Views on improving the integrity of global capital markets
09 February 2012

Corporate Governance Update: BlackRock, Western Union, Olympus Kick off 2012 with a Bang

The year is still young, but already a handful of corporate governance issues bear watching in 2012. “Say on Pay” is still a major issue, but the big headlines are now coming from the UK, where mandatory Say on Pay is being discussed. In the U.S., proxy access “private ordering” (we’ll define that below) has started after the SEC’s proposed proxy access rule was denied last year. The U.S. also is where one of the world’s biggest investors has targeted the companies in its portfolio for better communication — looks like BlackRock wants a more fulfilling relationship. And in Japan, the hope for corporate governance change in the wake of the Olympus scandal may be receding.

Say on Pay

This marks the second year of mandatory Say-on-Pay votes in the United States, where investors and issuers alike will watch the votes at companies that received a “no” vote (less than 50 percent support) in 2011, and see if investors build on the 40 companies that failed to pass muster last year.

Some of the most interesting conversations surrounding Say on Pay are currently happening in the UK, where politicians have found a scapegoat that everyone loves to hate: the overpaid CEO. Even Prime Minister David Cameron has entered the fray, describing current pay practices as a “market failure,” noting that pay doesn’t line up with company performance. A Say-on-Pay vote in UK companies is now just advisory, but the drumbeat for mandatory Say on Pay has grown louder.

The problem is that no one is sure what a binding Say-on-Pay vote would mean. UK Business Minister Vince Cable has authored a plan for a binding shareowner vote on future compensation plans, calling for increased transparency on pay, more board diversity, and employee engagement to cure the perceived ills of excessive executive pay.

There also are plans to amend the UK Corporate Governance Code in order to introduce clawback policies at companies.

 Stay tuned in the next few months as officials hash out the details.

Proxy Access

In early January, a small New York company, KSW Inc., adopted amendments to the company’s bylaws to allow shareowners that beneficially own 5 percent or more of the company’s shares for at least one year to make a board nomination.  

Just last week, a second U.S. company, Western Union, proposed its own version of proxy access in response to a shareholder proposal. Western Union plans to require 5 percent holders to wait three years for the right to add their own director candidates to the corporate proxy.

These company-sponsored bylaw changes represent the “private ordering” of proxy access — letting shareowners and companies decide on a case-by-case basis whether to introduce proxy access instead of having a federally mandated model that applies to all companies.

Some companies may be fighting proxy access with, well, proxy access. In the case of Western Union, the company made its own proxy access proposal after the Norway pension fund filed a proposal requesting proxy access for 1 percent holders who held shares for just one year.

It remains to be seen whether SEC staff will allow companies to adopt their own proxy access proposals in lieu of investor proposals that typically have lower share-ownership and holding-period thresholds.

Shareowner Communication

BlackRock is currently the world’s largest asset manager, with approximately $3.5 trillion under management. So when Blackrock talks, companies tend to listen.

BlackRock Chairman and CEO Larry Fink recently sent a letter to 600 companies — half of them in the United States — calling on executives to hold discussions on corporate governance with BlackRock and other investors “well in advance of the voting deadlines for your shareholder meeting, and prior to any engagement you may undertake with proxy-advisory firms.”

BlackRock’s size allows it to have a large staff dedicated solely to governance issues and, as importantly, the clout to call for such governance discussions — which has the potential to help all shareowners if it forces boards to address thorny governance issues they may not otherwise.


In the wake of the multi-decade fraud at Olympus that came to light last year, it seemed reasonable for shareowners to ask the board to step down. Not so fast. Tokyo Stock Exchange rules let firms issue up to 25 percent of shares with no shareowner approval. So guess what the Olympus board is looking into? That’s right, the company’s board is looking into a private placement to bring in a major shareholder who could sway any discussion calling for the heads of board members and management who oversaw the massive fraud at Olympus.

The Ministry of Justice has begun taking public comments on the Revision of Companies Act, which indicates the possibility to require Japanese companies to have outside directors, but some argue that a much bigger shift in Japan’s corporate culture is needed for such reforms to be meaningful.

About the Author(s)
Matt Orsagh, CFA, CIPM

Matt Orsagh, CFA, CIPM, is a senior director of capital markets policy at CFA Institute, where he focuses on corporate governance, ESG, and climate change analysis. He writes and speaks frequently on these topics on behalf of CFA Institute. His paper, Climate Change Analysis in the Investment Process was named “Best ESG Paper” by Savvy Investor in 2021.

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