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Forum Report
Summary of Open Meeting Discussions
Both the levels and ranges of participant concerns about how
“Say on Pay” might be implemented extended beyond what was anticipated in
either the agenda or schedule for
Tuesday's open meeting. We finally
concluded the discussions with a general consensus that participants wanted
to continue the examination of many issues that had been raised, and several
of the participants volunteered to help prepare reports for Forum
consideration at another open meeting.
A record of the meeting will be made available to Forum
participants, courtesy of
Sibson Consulting.
Following is a summary of preliminary plans to follow up on two
of the specific interests expressed by participants, and of the direction
set for current Forum attention to “Say on Pay” issues.
Gordon-Nowak views
There was great interest in the alternative views of the
professors who had been invited to start the meeting. Jeffrey Gordon
first discussed his observations of “herding” reactions to UK advisory
voting and recommended deferring US legislation of “Say on Pay,” and then
Eric Nowak discussed his observations of European reactions to “executive
rip-off” and said that he saw no economic justification for waiting.
Responding to participant reactions during and after the meeting, I’ve
encouraged both of them to consider continuing the exchange, either at
another meeting or in written comments.
For now, Professor Gordon has offered the following additional
observation in an email note:
“…[T]he need for boards to do a better job in explaining their comp
practices [citing as an example responses to the TIAA-CREF list of ten
questions, addressed below] or alternatively, the goal of restructuring CEO
pay (to reduce CEO centrality, eg), could be a achieved by the
‘demonstration’ effect of a few well chosen ‘just vote no’ campaigns against
a Comp Committee. This could be more effective than an advisory vote and
would have fewer side effects.”
Professor Nowak, having returned to Switzerland, has offered to
provide a written summary of his comments within a few days.
Information needed by investors
Discussions during the meeting established (a) recognition by
virtually all investor, corporate and professional participants that CD&A
reports required by current SEC regulations are not a satisfactory
information resource for efficient investor decision-making, but that we
should not expect significant regulatory improvement within a year, and (b)
broad concern about the negative effects of “box-ticking” or
“bureaucratized” voting by investors.
Several participants expressed interest in ways to present
compensation information more simply for investor decisions. However,
responding to my question to him as a consultant to compensation committees,
Program Panel member Rick Smith estimated that the amount of time a director
had to spend reviewing information to approve a compensation plan might
range from 15 to more than 40 hours. Most meeting participants appeared to
believe that investors could satisfy their fiduciary duties with less
detailed understandings than a company’s directors, but it was clear that
there would be genuine challenges to presenting the required information in
brief summaries.
As a proven means of assuring the desired
company-specific review, Program Panel member John Wilcox advocated the
TIAA-CREF approach of seeking corporate management’s responses to a standard
set of ten questions.
It was recognized, however, that most investors lack the resources for the
research and communications required to support this approach. Participants
agreed, though, that a workshop project should examine possible means of
applying the “10 Question” approach to a broader range of investor
decision-makers.
Objectives of Forum participants
It was generally accepted by meeting participants that “Say on
Pay” issues need to be addressed in a context that applies to the entire
range of relevant companies as well as the entire range of relevant
investors. Responding to Program Panel member Doug Chia’s expressed concern
about including companies with various interests that differ from his, I
noted that there was in fact nobody in the meeting from a small company, for
example, and encouraged participants to suggest representatives of that and
other important perspectives who might benefit from our exchange of views.
This diversity of perspectives was not considered to be in any way
inconsistent with the Forum’s stated intent to
consider “Say on Pay” issues by focusing on what actually works at
successful companies, rather than on theories designed to remedy
unsatisfactory performance.
Regarding participant suggestions for Forum attention to regulatory issues,
particularly relating to the CD&A or other SEC reporting requirements, we
assumed that consideration of regulatory alternatives would have little
value until a new administration is in place. It was in any event decided
to concentrate our immediate attention instead on decisions that can and
should be made by marketplace representatives. Forum programs are intended,
after all, to serve participants who want to decide what they should do,
themselves.
The meeting was concluded with an invitation to its attendees to
help guide the Forum’s progress. This invitation is of course extended to
all of you, with the reminder that the Forum is open to anyone who wants to
hear or offer views.
GL – October 16, 2008
Gary Lutin
Lutin & Company
575 Madison Avenue, 10th Floor
New York, New York 10022
Tel: 212-605-0335
Email:
gl@shareholderforum.com
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