While the 1990s were wrought with cynicism, the 2000s are paved with good intentions. Most everyone is now working diligently to fix some glaring problem that surfaced at the turn of the century, be it corrupt corporate boards or holes in national security. But while the intentions behind these initiatives are honorable, the effort will be wasted if governments, corporations, institutions and individuals don’t work in tandem.
Lots of progressive projects are in the works, which should one day reduce the cost of capital for corporations and improve transparency – but there is little consensus among shareholders, boards and managements about their usefulness and implementation. All parties claim to be pro-transparency and pro-governance but they are often hesitant to compromise on the status quo.
For example, shareholders want their nominees on the proxy ballot but many have never previously voted their proxies. CEOs want top marks from governance rating providers but aren’t willing to give up their big cash bonuses. And directors are worried about liability but don’t want to speak up in board meetings when they disagree with management.
Similarly, the SEC demands more information be disclosed in the 8K in a shorter time period but doesn’t issue thorough guidance on what should be disclosed. Mutual funds advocate transparency but don’t want anyone to know how they vote their proxies. And pension funds push for better governance but then try to unseat the most famous shareholder activist – Warren Buffett.
The UK government mandates more information on governance as part of companies’ operating and financial review (OFR) but fails to realize neither companies nor investors consider it essential. The EU promises its transparency directive will be implemented but fails to provide transparency on its own timeline.
The public is clearly thirsty for morality and justice, and the powers that be are working towards these goals – but with different ideas of how to achieve them. Take the sentencing of lifestyle guru Martha Stewart; her penance is symptomatic of a culture hell bent on seeing celebrity executives pay for their misdeeds. But unlike other famous CEOs, she didn’t do anything to harm investors – so her fierce prosecution does nothing to restore investor trust. The bottom line is that this period of good intentions risks becoming the decade of worthless effort if rhetoric and misguided outcomes continue to overtake real progress.
