A Corporate Governance Wish List for 2013

Many of us make New Year's resolutions, whether we remain resolved and keep them or not. However, they're often changes we really do need to make in order to make healthy progress in our lives. That's what makes them so hard so much of the time. Sometimes it's simply easier to stick with habits and to what you know.

In the spirit of the coming new year and a fresh start on the calendar, let's hope more corporate managements and boards make their resolutions thoughtfully. For example, resolving to run their businesses in a more stakeholder-friendly manner, without having to rely on heavy shareholder pressure, much less even heavier government mandates. Here are a few areas in the corporate governance realm where I'd like to see progress in 2013.

Pay for performance
Now that say-on-pay rules have been in effect for several years, we've seen a few high-profile shareholder defeats of some companies' compensation policies. In 2012, Citigroup's (NYSE: C  ) shareholders really made a say-on-pay ruckus by voting down former CEO Vikram Pandit's pay package.

Some companies' boards have been taking more robust action ahead of possible embarrassing say-on-pay defeats. For example, in 2011, General Electric (NYSE: GE  ) altered its policy on stock options grants for executives, a move allegedly connected to concerns about how shareholders would vote on its compensation policy.

More companies are reaching out to shareholders to communicate about their pay plans, too. In 2012, ExxonMobil (NYSE: XOM  ) held a conference call for investors to defend its executive compensation decisions after proxy advisors ISS and Glass Lewis both recommended shareholders vote against executive compensation.

We're still in the early stages of a landscape where corporate governance has far greater significance to managements, boards, and the majority of shareholders, but change is happening.

In 2013, let's hope more companies do a better job of aligning executive pay with operational returns and actual performance metrics, and rein in ridiculous perquisites and money pits like golden parachutes.

More diversity
We've seen high-profile female executives do well recently, including Yahoo!'s (NASDAQ: YHOO  ) Marissa Mayer and former FDIC Chairwoman Sheila Bair's appointment as the second female director on Host Hotels & Resorts (NYSE: HST  ) board of directors. Regardless, overall female progress into corporate boardrooms was just plain sad in 2012.

That's despite the fact that we've got more and more data proving that increased female leadership and board participation helps companies perform better than their peers.

Hopefully, in 2013, more corporate managements and boards will do a better job of reflecting the reality of different types of people with different talents to bring to the table instead of continuing to embrace the suboptimal groupthink of homogeneous boards and executive teams.

Greater disclosure
In 2012, greater disclosure enjoyed some victories, such as the conflict minerals disclosure mandate issued by the Securities and Exchange Commission.

There are other disclosures that are on my wish list for 2013. For example, I'd like to see more companies disclose the risks climate change poses to their businesses in their filings.

Also, another rule in the Dodd-Frank Act that hasn't been mandated by the SEC yet is one that would require that companies reveal their CEO-to-worker pay ratios. I'd love to see some progress there in 2013. I'm sure it's pretty eye-opening information on a granular, company-by-company level, given AFL-CIO statistics claiming that overall, CEO pay outranked that of average workers' pay 380-to-1 by 2011.

Apparently, this particular disclosure isn't a high priority for the SEC to tackle, but hopefully the agency will get around to it in 2013. Information is power, and I'm a great believer that the more information investors can access, the better.

If it comes to light that companies treat their executives exponentially better than workers when it comes to paychecks, investors may want to think twice about whether management and boards care about anybody's pocketbooks except their own, and that includes shareholders, too. No wonder corporate managements and boards would rather this information stay well off the radar.

Here's to potential progress in 2013
Given events of the past several years, shareholder rights and good corporate governance policies are making some progress, even if it's not as rapid as many of us might like. A new year always represents new hope, and new chances. Hopefully, 2013 will be the year forward movements make great leaps and bounds.

What types of corporate changes are on your wish list for 2013? Add your wishes in the comments box below, and have a happy New Year's!

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Check back at Fool.com on Wednesday, Jan. 2, 2013, for Alyce Lomax's next column on environmental, social, and governance issues. Happy New Year's!


Read/Post Comments (5) | Recommend This Article (13)

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  • Report this Comment On December 26, 2012, at 5:34 PM, corpgov wrote:

    Great wish list. Re pay, great to be aligned but I'd also like to see the median coming down, rather than going up. We need to decrease the proportion of income going to named executive officers. Companies shouldn't be the piggybanks of CEOs. They should also serve the workers and, of course, the shareowners.

    Re diversity and women on boards. New evidence shows one of the reasons companies with three or more women directors earn more money is that they ask more questions. I'll have a post on recent research next week on my blog.

    Don't expect any movement on the pay ratio disclosure by the SEC until the current 2/2 split is ended with another appointment. I'll blog next week about political contribution disclosures.

    Of course, another area I hope we make progress on is proxy access. When directors know shareowners can replace them, we'll have more accountability.

  • Report this Comment On December 27, 2012, at 8:13 AM, TMFLomax wrote:

    Thanks as always for the thoughts, corpgov! Good point on the median coming down instead of constantly going up -- for the most part, CEO pay has really careened out of control and beyond all reason on the upside, indeed.

    LOVE the point about diverse boards/asking more questions. Can't wait for your piece about that next week! I'll be on the lookout.

    And yes, someone on Twitter pointed out my (inadvertent) neglect of proxy access, which indeed should have been on a list like this one. I will revisit in early 2013, and thanks for pointing this out! It's a big one.

    Thanks so much for your thoughts and all your research and thoughts in this area all year long, and Happy New Year!

    Best,

    Alyce

  • Report this Comment On December 30, 2012, at 6:34 AM, skypilot2005 wrote:

    Alyce,

    I read all of your articles. I am looking forward to perusing them during 2013.

    Thanks, for shedding light on excessive executive pay. It is important work on behalf of all shareholders.

    Climate Change? I don’t know. As a stockholder, I think my equity could be better spent.

    Diversity? This is a tough one. I have a spouse and daughter in the work force that have been quite successful. They feel the means being used are counterproductive, long term.

    I work for The Government now. Previously, I worked for two large multinational corporations. I agree with corpgov that woman managers ask more questions. I. M. O., this is positive.

    Happy New Year,

    Sky

  • Report this Comment On December 31, 2012, at 11:55 AM, TMFLomax wrote:

    Skypilot2005,

    Thanks now and always for your comments on my articles! Thanks for sharing your thoughts; I see your points. As far as diversity goes, I'd rather see an openness to qualified, diverse candidates including women, but not a quota system per se. I simply think that there has been a major tendency in corporate managements to be too focused on "people like themselves" in all ways. I think really a lack of openness to different skill sets and strengths of different types of people is wrapped up in all this too. Hopefully this can change in 2013 and beyond. I've in the past cited data about diverse groups making better decisions in general, so I think a lot of this is about a change of heart and a growth in respect for people who are not "just like us."

    And of course, part of that is the importance of asking questions!

    Have a wonderful New Year and thank you for reading and commenting!

    Best,

    Alyce

  • Report this Comment On January 01, 2013, at 7:17 AM, skypilot2005 wrote:

    Alyce,

    Thanks for your reply.

    It’s the old “Be careful what you ask for” dilemma, I. M. O.

    I know as a former hiring manager firsthand that certain major corporations had de facto quota hiring policies before recent supreme court rulings.

    If you were say, a white female and they were currently appropriately represented in the work force, the best you were going to get was a courtesy interview so that the applicant log was “diverse”. Yes, we tracked the race and gender of all people interviewed.

    Having a daughter, this left a bad taste in my mouth. I was concerned that people would do that to her when she grew up.

    Many of us “put it all on the line” serving our country, protecting our freedoms and for that?

    It just isn’t right.

    Diversity of thought, experience and outstanding performance is what I want to see in the companies ‘ boards I invest in.

    All the best,

    Sky

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