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Directors & Boards
Robert H. Rock
Publisher
James Kristie
Editor
Lisa
Cody
Chief Financial Officer
David Shaw
Publishing Director
Scott Chase
Advertising Sales Director
Barbara Wenger
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From Jim Kristie | Article of the
Month | Columnist
Reader Profile |
Research | News |
What’s the Big Idea?
Call for input: If you could
change one thing about the corporate governance system, what would that
be?
Are you feeling, like I am, that what we need are some big ideas to
solve our economic problems and get this country back on track? It
seems like we’re flailing about because we’re trying to address
enormous challenges within the existing paradigms of the economy and
financial markets. Tinkering, in other words.
Maybe that’s all wrong, and what we really need are some breakthrough
ideas.
Now, let’s take that thought and apply it to corporate governance.
The present-day governance system is about 35 years old. I trace it
back to the mid-1970s when the SEC, under two activist chairmen — first
Rod Hills and then Harold Williams — started putting the squeeze on
boards to look and act much as we see them today. After all, it was in
1977 that Williams, newly appointed as SEC Chair, began pounding the
table for a board to be composed entirely of independent directors,
with the CEO as the sole management board member and with the chairman
and CEO roles separated. (How many remember that Johnson & Johnson
in 1978 was threatened with delisting from the NYSE unless it added its
first outside directors to its board?)
Well, 35 years is a lengthy run. The system has been retooled over the
years, instigated by such developments as the Van Gorkom case and Sarbanes-Oxley,
and has been tweaked here are there, such as with the lead director
concept.
But with how the world has changed in three decades, and with all that
we’re asking boards to do today, is this 35-year-old system still
hitting on all cylinders to do public-company governing? Do we need new
retooling? New tweaking? Or, possibly, is this Great Recession/Near New
Depression suggesting that we need a new model? A new paradigm?
Paradigms can indeed change. Within the lifetime of most e-Briefing readers we’ve gone from
the paradigm of the insider-dominated board to an outsider-dominated
board.
So, back to the call for input. If you were starting with a blank sheet
of paper, with no limits to your thinking, is there one thing — one big
idea — that you would do differently to make corporate governance and
boards work better?
Give me a quick hit — anything from 10 words to 100 words MAX so I can
be sure to have space to get everyone in — emailed to jkristie@directorsandboards.com.
I will publish your responses, with full attribution, in the upcoming
Governance Year in Review special annual edition of Directors & Boards. The theme of
this year’s annual report is “Paradigm
Lost? New Thinking on the Work of Boards.”
Our columnist of the month, Allan Grafman, is right in the spirit of
things with his new thinking on “Board Calls: Make Them Weekly” (see
below).
I look forward to hearing from you and including your big idea.
* * *
The
issue of CEO and executive compensation and bonuses is as hot-button as
they come right now. Which is why I'd like to ask you to respond
to our 2009 CEO and Exec Comp survey, which we emailed to you a few
days back. If
you have a minute, please click here to complete the survey.
If
you've already filled out the survey, you have my thanks!
We'll
publish the results of this survey in our next Boardroom Briefing,
which will appear in May.
Jim
Kristie is the editor and
associate publisher of Directors
& Boards.
Endangered: The Individual Shareholder
VoteA new mechanism is needed to capture and record your individual holders’ preferences on important voting matters. Such a mechanism is at hand.
By John Endean
Notice and Access, a signature achievement of the Securities and Exchange Commission under chairman Christopher Cox, permits companies to use the Internet to deliver their proxy materials to shareholders electronically. The notice and access rules have saved companies and, therefore, their shareholders, millions of dollars in print and postage costs, while sparing thousands of trees from being pulped for proxies each year.
But, there has been a downside.
Electronic delivery seems to have suppressed the voting of shares held by individuals in brokerage accounts — so-called retail shares — in corporate elections. According to the latest data, issuers using notice and access found on average that less than 17% of their retail shares were cast in their elections. The prior year, before notice and access, these same issuers had a participation rate of a little over 34%.
Thirty-four percent of total retail shares is bad enough; half that amount is abysmal To read more, click the link below.
[Click
Here to Read
the Entire Article]
Board Calls: Make Them Weekly
New market realities require that directors respond to greater expectations. Here is a simple and impactful step boards can take today that will provide greater value to their companies.
By Allan Grafman
Ed Note: A longer version of this article, which enumerated several additional benefits of instituting a weekly board call, was published in the First Quarter 2009 edition of Directors & Boards. For an electronic copy of the full-length article, email Editor Jim Kristie at jkristie@directorsandboards.com.
Every director, board and company must look for new tools to survive and thrive in this era of governance stress and financial failure.
Boards should consider a short weekly call of 30 minutes or less as a timely step to take. This simple action can be implemented now — today. It will yield immediate benefits, be consistent with governance trends for greater board oversight, and is not an undue burden on directors.
This weekly board call is a quick update. It is a forum for board members to review open items and take steps toward informed decisions. It is the antithesis of the all too familiar routine where a director receives a large quarterly book with far too much information to digest before a quarterly meeting.
For success, a short weekly call requires a strong chairman who can move the board through material quickly and assure that this update call remains focused. This is not a time for presentations or speeches To read more, click the link below.
[Click Here to Read the Entire Article]
President
International Management Consulting Associates
Editor's note: Each month, we ask a
Directors & Boards reader to comment on critical issues facing
directors today. If you'd like to participate in this section in
the future, please email Scott
Chase.
How can a company know whether or not its international due diligence is effective?
At a breakout session on Cross Border Board Issues at the National Directors Institute Conference in Chicago the subject of international Mergers & Acquisitions came up. A C-Level executive asked, “How can I tell if my due diligence team has done a good job of evaluating an overseas acquisition?”
A long silence followed. The room was filled with CEOs, board directors and high level executives; they looked at one another for an answer. It was evident that the participants in the session had dealt with substantial domestic and international issues, but none had firsthand experience with the overseas due diligence process.
I raised my hand and said, “If when your team returns home, all they do is rave about the restaurants, you know you’ve got a problem.” I went on to explain the perils of “Wine & Dine Due Diligence,” something that frequently occurs with overseas acquisitions.
What is the “Wine and Dine” seduction strategy?
Foreign executives and business owners tend to be gracious hosts. Rosy treatment of American visitors, especially due diligence teams, overwhelms their normal business street smarts. To read more, click the link below.
[Click Here to Read the Entire Article]
A new study from The Corporate Library, an independent corporate governance and executive compensation research firm, found that companies whose CEOs also serve as Chair of the Board are more likely to have certain troubling governance characteristics than companies where the roles are separated. The study is the result of an analysis of the board leadership structure at more than 3,000 North American companies.
The governance features in question, all of which have been associated with board entrenchment or lessened oversight of management, include:
- relatively long CEO tenures;
- fewer board meetings per year;
- classified board structures; and
- the presence of executive committees, which are typically given the power to act on behalf of the entire board, potentially allowing for a concentration of power among a few board members.
The study, titled “2009 Proxy Season Foresights #5: Companies With Combined CEO and Chair of the Board Positions” is available for $25 from The Corporate Library’s online store at http://www.thecorporatelibrary.com.
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April
22, 2009 April
26-29, 2009 May
7-8, 2009 May
31-June 3, 2009 June
3, 2009 |
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With virtually every company stock price below its original stock option purchasing price, more and more companies are looking to see what action they should take. In a communiqué last month, Bruce R. Ellig, adviser to corporate boards and the author of the revised and updated “The Complete Guide to Executive Compensation,” notes the obstacles to repricing, including:
• Shareholder approval;
• SEC tender offer requirements;
• Section 162(m) million-dollar cap requirements;
• Section 409A Deferred Compensation rules;
• Inclusion in the proxy Summary Compensation Table;
• Cost of enrollment and communication with the optionees and shareholders.
He also suggests the alternatives to repricing an outstanding stock option, which include:
• An option to cover only the difference between the outstanding stock option price and the current fair market value;
• A completely new stock option, perhaps with a five-year term to minimize the repeat of an underwater grant;
• An option equal in value to the underwater grant;
• A restricted stock award equal in value to the outstanding grant with 100% vesting at the time of expiration of the original grant;
• A mega-grant equal to three times or more of future annual grants;
• Doing nothing.
“If an action is to be taken, the company must first determine the amount of the option under water and the expiration date of the grant,” he advises. “Grants that have lost half of their value and only have months before expiration could be eligible, whereas those with only a 10%-20% loss and years to run should not be touched … Any action taken requires answering the question: What will we do when and if the stock price declines further?”
For more information, contact Ellig at bellig@teminandco.com.
Director Resources
Say on Pay: A new website has been set up to serve as a clearinghouse of information and guidance on “say on pay” proposals and requirements. The website is designed to be interactive. As Gary Lutin, who has spearheaded the formation of the site in conjunction with Cross Border Group, says, “If you expect to be making or influencing corporate, investor, or regulatory decisions about executive compensation policy during the next few years, now is the time to ask your questions and offer your views.” Cross Border Ltd. is the publisher of Corporate Secretary magazine and IR Magazine. Click here to access the site.
Shareholder Activism: Glenn Curtis, director of Thomson Reuters Strategic Research, has issued a report on shareholder activism updated for Q4 2008. Click here for a copy of the report, or for more information email Curtis at glenn.curtis@thomsonreuters.com.
Executive Pay I: “Executive Pay in the New Economy” is the title of a new Trends & Issues report put out by Pearl Meyer & Partners. The 14-page study reports on how board members, executives, and human resources professionals are reacting to the likely impact of recent financial turmoil on executive pay programs.
Executive Pay II: The number of companies that froze salaries and added clawback policies to their executive pay programs has jumped sharply during the past three months, according to a new survey by consulting firm Watson Wyatt. This update to a December 2008 survey also found that many companies plan to slash funding for annual bonuses and reduce the value of long-term incentive awards.
Internal Audit: A difficult period sets the stage for internal audit transformation, according to the 2009 PricewaterhouseCoopers LLP State of the Internal Audit Profession study. Internal audit must reassert its value amid the recession and increasing enterprise risks. Also, internal audit braces for an efficiency revolution and must push to find ways to produce more value with reduced staff at a lower cost. To download a full copy of the report, “Business Upheaval: Internal Audit Weighs Its Role Amid the Recession and Evolving Enterprise Risks,” visit http://www.pwc.com/internalaudit.
Financial Disclosure: One-third of public companies did not satisfy the minimum requirements of disclosure of their tax reserves last year as required by new rules put in place by the Financial Accounting Standards Board. Seigel & Associates LLC, the tax reserve advisory firm founded by former IRS Chief Counsel Stuart E. Seigel, analyzed the disclosures made in 2008 by 790 companies, comprising all public companies with annual revenues of at least $2 billion. Their findings appeared in the 2008 first annual edition of “The Seigel Tax Reserve Report”.
Proxy Voting: The Millstein Center for Corporate Governance and Performance at the Yale School of Management proposed a series of what it calls “breakthrough steps” to boost transparency among institutional investors and the proxy voting services that advise them on relations with corporations. The Millstein Center calls on institutional investors to be more transparent about the way they act as owners of public corporations by disclosing how they vote, what ownership policies they follow, and what resources they put into engagement efforts. The Center also proposes the first industry-wide code of professional conduct for proxy services as a means of increasing transparency and policing conflicts of interest within the industry. Practices highlighted in the code include a ban on a vote advisor performing consulting work for any company on which it provides voting recommendations or ratings. Click here for a copy of the report.
Author Notes
Debevoise & Plimpton LLP has launched an International Corporate Investigations & Defense Practice (ICID). The firm says it “has solidified a transnational team of world-leading practitioners with unprecedented regulatory and compliance experience, to continue providing a unique service to clients faced with white-collar litigation of an increasingly international nature.” The ICID team includes Lord Goldsmith QC, former U.K. Attorney General; Mary Jo White, former U.S. Attorney for the Southern District of New York; Judge Michael B. Mukasey, former U.S. Attorney General; and Bruce E. Yannett, a former Assistant U.S. Attorney for the District of Columbia. The team further comprises 10 former Assistant U.S. Attorneys, a former Associate Director of the Securities and Exchange Commission’s Division of Enforcement, and a former Director of the Federal Trade Commission’s Bureau of Competition.
Gordian Group was named the winner of the Chapter 11 Reorganization of the Year Award, presented last month by The M&A Advisor at the 3rd Annual Turnaround Awards Gala. The firm was recognized for its work on the sale of Summit Global Logistics Inc.
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Directors & Boards e-Briefing is a monthly service of Directors & Boards. All contents copyright 2009, MLR Holdings LLC.