July 9, 2008

Professor Ira M Millstein, Senior Associate Dean for Corporate Governance at the Yale School of Management, has called for an international effort to address the problems for corporate governance created by the power and diversity of today’s capital markets and investing organisations.

“Productive corporations must no longer be the tail on the dog of the capital market,” Professor Millstein said in the second annual Charkham Memorial Lecture at the Mansion House in the City of London.

The lecture was hosted by the Financial Reporting Council, the UK’s independent regulator responsible for corporate governance and reporting. Sir Christopher Hogg, FRC Chairman, described Professor Millstein as a leading figure in the remarkable development of corporate governance thinking and practice over the last 20 years. “He brings unrivalled understanding and experience to this second Charkham Lecture, and we are honoured and delighted that he should have agreed to give it.”

Professor Millstein painted a picture of boards of companies confronted by “the explosion of organizations such as hedge funds, private equity funds, state-owned enterprises, sovereign wealth funds, pension and mutual funds of all varieties, and combinations of them all. This array has created for corporations and their boards a "zoo" of owners with different stripes, teeth, sensors, claws, vision, strength, will, and attitudes.

"Compounding the situation is the creation of a blizzard of financial instruments. Professors Goetzmann and Rouwenhorst of Yale University noted that ‘instruments spring from the mind of investment bankers almost overnight, and then are analyzed, valued, traded, saved, and hedged themselves - sometimes to be replaced by new financial instruments’.

“Today, the board of directors, sitting amidst this complex landscape, must seek to steer the corporation in a coherent direction, somehow considering the values of its owners, and being responsive to those values. Potential intra-shareholder conflicts leave the board with the delicate but critical task of mediating different shareholder concerns and objectives, and being ‘fair’ to them all. “

Prof Millstein, who is also Senior Partner of Weil, Gotshal & Manges LLP, wondered what the meaning was of the board’s ‘fiduciary’ duty when the values of the shareholders were no longer unitary. “Does the concept include “mediation”, or deliberately favouring one set of shareholder values over another?”

He said it would not be easy to correct the deficiencies of the current system, but was clear on the starting point. “We cannot continue to see financial engineering, as important and inevitable to the functioning of the market as it certainly is, wagging the tail of the dog of the real world of producing the goods and services which provide the jobs and economic growth vital to the whole world’s well being.”

He called for a global effort to address the new issues. “In my view, this needs to be done by the OECD or by a joint effort of international regulators. Only a unitary approach can help avoid the unintended consequences of regulatory action.”

Read the speech transcript: http://www.frc.org.uk/press/pub1651.html

July 9, 2008

Ira Millstein, senior associate dean for corporate governance at Yale School of Management, wants the world to map out the “new territory” of relations between shareholders and companies. It is not an easy road. With characteristic vim, he pointed out in a lecture on Wednesday night at the Mansion House that boards are struggling to reconcile the widely varying interests of a “zoo” of owners, from hedge funds to sovereign wealth funds. Combine that challenge with the proliferation of complex investment techniques – which mean “a large owner [of shares] may only be a renter, with a different agenda” – and it is hard for directors to fulfill their obligation to be “fair” to all shareholders.

With that, Mr Millstein simultaneously gave a timely smack to the City’s financial engineers and put his finger on the frustration many directors of public companies feel. They seem nostalgic for the 1980s and 1990s, when modern corporate governance principles were built (by Mr Millstein, among others) on the idea of a dialogue of common interest between boards and identifiable institutions.

That message – that “productive corporations must no longer be the tail on the dog of the capital market” – must have been music to the ears of captains of industry in his audience. But that was only half of it. The clock cannot be turned back. Rather, companies have to find board members who can execute these “new concepts of fiduciary duty and good faith” to myriad investors. That ought to discomfit those directors whose concept of ideal investor relations dates back to a golden age that can never return.

By JOANN S. LUBLIN

January 14, 2008; Page B1

LONDON -- Bear Stearns Cos. became the latest high-profile U.S. company to divide its leadership when James Cayne stepped down last week as chief executive but remained board chairman.

This division of labor, long favored by governance advocates, has gained momentum slowly in the U.S., where many CEOs resist sharing power. Around 36% of Standard & Poors-500 companies have separate chairmen and CEOs, up from 22% in 2002, according to the Corporate Library, a research group in Portland, Maine. As at Bear Stearns, splits in the top posts at American businesses are often the result of a leadership transition or financial trouble. In numerous cases, the chairman is a concern's retired CEO.

Yet the gradual emergence of non-CEO chairmen in the U.S. raises a sticky question: How do you perform a role that rarely existed until recently?

For insight, American executives increasingly look to Britain, where most major public companies have divorced the roles since a 1992 corporate-governance reform effort. The chairman usually comes from outside company ranks.

Next month, about a dozen independent chairmen from the U.S. and abroad will brainstorm at a New York round table organized by Yale University's Millstein Center for Corporate Governance and Performance. Participants will discuss how to run boards "and not step on the CEO's toes," says Stephen Davis, the center's project director. The session will be led by Harry Pearce, a retired General Motors Corp. vice chairman who heads the boards of Nortel Networks Corp. and MDU Resources Group Inc. A CEO who also is chairman has "the only job without a boss," Mr. Davis says. To read more, please click here

Seeking to improve frayed relations with shareholders, a growing number of companies and boards are trying a simple but new approach: They're giving investors more opportunities to be heard.

Pfizer Inc. directors met with institutional investors in New York in October, the first in a series of planned meetings with big shareholders to discuss corporate-governance policies. In July, the drug maker helped organize a roundtable discussion on executive pay that brought together investors, executives from other companies and governance specialists.

Health-insurance giant UnitedHealth Group Inc., meanwhile, has created an advisory committee to allow shareholders to suggest new directors. And PepsiCo ...To read more, please click here