December 18, 2014
Governance of public corporations continues to move in a more shareholder-centric direction. This is evidenced by the increasing corporate influence of shareholder engagement and activism, and shareholder proposals and votes. This trend is linked to the concentration of ownership in public and private pension funds and other institutional investors over the past 25 years, and has gained support from various federal legislative and regulatory initiatives. Most recently, it has been driven by the rise in hedge fund activism.
It remains unclear whether, over the long term, greater shareholder influence will prove beneficial for shareholders, corporations and the economy. In the near term, however, there is reason to question whether shareholder influence is the panacea that some posited, or whether the current focus on shareholder value and investor protection is at the expense of other values that are central to the sustainability of healthy corporations.
These concerns underlie the issues that will define the state of governance in 2015 and likely beyond, including:
- The long-standing debate about the purpose of the corporation and governance roles.
- Tensions between achieving short-term returns and making long-term investment.
- The impact of shareholder activism on board decisions.
- Shareholder litigation and the reactive use of corporate by-laws to protect boards.
- Concerns about proxy advisor power and influence.
- Drawing the line between board oversight and management.
- Rebuilding society’s trust in the corporation.
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