The New York Times reported that: "[t]he agenda...was to discuss the sorry state of publicly traded companies: too little trust and connection between shareholders and management, too many rules imposed by so-called governance experts and too many idiosyncratic accounting guidelines. As a result, much of the smart money in the United States is going — and staying — private, creating more companies that have less public accountability and transparency."
Mr. Dimon pushed for the ensuing series of meetings because of his frustration that public companies find it increasingly difficult to hold onto talented executives who leave in droves to work at private companies — outside the harsh spotlight of the stock market, activist investors and new regulations. Numerous Silicon Valley companies in recent years have delayed public offerings for as long as possible. According to the National Bureau of Economic Research, the number of publicly-listed companies in the United States declined from 8,025 in 1996 to 4,101 in 2012.
After the year-long succession of meetings, conference calls and email exchanges, the institutional investor and corporate chiefs released an open letter in late July, entitled Commonsense Corporate Governance Principles, calling for:
• Truly independent corporate boards, not beholden to the CEO or management, that meet regularly without the CEO present, and engage actively and directly with executives below the CEO level;
• Diverse boards, comprised of members with complementary and diverse skills, backgrounds and experiences, balancing wisdom and judgment that accompany experience and tenure with the need for fresh thinking and perspectives of new board members;
• Strong board leadership independent of management, with the board’s independent directors deciding whether the roles of chairman and CEO should be separate or combined; and if the board decides on a combined role, the board must have a strong lead independent director with clearly defined authorities and responsibilities;
• Elimination of quarterly earnings forecasts, unless companies believe that providing such guidance is beneficial to shareholders;
• Never obscuring Generally Accepted Accounting Principles-reported results even when companies use non-GAAP to explain and clarify their results, in particular, reflecting the cost of stock- or options-based compensation in non-GAAP measurements of earnings; and
• Constructive engagement between a company and its shareholders, allowing the company’s institutional investors access to the company, its management and, in some circumstances, the board and, likewise, a company, its management and board access to institutional investors’ ultimate decision makers.
The letter's signers open by asserting that "the health of America’s public corporations and financial markets — and public trust in both — is critical to economic growth and a better financial future for American workers, retirees and investors." Millions of American families, they remind, depend on these companies for work — our 5,000 public companies account for a third of the nation’s private sector jobs.
Clearly, the nation's publicly-traded companies still form a massive pillar of the American economy that could stand to be strengthened. Undoubtedly, the letter's 13 signatories lead major U.S. concerns and are highly influential in prominent corporate and investor circles. But beyond stirring debate, the impact of, and the next steps for, the Commonsense CG initiative remains to be seen. We'll delve more deeply into the group's particular recommendations as it unfolds.
Robert Stead
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