|
Comments of
John C. Wilcox
April 4, 2011
It should come as no surprise that the “Fifth
Analyst Call” is widely opposed by companies, their lawyers and their
communications advisors. Although the idea makes sense, the fact is that
directors of U.S. companies are not ready for open dialogue with their
investors, even on a narrowly defined topic such as corporate governance and
the annual meeting. The reason they are not ready is because U.S. companies
– and boards in particular – are generally on the defensive in their
communication with shareholders.
Instead of communication, U.S. companies practice disclosure. Disclosure is
defined by prescriptive rules and enforced by liability and regulatory
penalties, forcing directors into a compliance mode with little freedom to
talk about what really goes on in the boardroom. It is no wonder that
directors shy away from questions about board process and decisions, or that
their legal counsel warn them about Reg FD, or that CEOs worry about
multiple voices confusing the marketplace. These are very real problems.
They exist because the U.S. has chosen a rules-based, strict-compliance,
liability-enforced system of corporate governance that constrains
communication, makes boards and shareholders mistrustful of each other and
relies on adversarial modes of engagement.
There is a better way. The UK is the best example with its principles-based,
comply-or-explain system of corporate governance. The UK is not a paradigm,
but its approach to governance allows companies and boards to take charge of
communication with shareholders, instead of vice versa. It permits directors
to make decisions based on business and strategic goals, rather than
compliance. It gives boards wide discretion to modify or even reject
corporate governance norms and best practices, provided that they can
explain their reasons for doing so in terms that satisfy their duty to act
in the best interest of the company and shareholders. In a sense, governance
in the UK is more democratic than in the U.S. because it recognizes that
boards must engage in substantive dialogue with the constituents they
represent.
It is important to remember that whenever a company decides to go public,
accepting capital from the investing public and subjecting itself to
valuation in the capital markets, its board and management take
responsibility for dealing with the problems that arise from being publicly
traded. Professor Hillary A. Sale has coined the term “publicness” in a
recent article (http://www.law.duke.edu/journals/lcp/)
to describe an entire set of responsibilities and constituencies that U.S.
companies need to handle more effectively. In the same Journal I have
published an article suggesting that a
directors’ duty to inform could open boardroom windows and give
directors more freedom to tell shareholders what the board is doing and how
it is looking after their interests.
It will not be easy to change behavior in U.S. boardrooms, even more
difficult to change the habits and mindset of corporate executives and
shareholders. Until we do so, we will be unable to break down the barriers
to communication between U.S. companies and their owners or eliminate the
inefficiencies and cost that result from mistrust and confrontation.
John Wilcox
Chairman
SODALI
9 West 57th Street, 26th Floor
New York, NY 10019
Tel. 212-825-1600
j.wilcox@sodali.com
www.sodali.com
|