Whether you love or hate Michael Webber’s periodic attempts to hold public shipowners to account on corporate governance practices, you have to give the Wells Fargo analyst credit for one thing: he keeps refining his criteria.

After focusing his first two six-monthly reports primarily on various types of related-party ­relationships between public and private interests, the new “governance scorecard” released this week brings board practices under greater scrutiny than before.

How companies choose and run their boards now makes up 37.5% of the overall score, compared with 50% on ­related-party matters. The remaining 12.5% falls under a “subjective” heading.

In recognition of the change, Webber brought onboard a consultant from outside the shipping industry: Nicolaas Koster of Penmon, a New York company specialising in governance analytics.

Koster has studied board practices across various industries, such as the technology sector, but this was his first exposure to shipping.

“I found out there are some unique aspects and challenges ­involved in the shipping industry,” he told TradeWinds this week.

Positive example

“One positive example is that the level of industry expertise and ­experience of the people on these boards is higher than you would find elsewhere. Other sectors typically suffer from a lack of industry expertise, and that might even be an area of criticism for activist ­investors. That’s not a concern in shipping.

“On the flip side, there is a lack of independence on the boards compared to what you would expect to see.”

Wells Fargo and Penmon evaluated independence by four factors:

■ The number of directors defined as “independent” as a percentage of the board.

■ Whether there is an independent chairman, or at least a lead ­director who is independent of management.

■ The tenure of board members.

■ Whether boards have executive sessions at least once a year — that is, whether they meet independ­ently of the chief executive and ­other company management.

Shipping generally falls short of the standard in other industries across these categories, according to Koster.

“We noticed there are some companies that have neither an independent board chairman or independent lead director, which is generally not a positive sign when it comes to corporate governance,” he said.

“The main purpose of the board is to monitor management. If the monitoring function isn’t independent, you can raise questions as to its efficacy.”

While most companies have executive sessions, some don’t. And evaluators found that roughly 10 companies use what Koster calls “recycled statements” explaining why: “It’s the exact same statement, and it’s along the lines that ‘under Bermuda law or Marshall Islands law, we’re not required to have executive sessions’. It raises some questions whether this point has even received the consideration of directors at all.”

On tenure, the study found that shipping directors hold their chairs longer than in other sectors. The top quartile had tenures ranging from eight to 14 years. While Penmon does not have a magic average in mind, Kloster would prefer to see shorter tenures, or at least a mix.

“There’s definitely a trade-off between high tenure and low tenure,” he said. “Ideally you’d like to have a mix of those who have been around for a long time and have special knowledge of a company’s operations and strategies, but also those who haven’t been there that long, to ensure fresh perspectives.”

The evaluators also found cases in which shipping shareholders have been deprived of voting rights because principals hold preferred or “super” shares granting them outsized voting control. This parallels some structures that have drawn notoriety in tech companies such as Snap, parent of the Snapchat messaging app.

In his scorecard, Webber notes that heavier emphasis on board practices “had a noticeable impact on a few more prominent names”. It caused well-rated listings Navigator Gas (stock market ticker NVGS) and Ardmore Shipping (ASC) to slip slightly, while restructured dry-bulk owners Star Bulk (SBLK) and Eagle Bulk (EGLE) climbed.

Other companies were able to improve scores through reforms in the traditional related-party category. They included Scorpio Bulkers (SALT) and Scorpio Tankers (STNG), which climbed out of the bottom 10 owners after reducing fees paid to private affiliates.

Evangelos Marinakis’ Capital Products Partners (CPLP) rose by removing fees, while containership owner Seaspan Corp (SSW) benefited from more sweeping reforms that included board changes.

In the top and bottom companies in the Wells rankings, more has stayed the same than changed at both ends of the spectrum among the 52 companies.

Kirby Corp (KEX), Triton International (TRTN), Matson (MATX), GasLog (GLOG), Avance Gas (AVANCE), Overseas Shipholding Group (OSG) and Ardmore all found a place in this week’s top 10, and all were there six months ago.

Nudged out of the top 10 were Navigator Gas, Euronav (EURN) and DHT Holdings (DHT), replaced by Star, ­Eagle and Inter­national Seaways (INSW), the tanker owner spun off from OSG last autumn.

At the other end, the corporate-governance stragglers all stayed relatively ­intact. Ranked from worst, they were George Economou’s DryShips (DRYS), Danaos (DAC), StealthGas (GASS), Tsakos Energy Navigation (TNP), Euroseas (ESEA), Safe Bulkers (SB), Diana Containerships (DCIX), Diana Shipping (DSX), Costamare (CMRE) and Capital Products Partners.

All of those companies are headquartered in Greece. All were in the bottom 10 six months ago, with the exception of Diana Shipping and Costamare.

Webber says he gets pushback from companies protesting that traditional related-party or “family” structures actually result in ­efficiencies or cost savings for their public companies, to the benefit of all shareholders. That’s an argument Wells Fargo refuses to accept.

“We’re not going to do a relative-cost analysis within the context of this piece because it’s an argument that equity investors simply should not have to entertain,” Webber said. “There’s still such a lack of visibility into these private companies, and the investor is usually at a disadvantage when it comes to getting and evaluating information. It’s a sideshow. It obfuscates the broader point that investors shouldn’t have to worry about these questions.”