Markkula Center of Applied Ethics

Corporate Governance

The Markkula Center for Applied Ethics 3rd annual business ethics conference, "The Accountable Corporation," included this panel discussion on corporate governance, held February 18. Panelists were:

Tom McCoy, CAO, AMD

Katharine Martin, partner Wilson Sonsini (corporate governance practice)

Stephen F. Diamond, SCU professor of law, international corporate governance

Tom McCoy: I've now practiced law and business in four decades—in the '70s '80s, '90s, and now the 2000s, and I've seen the best and worst practices, people of high integrity and people of low integrity. I've seen insider-trading scandals; I've seen savings and loan meltdowns; I've seen the aftermath of the bubble in all these accounting scandals in what was a fairly breathtaking breakdown in corporate governance in some of our major high-cap companies, and I conclude the following:

Greed is a very powerful evil spirit.

The truth is more powerful, and those who walk crooked paths will be found out.

Thankfully, as I enter the third act of my career, we're finally beginning to focus on the root cause: namely, an understanding that culture counts; that compliance doesn't drive ethics—it's the other way around; that everything rises and falls on leadership; that checks and balances require thoughtful organizational design, human resource decisions and both business and social process engineering; and that you need a relentless process to sustain it that is very time consuming.

There are only three things you have to remember:

1.) Integrity is everything and values have to be at the heart of everything that you do because so much of the time you don't know what to do, and when you don't know what to do, if you don't default to your values, you're likely to make the wrong decision.

2.) Do everything at the pinnacle of excellence.

3.) No matter what happens, don't lose your sense of humor which is my way of saying that when you are one of the people inside the company who is responsible for the effective workings of corporate governance—the way the shareholders, investors, culture want it to work—you cannot get too wrapped up in the moment. You have to keep your objectivity.

When you think about companies like Enron and WorldCom, you think about the very volatile mix of high-risk accounting, conflict of interest transactions, a cowboy culture, big corporate lines of credit for executives, the internal audit function being performed by the outside auditor. You can't say that they were all bad people, but you can ask, where was the general counsel of this company? What kinds of conversations was he having or not having with the board of directors? Whatsocial structure did the board have that interfered with having candid conversations about the clear risk factors that were going on in that company? Why was it that the board did not have a finger on the pulse of the ethical grid of that company, which was clearly lacking?

We can talk a lot about boards of directors and fiduciary responsibilities and this and that. But this is a group of very busy people who for the most part do this with notions of giving back what they've learned in their accomplished careers. They only meet five or six times a year for a day or so. They are not running the business. What is it that we expect these guys to do? And how is it that we expect them to do it?

As in all things, the truth of the matter is the team always holds the dream. If you don't have effective teamwork within a board of directors and within a corporate management, you're not going to develop the checks and balances and the trust and the relationships in order to enable a board to smell it if something is going wrong.

I always tell people that you have to protect the board, that your job is to protect those guys who only meet five or six times a year and who've taken on this massive personal asset exposure for a trivial amount of money and who hold the public trust. If you don't protect those guys, who else will?

If I were on a board of directors, my first question after I talked to the CEO and the CFO, would be to get the general counsel and the head of Security and the head of Internal Audit in a room, and I'd really find out what those guys were made out of.

At AMD we realize that, however affectionately we felt about the CEO and our fellow executives, we have a watchdog function and a board-protective function, so we've always had regularly scheduled meetings of the general counsel, the head of Security, and the head of Internal Audit to talk about: What do you know? What's going on? What's making you feel uncomfortable? What ought we to be looking at? When was the last time that we really looked hard—even harder than our independent auditors do—at the expense reports of executives?

By the way, I have the personal sadness of once having to fire a corporate executive for what was "tip money" falsification of an expense report. You have to resolve within the functions of a company as to what it is you're going to do and sustain it and be very open about it, because people respect integrity. People want integrity, and you know people fear integrity. If they know you're a high-integrity person, people will look at that leadership, and that will help them through the storms of their career. People want their leaders to be lighthouses. They want to know where they stand. They want to know where they are in a storm. They want to know that they're going to be protected and supported in doing the right thing when they're asked to do the wrong thing. Therefore, driving the ethical grid is everything.

When I was General Counsel of AMD, I never let a board meeting go by without sitting in executive session with the Audit Committee. I would tell them exactly what was going on and exactly what I worried about and exactly what I didn't worry about. I didn't hide that from anybody. That developed a tremendous amount of trust between me and the Audit Committee and also me and my fellow executive team so that we always were energetic in our internal processes. We had a name for it: We called it being truth-seekers and truth-tellers.

These are things that need to be enunciated and articulated. They have to be written down and evangelized to employees, not once a year, not necessarily everyday, but at least every couple of months. Then you have to make sure that you are walking the talk, because it is all about articulating those values that inform decision making. It is all about developing and sustaining the ethical grid that drives compliance. It is all about relationship and trust, and at the end of the day, it is about courage.

Let's face it, we expect CEOs not only to be great capitalists but we also expect them to be public servants, and that's why we're so hard on them when they fail. We even criticize CEOs who generate tens of billions of dollars of shareholder value if they make $20 million in compensation for it. It is a position of public trust. You should not be a CEO unless you're willing to accept the burdens of public service along with the risks and opportunities of being the CEO of a public company. We all need to stop whining about Sarbanes-Oxley being mindful of the fact that we're doing damage to smaller companies. We need to continue the kinds of focus that we have at conferences like this.

My final statement to you: It's not enough to attend these conferences. If you came here just to think and to be professorial and idealistic, my challenge to you is that it's not okay just to survive. It's not okay just to be successful. You have to do things of significance.

If you're here, I'm assuming that you want to take what you learn here and what you think here and drive it into the DNA of the organizations which you're a part of, because that's where we're going to win the battle for sustainable long-term corporate responsibility, delivering to the investment community what they really want—accurate numbers, transparency, as well as smart risk-taking and investment. That's what we want for those of us who are worried about social security and our 401Ks. This is the kind of world in which we want to live.

It is all about the way we behave. Our brands are the sum of what we do and what we say. Your values tell you what to do when you don't know what to do, because that's what boards of directors also focusing on as well. Thanks.

Katharine Martin: I have been representing large, public companies most of my career. My career spans three decades, in which an enormous amount of change has occurred. We've witnessed the crescendo in 2000, the market's precipitous drop, and the number of very large, highly respectable companies that have failed. The stock exchange has obviously engaged in a massive reform. This was occurring before Sarbanes-Oxley went into law. Sarbanes-Oxley is now more than two years old. The amount of law that has come out of that legislation is just mind-boggling, and it's really kept public companies on their toes.

If you take together what the stock exchanges did,—New York and Nasdaq—and the SEC rules and regulations, it's really changed the landscape pretty dramatically, in terms of the disclosures companies are required to make and the boardroom process including something as simple as how you go about deciding who's going to go on your board. I'd like to speak a little bit about how this has happened.

I want to reiterate a point that Tom just made, which is that a lot of laws have come down the pike and lot of changes. A lot of things I want to talk about are best practice, some of which are now required, either by your stock exchange or by the SEC. It's unfortunate that we got to this point because a lot of good governance has been around for many, many decades. We didn't necessarily need it to become law. But given that people weren't setting the right tone from the top, it was inevitable.

In addition to restrictions that they placed on companies and boards and disclosures, which are compelling changes in behavior, they've also imposed minimal standards of professional ethics on lawyers who appear and practice before the Commission. That means those of us who advise public companies on the outside, we are now viewed by the SEC very clearly as gatekeepers. We have minimum ethical standards, not only the standards that the state where we're licensed imposes, but at the federal level, which is brand new, in terms of our need to escalate issues.

An in-house lawyer might have a reporting requirement to a CEO, but notwithstanding that, the law says you've got to rise above it; your client is the organization, not management. You have to do the right thing for the organization and its shareholders, notwithstanding the fact you might be given a direct order from one of the members of management to do something differently.

It's now a couple of years since these laws have been put in place, and I want to just talk about what things have changed.

Just in terms of the boardroom itself, one of the basic requirements now of the stock exchange is that a majority of the board be independent. Seems relatively basic, doesn't it? But you'd be surprised; there were a lot relationships that existed among the CEO and board members—business relationships, professional relationships, consulting relationships, and also social relationships that could potentially affect independence and that might cause someone to look the other way. Independence is coming at us from a million different directions. There are a lot of different definitions. You can't just answer yes or no whether someone's independent; you have to analyze the circumstance and the situation. But fundamentally, any business relationship needs to be addressed from a standpoint of determining whether or not a director is independent for the purposes of seeing whether or not they satisfy this requirement.

Another change is that there are three independent standing committees now. It's always been the case that we had an Audit Committee. Audit Committees have been around for a long time, and they've served a very important purpose. Their responsibilities have grown significantly over the last couple of years. We've always seen Compensation Committees. Their responsibilities have changed pretty significantly, and there's been a lot more focus on the role of that committee. I'll talk about that.

The new committee that we've seen is a Nominating and Corporate Governance Committee. This new committee is empowered with responsibility for corporate governance, which is a good thing, right? Focusing on whether or not the company is doing the right things in terms of providing the right information to its directors so that they can make an informed decision. The bigger piece of this one is that they are responsible for making decisions relative to who's going to go on the board—filling vacancies and just appointment and election of director nominees.

This is a very significant thing, because these committees are required to be independent, made up entirely of independent directors. So it's not the case anymore that the CEO just says, "Here's who I want on the board; just put them on the board whether or not they're qualified, no matter how they round out the rest of the skills on the board." Now you've got some independent directors, and I assure you that these directors are extremely mindful these days of what their responsibilities are. They're trying to do the right thing. They're not necessarily just going to rubber-stamp decisions. They're going to think it through.

The other thing we've seen—and best practice has dictated this for a long time, but we're now required to do it—is a lot of companies who have their independent directors meet in executive session. In the past, if you had a board meeting, you had the CEO potentially as the chairman as well setting the agenda of the meeting, participating in all the discussions. But now it's required regularly you meet in executive session. So the CEO steps out of the room. The independent directors have a meeting among themselves.

This, as you can imagine, just naturally flows into the very important topics. You might talk about succession planning. You might talk about whether you're happy or not with the performance of the CEO. Maybe it's provided and fostered a greater openness and more candid board culture. In my experience, it's actually brought the outside directors together in a way. In other words, there's no person in between them anymore. That gives them an opportunity to really get to know each other. So that's a practice that we see all over now, and I actually think the directors have really embraced this. The outside directors enjoy those executive sessions.

Also, the Compensation Committee and the Audit Committee are required to put in writing and to post publicly what their responsibilities are. Now the problem with that, of course, is you get a really detailed list of things. You can get into a "check the box" mentality, and maybe you forget what your real responsibility is as a director. So I'm always a big fan of companies that have staff that really support the board and their committees, and I assume that Tom at AMD has been doing this for years. I'm sure he's got a legal department that's they're ready to support the committees to make sure that they're dealing with the things they need to be dealing with when they say they're going to do them.

But, of course, once you have a charter that says annually you're going to do something or quarterly you're going to do something, it goes without saying, it's important that you do it. Obviously. Right? So you need someone watching out for them to make sure that they are doing everything they need to be doing. But you don't want your directors bogged down with that. You want your directors focusing on the big issues and the serious concerns, and deliberating on the key topics.

Another thing we've seen is an increase in the focus on whether or not the chair of the company and the CEO should be the same person. Neither stock exchange mandated that you split the two, but they did come up with the concept of a lead director, a presiding director. So we are seeing most companies now have a very active outside director who serves in a lead or presiding director function. That can extend to things like communicating directly with stockholders, and also setting the agendas for the executive sessions. I suspect over time we're going to see a growing trend. My sense is that the separating of the chairman and the CEO is something that is picking up momentum. A lot of people view that as just good, sound best practice.

Then, lastly, I wanted to highlight for you what the Delaware courts are doing. Most of our public company clients and most companies in America are incorporated in the state of Delaware. Delaware courts have been chiming in as well and reminding directors of what their basic fiduciary responsibility is and the duty of care and how to get the protection of the business judgment rule, which is a very powerful protection for directors. Basically, if a board acts in good faith on an informed basis and in a manner they reasonably believe to be in the best interests of shareholders when they're not acting in a self interest, the courts aren't going to second-guess their decisions. No one's perfect. Obviously you might make a wrong decision here and there. So it's very important to not have a court coming in and second-guessing you every time.

What is it that's really important for directors, then? They need to establish the duty of care, the process, the fact that they did act on an informed basis, that they didn't act with a self interest, you know, that they didn't have a conflict of interest. It's very important that basic corporate process is followed, and you want to make sure that your directors understand that.

It's really important that you have materials go out ahead of time, that you give directors an opportunity to review them, that the materials are well thought through to the extent that you're asking your board to make a significant decision about something, that they're given enough time to reflect on it and deliberate on it and to seek independent input if they want it from advisers. Lastly, the documenting of that process in minutes is very, very important. My personal opinion these days is that minutes should more detailed than they used to be, because if you find yourself in front of the courts in Delaware and you don't have any recollection of what you did and the file is empty and the minutes are really vague, it's going to be harder and harder to establish your duty of care. Then they might look through to determine whether or not what you did was fair from the company's standpoint.

In terms of the committees themselves, I want to highlight the Audit Committee, the Comp Committee, and the Nominating Committee.

The Audit Committee is probably the most active committee of all these days. Their responsibility is huge. They probably have a minimum of eight meetings. They have four normally that revolve around earnings, and they usually figure they can't get through everything they need to do in just those four meetings. So they have an additional two or four meetings. They're charged with lots of stuff that came out of Sarbanes-Oxley: setting up whistleblower programs, reviewing codes of conduct, pre-approving related-party transactions, and a huge number of internal investigations.

Whistle-blowers are coming forth with claims that need to be looked into. Sometimes they are without merit and don't require further investigation, but sometimes they require significant investigation, including significant time and money. Totally independent lawyers are brought in, totally independent forensic accountants are brought in. It's a big deal. If you go onto an Audit Committee in today's environment, it's likely you might get wrapped into something like that. Audit Committee members are high in demand, especially those who have very rich accounting and Chief Financial Officer type backgrounds, because they also satisfy the additional requirement that you have an Audit Committee financial expert.

The Comp Committee is under a lot of scrutiny these days, because of the Disney case, which came out of Michael Ovitz's departure from Disney. He received a fairly hefty severance package, and the Comp Committee, or the Board in this case, wasn't very focused on it. So the Delaware courts in particular are focused on good Board process, but the SEC has made compensation and payment for performance and disclosure of executive perks and things of that sort a huge focus right now. Allan Beller, who's the head of the division of corporation finance, is out there telling everyone: "Hey, we want all comp disclosed." There's a Comp Committee report and a proxy statement, so you have to stand behind what you approve. Comp Committee members are very much under scrutiny right now, and you want to be sure that your Comp Committee members are well-advised and get good independent input.

Lastly, the Nominating and Governance Committee: This is this new committee, but most companies are enjoying having this committee. They are owners of something that isn't even required but has clearly turned into a best practice: board self-assessments. Most boards now are going through a process of analyzing how well they function as a board. There are a lot of different ways to do it: You can do it with a written questionnaire everybody gets. You can do it anonymously. You can do openly. You can do it together with a dialogue with somebody and answer questions. You can do it at the board and committee level as a whole, which I actually prefer because, clearly, boards act as a whole; directors don't act individually. They act as a unit, so I think an evaluation that focuses on them functioning as a unit is very helpful. We've also seen it drop into the level of peer-to-peer, where you're actually reviewing your fellow directors. All of this is new, but most companies are doing it and have done it at least once. I think it's good, because it ferrets out best practice and it produces a better functioning Board.

The other thing the Nominating and Governance Committee has to do is identify policies around the proxy disclosure. The rules here have changed pretty dramatically. What's your policy if a shareholder wants to communicate with an outside director? What's your policy on directors attending annual meetings? What's your policy on minimum qualifications for directors? A lot of different policies now require disclosure, and most of those policies are being set and established by the Nominating and Governance Committee.

From my perspective, things really have changed pretty dramatically over the last three years—I think for the better. I know that the "one size fits all," puts a greater burden on the smaller public companies, and we're seeing a longer lead time, obviously, for companies trying to go public. But I think with respect to the big, Fortune 500 type of companies, there's been some good "back to basics" that's come out of all of this.

Stephen F. Diamond: The concept of "corporate governance" seems, at first, an odd one. Corporations would seem to be the quintessential private form of economic activity in our society while the concept of "governance" largely derives its content from the activities of the public, inherently political, institutions in our society. For more than a century corporate managers have used that fundamental divide—between the private and public spheres—to attempt—not always successfully, of course—to fend off efforts to regulate the activities of business firms. In this view, private corporations were seen as central to the health of civil society and civil society, in turn, was seen as a bulwark against the emergence of overweening government power. With the emergence of authoritarian, even totalitarian, forms of government, where civil society was, indeed, destroyed, this role for private centers of power gained widespread legitimacy. Under these circumstances the paradox of "corporate governance"—as we are coming to understand that term—really did not exist or was not seen as particularly important.

Two major schools of thought emerged that have dominated our thinking about this question from the Depression until very recently. The first, Managerialism, expressed concern about the internal structure of corporations, thus opening at least a narrow approach to the question of governance. But Managerialism quickly resolved the concern by suggesting that state law could offer up a menu of options for corporate architectural design that would moderate the costs associated with internal corporate governance. These so-called "agency costs" are thought to accrue because of the separation of the formal ownership of corporate capital from the actual day-to-day control of the corporation by its professional managers. These are the costs associated with, for example, negotiating contracts with, and then subsequently monitoring, corporate managers and employees, along with the time and expense of any required dispute resolution mechanisms. In theory, however, if shareholders could elect an effective board of directors that, in turn, hired key corporate officers, then those costs could be minimized. I assume that it does not come as a surprise to this audience that in the face of the abject failures of even independent directors at companies like Enron and WorldCom, modern day Managerialists argue that boards have been largely captured by powerful managers. The challenge today for managerialists is to find the means by which the balance of power inside corporate hierarchies can be restored.

A second school of thought, rooted in a view of markets as efficient, contended that managerialism overstated the problems of internal corporate structure and pointed instead to the allegedly competitive product, labor and capital markets that surround corporations. These markets are supposed to enforce a disciplinary regime on corporate managers that reduces firms to an efficient "nexus of contracts" for negotiating a firm's relationships with a variety of service providers, including investors, managers, rank and file employees, customers, and suppliers. The first line of defense for this school in the wake of Enron and WorldCom is to suggest that these were simply "failed business models" and thus do not represent either a challenge for the model or a particular concern for policy makers. If there is anyone in the audience today who feels his or her business has been burdened unnecessarily by the new requirements of the Sarbanes-Oxley Act then this is the world-view for you.

Now notice what happens if either of these two approaches is considered accurate—in the first, state provided governance structures eliminate or at least minimize governance problems; and in the second, the firm itself as a private center of power disappears. While these two approaches have competed for dominance in law and business schools for many decades, with the nexus of contracts approach having gained the upper hand by the early 90s, the truly striking thing is how utterly inadequate they both are to explain the current situation we find ourselves in. Over the last decade nothing in either school prepared well-intentioned business people or policy makers for the crisis of corporate governance we are now enduring.

In my view, this was due to major flaws in each of these approaches. First, the managerialists' overly narrow concern with the internal governance of firms led to a certain kind of myopia about the role of the corporation in a complex democratic society. This is ironic because the founders of the managerialist school, legal scholar Adolph Berle and his colleague, economist Gardiner Means, wrote their classic 1932 text, The Modern Corporation and Private Property, precisely because of their concern that the growing power of corporate managers could undermine the democratic institutions of society as a whole. But the agency cost approach within managerialism soon coopted the Berle-Means thesis and drained their rich analysis of much of its potential. This led instead to the overly simplistic idea that a combination of optional government supplied regulations and private ordering could minimize the problems of governance. I think a return to the original socio-political concerns of Berle and Means is vital for an effective approach to corporate governance today.

A second set of problems has now also hobbled the "efficient markets" school. As I suggested earlier as capital markets returned to prominence in the 1980s and 1990s the managerialist school lost ground to arguments that firm efficiency could be driven by competitive markets for labor, products and capital. The key institution for this school has always been the market for corporate control, where the constant fear of existing managers that they will be ousted if capital markets indicate their vulnerability as a company's stock price falls below the potential value of the company acts as a disciplinary device on behalf of investors. This argument provided a neat justification for the leveraged buyout movement's sweeping assault on the so-called "corporate bastion" in the late 1980s. Today it fuels the resurgence, if in a slightly friendlier form, of private equity funds, recently heralded by The Economist as the new "kings of capitalism."

But the justification for that assault rested on the very shaky assumption that markets really are efficient—that the stock market generates prices that reflect the value of corporate assets and that shareholders can therefore easily determine when to sell their shares to those takeover groups willing to restructure the corporation once it gains control. But we now know that there are very serious deficiencies in this approach. The most potent attack on this "efficient markets" worldview has been launched by behavioralists like Hersh Shefrin here at Santa Clara's Business School and Robert Shiller at Yale who argue persuasively that irrationality flourishes in financial markets thus undermining the relationship between price and value.

Another promising line of criticism is emerging from our experience of trying to impose the American model of corporate governance on the countries in transition from state control to market forms. There, it turns out, lengthy agency chains have emerged between decision makers, on the one hand, and beneficiaries, or perhaps victims, of those same decisions, on the other. This has allowed insiders of various sorts to act opportunistically and garner huge one-time gains at the expense of the society as a whole. This helps explain, for example, the rise to extremes of wealth and power of the "oligarchs" in Russia and the "red" capitalists in China. This approach is based on an expanded and more dynamic version of the agency cost argument within the managerialist school.

The interesting thing, however, is that one can find amazingly long and opaque agency chains in the American economy as well. Return for a moment to the market for corporate control that is so important to the "nexus of contracts" view of the corporation. Imagine the lengthy chain that exists between a corporate management team and the ultimate beneficiaries of a public sector pension fund—it runs from a teacher in Orange County or a prison guard in Chico through several different institutions including the public sector unions, the legislature and the Governor's office to the board of trustees of, for example, CalPers, to the professional staff of CalPers to the consultants they hire to find the fund managers they hire to the analysts employed by the fund manager to the board of directors of the companies they invest in finally to the managers who run that company. And, of course, we know also how complex the internal organization of a publicly traded corporation can be, so a complete diagram of this particular agency chain would have to include several layers within the company as well. Can anyone realistically suggest that there is anywhere in this chain of actors a strong and effective basis for monitoring corporate developments and judging whether or when our prison guard or teacher is able to decide to exit from that particular investment through a sale of shares?

Well, let's assume I am right about these problems. Where does that leave us? If neither the agency cost approach nor the efficient markets view adequately explains recent developments in corporate America, what will? More importantly, what will that explanation tell us ought to be done to establish a legitimate and effective corporate governance regime?

A starting point, but actually my closing point for today, is to go back to what I suggested at the outset. I suggested that corporate governance seems to be a kind of paradox because it does not seem as if political concerns belong in discussions of private businesses. But in fact in today's world, corporations have an obviously dramatic political and social impact. To try to wish the firm away as do the dominant approaches to corporate law and finance simply no longer makes sense. Berle and Means understood this. They saw firms as centers of power that served as a counter balance against what was then rising state power. Today that state power is on the wane, and, ironically perhaps, the corporation stands out as a dominant, if troubled, institution. Labor unions seem to be in a near terminal crisis thus weakening one traditional source of countervailing power to both the state and the corporation. This is troubling not just because of the important role unions play in creating a vital democracy, but even more importantly today because workers are now, directly or indirectly, active participants in the capital markets. It is workers who are on one end of that long agency chain that I described above.

I think we do need to address the problems that have caused unions to decline as organized representatives of workers in the day to day workplace, but it is also important to consider ways that workers' voices can be heard inside the corporate boardroom. Crucial intermediaries could be institutional investors such as the pension funds and mutual funds that pool workers' retirement assets. These institutions now control a significant percentage of the outstanding equity of publicly traded corporations. Historically, these institutions have been passive free riders on the decisions of corporate managers allowing corporate insiders and their associated fund managers and investment bankers almost unchecked control over these assets. As CalPERS and some other institutions have now recognized this is no longer an approach the funds can afford. When you own as large a percentage of the market as these massive asset pools do, passive investing with only an option to sell as a means of pressuring management is no longer viable. At some point, voice rather than exit becomes far more important.

Institutional investors, and their beneficiaries, should recognize that they own a valuable option—an embedded option much like the right of holders of convertible debt or preferred stock to trade their financial instrument in for common stock. The embedded option held by institutional investors, however, often goes unrecognized and thus undervalued. It is what I call the "governance option"—the bundle of rights that holders of common stock own yet rarely exercise. These include the right to vital information about the companies they own, the right to vote on key corporate decisions, and perhaps most importantly the right to place truly independent directors on corporate boards. Increasingly these large investors are exercising this option with significant effect. CalPERS has reported consistently higher share prices for those companies that are the subject of its focused effort to improve corporate governance. CalPERS recently joined the public sector employees union AFSCME and state pension funds from Illinois and New York to call on the SEC to pass the rule it proposed more than a year and a half ago to open access to proxy statements for large investors. It is unfortunate, in my view that the SEC has recently signaled that its support for such a rule is withering in the face of an assault by hostile lobbying groups. Enabling large investors to place truly independent directors on corporate boards would represent an important step in restoring the balance necessary to make "corporate governance" a meaningful and effective concept.