Contrast that prior example to the decisions the board and CME management have recently made. Recall CME’s initial response to the MF Global debacle. It was B share board members that were able to respond first. Recall the recent increase in data fees CME recently passed? It’s difficult to see that measure passing with a board made up of 31% independent industry persons. The industry’s voice would have been heard, not drowned out or watered down.
The B-share directors provide an independent voice from a group whose primary interests are the long-term health of the organization. The B-share directors aren’t worried about this quarter's earnings or their current year-end bonus. Management of public companies must pay close attention to current earnings. That is how the public markets measure their success. Other appointed board members do not have the same interests as the B members, since they are not daily users of the futures markets. The B class owners might have a point of view, which can conflict with management.
Shareholders and company management can move on to other entities with little regard for the long-term health of a company. B class owners tend to be very long-term participants with the exchange. Diminishing this independent voice violates the spirit of the original agreement with the members and risks the future of the exchange.
This is why having people on the board with experience in the industry is vitally important. B-share board members provide immediate color to decisions being debated at a board level on strategy and policy. They tend to take the long view and prefer sustainability. Codifying that industry experience with the B share board representation is the only way to secure that the industry has a voice in a monopsony like CME. No other exchange has it, and we believe they are lesser because of it.
Why we intend to vote NO on the proxy solicitation from CME
If the measure is passed, the B-share directors will melt away. The industry can look forward to never having a voice, and potential bad policy from CME down the road. Not voting is ignoring an economic interest.
The B-share board representation right has an economic worth. That economic worth is buried among other rights that are reflected in B share values. B shares don’t impair the value of A shares. Since January 1, 2008 CME stock is down 44%. B-1 shares are down 59.7%.
Shrinking the board by getting rid of B-share directors is a bad idea. The B directors have held their fiduciary responsibility to A shares more closely than their fiduciary responsibility to the B!
We agree that CME’s current board is not an example of good public governance. CME should cut the board back to a manageable size, but the cuts should come from the bloated A-share director slate. When they were acquiring exchanges, CME avoided the tough decisions that it takes to integrate.
We hope you agree with our opinion. It is important to discuss this with business associates and friends in person. We also think discussion can and should take place in transparent social media circles. Given what has happened in the past, what seems like a minor issue is actually a major one to industry participants.
Endorsed by former CME Board members:
Jeffrey Carter, Yra Harris, Jeff Silverman, Tom Bentley, Patrick Mulchrone and Robert “Buck” Haworth