NYC Comptroller Explains Boardroom Accountability Project in Open Letter

New York City Comptroller Scott Stringer is pushing corporations to give their biggest investors – often pension funds – more power over corporate boardrooms.

Stringer says pension funds can use their leverage as large shareholders to rein in excessive executive compensation and make corporate boards more diverse.

From a piece written by Stringer in Wednesday’s Daily News:

In partnership with the city’s pension funds, recently launched the Boardroom Accountability Project, a national initiative designed to improve the long-term performance of American companies by giving shareowners the right to nominate directors using the corporate ballot — also known as proxy access.

Proxy access promises to transform corporate elections from rubber-stamp affairs, where one slate of candidates is listed on an official ballot determined entirely by current officeholders, to true tests of merit and independence.

Bringing accountability to the boardroom will have real benefits for the retirement security of millions of Americans, including the 700,000 municipal workers , retirees and their beneficiaries who rely on city pension funds.

A recent report by the CFA Institute, the world’s largest association of investment professionals, concluded that on a marketwide basis, bringing more democracy to the boardroom could increase U.S. market capitalization by up to $140 billion.

We have focused our initial list of 75 companies being targeted around three core issues: those with excessive CEO pay, those with little or no gender or racial diversity on their board, and many of our most carbon-intensive energy companies. They include Urban Outfitters, ExxonMobil, Abercrombie & Fitch and Netflix.

Excessive CEO pay is a problem in itself and can create perverse incentives for management to focus on short-term profits at the expense of long-term value creation. It is also often a sign of a captive board that puts the interests of management ahead of the interests of shareholders.

And while most agree that more diverse boards make better decisions, the pace of change is glacial. In 2006, women made up 11% of S&P 1500 board seats. By last year, that number had barely budged (to 15%), and also as of last year, 56% of S&P 100 companies had no women or minority-group members in their highest-paid senior executive positions.

That’s bad for business, investors and our economy, and we will use our leverage to change it.

Lastly, we know that transitioning the world’s energy production to low-carbon sources is essential if we are to stem the most extreme effects of climate change. But the CEOs of the world’s major energy companies have little incentive to make investments that may reduce earnings today to protect their companies’ long-term prosperity.

In corporate America, the buck stops with the board. As a result, the right of shareowners to nominate and elect truly independent directors that reflect a diversity of viewpoints is critical to ensuring that the interests of long-term shareowners triumph over the pressure for short-term gains that all too often drives decisions at our largest corporations.

Read the whole piece here.