NBR, 26 September 2008, Table Talk by Nicki Crauford
Funds used to play their proxy moves in private, leaving corporates and other investors guessing about their voting stances until the annual meeting. Expect that era to fade.
Forewarning the proxy voters
Two pacesetting US funds have pledged to disclose in advance how they plan to vote. This allows both institutional and individual investors to piggyback on those who've committed resources to carving out a position.
Two developments are spurring the trend:
- The US healthworkers' pension fund and the Florida State Board of Administration have begun posting their voting plans through ProxyDemocracy, an online service designed to help individuals track how funds vote shares on their behalf.
- Broader collective actions through the UN Principles for Responsible Investment, whose two-year-old Engagement Clearinghouse provides a forum for asset managers and owners to share information about planned proxy resolutions. However, it's restricted to UNPRI signatories. As more activists post their plans on ProxyDemocracy's public website, the potential grows for all shareowners to assess those positions and follow their lead.
Greed reflects leadership failure
While much of the discussion about the global credit crisis has focused on its causes and the need for regulatory reform, Russell Palmer, author of a new book, Ultimate Leadership, has a different perspective. He believes it offers an opportunity to learn crucial lessons. If these are heeded, he says the US will end up with a financial system that is stronger than ever. In his view, greed was the underlying cause of the subprime mortgage crisis and its continuing fallout. Those who originated the mortgages had to know the higher the risk on the mortgage terms, the greater exposure to possible foreclosure. So did the people who bought and securitised the mortgages. But not everyone kept playing the game until the roof fell in. Ignoring high risk because you are making big earnings certainly shows a lack of leadership. How many people on Wall Street have been subject to less than robust oversight by their organisations because they were producing such big contributions to the firm's earnings? Allowing your organisation to be a party to contributing to this scheme - even if you know that you will not be directly affected - is not a mark of leadership. It is a sign of greed, according to Palmer.
Boards need integrity
Integrity is the key to leadership - and it should begin with board members. Too often boards of directors have let the chief executive escape responsibility by firing a couple of people down the line and going back to work. Boards must provide appropriate oversight but can never be expected to know enough about the complex world of finance and derivatives transactions. Boards need to provide detailed oversight and take responsibility to see that outside experts are brought in, if necessary, to assess the risk profile of the organisation. Experts such as auditors, regulators and others. Directors must be at the forefront of addressing the crisis and take personal responsibility, Palmer says. They must ultimately call the shots and be personally involved. Direct communication is essential - not filtered through a third party. They mustn't be in denial, remembering they can use the crisis, either during the heat of the battle or after things calm down, as a time to make transformational change. Strong leadership leads to resilience. Once the system regenerates, in some cases with new leadership, Palmer says he is convinced the organisation will be as strong as before, if not stronger. At the Institute of Directors, we agree with these sentiments wholeheartedly.