Carnac the Magnificent

By the time you read this, the Iowa caucus will have been held and probably the New Hampshire primary, and maybe even a bunch of other early primaries, and we’ll all be a giant step closer to knowing who are going to be the Democratic and Republican nominees for president.

But before we all start playing the ‘Things Will Be Different When Hillary-Rudy-Mitt-Obama-Edwards-McCain is President’ game, let’s remember that the election is ten months away, and the new administration won’t take office for another year. And the rookie administration will probably need a week or two in the White House before making drastic changes in the way the country is run.

My guess is that Corporate America’s agenda might not be high on the to-do list for the new president and Congress. They’ll probably become distracted by things like the continued fighting in Iraq, or the latest ugliness emanating from Iran, or the price of oil, or health care reform.

And none of that happens until after the swearings-in, which occur in January 2009. Before that, we all have to survive 2008, an election year.

What can we expect?
Like all columnists, I fancy myself a sage, if not an actual seer. Probably not on a mythological level like the Delphic Oracle. But maybe comparable with Johnny Carson’s Carnac the Magnificent. So, in answer to the question – what can we expect? Let me answer: not much.

Sarbanes-Oxley is not going to be rolled back or revised in any significant way. Despite the public expressions of doubt by the law’s creators, despite all kinds of indications that the compliance challenges of Sox are hurting the competitiveness of American markets, and despite overwhelming evidence that it unduly burdens smaller public companies, Congress seems unlikely to do anything about this law. Prominent members of Congress such as Rep Barney Frank (D-MA) and Senator Christopher Dodd (D-CT) are talking about ‘say on pay’ and legislating proxy access, which have a nice populist sound to them and will probably play well in an election year. And the SEC has made it abundantly clear that they feel they have successfully created relief for the smaller companies by issuing new guidance. When it comes to Sox reform, folks in Corporate America would be better off offering sacrifices on stone altars to pagan gods than waiting on help from Washington.

Speaking of the concept of ‘say on pay’ and proxy access, while they may not arrive full-blown this year, they will definitely arrive in the future. Neither one of them seems like the best of ideas to me, but then again, no one asked me. Whether or not they are good ideas, they are going to be implemented. Remember when the Pfizer model of majority voting seemed so radical? Remember when the Intel model surpassed it as ‘totally rad’? Neither of these once extreme moves seems all that ‘out there’ anymore. Either they weren’t so radical to begin with, or time and widespread adoption have dimmed their radical luster. The same will be true of ‘say on pay’ and proxy access – once they become commonplace, they’ll remain in our lives like obnoxious relatives at holiday dinners: unpleasant but bearable.

I wish I could say the same thing about what’s going to happen to Rule 452 and the NYSE’s desire to remove itself from director elections. Much as I like to prognosticate, I haven’t a clue where this is heading. In the short term, I wouldn’t be surprised if the SEC decides to delay a decision – again. In the long term, I do think that director elections will be declared non-routine and the NYSE will be allowed to leave this particular arena. But what will replace the so-called broker vote?

In my not-so-humble opinion, Steve Norman’s idea of Client Directed Voting (CDV) is the way to go. Norman is the longtime corporate secretary at American Express and a former chairman of the Society of Corporate Secretaries and Governance Professionals. He’s proposed that upon opening a brokerage account, clients select a default voting instruction for the shares they hold in their accounts. If they want to vote their shares directly, great. If not, the default voting instruction is exercised. Either way, the client – the actual shareholder – is deciding how to vote. In a perfect world, all shareholders would vote directly. But it’s not a perfect world, and the CDV idea solves a number of problems like eliminating the broker vote and still enabling companies to have an election.

However, if I am forced to make an actual prediction, I’d guess that proportional voting is what will replace the broker vote. It’s not shareholder-directed, but it’s easy (and cheaper) and so it will end up as the replacement. This is a more obnoxious relative at the holiday banquet – the kind who makes you promise yourself you’re not going to invite him back. So ... my really long-term prediction is that at some point down the road, proportional voting will also go away, to be replaced by ... ?

Okay, that was pretty unsatisfying, wasn’t it? Let’s turn my predictive powers to notice & access. Whither goest N&A in 2008?

More companies will use it in 2008, but most still won’t know exactly what to do with this electronic gift. How much money will it save? How many retail-shareholder votes won’t be cast? What’s the right balance of paper to electronic if you decide to stratify? Can shareholder education produce healthier voting at the retail level, making the savings of electronic distribution seem like a dream come true?

Someday, notice and acess will be standard procedure, just like certificateless stock. But probably not in 2008. Or even in 2009 or 2010.

My last two glimpses of the future are at completely  opposite extremes. One of them could be very scary indeed. The other one, however, could be the most fun a lot of us have had since we all got involved in corporate governance.

First, the scary glimpse: There is a vague, monstrous shape dimly perceived in the mists of California: Compensation disclosure for all employees. No details for individuals, but the company will need to produce figures that tell what percentage of employees is paid below or above certain dollar amounts; figures on the percentage of employees in the pension plan, in the stock plan, receiving options and a total compensation number for all employees.

This particularly gruesome troll appeared for the first time as legislation, which Governor Arnold Schwarzenegger vetoed. The governor, no stranger to slaying all kinds of cinematic monsters, recognized a beast of a bill when he saw it and promptly killed it. Unfortunately, the beast isn’t dead. There are whispers that it will return as a referendum proposition on the ballot this year. If it passes by a simple majority, it becomes the law. Does it get any more frightening than this?

Lastly, a fun glimpse: Institutional Shareholder Services (ISS) is going public.

Actually, RiskMetrics Group, ISS’ parent company is going public. But let’s not let accuracy diminish our excitement and anticipation for what’s to come. What can compare with the delight of ISS becoming a publicly traded company? It’s positively drool-worthy to think of hordes of public companies buying fistfuls of ISS stock, filing one precatory proposal after another, voting against directors and generally making governance life at ISS extraordinarily interesting.

There’s an old saying: What goes around, comes around. ISS might want to keep that in mind...