Corporate colloquium
Experts visit UD to explore this year's most critical issues in corporate governance
11:44 a.m., April 1, 2015--A sold-out audience attended the Corporate Governance Symposium hosted this month by the John L. Weinberg Center for Corporate Governance in the University of Delaware’s Alfred Lerner College of Business and Economics.
The symposium began with a panel discussion exploring a number of hot topics for boards and institutional investors in the field of corporate governance.
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Associate director of the Weinberg Center Ann Mulé said that panels like this one are vital in getting to the bottom of crucial governance questions.
“What’s important is that the ultimate truth is uncovered,” Mulé said. “Sometimes it takes time, effort and lots of courage to finally arrive at the truth.”
“That’s why I really value this conference,” she continued. “We discuss breaking issues that you’re not going to hear everywhere else.”
This year’s panel participants included:
- Glenn Booraem, principal and fund controller, Vanguard
- Donna Dabney, executive director, Governance Center, The Conference Board
- Jon Lukomnik, executive director, IRRC Institute
- Robert M. McCormick, chief policy officer, Glass Lewis & Co.
- Patrick S. McGurn, special counsel, Institutional Shareholder Services (ISS)
- Allie Rutherford, principal, CamberView Partners, LLC
- Linda E. Scott, senior vice president and associate corporate secretary, JPMorgan Chase & Co.
- William Ultan, senior managing director, Morrow & Co., LLC
- Karen L. Valihura, justice, Delaware Supreme Court
Moderating the panel was Charles Elson, UD’s Edgar S. Woolard, Jr. Chair in Corporate Governance, professor of finance and director of the Weinberg Center.
“This conference represents the best of what we do,” Elson said, adding that improved governance helps businesses to earn better results.
“Governance isn’t an end in itself,” he said. “Ultimately it’s a tool to improve long-term performance.”
One of hot topics discussed by the panel was proxy access, which provides shareholders with the ability to nominate board members directly.
“You can’t talk about 2015 without talking about proxy access,” said one panelist. “2015 will be a watershed for proxy access.”
“Board members are the representatives of shareholders; why shouldn’t they have the opportunity to at least nominate them?” asked another panelist, calling this “where the theoretical meets the practical.”
And the impact of proxy access should not be underestimated.
“Over the past five years, hundreds of board seats have been seated by shareholder-nominated directors,” said one panelist. “This is having a huge impact. If you extrapolate the numbers out 10 years, you’re talking about market-wide coverage.”
“Shareholders are more empowered than they were and they have a different set of expectations than they did,” added another panelist. “The drive for proxy access is the most recent, clearest example of that. Shareholders expect engagement.”
Other crucial subjects touched on by the panel included shareholder activism, cybersecurity, executive compensation and board composition, as well as larger and more global questions.
“What’s the role of the American corporation in the income inequality debate?” asked one panelist. “Is the purpose of the corporation solely to maximize the wealth of shareholders over the short term, or is there a broader purpose that goes beyond that?”
Overall, panelists said they have seen a number of shifts in recent years that will continue to improve communication between all levels of corporate governance.
“Directors are taking stronger interest and trying to understand where the institutional investors are coming from,” said one panelist. “I think that’s because they legitimately care and are taking a greater interest in it.”
“What has happened over the last few years has been an empowering of shareholders with certain tools,” added another panelist. “What we’ve seen occurring in the most recent era of corporate governance is the shift toward engagement, toward a more direct discussion between board members and institutional investors.”
Best Paper awards
This year over 70 papers from around the world were submitted to the Weinberg Center’s Corporate Governance Symposium. Four were selected for presentation to the audience, two of which were selected as winners of the John L. Weinberg Best Paper Award.
Fabrizio Ferri from Columbia University won the Best Paper Award for the second time with “Understanding Director Elections: Determinants and Consequences,” co-written by Yonca Ertimer from the University of Colorado at Boulder and David Oesch from the University of Zurich.
“I’m very happy to receive the award,” said Ferri, who has been attending this event since its beginning years ago. “It’s receiving recognition from leaders in the field, so that’s very important and encourages me to continue this research.”
Ferri’s paper focuses on how the voting behavior of shareholders affects board behavior. Ferri and his co-authors found that firms do react to shareholder voting behavior, and even respond strongly to shareholders withholding their votes entirely.
However, this can present a problem when shareholder voting is heavily influenced by outside forces or recommendations that may not be sound.
“The biggest concern is not the amount of influence that proxy advisers have on shareholders, but the fact that shareholders seem to be active and voting only when the proxy advisers single out an issue as being important,” Ferri said.
Tied with Ferri for the Best Paper Award was Jillian Popadak from the Fuqua School of Business at Duke University.
“I was honored to win the best paper award,” Popadak said. “I'm very proud of the contributions of the paper and was delighted that those working with the Weinberg Center agreed.”
Popadak presented her paper “A Corporate Culture Channel: How Increased Shareholder Governance Reduces Firm Value.” Her research uses qualitative data like employee reviews to analyze how shareholder governance influences corporate culture.
“I hope my research can facilitate a dialogue between investors and a firm's leadership about the potential consequences, both good and bad, of stronger shareholder governance,” Popadak said.
From her research, Popadak said that everyday investors should “remember that activism is never so clear” that decisions won’t have both positive and negative consequences.
To the many students in the audience during the symposium, Popadak advised that they continue to explore the elements of research that intrigue them.
“Ask questions you want to know the answer to,” Popadak said. “Curiosity is the greatest motivation.”
Also presented during the Corporate Governance Symposium were the following papers:
- “Board Groupthink” by Jeffrey L. Coles, David Eccles School of Business, University of Utah; Naveen D. Daniel, LeBow College of Business, Drexel University; Lalitha Naveen, Fox School of Business, Temple University (presenter). Discussant: James A. Fanto, Brooklyn Law School
- “Growth through Rigidity: An Explanation for the Rise in CEO Pay” by Kelly Shue, Booth School of Business, University of Chicago (presenter); Richard Townsend, Tuck School of Business, Dartmouth College. Discussant: Robert J. Jackson Jr., Columbia Law School
Article by Sunny Rosen
Photos by Ambre Alexander Payne