September 2011 - MINDA Malaysian Directors Academy ...

FEATURED ARTICLES _ARTICLE FIVEMALAYSIAN DIRECTORS ACADEMY 18While this situation creates opportunities for activistinvestors like Whitworth and others, it speaks to a lack ofcorporate accountability. While this situation Robert creates Pozen, opportunities chairman for emeritusactivist investorsInvestment like Whitworth Management and others, and it a speaks senior to a lecturer lack of corpo-atof MFSHarvard rate Business accountability. School, Robert says Pozen, the chairman structure emeritus and size of MFS ofcorporate Investment boards has Management kept them and from a senior being lecturer effective. at Harvard Whatsome refer Business to as School, the “collegiality says the structure of the and boardroom,” size of corporate Pozen boardscalls “social has kept loafing,” them from where being effective. procedure What and some large refer to group as thedynamics “collegiality take precedence.of the boardroom,” Pozen calls “social loafing,”Pension where funds, procedure insurance and large group companies dynamics and take investmentprecedence.management Pension firms funds, are major insurance market companies players and around investment theworld and management have taken firms a are largely major passive market players role in around corporate thegovernance. world and Asset have owners taken a and largely asset passive managers role in corporate could exert governance.influence Asset owners on companies. and asset managers Certainly, could they exert would con-considerablehave a differentsiderable influenceview ofonthecompanies.company’sCertainly,issuestheyif theywouldhadhaveaa different view of the company’s issues if they had a seat onseat on its board. A recent issue of the McKinsey Quarterlyits board. A recent issue of the McKinsey Quarterly urged institutionsto “step up as owners” to usher in a new ownershipurged institutions to “step up as owners” to usher in a newownership culture for the benefit of the economy and ofculture for the benefit of the economy and of their clients.their clients.Making Boards Betterby Karen Kaneshareholder activism of the past decade. “Unlike Sarbanes-Oxley, in which boards were seen as the solution to thefailures the past in decade. corporate “Unlike accountability, Sarbanes-Oxley, Dodd-Frank in which boards reflects theview were that seen shareholders as the solution must to the be failures empowered in corporate to accountability,Dodd-Frank Gregory reflects said. the view that shareholders musthold boardsaccountable,”be “Boards empowered require to hold boards a culture accountable,” change,” Gregory said said. Fred G.Steingraber, “Boards require former a culture chairman change,” and said CEO Fred of A.T. G. Steingraber, Kearney, themanagement former chairman consulting and CEO of firm, A.T. Kearney, and a veteran the management of 30 publicand consulting nonprofit firm, boards. and a veteran “Directors of 30 public need and to re-examine nonprofit andeven boards. revise “Directors board need committees to re-examine and and committee even revise board work andhow committees this contributes and committee to the work observance and how this contributes of their ‘duty to ofcare’ the observance responsibility. of their It ‘duty requires of care’ new responsibility. skills and It qualificationsrequiresas new well skills as and more qualifications time and as effort well as to more better time understand effort thecompanies to better understand they serve, the companies to provide they effective serve, to provide oversight inrepresenting effective oversight the interests representing of shareholders, the interests of and shareholders,and in holding management accountable.”in holdingmanagement accountable.”Given the headlines on board inaction and the amountGiven the headlines on board inaction and the amount ofof new regulation, boards appear to be largely insulated bothnew regulation, boards appear to be largely insulated bothfrom shareholders and perhaps even the CEO. Consider thatpozen Believes ThaT Boards would Be More effecTiveif They consisTed of “a sMall group of people wiThenough perTinenT experience and sufficienT TiMe Tohold ManageMenT accounTaBle.”Public battles Public battles for board for board seats seats by by activist activist investors such asas Carl Carl Icahn Icahn and and Bill Bill Ackman draw media media attention, attention, but their buttheir efforts are mostly short-term, short-term, focused focused on a single on issue a single for aissue for year a or year two. or There two. have There been few have long-term been few focused long-term efforts byfocused investors efforts by to improve investors specific to improve companies. specific Private companies.equity firmsPrivate working equity firms quietly working behind the quietly scene say behind they have the had scene more say impacthad as they more get impact board seats as they and help get board the companies seats and change helpthey havethe companies from within. change Whitworth from petitioned within. Whitworth the Securities petitionedand ExchangeCommission and Exchange for changes Commission in rule making for changes in 1990 that inthe Securitiesrule making included 1990 proxy that access. included Most of his proxy suggestions access. were Most adopted of hissuggestions in 1992, were including adopted the in short 1992, slate, including but proxy the access short was slate, not.but proxy accessDodd-Frank,was not.which was signed into law in July 2010, clarifiedthat the S.E.C. has authority to implement proxy access.Dodd-Frank, which was signed into law in July 2010,The next month, the S.E.C. adopted rules that allow some largeclarified that the S.E.C. has authority to implement proxyshareholders to nominate directors to a company’s board, butaccess. The next month, the S.E.C. adopted rules thatthe commission has postponed the effective date of the rulesallow some large shareholders to nominate directors to auntil the Washington, D.C., circuit court rules on a lawsuit bycompany’s board, but the commission has postponed thethe U.S. Chamber of Commerce and the Business Roundtable.effective date Many of the call proxy rules access until the the bell Washington, that has already D.C., been circuitcourt rules rung, on giving a lawsuit investors by a the potent U.S. tool. Chamber According of to Commercethe governanceBusiness expert Roundtable.Holly Gregory, the Dodd-Frank bill accelerates aand theMany change call already proxy set access in motion the by the bell shareholder that has activism already ofbeen rung, giving investors a potent tool. According tothe governance expert Holly Gregory, the Dodd-Frank24Qbill accelerates 3 . 2 0 1 1a change already set in motion by thefrom in a survey shareholders of 768 directors and perhaps at 660 of even the 2,000 the largest CEO. publiclyin traded a survey companies, of 76895 directors percent said at 660 they of were the doing 2,000 an largestConsiderthatpublicly effective traded job. In the companies, same survey, 95 the percent CEOs said that they only were one doingan director effective in five job. was In effective. the same survey, the CEOs said that onlyone director The disconnect in five may was be effective. that CEOs and board memberswant The different disconnect things. may By nature, be that CEOs are and ambitious board Type members Awant personalities. different CEOs things. understand By nature, that CEOs boards are ambitious necessary, but Type Apersonalities. few have the benefit CEOs of understand independent that directors boards who are serve necessary, asbut strategic few have sounding the boards, benefit helping of independent them to make better, directors faster whoserve and wiser as strategic decisions. sounding Such CEOs boards, eschew more helping involvement, them to makebetter, fearing that faster more and engagement wiser decisions. would encourage Such directors CEOs eschew tomore meddle involvement, day-to-day operations. fearing that At the more same engagement time, directors wouldrate themselves as effective at board committee work, overseeingcompliance with legal and regulatory oversight.encourage directors to meddle in day-to-day operations.At the same time, directors rate themselves as effective atOne signal about just how repugnant business leadersboard committee work, overseeing compliance with legalfind the idea that shareholders might nominate directors isand regulatory oversight.the fact the U.S. Chamber of Commerce made the defeat ofOne signal about just how repugnant business leadersproxy access its highest priority. The current legal challengefind can the be seen idea as that a last shareholders gasp effort to stop might it. nominate Whitworth directors sees isthe implementation fact the U.S. as Chamber inevitable, of but Commerce he believes made it will the be used defeat ofproxy sparingly, access given its highest the requirements. priority. “In The the current universe legal of shareholders,be seen there as are a last very gasp few, perhaps effort to 230 stop shareholders it. Whitworth of seeschallengecanimplementation as inevitable, but he believes it will beused sparingly, given the requirements. “In the universe ofshareholders, there are very few, T h e perhaps K o r n / f e230 r r y shareholdersi n s T i T u T e