As anticipated based on prior reports, a coalition of companies and investors launched these "Commonsense Principles of Corporate Governance" today - aimed at providing a basic, recommended framework (subject to tailoring based on each company's unique facts & circumstances) for sound, long-term oriented governance. Notably - among other things - the coalition supports board discretion as to the most appropriate board leadership structure subject to retaining a strong lead independent director with clearly defined authorities and responsibilities and a strong governance structure if the CEO/board chair roles are combined. See my prior blog on that topic here.
The governance principles - expressly backed by JPMorgan, GE, GM, Verizon, BlackRock, Vanguard, Berkshire Hathaway, SSGA, T. Rowe Price, Capital Group, ValueAct, and CPP Investment - also include the following, among others:
■ Truly independent corporate boards are vital to effective governance, so no board should be beholden to the CEO or management. Every board should meet regularly without the CEO present, and every board should have active and direct engagement with executives below the CEO level.
■ Diverse boards make better decisions, so every board should have members with complementary and diverse skills, backgrounds and experiences. It’s also important to balance wisdom and judgment that accompany experience and tenure with the need for fresh thinking and perspectives of new board members.
■ Our financial markets have become too obsessed with quarterly earnings forecasts. Companies should not feel obligated to provide earnings guidance — and should do so only if they believe that providing such guidance is beneficial to shareholders.
■ A common accounting standard is critical for corporate transparency, so while companies may use non-GAAP to explain and clarify their results, they never should do so in such a way as to obscure GAAP-reported results; and in particular, since stock- or options-based compensation is plainly a cost of doing business, it always should be reflected in non-GAAP measurements of earnings.
■ Effective governance requires constructive engagement between a company and its shareholders. So the company’s institutional investors making decisions on proxy issues important to long-term value creation should have access to the company, its management and, in some circumstances, the board; similarly, a company, its management and board should have access to institutional investors’ ultimate decision makers on those issues.
See this Fact Sheet, the Open Letter; this memo from Gibson Dunn; these articles from Bloomberg, the NYT, and the WSJ; CII's statement in support of the Principles (albeit qualified), and our prior reports on the development of the principles here and here. Stay tuned to this site and the Society Alert for more information.