Recent Columns By Stephen Davis And Jon Lukomnik

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

"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.

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.

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.

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.

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.

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

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.

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.”

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.

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.

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.

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?

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 doesn’t run theatre reviews. But while we’re here, we suggest readers might want to take in a performance of “Enron, The Play,” now playing a star turn in London’s West End to overflow audiences.

Welcome to the 2010s. You’re just in time for the move from Sarbanes-Oxley to shareowners.

Risk is a full-bodied presence in the boardroom and the C-suite, so it’s time risk management stopped being two-dimensional. Let’s add a third dimension to risk measurement.

Corporate boards and institutional investors are bracing for a tide of corporate governance changes after the financial crisis. We (and others) have written reams about majority voting, the end of broker-dealer voting in director elections, say-on-pay, and shareholder proxy access. How you feel about those issues largely depends on what hat you wear in the vast corporate governance realm.

We both live in two worlds: The workaday reality of investing, and the sometimes-rarified air of academia. Often those two realities are disjointed, existing separate and apart as if they were different dimensions in a science fiction novel. But every once in a while we’re struck by a little-noticed academic paper that offers insights both timely and important to Compliance Week readers. Recently we discovered three such pieces of research.

It’s all about power. And, as Compliance Week readers know, power is about to shift noticeably away from corporate boards and management toward shareowners, particularly institutional investors.

The Great Recession has now produced the Great Unfreezing. For years shareowners and boards sparred over the same governance issues, frozen like ice into the same opposing positions. But the financial crisis, economic meltdown, and political change have combined to break the old mold of governance battles in surprising ways.

What should we call the looming changes in how directors are elected and overseen at public companies? A seachange? A paradigm shift? A whole new ballgame?

“Directorship is now following you on Twitter,” an innocuous e-mail announced to us last month. What? Could one of America’s board publications be taken with tweets?

Attention corporate executives and board members: Please help us restore some rationality into the executive compensation debate.