very little to provide shareholders with the tools necessary to exercise governance powers; there is no primacy in the vertical dimension or on the question of corporate purpose. Nevertheless, this conception of shareholder primacy—modest as it is—is enshrined in corporate law. Those who deny that shareholder primacy is the law need to acknowledge this fact, but once it is understood that traditional shareholder primacy has little in common with the radical version there is no reason to be reluctant to do so.

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How Much Protection Do Indemnification and D&O Insurance Provide?

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday May 28, 2014 at 9:02 am
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Editor’s Note: The following post comes to us from Jon N. Eisenberg, partner in the Government Enforcement practice at K&L Gates LLP, and is based on a K&L Gates publication by Mr. Eisenberg; the complete publication, including footnotes, is available here. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

We consider below how advancement of legal fees, indemnification, and insurance operate when officers and directors become involved in regulatory investigations and proceedings. Part I addresses the enhanced risk officers and directors face today in an Age of Accountability. Part II addresses advancement of legal fees, which may be discretionary or mandatory depending on a company’s by-laws. Part III covers indemnification, which generally requires at least a conclusion that the officers and directors acted in good faith and reasonably believed that their conduct was in, or at least not contrary to, the best interests of the corporation. Part IV examines insurance coverage, which varies from carrier to carrier and may or may not provide meaningful protection. Finally, Part V summarizes the principal lessons from the analysis. Although there is significant overlap with similar principles that apply to private litigation, we limit our discussion here to advancement, indemnification, and insurance for regulatory investigations and proceedings.

…continue reading: How Much Protection Do Indemnification and D&O Insurance Provide?

Who’s Responsible for the Walmart Mexico Scandal?

Posted by Benjamin W. Heineman, Jr., Harvard Law School Program on Corporate Governance and Harvard Kennedy School of Government, on Thursday May 15, 2014 at 4:00 pm
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Editor’s Note: Ben W. Heineman, Jr. is a former GE senior vice president for law and public affairs and a senior fellow at Harvard University’s schools of law and government. This post is based on an article that appeared in the Harvard Business Review online, which is available here.

The Walmart bribery scandal is one of the most closely-watched cases of alleged malfeasance by a global company. It broke into the open in April, 2012, when the New York Times published a lengthy investigative piece alleging Walmart bribery in a Mexican subsidiary and a cover-up in its Bentonville, Arkansas, global headquarters. The piece, which won a Pulitzer Prize for reporter David Barstow, raised a host of personal accountability and corporate governance issues for the company.

Late last month, on the second anniversary of the story nearly to the day, Walmart released its first Global Compliance Report (GCR). The report describes the company’s governance response and changed compliance framework—from holding 20 audit committee meetings in 2014, to substantial organizational restructuring, to enhanced education and training. On paper, Walmart appears to have adopted many best practices and to have set out a sound plan for moving forward. However, questions of accountability remain unanswered, when it comes to determining what actually happened in the past, what systems failed, and who was responsible for possible violations of the Foreign Corrupt Practices Act, which bars bribery of foreign officials. A lengthy internal inquiry continues, as well as investigations by the Justice Department and the SEC, with the scope broadened to include possible Walmart improprieties in Brazil, China and India.

…continue reading: Who’s Responsible for the Walmart Mexico Scandal?

Looking at Corporate Governance from the Investor’s Perspective

Posted by Luis A. Aguilar, Commissioner, U.S. Securities and Exchange Commission, on Thursday April 24, 2014 at 9:08 am
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Editor’s Note: Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at Emory University School of Law’s Corporate Governance Lecture Series; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Corporate governance has always been an important topic. It is even more so today, as many Americans recognize the need to develop a more robust corporate governance regime in the aftermath of the deepest financial crisis since the Great Depression.

Although the recent financial crisis—aptly named the “Great Recession”—has many fathers, there is ample evidence that poor corporate governance, including weak risk management standards at many financial institutions, contributed to the devastation wrought by the crisis. For example, it has been reported that senior executives at both AIG and Merrill Lynch tried to warn their respective management teams of excessive exposure to subprime mortgages, but were rebuffed or ignored. These and other failures of oversight continue to remind us that good corporate governance is essential to the stability of our capital markets and our economy, as well as the protection of investors.

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Corporate Governance According to Charles T. Munger

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday April 17, 2014 at 9:07 am
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Editor’s Note: The following post comes to us from David Larcker, Professor of Accounting at Stanford University, and Brian Tayan of the Corporate Governance Research Initiative at the Stanford Graduate School of Business.

Berkshire Hathaway Vice Chairman Charlie Munger is well known as the partner of CEO Warren Buffett and also for his advocacy of “multi-disciplinary thinking”—the application of fundamental concepts from across various academic disciplines to solve complex real-world problems. One problem that Munger has addressed over the years is the optimal system of corporate governance. How should an organization be structured to encourage ethical behavior among organizational participants and motivate decision-making in the best interest of shareholders? His solution is unconventional by the standards of governance today and somewhat at odds with regulatory guidelines. However, the insights that Munger provides represent a contrast to current “best practices” and suggest the potential for alternative solutions to improve corporate performance and executive behavior. In our paper, Corporate Governance According to Charles T. Munger, which was recently made publicly available on SSRN, we examine this solution in greater detail.

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Perspectives on Strengthening Enforcement

Posted by Mary Jo White, Chair, U.S. Securities and Exchange Commission, on Wednesday April 2, 2014 at 9:02 am
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Editor’s Note: Mary Jo White is Chair of the U.S. Securities and Exchange Commission. This post is based on Chair White’s remarks to the Annual Forum of the Australian Securities and Investments Commission (ASIC), available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Greg [Tanzer, ASIC Commissioner] suggested that I talk about my perspectives on international cooperation in the enforcement context, as well as what we at the SEC are doing to try to make our own enforcement program even more robust and responsive to the issues presented by interconnected and fast moving markets. I am happy to do that. But, before I do, I would like to share a couple of thoughts on the topic of your first session—“Enforcement—does the punishment fit the crime?”

Much of my professional background has been in enforcement and strong enforcement was one of my primary focuses when I became Chair of the SEC almost a year ago and it remains so. Vigorous enforcement of the securities laws in the United States, in Australia and around the world is obviously a critical component of our investor protection mission.

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Too-Big-To-Fail Banks Not Guilty As Not Charged

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday March 28, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Nizan Geslevich Packin of the University of Pennsylvania Law School; Zicklin School of Business, Baruch College, City University of New York.

In the paper, Breaking Bad? Too-Big-To-Fail Banks Not Guilty As Not Charged, forthcoming in the Washington University Law Review, Vol. 91, No. 4, 2014, I focus on the benefits that the largest financial institutions receive because they are too-big-to-fail. Since the 2008 financial crisis, rating agencies, regulators, global organizations, and academics have argued that large banks receive significant competitive advantages because the market still perceives them as likely to be saved in a future financial crisis. The most significant advantage is a government implicit subsidy, which stems from this market perception and enables the largest banks to borrow at lower interest rates. And while government subsidies were the subject of a November 2013 Government Accounting Office report, in the paper I focus on a specific aspect of the benefits the largest banks receive: the economic advantages resulting from exempting the largest financial institutions from criminal statutes. I argue that this exemption—which has been widely discussed in the media over the last few years, following several scandals involving large financial institutions—not only contributes to the subsidies’ economic value, but also creates incentives for unethical and even criminal activity.

…continue reading: Too-Big-To-Fail Banks Not Guilty As Not Charged

Crisis Management Lesson from Toyota and GM: “It’s Our Problem the Moment We Hear About It”

Posted by Benjamin W. Heineman, Jr., Harvard Law School Program on Corporate Governance and Harvard Kennedy School of Government, on Thursday March 20, 2014 at 3:57 pm
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Editor’s Note: Ben W. Heineman, Jr. is a former GE senior vice president for law and public affairs and a senior fellow at Harvard University’s schools of law and government. This post is based on an article that appeared in the Harvard Business Review online, which is available here.

Delay in confronting crises is deadly. Corporate leaders must have processes for learning of important safety issues. Then they must seize control immediately and lead a systematic response. Crisis management is the ultimate stress test for the CEO and other top leaders of companies. The mantra for all leaders in crisis management must be: “It is our problem the moment we hear about it. We will be judged from that instant forward for everything we do—and don’t do.”

These are key lessons for leaders in all types of businesses from the front page stories about Toyota’s and GM’s separate, lengthy delays in responding promptly and fully to reports of deadly accidents possibly linked to product defects.

The news focus has been on regulatory investigations and enforcement relating to each company, but the ultimate question is why the company leaders didn’t forcefully address the possible defect issues when deaths started to occur.

…continue reading: Crisis Management Lesson from Toyota and GM: “It’s Our Problem the Moment We Hear About It”

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