Corporate Governance Lessons from Great Britain

The WSJ just ran an article on what it describes as "a new breed of directors," those members of the board who actually reach out to large shareholders and listen to their concerns.  Big news in the United States but common practice in the United Kingdom.  The UK has in place the Combined Code, a set of non-mandatory corporate governance practices.  Among other things, the Code provides for the separation of chairman and CEO.  Among other assignments, the chairman is given the task of maintaining "sufficient contact with major shareholders to understand their issues and concerns."  In other words, dialogue among owners and managers is common practice in the UK and not, as it is here, a newsworthy event.

The UK also gives shareholders the right to insert nominees in the company's proxy materials, the right to an advisory vote on compensation (say on pay) and directors are elected not by a plurality as is the typical case in the US but by a majority vote.  How often do shareholders use this authority, that is run a competing slate of directors or vote down executive compensation? Almost never.  Perhaps it is because in the United Kingdom, management talks to its owners.