Promoting 'Proxy Access'
NYC Comptroller Scott Stringer Spoke to Ira Millstein '49 About His Campaign to Open Up Corporate Board Nominations to Shareholders During the 2015 Millstein Governance Forum
New York, January 12, 2016—As the overseer of New York City’s $155 billion in pension funds, city Comptroller Scott Stringer has led a coalition of some of the world’s largest institutional investors—including other public pensions—to advance “proxy access” at portfolio companies, giving shareholders a greater voice in corporate board elections. Stringer spoke about the proxy-access initiative—as well as other campaigns to promote greater diversity on corporate boards and more transparency in the fees charged by money managers—at the 2015 Millstein Governance Forum,
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City Comptroller Scott Stringer, top and left, with Ira Millstein '49 |
For the past decade, Columbia Law School’s Ira M. Millstein Center for Global Markets and Corporate Ownership has staged an annual forum bringing together business leaders, government regulators, academics, and investors to discuss and debate the effects of global capital markets on public corporations
The Dec 10 forum, held in the rotunda of Columbia University’s Low Memorial Library, focused on “The Board-Centric Model in the Array of Shareholders.” The Center’s founding chair Ira M. Millstein ’49 is a senior partner at the law firm Weil, Gotshal & Manges, where he has counseled numerous corporate boards on governance issues. Millstein also is an adjunct professor at Columbia Law School and Columbia Business School. He moderated the forum’s discussion with Stringer, who called Millstein “a true corporate governance guru.”
In his introductory remarks, Stringer—who serves as a custodian and an investment adviser—characterized the city’s five pension funds as “truly long-term shareowners” in more than 3,500 U.S. companies. “We don’t have the ability to easily sell shares in a company if we have concerns with its management or business practices,” he said. “Instead, we are reliant on the boards that we elect to ensure that management makes prudent, long-term business decisions.”
Yet, while the city’s pension funds are “slow and judicious” in allocating assets—balancing “security first and foremost as well as the rate of return”—“I am an active fiduciary,” Stringer said. “Because we do rely on boards to protect our interests, we need the ability to hold directors accountable when they aren’t up to the task. We’ve seen what happens when boards fail—at Enron, at WorldCom and during the financial collapse.”
Most companies mail proxy ballots to shareholders that list only their own slates of board nominees. The term “proxy access” refers to the right of shareowners to place other nominees for director on a company's proxy card. Under financial-reform powers granted by Congress in 2010, the Securities and Exchange Commission proposed a proxy access rule, but the rule was subsequently reversed after a court challenge. Shareholders seeking proxy access had no choice but to file resolutions with individual companies.
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| Featured speaker Bill McNabb, second from left, Chairman & CEO of The Vanguard Group, is joined, from left to right, by the Millstein Center's William McCracken, Ira Millstein '49, and center Executive Director Marcel Bucsescu |
To carry out that task, the New York City Comptroller’s Office launched the Boardroom Accountability Project in November 2014. At the Millstein Governance Forum, Stringer highlighted that his office had built a “trillion-dollar coalition” of investment giants, including the California Public Employees' Retirement System (CalPERS), which manages $296.3 billion in state pension funds.
“The response from investors has been nothing short of extraordinary,” Stringer said. “When we launched the project, only six U.S. companies had meaningful proxy access bylaws available to shareowners with at least 3 percent of shares. Today, more than 80 companies have enacted these bylaws for 3 percent shareowners, and by the end of this month we are on track to surpass 100 companies. That’s real progress toward generating sustainable, long-term value from our portfolio companies.”
The moves make practical business sense, said Stringer, who mentioned a July report by SEC economists that found a 0.5 percent increase in shareholder value at the first 75 companies targeted by the Boardroom Accountability Project. Another study by the CFA Institute found that proxy access could potentially increase U.S. market capitalization by 1 percent, or $140 billion. In April 2015, the Millstein Center hosted a program with the CFA Institute on proxy access.
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| Columbia Law School Professors participating in the Forum include, top row from left to right, Eric L. Talley, Ronald J. Gilson, Robert J. Jackson Jr., Jeffrey N. Gordon and, above at far left, John C. Coffee Jr. |
“Proxy access sets the stage for what we see as the next chapter of corporate governance,” said Stringer, who called for not only more independence but greater diversity among board members. “We need to make sure we have the right directors in the room.” Today’s corporate boards are “still dominated by the few and the privileged,” Stringer said. “It’s the same people, from the same schools, the same country clubs, and, more often than not, they think the same old way. I hate to say it, but most corporate boards in America are pale, male and stale—like me, except they wear better suits.” Fewer than 19 percent of board seats are held by women, only 9 percent are held by African-Americans, and only 5 percent are held by Latinos. “Yet the research on this could not be clearer: Groups that are diverse in background and expertise make better decisions.
“As long-term investors, we want the best directors in the boardroom, period. That’s the only way that the board-centric model of governance can function. Boards must draw from the broadest pool of candidates to fill open positions to find the best and the brightest. With proxy access, we have the ability to say: If a board isn’t nominating diverse, qualified directors, we will do it ourselves.”
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| Recipients of the Rising Star of Corporate Governance Awards, recognizing global corporate governance professionals under the age of 40 who are making their mark on the industry, include, clockwise from top left, Nermeen Shehata, Richard Fields (receiving his award from Ira Millstein '49) amd Meryam Omi. |
In a concluding interview, Millstein said, “I think this hall is completely in agreement with you—it’s important that we have the right boards, and you're in a position to help make that happen.” But, speaking “on behalf of some people in this room who are hedge funds,” Millstein cautioned Stringer against a blind opposition to activist investors. Stringer had complained of companies giving board seats to activist investors simply to avoid proxy fights, and he was harshly critical of Carl Icahn’s plea for Apple to buy back more shares at the expense of investing in research and development. “We have to be careful to delineate between activists who are out to better themselves,” Millstein said, “and activists who appear to be doing the same job you do—getting a better board.”
The two agreed the quest for board diversity should be a hunt for “people with the different characteristics a company needs,” in the words of Millstein though Stringer claimed the places that don’t already have diverse boards aren’t trying hard enough. “Seven out of our eight deputy comptrollers in New York City are women,” he said. “You have to perhaps look in different areas than you’re used to looking, but it will pay dividends—literally—if we get this right.”
Millstein praised Stringer’s efforts to bring greater transparency and accountability to the payment of fees to financial advisors. In April, the city comptroller’s office released a report concluding that New York’s five pension funds had paid more than $2 billion in fees to money managers over the last ten years and received almost nothing in return.
“I hope other pension funds are listening, and I think they are,” said Millstein, who added a quick “plug” for the Millstein Center’s new Corporate Reporting and OWNership Database, or CROWN, an ambitious project to collect and present governance data on institutional investors and corporations. A first public showing of the CROWN website was offered earlier that day to forum attendees by Millstein Center co-faculty director Professor Robert J. Jackson.