Tuesday, May 11, 2010

Improving Corporate Governance: A Memo to the Board

Jack Brennan, Chairman Emeritus and Senior Advisor, The Vanguard Group, Inc. gave a speech on March 23, 2010 at Drexel University's Center for Corporate Governance Director Dialogue 2010: Outside Stakeholder View on Risk.

(I was also a speaker at this event along with Scott Bauguess, Staff Economist, Securities & Exchange Commission Office of Economic Analysis; Pat McGurn, SVP US Corporate Governance Trends, RiskMetrics; James Dunigan, EVP and Managing Executive, PNC Financial Services Group; Don Chew, Executive Director, Morgan Stanley)

The speech was captured in a May 10 WSJ Opinion piece and is worth reading in it's entirety.

It is corporate proxy season, and one can expect the usual spate of stories about excessive executive compensation, lax directors and the failure of institutional investors to exert their influence over boards and management.

As a participant in the corporate governance process for a large investment manager for more than 25 years, I will take a contrary view. Over the past quarter-century, the performance of corporate boards has improved markedly. Yet there's room to go.

As one of the largest index fund providers in the world, Vanguard is, at a minimum, a 2% owner of just about every public company ...

...a few suggestions to keep corporate board improvement continuing:
  1. Know that you are the shareholders' first line of defense.
  2. Build value through mutual respect.
  3. Communicate.
  4. Measure your success
  5. Compensate yourselves in equity.
  6. Share your metrics.
  7. Hold yourselves accountable
  8. Establish an "owner's relations committee."
The article is available here. 

Posted by Damien Park, Hedge Fund Solutions