In a post on the Harvard Law School Forum on Corporate Governance and Financial Regulation blog, lawyer Bill Libit of Chapman and Cutler LLP outlines several areas where corporations may believe that proxy advisory firm guidance is contrary to good corporate governance at their organization. Written from the point of view of directors of operating companies, the post outlines several current corporate governance practices considered by proxy advisory firms as detrimental to shareholders. These areas include classified boards, combined CEO and chair roles, and the limitations on shareholders to act by written consent or to convene special shareholder meetings. In each of these areas, the author outlines reasons why these practices may benefit certain companies and be in the best long-term interests of shareholders.
The post notes that proxy advisory firms’ “one size fits all” approach to corporate governance may not be relevant to the specific issues confronting a particular organization. The author provides suggestions for operating company directors when faced with a situation where their long-term shareholder interest differs from proxy advisory firm solutions. This advice includes identifying and proactively engaging large shareholders, and understanding their voting guidelines. The author notes that many large investors do not rely completely upon proxy advisory firm guidelines, but instead adopt their own guidelines. (The Forum’s paper, Practical Guidance for Fund Directors on Oversight of Proxy Voting, outlines how fund boards can go about establishing and evaluating fund proxy voting processes and procedures.)
The post closes with the admonition for operating company directors to “[r]emain steadfast (as appropriate).” The author notes that there is considerable pressure from short-term focused shareholder activists and proxy advisory firms to conform to a “one size fits all” governance structure, but urges boards to implement practices they believe are in the best interests of their company and shareholders and will create long-term shareholder value.
The full post can be found here.