Nell Minow: "You Can Get 90% of Governance by Looking at CEO Pay"

1. Intro.
2. (1:42) - Start of interview.
3. (2:28) - Nell's "origin story." She's the oldest of three girls, including former Harvard Law School Dean and current Professor Martha Minow. Her father, Newton Minow, was the Chairman of the FCC under JFK and authored a famous speech on the "vast wasteland" of TV (that still resonates 60 years later). She was influenced to speak out from an early age when she saw problems. Her ambition was to become a prosecutor but she moved to D.C., where she worked at the EPA and later at the White House OMB.
4. (4:24) - On meeting Bob Monks, and being asked to join his "new startup" ISS in the mid 1980s (now the largest proxy advisory firm) to advise institutional investors on corporate governance. She didn't know much about corporate governance before joining ISS. "I arrived at the best possible time: the whole field was just beginning so I feel like George Washington or D.W.Griffith because I was there right at the start, out of pure luck." Since then, "Bob Monks and I have built and sold four different [corporate governance related] businesses."
5. (6:57) -  On working as a shareholder activist with LENS ($100m fund) from 1990-2000: "All my career experiences have converged on system analysis: why things don't work as they are supposed to." "ISS had originally been conceived with an activist business plan, but it pivoted to focus instead on independent research for institutional investors. It was at Lens where we focused on activism."
6. (10:23) - Strategy at Lens: "We bought stock in companies that were not living up to their potential." "About a third of companies would say that that they were already way ahead of us and had a plan in place, a third would say that the ideas were pretty good, and a third would fight us." "We did not have much AUM but we knew a lot of the institutional investors, and sometimes they would ask us to look at specific companies because they trusted us." "We sold Lens to Europe's largest institutional investor, however we kept the part we liked which was the in-house research, that became the Corporate Library."
7. (12:43) - On starting The Corporate Library ("we called it intentionally the most non-controversial name because we had a reputation for being very provocative.") "We started by publishing reports on employment contracts of CEOs in S&P500." "My dream was to rate corporate boards like (AAA-to-junk) bonds, and that was the product that we developed, which we hoped to sell to investors [who did not buy it] but we sold them instead to D&O insurers [they loved it.]" "We later acquired GovernanceMetrics International (GMI) and took their name, and sold the whole shebang to MSCI."
8. (17:44) - The history and focus of her current firm, ValueEdge Advisors: "We put on a conference every year for institutional investors, we prepare reports on various corporate governance issues for clients - it's sort of private label research."
9. (18:48) - Her other focus as a movie critic. "The governance life is the frolic and detour, the movie life goes back as far as I can remember." Her favorite corporate governance movies: The Big Short, Owning Mahowny (featuring Philip Seymour Hoffman and involving the biggest bank embezzlement in Canada).
10. (22:48) - Her take on politics in the boardroom. Discussion around her article "The Choice for CEOs on Political Issues is Not “Yes or No”, It’s “Helps the Brand or Hurts the Brand.” "If the people listening to this podcast take-away one recommendation from me it would be the following: subscribe immediately to Judd Legum's newsletter called Popular Information. He keeps track of companies that stated in January that they would not make any political contributions to candidates that would not certify the elections [and failed to live up to those promises.]" "It's no longer possible for a CEO to remain neutral."
11. (27:10) - Her take on the "controversial" Coinbase CEO and Basecamp CEO statements.
12. (29:04) - Her take on the rise of ESG: "It's a bit the best of times and worst of times scenario":
    1. Best of times: ESG is supplemental to GAAP (which does not measure human capital well). "The difference between CSR and ESG is that the former had the implication of being sort of a trade-off (limiting profits for some kind of a balancing test) while ESG makes no concession of any kind, it's 100% financial and 100% about assessing risk." "So any claim that ESG is against shareholder value is not well founded." The second point is that ESG is a huge issue for Millennials and the next generation... they care tremendously about this topic (relevant for employers and employees)." This has led to a significant amount of capital pouring into ESG.
    2. Worst of times: "It's such a nascent field that there is no consistency, and the ambitions are in excess of the data that's available." "There are a lot of carpetbaggers coming in and labeling themselves as ESG who don't know what they are talking about."
13. (34:12) - Her take on the BRT corporate purpose restatement (2019) and stakeholder capitalism: "Six Reasons We Don’t Trust the New “Stakeholder” Promise from the Business Roundtable." (her article from Sept 2019). "The last thing I want is for CEOs to be making public policy and deciding how much pollutants they can put out in the air." If we had to rate general knowledge on ESG: on the "E" I would give us B- on our understanding of the relevant factors, on the "G" we could get a B+ on our understanding of governance risks, "S" is the big messy category where who knows what we are talking about." There are groups like SASB that are doing excellent work.
14. (39:21) - Her take on boardroom diversity: "I am very supportive of the Nasdaq and Goldman Sachs approaches that are ultimately market based approaches." "I am not in favor of quotas." "I think we still have a long long way to go." "I would prefer that instead of a quota system we had a rebuttable presumption, for example: if you do not have at least a third of diverse directors in your board you should explain why not and what steps you're taking to improve." "I feel very strongly that if the CEO package is a disgrace, then you should vote no on pay, and on the members of the compensation committee - no matter if they are diverse directors." "If they can't get it right on pay, they should not be on comp committee or the board."
15. (43:15) - Her take on private company governance and dual class shares: "I'm in favor of the market [letting the people create whatever governance and capital structures they want] but personally I would never buy limited voting stock [via dual class shares] in companies." "I am not in favor of prohibiting dual class shares but I think it's a bad idea." "I support CII's position of adding sunset provisions." "The important thing about governance is to have performance standards not design standards." "When we were grading boards of directors, the areas with most conflicts of interests [between boards and shareholders] were CEO pay [CEOs wanted less variability and shareholders want more variability] and M&A [most acquisitions don't add any value]." "Does the board make good decisions? That's the ultimate test, it's not because somebody is someone's second cousin or if there is diversity or if they put or not their governance policies on their website" "This is why I would always vote in favor of Berkshire Hathaway's board, they make good decisions."
16. (48:08) - Her final take-away for public company directors: "We were very good at predicting what was wrong, never that good in predicting what was right. We were better at finding evidence of terrible rather than evidence of greatness, and that's why insurers loved our product because it was about risk." "You can get 90% of your way to governance by looking at CEO pay."
17. (49:35) - The books that have greatly influenced her life:
    1. The Psychology of Everyday Things, by Donald Norman (1988)
    2. Bird by Bird, by Anne Lamott (1994)
18. (50:31) - The movies that have mostly influenced her life:
    1. Sullivan's Travels, directed by Preston Sturges (1941)
    2. Inherit the Wind, directed by Stanley Kramer (1960) *she wrote a law review article on this movie: An Idea is a Greater Monument Than a Cathedral: Deciding How We Know What We Know in Inherit the Wind (1995)
19. (52:17) - Her mentors (outside her family):
    1. Robert A. Monks (business partner of 35 years).
20. (54:05) - Her favorite quotes:
    1. "It is not your responsibility to finish the work [of perfecting the world], but you are not free to desist from it either" Pirkei Avot  ("you don't have to do everything, but you have to do something")
    2. "The funniest mortals and the kindest are those who are most aware of the baffle of being, don't kid themselves our care is consolable but believe a laugh is less heartless than tears.” by W.H. Auden in a poem called “Tonight at Seven-Thirty." ("when corporate misbehavior is so outrageous it helps if I can laugh at it, and then get angry...")
    3. "Always take the high road, it will either shame the other side into good behavior or it will drive them crazy" Her mom.
21. (56:08) - Her "unusual habit" that she loves: San Diego's Comi Con (she never misses it, and calls it the "Iowa Caucus of popular culture"). "The people there are the most passionate and independent minded fans."
22. (56:55) - The living person she most admires: her parents. They exemplify what is to have a full life: "Speak truth to power, to be part of the solution, and to be always there for your family."

Nell Minow is the Vice Chair of ValueEdge Advisors. She was Co-founder and Director of GMI Ratings from 2010 to 2014, and was Editor and Co-founder of its predecessor firm, The Corporate Library, from 2000 to 2010. Prior to co-founding The Corporate Library, Ms. Minow was a Principal of Lens, a $100 million investment firm that took positions in underperforming companies and used shareholder activism to increase their value. Her other professional experience includes serving as a Principal of Lens Investment Management, as President of Institutional Shareholder Services, Inc., and as an attorney at the U.S. Environmental Protection Agency, the Office of Management and Budget, and the Department of Justice. 

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Music/Soundtrack (found via Free Music Archive): Seeing The Future by Dexter Britain is licensed under a Attribution-Noncommercial-Share Alike 3.0 United States License