June 11, 2009
Dear Chairwoman Shapiro:
On May 20th, the Securities and Exchange Commission voted to consider a series of rule amendments to facilitate the rights of shareholders to nominate directors on corporate boards. As a candidate for Comptroller of New York City, I feel a special responsibility to speak out on this matter on behalf of ordinary investors and the middle class pensioners, whose retirements depend upon the performance of companies in which the City invests its pension funds. Over the past many months, I have been witnessing and discussing the fallout of the current economic crisis every day with the hardworking men and women who have been hit the hardest, and I believe that the proposed rule changes can address some of corporate Americas worst practices that have contributed to poor stock performance and investor distrust.
This is an issue that affects the financial well-being of my city, given its disproportionate reliance upon the performance of Wall Street and the U.S. financial system overall. Moreover, because pensions rise and fall in tandem with major economic forces, this is one of the problems we can fix in order to protect the solvency of the Citys pension system. So I am submitting this written testimony from a New Yorkers perspective on how reforming board elections can have a positive impact on our economy.
Currently, shareholders of publicly traded companies are often limited in their options to nominate independent candidates as board members of the companies they own stock in. In most cases, existing directors nominate a slate of candidates and send out proxy materials. This leaves shareholders who want to nominate their own candidates with two options: 1) send out their own ballots and launch a proxy fight, or 2) nominate directors at annual shareholder meetings. Both options lack efficacy: a proxy fight can be prohibitively expensive, and a nomination at shareholder meetings is often meaningless, because proxy votes have already been cast.
The advantages that come with independent board members have therefore yet to be fully realized, and many boards remain too unaccountable to shareholders for the decisions they make. By extension, boards are unrepresentative of their shareholders interests. But the proposed rule changes would give shareholders a greater say in the governance of public corporations and a way to nominate as many as one-fourth of a companys directors. This has the potential to make boards more responsive and responsible.
Implementing changes to how shareholders can elect individuals to boards will provide a necessary check on the board members who are often beholden to the senior management who put them there. Without these changes, boards will continue to lack accountability to shareholders, and the practices of corporate America that have lead to billion-dollar write downs and the collapse of the credit markets will continue unimpeded by independent scrutiny.
Moreover, by making it easier for shareholders to nominate their own independent candidates, elections will consist of candidates who have different vantage points and experiences. It is common sense that boards with a wider depth of experience will make more informed decisions and have a better understanding of its customers and employees.
For example, as of December 2008, women held only 15.2 percent of the board seats at Fortune 500 companies, even though half of all American consumers are women. Moreover, according to U.S. Bureau of Labor Statistics, while women account for over a third of managers overall as of 2006, fewer than a third of the top 1,500 U.S. firms reported even a single woman among their top executives, fewer than 6 percent reported more than one and fewer than 3 percent had a female chief executive officer.
This discrepancy in how women are represented in corporate board rooms is not an argument about fairness, equality or morals rather, it is an argument about competitiveness in the marketplace. Ernst Young, one of the world's leading professional services organizations, recently released a study reporting that:
Economic analyses by the World Bank, United Nations, Goldman Sachs and other organizations show a significant statistical correlation between gender equality and the level of development of countries. The evidence is compelling that women can be powerful drivers of economic development.
Several studies from a broad spectrum of organizations—including Catalyst, Columbia University, McKinsey, Goldman Sachs and The Conference Board of Canada—have examined the relationship between corporate financial performance and women in leadership roles. Their undisputed conclusion is that having more women at the top improves financial performance.
By electing more women to corporate boards, companies would be better equipped to produce a diversity of ideas that otherwise would not materialize from a homogeneous board locked in the mindset of similar experiences.
To be sure, the proposed rule changes alone are not a magic bullet that will pull New York and America out of their financial crises. But they would allow shareholders to nominate more independent, representative board members, which would, in turn, strengthen American innovation. It is therefore one of the steps we must take to help strengthen U.S. companies, provide shareholders with the tools to repair the economy and give corporations the potential to thrive in the international marketplace. I urge you to implement the proposed amendments.
New York City Councilwoman