In this paper, Seven Gaping Holes in Our Knowledge of Corporate Governance, from the Rock Center for Corporate Governance at Stanford, the authors observe that it “is extremely difficult to produce high-quality, fundamental insights into corporate governance.” Why is that? Well there are lots of reasons. According to the authors, instead of the theory, measurement and analysis that you might expect—given that corporate governance is a social science—the “dialogue about corporate governance is dominated by rhetoric, assertions, and opinions that—while strongly held—are not necessarily supported by either applicable theory or empirical evidence.” And even empirical work from academics has serious shortcomings, often detecting a pattern that is not amenable to specific application or making findings that are too specific to generalize. Or, studies might find correlation but not permit attribution of causation; or it may be hard to suss out key variables that may not be publicly observable. As a result, there remain “central issues where insufficient or inadequate study has left us unable to answer basic questions, and where key assumptions relied upon by experts have not been verified or validated.” The paper attempts to identify some of them and home in on potential further areas of study.
SEC charges company for alleged misstatements regarding director independence and disclosure control failures
As we head into a new proxy season, this SEC order involving settled charges against Leaf Group Ltd. might be a good case to keep in mind. In this case, the SEC charged that Leaf did not adequately identify and analyze—and did not maintain effective disclosure controls and procedures to identify and analyze— whether some of its directors were “independent” and whether there were “interlocking relationships between its directors and executive officers,” which led to “material misstatements and omissions in certain of its public filings,” including its proxy statement. As part of the settlement, Leaf was ordered to pay a civil penalty of $325,000. The company’s alleged failings as outlined in the order might serve to augment your seasonal checklist for examining issues of director independence.
by Cydney Posner The topic of director tenure has increasingly become the focus of both academics and investors. Some argue that long-term directors contribute deep knowledge of the company and provide experience, historical memory and continuity to the board — along with the gravitas sometimes necessary to challenge management. Others […]
by Cydney Posner The scrutiny of pale, stale and male boards continues, this time focused on the “stale,” that is, long-tenured directors. According to the WSJ, institutional investors are increasingly questioning whether more turnover on boards might be appropriate.
by Cydney Posner In “Seven Myths of Boards of Directors,” two academics from Stanford Business School set about debunking some of the most common and persistent expectations regard best practices in board structure, composition and procedure. The authors contend that these seven myths “are not substantiated by empirical evidence.”