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The governance of U.S. and Canadian corporations is determined by a variety of state and provincial corporate laws, federal regulations, and the provisions of internal corporate governance documents that structurally allocate governance power among shareholders, directors and executives. As pension funds seeking long-term investment returns to support long-term pension obligations, the Carpenter Pension Funds advocate for important shareholder rights and director and executive accountability mechanisms that strike a proper balance among the relative rights of the governance participants.
Whether it’s a demand for greater director independence from management, enhanced voting rights for shareholders in director elections, greater transparency in corporate disclosure documents, or heightened pay-for-performance standards in executive compensation plans, the Carpenter Funds’ advocacy is designed to fashion a governance system that supports the implementation of a business strategy to advance sustainable corporate value growth. Over the span of three decades of ownership activism, the Funds’ activism has had a particular focus on the core issues of board and executive accountability through effective director election processes, auditor independence, and varied aspects of executive compensation. Throughout the span of the Funds’ activism, the Funds have used shareholder proposals, informal direct corporate engagement and dialogue, regulatory process involvements, and legislative advocacy.
A fundamental shareholder right is the right to vote in the election of directors. In order for director elections to be meaningful director accountability events, the vote standard in the common uncontested director election (the same number of director nominees as board seats open) must provide shareholder the ability to reject the election of individual board nominees or an entire board. The Carpenter Fund pioneering advocacy for a majority vote standard in director elections has transformed director elections from rubber-stamp affairs to important accountability mechanisms. Over the course of the past decade-plus, the majority vote standard has broadly replaced plurality voting at major corporations, and established the uncontested director election as a potentially important board accountability mechanism. Read the full Majority Vote Advocacy Report here.
The quality and independence of public accounting firms hired to audit corporate accounting systems and financial statements is critical to the effective functioning of our capital markets. Investors must be able to rely on the accuracy of corporate financial statements to make sound investment decisions. For the past decade and a half, beginning prior to the collapse of Enron and Worldcom due to accounting fraud, the Funds have undertaken several initiatives to increase auditor independence from corporate management: Establish limitations on non-audit fees paid to the consulting arms of public accounting firms by corporate clients; efforts to halt corporate attempts to eliminate shareholder auditor ratification votes; and continuing with corporate engagements with hundreds of corporations to expand their auditor independence disclosure.
A third important topic that Carpenter Funds have addressed in a variety of ways is executive compensation. The Funds’ formulation for the appropriate form and level of executive compensation has evolved over the years with the submission of shareholder proposals on a variety of executive compensation issues, including the following: Option expensing (sample Option Expensing proposal); CommonSense Executive Compensation (sample CommonSense Executive Compensation proposal); Pay-for-Superior Performance (sample Pay-for-Superior Performance proposal); expanded incentive plan performance metrics disclosure (sample Incentive Plan Performance Criteria proposal), and supplemental pension plan limitations (sample SERP proposal).
Due to the complexity of the executive compensation issue, the Funds have engaged in direct non-confrontational dialogue on the issue with hundreds of US corporations using the Funds’ Executive Compensation Core Principles and Practices Evaluation Form template as a guide for those engagements. These efforts have spurred individual corporate and market executive compensation practice reforms and enhanced corporate disclosure on the issue. Read the Full Issue Report on Executive Compensation Advocacy.