July 30, 2009
Ladies and Gentlemen:
Facilitating director nominations by long term shareholders who own at least one percent of the stock would greatly help maximize long term shareholder wealth.
Given the extreme expense and difficulty of even larger stockholders to replace weak directors, much stockholder wealth has been destroyed across Corporate America. Passive directors have allowed far too many arrogant, overpaid CEOs to embark on ego and even bonus driven acquisitions, employ bad strategies, and exhibit poor leadership.
While most directors do fine work, far too many get the job because of connections over competence, then keep the job for years or decades by not rocking the boat. Serving as a director of a publicly traded American firm is one of the most lucrative and prestigious part time opportunities in the world. I await my invitation to expand my board experience beyond a non profit. High quality director supply greatly exceeds demand, so the larger owners should have the power to insist on the best.
Merely expanding the power of owners to replace directors will provide more director incentives to stand up to CEOs more interested in fame, power and personal wealth than placing the corporation and stockholders first.
Past directors allowed the five best paid officers of publicly held companies to increase their take of profits from 4.8 percent, in the 1993 to 1995 period, to 10 percent from 2000 to 2003. If American capitalism is to thrive, current and future directors cannot allow top executives to take an ever larger piece of the owners' pie. Otherwise, investors will move to greener pastures.
Now is the time for the SEC to help level the playing field for all larger owners, not the just the national government.
Future corporate governance improvements to hold diretors more accountable and maximize long term shareholder wealth follow:
1. Majority Voting in uncontested elections
2. One Year Board Terms
3. Separate CEO and Chairman, or have a Lead Director
4. Cumulative Voting
5. Shareholder Advisory Say on CEO Pay
6. Shareholder ability to call a special election to
replace directors, as in the U.K.
Frank Coleman (Cole) Inman
Corporate Governance Adviser and Former Business Professor