January
Looking to rein in executive pay, the British government puts forward four proposals for revamping corporate compensation practices that would give shareholders greater power to vote on the pay of top executives.
At the Davos conference this month, “nervousness has replaced despair among business leaders” reports the Financial Times (FT). There is still unease over Eurozone fiscal stability and global economic weakness.
According to a Deloitte poll of executives from a cross section of industries, with cash balances rising to “historic levels” companies are ready to deploy their mounds of cash to execute acquisitions, repurchase shares, increase dividends, or issue one-time dividends.
Perhaps foreshadowed when three directors resigned from the board in December 2011, Eastman Kodak files for bankruptcy. Going in the other direction, with robust sales of its iPhones and iPads, Apple tops ExxonMobil as America's most valuable company.
The Ethisphere Institute selects U.S. District Judge Jed Rakoff as No. 2 on its list the 100 Most Influential People in Business Ethics, recognizing him for setting “a new precedent when he ruled against a proposed settlement between the Securities and Exchange Commission and Citigroup [over claims the bank mislead investors in a risky mortgage financial product] because the settlement did not require Citigroup to admit or deny guilt.” The SEC defends its “neither admit nor deny” settlement language but tinkers slightly with when it can be applied.
The AFSCME Employees Pension Plan files a shareholder proposal asking JPMorgan Chase & Co. to adopt an independent board chair. AFSCME views the proposal as “an important way to protect and enhance the economic value of its long-term investment” in the bank and as a way “to refocus the company on better managing its economic risks and protecting and improving the value of its shares.”
Yahoo! Inc. hires Scott Thompson from eBay to be its new CEO. (It will end badly, see May.) Yahoo co-founder Jerry Yang severs his ties with the company.
Activist investor Bill Ackman ramps up for a proxy fight to oust the board of Canadian Pacific Railway Ltd.
The Chairmen's Forum, a group of prominent current and former chairs of corporate boards from the United States and Canada, adopts a model policy recommendation under which the chair and CEO roles would be split by default upon a leadership succession, and says it intends to promote the measure as a priority for 2012.
Embroiled in a financial scandal, Japan's Olympus Corp. sues 19 current and former board members after deeming them complicit in the company's $1.5 billion loss-hiding scheme.
An investor network of more than 40 funds co-organized by Walden Asset Management, a division of Boston Trust & Investment Management Co., files a resolution at 40 corporations for voting on at 2012 shareholder meetings urging them to report on lobbying expenditures, including indirect funding of lobbying through trade associations. An IIRC study finds that most companies do not provide even rudimentary disclosure on their lobbying expenditures and practices to investors.
Imprisoned former Tyco CEO L. Dennis Kozlowski is transferred from an upstate New York prison to a minimum security facility in Manhattan — “just feet from Central Park,” as described by the New York Post (NYP) — where he will serve out the rest of his sentence. He was jailed in 2005 on an eight- to 25-year sentence for grand larceny and other charges.
February
New York joins a number of states that have passed legislation creating the “benefit corporation” as an alternative business model — a structure that protects boards for thinking and acting beyond simple profit maximization.
ISS launches a probe over revelations that one of its employees sold clients' confidential voting data in exchange for cash and gifts.
Apple Inc. reverses its previous resistance to adopting majority voting for directors and says it will support a proposal put forward by CalPERS to change the way it elects board members.
More turmoil at Yahoo: First a board shakeup, with Chairman Roy Bostock and three directors announcing they will be stepping down, and then dissident shareholder Dan Loeb of hedge fund Third Point LLC launches a fight for board representation by nominating himself and three allies (see page 60).
In other hedge fund activism, Starboard Value nominates five directors for the board of AOL Inc.; Starboard CEO Jeff Smith criticizes the company as “closed-minded to alternative value creation initiatives.” And John Paulson puts pressure on Hartford Financial Services Group to split into two businesses.
Ending massive speculation as to the timing of its initial public offering, Facebook files for its IPO — which triggers intense criticism of the social networking firm's all-male board and its intention to go public with a dual-class share structure.
Big giveback: Facing withering criticism of what the Wall Street Journal (WSJ) says would be one of the largest termination payments in U.S. history, Eugene Isenberg waives a $100 million payment triggered when the board of Nabors
Industries Ltd. replaced him as CEO while keeping him on as the company's chairman.
Good reason for emergency succession planning: Micron Technology Inc. Chairman and CEO Steven Appleton dies in a crash of an airplane that he was piloting; and Stryker Corp. President and CEO Stephen MacMillan resigns abruptly in a fallout with the board over his relationship with a former Stryker employee. Both were highly regarded executives.
The board of Walt Disney Co. comes under fire for allowing CEO Robert Iger to take on the additional role of chairman. Proxy advisor ISS claims that the move “reversed a commitment to independent board leadership.”
Pay raise: Ford Motor Co. boosts its board pay by 25% — with the annual retainer for directors rising from $200,000 to $250,000.
Top Tweeter: Former Medtronic Chairman and CEO Bill George, now a professor at Harvard Business School and a director of Goldman Sachs (and a past Directors & Boards author), makes the list of “Top 50 Business School Professors on Twitter.” MBAPrograms.org compiled the list.
March
In a “what to watch for in the 2012 proxy season” advisory, James Copeland, director of the Manhattan Institute's Center for Legal Policy, cites political spending proposals as an “alarming trend” in shareholder activism; such proposals, he says, are on the rise, noting that 41 were filed in 2011, up from 30 in 2010 and 22 in 2009.
With shareholder pressure being applied to split the chairman and CEO roles held by Lloyd Blankfein, Goldman Sachs taps James Schiro to be the board's lead director. A Goldman director since 2009, Schiro is the former CEO of Zurich Insurance Group Ltd. and, before that, Price Waterhouse LLP.
In its list of top topics that management and boards should be prepared to address at 2012 annual meetings, BDO USA includes the European debt crisis, political contributions, executive compensation, M&A plans/takeover defenses, CEO succession, cyber attacks, and China.
The Harvard Law School Shareholder Rights Project, an adviser to institutional investors in submitting shareholder proposals to declassify boards, notes that proposals to declassify boards have been submitted during this proxy season to more than 80 of the S&P 500 companies, and that 42 S&P 500 companies receiving proposals — about one-third of the S&P 500 companies that had a staggered board at the beginning of the proxy season — entered into agreements committing them to bring management proposals to declassify their boards.
A company chairman who blows off attending the annual meeting due to a schedule conflict? That looked like what was going to happen at Viacom Inc., but Sumner Redstone resolved the conflict that the company initially indicated might prevent him from attending the meeting. “Reports of my absence at this meeting have been greatly exaggerated,” the 88-year-old media titan joked with the shareholders at the meeting in New York.
Amidst skepticism in Europe's business community of the merit of enforced quotas, the European Union announces that it plans to push ahead on legislation to increase the number of women on corporate boards. Only 12% of board members of large listed companies are women, according to EU data. And in its annual Women on Boards survey, GMI Ratings reports that 10.5% of directors in its surveyed universe of 4,300 companies in 45 countries are women, an “incrementally small improvement” of 0.7% from the previous year.
Doings at Delphi Financial Group lead to an attention-getting ruling from the Delaware Chancery Court when the CEO, who controlled an almost 50% voting interest in the company, wanted to be paid a premium over other shareholders in a sale of the company. The court permits the deal to go forward but signals that the plaintiffs, in suing the CEO, have a good chance of proving that he was not entitled to any premium under Delaware law.
Doubling their span of control: A Booz & Company/Harvard Business School study of Fortune 500 CEOs shows that they are now taking on an average of 10 direct reports versus 5 in the mid-1980s.
What's my D&O coverage? A key finding from a Towers Watson liability survey is a sharp increase in the number of directors and officers inquiring about the amount and scope of their D&O insurance coverage — “an indication they are growing concerned over the wide range of exposures confronting them.” The firm also reports that 25% of public companies surveyed and 14% of private companies and nonprofits increased their D&O limits at renewal.
ISS fires an employee in its Boston office who admitted to selling clients' confidential voting data to employees at Georgeson Inc. in exchange for cash and gifts (see February).
April
Stinging rebuke: Citigroup shareholders lodge a 55% negative say on pay vote for the bank's executive pay program. Citigroup becomes “the first major bank and the biggest company by market value to have suffered a no vote on executive compensation” (WSJ). Changing of the guard: Nonexecutive chairman Richard Parsons steps down at the annual meeting and is succeeded by Michael O'Neill, the former CEO of Bank of Hawaii Corp.
When making stock picks, stay away from companies that make large political contributions, as donating companies have lower relative stock returns, according to a study by researchers from the University of Kansas and the University of Minnesota. “Better governance may reduce donations,” the researchers say.
Anne Sheehan, director of corporate governance at CalSTRS, the California State Teachers' Retirement System, is elected chair of the Council of Institutional Investors. She is also appointed to the Securities and Exchange Commission's Investor Advisory Committee, a requirement of the Dodd-Frank Act. The committee advises the SEC on regulatory priorities and initiatives to protect investor interests.
Global governance: Japanese electronics manufacturer Hitachi Ltd. plans to establish an independent board by cutting the number of inside executives on its board and adding several outside directors so that they will be in the majority; and in “one of the biggest shakeups in Italian corporate life since the Second World War” (FT), a new cross-shareholding law takes effect that would bar executives from holding board seats in more than one financial institution operating in the same market. The reform is estimated to affect board seats in 1,500 companies.
The Chesapeake Energy Corp. board begins to backtrack on its previous unwavering support for Chairman and CEO Aubrey McClendon when it is revealed that he has borrowed over a billion dollars to invest in personal stakes in the company's wells. Shareholders and analysts ratchet up pressure on Chesapeake to improve its corporate governance.
CEO succession: Avon products names Sherilyn S. McCoy, a vice chairman of Johnson & Johnson, as its new chief executive. Longtime CEO Andrea Jung, under fire as the company faces earnings disappointments, regulatory investigations, and a merger bid from Coty, takes on the executive chairman role. At Best Buy Co., CEO Brian Dunn resigns abruptly as the board probes a personal relationship he maintained with a
female employee.
Looking for respect: Yahoo Inc. adds three independent directors to its board — executives with current or past positions with American Express, Discovery Communications, and IAC/Interactive Corp. — as it engages with large shareholder Third Point LLC over the fund's intentions to nominate its own candidates to the board (see February). And Groupon Inc., a hot IPO company now facing a loss of investor confidence, adds two finance experts to its board — the CFO of American Express and a vice chairman of Deloitte LLP.
Proxy solicitation firm Georgeson Inc. gets ensnared in the ISS investigation involving the leaking of confidential documents when it is subpoenaed by federal regulators (see March). Georgeson hires the Paul Weiss law firm to conduct an internal investigation and places three of its employees on administrative leave.
Clarke Murphy (pictured) becomes president and CEO of executive search firm Russell Reynolds Associates. He has more than 24 years of executive search and assessment experience and was the former global leader of the firm's CEO/Board Practice. And search firm Witt/Kieffer launches a Board Services Practice led by James W. (Jim) Gauss, who served as president and CEO of the firm from 2007 until June 2011.
In an embarrassment for CalPERS, a champion of corporate governance, former CEO Federico Buenrostro faces civil charges by the SEC in an investigation related to fees paid by a private equity group for access to the pension fund.
In a move that does not net any new admirers of its corporate governance, Google Inc. creates a new class of nonvoting shares that will tighten co-founders Sergey Brin and Larry Page's control of the company.
The U.S. Supreme Court rejects an appeal from Jeffrey Skilling, disgraced former CEO of Enron Corp., that his trial should be thrown out. Convicted in 2006, he is serving a sentence of 24 years at a minimum security prison outside of Denver.
Reeling from allegations that it has violated the Foreign Corrupt Practices Act, Wal-Mart Stores Inc. discloses an internal investigation of its operations in Mexico; Vice Chairman Eduardo Castro-Wright, who had headed the Mexican unit during the period when alleged bribes were made, resigns as a board member of MetLife Inc. (He will resign from Wal-Mart in July 2012.)
More opportunities for IPO board memberships? The Jumpstart Our Business Startups Act (JOBS Act) is signed into law, paving an easier path for emerging growth companies to go public.
May
“The IPO from Hell?” asks the WSJ: Facebook goes public, and promptly does a faceplant as its shares soon fall below (far below) its offering price of $38. Jeff Sonnenfeld, a leadership expert at the Yale School of Management, comments, “It is critical that fast-growing, innovative enterprises created by visionary leaders not believe their own hype and mythmaking of the marketplace. A board plays a key role in this.”
More unrest at Wal-Mart: Proxy voting advisory firms ISS and Glass Lewis are recommending shareholders vote against certain of the board members as a result of the revelations of the bribery scandal in Mexico (see April), and several pension funds, including CalSTRS, indicate they are planning to do just that. Marissa Mayer, then a top executive at Google, is nominated to join the Wal-Mart board.
Shaky vote of confidence: At the annual meeting of JPMorgan Chase & Co. some 40% of shareholders vote for a proposal to appoint a separate chairman to head the bank's board. The vote comes on the heels of revelations of a multibillion-dollar trading blowup in a U.K. unit (which becomes known as the “London whale”). Referring to bank head Jamie Dimon, the FT states, “JPMorgan's fiasco exposes the myth of an imperial CEO.”
Scott Thompson, named CEO of Yahoo Inc. in January 2012, resigns. Succinctly summarized by the WSJ: “Yahoo ended the brief tenure of its latest chief executive after a flap over a flawed biography of him in a regulatory filing spiraled into a major embarrassment for the ailing Internet company and a big victory for an activist investor [Dan Loeb].”
The end is nigh for Aubrey McClendon? The board of Chesapeake Energy moves to strip the chairman role from founder and CEO McClendon and ends the controversial right for him to take a personal stake in the company's wells (see April). The company's largest investor, Southeastern Asset Management, in a regulatory filing says it intends to engage more actively with management and the board in “opportunities to maximize the value of the company for all shareholders,” and Carl Icahn discloses he has taken a significant stake in the embattled company.
On other activism fronts: Ralph Whitworth's Relational Investors LLC acquires a sizeable stake in PepsiCo; AOL agrees to add two independent directors to its board to blunt an attack from Starboard Value LP (see February); Nelson Peltz's Trian Fund Management LP takes a big stake in Ingersoll-Rand; and investor Bill Ackman wins a proxy vote to shake up the board of Canadian Pacific Railway and unseat the CEO (see January).
Declassification of boards emerges as one of the key highlights of the 2012 proxy season, reports the Conference Board, with shareholder proposals to declassify receiving overwhelming support. Notable examples include the 85% approval vote at Johnson Control and a 77% vote at Emerson Electric.
WomenCorporateDirectors launches its WCD Global Nominating Commission to increase diversity in director slates. Comprised of nominating committee chairs and members from around the world as well as CEOs, the Commission will focus its efforts on several fronts to facilitate the building of diverse boards.
Legislation advances in the U.K. to give shareholders a binding vote on executive pay. The EU also is crafting legislation to give shareholders in Europe's listed companies a binding vote on a company's pay plan.
Leaky ships: A survey of IT security professionals reveals that board members are most likely to ignore or flout security policies and procedures. An “alarming” 52% of the professionals surveyed agreed with the statement that the board of directors has access to the most sensitive information yet has the least understanding of security, according to Cryptzone, a European IT firm.
CEO turnover is rising to pre-recession levels, Booz & Company reports in its annual Global CEO Succession Study — heading upward to 14.2% in 2011 from just 11.6% in 2010, a leading indication of “an effort by boards to rethink strategy and drive performance in a newly revived economy.”
The insider trading trial begins for former Goldman Sachs director Rajat Gupta. In June, after deliberating for less than 10 hours, a jury will find him guilty — a verdict that “caps the fall of the most prominent figure caught in the government's drive to stop the leaking of corporate secrets to Wall Street” (WSJ).
Business Roundtable files a court brief supporting the authority of the SEC to settle complaints through the use of consent decrees. The BRT notes: “Such settlements, in which a company is not required to concede liability, help reach timely conclusions to SEC complaints while preventing costly litigation.” BRT filed its brief in the SEC's litigation with Citigroup (see January).
A British Parliament special committee investigating the phone-hacking scandal at a News Corp. unit declares that Rupert Murdoch is “not a fit person” to head a major corporation because he had “turned a blind eye” to a pattern of misconduct at his company's U.K. newspaper. Nonetheless, the News Corp. board affirms its “full confidence in Rupert Murdoch's fitness and support for his continuing to lead News Corp. into the future as its Chairman and CEO.” To which the New York Times observes, “The primary reason Mr. Murdoch has not been held to account is that the board of News Corp. has no independence, little influence and no stomach for confronting its chairman.”
“No-Show Director Reelected” (WSJ): Protesting his lack of attendance at any of the company's seven board meetings, Sirius XM Radio Inc. shareholders vote by a majority of nearly 2-to-1 against the reelection to the board of Leon Black. But the CEO of Apollo Global Management, who owns a sizeable stake in Sirius and has been an investor in the company for over a decade (and who got majority support at 2011's annual meeting), keeps his seat anyway because of the company's plurality voting process.
Coty walks away from pursuing its $10 billion bid for Avon Products (see April). Avon's recalcitrance to negotiate with Coty causes one investment analyst to comment to the FT, “Avon shareholders should yet again be truly exasperated with Avon's board and management.”
June
Across the pond, where excessive CEO pay is a major shareholder concern too, WPP shareholders reject the pay package of CEO Sir Martin Sorrell. In a rousing defense of his compensation in an FT op/ed, Sir Martin writes: “I find the controversy over my compensation to be deeply disturbing. . . . The board's compensation decisions are right because they reward performance, not failure, reject options in favour of a long-term incentive scheme with co-investment and five-year performance periods, and are competitively fair against our big U.S. and French competitors, which we consistently outperform.”
GMI Ratings reports that the cost of employing a combined CEO/chair is 151% of what it costs to employ a separate CEO and chairman, and that a combined CEO/chair presents a higher governance and accounting risk profile and provides lower long-term shareholder returns than if the positions are separated.
The SEC issues its final rules under the Dodd-Frank Act requiring stock exchange listing standards for compensation committees — tasking U.S. stock exchanges with making sure that publicly traded companies are more transparent when it comes to executive compensation and that CEOs don't
influence committee members and consultants.
A report from the Investor Responsibility Research Center Institute finds that proxy advisory firms “clearly impact the corporate governance dialogue,” but that mutual funds generally consider multiple factors in deciding how to vote and “rarely just follow recommendations.”
The link between corporate sustainability performance and executive compensation is expected to become more important, the Conference Board demonstrates in a report that provides data on and examples of companies that are tying executive pay to sustainability performance.
The American Federation of State, County and Municipal Employees (AFSCME) elects Lee Saunders as its new president. This is the first new president of the nation's largest public employees union, which is an active submitter of shareholder proposals, in 31 years.
Continuing to curb Aubrey McClendon's power as shareholder pressure tightens, Chesapeake Energy Corp. reconstitutes its board with the appointment of five new independent directors. Archie Dunham, former chairman of ConocoPhillips and former CEO of Conoco, is appointed the new independent nonexecutive chairman, with McClendon retaining the position of CEO and president. Of the four other new directors, three are proposed by Southeastern Asset Management, the company's largest shareholder, and one by second-largest shareholder Carl Icahn. The company is “taking the corporate governance issue off the table,” one observer tells the WSJ.
Lonely at the top: Taking a look inside the minds of U.S. chief executives, an RHR International survey finds that 41% of CEOs experience feelings of loneliness in their role as CEO. The is particularly pronounced for public company CEOs — “a ‘high-wire' position that no CEO can ever truly anticipate.”
Global governance: In Italy, a new law requires listed and state-owned companies to ensure that one-third of their board members are women by 2015; and in Russia, a leading Russian opposition figure, Alexei Navalny, “renowned for railing against corruption and corporate governance failings” (FT), is elected to the board of national airline Aeroflot.
Facebook appoints its first woman to the board — Facebook COO Sheryl Sandberg. The move garners mixed reviews. Notes Sarah Stewart, managing director of Board Services for Boyden: “Sheryl has the most corporate and governance experience on the management team, so she's a reasonable choice for any number of boards, including Facebook. Yet she doesn't bring a new perspective to the table.”
“The first major U.S. corporate proxy access success,” as it is being called, happens at Nabors Industries Inc. when a majority of shareholders support a resolution requiring Nabors to allow shareholder-nominated candidates for up to a quarter of the board's seats on the corporate proxy ballot. “This is a great day for shareholder democracy,” says Anne Sheehan of CALSTRS.
AOL Inc. wins its proxy fight with activist investor Starboard Value (see May), with shareholders voting to reelect all eight of AOL's current board members rather than take on three candidates proposed by Starboard; AOL says it still intends to add two new independent board members.
July
3D Time: The Diverse Director DataSource is officially launched as a new resource for finding untapped talent to serve on corporate boards. The founders of the 3D databank are big pension funds CalPERS and CalSTRS along with GMI Ratings, an independent provider of global governance ratings and research; 3D can be accessed by companies, shareowners, search firms, diversity groups and other organizations.
Visionary Boards: CFA Institute issues a report, “Visionary Board Leadership: Stewardship for the Long Term,” to advance the thinking on how boards of directors can help companies look beyond myopic short-termism and ensure that companies are managed for long-term success.
On the activism front: Bill Ackman's Pershing Square Capital Management reportedly buys about $2 billion worth of stock in Procter & Gamble Co. and expectations are that he will push for changes in top management; the P&G board says it supports CEO Robert McDonald and his strategic plan. At Legg Mason Inc., under pressure from investor Nelson Peltz, Chairman and CEO Mark Fetting says he will step down on Oct. 1.
CFO compensation is approximately one-third that of CEO pay, according to a study done by Compensation Advisory Partners on the pay levels of CFOs and CEOs.
There but for the grace of Godâ¦. Lots of talk in corporate boardrooms about the situation faced by the trustees of Penn State University as the special investigative counsel delivers its report on the child abuse scandal, finding that the university board failed to exercise its oversight functions and failed to set a tone at the top for accountability of university officials. But board chair Karen Peetz declares, “We are not intending to resign.”
Yahoo Inc. gains its fifth chief in four years when Google senior executive Marissa Mayer is named chief executive of the struggling web company. At 37, she is the youngest CEO in the Fortune 500, and with her appointment the Fortune 500 now has 19 female CEOs, a new record.
CEO for a day: In what is described as a “Southern gothic drama” (WSJ), the board of Duke Energy Corp. ousts Progress Energy Inc. CEO Bill Johnson just hours after he assumed the position following the completion of the merger of the two utilities. Johnson had been the Duke board's choice for CEO in the buildup to the merger. Such a quick change of heart by a board, notes the WSJ, “has little precedent in U.S. history.” Duke Energy's leader, Jim
Rogers, who is also chairman of the newly combined company, takes the CEO role. The ouster surprises North Caroline regulators, who start an investigation into whether they were misled about Johnson's expected leadership in hearings to approve the merger.
Mary Ann Cloyd, a partner in PwC's Center for Board Governance, is appointed leader of the practice. Among her duties will be overseeing the production of the center's annual corporate director survey and spearheading its numerous publications and education programs related to board governance.
Private companies need D&O insurance too: Insurance brokerage Frank Crystal & Co. reports that D&O claims made against private company boards have doubled since 2008, and that claims are coming from “a much wider variety of sources,” including customers, government/regulatory agencies, vendors, and competitors as well as shareholders/investors.
A Credit Suisse Research Institute report finds that companies with women on their boards performed better during challenging economic times than those with all-male boards — outperforming by 26% in stock returns. Companies with women on the board “tend to be a little more risk averse and have on average a little less debt,” implying that mixing genders on boards tempers riskier investment moves.
August
In tracking say on pay votes for the first half of 2012, the Conference Board reports that 49 pay plans (up from 41 in 2011) have failed to receive the majority support of shareholders. The list includes such notable cases as American Eagle Outfitters, Best Buy, Chesapeake Energy, Citigroup, and Pitney Bowes.
Director Pay: The Hay Group 2012 Director Compensation & Benefits Survey reports that median director pay in companies with revenues of more than $40 billion was $252,500 in 2011, and it was $209,000 for directors of companies with revenues under $10 billion.
Mercer reports that 14% of global banking organizations have “clawed back” compensation payments made to employees. The firm's survey studied compensation structures in 63 global financial services companies, including banks and insurance firms.
A hot month for activism: Carl Icahn wins a board seat (for his nominee Pierre Legault) at Forest Laboratories Inc.; he had wanted four seats on the board but reached a compromise with the company in his long-running dispute over its governance (he had also campaigned for four board seats in 2011). Corvex Management LP, a hedge fund run by a former Icahn protégé, pushes Ralcorp Holdings Inc. to put itself up for sale. William Ackman lobbies the board of General Growth Properties Inc. to put a sale sign in front of the mall owner. Nelson Peltz joins the board of Ingersoll-Rand, averting a proxy battle with the company (see May). Hedge fund Clinton Group proposes a slate of board candidates at struggling teen apparel retailer Wet Seal. And Wellpoint Inc. Chairman and CEO Angela Braly abruptly resigns; she has been under pressure from disgruntled shareholders over the company's performance and direction.
Staying put: Only 5% of directors receiving majority withhold votes are removed from their boards, reports a study from IRRC Institute (IRRCi) and GMI Ratings. But at companies with a majority voting standard, the exit rate rises to 50%. “This study suggests that withhold votes signal a larger pattern of shareholder dissatisfaction with a company,” notes Jon Lukomnik, IRRCi executive director.
With bank board composition still under regulatory and shareholder scrutiny, Bank of America continues its board overhaul by naming four new directors, including Sharon Allen, former chairman of Deloitte.
After reportedly amassing a $450 million war chest, the SEC issues its first award under the Dodd-Frank whistleblower program. The amount received by the informant is $50,000, representing 30% of the amount collected in an enforcement action, the maximum percentage allowed under the law. “We're seeing high-quality tips that are saving our investigators substantial time and resources,” says SEC Chairman Mary Schapiro.
The ‘tough' choice: The JPMorgan board picks Lee Raymond to head its own probe of the multibillion-dollar “London Whale” trading fiasco (see May). The former chairman and CEO of ExxonMobil has a longstanding reputation for being “tough as nails” and for not being afraid to take controversial positions (WSJ).
Breaking an 80-year-old barrier: Former U.S. Secretary of State Condoleezza Rice and financier Darla Moore become the first women to be invited to join the Augusta National Golf Club. “This is a joyous occasion,” says club chairman Billy Payne. Of Ms. Rice, one wag comments that “It was easier to join the President's Cabinet than a golf club.”
What is being called the conflict minerals rule is passed by the SEC. A piece of the Dodd-Frank Act, the rule forces companies to disclose product usage of minerals from countries in Africa whose sales of such minerals may be financing conflict in the region. Experts say the rule may affect 6,000 companies in the U.S. and abroad and will add to the oversight duties by the board of
directors.
Mercer's analysis of 2011 compensation for CEOs of S&P 500 companies shows the median base salary increased 2% in 2011, after remaining flat in 2010. At $1.021 million, median salary for CEOs has for the first time surpassed $1 million — “a threshold many companies have been reluctant to cross,” the firm states.
“Facebook Is Setting Off Tons of Corporate Governance Red Flags” headlines Business Insider when it publishes a GMI Ratings analysis that knocks the company's botched IPO and plunging stock price, its dual-class ownership, its “defiant” response to lack of board diversity with its adding COO Sheryl Sandberg to the board, and the disclosure that founding investor and board member Peter Thiel has sold almost all of his stake in the company so soon after the IPO. The ratings firm says it expects to lower its D grade to an F for Facebook's poor governance.
GMI Ratings receives the top ranking as “The Best Independent Corporate Governance Research Provider” in a survey conducted by Thomson Reuters Extel and SRI-CONNECT.com
September
BDO USA LLP, in its 2012 board survey, reports that a majority of public company board members do not agree with proxy advisory firms use of total shareholder return as an accurate measurement for determining say on pay recommendations or with the peer groups that advisory firms assign their company for executive compensation comparison purposes.
Earnings guidance getting trimmed: The National Investor Relations Institute, in its survey on public company guidance practices, finds that 88% of 2012 respondents provide some form of guidance — either financial, nonfinancial, or both — compared to 90% in 2010 and 93% in 2009.
Virginia M. Rometty, CEO of IBM Corp., is elected chairman of the board (effective Oct. 1). Some in the governance community criticize IBM for not keeping the two top jobs separate. She is named the most powerful woman in business by Fortune magazine.
News Corp. shareholders just can't get no satisfaction: The besieged media company nominates Alvaro Uribe, the former president of Colombia, and Elaine Chao, former Secretary of Labor under George W. Bush, to freshen up its board perceived as dominated by Rupert Murdoch, but activists blast the company's choices as not being sufficiently
independent.
Peer groups: New executive compensation research finds that peer group benchmarking is inherently flawed and inflationary. The study, authored by Charles M. Elson and Craig K. Ferrere of the John L. Weinberg Center for Corporate Governance at the University of Delaware and funded by the Investor Responsibility Research Center Institute, affirms that “an over-reliance on peer group compensation benchmarking is central to the persistent issue of rising executive pay in the United States.”
An “alarming” finding from a
WomenCorporateDirectors study of board members is that “only 1% of women and zero percent of men rated succession planning as their strongest area of board expertise.” WCD surveyed more than 1,000 directors from around the world.
Retaliation against workplace whistleblowers is rising dramatically, the
Ethics Resource Center reports, and is extending to “previously safe groups such as senior managers.” The trend, the ERC explains, “mirrors increasing levels of stress at workplaces in transition because of the sluggish economy, mergers, and other disruptive events.”
Director pay: In another look at board pay, this time among the
Fortune 100, Compensation Advisory Partners finds that director pay has increased 6% after being flat in the prior two years; total median board comp is now at $250,000, up from $235,000.
The FT reports that a proposal is being drafted by the European Commission mandating that Europe's listed companies reserve at least 40% of their nonexecutive board seats for women by 2020. Several countries, including the U.K., in the 27-nation bloc begin to mount a counteroffensive against the proposal.
Reviewing the recently expanded ProxyMonitor.org database of shareholder proposals from Fortune 200 companies, James Copland, director of the Manhattan Institute's Center for Legal Policy, reveals that almost all shareholder proposals are being sponsored by a small number of investors, predominately labor union pension funds and social/religious activists, whose motivation appears to be unrelated to shareholder returns and are more connected to union-organizing activities and other labor objectives — “which amplifies concerns about whether shareholder proposal voting is an effective tool for improving share value.”
Activists on the move: The Procter & Gamble board sits down with William Ackman to hear his case for a change in management and strategy at the consumer products company (see July). Carl Icahn ups his battle with Navistar International, accusing the company of becoming “a poster child for abysmal business decisions and poor corporate governance” and of having “a board asleep at the switch”; he wants four seats on the board. The Starboard Value LP fund discloses a big stake in Office Depot Inc. and in a letter to the CEO presents its case for improving performance.
Alice Korngold, president and CEO of Korngold Consulting, is named director of the NYU Global Board Leadership Academy. The Academy strengthens board governance for the world's private and public institutions by developing and training leaders from diverse backgrounds and perspectives.
October
CEO Vikram Pandit is out at Citigroup. Veteran bank analyst Nancy Bush of SNL Financial says his departure “is a clear and unambiguous signal that the era of crisis has passed and that we have moved into an era that will prize operational skills over strategic ‘vision' ”; the FT's verdict on the ouster by new chairman Michael O'Neill is that “Mr. Pandit has become an unwitting poster child of resurgent corporate governance.”
A change of board leadership is underway at beleagured Avon Products Inc., which is facing a number of governance and operational challenges. After giving up her CEO role earlier this year (see April), Andrea Jung says she will step down as chairman at the end of 2012. Fred Hassan, Avon's lead independent director and the former chairman and CEO of Schering-Plough Corp., will take over as chairman.
The Council of Institutional Investors — saying that it is “frustrated by the continued existence of ‘zombie directors' ” — begins a campaign urging key federal and state bar associations to require that U.S. public companies elect directors by majority vote. Under the Council's suggested amendments to current standards governing director elections, in uncontested elections any director who fails to receive a majority of the votes cast “is not elected and must leave the board.”
A new study finds that controlled companies — particularly those with multiple classes of shares — generally underperform over the long term; they also exhibit more material weaknesses and related-party transactions. The study was funded by Investor Responsibility Research Center Institute and conducted by ISS. Citing the study's results, the Council of Institutional Investors urges the New York Stock Exchange and Nasdaq to make new companies that have two or more classes of common stock with unequal voting rights ineligible for listing.
Facing fierce opposition, the EU scraps a plan to force publicly traded companies to have women comprise 40% of their boards by 2020 or face sanction and fines (see September). Viviane Reding, the EU's justice minister who championed the proposal, indicates she will submit a revised plan before yearend that will make the 40% quota a target rather than a legally binding obligation.
Director Compensation: Frederic W. Cook & Co.'s 2012 report on director pay provides a breakout of the mix of cash and equity awards: as examples, for industrial companies the mix is 45% cash, 55% equity for directors; for technology companies it is 34% cash and 66% equity.
Sentenced: Rajat Gupta gets a two-year prison term for leaking secrets about Goldman Sachs while a director of the bank to a hedge fund, and is also ordered to pay a $5 million fine (see May).
Firms in serious decline are more likely to rebound and avoid bankruptcy if their CEOs hold appointments on other companies' boards, according to researchers at Purdue University and the University of Texas-Pan American — lending credence to the argument that outside board seats for CEOs provide value and not just social ties. The white paper suggests that board seats can be used to access outside expertise, advice, and resources that aid in developing and executing an effective turnaround strategy.
Shareholder proposals: An Ernst & Young report finds that environmental and social proposals continued to lead all other categories in the 2012 proxy season, comprising more than 40% of the total submitted.â¯Additionally, the category had the largest proportion of proposals withdrawn, “largely due to effective company-investor engagement.”
Procter & Gamble shareholders vote for the company to adopt a majority voting standard. The vote, while nonbinding and opposed by management, would, if adopted, make it easier for activist William Ackman to mount a proxy fight in his continuing campaign for regime change at the company (see September).
Reaching a compromise with Icahn Partners and MHR Fund Management LLC (see September), Navistar International Corp. appoints two directors affiliated with the funds to its board and will add a third affiliated director. The funds agree that they will not run a proxy contest at the company's 2013 annual meeting.
Private company governance: More than two-thirds of private companies (71%) have a formal board of directors, according to PwC US's latest “Private Company Trendsetter Barometer” survey. Although formal corporate governance isn't a regulatory requirement for most private businesses, a large majority (80%) are adopting elements of corporate governance for the business benefits, according to the survey.
November
Speculation abounds as to what Barack Obama's reelection means for business. Will it be “the start of a promising new political era for business or the beginning of another four years of bickering?” the WSJ asks, and answers: “To hear it from America's chief executives, they hope it's the former but fear it's the latter.”
Mary Schapiro announces her resignation as chair of the SEC. The agency “was in disarray” when she took over in January 2009, writes former SEC chair Harvey Pitt in a WSJ op-ed, adding that she “leaves the place better off, but the next chairman will be dogged by the effects of Dodd-Frank.”
FCPA clarity: The U.S. Department of Justice and the SEC issue a report that helps clear up what kind of payments would be considered illegal under the Foreign Corrupt Practices Act. The SEC also issues a report urging the boards of the credit ratings agencies to tighten oversight of their businesses, citing “several dozen instances of poor corporate governance and failure to follow company policies” (FT).
More than 3,000 tips: That's the number of whistleblower tips the SEC reveals it has received in the first year of the whistleblower program — a program that “has proven to be a valuable tool in helping us ferret out financial fraud,” says SEC Chairman Mary Schapiro.
CEO succession: CEO Paul Otellini announces he is stepping down from Intel — “leaving no clear successor for the first time at the world's biggest chipmaker as it struggles to find its way in the fast-growing markets for smartphones and tablets” (FT); Lockheed Martin Corp. ousts incoming CEO Christopher
Kubasik for having a “close personal relationship” with a subordinate and names Marillyn Hewson as the new leader the defense contractor; and Duke Energy Chairman and CEO Jim Rogers, who took on top leadership of the company under controversial circumstances (see July), announces he will retire by the end of 2013.
Ouch! The board of Hewlett-Packard yet again looks like the gang that just can't shoot straight when the company reports that it will take a $9 billion writedown of its $11 billion acquisition of U.K. software company Autonomy.
Who are in the activists' gun sights this month? In his newest foray into the food industry (after past engagements with H.J. Heinz, Cadbury, Wendy's, and Kraft Foods), Nelson Peltz acquires a stake in French dairy group Danone SA, calling the shares undervalued; Ralph Whitworth's Relational Investors fund amasses a stake in Timken Co. and argues for the company to be split into two businesses; and Netflix adopts a poison pill to block Carl Icahn from increasing his 10% stake in the company.
Business Roundtable, an association of chief executive officers of leading U.S. companies, names Capitol Hill veteran Don Green as vice president, managing the activities of the BRT corporate governance committee. In this role, Green will work to advance BRT's legislative and regulatory priorities in the area of corporate governance.
Board committee retainers: Mercer's latest analysis of director compensation shows pay rose for directors serving on compensation or governance committees at S&P 500 companies — up $2,500 to a total retainer of $10,000 for compensation committee service and up $1,000 to a total of $7,000 for governance committee work — yet pay remained stable for audit committee members at a retainer of $10,000.
December
As 2012 comes to a close, fewer than half of the new rules called for by the 2010 Dodd-Frank Act have been finalized by regulators, reports the U.S. Government Accountability Office.
Responding to concerns that company insiders are improperly profiting when selling shares of their stock while in possession of material information, the Council of Institutional Investors petitions the SEC to revamp the rules on share sales by executives.
Under the new leadership of Marissa Mayer, Yahoo continues revamping its board, adding PayPal co-founder Max Levchin and having two members step down — Intuit CEO Brad Smith and Weather Channel CEO David Kenny. Levchin is the fourth director nominated by hedge fund manager Daniel Loeb, who joined Yahoo's board in May along with two other of his nominees, media consultant Michael J. Wolf and turnaround expert Harry Wilson.
Middle market board pay: Director pay in the middle market continues its ascent. Overall average director pay at $120,886, up from $110,155, has increased by nearly 10%, according to an analysis of 600 companies conducted by BDO USA LLP. The firm notes that the increase in director compensation “indicates that businesses see a need to pay top dollar for the most qualified director.”
Women on boards: Once again the needle barely budged for women aspiring to top business leadership in corporate America. According to Catalyst's 2012 Census, women's share of board director and executive officer positions increased by only half a percentage point or less during the past year: women held only 16.6% of board seats in 2012 (the seventh consecutive year of no growth) andâ¯women held 14.3% of executive officer positions, “flat-lined for the third straight year.” A new searchable database — Global Board Ready Women (GBRW) — is established by the European Business Schools/Women on Board initiative. GBRW will be administered by the Financial Times Non-Executive Directors' Club on LinkedIn.
Post-campaign governance: W. Mitt Romney, the 2012 Republican nominee for U.S. president, rejoins the board of Marriott International Inc. He previously served on the Marriott board from 1993 to 2002 before being elected governor of Massachusetts and then again in 2009 to January 2011 when he resigned to run for the presidency.
The tragic shooting at an elementary school in Newtown, Conn., has some pension funds reviewing their portfolios for investments they have in gun makers. CalSTRS, for one, reviews its investment in Cerberus Capital Management, owner of the gun company whose weapon was used in the massacre of the 20 children at the Sandy Hook Elementary School.
Technology boards: The boards of U.S. technology companies are more likely to have a separate chairman and CEO than their S&P 500 counterparts, but have a much lower representation of female directors. These are among the findings in the first Spencer Stuart U.S. Technology Board Index, a study of the board composition and governance practices of 200 leading U.S. technology companies.
Regulatory costs are the highest concern going into 2013, followed by labor and health care costs, according to the Business Roundtable's fourth quarter 2012 CEO Economic Outlook Survey. “The continued softness in quarterly sentiment reflects deep uncertainty about the future overall economic climate,” says BRT Chairman Jim McNerney, who is chair and CEO of Boeing Co.
What a year for activism: FactSet SharkRepellent reports that 241 companies have been targeted in 2012 by hedge funds and other activist investors, up from 202 in 2011 and 195 in 2010. The Financial Post names Carl Icahn as the “busiest shareholder activist in 2012,” citing his success at gaining board representation at five companies, including Navistar International and Chesapeake Energy. Research from Activist Insight, a London-based researcher of activist investment, reports that activists succeeded in having one or more nominees elected onto the board in three out of every four campaigns that it tracked. This month, responding to pressure from activist Nelson Peltz, Ingersoll-Rand says it will spin off its security business, and hedge fund TPG-Axon Capital Management seeks to oust the board of SandRidge Energy over the company's “onerous debt load, reckless spending and incoherent business strategy” (NYT).
Social media snafu: Netflix CEO Reed Hastings gets in hot water with the SEC for a posting to Facebook about a record number of hours of video streaming by Netflix subscribers. The issue is whether this posted revelation violated rules of fair disclosure, and raises wider questions of top executives' usage of social media.
After what happened in 2012, it is no surprise that one of the “Key Issues for Directors in 2013” identified in Martin Lipton's traditional year-end memo to the governance community is this: “Working with management and advisors to review the company's business and strategy, with a view toward minimizing vulnerability to attacks by activist hedge funds.” â