Although the 2016 proxy season is in the rearview mirror, corporate governance issues are more prominent in the news than usual as we head into the dog days of summer. A contentious presidential campaign - finally - entering the home stretch could be the culprit.
Long-time Wall Street Journal columnist and Brookings Institution scholar William Galston last week wouldn't venture a guess on who will win the presidential election but he's certain who lost it: corporate America. Galston suggests that corporate America had it coming as "the consequence of policies that have ended by alienating huge numbers of Americans;" favorable opinions of corporations bottomed out after registering 38% in 2011, down from 73% in 1999. Moreover, per Gallup polling in 2014, 66% of Americans believe big businesses create jobs in foreign countries while just 43% thought U.S. companies were creating jobs domestically.
Galston seems skeptical of the insistence of many corporate execs that they are merely doing what they must to stay ahead of intensifying global competition by, e.g., locating plants in low-wage countries. If global competition is so intense, he asks, why are profits near record highs as a share of GDP and why is executive compensation soaring?
Underlying the level of compensation for top-earners, including corporate execs, relative to that for average Americans - and the perceived decline in good-paying jobs for the latter - is one of the dominant themes of this election cycle: widening income inequality. As former Democratic presidential candidate Bernie Sanders starkly put it, America now has more wealth and income inequality than any major developed country on earth, and the gap between the very rich and everyone else is wider than at any time since the 1920s. Perhaps currently the prime mover in Democratic Party policy-making, Sanders asserts that corporate CEOs in this country often enjoy an effective tax rate that is lower than their secretaries. For his part, Donald Trump, now the Republican nominee, last fall deemed the system for setting executive compensation "disgraceful" and "a total and complete joke."
According to Galston, the moral for corporate leaders is clear: If you care only about shareholder value, only your shareholders will care about you. And when a political crunch comes, your shareholders won't be numerous or powerful enough to save you. But the tacit compact - by which corporate leaders are given substantial latitude to chart their own course in exchange for giving due weight to the interests of the broader community - has broken down in the eyes of many Americans.
Even as the summer winds down, how corporate governance issues play in the run-up to the national election and its aftermath bears close watching. Stay tuned.
Robert Stead
Wednesday, July 27, 2016
Launching my blog on corporate governance
Welcome,
After a decade working in corporate governance, including 7 years at Institutional Shareholder Services (ISS) advising the firm's clients, I'm starting this blog to share my expertise and insights on the subject. The objectives are to keep decision-makers apprised of pertinent developments in the field and to help discern trends and anticipate changes in corporate governance driven by the forces of the political economy. Bringing to bear my background in corporate finance and financial analysis, a complementary aim is to explore the impact of corporate governance policies and procedures on the various stakeholders in corporate America and other major markets.
Coming on the heels of the hurried and harried proxy season, the summer months are typically a welcome respite for the diverse and dispersed corporate governance community. Nevertheless, I decided to launch now - albeit posting at a measured pace - because corporate governance, particularly in regard to the divergence between executive and rank-and-file employee compensation purportedly exacerbating income inequality, is a hot topic on the presidential campaign trail.
And as for the eponymous masthead of this blog, it's meant to convey continuously striving for sustainable and supportable corporate governance policies and practices that will hold up in today's dynamic environment.
I hope you find the news, analysis and commentary valuable and useful input for navigating the increasingly challenging corporate governance terrain. Your feedback is most welcome.
Enjoy the rest of the summer!
Robert Stead
After a decade working in corporate governance, including 7 years at Institutional Shareholder Services (ISS) advising the firm's clients, I'm starting this blog to share my expertise and insights on the subject. The objectives are to keep decision-makers apprised of pertinent developments in the field and to help discern trends and anticipate changes in corporate governance driven by the forces of the political economy. Bringing to bear my background in corporate finance and financial analysis, a complementary aim is to explore the impact of corporate governance policies and procedures on the various stakeholders in corporate America and other major markets.
Coming on the heels of the hurried and harried proxy season, the summer months are typically a welcome respite for the diverse and dispersed corporate governance community. Nevertheless, I decided to launch now - albeit posting at a measured pace - because corporate governance, particularly in regard to the divergence between executive and rank-and-file employee compensation purportedly exacerbating income inequality, is a hot topic on the presidential campaign trail.
And as for the eponymous masthead of this blog, it's meant to convey continuously striving for sustainable and supportable corporate governance policies and practices that will hold up in today's dynamic environment.
I hope you find the news, analysis and commentary valuable and useful input for navigating the increasingly challenging corporate governance terrain. Your feedback is most welcome.
Enjoy the rest of the summer!
Robert Stead
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