As the new year approaches, many of us are reviewing and updating our lists of goals. Surely we can take comfort, during that exercise, in the privacy of our personal plans and priorities.
But since 2004, corporations listed on the New York Stock Exchange have been required to publish on their Web sites their “corporate governance guidelines,” sometimes called corporate governance principles. [New York Stock Exchange Listed Company Manual, Section 303A.09]
Like New Year’s resolutions (but unlike articles of incorporation or bylaws), these documents are written in plain English rather than legal language, and are generally declared to be aspirational and nonbinding.
Both resolutions and guidelines can be quietly changed at any time of year, without giving notice to anyone.
In fact, despite shareholders’ decades of demands for increased transparency in governance, few boards of directors have publicly identified any specific revisions to these documents. Dozens of major corporations haven’t even put a date on their posted principles, leaving readers to wonder whether, when, and what modifications might have been made.
A number of trends over the past five years seem uncontroversial. For example, guidelines are now more likely to limit the number of boards on which directors can sit, and to require directors to offer their resignations after significant changes in their health. Some corporations have clarified their policies on the role of a lead independent director, on boardroom confidentiality, and on preparations for management succession.
More vaguely, recent governance principles often mention the interests of stakeholders such as employees, customers, and communities; emphasize the board’s roles in ensuring compliance, managing risk, and maintaining the “corporate culture”; and promise efforts to increase diversity among the directors.
However, shareholders might be most concerned about any changes in: the age for directors’ “mandatory” retirement (still usually subject to the board’s discretion); term limits for directors; the criteria for board nominees, and for directors’ qualifying as independent; director compensation; the amount or value of company stock that directors and senior officers are required to own; and policies for the approval of political contributions, charitable donations, and transactions in which a director or senior officer might have a conflict of interest.
As part of their own preparations for 2021, and at no corporate cost whatsoever, boards could resolve to adopt two simple practices:
First, include at the beginning of each posted set of guidelines, and next to its Web link, not only its effective date, but also the date of the version that it supersedes.
Second, add an adjacent link to a “redlined” or “track changes” document that highlights every difference between these two versions.
Decades ago, Groucho Marx famously offered, “These are my principles. If you don’t like them, I have others.” When boards don’t like some of their own governance guidelines, they should at least show shareholders exactly what they’re installing instead.
