We expect boards to try to be free of conflicts of interest that would impair their ability to fairly represent the interests of shareholders and to have appropriate expertise. We believe competent board members can be found throughout the wider population. In fact, a high degree of homogeneity on a board may signal the need for improvement in the nomination process. Responsiveness includes a willingness to consider labor, human rights, and environmental issues pertinent to the business, in addition to issues more typically considered corporate governance concerns.
We believe board and executive roles should be carefully considered and expect companies to provide a clear rationale for their governance structures. The roles of chair of the board, CEO, and lead or presiding director are particularly critical to protecting against compromised oversight and may be best fulfilled by separate individuals.
Properly structured compensation is essential to attracting and retaining effective corporate management. Poorly structured compensation can create perverse incentives and contribute to the erosion of public trust. Achieving an ideal compensation package is complicated by questions around how to measure performance and the extent to which management should be penalized or rewarded by factors outside of its control. In light of this, our primary concern is to be attuned to packages that are outside of generally accepted practices, in either magnitude or structure, and that may incentivize perverse behavior or result in paying for failure.
Shareholder rights and voting structures are crucial aspects of corporate governance. While no single structure is right for all companies, investors’ votes can become useless without fundamental shareholder rights. In particular, we believe that in most cases each common share should have one vote and that a simple majority of voting shares should be all that’s required to effect change. We also view the ability to file shareholder resolutions as an essential right.
Environmental and social practices
We believe businesses must adhere to internationally recognized labor and human rights standards; be transparent around corporate practices involving weapons, repressive governments, public health, and product safety; maintain accountability for lobbying and political contributions; and set and report on environmental performance goals related to the firm’s long-term strategy.