The CEOs of major public companies and institutional investment firms have signed up to a revised set of principles designed to provide what the authors call ‘a basic framework for sound, long-term-oriented governance.’
The new document updates an initial set of principles released in 2016. That version was signed by CEOs of 13 organizations, including Berkshire Hathaway, BlackRock, General Electric, General Motors, JPMorgan Chase, State Street Global Advisors and Vanguard.
They are joined in signing the latest version by the leaders of a further nine organizations, including DowDuPont, Johnson & Johnson, Procter & Gamble and the Washington State Investment Board.
In an open letter, the CEOs pledge to apply the principles in their own business and call on others to do likewise. A new 12-page document, referred to as Commonsense Corporate Governance Principles 2.0, covers a wide range of topics:
- Board of directors’ duties, composition and internal governance
- Board of directors’ responsibilities
- Shareholder rights – including that public companies should allow for some form of proxy access and that dual-class voting is ‘not a best practice’
- Public reporting
- Board leadership, including the lead independent director’s role
- Management succession planning
- Investors’ role in corporate governance.
The authors say the principles are meant to ‘promote a constructive dialogue on good corporate governance to benefit the millions of Americans who work for and invest in America’s public companies, create economic growth and sustain the health of America’s corporations and markets.’
Warren Buffett, chairman and CEO of Berkshire Hathaway, says in a statement: ‘Good corporate governance is critical to the success of American companies and to the American economy overall. This document takes it to another level of sound, commonsense principles that have been endorsed by multiple prominent business leaders and investors. It is a living document to help spur a larger conversation among boards, investors and companies for the benefit of all Americans.’
The updated principles incorporate several additions and enhancements, including that:
- Board members should be prepared to serve for a minimum of three years
- If board elections do not take place every year, companies should explain why
- Companies and shareholders should engage early on important proxy proposals
- Poison pills and other anti-takeover defenses should be put to a shareholder vote and re-evaluated by the board on a periodic basis
- Asset managers should disclose whether they rely on proxy advisers to inform their decision-making
- Asset managers should disclose their conflict-of-interest policies in their proxy voting and shareholder engagement activities
- Portfolio managers should be compensated based on performance over an appropriate term, given the strategy and investment time horizon for the portfolio
- Asset owners should promote sound, long-term oriented governance in their direct interactions with both companies and asset managers.