NYSE Corporate Governance Report

The NYSE Commission on Corporate Governance has released its final report. (HT: McRitchie) Money quote:

As the Commission reviewed these issues, it recognized that despite a number of high profile governance issues over the last decade, the current governance system generally works well.

Try telling it to Lucian Bebchuk and the rest of the self-appointed shareholder spokesmen crowd, however.

Anyway, the Commission settled on 10 points of consensus, reprinted below with interspersed commentary by your humble editor:

• The Board’s fundamental objective should be to build long-term sustainable growth in shareholder value for the corporation;

[So much for stakeholderism.]

• Successful corporate governance depends upon successful management of the company, as management has the primary responsibility for creating a culture of performance with integrity and ethical behavior;
• Good corporate governance should be integrated with the company’s business strategy and not viewed as simply a compliance obligation;
• Shareholders have a responsibility and long-term economic interest to vote their shares in a reasoned and responsible manner, and should engage in a dialogue with companies thoughtful manner;
  
  • [The concern here, of course, is (1) that some investors will use the ever-increasing powers of shareholders to pursue private rent-seeking and (2) that many investors will use their voting power for short term gains]
• While legislation and agency rule-making are important to establish the basic tenets of corporate governance, corporate governance issues are generally best solved through collaboration and market-based reforms;
  • [Talk about locking the barn door after the horse gets out. Where were they when Dodd and Frank were remaking the world? Anyway, it's hard for me to disagree with the Commission's view that "While legislation and agency rule-making are important to establish the basic tenets of corporate governance, the Commission believes that over-reliance on legislation and agency rule-making may not be in the best interests of shareholders, companies or society, and the Commission therefore has a preference for market-based governance solutions whenever possible." Me too.]
    
• A critical component of good governance is transparency, as well governed companies should ensure that they have appropriate disclosure policies and practices and investors should also be held to appropriate levels of transparency, including disclosure of derivative or other security ownership on a timely basis;
• The Commission supports the NYSE’s listing requirements generally providing for a majority of independent directors, but also believes that companies can have additional non-independent directors so that there is an appropriate range and mix of expertise, diversity and knowledge on the board;
• The Commission recognizes the influence that proxy advisory firms have on the markets, and believes that it is important that such firms be held to appropriate standards of transparency and accountability;

[RiskMetrics is a mess waiting to happen. These shareholder advisory services have too much power and too little accountability. See my post Will the Unaccountable Power of RiskMetrics Put Teeth in the Dodd Bill's Say on Pay Provision?]

• The SEC should work with exchanges to ease the burden of proxy voting while encouraging greater participation by individual investors in the proxy voting process;
• The SEC and/or the NYSE should periodically assess the impact of major governance reforms to determine if these reforms are achieving their goals, and in light of the many reforms adopted over the last decade the SEC should consider the expanded use of “pilot” programs, including the use of “sunset provisions” to help identify any implementation problems before a program is fully rolled out.