Since the fall of Enron and other corporate scandals, much attention has been given to the fact that the ever-trusting American public provides corporations a high level of operational autonomy. The business community has fought legislative and public oversight, claiming that it would impede the quest for profit. Now Americanís have caught a glimpse of the economic consequences of irresponsible practices. When their investments and retirement funds vanished and thousands of jobs were lost, people finally realized the need to curtail long-standing abuses and improve public monitoring and control of corporations.

The social investment community has been active during the past 30 years in improving corporate responsibility as a means towards creating a more equitable society. Issues such as excessive executive pay, fair wages, workplace discrimination and safety, and women and minority representation on corporate boards and in upper management have been focused upon for many years.

Now natural investors are teaming up with mainstream investors to demand better systems of corporate governance. This includes many different and important issues: board composition, liability, and tenure; compensation; voting requirements; shareholder rights; off-shore tax policy; auditor selection; and proxy voting.

Board composition, liability, and tenure.

To avoid conflicts of interest, reformers are calling for the majority of a corporationís directors to be independent. They also demand disclosure of financial interests and personal relationships of board members, as well as board diversity across gender, racial, cultural, geographical, and expertise classifications. Other suggested reforms include: adopting board codes of governance; staggering board elections; requiring two candidates per board seat; providing term limits; allowing shareholders to nominate director candidates; and removing director indemnification policies that allow for fraudulent acts or willful misconduct.

Compensation.

Executive salaries are often excessive, and not always entirely disclosed, particularly if stock options are involved. Reformers demand an examination of the ratio of executive to worker pay, full transparency, and through an independent compensation committee, the linking of salaries to the overall financial and non-financial (social) performance of the company. Stock awards to directors can also be a conflict of interest. Reformers wish this practice to be abolished, and for all stock option proposals to be approved by shareholders.

Voting requirements.

Boards often do not put shareholder proposals on ballots, prevent shareholder action by written consent, or sometimes insist on 2/3 rather than simple majority to pass. Reformers want shareholders to be allowed to vote through written consent, a simple majority vote requirement, and for boards to be held accountable for taking action on proposals that receive shareholder approval.

Shareholder rights. Shareholders do not usually have the right to call shareholder meetings. In addition, shareholders are generally told only how management wishes them to vote. Reformers ask that shareholders be allowed to call meetings and that opinions of institutional investors, such as SRI funds, also be made available so that shareholders can get divergent views before casting their own votes.

Off-shore tax policy.

American corporations often base their headquarters in nearby "tax-haven" countries, even if they have operations in the U.S., in order to avoid paying taxes. Reformers want to permanently close this loophole.

Auditor selection. Boards select auditors, which has often translated into ìfriendlyî, and as we know now, inaccurate audits. Since shareholders are better served by tougher audits, reformers seek ways for shareholders to rank auditors and have these polls released to the media. A public ranking of auditor reputation among shareowners would push auditors and boards to give greater weight to shareowner concerns.

Proxy voting.

Following a boardís proxy vote, recommendations could support conflicts of interest. Reformers want shareholders to vote for proxy advisory firms that would provide independent opinions on all shareholder proposals, mergers, and stock option proposals.

Other issues of corporate social responsibility include: eliminating the expensing of options, reporting on sustainability (the companyís ecological footprint and climate change impact), labor conditions and pay standards, Equal Employment Opportunity compliance, product safety, international human rights standards, predatory lending practices, and political contribution and lobbying disclosures.

The socially responsible investment community is rallying to the request of the market exchanges and the SEC to provide commentary about proposed rule changes as to how the industry is governed. It would appear that the incidents of misconduct have created an opportunity for systemic changes that natural inv estors have been wanting for decades.

With many issues that weíve followed in the past, companies that lead the way in social and environmental practices often show higher profits. A recent study indicates that this is also true for corporate governance: companies with better controls and more democratic policies are turning in better financial performance.

For decades, some corporations have used their autonomy to profit at the expense of the poor, indigenous and minorities, the environment, and lately, average citizens and investors. It is encouraging to see the government and the mainstream investment sector seeing the value of providing greater citizen influence into corporate behavior. As these many governance issues are proposed and debated, it is important to stay on top of these issues and to make our collective voice heard.