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Rethinking Board and Shareholder Engagement in 2008

By Harvard Law School Program on Corporate Governance

(Editor’s Note: This post comes to us from Holly J. Gregory and Ira M. Millstein of Weil, Gotshal & Manges LLP.)

We have just released our annual memo identifying areas for focus by corporate governance participants in the coming year: “Rethinking Board and Shareholder Engagement in 2008″ (co-authored with our colleague Rebecca C. Grapsas). In the memo, we predict ? and encourage ? increased efforts by boards of directors to engage shareholders in less contentious, more cooperative interaction and communication. While we salute shareholder activism’s stimulus for rebalancing corporate power in the past twenty years, we caution that the forces for change should abate once an appropriate balance is achieved, or a new imbalance will result. Boards are well-advised to be open to shareholder communications on topics that bear on board quality and attention to shareholder value, communications that are likely to improve mutual understanding and avoid needless confrontation.

At the same time, shareholders have the responsibility to act as concerned and rational owners who make decisions based on knowledge of the nuances; who avoid rigid, box-ticking methods of judging good governance; who don?t abdicate to proxy advisors their responsibility to use judgment; and who avoid activism for activism’s sake. In this spirit, we lay out good practices of board-shareholder engagement in the areas of (1) board composition and independent leadership, (2) corporate performance disclosures, (3) executive performance, compensation and succession, (4) strategic direction, and (5) societal concerns, including climate change and other issues. Finally, we suggest that it may be time for a dialogue on the limits of shareholder power. The full text of the memo is available here.

Full post as published by The Harvard Law School Corporate Governance Blog on January 23, 2008 (boomark / email).