In “Chairing the Board: The Case for Independent Leadership in Corporate North America,” the authors propose that all companies with a current CEO-chairman leader split the roles upon the incumbent’s departure, or explain to shareholders why they chose not to.

The movement to split the two main company leadership roles is growing, with 37 percent of S&P 500 companies currently having separate chairmen and CEOs, compared to 22 percent in 2002. International companies, particularly those in Germany and the Netherlands where a split is mandatory, have roundly adopted such a system.

The Chairmen’s Forum, led by retired GM vice chairman Harry Pearce, is designed to promote “deeper understanding of independent board leadership practices and [reach] out to the wider market on effective practices of board chairmanship.” The group was founded early in 2008 and will meet next on July 31.

The Millstein Center calls on institutional investors to be more transparent about the way they act as owners of public corporations by disclosing how they vote, what ownership policies they follow, and what resources they put into engagement efforts.

Fund recommendations and the code of conduct are among a number of improvements to proxy voting systems and decision-making outlined in the Millstein Center policy briefing Voting Integrity: Practices for Investors and the Global Proxy Advisory Industry, which will be presented tomorrow at the International Corporate Governance Network mid-year meeting in Amsterdam.

“The economic crisis has highlighted as never before that the capital market’s health hinges on a reliable, open and efficient proxy voting system to keep corporate boards accountable,” said Ira M. Millstein, senior associate dean for corporate governance at the Yale School of Management. “The time has come for practical fixes.”

The briefing goes on to recommend that the U.S. Securities and Exchange Commission empanel an independent blue ribbon commission to modernize the U.S. share voting system; and that regulators should work with counterpart bodies in other markets to supervise the seamless integration of national systems to enable accurate and efficient cross-border voting.

Voting Integrity is based on independent research and insights from a roundtable of major U.S. and European institutional investors and proxy advisors convened by the Millstein Center on January 29, 2008 and chaired by Lynn Turner, former chief accountant to the SEC and former executive of Glass, Lewis & Co.

The report, Talking Governance: Board-Shareowner Communications on Executive Compensation, examines why “sustained two-way dialogue” between directors and shareholders is still rare in the United States. The silence could be due to directors’ concerns that reaching out to large shareholders could be considered selective disclosure, it concluded.

Adopted by the Securities and Exchange Commission in 2000, Reg FD restricts selective disclosure of material corporate information to analysts and large investors without providing it to the public at the same time. The SEC has launched only a few Reg FD probes so far, but the law has been widely considered to have changed the nature of investor relations.

Essentially, the report finds, the argument is that directors could risk disclosing matters of material interest to the market to a select group of shareholders rather than the market as a whole. But there is value in healthy communication, and advantages commonly resonate among those engaged in dialogue:

• Minimizing the use of shareholder resolutions as means of encouraging dialogue
• Humanizing the board, management and shareholders
• Gaining greater clarity with respect to the company’s long-term objectives
• Creating an understanding of the shareholder’s interests in the long-term objectives
• Garnering goodwill and trust from shareowners

“Regulation FD was created to prevent companies from selectively disclosing non-public, material information in a private setting. It does not appear to have been the intention of the commission to restrict private meetings with investors to review governance matters.” -Stephen Davis, Millstein Center for Corporate Governance and Performance, and editor of Global Proxy Watch.

Recently, Office Depot said that the SEC was exploring possible Reg FD violations at the big box retailer. That announcement came at the same time that CFO Patricia McKay announced her resignation.

Not every company considers Reg FD a deterrent to communicating with shareholders. Last year Pfizer announced that it would hold formal talks with large investors to discuss corporate governance matters. It said then that it would not be releasing anything that could be considered new material information during the talks.

The report states that companies motived to start conversationswith investors have commissioned in-house or outside counsel to providebespoke legal advice on the frameworks and constraints affecting suchinitiatives. 

Moreover, if the SEC were to issue market-wide guidance affirming the circumstances under which a director-shareholder communication on governance issues occurs, costs could diminish. Currently, the report finds, companies have had to shoulder a cost burden to produce custom legal guidance.

Stephen Davis, program director at the Millstein Center and co-author of the report along with Stephen Alogna, a vising research fellow of the Center, writes that board members should not shun investors because of the fair disclosure rule: “Reg FD is a caution, not a barricade.” He added that directors and investors can continue to engage in “constructive communication” without running afoul of the rule by adequately education directors on what can or can’t be disclosed in meetings and by developing corporate charters to govern the talks.

“Regulation FD was created to prevent companies from selectively disclosing non-public, material information in a private setting,” writes David, also editorial director for Global Proxy Watch. “It does not appear to have been the intention of the commission to restrict private meetings with investors to review governance matters.”