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Workers’ Capital News - Dec. 6

In this issue:

  • Governance and Disclosure

    CalSTRS Policy Aimed at Increasing Corporate Accountability / Olympus Scandal Prompts Japan to Examine Boardroom Rules / Shareholders Call for Full & Detailed Disclosure on Board Votes / SEC’s Amended Rule 14-a8

Governance and Disclosure

CalSTRS Policy Aimed at Increasing Corporate Accountability

According to Reuters, on November 3rd, CalSTRS (California State Teachers’ Retirement System), the largest teacher pension fund in the US with a portfolio valued at $139.2 billion, adopted a policy on corporate disclosure and transparency that calls on portfolio companies to annually report spending on political contributions.

Introduced at the Investment Committee meeting, the policy aims at making corporate political expenditures more easily accessible to shareholders. It emphasizes the responsibility of corporate boards of directors in requiring management to annually disclose information on political expenditure, in accordance with their duties in protecting the interests of shareholders in compliance with the law.

Corporate transparency and accountability have long been areas of focus for CALSTRS. However, this recent policy has emerged at a time when shareholder support for corporate accountability initiatives has been steadily on the rise. As pointed out by CalSTRS Investment Committee Chair, Harry Keiley, shareholder proposals have more than doubled from 2009 to 2010. A primary reason for the surge in interest, has been the 2010 US Supreme Court Citizens United ruling that cleared the path for corporate political spending and highlighted the importance of effectively enforcing corporate disclosure and accountability measures.

Olympus Scandal Prompts Japan to Examine Boardroom Rules

In the wake of the recent scandal involving accounting fraud by top executives of Tokyo-based company, Olympus, Japan’s ruling Democratic Party convened a panel to address ways of strengthening corporate governance and disclosure in the country.

As reported by Reuters & the Financial Times, Olympus, a firm producing cameras and medical equipment, admitted on Nov. 8thto covering up losses on securities investments using acquisitions fees of up to $1.4 bn. The cover-up extended to losses on investments dating back to the 90s, when the Japanese economic bubble burst and many companies offset sales losses through speculative securities investments.  Olympus CEO Michael Woodford was fired on Oct. 14thafter concerns surfaced about the acquisitions and payments made to a Cayman Islands firm. Since Woodford left, Olympus shares have plummeted 29 % in Tokyo and have lost approximately two-thirds of their value.

In an effort to restore investor confidence, the government panel has proposed a mandatory appointment of outside directors on the boards of large corporations.  As outside directors are not employees or stakeholders in the company, they are seen as limiting a conflict of interest problem. However, numerous experts have maintained that more meaningful and profound regulatory changes are needed on corporate governance in Japan, such as rules relating to the appointment process of outside directors.

Shareholders Call for Full & Detailed Disclosure on Board Votes

The Globe & Mail recently reported that the Canadian Coalition for Good Governance (CCGG), the leading representative of institutional shareholders in Canada, is calling on the Ontario Securities Commission to require companies to report board voting results in detail.

Under current corporate legislation, full voting disclosure at annual general meetings can be avoided, as detailed requirements for reporting are not mandated under the law. An analysis conducted by the Globe & Mail, cited in the article, revealed that 38% of S&P/TSX listed companies did not disclose detailed results at their last annual meeting. Detailed results of votes, though available through the legal option of attending a meeting in person and requesting a ballot for recording vote results, are not easily accessible to shareholders.

With reference to voting for directors, the CCGG has argued that a lack of detailed disclosure prevents shareholders from knowing whether their concerns about director performance are shared by other shareholders, or whether a corporation is responsive to these concerns. Full disclosure is particularly important as shareholders in Canada are only able to vote in favour of a director or to withhold a vote, thus allowing directors to be voted in without majority shareholder support. Alongside efforts to improve corporate disclosure, the CCGG is also pushing for further ‘democracy’ reforms in shareholder voting, including the implementation of ‘majority voting’ which requires directors to resign if they do not receive majority support.

SEC’s Amended Rule 14-a8

In looking ahead to the 2012 proxy season, a post by 100F Street, which reports information on the latest news in corporate governance and finance, has highlighted the US Securities and Exchange Commission’s notice, (titled ‘Facilitating Shareholder Director Nominations’)  on Rule 14-a8 amendments.

As described by the National Law Review, the Rule 14-a8 amendments allow shareholder proposals for proxy access regimes to come into effect. The Rule 14-a8 process requires companies to include in their proxy materials, under certain circumstances, shareholder proposals to establish procedures for the inclusion of shareholder director nominees.

Disclaimer: The CWC News Digest is a compilation of news items covered in industry publications. The content does not necessarily reflect the views of the Committee on Workers Capital or its members. Comments and reflections on news items may be sent to gpatel@share.ca .

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