In Search of Alignment

Good governance used to be about fixing companies and boards. Then came the rise of the shareholder. Now the ideal lies more in bringing the two sides together in a quest for long-term value. Part 1 of our Special Report on Governance.

As companies work through the last stages of the 2017 proxy season, it’s tempting to ask what’s changed or improved? A small number of proxy fights are generating headlines and attention as activists take aim at perceived underperformance, while other established companies—step up Postmedia, Bombardier and Valeant Pharmaceuticals International—continue to generate outrage over rising executive pay amid falling results.

It raises the perennial question: are boards doing a better job when it comes to improving governance, relations with shareholders and balancing long-term goals with short-term strategy considering the expanding sub-industry that has grown up around governance?

Not every shareholder outreach effort produces a tangible outcome like Yellow Pages’ has, but it is becoming increasingly common among listed companies. And, typically, the goals go well beyond rectifying immediate performance concerns. There, engagement between companies and shareholders is seen as a way to foster “alignment,” based on the belief that this supports productive governance practices that emphasize long-term value creation over short-termism. “Boards need to get oriented toward a broader range of factors that they consider when making decisions, but shareholders have to give them the space to do that,” explains lawyer Carol Hansell of Hansell LLP.