CAN SHAREHOLDERS’ DIRECTORS ON BOARD HELP CORPORATE GOVERNANCE?
Seized by the urge to enhance corporate governance the Securities and Exchange Commission has proposed shareholders nominate their own directors for election on the boards of companies. The SEC has drawn up plans towards this while one of its five commissioners, Mr. Harvey Goldschmid, has said the proposals are designed to make “the corporate governance system work”.
How good are the prospects of the SEC’s expectations proving true and what is likely to anticipate of the SEC’s move?
Expectations are to relate not only in regard to making the system of corporate governance work. They are to arise also in respect to shareholders’ nominees getting elected on corporate boards. Assuming such ‘outside’ directors find a seat on the board of a company, what is to anticipate of them? That is, whether they would go to thwart the management of the company in wrong doing, or what they believe is a wrong doing, or whether they would yield and even toe the management’s line.
Related to these questions is another one, which is from where and what kind of people are to be picked to nominate as shareholders’ directors? That is, are they to be from among professionals in areas of corporate activity and practices, or are they to be found in common folk to align with common shareholders?
These questions (there could be some more still, but these are very pertinent to the subject) are relevant for shareholders to have some real and meaningful representation on boards of companies.
Taking up in first place how good are the chances of shareholders’ appointees getting a seat on corporate board, it is quite evident and very obvious that this is to depend substantially, if not wholly, on their winning of institutional investors’ blessings. Institutions may have their own nominees to be elected to the board of a company. What assurance is there therefore of institutional investors upholding common shareholders’ nominees?
Moreover, there can be conflicts of interest between institutions and ordinary shareholders. Institutions may have their own ax to grind, which may not quite relate to shareholders’ interest.
Finally, and which is important, masters more than friends, in reality institutional investors can be setting the tune which common shareholders can only echo while, in cases, they can be striking a chord that soothes management of companies.
Overall, thus, institutional investors notwithstanding their broad shoulders are not to lean on for common shareholders while to contest corporate management more likely than not they are to wage a lone battle themselves. But to what success is anybody’s guess.
Assuming shareholders’ nominees somehow manage to get a seat on the board of a company, what is to anticipate of them? Surely, in a straight answer, to ensure shareholders’ interests are served. But is there reason to assume that management of companies per se are working in conflict with shareholders? Commonly there is no such case. Exceptionally, should there be any, very likely in quick time that management will stand disrobed.
This, no doubt, is true in regard to conduct of business of companies. It is true more or less in corporate governance, too. Some recent scandals have gone to highlight governance. But before inadequacies in this accumulated to build up in scams the authorities were there in office to suspect, question and contest with management of the companies to have come in question. Scandals may have been rooted in questionable ways of management of companies, but they festered also under the feet of the authorities being there in place to prevent them. The authorities seem to give little thought in painting by some sheep in wolves’ clothes the entire corporate herd dark and evil while armed with authority as they now prowl like tigers they look only like cops with blind eyes.
Even as the SEC, the most powerful of all authorities, champions the case of shareholders’ directors to serve on boards of companies, unmindfully it is giving the impression that it is not in a position to monitor appropriate governance of companies. This is despite the Sarbanes-Oxley legislation having introduced some new requirements for corporate management to meet in governance of companies.
It is then a question what is there to anticipate of shareholders’ directors saves that to be armchair occupants of office?
It can be said this is unlikely to be the case where directors are picked from professionals in the field. But are right professionals to be there and are they to be forthcoming to be on boards of companies as representatives of shareholders? The qualified are not to prefer to act as mercenaries. They will rather crave for management’s picking while the more prominent of them will have deemed it as honor to be called upon by a company to serve in capacity of directors.
Unless, therefore, the SEC is to draw up a panel, the right persons to be directors of shareholders are to be difficult to find. And who can say that the chosen ones on the panel will be true to their salt? Once nominated, they may well be seeing reason to be one with the management of a company. That is what some high placed people in the field did in cases of recent corporate scandals.
Conclusively therefore the idea of shareholders’ directors to fill the bill of corporate governance is not only fanciful, but also farcical. The only objective it can meet is to create more of mere figureheads. It is sad to see that even after all the focus on diligence in corporate governance; the SEC is digging for a damp squib.
What meanwhile is business reaction to the SEC’s proposal?
The Business Round Table, the powerful chief executive grouping, believes the proposal has “ immense potential for disruption even at well-run companies in business”. Significantly, at the same time, former SEC chairman, Mr. Harvey Pitt, who is presently CEO of Kalorama Partners, a strategic consulting firm in Washington, and who now is become part of business, has observed that the SEC’s proposal is “silly and dangerous in the extreme”.
Silly and dangerous and disruptive do not spell diligence in governance.
How good are the prospects of the SEC’s expectations proving true and what is likely to anticipate of the SEC’s move?
Expectations are to relate not only in regard to making the system of corporate governance work. They are to arise also in respect to shareholders’ nominees getting elected on corporate boards. Assuming such ‘outside’ directors find a seat on the board of a company, what is to anticipate of them? That is, whether they would go to thwart the management of the company in wrong doing, or what they believe is a wrong doing, or whether they would yield and even toe the management’s line.
Related to these questions is another one, which is from where and what kind of people are to be picked to nominate as shareholders’ directors? That is, are they to be from among professionals in areas of corporate activity and practices, or are they to be found in common folk to align with common shareholders?
These questions (there could be some more still, but these are very pertinent to the subject) are relevant for shareholders to have some real and meaningful representation on boards of companies.
Taking up in first place how good are the chances of shareholders’ appointees getting a seat on corporate board, it is quite evident and very obvious that this is to depend substantially, if not wholly, on their winning of institutional investors’ blessings. Institutions may have their own nominees to be elected to the board of a company. What assurance is there therefore of institutional investors upholding common shareholders’ nominees?
Moreover, there can be conflicts of interest between institutions and ordinary shareholders. Institutions may have their own ax to grind, which may not quite relate to shareholders’ interest.
Finally, and which is important, masters more than friends, in reality institutional investors can be setting the tune which common shareholders can only echo while, in cases, they can be striking a chord that soothes management of companies.
Overall, thus, institutional investors notwithstanding their broad shoulders are not to lean on for common shareholders while to contest corporate management more likely than not they are to wage a lone battle themselves. But to what success is anybody’s guess.
Assuming shareholders’ nominees somehow manage to get a seat on the board of a company, what is to anticipate of them? Surely, in a straight answer, to ensure shareholders’ interests are served. But is there reason to assume that management of companies per se are working in conflict with shareholders? Commonly there is no such case. Exceptionally, should there be any, very likely in quick time that management will stand disrobed.
This, no doubt, is true in regard to conduct of business of companies. It is true more or less in corporate governance, too. Some recent scandals have gone to highlight governance. But before inadequacies in this accumulated to build up in scams the authorities were there in office to suspect, question and contest with management of the companies to have come in question. Scandals may have been rooted in questionable ways of management of companies, but they festered also under the feet of the authorities being there in place to prevent them. The authorities seem to give little thought in painting by some sheep in wolves’ clothes the entire corporate herd dark and evil while armed with authority as they now prowl like tigers they look only like cops with blind eyes.
Even as the SEC, the most powerful of all authorities, champions the case of shareholders’ directors to serve on boards of companies, unmindfully it is giving the impression that it is not in a position to monitor appropriate governance of companies. This is despite the Sarbanes-Oxley legislation having introduced some new requirements for corporate management to meet in governance of companies.
It is then a question what is there to anticipate of shareholders’ directors saves that to be armchair occupants of office?
It can be said this is unlikely to be the case where directors are picked from professionals in the field. But are right professionals to be there and are they to be forthcoming to be on boards of companies as representatives of shareholders? The qualified are not to prefer to act as mercenaries. They will rather crave for management’s picking while the more prominent of them will have deemed it as honor to be called upon by a company to serve in capacity of directors.
Unless, therefore, the SEC is to draw up a panel, the right persons to be directors of shareholders are to be difficult to find. And who can say that the chosen ones on the panel will be true to their salt? Once nominated, they may well be seeing reason to be one with the management of a company. That is what some high placed people in the field did in cases of recent corporate scandals.
Conclusively therefore the idea of shareholders’ directors to fill the bill of corporate governance is not only fanciful, but also farcical. The only objective it can meet is to create more of mere figureheads. It is sad to see that even after all the focus on diligence in corporate governance; the SEC is digging for a damp squib.
What meanwhile is business reaction to the SEC’s proposal?
The Business Round Table, the powerful chief executive grouping, believes the proposal has “ immense potential for disruption even at well-run companies in business”. Significantly, at the same time, former SEC chairman, Mr. Harvey Pitt, who is presently CEO of Kalorama Partners, a strategic consulting firm in Washington, and who now is become part of business, has observed that the SEC’s proposal is “silly and dangerous in the extreme”.
Silly and dangerous and disruptive do not spell diligence in governance.
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