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Recent Columns By Stephen Davis And Jon Lukomnik

To provide readers with the governance perspective of institutional investors, Compliance Week recruited two institutional experts to write a monthly column. Stephen Davis, a Pulitzer-nominated authority on shareholder rights, was a founder of the Global Shareholder Service at the Investor Responsibility Research Center, and also co-founded the International Corporate Governance Network. Jon Lukomnik, a former governor of the ICGN, was previously the deputy comptroller for the City of New York, where he was investment advisor for the city's treasury and benefit plans totaling $80 billion in assets. Their recent columns are below:

Proxy Battles Get Philosophic

April 01, 2014

There is a fault line emerging around a core philosophic issue: What is the purpose of the American public corporation? This deep question has emerged during this year's proxy season, as shareholders consider more resolutions on sustainability and social issues. Inside, columnists Stephen Davis and Jon Lukomnik examine the division between those who believe the purpose of companies is only to provide returns to shareholders, and those who see companies as more intertwined with society.

Is Board-Shareholder Dialogue the Key to Boardroom Authority?

March 04, 2014

When Apple faced off with Carl Icahn over the activist investors demands for an aggressive $50 billion stock repurchase program, it lobbied for help from powerful investors, such as CalPERS, to defeat the attack. In doing so, Apple may have hit on a potent strategy to strengthen boards and defend against activists. Inside, columnists Stephen Davis and Jon Lukomnik consider the boardroom implications of Apple's victory over Icahn.

The Dangers of Regulatory Cost-Benefit Requirements

February 04, 2014

U.S. district courts have invalidated several Securities and Exchange Commission rules based on the reasoning that the SEC didn't conduct the proper cost-benefit analyses of the rules. Inside, Columnists Stephen Davis and Jon Lukomnik explore the benefits and the difficulties of conducting cost-benefit analysis of financial markets regulation and question the wisdom of striking down rules based on problems with the analysis.

What to Expect in Corporate Governance Trends This Year

January 07, 2014

Each January Columnists Stephen Davis and Jon Lukomnik make a set of predictions for corporate governance developments to watch in the coming year. This year they forecast the outlook for director engagement with investors, classified boards, the separation of the CEO and chairman jobs, and corporate social responsibility. But first, how did their predictions from last year pan out? Find out inside.

Time to Consider a More Thoughtful Audit Committee Report

December 03, 2013

Companies are improving their audit committee reports with more transparent discussion of the tenure of the current external audit firm and the role the committee plays in negotiating audit firm fees, selecting the lead audit partner, and more. Inside, columnists Stephen Davis and Jon Lukomnik look at the latest developments in audit committee reporting and call for more timely and relevant disclosures.

Get Ready for More Questions From Investors on ESG

November 05, 2013

Although the United Nations created the Principles for Responsible Investment seven years ago, institutional investors and companies in the United States have largely ignored them. That could be about to change. Inside, columnists Stephen Davis and Jon Lukomnik explain why asset owners and managers are likely to focus more attention on how they engage companies on their environmental, social, and governance initiatives.

Detecting the Subtle Governance Shifts Under the Surface

October 01, 2013

Corporate governance during the last two decades has been marked by episodic and convulsive change, emanating from crises such as the financial scandals in the early 2000s or the more recent financial meltdown. We may now be entering a quieter period of change, say columnists Stephen Davis and Jon Lukomnik, but beneath the surface a remarkable shift of strategies and practices is taking place.

Unconventional Wisdom Alert: Hedge Funds Are Good for Companies

September 04, 2013

An accepted market mantra in recent years is that short-termism is stripping American corporations of their capacity to invest for the long term, with much of the blame for this myopia resting on hedge funds activists such as Bill Ackman and Daniel Loeb. The charges, however, might be unfounded. Inside, columnists Stephen Davis and Jon Lukomnik take a look at new academic research that suggests that activist hedge funds just might be—gulp!—good for you.

Attention Audit Committee Members: Time to Hunker Down

August 06, 2013

Corporate audit committees can expect a busy fall. A flurry of activity—enforcement actions, regulatory changes, a new COSO framework, even some private-sector initiatives—has put a renewed focus on strong internal controls. Inside, Columnists Stephen Davis and Jon Lukomnik examine the "to-do" list for audit committees and those who report to them. A tip: Watch the new "say on audit" proposal brewing in Britain. More inside.

What We Learned From the 2013 Proxy Season

July 02, 2013

The 2013 proxy season is mostly in the rear view, so now it's time to take stock of what we learned. Inside, Columnists Stephen Davis and Jon Lukomnik run down the significant outcomes and the broader lessons for companies, including what to expect on future proposals to split the chairman and CEO jobs, the continued rise of activist investing, and what's in store for shareholder proposals on board composition.

Shareowners Take Center Stage; Will They Bring the House Down?

June 04, 2013

Until recently, blame for corporate debacles was cast mostly on CEOs and directors, with an occasional supporting role for regulators. Today, however, shareowners have moved to center stage, and the reviews have been anything but positive, as critics deride their short-term focus. Inside, Columnists Stephen Davis and Jon Lukomnik examine the role that institutional investors should play on the economic stage and call for a better execution of the part.

Why Cookie-Cutter Rules on Director Age Are Not the Answer

May 07, 2013

Usually, company executives and board members hate one-size-fits-all rules on corporate governance that don't take into consideration the unique circumstances of the specific company. So why then are boards welcoming fixed rules on term limits and age caps? Inside, Columnists Stephen Davis and Jon Lukomnik look at the problem of myopic boards and explore ways to bring fresh thinking to the boardroom.

Keep Calm and Carry On

April 02, 2013

Recent activist campaigns at high-profile companies such as Apple have reignited criticism of shareholder activism as a short-sighted exercise of unlocking funds now at the expense of long-term value. Some have even called for a roll-back of shareholder rights. Inside, Columnists Stephen Davis and Jon Lukomnik claim that would be a mistake. What is needed, they argue, is for responsible shareowners to oppose irrational short-termism.

The Push for Majority Voting Is Just Getting Started

March 05, 2013

Executives and directors may be tempted to think that the fight over majority voting is finished and that investors largely got what they wanted. They'd be wrong. As Columnists Stephen Davis and Jon Lukomnik explain inside, all but the largest companies have been slow to adopt some form of majority voting, and there's still much to be hammered out on the best way to implement it.

Social Issues Come of Age

February 05, 2013

For years, people have talked about the importance of environmental, social, and governance issues, or ESG. But the truth was that "E" and "S" were poor cousins to the "G." Now, environmental and social issues are gaining support among mainstream investors, and in boardrooms and C-Suites too. Inside, Columnists Stephen Davis and Jon Lukomnik look at why such concerns are no longer on the fringe.

Peering Into the Corporate Governance Crystal Ball

January 02, 2013

Each January Columnists Stephen Davis and Jon Lukomnik take a look into their crystal ball and make predictions for corporate governance developments to watch in the coming year. This year they forecast the outlook for board diversity, proxy advisory firms, and corruption risk. But first, how did their predictions from last year pan out? Find out inside.

At Long Last, Focusing on What Matters

December 04, 2012

Corporate governance advocates started a quarter of a century ago by pushing for greater presence of independent directors on the board. More recently, shareholders have focused on deep industry expertise as another vital attribute for the board. Inside, Columnists Stephen Davis and Jon Lukomnik follow this emerging trend, its relationship to corporate performance, and what it means for director searches.

Board-Investor Dialogue: There's an App for That

November 06, 2012

Nearly everyone agrees that it's a good idea for boards to communicate more with shareholders. But just staging a dialogue isn't enough; shareholder outreach done poorly can do more harm than good. Inside, Columnists Stephen Davis and Jon Lukomnik offer a checklist of five parameters that can help determine whether dialogue succeeds or fails.

The Misconceptions Behind the New 'Blame Shareholders' Viewpoint

October 02, 2012

A backlash is developing in Corporate America where some commentators are faulting the shareholder-value movement for such corporate maladies as short-termism and run-away executive pay. Inside, Columnists Stephen Davis and Jon Lukomnik take a look at such claims and find that while the problems many critics identify are accurate, laying the blame on shareholders just doesn't add up.

How to Drive Long-Term Thinking by Boards and Managements

September 05, 2012

A new report investigates the top causes of short-termism and makes several recommendations for ways to spur more long-term oriented management, such as greater fiduciary standards for all market participants and more communication between boards and shareholders. Inside, Columnists Stephen Davis and Jon Lukomnik weigh the findings and offer some suggestions of their own.

Improving Governance and Oversight in the Era of Complexity

August 14, 2012

Scale and complexity have exploded exponentially over the past decade in many industries, while systems of governance and oversight have failed to keep pace. Just look at the difficulties banking CEOs and boards have had overseeing their far-flung operations. Inside, Columnists Stephen Davis and Jon Lukomnik consider solutions for driving governance culture throughout a large organization.

What Do November Elections Mean for Corporate Governance Reforms?

July 10, 2012

We are four months away from U.S. presidential and congressional elections, and the natural question is: Will the results affect how Washington treats companies and investors? Maybe not as much as they have in the past. As Columnists Stephen Davis and Jon Lukomnik explain inside, the appetite for corporate governance legislation may be waning, and neither party has put governance issues high on its agenda.

A New Normal for Corporate Governance

June 05, 2012

This proxy season, shareowners flexed their muscles at several companies, with many voting down compensation plans and one board confronting a strong CEO. Fifteen years ago, such actions would have been nearly unthinkable, but today they are more surprising for how little controversy they create. Inside, Columnists Stephen Davis and Jon Lukomnik examine the evolution of corporate governance and what this new normal means for boards and the executives who work along with them.

Citigroup's Say-on-Pay Failure Highlights Need for Dialogue

May 08, 2012

What was Citigroup's board thinking? Rescued by taxpayers, targeted by the "Occupy" movement, and weighed down by comparatively poor performance, Citi nonetheless seemed to think the time right for a round of sizable pay increases for top executives. Maybe they should have talked to shareholders first. Inside, Columnists Stephen Davis and Jon Lukomnik make the case for increased shareholder outreach.

Tectonic Forces in Fiduciary Duty Can Erupt in Governance Earthquakes

April 03, 2012

Underneath the surface, the current interpretation and application of fiduciary duty is undergoing subtle changes that could propel investors to become more engaged and to think and act long term. While these forces evolve at a glacial pace, they can play a big role in influencing changes to corporate governance. Inside, Columnists Stephen Davis and Jon Lukomnik survey the rumblings below.

To Gauge the Future of Say-on-Pay, Look Abroad

March 06, 2012

As proxy season approaches and companies brace for the second year of shareholder votes on executive pay, plenty of questions remain. Columnists Stephen Davis and Jon Lukomnik say many answers can be found by looking at how say-on-pay has played out in Britain. But, they warn, you might not like what you see.

How Integrated Reporting Could Change the Nature of Disclosure

February 07, 2012

We're on the verge of a revolution in corporate reporting. Everything—the what, how, who, to whom, and when—could change. The driver behind such a fundamental transformation? Integrated reporting. Inside, Columnists Stephen Davis and Jon Lukomnik delve into what the future of disclosure might look like under an integrated reporting model.

Emerging Trends in Corporate Governance

January 17, 2012

The champagne may be re-corked, but it's still not too late for some 2012 predictions. Inside, Columnists Stephen Davis and Jon Lukomnik make one for the coming year in corporate governance: that the collision of public-sector downsizing and citizen distrust of private enterprise continues to intensify the focus on the way corporations are governed. Also, find out how they did with last year's predictions.

Benchmarking Political Spending Habits

December 06, 2011

With the 2012 elections set to dominate the news cycle next year, shareholders are determined to put political spending on the agenda next proxy season. In response, companies are wise to review all political expenditure policies. Inside, Columnists Stephen Davis and Jon Lukomnik provide steps to begin the process of benchmarking political spending habits.

Why Investors Are Demanding Change in Audit Reporting Practices

November 01, 2011

Big changes are likely coming to the audit world, including the possibility of increased reporting requirements for external auditors, or mandatory audit firm rotation. Whatever changes come, investors are pushing for auditors to be more accountable. Inside, Columnists Stephen Davis and Jon Lukomnik unpack shareholder demands for auditors to disclose more of what they know.

Executive Compensation: Stop the Insanity

October 04, 2011

Shareholders have pleaded for alignment in executive compensation, but despite endless "solutions," the result has been frustration on all sides and an erosion of the trust between investors and directors. No magical compensation formula can perfectly align interests. Yet, as Columnists Stephen Davis and Jon Lukomnik argue inside, there is still hope for a partial solution.

Boards Step Up Zero Tolerance Corruption Policies

September 13, 2011

Anti-corruption laws are proliferating around the globe, and countries that already have them in place are strengthening them and pursuing offenders more aggressively, creating new compliance risks for companies. Do such risks rise to the level of governance? You bet, say Columnists Stephen Davis and Jon Lukomnik. Inside, they look at the implications for boards, shareholders, and compliance officers.

Three Myths About ISS

August 09, 2011

Corporate directors and executives love to hate ISS and other proxy advisory firms; in their view, ISS has too much power and sets corporate governance guidelines with a check-the-box mentality. But some demonize ISS on the basis of a few widely accepted falsehoods. Inside, Columnists Stephen Davis and Jon Lukomnik look past the vitriol and debunk some of those myths.

More Boards Splitting the Chairman and CEO Roles

July 06, 2011

It's becoming increasingly common for companies to have a separate CEO and independent chairman. And shareholders are putting more pressure on companies that don't to adopt a plan to make the split upon succession of the current CEO. Inside, Columnists Stephen Davis and Jon Lukomnik examine the trend and urge companies to consider getting out in front of it.

Lessons From 'Say-on-Pay' Failures

June 07, 2011

Shareholders have rejected executive pay packages at dozens of companies this proxy season. Their specific motives differ with each company, but the businesses flunking say-on-pay votes share some common traits. Inside, Columnists Stephen Davis and Jon Lukomnik examine those failures and offer ideas on how to avoid losing a say-on-pay vote.

Environmental and Social Issues No Longer on the Fringe

May 03, 2011

After the Gulf oil spill and the nuclear disaster in Japan, environmental and social risks are becoming a larger part of risk governance. In fact, governance raters and proxy advisers are increasingly looking at such factors in their analysis of corporate boards. Inside, Columnists Stephen Davis and Jon Lukomnik provide some tips on what to watch for and how to build up credibility on the issues over time.

Pardon the Cliché, but Dialogue With Shareholders Is a Win-Win

April 05, 2011

An attempt by companies to communicate more with shareholders on corporate governance topics has been a surprising success—and nearly ubiquitous, according to a recent study. In the last year, 87 percent of companies have reached out to investors. Inside, Columnists Stephen Davis and Jon Lukomnik give some tips for making shareholder outreach work.

From Tahrir Square to the Boardroom

March 08, 2011

"Fiduciary duty" might not be the phrase that comes to mind while watching news of uprisings across the Arab world, but when you perceive the uprisings as shareholders revolting against mis-governance—well, that should resonate with board directors quite loudly. Inside, Compliance Week Columnists Stephen Davis and Jon Lukomnik outline how corporations can prevent similar revolts here at home.

Take Advantage of the Hiatus In Corporate Governance Changes

February 08, 2011

This year, what wasn't on the agenda at the World Economic Forum in Davos might be as important as what was. The absence of executive compensation and Wall Street regulatory reform topics may signal a period of calm in corporate governance changes. Inside, Columnists Stephen Davis and Jon Lukomnik give advice on how to take advantage of the hiatus.

Governance Developments to Watch in 2011

January 11, 2011

What will the major corporate governance challenges be in 2011? Compliance Week Columnists Stephen Davis and Jon Lukomnik predict that two issues will emerge (or re-emerge) this year. First, companies will once again be pressured to increase the percentage of women on their boards. Second, auditors will become more accountable directly to shareholders. More inside.

Why More Disclosure Isn't Always the Answer

December 14, 2010

Supreme Court Justice Louis Brandeis' famous words, that "sunshine is the best disinfectant," have been used to justify nearly every disclosure requirement proposed. Yet there are some instances where more disclosure doesn't necessarily benefit market participants. Inside, Columnist Stephen Davis and Jon Lukomnik shine some sunlight on a few of those shadowy areas of disclosure.

Can This CEO Bridge the Investor-Company Divide?

November 09, 2010

Normally, few people outside the orbit of a professional association would care much who occupies its executive office. But sometimes a seemingly simple hiring decision can rock the status quo.

Proxy Access: Don’t Believe the Hype

October 12, 2010

Just because you get a shiny new hammer doesn’t mean everything in your house is suddenly a nail.

Unsettling Questions on BP, Boards, Risk Management

September 14, 2010

With the Deepwater Horizon oil well finally capped, BP has largely dropped off the nation’s front pages and dwindled to an afterthought on cable TV gabfests. But just as it may take years to restore the waters and shores of the Gulf of Mexico, governance consequences flowing from BP’s 2010 travails are certain to be long-lasting—and may well spatter public companies across the United States. Here is sample of the BP buzz among market players, and how the fallout may affect your corporate board, your investors, and your regulators.

How to Improve Governance at Small Companies

August 10, 2010

Nell Minow, the editor and co-founder of The Corporate Library, has a way with words. Corporate directors, she once said, “are like sub-atomic particles. They act differently when they are being observed.”

Activists Flex Muscle, Get Proxy Access

July 13, 2010

With the smoke still swirling on the Dodd-Frank regulatory reform bill, Compliance Week readers are doubtless turning attention to how governance provisions in the bill (or possibly the law, by the time you read this) will affect corporations and investors. That’s as it should be; the legislation promises to hand shareowners more say in director nominations and executive compensation in ways that we have flagged in the past. For now, however, let’s turn to a striking but under-appreciated legacy of this epic battle. Dodd-Frank readjusts the balance of power in boardrooms, but it also illuminates a potentially tectonic power shift in Washington. For the first time, investors showed—in dramatic fashion—that they can go head to head against the established business lobbies and win.

Giving Institutional Shareholders Food for Thought

June 08, 2010

We’ve always had a soft spot for challenges to conventional wisdom—and as financial reform legislation looms, there is no better time for a bout of it.

Seeking Governance Inspiration—From Sweden?

May 11, 2010

You may not have noticed, but lots of investor eyes are turning these days to a Swedish model—and no, we don’t mean a blonde strutting the catwalk. Instead, the model they like is the Swedish way of nominating board members at public companies.

A Closer Look at Dodd Bill’s Governance Provisions

April 06, 2010

Within a week of Sen. Christopher Dodd (D-Conn.) unveiling his 2,200-page finance reform legislation, more than 750,000 articles had been published about it, pushing, prodding, and analyzing its provisions. The “Restoring American Financial Stability Act of 2010” has engendered venom and praise, and enough punditry to restock every cable network’s complement of talking heads. Is there really anything left to say?

Analyzing ‘Corporate Risk Oversight Principles’

March 09, 2010

It’s way too early for nostalgia about the financial crisis. But one of the most telling anecdotes coming out of this period was from John Thain, remarking to the Wall Street Journal on his time as CEO of Merrill Lynch. “Merrill had a risk committee,” he asserted. “It just didn’t function.”

Compliance Week now has a companion group on LinkedIn, where members can network and discuss the compliance and governance news of the day. Open to all compliance professionals, free to join.

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