It's Your Company

Nell Minow founded The Corporate Library, a corporate-governance research firm, in 1999. She is also a movie reviewer for Yahoo. Her favorite corporate movie: 1956's The Solid Gold Cadillac.

As annual-report and proxy season begins, what are the important issues for investors? The most significant issue in proxies this year is the majority-vote resolution. It says a director who does not get a majority of votes from shareholders should not serve on the board. If a company objects, you have to ask, What chutzpah does it take to get behind a director whom a majority of shareholders doesn't want on the board?

How can you spot a good board? It's important not to emphasize the wrong criteria. Insisting on so-called independent directors is compelling. But reacute;sumeacute; independence isn't the same as genuine independence. You can tell more by looking at the chief executive officer's compensation plan. A good definition of independence is knowing how to say no to the CEO. If the board does not get that right, I don't care how spick-and-span their other credentials are.

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What else gets your goat? New rules in effect this year require companies to treat stock-option grants as a compensation expense, reducing earnings a bit each year until the options are fully vested. More than 200 companies accelerated the vesting of options to avoid the expensing rule, including Whole Foods and Xerox. The entire premise for stock-option awards is to provide a long-term incentive. When you accelerate the vesting, you've done away with that and spent shareholder money on something of no value to the company.

Do mutual fund investors have any clout with the companies their funds invest in? Mutual funds must now disclose how they vote their proxies. This can reveal distinctions among money-management firms. You can get this information from fund companies or ask your broker for it. It's worth looking at.