Coming to America: An interview with John Wilcox
‘I think the US is becoming more comfortable with a more open, more transparent and more communications-based relationship with shareholders – and that makes it an ideal time for us to come into this market,’ says John Wilcox, chairman of the newly formed Morrow Sodali Global, billed as the ‘largest independent corporate governance, proxy solicitation, investor relations, capital markets and shareholder services firm in the world’.
The motto at Sodali, where Wilcox also served as chairman ahead of the acquisition, was ‘aligning interests’, and Wilcox says ‘the philosophy we bring to our clients and the markets we serve has always been, Talk first and fight later, as opposed to, Fight first and ask questions later, which was the philosophy for many years in the US.’
He says part of the problem has been the rules-based system around corporate governance in the States, as opposed to the ‘comply or explain’ approach seen in many other markets. ‘The US is also a place in which there have traditionally been very adversarial relationships between shareholders and companies,’ he adds. ‘These adversarial relations are actually encouraged by this regulatory approach.’
But that’s changing – even if the number of shareholder activism campaigns in the US continues to rise. ‘Companies [in the US] have come to understand that if they engage directly with shareholders on their compensation decisions, [for example], they can very often get shareholder support without going down a legal route,’ Wilcox explains.
He talks a lot about the US market, a country whose influence on corporate governance, shareholder rights and the proxy system cannot be underestimated. But of course Sodali’s focus has been on Europe and emerging markets – which is where the deal that created Morrow Sodali Global comes in.
‘Sodali’s structure always emphasized the global nature of the company, but with a local expertise in every market we serve,’ says Wilcox. So it would not have been appropriate for the firm to open an office in the States ‘and suddenly have people working in different parts of the world acting as experts on the US.’
Through its purchase of Morrow & Co, Sodali now has that US expertise in the form of an established, trusted name. The newly created company is headquartered in New York and London with offices from Connecticut to Tokyo and clients with an aggregate market cap in excess of $5 tn. So as the firm’s reach expands, what does Wilcox see as the biggest corporate governance issues today?
In developed markets, he cites executive compensation as ‘the perennial issue. It will never go away, and not just because executive compensation is also, in a sense, a political issue in many countries because of the extreme gap between what CEOs and other C-suite execs are paid versus the average employee, but also because compensation is viewed – and I think appropriately – as emblematic of how the board of directors is doing its job in overseeing the company.’ This issue, he notes, is more subdued in emerging markets only because of the general lack of transparency around compensation.
He also points to a number of ongoing shareholder rights issues such as proxy access in the US and multiple voting rights in France, and advises companies to take an integrated approach when responding to any criticisms. ‘We are increasingly telling our clients that when a company is facing criticism with respect to governance, the right response should be a substantive one – not a compliance response,’ he says. ‘Not just an explanation with respect to the particular governance issue.’
Rather than simply focusing on compliance, Wilcox says a company’s response should be rooted in its strategy. ‘Increasingly we encourage companies, in explaining their governance decisions, to explain them in business terms,’ he says.
And this comes back to another element of the firm’s philosophy: the need for transparency – and substantively so. ‘Companies need to really explain how their business is being run and how decisions are contributing to value over the long term for their shareholders,’ Wilcox notes.
Finally, companies need to be more courageous. They need to stand up to short-termist investors looking to create value at the expense of the long term, Wilcox maintains. ‘Genuinely long-term’ institutions, such as BlackRock, will often support a company that makes a case in favor of decisions and financial goals, he says, even when those might not be in exact compliance with governance best practices.
‘My strong conviction is that a company that makes a persuasive case for long-term value creation will always prevail over a short-termer,’ he concludes.