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Directors & Boards
Robert H. Rock
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James Kristie
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From Jim Kristie | Article of the
Month | Columnist
Reader Profile |
Research | News |
Women on
Boards: A New High Mark
A record that I thought might never be surpassed has just been topped.
On to the next record...
I am going to break some news with this editor’s note.
As close readers of Directors &
Boards know, in every issue we run a section called the
Directors Roster, in which we track director elections on a quarterly
basis. We do a little bio note on each of the new directors, along with
other details of the director’s affiliation and the company that has
recruited the new board member. We have been doing this since 1994.
A summary table that we run with the Roster gives the quarterly totals
of the number of directors elected and the number of companies electing
new directors, along with a breakout of the major categories from which
the new directors were recruited.
We also give the number and percentage of women that comprise the total
of director appointments. And it is here that we get to the newsworthy
development.
In the second quarter of this year, 48% of the newly elected directors
were women.
This is a new all-time quarterly record in the 17 years that we have
been tracking director elections.
The previous
quarterly high mark for women board appointments was 43%, recorded in
the third quarter of 2009. I was astounded at that tally, being someone
who quite clearly recalls the early days of our Roster data collection
when women would represent less than 10% of new directors. I think the
low mark might have been the fourth quarter of 1996, when there were 16
women among the 199 new directors recorded in that Roster — that is 8%
if you do the bleak math.
When we hit 43% two years ago, I wondered if that was an anomaly, a
recruiting stat that might never be surpassed. Well, surpassed it has
been, with virtually one out of two new directors being women in the
April through June 2011 period.
And all of a sudden I don’t have the same inclination I did two years
ago to think that this high mark might be the last we record in the
pages of Directors & Boards.
When citing our Roster data, I always have to add the proviso that
there is not a straight line link between the recruitment activity that
we track and the overall numbers of women on boards, which is still
punkish. But the flow of new women executives onto boards is one
compelling indicator of activity in the director recruitment market
that bears close watching.
This Roster appears in the new issue of Directors & Boards that will
come off press later this month. Subscribe
here to get your hands on the whole Roster.
Speaking of women directors, my hearty congratulations to Jenne
Britell, nonexecutive chairman of United
Rentals Inc. It was announced in August that Jenne is the National
Association of Corporate Directors 2011 Director of the Year honoree.
Jenne is a longtime colleague of Directors
& Boards. Her most recent article for us, co-authored with Frank Aquila,
partner of Sullivan and Cromwell, was a keynote piece in the Governance
Year in Review special issue published in 2010. Click
here for a copy.
As always, I welcome your comments at jkristie@directorsandboards.com.
Please join me next month for another complimentary webinar from Directors & Boards. On September 21, at 2pm EDT, I'll be hosting Barry A. Bohrer and Richard Weinberg from Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer, P.C., along with Eleanor Bloxham of The Value Alliance Company for Internal Investigations 2011: What Directors Need to Know Register for this webinar here.
Additionally, on September 9, I'll be leading discussions with my distinguished colleagues W. Neil Eggleston of Debevoise & Plimpton and Ray Lewis of Deloiite during our half-day conference, "Today's Directors and the Future of Corporate Governance," next Friday, September 9 in New York City. The event is complimentary for serving directors. If you'd like an invitation, or more information, please contact Scott Chase at scottchase@verizon.net, or (301) 879-1613.
Jim
Kristie is the editor and
associate publisher of Directors
& Boards.
Selecting Your Next Nonexecutive Board
LeaderThere are specific characteristics and considerations that come into play in this uniquely demanding role.
By Theodore L. Dysart and Bonnie W. Gwin
Over the past decade, boards of directors at many companies have dramatically improved their handling of CEO succession. Now it is time for boards to get out in front of a closely related issue — the succession of the nonexecutive leader of the board.
Whether it is the succession of the lead director in a company with a unitary chair/CEO or of the nonexecutive chair in a company where the roles are split, boards should bring the same rigor to this succession challenge as they bring to that of the chief executive.
Currently, 27% of Fortune 500 companies have a nonexecutive chair and 56% have a lead director, and the numbers are likely to grow in the future. Although we believe that each board must decide on which governance model works best given the company’s board and circumstances, most observers agree that the trend toward some form of the nonexecutive leader of the board will only grow stronger. To read more, click the link below
[Click
Here to Read
the Entire Article]
Board Diversity: Are We on the Eve of Real Change?
The good news is that with current trends in place there are reasons for optimism.
By Nicole Sandford
There may be reason for optimism if you are a woman or ethnic minority who is looking to join a board. Trends in three important areas support an optimistic view towards the future: structural changes in corporate boards; recent investor statements and actions; and the evolution of company policies.
Structural Changes
How did board composition become so uniform? Historically, CEOs had the most power to select the board. CEOs often sought other like-minded people who would support a collegial atmosphere — often selecting other senior executives that they knew. CEOs also sought board members whose pedigree could benefit the company from a public relations or business perspective.
For women and ethnic minorities, this oftentimes kept the door closed quite securely. Unless you happened to be a woman/minority CEO with strong name recognition, you were pretty much out of luck. Individuals who met this high standard sometimes ended up on far too many boards, inviting criticism from a wide range of sources.
Even before the Dodd–Frank Wall Street Reform and Consumer Protection Act and the potential for proxy access, structural changes occurred that altered this process and diminished the ability of public company CEOs to unilaterally decide who is to join the board. To read more, click the link below.
[Click Here to Read the Entire Article]
Luis RamosChief Executive Officer
The Network, Inc.
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.
What were the major findings from this year’s Corporate Governance and Compliance Hotline Benchmarking Report from The Network and BDO Consulting?
The highlights from this year’s benchmarking report centered on four key findings:
- First, we saw that fraud reporting remained steady: In fact, fraud-related incident reporting for 2010 was 19.6 percent, a slight decrease from 20.4 percent in 2009. We attribute this slight variance to two factors: (1) the slow growth in the U.S. GDP along with persistently high unemployment, and (2) response to legislation, such as the Dodd-Frank Act, UK Bribery Act and U.S. Foreign Corrupt Practices Act.
- The second major finding was around the case outcome rate: In 2010, 68 percent of all incidents reported warranted an investigation, and three out of five of those cases resulted in corrective action.
- Last year also saw that about half or 50 percent of those reporting fraud incidents chose to remain anonymous - this has trended upwards in recent years.
- And finally, the benchmarking report found that the poster continues to be the most popular means of hotline awareness, followed by word-of-mouth from fellow employees.
[Click Here to Read the Entire Article]
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Red Flags That Could Have Signaled Trouble Were Missed in More than Half of Cases
A new report from KPMG International which analyzed 348 fraud cases across 69 countries from 2008 to 2010 has identified the typical fraudster as:
• A 36- to 45-year-old male in a senior management role in the finance unit or in a finance-related function;
• An employee for more than 10 years who usually would work in collusion with another individual.
The report, “Who is a typical fraudster?” found that 56 percent of the frauds the KPMG member firms investigated had exhibited one or more red flags that should have brought management attention to the issue, but only 10 percent of those cases had been acted upon prior to requiring a full investigation.
The report identified a series of fraud red flags, including:
• A business unit thrives despite competitors struggling with declining sales and/or profits.
• Excessive pressure exists on senior managers and employees to achieve unusually tough profit targets and business goals.
• Complex or unusual payment methods and agreements occur between the business and certain suppliers/customers.
• The business may have multiple banking arrangements rather than one clear provider–a possible attempt to reduce transparency over its finances.
• The business consistently pushes the limits and boundaries regarding matters of financial judgment or accounting treatment.
• There is excessive secrecy about a function, its operations and its financial results, and the unit is not forthcoming with answers or supporting information to internal inquiries.
• Increased profitability fails to lead to increased cash flows.
In addition, the KPMG analysis found that a fraudster’s traits include:
• Volatility and being melodramatic, arrogant and confrontational, threatening or aggressive, when challenged.
• Performance or skills of new employees in their unit do not reflect past experiences detailed on resumes.
• Unreliability and prone to mistakes and poor performance, with a tendency to cut corners and/or bend the rules, but makes attempts to shift blame and responsibility for errors.
• Unhappy, apparently stressed and under pressure, while bullying and intimidating colleagues.
• Being surrounded by “favorites,” or people who do not challenge the fraudster, and micromanaging some employees, while keeping others at arm’s length.
• Vendors/suppliers will only deal with this individual, who also may accept generous gestures that are excessive or contrary to corporate rules.
• Persistent rumors or indications of personal bad habits, addictions or vices, possibly with a lifestyle that seems excessive for their income, or apparently personally over-extended in their finances.
• Self-interested and concerned with their own agenda, and who has opportunities to manipulate personal pay and rewards.
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September
7, 2011 Directors & Boards, Debevoise & Plimpton and Deloitte host Today’s Directors and the Future of Corporate Governance, a complimentary half day conference for serving directors at Debevoise & Plimpton’s New York City Office. To request an invitation, please contact Scott Chase at 301-879-1613, or scottchase@verizon.net. September
9, 2011 September
12-14, 2011 September
21, 2011 September
22-23, 2011 October
2-4, 2011 October
6-7, 2011 October
17, 2011 October
27-28, 2011
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Say on Pay:
First Season Postmortem
• Shareholders voted down management say on pay proposals at 37 Russell 3000 companies, or just 1.6 percent of the total that reported vote results. Most of the failed votes apparently were driven by pay-for-performance concerns.
• Say on pay votes spurred greater engagement by companies and prompted some firms to make late changes to their pay practices to win support.
• Investors overwhelmingly supported an annual frequency for future pay votes, even though many companies recommended a triennial frequency.
• Among governance proposals, the biggest story this year was the greater support for board declassification. Shareholder resolutions on this topic averaged 73.5 percent support, up more than 12 percentage points from 2010, and won majority support at 22 large-cap firms.
• Shareholder resolutions on environmental and social issues reached a new high of 21 percent average support. Five proposals received a majority of votes cast, a new record.
• The arrival of say on pay contributed to a significant decline in opposition to directors. As of June 30, just 43 directors at Russell 3000 firms had failed to win majority support, down from 87 during the same period in 2010. Poor meeting attendance, the failure to put a poison pill to a shareholder vote, and the failure to implement majority-supported investor proposals were among the reasons that contributed to investor dissent.
Click here to access a copy of the report.
For another wrap-up on the first say on pay proxy season, see the summary done by Towers Watson, click here. The firm found that overall, nearly eight in 10 companies (79%) said say-on-pay either had no or only a little to moderate impact on their focus for the 2011 proxy season. And, nearly three in four companies (72%) plan to devote about the same amount of effort next year.
Director Resources
M&A: Forecasts of lower corporate debt and higher profits in the U.S. signal a promising U.S. mergers and acquisitions market, according to the latest Global M&A Predictor study from KPMG International. U.S. companies analyzed are deleveraging faster than their global counterparts, with net debt projected to fall 34 percent by June 2012, compared to 19 percent globally. Click here for a copy of the report.
More M&A: Michael Braun and Craigh Leonard, partners in Morrison & Foerster LLP's M&A Practice Group, have authored "M&A - It's Elementary! A Plain English Guide to Mergers and Acquisitions from Kickoff to Closing." Written for business professionals as well as the general public, the authors intend this to be an easy-to-read, non-technical guide that helps readers navigate the complex world of M&A. The book is available for sale online at Amazon.com and other channels.
Proxy Access: Pearl Meyer & Partners has released its latest Client Alert, Proxy Access Struck Down by Courts - SEC Delays Five Additional Dodd-Frank Compensation and Governance Provisions. Shortly after a U.S. District Court delayed easier shareholder nomination of board candidates under Dodd-Frank, the SEC postponed five additional pay and governance provisions to 2013. Click here for the analysis of the newest developments and what’s ahead.
Corporate Strategy: A study released in August by global consultancy Bain & Company finds that top business performers have strategies that adhere to three common design principles that work to increase speed-to-market and control complexity—both critical in today’s fast-moving world: 1) They focus on a highly-differentiated core business whose capabilities can be reapplied over and over; 2) They simplify communications between the boardroom and the “front lines”; 3) They constantly adapt their business model to meet key challenges and turn the art of constant improvement into a powerful strategic weapon. A survey of nearly 400 executives worldwide finds only 15 percent cite lack of opportunities as biggest barrier to growth—lack of focus, organizational complexity, and a risk-averse culture are to blame. Click here for more information on “The Great Repeatable Model Study.”
Director Professionalism: The National Association of Corporate Directors (NACD) introduced its credentials program for corporate directors – the first of its kind. By completing educational requirements in the NACD Fellowship Program, directors obtain the credential and renew it annually. Click here for more information.
CEO and CFO Pay: ClearBridge Compensation Group has released a study of “high-performing” companies and their CEO and CFO executive pay practices. While there has been a spotlight on executive compensation when performance is below par, the ClearBridge study looks at what executives should be paid if performance is strong. ClearBridge analyzed four years of bonus payouts for CEOs and CFOs of 21 “high-performing” companies, finding that high-performing companies consistently pay at or close to maximum bonuses. Click here for a copy of the study.
Environmental Activism: An Ernst & Young report has updated its tracking of shareholder resolutions on social and environmental issues. The 2011 update demonstrates strong growth in corporate action in response to shareholder proxies on sustainability: social and environmental resolutions comprised 40% of all shareholder proposals in 2011, up from 30% in 2010, and average voting support for these proposals more than doubled since 2005 from 10% to 21% in 2011; and the percentage of social and environmental shareholder resolutions that garnered at least 30% shareholder support—a critical threshold for many corporate board members— rose from just 2.6% in 2005 to 31.6% in 2011. For a copy of the report, click here.
Author Notes
In addition to Jenne Britell’s selection as the 2011 Director of the Year by the National Association of Corporate Directors (see editor’s note), the NACD selected Jon F. Hanson as its 2011 honoree for the B. Kenneth West Lifetime Achievement Award. Hanson is chairman and founder of The Hampshire Companies. He has provided decades of distinguished boardroom service, including lead director, Prudential Financial Inc.; chairman emeritus, National Football Foundation and College Hall of Fame Inc; nonexecutive chairman, HealthSouth Corp.; chairman of the board, Pasack Community Bank; director, Yankee Global Enterprises, and CD&L; and honorary director, Hackensack University Medical Center after more than 20 years as a director. He has appeared in Directors & Boards as a participant in published roundtables moderated by Prof. Charles Elson at the Weinberg Center for Corporate Governance, University of Delaware.
WomenCorporateDirectors (WCD) announces its call for entries for the 2012 WCD Visionary Awards, honoring companies and individuals who have demonstrated leadership in governance and sustainable business practices. WCD is a global organization of 1,000 women directors representing 1,200 companies from 32 chapters around the world. Deadline for submissions is September 10, 2011. Categories include:
• WCD Visionary Award for Leadership and Governance (company award eligible to companies with three or more women directors).
• WCD Visionary Award for Strategic Leadership of a Woman CEO, Board Chair, Lead Director, or Director (individual award).
• WCD Visionary Award for Innovation in Shared Value (company award).
• WCD Visionary Award for CEO of a Privately Held Company (individual award).
For more details and nomination form, click here.
Paul DeNicola is joining PwC’s Center for Board Governance as a director. DeNicola was the former director at The Conference Board's Governance Center. In his new role, DeNicola will extend PwC’s research in leading-edge governance practices, develop insightful and timely guidance for directors, and participate in a variety of the Center’s forums for directors and governance professionals.
Susan Mangiero has joined Prudential Retirement as director and senior pension risk strategist. She had been president and chief executive officer of Investment Governance Inc., an investment best practices and education company. Prudential Retirement is a unit of Prudential Financial Inc.
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Directors & Boards e-Briefing is a monthly service of Directors & Boards. All contents copyright 2011, MLR Holdings LLC.