Governance for all

The road to good corporate governance is not straight and narrow; many paths can lead to your destination. Now that some of these paths are beginning to converge on RiskMetrics’ Governance Policy Exchange, corporate secretaries and other governance professionals have a new resource at their fingertips when they need to update or initiate a governance policy for their company or organization.

Introduced in March 2008, the Policy Exchange, located at riskmetrics.com/policy_exchange, provides a detailed view into the corporate governance policies and principles of several leading proxy advisory and investment management institutions. Over time, RiskMetrics plans to develop the exchange into an extensive governance ‘library’ as it enlists the participation of public companies, associations and other institutions to make their policies and practices accessible on the site.

Information sharing

At its inception the platform contained the policies of five major institutions: Teachers Insurance and Annuity Association, College Retirement Equities Fund (TIAA-CREF); Morgan Stanley Investment Management; Domini Social Investments; the California Public Employees’ Retirement System (CalPERS); and the Connecticut Retirement Plans and Trust Funds. ‘We are very grateful to those organizations because they really put forth the effort to be part of our pilot program,’ says Martha Carter, head of RiskMetrics/ISS Global Policy Board. ‘But we’re not going to stop there. As time goes on we’re going to add more policies to really build a library, or a collection of policies, that readers can go to and compare and contrast governance views across a broad range of participants.’  

Carter envisions a site that ultimately will include corporations, proxy voting institutions and organizations, and associations in the governance community. Robust tools already present on the site enable visitors such as corporate secretaries to compare and contrast the policies others have established while trying to develop the right policy for their group.

‘You can pick a topic such as independence or director attendance and then see all in one place how each [of the six institutions submitting policies] view that topic,’ explains Carter, who says RiskMetrics’ main  goal in introducing the site was to bring together multiple viewpoints on governance. ‘We wanted to create a site where readers could look at a given organization’s viewpoint on governance and put that side-by-side with other organizations’ viewpoints on the same topic ... and engage in a discussion within their own organization so that they could decide for themselves what policies they would like to adopt,’ Carter says. ‘So it’s a real recognition that not only are there broad topics of corporate governance but broad viewpoints on how to achieve best practices in governance.’

Even though many institutions’ governance policies are accessible to the public, they are not always easy to find, says Kenneth Bertsch, head of corporate governance for Morgan Stanley Investment Management’s global equity group. Having a range of policies in one place with segmenting capabilities facilitates the search for various groups’ opinions on a topic.

Bertsch believes the site provides value to governance professionals who represent institutions as well as to those who represent public companies. ‘It’s going to be quite helpful as we consider updates to policy over time,’ Bertsch says. ‘If we are struggling with an issue, it will be useful to see how others are thinking about it. And, quid pro quo, we can help others.’

Building a deeper understanding

The Policy Exchange is utilizing a range of multimedia technologies to help build a stronger sense of community among those involved in corporate governance and to add a personal touch to the research. For example, visitors to the Policy Exchange can also download an audio interview with a key member of each participating organization and can even leave feedback. ‘There’s a commentary where we’ve done an audio interview, a sort of fireside chat with each organization, in which a key member within the organization talks about their [governance] philosophy that really is the theoretical underpinning that forms the policies that you are reading about,’ Carter explains. ‘It’s an interesting insight into the organization and its beliefs.’

Adam Kanzer, managing director and general counsel at Domini Social Investments, provided the commentary for his institution. He believes the site will help public companies better understand how their shareholders are voting. ‘When you get an individual vote on your proxy, those votes are somewhat of a blunt instrument; [they’re] hard to interpret,’ Kanzer comments. ‘It’s more important to take a look at the institution’s overall proxy voting philosophy and their overall guidelines to kind of understand where these issues are coming from.’

 ‘We’ve always viewed proxy voting as a form of dialogue with the companies that we hold shares in. So we want to get that kind of feedback,’ he continues. ‘If companies feel that our policy is too strict, doesn’t make sense or is out of line with other institution’s policies, we’d certainly love to hear that feedback. We may not agree, but I always like to hear different perspectives.’

A simple registration enables users to access the site and to provide comments if they choose; any contributed feedback is passed through the participating organization to its intended recipient. Carter says that feedback mechanism was not designed to create a ‘chat room’ or an anonymous commentary. ‘This is merely designed to enable the organization to get feedback in a fairly easy way,’ she explains. ‘Instead of having [someone] go and find an organization’s website, find contact information, get to the right person and then make their comments, they can make their comments here.’

Kanzer hopes the policy exchange will initiate dialogue about the meaning of good corporate governance. ‘I’d encourage members of the corporate community to visit this website, to take a look at it and to really use the feedback mechanism. Reviewing these policies is hopefully one way to start that conversation,’ he says. ‘From our perspective, I don’t think there is any perfect answer. Corporate governance is a very complex area, just like politics. There is no perfect way to do it. But it is very important to have this conversation.’

One size doesn’t fit all\

Tom Lehner, director of public policy at Business Roundtable, supports this effort to expose different  governance policies. However, he offers some caution to organizations and others who have to apply or administer those policies. ‘You have to apply on a case-by-case basis,’ Lehner advises. ‘It’s difficult to take one policy and apply it across the board to every company because companies are run differently and what works well for one company might not work as well for another. So we’ve always encouraged a broad set of best practices on a variety of issues.’

Gary Lutin, an investment banker at Lutin & Company who conducts shareholder forums, says, ‘A corporate secretary or a board member really should understand something about corporate governance theory and policy in the same way that a president or governor or senator should probably understand something about political theory. But as a practical matter, their primary job is to make things work and [they] would certainly benefit from an understanding of underlying theories.’

However, he also expresses some caveats about applying policy to real business situations: ‘The difference between corporate governance policy and theory and the actual application of practice is an increasing concern, particularly among corporate managers who are actually responsible for managing a business… It’s a matter of applying common sense to the practical realities of managing a competitively successful business.’

Feedback may be slow at first. Many corporations are reluctant to speak out, either publicly or privately, against proxy advisory groups because they feel these groups do not respond well to criticism. Some corporates even feel that the governance argument is a one-way street and they cannot risk unsettling ratings groups, even when policies appear rigid or inappropriate. Yet there is hope that services such as the Policy Exchange might help to broaden the governance discussion.

Carter looks forward to seeing more participants join the Policy Exchange, and invites companies with a robust set of governance guidelines that are interested in having their policies posted on the Policy Exchange to contact policy.exchange@riskmetrics.com. ‘The goal is to be able to put on the Policy Exchange a broad view of governance issues and perspectives that really take into account the fact that there are many ways to look at some of these governance issues. We would like to include policies that have diverse views from the corporate community that can stand side-by-side with some of the institutional policies as well as the policies from some of the organizations that have either voting policies or governance guidelines.’  

Corporate secretaries are obligated to become as knowledgeable as they can about the different options leading to effective governance. ‘A corporate secretary’s job is to be able to provide advice on what the best thinking available is, so I think they should be informed about a wide range of views,’ Lutin says.

However, at the same time, it is also incumbent on corporate secretaries to thoroughly understand how governance relates to making a business operate in the most optimal fashion. ‘Good governance is only relevant to the management of a successful business,’ Lutin continues. ‘Nobody cares what kind of governance an unsuccessful business has.’ 

‘Effective governance is essentially relevant to the adaptability of an enterprise,’ he goes on to conclude. ‘If you have a successful business, good governance may make the difference between its continuing to adapt and failing to adapt. But if you haven’t got a good business operation to begin with, there’s literally no point to good governance.’

For those businesses and organizations that succeed – or strive to succeed – in the competitive arena of corporate America, the Policy Exchange can provide resources and tools to help them find the right path to effective governance.