24 Aug 2023 Stefan Padfield: Break Up Overboarding to Break Up Woke Capitalism
In light of the July 12-14 hearings before the House Financial Services Committee examining the impact of environmental, social, and governance (ESG) factors on financial decision-making, there has been a lot of talk about ways to rein in what might loosely be called “woke capitalism.”
For example, The Wall Street Journal’s editorial board recommended that Congress should enact legislation that would categorize proxy adviser recommendations as “solicitations” subject to anti-fraud rules.
One underappreciated aspect of woke capitalism is, as we have referred to it at the Free Enterprise Project, the “corporate incest problem that’s plaguing the management of American business.” That quote is from our recent Netflix shareholder proposal, wherein we sought adoption of a policy prohibiting Netflix directors from simultaneously sitting on other boards. Among other things, our rationale is that:
While this corporate practice may seem innocently cooperative .., it creates a situation in which board members … have more allegiance to each other than they do to the companies they are supposed to serve. In other words, the sharing … of board members between corporations has given rise to an elitist managerial class that has sway over most large companies ….
Essentially, we are arguing that it’s problematic when the same people who are hobnobbing at Davos each year in order to plot how best to implement the Great Reset are also hiring and nominating each other as the CEOs, executives, and directors of corporations they are supposedly duty-bound to maximize the independent value of.
Perhaps worth noting here, this problem of overboarding is so ingrained that proxy adviser Glass Lewis defaults to only recommending against a non-executive director on that basis if they are “on more than five public company boards.”
In light of all this, the purpose of this column is to argue that even if we can’t get corporations to commit to limiting their directors to hold just one board seat, we can do a better job of alerting shareholders and society generally to the problems of overboarding.
To start, let’s do some back-of-the-envelope calculations based on the following inputs.
- In 2014, in an interview with McKinsey & Co., veteran director David Beatty asserted that “if a potential director can’t put in 300 to 350 hours a year, she shouldn’t take the job.” (Let’s round that to 7 hours per week.)
- In 2018, the Harvard Business Review reported on a study that found CEOs “worked an average of 62.5 hours a week.”
- Richard Barton, one of the Netflix directors up for election as part of the annual meeting at which we proffered our proposal is: (1) CEO of Zillow, in addition to being a director at (2) Zillow, (3) Qurate Retail, (4) Artsy, and (5) Netflix.
Based on all the foregoing, we could very roughly estimate that Barton should apparently be working 90.5 hours per week or 13 hours per day Monday thru Sunday. But should shareholders really have to perform back-of-the-envelope calculations like this to determine whether their directors are reasonably likely to be devoting appropriate time to a job that is supposedly at the heart of a corporation’s governance and for which the director is being well-compensated (it has been reported that the average 2022 compensation for an S&P 500 director was $316,091)?
I submit the answer should be “no.” Instead, directors should be required to submit and distribute their estimates of how they plan to allocate their time among the executive and director obligations they are being paid to perform.
In the case of a candidate like Barton – who has an executive position along with serving on four boards – we should either get a commitment to that 90.5 hours per week or expect an explanation for why shareholders should be satisfied with less. In addition, any such adopted reporting obligation should provide the individual’s actual compensation for each position, so that shareholders can get a clear picture of the expected hourly rate they’ll be paying for that individual’s services.
Implementing such a reporting requirement would both provide some much-needed transparency and accountability, while at the same time helping to undermine the woke cabal that makes up today’s managerial elite.
Importantly, a commitment to provide this information to shareholders can be adopted by individual corporations without any state action. In fact, you might see the Free Enterprise Project submit such proposals this upcoming proxy season.
Stefan Padfield is an associate at the National Center’s Free Enterprise Project (FEP), whose stated goal is to oppose the woke takeover of American corporate life. This was first published at Newsmax.