Major Shockers Rock The Governance World
Big After-Shocks To Come, And A Major “Raising Of The Bars” Across The Board, We Predict… So Get Ready
We love to crow about our long record of predicting “the next big thing in the corporate governance world” - but you sure don’t need a crystal ball this fall to know what it will be, following the disclosures about Volkswagen and their multi-year scheme to dupe the E.P.A. - and thousands upon thousands of consumers about VW emission standards.
“Problems at VW Start at the Boardroom” the NY Times headline screamed. “The governance at VW was a breeding ground for scandal” the apparently all-seeing professor Charles Elson opined below. “An Industry with an Outlaw Streak Against Regulation” another big NY Times headline read, outlining similar results-rigging and cover-up actions at Ford, Chrysler and GM, going back to 1972.
So how do we see this playing out in the actual world of corporate governance?
First, expect investors to take much deeper dives into ethical and compliance issues at companies of every description - with many more questions - and much more probing questions - into what, exactly the codes of ethics look like, how they are promulgated and reviewed - and enforced - and, more importantly, what the overall corporate culture is really like…So add this to your Shareholder Meeting playbook, for sure, regardless of the business you’re in…and seriously consider being a lot more proactive here than usual.
Expect the number of shareholder proposals asking for better disclosure and discussion of ethics and compliance issues in proxy materials to increase - along with requests for even more of those written reports on ethics, compliance and social issues, codes of conduct, whistleblower protections, etc., etc. - all of which, sorry to say, seem warranted these days.
Expect to see a new wave of “governance standards” being promulgated by paid advisors - like Glass Lewis and ISS - the Council of Institutional Investors and others, including labor unions, union pension funds and “social investors” we bet…and who could blame them.
Look for a relatively new group, The Human Capital Management Group, currently with 24 members, mostly from union and public pension funds - to come very much more to the fore. Human Capital Management – and workforce culture in general - was a big emerging issue before the latest compliance and ethics scandals - and this really plays straight to their sweet-spots.
The biggest change we foresee? An overall “raising of the bars” where corporate governance, and corporate behaviors in general are concerned.
And guess what? We were ready to predict an overall raising of bars BEFORE all these scandals broke. Why? Because, as we’ve said many times before, corporate governance has become really big business. And now, the scandals are making it bigger yet…And oh shoot…. What could really BE more important?
One final thought: The “overall raising of bars” will apply to all of your service suppliers too - as well it should - So be sure that all of your suppliers are up to the tasks at hand as you head into the 2016 Shareholder Meeting Season…