Masters and Rudnick co-author World Bank’s latest corporate governance toolkit: Resolving Corporate Governance Disputes

Jon Masters and Alan Rudnick are two of the principal authors of the World Bank Group Global Corporate Governance Forum’s toolkit on resolving corporate governance disputes. Of particular interest to visitors of this site may be the section on Preventing and Managing Boardroom Disputes, pages 28-43 of Volume 2 of the toolkit. The whole toolkit can be found at Toolkit 4: Resolving Corporate Governance Disputes. Read more

Board Oversight and Monitoring of Political Contributions

The U.S. Supreme Court’s decision last week in Citizens United v. Federal Election Commission raises some new and profound challenges for boards of directors.  In Citizens United, the Court held that corporations have First Amendment rights to free speech, just like people do.  Following Citzens United, corporations can enter the political fray directly through exercise of speech rights, albeit not through direct contributions to a candidate.  Corporate involvement in political matters is not new, although until now it has had to be through PACs, trade associations, or other entities.  What does this mean for boards?

First, greater – and more expensive – political participation adds a new layer of risk.  Will corporate political speech impact the company’s reputation?  Will sales suffer?  Will the treasury be unduly depleted?  Can relationships with shareholders or other constituencies be impacted?

Second, boards will have to reconsider their oversight and monitoring policies with respect to corporate political involvement.  This decision rests on a corporate right of free speech, but who decides what that speech will be?  Does management have a free hand in choosing candidates?  My feeling is that boards should reexamine – or perhaps institute for the first time – policies relating to the corporation’s political involvement.  They must also ask themselves whether there is an effective set of procedures in place for board oversight and monitoring?

Third, boards must understand the new legal environment regarding corporate political involvement.  The Citizens United opinion is, to say the least, dense.  The federal law involved is intricate, and the impact on state laws is not clear.  Boards need to consult their counsel for a comprehensive look at and understanding of the new playing field.  Once the legal environment is understood, a review of compliance procedures is a must.

And, just to complicate matters, we don’t know yet how major shareholders will react to the new environment.  Will they take a position on corporate political expenditures?  Will they indulge in their own lobbying vis a vis the companies in which they have a significant stake?  Stay tuned.

Much remains unclear.  What is crystal clear, however, is that this issue should be on boards’ agendas immediately.

When will they Learn?

As Gretchen Morgenson writes in yesterday’s NY Times (12/20/09), “To err is human. To cover up, plain dumb.”  

She reports that Mercer is now being sued for $2.8 billion because it allegedly made errors as Alaska’s actuarial consultant in estimating the amounts needed to be set aside by two of the state’s retirement plans for certain benefits in 2002.  

Mercer, so the story goes, apparently discovered the errors before they were presented to the Alaska plans, but “after several discussions, the lawsuit says, the Mercer executives decided not to tell their client about the error.  

One of the Mercer actuaries on the account testified …that Mercer did not disclose the error because the firm was “fearful of being fired.”  The error was compounded year after year because “it would have been difficult to explain.”  

What happened to tone at the top?  What is the board doing about it?  What did the board do about it?  

JM, 12/21/09

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