Corporate Governance Gets More Transparent | Activists make inroads to require businesses to be more open about company finances and executive pay to investors
With trillions of dollars in capital sailing the globe in search of investments, the shareholders’ crusade for more open, well-run companies is gaining strength across many major and emerging markets.
In what some call a worldwide corporate-governance movement, shareholders are pushing for stronger corporate-governance laws, teaming with investors from different countries and negotiating behind the scenes with businesses.
In earlier years, it was hard for shareholders to dig up details from thousands of global companies on their finances, their directors, executives’ pay packages and other information critical to making investment moves.
“We’ve seen some dramatic changes,” says Stanley Dubiel, head of governance research at RiskMetrics Group, the largest U.S.-based proxy research firm with offices in 50 countries. “There’s a strong desire on the part of many companies to attract capital from international investors.”
Those investors carry a lot of weight. Pension funds and other large institutional investors — including the Connecticut treasury — oversee $142 trillion in assets in 2006, reports the Organization for Economic Co-operation and Development.
More of those funds — led by Calpers (California Public Employees’ Retirement System) and TIAA-CREF in the United States and the Hermes pension fund in the United Kingdom — are wielding their financial clout in the name of shareholders.
Watchdogs Of Business
Dozens of countries are developing systems of watchdog corporate-governance and shareholder activism, with some modeling themselves after U.S. and United Kingdom governance practices or the Sarbanes-Oxley Act, the U.S. anti-fraud law passed after the Enron accounting scandal six years ago led to the demise of the company.
South Africa, Italy and Japan, for instance, have recently beefed up their corporate-governance codes to strengthen shareholders’ oversight of corporate boards, pay practices, accounting and auditing policies and other watchdog issues.
While corporate-governance experts say there’s still a long way to go, activist investors appear to be making progress globally on key issues, from clearer financial disclosure to winning a greater voice for shareholders in determining executives’ pay packages.
Shareholders Make Gains
Institutional investors are gradually making progress and learning to adapt their tactics to different business cultures.
Take Calpers, the largest U.S. public pension fund, which has sparked a shareholders’ movement in Japan, the world’s No. 2 economy after the United States.
In the 1990s, Calpers began investing in Japanese companies on the Tokyo Stock Exchange and lobbying aggressively for corporate-governance reform to break the stranglehold of the “keiretsu,” the secretive clubby network of Japanese corporate giants that dominate industries and stack boards with insiders.
But the Japanese business establishment rebuffed the foreign investors, and Calpers’ hard-charging style met with limited success, according to management professor Sanford Jacoby at UCLA’s Anderson School of Business.
Now, rather than embarrass poorly performing companies with media publicity, Calpers meets quietly with other pension-fund managers and large investors — including the Pension Fund Association, Japan’s largest pension fund with more than $100 billion in assets — to gain allies.
Among other changes, they’re seeking more directors of Japanese boards who are independent of management, greater financial disclosure and the elimination of anti-takeover defenses that protect poorly run corporations. Calpers has $1 billion invested in Japanese companies such as Matsushita and Kenwood, and that number is likely to rise, says Dennis Brown, senior portfolio manager at Calpers.
WBJ Web Partners
Most Recent
Most Recent
0 Comments