Views on improving the integrity of global capital markets
04 June 2014

Corp Gov Roundup: Short-Termism, Proxy Access, Pension Funds

It’s time to span the corporate governance globe to review important developments from the month of May.


The United Nations Global Compact recently released a report to add to the debate over short-termism in the markets. The report, Coping, Shifting, Changing: Strategies for Managing the Impacts of Investor Short-Termism on Corporate Sustainability, focuses on how companies can marry sustainability with strategy.

The central argument of the report is that it is possible for companies to act in more long-term ways in a short-term world. The report states that this would require companies to:

  • In the near-term: cope better with prevailing short-termism in their existing investor base
  • In the medium-term: shift to a more long-term oriented investor base
  • Over the medium to long-term: support wider systemic change in the capital markets

In order to achieve these outcomes, the authors of the report call on companies to analyze how short-termism has affected their business strategy, their capital investment, and their financing of businesses. They also call on companies to better define and track outcomes shifting away from a short-term mindset — including doing a better job of tracking performance that aligns with long-term strategic goals. The report also asks companies to undertake a conscious shift toward courting a more long-term oriented investor base that would include more engagement with investors and better communications — which may include giving up providing quarterly earnings guidance and replacing it with more communications around longer-term metrics.


The Canadian Securities Administration recently released best practice guidance for proxy advisers. The paper comes in the wake of concerns about the conflicts of interests at proxy advisory firms and the transparency of the processes behind their recommendations. The report operates on a comply-or-explain basis and largely follows the voluntary code of conduct adopted in March by six global proxy advisory firms.


Proxy access is alive and well — in Italy anyway. The former head of governance at F&C Asset Management, Karina Litvack of Eni was nominated on a minority slate proposed by mutual fund association Assogestioni, which put forward the slates under Italy’s unique voto di lista law, which allows shareowners to vote for board members in a slate system. In the slate system, shareholders do not vote for individual directors but for slates of directors. Italy sets aside a certain percentage of board positions for minority shareowners, and Litvack was nominated to such a minority slate.


After a long wait, we recently saw some of the long-promised corporate governance reforms from Japanese Prime Minister Shinzo Abe. The reforms were set out in a recent document (in Japanese) from Abe’s Liberal Democratic Party. The plan calls for the creation of a national governance code in time for the proxy season in 2015. Annual meetings in Japan are usually held in June. The code will be set out on a comply-or-explain basis and should include provisions that call for a minimum of two independent directors according to Abe’s plan. The reforms also address director nomination and training.

United Kingdom

The UK government recently announced a plan to reconfigure the pension fund industry in the country, aiming to save pensions and ultimately taxpayers money by allowing smaller pension funds to merge into larger ones. Those that support the plan note that if such small pensions were combined, their voting power and leverage on companies would increase. There is of course the problem of asking those who run each pension now to give up some power — which is never an easy proposition. Comments on the UK proposal are due by 11 July.

United States

Proxy access in the United States is much different than that enjoyed by shareholders in other parts of the world (see Italy above). In the US, investors must get the right to access the corporate proxy through a change to corporate bylaws. Such “private ordering” is much different from a universal right to proxy access that is enjoyed by shareowners in most other markets.

A couple recent cases of proxy access illustrate this point. In May, a proposal for proxy access that was backed by the board was passed with 94% support at Verizon’s annual meeting. The proposal allows shareholders holding at least 3% for three years to nominate up to 20% of directors on the corporate proxy. This 3 and 3 format echoes the access rules set by the US Securities and Exchange Commission before they were struck downin a 2011 ruling by the DC Circuit Court.

A shareholder proposal asking for proxy access also passed at Boston Properties. A 3%/three-year proxy access proposal received 64% of votes cast.

Companies that are worried about the increased shareowner power that access to the proxy might bring may have reason to worry. A recent academic paper finds that investors are becoming more independent in their voting and voting in line with management less than they have historically.

The paper, Influence of Public Opinion on Investor Voting and Proxy Advisors, by Reena Aggarwal of Georgetown University, Isil Erel of Ohio State University, and Laura Starks of the University of Texas at Austin, looks at voting data on shareholder proposals from 2004–10 from 13,313 mutual funds — a group that historically has been much more likely to vote in line with board recommendations than more activist and institutional investors. The researchers find that over the time period measured, support for management proposals on the proxy have remained largely flat, while support for shareholder proposals has risen from roughly 24% in 2004 to 31% in 2010.

Photo credit: iStockphoto/YinYang

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

Matt Orsagh, CFA, CIPM, is a director of capital markets policy at CFA Institute, where he focuses on corporate governance issues. He was named one of the 2008 “Rising Stars of Corporate Governance” by the Millstein Center for Corporate Governance and Performance at the Yale School of Management.

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