Obama gets governance letter for ‘critical’ reforms from world’s biggest pension investors

US governance trailing other major financial markets according to signatories.

A group of the world’s biggest pension funds and asset managers running assets of more than $1.3 trillion has written to US President, Barack Obama, urging him to implement what they say are “critical” legal reforms to improve corporate governance practices and restore confidence in US financial markets. The letter, signed by 28 investors, including pension funds such as the Universities Superannuation Scheme (USS) in the UK and PGGM Investments in the Netherlands, could be a major bolster to existing, and sometimes long-standing, campaigns led by US investors on issues such as the ability for shareholders to lodge advisory votes on executive remuneration and for restricting executive golden parachutes in the event of poor share price performance. The investors said corporate governance in the US was now trailing that of many other major financial markets. They added: “Because practices in other markets have been improving, investors have begun to re-evaluate the relative investment risks presented by corporate governance practices in the United States. To remain competitive in this environment, we believe the United States must promptly embrace the reforms we have identified.” The signatories said they wanted to see the process of governance reforms to be led by an appropriate US governmententity that they hoped would bring in a best practice “comply or explain” governance disclosure regime by the end of 2010. Peter Moon, chief investment officer at USS said: “The US has a system of corporate governance in which there is a misalignment between the interests of shareholders and directors. It is critical that the new administration understands that this has ramifications for how overseas investors view the integrity of the US markets. We are therefore calling for the necessary reforms to be made to ensure that confidence in the US market is restored.” The proposed reforms include:
• Shareowner access to proxy voting
• Standard majority voting for election of corporate directors
• Transition to independent board leadership with split chair/CEO roles
• Advisory shareholder votes on executive remuneration
• Repeal of the authority for brokers to vote un-instructed shares
• Stronger rules on clawing back illicit executive compensation
• Limits on the use of conflicted remuneration consultants
• Restrictions on severance payments rewarding poor performance