Corporate boards are facing the consequences of a surprising truth: What has been called “corporate governance” in the past 30 years turns out to be a prelude. Much of what used to pass for shareholder activism in the US involved an annual tide of non-binding resolutions on bits and pieces of a company’s total identity. Corporate boards often fielded these proposals as time-consuming nuisances. And in other markets investors, despite enjoying significant rights, were mostly quiescent. Today, thanks to a confluence of scandal, recession, law, regulation and social media, we have reached a tipping point. Investors of almost any size now have the means and motive to wield outsized influence over the core governing power in a public company. So, naturally, forces of evolution are coming into play: boards that adapt smartly gain opportunities to survive and prosper. Those that don’t shoulder governance risk inflating by the day.
First, consider the strategic context of change. Politics is among the critical drivers because the private sector increasingly affects citizens and national welfare; think of Enron’s fraud contributing to a broad collapse in market confidence; bank miscalculations leading to the global financial crisis; or private businesses now running services that were public until governments got too cash-strapped to keep them. Policymakers responded to public anxiety with Sarbanes-Oxley, Dodd-Frank, and equivalent measures elsewhere. And there has been no pause for breath. Signs abound of governments continuing to intervene to move corporate governance goalposts. Who would have thought voters in market-friendly Switzerland ready to approve Europe’s harshest curbs on executive compensation at corporations? Or a Conservative government in Britain poised to make annual ‘say on pay’ votes binding? Or the European Commission imposing a 40% near-quota for women on corporate boards? Or an official US Republican party memorandum (“Growth and Opportunity Project”) recommending that “We should speak out when CEOs receive tens of millions of dollars in retirement packages but middle-class workers have not had a meaningful rise in years”? Corporate behavior is under fire from unprecedented directions.
See full Article: http://www.teneoholdings.com/ourinsights/tipping-point/
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