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Directors & Boards
Robert H. Rock
Publisher
James Kristie
Editor
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Cody
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David Shaw
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Scott Chase
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From Jim Kristie | Article of the
Month | Columnist
Reader Profile |
Research | News |
The Fix
Is In
One worthy outcome from a trip to Palookaville — a bevy of ideas on how
to fix the annual meeting.
First, a story.
Two years ago I decided to attend an annual meeting of shareholders. I
had not been to an annual meeting in 15-20 years, for reasons explained
further on.
The meeting was being held about a two-hour drive away, not
particularly convenient but manageable. I have some skin in the game
with this outfit. The company was not performing well — a combination
of industry ill winds and shaky management. So I figured the CEO had
some explaining to do, and I wanted to see how he took advantage of
this opportunity to allay concerns about his leadership in time of
duress.
Well, did I get snookered. The meeting was over in 10 minutes.
Management ran through the process at a sprint, giving no presentation
nor taking questions. The gavel came down on the proceeding before the
small group in attendance barely had a chance to settle into our seats.
I seethed all the way home at this colossal waste of a day out of the
office — and a colossal missed opportunity by management to sway
opinion.
When I first became a business writer and editor (and investor), I
experienced a sense of anticipation, even excitement, in attending my
first annual meetings. I wanted to see top CEOs in action, see how they
handled themselves and told their company’s story smack dab in front of
a roomful — in many cases a ballroom full — of their shareholders.
I made it a point to see, and occasionally invest in, some of the great
ones at conducting this exercise in shareholder relations: the
super-smooth Steve Ross of Warner Communications (later Time Warner),
the feisty Bill McGowan of the early MCI Corp., the tough-as-nails
Martin Davis of Gulf & Western . . . and Reuben Mark of
Colgate-Palmolive, who ran the closest thing to a mutual
CEO-shareholder “love fest” of an annual meeting that I ever sat in on.
But it didn’t take long to get totally frustrated with this exercise in
corporate democracy. Too often the show-and-tell of the CEO
presentations was hijacked by the shout-and-yell of the gadflies’
disruptions. What really made me mad were the meetings where I had to
leave before the chief execs even got around to talking about how
things were looking for the company. I didn’t count on how longwinded
and diversionary the activists could be.
So for about two decades I eschewed attending any annual meetings. Why
waste my time? What was I to learn?
All of which was reaffirmed in that trip to Palookaville two years ago.
But
my wayward excursion did plant the seed to devote some attention in Directors & Boards to what was
wrong with the annual meeting as a corporate communications and
shareholder relations event. Then last year, as I mentioned in my
editor’s note in the February
e-Briefing, my good colleague Gary
Lutin, chairman of The Shareholder Forum, invited me to participate
on a panel he formed to explore the pros and cons of electronic
participation in shareholder meetings. That was the trigger to get
me to nail down some serious editorial coverage on fixing the annual
meeting.
That special feature is the cover story in the First Quarter edition of
Directors & Boards,
coming off press just as this March e-Briefing lands in your email
inbox. Over the course of 15 pages and some dozen expert commentators,
we tee up a bevy of suggestions for “dragging the corporate version of
the 19th century towne meeting into the reality of the 21st century
global marketplace,” in the words of retired Lockheed Martin Chairman
Norman Augustine, one of our authors in this analysis. See the Reader
Spotlight below that contains a slice of this cover story.
As I put the wraps on this editor’s note, I see Pat McGurn of ISS
quoted in the Feb. 24 Financial Times as saying, “This is the year that
the focus shifts back to annual meetings.” Obviously I agree, with this
refinement: This is the year that we need to get serious about
rethinking the annual meeting for a new era of shareholder engagement.
I know you are all fully paid-up subscribers and will all be reading
this cover story closely. Am I
right about that!? If for some miscalculation your subscription has
lapsed, I will share with you the issue’s leadoff article — an
absolutely superb “how to fix” critique by the preeminent annual
meeting guru Carl Hagberg. Email me at jkristie@directorsandboards.com.
| Speaking of making
meetings more effective, I'm please to announce a New Complimentary Webinar From
Directors
& Boards: Secure Board Portals: What Directors Need to Know About Security, Portability and Control March 16, 2011--2pm Eastern, 11 am Pacific Learn more and register here. Secure board portals for the browser, and now for the iPad, are changing the nature of board work for directors everywhere. Document security and portability contributes to enhanced communication between and among directors and boards, improved corporate governance, and expanded opportunities for dialog linking directors with management as well as with key shareholders. In this 60 minute free webinar, BoardVantage's Joe Ruck and Junaid Syed, along with a senior executive of a company using board portals, and Directors & Boards' Jim Kristie, will engage in a lively look at new developments in board portal and communications technology, including portable access to board communications and corporate collaboration via iPad apps, and a discussion of important data security concerns. |
| Private and family-owned company
governance is a complex issue. Add to that the issues of internal
family governance, and you have the makings of a top-notch
conference. I'd like to invite our readers to attend Transitions
2011: Family Governance, Legacy, Wealth and Generational Change,
produced by our sister publication Family Business and Stetson
University's Family Enterprise Center, April 7-8, 2011, in Orlando. The event features a powerful cast of family speakers from family-owned firms like Day & Zimmermann, Butterball Farms, Midmark Corporation, Bush Brothers & Company, Horst Engineering, Arkay Packaging and Crane & Co. Inc. Click on the link above to learn more about this conference. |
Jim
Kristie is the editor and
associate publisher of Directors
& Boards.
Toxic Chemistry? No, Not Always Why it is not such a bad thing to be a good friend of the CEO.
By Robert H. Rock
Recently, while interviewing for a director position, I mentioned to the executive search consultant that I knew the company’s CEO. Over the course of several years we had talked about business in general and some of his industry challenges in specific. We had gotten to know and like one another.
The search consultant thought that this relationship might raise a red flag since nominating committees increasingly have become wary of prior personal relationships between individual board members and the chairman/CEO. She said that these close personal ties were often considered “toxic” by nominating committees.
This comment got me thinking about whether a personal relationship with a CEO should disqualify a director nominee.
Highly Informed Decision
I have served on several boards where I knew well, sometimes very well, the chairman/CEO prior to coming on the board. My knowledge of his/her capability, background, and character enabled me to make a highly informed decision to join the board. To read more, click the link below.
[Click
Here to Read
the Entire Article]
Be the Person That Boards Are Looking For
What boards want in a new member is someone who can add value to the company. Is that you?
By Ralph W. Walkling
Ed. Note: In conducting its annual survey of women on boards in the Philadelphia metropolitan area, the Forum of Executive Women visited with the Center for Corporate Governance at Drexel University to do an interview with the Center’s executive director, Dr. Ralph Walkling. The Forum, composed of more than 350 women of significant influence in the Philadelphia region, sought to add information and insight on the skills needed to be “board ready” and how its members can best position themselves for board service. The following is an excerpt from their interview with Dr. Walkling that was published in the Forum’s board survey report, released in September 2010. A copy of the report with the full interview and board survey is available on the Forum website. Dr. Walkling is a columnist for Directors & Boards.
How has the role of board member changed due to recent financial scandals and the economic meltdown?
Board members face increasingly complex regulations and responsibilities, an increasingly complex business environment and an increasing speed of change both in the business world and in the regulatory environment. Many board members are displeased about the checklist mentality of governance — they have less time to spend on strategic and substantive issues because they’re spending more time with compliance issues and protecting themselves from lawsuits. There are shorter lead times these days because technology allows the instant availability of all kinds of information. Companies that can respond and adapt quickly to information will benefit from opportunities; companies that respond slowly typically experience declines in market share and value.
What specific skill sets are needed to be a reliable and effective director?
You have to have business experience and expertise, a good sense of business strategy, and knowledge of corporate governance. To read more, click the link below
[Click Here to Read the Entire Article]
CEO
The Value Alliance
Matt Orsagh, CFA
Director, Capital Markets Policy
CFA Institute
Editor's note: Each month, we ask a Directors & Boards reader to comment on critical issues facing directors today. This past month we asked for ideas on improving the effectiveness of the annual meeting of shareholders. Here is a selection of responses. If you'd like to participate in this section in the future, please email Scott Chase.
How to Fix the Annual Meeting
Julie Garland McLellan, author of the new book “Presenting to Boards,” and one of Australia’s leading governance experts: “I would remove the ‘annual’ — once a year isn’t engagement. Have an annual polling session with statutory reports but have other interaction for meaningful exchange of ideas between those annual sessions. David Gonski, a well-respected Australian chairman, once reflected that an annual general meeting with shareholders was like a drunken one-night stand with some total strangers! I tend to agree — not that I have ever tried his analogy . . . it is just that I find the meetings so unfulfilling.”
Eleanor Bloxham, CEO, The Value Alliance: “Fixing the annual meeting begins with proper preparation in advance. Step 1: All directors should read every word of all publicly available documents in advance of the meeting with the intent of seeing the company through the eyes of its most knowledgeable outside stakeholders. Step 2: Directors should meet with shareholders and other stakeholders and prepare and present a report of findings at the meeting. Step 3: The board should prepare and present a report on how it has added value for all shareholders and stakeholders and its plans to improve its performance in future years.” To read more, click the link below.
[Click Here to Read the Entire Article]
Back to the Top
"Annual meetings are a relic of the past."
That's how one director respondent to the Directors & Boards survey on annual meetings put it. And it's no surprise that, according to our survey, the role of annual meetings in corporate governance remains controversial. While the governance community as a whole finds the annual gathering of shareholders to be a valuable corporate governance tool (this includes responses from public, private and non-profit directors, as well as executives, corporate governance advisors and shareholders), there is a fairly large schism between the attitudes of public company directors and shareholders. 70% of shareholders (institutional and individual) find the annual meeting to be very important and 20% somewhat important as a governance tool, while 35.7% of public company directors say the annual meeting is not very important, and an equivalent number rate them as only somewhat important.
Interestingly, we find that private company directors are much more likely to find annual meetings important as a corporate governance tool, but this makes sense, since attendance at private company annual meetings is limited to shareholders who hold a probably significant piece of the company.
The reasons behind the public company director attitude toward annual meetings is shaped by several factors:
1) The perceived hijacking of meetings by gadflies and small shareholders. As one director put it: "Setting time limits on questions (so people don't use the question time to make speeches) would help some of the larger companies." Another suggested that "the issues of shareholders should be made pro rata with their equity holding. And issues relating to the financial aspects of the business should be well supported."
2) Low attendance, especially among institutional shareholders. According to our survey, only about 31% of share ownership is represented at an average annual meeting, and public company directors think the number is closer to 15%. A director respondent noted that annual meetings "will not improve until institutional shareholders participate." Another noted: "Shareholders who have a real stake in the Company could actually attend annual meetings and not relegate attendance to those who submit proposals or who only raise personal issues that are not meaningful for shareholders generally." One director suggested that companies "require attendance by large shareholders in order to have a vote."
3) Shareholder participation. Of those shareholders who do come to the annual meeting, many directors complained about the lack of real participation and dialogue. "We have to make eye contact with our shareholders or 'pick on them' (i.e. look one in the eye and say 'one shareholder asked me this question before the meeting, I'm sure the others would be interested in the answer if he asked it again')," commented a director. Another noted that, "The number of questions asked by shareholders is low. Other than a few high profile gadfly cases, are annual meetings truly about shareholder communications?"
For a look at the complete results, see the First Quarter 2011 Issue of Directors & Boards.
|
March
1-2, 2011 March
8, 2011 March
15, 2011 March
16, 2011 March
29, 2011 April
6-8, 2011 June
16-17, 2011 June
22, 2011 |
|
Sustainability
Reporting Will Drive Change in Business Strategies
This is a conclusion of a new report from PwC, “Creating Value from Corporate Responsibility.”
With the growing influence of long-term sustainability issues on business decisions, businesses will need to change the way they disclose their sustainability efforts in a more consistent and rigorous investment-grade report. “Investors, regulators and NGOs are holding businesses to higher standards, and company reputations and valuations are hinging on their ability to report on their efforts in a quantitative way,” said Kathy Nieland, PwC’s US Sustainable Business Solutions leader.
According to the report, some of the benefits of improved sustainability reporting include:
- Better assessment of risks and opportunities at all levels of the business
- Ability to allocate resources and set appropriate performance goals
- Confidence that baseline measurements are accurate
- Ability to enhance trust and promote value with key stakeholders
- Improvements in delivering information in a timely and consistent way
- Fewer errors and restatements
- Less opportunity for manipulation
Click here for a copy of the report.
Director Resources
Compensation Metrics: With say on pay becoming a reality in 2011, improving disclosure of measures used, the values associated with those measures, and how they can be expected to drive performance should be a priority for all public companies. In this spirit, compensation advisors James F. Reda & Associates just published its latest study on Incentive Plans and Performance Metrics, which reviews the 2010 proxies with regard to reporting of performance metrics and related payouts for 200 of the S&P 500 companies. Click here to view the study.
Compensation Committees: The Wachtell Lipton Rosen & Katz law firm has issued the 2011 edition of its “Compensation Committee Guide.” Click here for a copy.
Compensation Scorecard: The new Executive Pay Scorecard launched in February by GovernanceMetrics International provides “a quick, convenient and objective evaluation of executive pay plans to inform critical say on pay voting decisions,” according to GMI. To learn more click here.
CD&A Template: In collaboration with issuer and investor advocates, CFA Institute has released the “Compensation Discussion and Analysis Template,” a report that provides much-needed guidance for public companies wishing to improve the CD&A portion of their proxy statement. The template provides guidance and structure on typical CD&A contents, including: overview of previous year performance and compensation; elements of compensation for the past fiscal year; performance targets; compensation decisions; compensation framework, including compensation policies and process and risk considerations; and employment and termination agreements. Click here to download the template.
Proxy Season ‘Field Guide’: The Morrison & Foerster law firm has issued “The 2011 Proxy Season Field Guide.” The guide provides an overview of recent legislative, regulatory and shareholder developments, and offers guidance on how these developments will impact companies in the 2011 proxy season. Click here to download a copy.
Proxy Voting Information: The Manhattan Institute has launched ProxyMonitor.org. The new website is described as “the first and only free, public database to contain shareholder proposal and proxy ballot information for the top 100 publicly traded American companies over the last three years (2008-2010). Though the information on the site is available from other sources, never before has it been available free and for the public in such an easy-to-use format. Searches from the site are exportable to Excel for graphing and analysis. This site is intended not only for researchers and executives interested in investing and financial markets, but for the average shareholder who wants to know how companies they are investing in are voting on shareholder proposals.”
Dealmaking I: Deloitte released the results of its annual “Look Before You Leap” survey on FCPA and anticorruption. In the survey of corporate executives, investment bankers, private equity executives, and hedge fund managers, nearly two-thirds of respondents (63 percent) reported that FCPA and anticorruption issues caused their companies to renegotiate or terminate deals over the last three years. To view the full survey findings, click here.
Dealmaking II: Advisen released a new special report on merger objection suits. These are lawsuits filed by disgruntled shareholders of a company that has been, or is about to be, acquired. The number of lawsuits filed skyrocketed in recent years — from 107 in 2006 to 305 in 2010 — even as the number of mergers and acquisitions plummeted during the Great Recession. Click here for a copy of the free report.
Author Notes
Joseph Flom, a “pioneer of M&A law,” as The Wall Street Journal described him upon his passing, died on Feb. 23. He joined the Skadden Arps Slate Meagher & Flom LLP law firm as its first associate in 1948 and, according to the firm’s press announcement of his death, “Over the course of a singularly distinguished law career he fundamentally transformed the practice of corporate law, while guiding Skadden from a four-lawyer firm to a global law firm with 2,000 attorneys and scores of practice areas.” Mr. Flom was featured in a cover-story interview in Directors & Boards conducted by lead columnist Hoffer Kaback for the Fall 1998 edition.
The Millstein Center at the Yale School of Management is accepting nominations for its fourth annual global Rising Stars of Corporate Governance. This award recognizes people who, while young and possibly new to the field of corporate governance, are making their mark as outstanding analysts, experts, activists, managers or academics. They may be from any country and from any of the many bodies that comprise the global world of corporate governance: corporations, academic bodies, institutional investors, auditors, advisory firms, rating agencies, proxy services, professional associations, and others. Candidates must be under 40 years of age as of June 15, 2011. Deadline is March 31, 2011. Selected award recipients will be honored at a special reception on June 15, 2011. Click here for more information.
Jenne K. Britell, nonexecutive chairman of United Rentals Inc., has been selected as a “2011 Outstanding Director,” an award presented by ODX, the Outstanding Directors Exchange. She will be honored at an event being held Oct. 12-13 at the NYSE. Her ODX tribute credits her “For uniting and revitalizing the United Rentals board behind a new CEO and corporate strategy, positioning the organization to thrive in the wake of a failed private equity buyout.” Britell, a good friend of Directors & Boards, co-authored with Sullivan & Cromwell Partner Frank Aquila a key article, titled “Protect the Value Proposition,” for the journal’s 2010 Governance Year in Review special edition.
Gary Sutton, a columnist for Directors & Boards from 2004-2010, has written a new novel, “Oskaloosa Moon.” Available in paperback and Kindle editions through Amazon, the book is described as capturing “the beauty, pain and adolescent struggles in a mid-American farm village.”
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Directors & Boards e-Briefing is a monthly service of Directors & Boards. All contents copyright 2011, MLR Holdings LLC.