Commonsense Principles 2.0

In the September 2016 issue of Progreso, we published the Commonsense Corporate Governance Principles, drafted by senior executives at major North-American corporations and institutional investors, who got together to set out guidelines and recommendations to serve as a blueprint and point of departure in encouraging constructive dialogue about best practices that should be implemented in corporate governance.

Two years later, the document has been updated to bring it into line with the latest recommendations and trends in good governance. We lay out below the changes in Commonsense Principles 2.0 from the earlier text:

  • Board of Directors

The document highlights the work of independent directors in bringing different perspectives to the governing body, as well as the duty of all directors to dedicate enough time and energy to discharging their functions. To this end, they must limit their commitments and the number of boards on which they serve lest this should reduce their availability to carry out their role.

On the board-member selection process, the document states that shareholders should choose those they consider most appropriate to represent their interests; in any event, no board director should accept a seat on the Board of Directors unless they believe they are going to be able to serve for at least 3 years.

  • Board agendas

One of the items that must be tabled every year on the agenda are questions about significant shareholders. The document points out that contact with these is important in order to tackle issues such as long-term value creation, any proposals they formulate themselves, and questions about the daily running of the institution.

  • Independent directors

The principles acknowledge the importance of the leader of the Board of Directors being independent, and recognize that there are two types of leadership structure: an independent chair or a lead independent director. The role of lead independent director should be clearly defined in order to guarantee their effective leadership, with their responsibilities differentiated from those of the executive director or CEO, approved by the Board and reported to shareholders.

  • The role of investors in corporate governance

Lastly, it flags up the role of investors in corporations' corporate governance. In the case of asset managers with a significant ownership stake, the document states that they should have access to the company's management and, in certain cases, to the Board of Directors.

Furthermore, it establishes that in the event of asset managers following the recommendations of proxy advisors when making decisions, they should disclose that this is the case and check that the information on which the recommendations are grounded is accurate and relevant. There should also be defined processes in place for avoiding or mitigating conflicts of interest.