Classification Cancels Corporate Accountability

Abstract

In the wake of the corporate scandals of the past several months, ISS often receives inquiries as to our views on the two or three key governance changes that-if adopted by all issuers-would help investors to avoid similar market meltdowns in the future.1 Unquestionably, the item on our wish list that draws the blankest stares from corporate America is the call for annual elections of all members of corporate boards. These visceral responses are not surprising given the recent degeneration of the staggered terms versus annual election debate.2 Few governance issues produce the same Shareholders Are from Mars, Executives Are from Venus level of disconnect. Simply put, executives and investors view the boardelection timing issue from different perspectives. As is often the case with such genetic-level disagreements, where each group stands is dictated by where its members sit.