A History of the Corporate Governance Movement – As Illustrated by OPTIMIZER Magazine Cover Art – from 1997-2008

We have been promising ourselves we’d do this lookback for several years now - partly to show off some of our favorite covers, by our amazing cover-artist Guy Dorian, who did our first full-color cover in 1999 and every one since - but mainly because the covers beautifully illustrate, we think, all of the truly astonishing developments we have seen in the Corporate Governance and Shareholder Relations and Shareholder Servicing worlds over the past 20-odd years - with a bracing dash of humor to boot.

So here goes:

Yes, 1997 was “the dawning of the 21st century” - and for sure, despite our low-tech covers - there were a lot of developments looming on the horizon that would leave 20th century practices breathtakingly outmoded, though many public companies - and many of their suppliers too - were mighty slow on the uptake.

Astonishingly, for lookers-back, the hot new technological developments in 1997 and ‘98 revolved around the telephone! Our good friend Joe Spadaford, then at First Chicago Trust Company of New York (which very soon was to morph - along with transfer agents Bank of Boston and State Street Bank - into “Equiserve” - soon to be purchased by Australian company Computershare) bragged about 1st Chi’s new ability to field over 90% of shareholder inquiries, and handle 90% of their requests - and wow, to let them cast proxy votes too - over toll-free phone lines.

Another good friend (and one-time boss) Charlie Purcer was building a solid business - Proxy Services Corporation - around telephone voting and newly perfected IVR technologies for DSP ‘fulfilment services’ - and predicting that in two or three years, voting by telephone would increase to 50% of all votes cast.

And can you believe this one? Another good friend, Ron Gruner, founded a company - Direct Report - that would let shareholders call a toll-free number and hear the quarterly report read to them!!!… With commentary!!! But, very importantly as it turned out, they also had the option to go to a web-site that Direct Report would build and maintain, to see the entire 10-Q. This allowed companies like 3-M, Lucent Technologies, Merck and RJR Nabisco to stop mailing literally tens of millions of quarterly reports each quarter…Today, printed quarterly reports are almost entirely extinct.

But 1997 was also “the dawning of the Internet era” - not just where shareholder relations and shareholder servicing were concerned, but in terms of the ability of investors of every size and description to gather and analyze corporate data, model various ‘financial restructuring opportunities’ - and to communicate and coordinate their efforts with investors at large…instantly and at incredibly low cost.

Perhaps the most amazing aspect of our look-back is that the “Five Mega-Trends that are Revolutionizing the Art, the Science and the Business of Providing Top-Flight Service to Shareholders” are the very same mega-trends we see today:

1. “The sheer pervasiveness of on-line, real-time technologies is becoming ever more pervasive and driving fresh change - Faster than ever.

2. “The unrelenting corporate imperative to do more with less is also driving change at an ever faster pace.

3. “Globalization is changing the way shareholder services need to be delivered - faster than most folks seem to realize.

4. “A major demographic shift [was then] taking place domestically: A massive transfer of wealth from the post-Depression, post-WW II-era savers to the big spending, big-borrowing baby-boomer generation”… (And now, please note, yet another massive transfer of wealth is well underway - from baby-boomers to their heirs…and this new generation is even more in tune with our 1997 predictions about investor activism than the previous one was.)

5. “Technology is allowing even the average investor to scrutinize companies (and their officers and directors) more minutely than most of us ever imagined….Lagging companies pop out like magic - and would-be ‘fixers’ - whether they want to model the likely effects of business sales and divestitures, or to target directors and officers they see as laggards…can do so with unprecedented ease and speed”

And 1998 marked the beginning of an important and lasting trend in the corporate governance world: The need to weigh the then monstrous costs of providing services to investors against the benefits to the company as a whole…AND to somehow cope effectively with the then-new corporate imperative - to do more with less…

[Today, please note, there is a sixth mega-trend - that no corporate citizen could possibly have imagined in 1998: The huge focus that today’s investors are currently placing on social and environmental issues…where this generation of investors is increasingly making their voices heard - and - totally unthinkable and undoable in 1997 or 1998 - staging protests outside their own office buildings… and keeping their jobs!]

But - happy day for corporate folks - by the year 2000, Internet delivery of proxy materials began to gain major traction, as more and more large companies realized that heedlessly papering the world with paper, as our covers illustrated, was not an effective way - much less a cost-effective way to go. They began to solicit “consents” from shareholders that would let them post their annual reports and proxy statements on the web - and hundreds of thousands of investors (and ultimately millions of them) were fine with that.

Our Y-2k issue also noted a brand new mega-trend:

“There’s been an ‘individual investor revolution’ over the past five years, something the Optimizer predicted in 1995, when individual investments in equities were at an all-time low. Today, nearly half of all U.S. households own stock, and their holdings, as a percentage of household assets are at an all-time high.

“Investing has become a “social phenomenon” in every sense of the term; a hot topic in the media, on the job, and at every social and not so social gathering, including the family dinner table and the dentists’ and doctors’ offices….and individual investors are actually moving the market in a lot of stocks, and in a lot of sectors too…

“If your company has been a “hot stock” - even briefly - it’s not unusual for your investor population to have doubled or even tripled…along with the time and money you need to spend as well.”

But then, literally overnight, the overinflated tech-balloon burst in the “dot-com-crash” of 2001, when 40%of the hottest IPOs of Y-2k went completely bust, and even the top-names swooned, wiping out billions of dollars of investor money …

And Oh! Woe! Here’s what we were “covering” in 2002: “Who ever would have imagined the number of companies that not only failed to communicate effectively - and cost effectively - but were communicating only part of the story, or burying some of the most important parts in footnotes - or in ‘special purpose entities - or were communicating with shareholders dishonestly?

“Talk about ‘an incredibly expensive deal-breaker’ [as we’d done in the previous issue] these ‘flubs’ - at companies like Enron, Adelphia, GlobalCrossing and WorldCom wiped away seven trillion dollars of market value, essentially overnight!”….

…which brought unpleasant visits from Elliot Spitzer, angry union leaders and members, the media…our good friend Pat McGurn, who’s shown leading the charge for ISS, and who could fault him?…all of which ultimately gave us SOX! [But look how quickly we forget the sordid details! As we were drafting this, WorldCom’s former CEO, Bernie Ebbers, whose particular misdeeds we’d forgotten, went free in December, after his 25-year sentence for massive financial fraud and embezzlement was reduced to time served (13 years) due to his failing health. And yes, it took us a few minutes to recall the major faux-pas of briefly-serving SEC Chairman Harvey Pitt…who appointed a plainly conflicted friend to head-up the PCAOB, until whistles blew, but who still manages to put himself forward as a “good governance guru”]

Come 2003 and 2004 we were urging companies to go “In search of best practices” and to “Go back to the basics” - as most of the smart ones began to do, setting off a mini-boom in board off-sites, executive conferences, Directors Schools…and, for a fair number of scofflaws, some “off-sites” in houses of correction.

In 2005 we urged readers to “Check their toolkits”…and in 2006 we urged them to think seriously about “Chucking” their tool-kits…in favor of better and more effective tools.

In 2007, many of our readers, including many service-suppliers, discovered that many of the tools they were using were not only under-powered and technologically outmoded - they were subject to potentially disastrous crashes - creating painful shocks on their own.

Then, BIG WOE…came the “financial industry crash” of 2008…which instantly eradicated the mega-trend of “individual investment” and ended in a virtual wipeout of individual investors in individual stocks. [But DO stay tuned to the OPTIMIZER to track our predicted return of the individual investor.]

No wonder that in 2009 corporate folks were scrambling to get their corporate act together - and, by 2010 and into 2011 “Really reaching out to investors” - and trying to “connect” with this typically over-burdened and distracted audience - became the hot topics of the day…

And no wonder that despite these efforts to “really reach out” - in 2012 we saw mass demonstrations by the “99-percenters” - demanding that public companies “pay their fair share of taxes”…and increasingly voting against individual directors - and Say-On-Pay proposals…and invading shareholder meetings to chant defiance until ejected…

In 2013 we saw the “three-legged stool” of corporate governance being jostled and often tipped completely over by activists of every stripe…

And in 2014, we saw the rise of dozens of so-called “financial engineers,” an upsurge in activities by the plaintiff’s bar - and a year where even the once unfailingly polite and patient religious investors began to speak more loudly, and insistently.

Meanwhile, over the past 15 years, the universe of suppliers of products and service to public companies had been undergoing a near-total upheaval:

The number of registered shareholder accounts maintained by transfer agents had dropped by a whopping 70% from the 100-million-plus that existed in Year-2000 - due to the spate of Enron/WorldCom-type earnings-invention wipeouts, followed by the bursting of the dot-com bubble, followed by even bigger wipeouts in the financial industry crisis and the accompanying panic-sell-off.

All of this has been accompanied by an unrelenting stream M&A and going-private deals… that have roughly halved the number of investment-worthy listed companies.

The number of transfer agents - once around 1500 - has now dropped below 300 - with the top-four agents handling well over 90% of all the activity.

On top of the sharply falling numbers of individual investors, the number of them that want to get printed materials has dropped through the floor, thanks to the SEC’s Notice and Access initiative that allows companies to mail them only on specific demand.

While N&A has hit transfer agents in the breadbasket too, the biggest effect has been on financial printers: The number of financial printers - who once cranked out over a billion Annual Reports, 10-ks, proxy cards, and outgoing and return envelopes per year - has shrunk to no more than three or four biggish players and a handful of small “jobbers” who sell mainly on price - and all too often prove that “you get what you pay for.”

The one growth area on the supplier scene has been in the “proxy advisory business,” where there have been many new entrants over the past ten years.

But the biggest trend, given the shrinking universe of public companies, and in the number of individual direct-investors - has been the huge number of suppliers who are now “fishing in other providers’ traditional ponds” - creating a confusing smörgasbord of offerings - with vast, but hard to detect differences as to where true expertise and real excellence really lies.

In response to all the turmoil on the supplier scene, in 2015 we launched our Print and Online Directory of Pre-Vetted Service Suppliers - where we provide a little overview of the “Essential Products and Services” that public companies need to have in their tool-kits - some tips - and some warnings on what to watch out for when vetting suppliers - and where we include brief “pitches” from the “best of the best providers” - which we continue to update each year.

Then…no surprise since corporate governance had become such a big industry all its own - 2016 brought major “raisings of the bars” where compliance, ethics and governance policies and procedures were concerned And naturally, every industry-supplier made haste to claim that THEY were the best ‘helpers’ to hire in their area(s) of real or imagined expertise.

And this led us to turn our focus yet again, in 2017 and 2018, to products and services that would allow public companies to truly stand out as best in class.

Last year, we reported on a most unusual thing: At least five of the largest providers of services to public companies - finally realizing how much the shareholder universe has changed forever - announced that they had plans to “transform” themselves - and their approach to shareholders - and to corporate customers as well.

This year’s issue will shed a lot of light on what they did - and on how well the best-in-class succeeded…