Summer 2016 has been the summer of guidelines: our blog has already featured new guidelines about ransomware from the US Department of Health and Human Services and about telemedicine from the American Medical Association. And now, one more: in July, top corporate leaders issued a set of principles for good corporate governance of public companies.
Spearheaded by a group of CEOs that includes Warren Buffett of Berkshire Hathaway, Jamie Dimon of JPMorgan Chase, and Mary Barra of General Motors, the principles are intended to help protect the future of public companies while promoting the public’s trust in them.
Some of their “commonsense” recommendations about the responsibilities of boards, companies, and shareholders include:
- Independent corporate boards are vital to effective governance. Directors should be loyal to the company and the shareholders, not to the CEO or management.
- Every board needs a strong leader who is independent of management. If a company decides to combine the CEO and Chairman roles, it should also have a lead independent director with defined authority and responsibilities.
- Diversity is crucial to good decision-making. Directors should have complementary and diverse skills, backgrounds and experiences.
- Companies should not feel obligated to provide quarterly earnings guidance.
- Companies should pay a substantial portion of directors’ and senior management’s compensation in stock.
- Dual class voting, which gives select shareholders more voting power than others, is not a best practice.
Although the principles are intended for public companies, many of the recommendations are good advice for privately held and nonprofit corporations as well. And while the principles are not enforceable, the fact that they come from such an influential group of people is likely to make them more persuasive among other corporations. The creators of the principles acknowledged that many people are likely to disagree with their some of their recommendations – they didn’t even entirely agree among themselves – but they expressed a hope that the principles will “serve as a catalyst for thoughtful discussion.”
You can access the complete set of principles here: www.governanceprinciples.org.