Next steps? Be careful what you wish for: in the name of advancing shareholder rights, let's not harm shareholder interests.

• Author: Clapman, Peter C.
• Position: SHAREHOLDER RIGHTS

IN 2004, AS HEAD OF the corporate governance program at TIAA-CREF, I wrote in its Policy Statement on Corporate Governance the following: "Good corporate governance should maintain the appropriate balance between the rights of shareholders--the owners of the corporations--and the needs of the board and management to direct and manage effectively the corporation's affairs." At that time, relationships among shareholders, boards, and management were not balanced, with authority heavily skewed towards management. While some company boards understood their proper role, many did not--resulting in CEO domination.

I am convinced that this same approach to specific issues continues applicable in 2008. However, I now challenge a premise that I previously took for granted: that increasing shareholder powers is always in the long-term interests of shareholders.

A changed scene

Significant strides made in the U.S. to improve corporate governance, including providing shareholders with a considerable array of new rights, have changed the scene, as have the positive changes in boardroom practices under new regulatory and legislative standards. Unfortunately, it took the scandals of 2001 -2003, and the market collapse that ensued, to produce these changes. The results, however, were highly productive.

The SEC and Congress, as well as the private sector, examined laws, regulations, and business culture with a goal to restore confidence in the U.S. markets. As time passes, we can appreciate the extraordinary governance changes brought about through Sarbanes-Oxley and other regulatory changes, the stock exchange listing requirements, increased board member understanding of their responsibilities, and more open dialogue between shareholders and managements.

Most importantly, we found a private-sector solution to one of the more significant barriers to better board performance: the broad consensus across constituencies that board members should be elected by majority vote of shareholders. This last change now gives boards a legitimacy that previously was lacking.

Of all of the changes in actual practice, aside from majority vote, the most significant governance advances result from the new stock exchange listing requirements. Foremost among them: boards must meet in executive session without management. As a result, companies have to designate an independent lead (or presiding) director, not only to run the executive sessions but also to have the responsibility of assuring that the board exercises independent board leadership. Another sea change brought about by the new listing requirements is the shift of control from the CEO to the corporate governance committee in the selection of new board members.

In the compensation area, new regulations required shareholder approval of equity...