Recent Columns By Stephen Davis And Jon Lukomnik

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.

Vertigo. That’s the feeling many readers may be getting these days as they watch the federal government seize control of commanding heights of the capital market.

Ah, yes, the siren song of 2009 and the theme of the Obama administration: Change.

If corporate boards were granted a New Year’s prayer for 2009, there is no doubt what it would be: “May God preserve the business judgment rule!”

Now that the election is over, get ready for a deluge of predictions on the coming wave of corporate governance legislation and regulation.

In the midst of the financial sector meltdown, directors and executives are asking innumerable questions. One, in particular, seems central: “In our quest for pay for performance, have we—boards, executives, and shareowners alike—created pressure points that influence risk-taking behaviors in unintended ways?”

If there is one thing corporate managers (and columnists like us) know well, it’s the experience of pitching what we think are great ideas to an audience—and seeing them enthusiastically ignored. But every once in a while an idea sticks.

At the risk of drumming ourselves out of the corporate governance fraternity, we have a message to our brethren: We, as a species and as individuals, make mistakes. Creating accountability doesn’t negate human fallibility.

“When I was your age,” the Queen said to Alice in Wonderland, “sometimes I believed as many as six impossible things before breakfast!" Corporate governance may not be quite so radical, but by late next year the United States may well see two things happen that most boardrooms today consider impossible.

A compliance revolution is about to take place in America’s not-for-profit sector. The result may well be that corporate executives who serve on not-for-profit boards will face compliance challenges in their charitable endeavors just as challenging as those they face in their 9-to-5 lives—if not more so. And the revolution is being led by what many consider Washington’s most powerful government agency: the IRS.

The 2008 proxy season in the United States is revealing hazardous gaps among the responsibilities expected of corporate directors, the way directors are elected, and the way investors treat decisions about how they vote.

With activist hedge funds stirring up drama in boardrooms from the New York Times Co. to Motorola, we thought it timely to scan the just-released findings and recommendations of the Conference Board’s Working Group on Hedge Fund Activism. Full disclosure: We were co-chairs of the group. That being said, the fact remains that what hedge funds are doing these days, and how they operate, is of considerable interest to many people.

Wanted: SWF, with appetite for risk and lots of money to spend. Discretion a plus. Serious inquiries only.

Barry Diller, chairman and CEO of Interactive Corp., once said: “Corporate governance is completely misunderstood, certainly by the birdbrains who write about it.”

We admit to being a little disappointed with the financial press coverage of the sub-prime and structured credit problems. In our opinion, too much of it has been of the 20-20 hindsight variety—the “what part of packaging dodgy mortgages and calling them as AAA-rated financial instruments did Merrill Lynch or Citi or Bear Stearns not understand?” type of story.

Now that we have started the one-year countdown to the U.S. presidential election, it is time to get braced for what could be a sea change in corporate governance regulation if a Democrat gains the White House. Polls show that is a real possibility. Even more likely is a Democratic sweep of Congress. If both occur, the effects on corporate governance could be profound. A Democratic incomer might change both policy and people at the top. We will offer some juicy, early speculation about just who to watch. But before that, let’s check where the partisan divide over current issues is deepest; where, unfortunately, the existing policy makers have deadlocked. That is where policy will switch first.