Last Thursday and Friday I included what I referred to a ‘Corporate Governance Survey’ in my e-mails. The survey also asked questions about ‘Corporate Social Responsibility’. I am a strong proponent of both good Corporate Governance and good Corporate Social Responsibility Practices. I do recognize that is a little like saying I don’t beat my dogs – which in fact I don’t. That said, some things came out of the Survey that have caused me to sit up, take notice, and reach one conclusion I would not have reached but for the Survey.
There were 75 Respondents, many fewer than typically respond to our surveys. By itself, there may be a message in that. Of those 75 Respondents, 18.9% said they were very focused on Corporate Governance, and 45.9% said they were ‘somewhat focused’ on Corporate Governance. 36.4% said they weren’t focused on it, one Respondent said he/she ‘didn’t care’. With respect to Corporate Social Responsibility those percentages were: 16.2% ‘very focused, 47.2% ‘somewhat focused’, 29.7% ‘not focused, and 6.7% (5 Respondents) who said they ‘didn’t care’.
With respect to the questions asked as to the Internet’s role in shareholder activism and Corporate Governance going forward, whether the Respondent’s consider themselves to be ‘activist shareholders’, and whether they expect to become ‘more activist’ in the future, the Survey Results were as follows:
What I found to be of particular interest were the many comments that Respondents made in response to the questions asked, and the general conclusion I reached from reading and thinking about each comment carefully.
· first, matters of concern most often mentioned had to do with management remuneration, compensation and stock option awards – no surprise there from my point of view;
· second, some Respondents looked to ‘gold medal’ Boards and management, trusted their instincts when it came to Corporate Governance, and walk with their feet (sell their stock) if they learn things that don’t sit well with them. One Respondent specifically mentioned that he/she looked to corporate legal counsel and auditors being with major established firms as being important to him/her;
· third, at least one Respondent didn’t know what Corporate Governance was, and suggested education was in order; and,
· fourth, one respondent said only extreme mis-management will cause shareholders to react if “it is of immediate concern to their investment”. Another said that he/she feared the general investor is apathetic toward Corporate Governance, and won’t take the time to initiate action with respect to it;
There were many other comments, but most of what I read from them were general expressions of frustration in the context of being unable as shareholders to meaningfully influence Board and Corporate behavior. Something I have concluded from this survey – which can’t in my view be said to be statistically valid – is found in both the comments Respondents made and in my view that the equity markets today are more ‘trader markets’ than they have been in past years. Assuming that is correct, I can’t imagine traders being overly concerned with either Corporate Governance or Corporate Social Responsibility – given that both of these things need to be nurtured and developed over time within Corporate Policies and Practice. To me it follows that for Corporate Governance and Corporate Social Responsibility to flourish, protect shareholders, and enable shareholders to ‘risk assess’ investments, government legislation will have to play an ever more important role in both. I would not have reached that conclusion before conducting last week’s survey, and seeing and reading its feedback. In an ideal world I am for less government intervention, not more, but for the time being at least I have concluded that serious advances from here in Corporate Governance and Corporate Social Responsibility are unlikely to result without it. That said, I also think that the more receptive companies are to instituting and conforming to good Corporate Governance and Corporate Social Responsibility practices going forward, the less onerous may be the government intervention they otherwise may face.
In the meantime, I suggest if you invest in equities that you walk with your feet (sell your shares) if intuitively you think management compensation, Board option grants, or Board and company decisions don’t square with your view of appropriate Corporate Governance or Corporate Social Responsibility – perhaps with the exception of shareholder disagreement with takeover bids or business combinations.
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