In a robust debate about the wisdom of using litigation to enforce corporate governance standards, Colin Melvin, chief executive of Hermes Equity Ownership Services, made clear his opposition to legal action as a “normal” way of dealing with companies coming off their governance rails. According to Melvin, for shareholders to sue companies in which they hold stocks is to effectively sue themselves.
True change, he said, comes through shareholders and boards aligning their interests. Legal actions are a distraction for everyone, in particular company executives who must still run the company. Launching litigation should be a matter of last resort, he emphasised.
One share one vote
Investors mainly stand behind the idea of one share one vote. Anne Simpson, senior portfolio manager at CalPERS, emphatically provided her support for the policy during a panel discussion between ICGN founders.
The sentiment met with hushed approval in the room. As Simpson pointed out, such a stance is not without reason. Earlier this year the Financial Times reported supporters of “one share one vote” are butting heads with those who advocate “loyalty shares” offering long-term stock holders enhanced voting rights.
Supporters of loyalty schemes include such luminaries as Warren Buffett and Jack Bogle, founder of Vanguard, one of the world’s largest fund houses. Even the European Commission has flirted with the idea of revising the one share one vote orthodoxy. Simpson insisted the principle needed to be “respected”.
Jamie Dimon, the now notorious head of JP Morgan, met with condemnation for his recent comments that “lazy” and “irresponsible” shareholders had given too much power to proxy advisers. Geoff Lindey, one of the founders of ICGN and formerly with the National Association of Pension Funds, rounded on Dimon in front of a packed hall saying the CEO “knew nothing about how pension funds work.” He hammered home the point by noting how “clever men can say stupid things”.
Audit committees proved a big issue on the first day of the conference. The big bone of contention proved the lack of engagement between shareholders and the audit committee chairman. Nick Land, a former head of Ernst & Young in the UK and now audit and risk committee chairman with telecomms giant Vodafone, confessed that in nine years of chairing an audit committee he’d received only two questions from investors. He added there were many issues at Vodafone for investors to “get their teeth into”.
But they don’t. Perhaps the most radical view on audit committees came from Dutchman Paul Koster, investor representative at the International Forum of Independent Audit Regulators, who demanded that audit committees be much more “aggressive” in launching their own internal investigations should they suspect a problem.
The audit committee, Koster added, should be able to provide “binding advice” to a full board. Natasha Landell-Mills, head of ESG research at Sarasin & Partners, emphasised the shareholder view that audit committees are critical, saying a lack of investor interest in audit had created “the space” for bad behaviour.