If you zoom from the trenches to orbital distance, it becomes clear—and striking—how corporate governance in the United States has transformed seemingly overnight. For decades, corporate governance had been little more than a code word for proxy voting, but now it has emerged as a deeper conversation about long-term value creation. This swift metamorphosis is producing a whole new species of public statements by investors. Governance professionals at corporations now face the challenge of absorbing and incorporating these into strategic thinking. Examples of what we mean in a moment.
Let’s first see what the world looked like until now. Institutional investors began to take widespread note of governance in the early- to mid-1980s, when raiders were loose in the capital market. Union and public sector funds, in particular, thought they had better look at how corporate managements were paying greenmail to entrench themselves. Then the federal government, in the form of the Department of Labor, stepped in through its famous 1988 Avon Letter, which focused on plans covered under the Employee Retirement Income Security Act of 1974. Issued during the Reagan administration, the Avon Letter set a new regulatory standard that reverberates today worldwide. It affirmed the role of investors to oversee public companies and declared the proxy vote an asset of plan beneficiaries, to be exercised to protect value.
