2018 Lane Reports

U.S. Stewardship Code Takes Effect!

The Lane Report, January 2018
Friday, January 5, 2018 10:00 am
by Marc J. Lane

Kudos to the 16 institutional investors which have joined forces to develop a "Framework for U. S. Stewardship and Governance" that took effect on January 1.

The Framework, an unprecedented investor-led effort, establishes common-sense governance principles which public companies are urged to adopt. Although adoption is voluntary, it carries with it the force of the marketplace; the coalition behind it manages $17 trillion in assets.

It's hard to argue with the principles underlying the Framework:

  • Boards are accountable to shareholders.
  • Shareholders are entitled to voting rights in proportion to their economic interests.
  • Boards should be responsive to shareholders and proactively seek to understand their perspectives.
  • Boards should have a strong, independent leadership structure.
  • Boards should implement structures and practices that enhance their effectiveness.
  • Boards should align management incentive structures with the long-term strategies of the companies they serve.

How those principles are applied in practice separates those boards that are transparent, accountable and engaged from those that aren't.

Since classified or staggered boards are simply less accountable to shareholders, companies that don't have a one-share, one-vote structure should phase out controlling or dual-class voting structures and require their Directors to stand for election annually. Directors who fail to earn majority support in an annual election should resign or the companies they serve should explain to shareholders why they're staying on. And companies should include independent Directors on their boards.

The corporate boards that buy into the logic behind the Framework set themselves apart from their peers as reliable stewards. One would also expect those boards to see that their companies produce quality goods, value and respect their customers, minimize their environmental impact, support the communities in which their businesses operate, commit to ethical and diverse leadership, and above all, treat their workers well. For all those reasons, the companies they lead are likely to offer their shareholders superior returns on investment.

Our investment affiliate, Marc J. Lane Investment Management, Inc., has concluded, based on its empirical research, that one's investment portfolio can successfully be aligned with his or her core values without sacrificing financial performance. The firm's Advocacy Investing® strategy ensures that each client's portfolio includes only companies that exhibit sound business fundamentals and solid governance practices, and whose business policies and practices are compatible with the client's deeply held values and beliefs. The strategy empowers the client to back companies that offer attractive financial opportunities while driving positive social and environmental change. 


Marc Lane is an attorney, financial adviser and the author of Profitable Socially Responsible Investing? An Institutional Investor's Guide, published by Euromoney Institutional Investor PLC, and Representing Corporate Officers, Directors, Managers and Trustees, published by Aspen Publishers.

Peterborough's problem was daunting: Sixty percent of prisoners serving short-term sentences historically had gone on to re-offend within a year after their release. But policymakers were confident that a solution was within their reach. They attracted private investment to pay experienced social service agencies to provide intensive, multidisciplinary support to short-term prisoners, preparing them to re-enter society and succeed outside the penal system. - See more at: http://www.chicagobusiness.com/article/20131007/OPINION/131009850/a-new-kind-of-futures-contract-for-illinois#sthash.ThgxeiFt.dpuf

The world's first social impact bond, or SIB, was introduced in 2010 to fund innovative social programs that realistically might reduce recidivism by ex-offenders in Peterborough, England, and, with it, the public costs of housing and feeding repeat offenders. Prudently building on the strengths of that initiative, Illinois Gov. Pat Quinn is rolling out SIBs to help solve some of the state's most vexing social problems.

A SIB isn't a traditional bond where investors are guaranteed a fixed return but a contract among a government agency that agrees to pay for improved social outcomes, a private financing intermediary and private investors. SIBs shift the risk of experimenting with promising but untested intervention strategies from government to private capital markets, with public funds expended only after targeted social benefits have been achieved.

Peterborough's problem was daunting: Sixty percent of prisoners serving short-term sentences historically had gone on to re-offend within a year after their release. But policymakers were confident that a solution was within their reach. They attracted private investment to pay experienced social service agencies to provide intensive, multidisciplinary support to short-term prisoners, preparing them to re-enter society and succeed outside the penal system.

The government decided which goals would be supported, but exactly how those goals would be achieved was left to the private sector. It was the investors, through a bond-issuing organization, who ultimately endorsed the allocation of investment proceeds — how much would be invested in job training, drug rehabilitation and other interventions.

If the Peterborough plan eventually shrinks recidivism rates by 7.5 percent or more, the government will repay the investors' capital and share the taxpayers' savings with them, delivering up to a 13 percent return. If the target isn't hit, the investment will have failed and the government will owe the investors nothing.

Illinois' SIB effort was spearheaded by the state's Task Force on Social Innovation, Entrepreneurship and Enterprise — the governor's think tank on social issues, which I am privileged to chair — with support from Harvard University's John F. Kennedy School of Government, the Rockefeller Foundation and the Aurora-based Dunham Fund. A request for information issued by the Office of Management and Budget on May 13 yielded responses from service providers eager not only to reduce recidivism here but also to create jobs, revitalize communities, improve public health outcomes, curb youth violence, cut high school dropout rates and alleviate poverty.

Now the governor has issued a request for proposals intended to spur better outcomes for Illinois' most at-risk youth — by increasing placement stability and reducing re-arrests for youth in the state's Department of Children and Family Services, and by improving educational achievement and living-wage employment opportunities justice-involved youth most likely to re-offend upon returning to their communities.

Kudos to Mr. Quinn for bringing SIBs to Illinois. May they soon start delivering on their promise.

- See more at: http://www.chicagobusiness.com/article/20131007/OPINION/131009850/a-new-kind-of-futures-contract-for-illinois#sthash.ThgxeiFt.dpuf
The world's first social impact bond, or SIB, was introduced in 2010 to fund innovative social programs that realistically might reduce recidivism by ex-offenders in Peterborough, England, and, with it, the public costs of housing and feeding repeat offenders. Prudently building on the strengths of that initiative, Illinois Gov. Pat Quinn is rolling out SIBs to help solve some of the state's most vexing social problems. - See more at: http://www.chicagobusiness.com/article/20131007/OPINION/131009850/a-new-kind-of-futures-contract-for-illinois#sthash.ThgxeiFt.dpu

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