Activist Investing: Interview with Corporate Library's Nell Minow
Zac Bissonnette: You've been crusading against corporate governance problems for a long time. How much of the current financial debacle can be blamed on bad corporate governance?
Nell Minow: It takes a village to create a disaster as broad and deep as this one and there is plenty of blame to go around. But poor corporate governance is at the heart of it. Boards are supposed to manage risk, tie pay to performance, and make sure that the corporate strategy is directed at sustainable growth. They failed on all counts. Indeed, they agreed to pay packages with incentives that all but guaranteed this result and to corporate influence in Washington that short-circuited oversight from regulators and from the market itself.
Bissonnette: Do you see this crisis as an opportunity for long-term corporate governance reform, or will it back be to business as usual once the markets rebound? How can we as shareholders and citizens turn the governance atrocities we're observing now into long-term reforms instead of politically-motivated sideshows?
Minow: I do see this crisis as an opportunity for reform. Overall, the market will do the best job of responding and everyone can help by making sure that their pension fund managers and mutual fund managers are exercising shareholder rights to vote against bad directors and bad pay plans.
Bissonnette: Can you provide your critique of the media coverage of the corporate governance aspects of the meltdown? Have they gotten it right, or focused too much on some things but ignored others?
Minow: They almost always overlook the board of directors. Over and over, they report on CEO pay without naming the members of the compensation committee who voted on it.
Bissonnette: Do you see activist investors like Carl Icahn as potent forces in the battle for improved shareholder rights, or is their emphasis on short-term measures like share buybacks and mergers disconnected from issues like executive compensation and director independence that effect so many companies?
Minow: Both. Icahn benefits tremendously from the inability and unwillingness of investors to respond to poorly performing corporations. We in essence pay him to act for us. We get some benefit, but we'd do better if we acted on our own behalf.