But Will Behaviour Change From Better Disclosure? Don’t Bet On It.
06/02/2006
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For access to more and cheaper capital via effective governance there needs to be more than just better disclosure.  Again there are significant variances in areas other than disclosure affecting remuneration governance across countries.  It is in these other aspects, however, that Australia, the UK and now Canada are leagues ahead of the US, at least in terms of director and executive pay.  The primary difference is in the balance and concentration of power.  Unlike US companies, Australian and the UK companies tend to have independent (and part time!) chairmen.  Canada is fast catching up.  But in the US the CEO is also the chairman of the board in over 95% of companies.  (Cosmetic changes are taking place, where an existing CEO changes his/her title to executive chairman, and the COO’s to CEO, and more often than not somehow translates this into a reason for more pay).  Change in the US, at least in this regard, is moribund.  Power is not given up easily.  Unlike other Anglo countries, the US shareholder has little power over the board.  There is practically no provision under US securities laws for shareholders to nominate and vote for alternative directors.  The best they can do is vote against the existing board’s CEO-friendly nominated directors.  And they cannot explicitly vote on remuneration matters, except in so far as to approve extremely broadly worded “omnibus” equity plans allowing director and CEO participation.  

Slowly more “lead” directors (i.e. independent directors to head sessions of other independent directors on the board required under NYSE rules) may become more assertive (to the extent that they can until the full board fails to nominate them for re-election next time), but that may ruin their weekly golf game with their friend and boss.  So we are not betting on too much behaviour change in the US.  That will have two primary impacts for us in Australia.  On the one hand Australia will seem an attractive haven for global capital with well governed boards.  On the other, there will continue to be a brain drain as our best and brightest executive talent is driven to join the 900,000 expatriates truly seeking their fortune in higher paying countries like the USA.

© Guerdon Associates 2021
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