The Albanian candidate.

AuthorKABACK, HOFFER
PositionBrief Article

Revisiting our informationally-challenged method of electing directors.

HAVING EXEMPLIFIED the singularly American phenomenon of the multiyear political campaign, the recent Presidential election may have resulted in voters' having learned substantially more (and more irrelevant) information about the candidates than the electorate might have preferred.

In the corporate governance world, the reverse situation obtains: the electorate faces a dearth of important information. It is a basic infirmity of the way we elect directors of public companies.

There are at least two categories of structural electoral weakness. One is that only skimpy material about director-candidates is provided. A second is that there are no standard procedural mechanisms through which shareholders (large and small) can personally evaluate the candidates seeking their votes.

Lack of Information. In proxy statements, the extent of information provided about each director-candidate runs a distant second to that ordinarily required to be set forth in, say, an application for a university club membership.

Many facts (possibly useful in assessing qualification for service on a particular board) are omitted. For example, one candidate may hold a Ph.D. in physics from Princeton; another may have only a two-year degree from an unaccredited night school. Shareholders might consider these facts to be noteworthy, either generally or, for example, in respect to a company principally engaged in cutting-edge science. Whether this sort of information should or should not be weighed by the shareholder-electorate is, however, separate from the fact that the information is not available for any consideration because it is not disclosed.

On a different plane: current disclosure nowhere addresses the critical matter of the director-candidate's relationships with the company's CEO. Were the candidate and the CEO (or were their wives) college roommates? Have their fathers been best buddies for 50 years? Because personal loyalties exert a powerful pull, this type of information bears directly on the notion of independence.

Much is made of audit committee independence; yet this broader view of director/CEO "bonds" gets insufficient attention. Search in vain for any disclosure about these personal relationships; no proxy statement reveals them.

Four years ago in this space ["Pals on the Board," Winter 1997], I suggested that that disclosure should be required. It hasn't happened. A year later...

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