Catching up on some U.S. corporate governance developments from late December, we noted the concept of “social loafing” and a stubborn apple, as in Apple Inc.
We’ll start with loafing. The reference was in a Dec. 30, 2010, op-ed piece in The Wall Street Journal in which Robert C. Pozen, a Harvard Business School lecturer and chairman emeritus of MFS Investment Management, argued for some big changes in the way boards of directors of public U.S. companies are structured and behave.
We were pleased that Pozen hit on some issues that this column has advocated, including the notion of more professional directors who really know a business and an industry and who are strictly limited in the number of boards served so they can spend more time and be effective.
We continue to think it’s an abomination that some boards feature people who have made names for themselves in other fields (good for them) but bring little besides reputation to the task at hand. And current chief executives who serve on others’ boards, we’ll say again, will spend less time than optimal at both their primary and secondary jobs.
But we’ve not hit on the size of boards themselves. Pozen notes that average S&P 500 company board size in 2009 was almost 11. “In groups this large, individual members engage in what psychologists call ‘social loafing.’ Instead of taking personal responsibility for the group’s actions, they rely on others to take the lead,” Pozen wrote.
Pozen cites psychologists who say groups of six or seven are most effective at making decisions. Makes sense to me. Shrinking board sizes sounds like a good idea.
Meanwhile, the largest public pension plan in the country’s worthy efforts to get public companies to adopt “majority” voting for non-contested director elections has had some success. But not with Apple Inc.
The California Public Employees’ Retirement System, better known as CalPERS, rightfully boasted in a Dec. 22, 2010, press release that naming names and asking companies to switch to “majority” votes had pretty good results. Twenty of 58 companies that CalPERS identified last year said okay to the pension fund and signed on.
As we’ve noted, majority voting is a better and less controversial way to empower sharehholders than giving some subset of holders the ability to directly nominate their own directors and then obligate companies to spread the word of those candidacies in proxy materials to shareholders.
Congress and the President thought otherwise, of course, in Dodd Frank, and if it survives a current court challenge, some big invetsors, such as CalPERS, will have those nomination rights in what’s called “proxy access.”
But “majority” voting is basic. Presumably, every school child exposed to his or her first civics lesson understands. If you hold to a plurality voting system for directors, as a diminishing number of companies, including Apple, do, a single yes vote gets a director on to the board even if a majority “withhold” their votes, the equivalent of no.
Majority voting says a director running against no one has to get more people to say yes than withhold. If he or she doesn’t they have to tender their resignation, which depending on the state and the set up the board might or might not have to accept. The board still gets to nominate the directors. The shareholders simply get a meaningful vote.
Apple declined comment on the issue, The Wall Street Journal reported in December. CalPERS submitted an advisory shareholder resolution on the matter to be addressed at Apple’s annual meeting, the Journal added.