Millstein Center Issues Reports Outlining Comprehensive Agenda for Reform

New Haven, Conn., June 15, 2009 – The Millstein Center for Corporate Governance and Performance at the Yale School of Management released two new policy briefings, identifying practical steps private sector participants can take to restore market integrity in the wake of the crisis, regardless of what government does. The Center issued the twin documents at the fourth annual Yale Governance Forum, the annual conference that convenes leading corporate governance practitioners and experts to discuss current and pressing issues in the field. This year’s Forum, held June 11 and 12, addressed restoring trust in the aftermath of the financial crisis and reforms that will be needed to avoid future crises, both in the financial regulatory system and in the private sector.

The first briefing, “Pay, Risk and Stewardship: Private Sector Architecture for Future Capital Markets,” is based on the Private Sector Architecture for Future Capital Markets Working Groups, which were held on February 13, 2009, and co-hosted in partnership with the CFA Institute Centre for Financial Market Integrity. Three concurrent high-level working groups were chaired by former SEC Chairman William Donaldson (Pay for Performance); Yale SOM Senior Associate Dean for Corporate Governance Ira Millstein (Risk Management and Oversight); and Millstein Center Senior Fellow Stephen Davis (Shareholder Stewardship).

The briefing outlines a series of practical recommendations, including:

• It is the board of director’s responsibility to set the risk appetite for the company.
• Both director independence and in-depth industry knowledge are essential to ensure adequate risk oversight by the board.
• Risk officers should not report to business lines, given the potential for conflicts of interest
• Risk management should be kept separate from compliance functions
• Internal pay equity should be an important item on the board’s agenda. 
• Boards should approach pay decisions as an element of risk to the organization. 
• Pay caps are not a sustainable solution for executive pay reform. 
• Trustees or fiduciaries should meet skill requirements and undertake training or possibly certification. 
• Funds should be held to as high a standard of accountability as they ask of portfolio companies. 
• The private sector cannot on its own produce market-wide standards of transparency and accountability among funds. Federal and state/provincial governments, where appropriate, need to step in with legislation or regulation.

Read "Pay, Risk and Stewardship."(pdf)

The Center also released “Agenda for Private Sector Reform: Omnibus Policy Recommendations for a Post-Crisis Market.” This briefing is a governance reference for business, investor, media and public sector participants to use when considering reforms. It summarizes key findings and recommendations from Millstein Center policy briefings published between 2007 and 2009 covering seven key areas: shareowner advisory vote on executive pay; board-shareowner communications; proxy voting reform; independent board leadership; risk oversight; pay for performance; and shareowner stewardship. 

Read "Agenda for Private Sector Reform." (pdf)

About the Millstein Center
The Millstein Center for Corporate Governance and Performance at the Yale School of Management is a leading global resource for testing, challenging and advancing the premise that corporations should and can serve society. The Center focuses on the inter-relationship of management, the board of directors, shareholders, and stakeholders in creating long-term corporate shareholder value in today’s complex and competitive economy, while at the same time meeting the heightened expectations of society. The Center pursues its mission by convening events; sponsoring empirical research; generating policy briefings; building market capacity by developing training, databases and institutions; and teaching and student interaction. For more information about the Millstein Center, please visit: http://millstein.som.yale.edu/.