A mild-mannered Louisiana native, Heard is a 20-year veteran of the shareholder-activism movement. He shared some of his thoughts on trends in corporate governance with BusinessWeek's Amy Borrus. Following are edited excerpts of their conversation:Q: How has Enron's collapse focused attention on boardroom ethics?A: Enron just brought home the idea to a lot of people that corporate governance matters. On paper, Enron's board looked good. But the system at Enron wasn't working. If the board, audit committee, and auditors had been doing their jobs, Enron would still be here as a healthy company, maybe with less air. Enron was the perfect storm in corporate governance.Q: What corporate abuse really makes your blood boil?A: Excessive executive compensation, especially when it's undeserved. At the level some people are being paid, you wonder "How much is enough?" And people are getting paid more for doing a lousy job. The parade of executives who left Global Crossing [which declared bankruptcy in January] with multimillion-dollar payoffs is just obscene.Q: The New York Stock Exchange is considering changes in its corporate-governance listing standards. What do you think the NYSE needs to do?A: It has been quite alarming to see the number of companies adopting stock-option plans without shareholder approval. We've been among those asking the NYSE to tighten up by adopting a requirement for shareholder approval of stock-option plans.
I also think they need to revise rules on what they consider a "routine" vote. The NYSE permits brokers to give their proxies to companies in routine votes. The NYSE counts as routine such votes as election of directors and ratification of auditors.
In our view, election of directors, even if uncontested, is not a routine issue. We frequently withhold votes for directors because they don't come to meetings or sit on too many other boards. The NYSE must either narrow its definition of routine or change the rules to prohibit brokers from voting uninstructed shares for any reason other than a quorum. It's a form of ballot-box stuffing, and all the votes go to management.Q: What do you think of the Securities & Exchange Commission's recent directive to small fund managers and investment advisers to start taking their fiduciary responsibility seriously, by voting their proxies just as big pension-fund managers have been required to do?A: It's a good start, but let's see some action. The SEC can do more to make sure fund managers and investment advisers live up to their responsibilities. [SEC Chairman Harvey] Pitt could give speeches on the subject and move ahead with a proposal pending at the SEC to require registered investment advisers to disclose information about their voting practices, and policies, and any conflicts of interest.Q: Are there any "sleeper" governance issues that you think will start to get shareholders' attention?A: Yes. Corporate responsibility issues that we have tended to give short shrift to, such as the environment and labor standards. These are becoming increasingly important to business and to business reputations. We need to find a way to bring a focus to these broader societal issues, to analyze them from the perspective of shareholder value, because they clearly are having an impact on corporate performance.