January
From a Cleary Gottlieb Alert Memo addressing “Selected Issues for Boards of Directors in 2013”: “We expect that shareholders will be increasingly focused on the issue of board composition, and as a result, in 2013 many boards will need to consider whether the current array of directors is appropriate in light of the evolving business and regulatory environments and the challenges they pose for the corporation.”
The National Association of Corporate Directors announces the formation of the Global Network of Director Institutes (www.gndi.org), an international partnership of nine membership organizations for corporate directors in Australia, Brazil, Canada, Europe, Malaysia, New Zealand, South Africa, the U.K. and the U.S. The GNDI will “sharpen leading practices for boardroom leaders on relevant governance matters that cut across national boundaries,” says NACD President and CEO Ken Daly.
Each national securities exchange adopts new listing standards to comply with the SEC's Dodd-Frank instigated Rule 10C-1 pertaining to ensuring the independence of compensation committee members.
President Obama nominates Mary Jo White as chair of the Securities and Exchange Commission. A veteran prosecutor and litigator, she has been an attorney at the Debevoise & Plimpton law firm for the past decade. Citing her extensive experience prosecuting fraud in the financial markets, former SEC Commissioner Joseph Grundfest notes that “It's hard to imagine a better chair for the SEC than Mary Jo White . . . [she] knows how Wall Street works and has the intelligence, integrity and character that the SEC needs at its helm during this challenging period in its history.”
Also at the SEC: Robert Khuzami resigns as the agency's enforcement chief. He is credited with revamping and reinvigorating the enforcement unit during his four-year tenure. The New York Times (NYT) reports that during his tenure “the enforcement unit leveled more charges than in any comparable four-year period, including a record number of cases in 2011.”
Pension fund investments in gun manufacturers come under fire as a consequence of the killing of 20 children in a December 2012 shooting at an elementary school in Newtown, Conn. CalSTRS, the California State Teachers' Retirement System, is one that announces that it is determining its exposure to gun makers for its board members.
“Understand Proxy Advisors' Pay-for-Performance Tests” is Tip 1 on Mercer's “Ten Tips for a Trouble-Free Proxy Season” advisory — highlighting that ISS is updating its proxy voting policies effective for annual meetings held on or after Feb. 1, 2013.
Chesapeake Energy Corp. CEO Aubrey McClendon announces he is quitting the company. His leadership and the board's governance of the energy firm were continually questioned by shareholders during the previous year.
In a court filing, Goldman Sachs says it will seek nearly $7 million from its former board member, Rajat Gupta, to cover its costs in investigating the allegations that Gupta shared inside information with a hedge fund friend.
The J.P. Morgan Chase & Co. board decides to slash CEO Jamie Dimon's pay for 2012 by half, a consequence of the banks' multibillion-dollar “London Whale” trading loss. Citing sources “with knowledge of the matter,” the NYT reports that the pay cut “was actually a message from the board to regulators and worried investors that it was a strong watchdog over the nation's largest bank . . . . After facing criticism for its lax oversight, the board wanted to assert its position as a check on top management.”
On the activist front: Elliott Management, a hedge fund run by Paul Singer, launches a campaign for a board shake-up at Hess Corp. The fund discloses a 4% stake in the oil company and puts forward five candidates for the board. Among the proffered candidates are Rodney Chase, former deputy chief executive of BP, and Harvey Golub, former CEO of American Express. Adding even more controversy to its move for a board overhaul is that Elliot proposes to pay its candidates bonuses on how well Hess shares perform.
February
Voters in Switzerland get ready to vote on a referendum that would introduce strict curbs on executive pay. Inflaming the debate is the widespread ire with Novartis AG for agreeing to pay outgoing chairman Daniel Valsella a $78 million “noncompete” payment upon his retirement. (Swiss voters will overwhelming approve the legislation in March giving shareholders sweeping authority over executive pay.) In the U.S., Citigroup tries to quell its own shareholder revolt over executive pay by “scrapping an old bonus scheme and setting tougher targets” for new CEO Mike Corbat, the Financial Times (FT) reports.
As the annual meeting of shareholders approaches, several big public pension plans call for splitting the chairman and CEO roles at both J.P. Morgan Chase and Walt Disney Co.
Michael Dell unveils a plan to take Dell Inc. private. Fireworks ensue for months to come as unhappy shareholders like Southeastern Asset Management (the company's largest holder) and activists like Carl Icahn push back on the going private transaction. (The deal finally closes in September.)
On the activists' front: Carl Icahn gets two board seats at Herbalife; Ralph Whitworth, who is engaged in a campaign to split up Timken Co. into two publicly traded firms, joins investor Nelson Peltz in taking a position in Ingersoll Rand; a group of investors wants to shake up the board at Hewlett-Packard; and Greenlight Capital's David Einhorn puts forward an aggressive financial engineering proposal for Apple Inc. to distribute a big chunk of its $140 billion cash reserves to shareholders.
Russell Reynolds Associates launches what it calls the industry's first fully integrated Digital Transformation Practice. “In every sector, digital innovation is rewriting the rules of business,” says Clarke Murphy, CEO of the firm. “Creating a practice devoted to the specific challenge of digital transformation was a natural step.” He notes that in the prior 18 months Russell Reynolds identified more than 500 digital leaders for its clients.
Director education: Drexel University's LeBow College of Business launches an educational program to award a Certificate in Corporate Governance aimed at corporate executives who want to prepare themselves to serve on a board of directors. And George Washington University School of Business partners with the International Women's Forum to launch a program called “On the Board,” a training and placement program for what it calls “the world's top female executives.”
Kayla J. Gillan, who joined PwC in 2011 after serving as deputy chief of staff at the Securities and Exchange Commission, takes on a new role as leader of PwC's Investors' Resource Institute, whose mission is to better help investors understand companies' reporting and governance.
Best CEO exit line: That's what Andrew Mason's departing note was called when he was ousted from Groupon. His opening line in a memo to employees: “After four and a half intense and wonderful years as CEO of Groupon, I've decided that I'd like to spend more time with my family. Just kidding — I was fired today….”
The SEC is reported to be expanding its investigation into trading by corporate executives in their own companies' shares. Following a series of articles in the Wall Street Journal (WSJ) on suspiciously well-timed trades by executives, the Council of Institutional Investors is among the investor organizations petitioning the SEC to revamp its rules and provide better disclosure about such stock selling plans.
The U.S. Supreme Court hands down a decision that experts say will make it easier for shareholders to bring securities class actions suits against corporate defendants. In Amgen v. Connecticut Retirement Plans and Trust Funds, the court rules that Amgen shareholders may bring a securities fraud class action against the company without first showing that misinformation had materially and fraudulently inflated the company's stock price.
March
A battleground opens up at Hewlett-
Packard, with the two leading proxy advisory firms, ISS and Glass-Lewis, calling for shareholders to oust several directors for the board's role in H-P's disastrous $11 billion acquisition of British software company Autonomy PLC — with ISS issuing what Reuters terms “a rare call” to eject Chairman Ray Lane.
Prices are firming in the D&O insurance market, reports Towers Watson in its annual trends survey on insurance purchasing. Perhaps due to concern over the litigious environment, the report notes, directors and officers “are more likely to ask about the amount and scope of their D&O coverage.”
Should audit committees bear the major brunt for risk oversight? Not according to the New York City Bar Association, which petitions the New York Stock Exchange to reconsider its rule placing risk management oversight within the audit committee's purview and formally designating it a full-board responsibility.
The NYT reports that Morgan Stanley's wealth management division is starting a new portfolio that seeks to invest in companies that have demonstrated a commitment to including women on their boards.
Mary Schapiro, who stepped down as SEC chairman in December 2012, is nominated as a director of General Electric Co. Prior to joining the SEC in 2009 she had been a director of Duke Energy, where she was chair of the audit committee, and the lead director at Kraft Foods.
Facebook, which faced withering criticism over not having any women on its board before electing its COO, Sheryl Sandberg, as a director, adds a second woman director, Susan Desmond-Hellman, chancellor of the University of California, San Francisco. The organization 2020 Women on Boards, for one, approves, crediting the social media firm's board for no longer being “an all white, male club.” Meanwhile, Sandberg publishes her book, Lean In, which prompts a robust debate on women in the workforce and in leadership positions.
The 2013 Catalyst Awards are presented to Alcoa, Coca-Cola Co., and Unilever for “exceptional initiatives which expand opportunities for women and business in ways that are successful and locally relevant within their workplaces and communities.”
Japanese automaker Toyota announces a major management revamping that will include appointing the first outside board members in its history. Joining the board are two Japanese financial industry senior executives and an American, Mark Hogan, a former group vice president with GM who the FT notes had managed a manufacturing joint venture between the two companies.
Mutual fund boards, which often fly under the radar, are thrust into the spotlight as the SEC pursues a settlement against several directors of the Morgan Keegan fund organization. The SEC claims that directors “abdicated” their responsibilities as fund investors suffered big losses on risky mortgage assets during the financial crisis. (The directors involved deny any wrongdoing.) The SEC's action is seen as a move to increase the agency's scrutiny of fund boards.
As the annual meeting season gets underway, research organizations that keep tabs on hot proxy issues report the following as among those that shareholders are particularly focused on this year: corporate political spending, environmental and sustainability risks, cybersecurity, FCPA risk, social media initiatives, going private conflicts, diversity and human rights, and returning a classified board to an annual election of all directors.
WomenCorporateDirectors (WCD) — the largest organization of women directors worldwide — opens a chapter in Abu Dhabi, its first chapter in the Middle East.
April
“SEC Embraces Social Media” is the headline of the WSJ article reporting that the SEC approves companies using social media outlets like Facebook and Twitter to announce key information in compliance with Regulation Fair Disclosure (Regulation FD) “so long as investors have been alerted about which social media will be used to disseminate such information,” the SEC confirms in a public announcement. “Most social media are perfectly suitable methods for communicating with investors,” says George Canellos, acting director of the SEC's Division of Enforcement, “but not if the access is restricted or if investors don't know that's where they need to turn to get the latest news.”
The top tweeter on corporate governance is Lucy Marcus, according to board advisor Competia. Marcus is a U.K.-based corporate director and governance commentator (and a past “Rising Star” designee of Ira Millstein's Center for Corporate Governance and Performance). Michelle Gutman, associate director of research programs at Stanford University's Rock Center for Corporate Governance, is also on the list of the most influential corporate governance tweeters in 2013.
Board upheaval at Hewlett-Packard: After narrowly surviving a shareholder vote in March, embattled chairman Raymond Lane steps down from that position but stays on the board. Two other directors — John Hammergren and G. Kennedy Thompson — leave the board. Lane is succeeded as chairman by Ralph Whitworth, an activist investor who joined the H-P board in 2011.
Another boardroom in turmoil is Occidental Petroleum's, where it appears as if CEO Stephen Chazen was being suddenly eased out of office in a fallout with longtime chairman and former CEO Ray Irani. Investor groups rallied to Chazen's defense. The company “was putting the wrong guy out to pasture,” one investor told the NYT. Chazen stays and Irani formalizes his resignation for 2014.
With a turnaround that has run aground, J.C. Penney Co. ousts CEO Ron Johnson, the executive it recruited from Apple Inc. to lead a revival of the retailer. The board brings back former CEO Myron Ullman.
Director in the crosshairs: Ellen Futter, president of the American Museum of Natural History, is target of a campaign by CtW Investment Group to be removed from the board of J.P. Morgan Chase, where she sits on the risk committee. The investor group questions her financial expertise for that oversight role. The board's presiding director, retired ExxonMobil CEO Lee Raymond, tells investors to “stay tuned” as to the composition of the risk committee.
CalPERS goes on the warpath against “zombie directors” — those directors who have failed to win majority votes of shareholders and yet have stayed in place. The largest pension fund in the U.S. also intends to escalate pressure on companies that have failed a vote on their executive pay arrangements.
The Global CEO is more myth than reality, says Booz & Company. The firm's annual CEO turnover study finds that most companies seem to be seeking familiarity in their new CEOs, with 71% of new CEOs being insiders. Companies also tend to hire leaders who are native to their country's headquarters.
Bank directors: According to SNL Financial, banks with directors appointed by the U.S. Treasury Department have handily outperformed the broader bank group, recording median gains of 50% since taking on Treasury-appointed directors compared to a median gain of 28% in the SNL Bank & Thrift Index during the same time periods.
Executive compensation: Growth in compensation for CEOs at the nation's largest corporations slowed considerably, reflecting weakening financial performance, according to Towers Watson. The firm found that total pay for CEOs increased just 1.2% in 2012, down from the 6.7% median increase CEOs received in 2011. The smaller increase in total pay was driven largely by a steep decline in annual bonuses.
Mary Jo White is confirmed by the Senate as the next chairman of the Securities and Exchange Commission. Anne Sheehan, director of corporate governance at CalSTRS, the California State Teachers' Retirement System, is elected to a second yearlong term as chair of the Council of Institutional Investors. And Russell Golden is named chairman of the Financial Accounting Standards Board; he will begin his four-year term on July 1, 2013.
Director pay raises: Still reeling from allegations that it has violated the Foreign Corrupt Practices Act, Wal-Mart Stores Inc. raises the compensation of the directors who are working on the investigation. The FT reports that four audit committee members were paid an extra $60,000 on top of their $60,000 annual retainer and equity awards worth $175,000. And Goldman Sachs directors, who are “already among the best-compensated corporate directors in the country,” notes the NYT, will receive an additional 500 shares, for compensation of 3,000 shares a year. The NYT reports that data provider Equilar calculated the average compensation for a Goldman board member at $447,622 in 2012.
May
In its annual report on Women on Boards, GMI Ratings finds “extremely slow progress” in most of the world outside Europe (which has led on this issue through the adoption of legal mandates for the representation of women on corporate boards). The survey covered 6,000 companies in 45 countries.
In the contentious dispute over Dell Inc.'s going private effort, Carl Icahn nominates himself and 11 other candidates for the Dell board. Dell has rejected Icahn's and Southeastern Asset Management's proposal to recapitalize the company.
Not mollified by Occidental Petroleum Chairman Ray Irani's announced intention to retire in 2014 (see April), shareholders vote him off the board — “the latest victim of a rising wave of shareholder activism,” reports the WSJ, adding this comment on the ouster by Charles Elson of the Weinberg Center for Corporate Governance at the University of Delaware: “It's a pretty amazing thing. It happens very rarely, particularly for a company of this size and reputation.” Irani is replaced by Oxy Pete director Edward Djerejian, a former U.S. ambassador to Syria and Israel.
Shareholders approve by a 53% vote a CalSTRS proposal to split Timken Co. into separate steel and ball bearing businesses.
Dr. Reatha Clark King is elected chairman of the board of the National Association of Corporate Directors. She has been a member of the NACD since 1993, an NACD director since 2005, and in recent years has chaired the association's governance committee. An accomplished corporate director, she has served on the boards of ExxonMobil Corp., H.B. Fuller Co., Lenox Group, Minnesota Mutual Insurance Co., and Wells Fargo & Co.
Compensation Advisory Partners notes that of the 76 S&P 500 companies reporting executive pay voting results as of May 1, all received majority shareholder vote . . . but, six of the companies passed with “low” support of 50-60%, which puts them in the reputational risk zone: Apple, Disney, Comerica, Goodyear Tire, Humana, and Tyco.
Under assault by activist investor William Ackman, Procter & Gamble Co. announces that CEO Robert McDonald will leave the company and be replaced by former CEO A.G. Lafley — “a signal of the urgency the company feels to get sales growing faster and fire up its pipeline of new products,” the WSJ reports.
To win its takeover of Sprint Nextel, Japan's Softbank Corp. agrees to give the U.S. government the right to approve one of the directors being named to the Sprint board. That director, who will address the federal government's network security concerns, will be retired Navy Admiral Mike Mullen, who joins the board in June 2013.
At Bank of America's annual meeting, shareholders reject a resolution to limit board members' ability to serve on more than three boards.
It has been hotly debated for months leading up to the shareholder annual meeting whether the J.P. Morgan Chase & Co. board should split the chairman and CEO roles held by Jamie Dimon. But in the closely watched vote shareholders reject the proposal to install an independent chairman. However, more than 40% of the vote goes against three members of the bank's risk committee, making the board look “vulnerable,” notes the FT.
Retailer Urban Outfitters, which has been under fire for several years by investors for having no women on its board, adds its first woman — Margaret Hayne, the wife of company CEO and founder Richard Hayne. Investors who have been championing board diversity are not happy with the move. “It appears to be tokenism and it fails to meet the generally accepted standards for board independence,” states the investor group, which includes Calvert Investments and the New York State Common Retirement Fund. Ms. Hayne is a division president of the company. NYT columnist Gretchen Morgenson comments on the appointment, “Talk about poking your shareholders in the eye with a stick.”
Ending a battle for control of the board that began in January, Hess Corp. hashes out an agreement with Elliott Management Corp. to restructure its board with five new Hess nominees and three candidates backed by Elliott. The agreement was crafted just hours before the company's annual shareholder meeting. CEO John Hess agrees to give up the chairman's title.
At its third annual Global Institute, WomenCorporateDirectors (WCD) bestows its Visionary Award for Leadership and Governance of a Public Company to Unilever CEO Paul Polman. WCD also granted Visionary awards to former Pearson PLC CEO Marjorie Scardino, IBM Corp. and SC Johnson & Son. WCD also releases a “14-point roadmap” for improving diverse representation in the boardroom.
June
Men's Wearhouse Inc. ousts founder George Zimmer from his position as executive chairman. The board had unanimously nominated him for reelection to the board just one month before. “It seems like there was some real dissension on the board,” a New York analyst tells Bloomberg. Reports say that Zimmer, who founded the retailer in 1973, was exploring a going private transaction. In a statement, the company says, “Mr. Zimmer had difficulty accepting the fact that Men's Wearhouse is a public company with an independent board of directors and that he has not been the chief executive officer for two years.”
A trends analysis conducted by Semler Brossy, an independent executive compensation firm, indicates that smaller companies are failing say on pay at a higher rate in 2013. Of the 32 companies that have received less than 50% positive votes in 2013, 38% have revenue less than $500 million and almost 60% have revenue under $1 billion.
Enron's former CEO Jeffrey Skilling reaches an agreement with the Justice Department to have his jail sentence reduced from the 24-year term under which he has been imprisoned since 2006 for his role in the collapse of the energy giant. He could now get out of jail as early as 2017.
Philadelphia's City Council unanimously passes a “Women on Boards” bill. The legislation requires contractors seeking to do business with the city to disclose certain demographic information, including gender and race, of those serving as board members and executive staff. “The bill will offer us the transparency needed to determine if a contractor values diversity in the workplace and in leadership positions,” says Councilwoman Blondell Reynolds Brown, who introduced the bill.
Towers Watson expands its executive compensation consulting practice with the addition of Don Delves and his team of associates. Delves, founder and president of The Delves Group, a Chicago-based consultancy, has been a key advisor to board compensation committees and senior management on executive pay and related governance matters. (Delves has written several articles for Directors & Boards.)
Sir James Wolfensohn, former president of the World Bank, receives the Legend in Leadership Award of the Yale School of Management's Chief Executive Leadership Institute. Says Jeffrey Sonnenfeld, senior associate dean of the Yale School of Management: “Jim Wolfensohn is reminiscent of the finest of a near-vanishing breed of merchant bankers and financiers, motivated by public service and global economic development, anchored in trust and long-term relationship building.”
The FT reports that between April and June of this year the most popular strategy among global activist investors was to try and gain seats on company boards, and that 25 attempts were made. One board takeover happening this month is at Morgans Hotel Group, where dissident shareholder OTK Associates's seven board nominees are elected, ending a lengthy battle for control of the company, which operates 13 hotels.
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) — an organization providing thought leadership and guidance on internal control, enterprise risk management, and fraud deterrence — names Robert B. Hirth Jr. as its new chairman for a three-year term.
Hedge fund investor Daniel Loeb stirs the waters at Sony Corp., taking a $1 billion stake and instigating a campaign for the company to do an IPO of its film and music business. In another activist campaign, Starboard Value LP presses Smithfield Foods Inc. to explore a breakup of the company as an alternative to its agreement to be bought by a Chinese meat producer in a $4.7 billion deal.
Carl Icahn, deep in a campaign to disrupt the Dell going-private transaction, becomes a Twitter user (his handle is @carl_c_icahn). His first tweet: “Twitter is great. I like it almost as much as I like Dell.”
Watch your language: The WSJ reports that Scotts Miracle-Gro Co. chief executive Jim Hagedorn was reprimanded by the board for his use of “inappropriate language,” and that three independent directors had resigned following the board's action. No details are provided on what prompted the board's “unusual” action.
The SEC charges cosmetics manufacturer Revlon Inc. with misleading shareholders when doing a major refinancing, including engaging in “ring fencing” that deprived the independent board members from knowing critical information.
The FT reports that the U.K.'s biggest shareholders are “moving towards setting up a powerful body to rein in boardroom excess.” Fifteen top institutions have established a working group to explore the creation of an Investor Forum that would allow the major investment firms to act as one group and would be a mechanism to give them blocking votes on corporate actions that they oppose.
Corporate governance practitioners from such outposts as Morocco, Indonesia, Nigeria, Peru and Pakistan are recipients of the International Corporate Governance Network's 2013 Scholarship Programme. The initiative “helps ICGN to nurture future leaders of corporate governance in the ever-increasing important emerging markets,” says Phil Armstrong, chairman of the ICGN Scholarships Committee.
Jon Lukomnik, executive director of the Investor Responsibility Research Center Institute, is presented with the 2013 International Corporate Governance Network Award for Excellence in Corporate Governance at the ICGN annual general meeting in New York. Ralph Whitworth, founder and principal of Relational Investors, is given the Lifetime Achiever Award.
July
New rules mandated by the Dodd-Frank Act for the independence of compensation committees and their advisers take effect on July 1. The rules cover who can be on a compensation committee and guidelines for the committee’s hiring of an outside consultant for additional advice.
Activist investor Daniel Loeb, who shook up Yahoo Inc. in 2012 when he joined the board and was instrumental in hiring Marissa Mayer as its new CEO, does a sudden exit from the board and sells the bulk of his Yahoo stake — at a profit of over $1 billion, “one of the largest scores in Wall Street history on trades of a single company's shares,” notes the New York Post.
Board shifts: They were narrowly reelected at J.P. Morgan Chase's annual meeting in May, but David Cote and Ellen Futter resign from the bank's board. Cote, chairman and CEO of Honeywell International, and Futter, president of the American Museum of Natural History, served on the board's risk committee and were roundly criticized when the bank suffered a multibillion-dollar loss in its London operation (see April). At Hewlett-Packard, the board is seen to be strengthened with the addition of three new directors, including former Microsoft top software strategist Ray Ozzie and former CEOs of Liberty Media and McDonald's.
Activist moves: Nelson Peltz keeps the pressure on PepsiCo Inc. to take action to separate out its slower-growing beverage business; one initiative he favors is for PepsiCo to acquire Mondelez International Inc. so as to create a global snack foods giant. William Ackman reveals a 9.8% stake in Air Products & Chemicals Inc., calling the company “undervalued.” And Daniel Loeb, now exiting Yahoo (see above), takes a stake in fertilizer producer CF Industries Holdings Inc. and calls for the company to boost its dividend.
At its annual meeting on July 31, McKesson Corp. experiences what is believed to be the first clawback proposal to ever receive majority support from investors. “Robust and rigorous clawbacks promote pay-for-performance and help set clear incentives for ethical conduct and accurate financial reporting,” says Scott Zdrazil, director of corporate governance at Amalgamated Bank, a sponsor of the clawback proposal.
Wendi S. Bickett, assistant corporate secretary of Enterprise Products Partners LP, is elected chair of the American Society of Corporate Secretaries and Governance Professionals at the Society's annual meeting. Named chairman-elect is Douglas K. Chia, assistant general counsel and corporate secretary of Johnson & Johnson.
Catalyst, the New York-based organization whose mission is to advance women in business leadership, acquires Women on Board Canada, which is described as a “highly successful mentoring program that promotes the appointment of women to corporate boards.” Says Women on Board co-founder Patrick O'Callaghan: “As an integral part of Catalyst, Women on Board will have an impact on boardroom diversity not just in corporate Canada but also in boardrooms of corporations around the world.”
August
“Activist Storms Microsoft Board” headlines the WSJ report on the company reaching an agreement with hedge fund ValueAct Capital Management to appoint a director to the board. “It would be the first time Microsoft has ever had a director not solely selected by the company,” the WSJ notes. This move comes a week after CEO Steve Ballmer discloses he will step down within a year. (Mason Morfit, president of ValueAct, will join the Microsoft board in March 2014.)
Apple Inc. has a new shareholder — Carl Icahn, who buys what is said to be a $1.5 billion stake and begins pushing CEO Tim Cook to do a big stock buyback. Of activism in general, WSJ columnist Francesco Guerra writes: “Current conditions are almost ideal for activists. With interest rates so low and stocks at record highs, pension funds are desperate for ways to beat the market; companies are sitting on record piles of cash earning measly returns; and since the financial crisis, boards and executives have to be more responsive to outsiders.”
In other activist moves: Nelson Peltz takes a $1.3 billion stake in DuPont Co.; Daniel Loeb raises his stake in Sotheby's; Starboard Value strikes a deal with Office Depot Inc. to add three of its nominees to the board of the office products retailer, including Starboard Value CEO Jeffrey Smith; and Pershing Square Capital Management's William Ackman resigns from the board of J.C. Penney Co. and then unloads his 18% stake in the retailer, ending a failed bet that he could help engineer a turnaround, an interventionist campaign “that cost his fund more than $600 million, resulted in the loss of thousands of jobs and left the 1,100-store chain still struggling to right itself” (WSJ).
The SEC bans Conrad Black from acting as a director of a U.S. company as a condition of its final settlement with the former press baron over his dealings as head of the Hollinger media empire. He served a prison sentence for fraud and obstruction of justice and is being required to pay $4 million in restitution.
Yahoo Inc. names Maynard Webb as board chairman. The veteran technology executive, a former COO of eBay Inc., had been serving as Yahoo's interim chairman since April when Fred Amoroso announced he would step down and leave the board.
Towers Watson reports that although companies have pared back the types of perquisites offered to executives, especially transportation-related benefits, perks continue to play a meaningful role in attracting and retaining key employees. The firm analyzed perquisites offered to executives at 332 of the Fortune 500 companies.
The California State Teachers' Retirement System releases the Corporate Governance 2013 Annual Report, the first such report at CalSTRS. The document communicates CalSTRS's corporate governance philosophy while outlining its current major initiatives, such as executive compensation, majority voting, dual class ownership, boardroom diversity, and sustainability. The report also identifies how CalSTRS voted its proxies.
Women on Boards: “Incremental change” is what EY's Corporate Governance Center finds when it looks at women's progress in the boardroom. Women hold 15% of S&P 1500 board seats, up from 14% in 2012 and 11% in 2006, yet more than 21% of S&P 1500 companies do not have a woman serving on their board. A small number of companies (5%) have passed what some consider the tipping point, where at least one-third of the board is represented by female directors (this is up from 4% in 2012). The greatest increases in gender diversity continue to occur among boards that already have at least one female director: of the companies that added at least one female director in 2013, 63% already had at least one woman serving.
More robust audit reports: The Public Company Accounting Oversight Board proposes a new auditing standard that would retain the pass/fail model in the existing auditor's report but would provide additional information to investors and other financial statement users about the audit and the auditor.
Chancellor Leo E. Strine Jr. of Delaware's Court of Chancery issues a ruling that rebuffs Carl Icahn's last-ditch attempt to derail the Dell buyout, ending the legal threat to the completion of the deal. (Shareholders will approve the contentious transaction in September.)
September
The SEC releases a proposed rule to implement a provision of the Dodd-Frank Act specifying that companies must disclose the ratio of the median employee's compensation to the CEO's compensation (CEO pay ratio). Much hue and cry is generated over complying with this regulation. Comments exec comp experts at the Hay Group: A pay ratio offers “no meaningful insight to shareholders” and is “an expensive ‘headline statistic,' not an actionable tool.”
The California legislature becomes the first in the nation to pass a resolution urging (but not requiring) all public companies in the state to place more women on their boards — by the end of December 2016. The goal for companies that have nine or more directors would be to have at least three women on the board. For companies with five to eight directors, the recommended minimum number of women is two, and those with fewer than five directors should have a minimum of one woman on the board.
Timken Co. announces that it will split into two independent public companies with a spinoff of its steel business from its bearings and power transmission business — an objective sought by activist investor Ralph Whitworth (see February) and supported by CalSTRS. The split, says Whitworth, “ensures the long-term vitality and competitiveness of Timken as two separate companies, both of which will lead their respective industry segments for operating excellence.”
On other activism fronts: With Daniel Loeb and others keeping a close eye on the auctioneer, Sotheby's puts its Manhattan headquarters up for sale; Air Products, which is facing down William Ackman (see July), says it will add three new directors to its board and begin a search for a new chief executive; Safeway Inc. adopts a poison pill as it engages with Jana Partners, which is pressing the supermarket company to shrink in size and return capital to shareholders; and hedge fund Starboard Value LP, which has been agitating at Smithfield Foods, drops its opposition to the meat company's acquisition by a Chinese pork producer.
Earnings guidance getting trimmed: The National Investor Relations Institute, in its latest survey on public company guidance practices, finds that 88% of respondents provide some form of guidance — either financial, nonfinancial, or both. This compares to 90% in 2010 and 93% in 2009.
Director compensation: The Towers Watson annual analysis of director compensation at Fortune 500 companies finds that total direct compensation for directors “has increased modestly” — by 3% at the median, from $220,000 in 2011 to $227,000 in 2012. The analysis also shows that companies increased the value of annual retainers and continued to shift away from variable forms of pay.
Ernst & Young‘s 2013 review of environmental and social (E&S) shareholder proposals shows withdrawal rates are topping 40%, indicating greater company engagement with investors. This category of shareholder proposals remains the largest of those submitted.
Catalyst announces that Ilene H. Lang will step down as president and CEO on Jan. 1, 2014. Deborah Gillis, Catalyst's chief operating officer, will succeed her. “Ilene's inspired leadership has positioned Catalyst as a global force for women and business,” says Peter Voser, CEO of Royal Dutch Shell PLC and chair of the Catalyst board of directors, “For 10 years she has led Catalyst through its most significant period of growth, expanding its knowledge platform, tripling its membership, and extending its reach beyond North America to Europe, India, the Middle East, and Asia Pacific.”
The Society of Corporate Secretaries and Governance Professionals announces that Kenneth A. Bertsch will be stepping down as president and CEO at the end of 2013. Says board chairman Wendi Bickett, “His leadership has taken the Society to a higher level in many areas, including those of educational programming and policy and advocacy.” He is leaving to join CamberView Partners, a corporate governance advisory firm.
CalSTRS announces “overwhelming corporate governance success” during the 2013 proxy season in advancing a majority-voting standard: 77 of the 82 companies engaged adopted a majority vote standard, a 93% success rate.
John Thompson, former CEO of Symantec Corp., is thrust into the spotlight in his role as lead independent director of Microsoft Corp. and leader of the board committee searching for a successor to Steve Ballmer. He “will have to convince critics that he and fellow outside directors won't rubber-stamp the views of Bill Gates” in picking a new CEO, the WSJ reports.
In a speech to the Council of Institutional Investors, SEC Chair Mary Jo White reveals that the agency plans to ramp up its policing of financial fraud. As the WSJ reports, “Laying out a broad enforcement agenda for the first time since taking the helm at the agency five months ago, [she] said the agency will seek charges against more individuals and pursue larger fines against companies that commit wrongdoing.”
In further attempting to mollify critics of its governance (see April), J.P. Morgan Chase appoints two new board members with financial expertise and strengthens the authority of presiding director Lee Raymond by naming him lead independent director and giving the role new powers for calling board meetings and engaging in succession planning.
A week after Dell shareholders approve the management buyout, Carl Icahn takes to the op-ed page of the WSJ to rail against the Dell board, writing: “Lacking strategic foresight, the Dell board for years presided over the loss of tens of billions of dollars in market value at the hands of CEO Michael Dell. Instead of deposing him, the Dell board froze out shareholders and last week voted to allow the CEO to buy the company at a bargain price using the shareholders' own cash.”
October
Twitter Inc. files its IPO documents, and comes under withering criticism for not having any women on its board. Kara Swisher, then writing for the WSJ's All Things D website, notes that “numerous studies show that more women use Twitter than men,” and observes that “correcting the massive gender imbalance in corporate governance is something more companies in tech — Twitter is hardly an outlier here — certainly need to consider.” October turns out to be the busiest month for U.S.-listed IPOs since 2007.
A study of U.K. boards finds that the proportion of female directors of FTSE 100 companies has risen to 19%, up from 12.5% two years prior. The Independent reports that Business Secretary Vince Cable is confident the government's target of 25% representation on FTSE 100 boards by 2015 is achievable.
But back in the U.S., a board study of 2,000 of the largest companies finds that women and minority directors are not getting the mentoring that would allow them to attain “elite inner circle status that comes from serving on multiple boards.” The study, done of James Westphal of the University of Michigan Ross School of Business and Michael McDonald of the University of Texas-San Antonio, attributes lack of mentoring by white male incumbent board members for this imbalance: women and racial minorities make up 28% and 22%, respectively, of directors who serve on a single board — but only 8% of women and 5% of minorities serve on more than one board.
A board nomination that gets Wall Street's and the world's attention: President Obama taps Janet Yellen to head the Federal Reserve Board. The Fed vice chairwomen will, when confirmed, be the first woman to lead the country's central bank in its 100-year history. Chairman Ben Bernanke's term ends in January 2014.
Director Pay: Mercer's analysis of director compensation shows median total direct compensation increased 3% — the lowest year-over-year change in years — for directors at S&P 500 companies. The median cash retainer increased from $65,000 in 2010 to $75,000 in 2012. The largest increases were at the 400 smaller companies ($60,000 to $75,000), while the median at the S&P 100 increased from $85,000 to $90,000.
The 2013 BDO Board Survey finds that close to two-thirds (64%) of corporate directors are aware of the new SEC rule that allows companies to disclose material information through postings on social media, but none indicate that their companies have utilized this new channel to do so, and only 11% anticipate utilizing social media for material disclosures in the future.
A Deloitte study on risk management finds that companies now view reputation as the No. 1 strategic risk — above economic conditions, the company business model, competition, political/legislative changes, and 15 other factors.
Carl Icahn unveils a website named The Shareholders' Square Table (www.shareholderssquaretable.com) to be “a platform from which we can unite and fight for our rights as shareholders and steer towards the goal of real corporate democracy.” Or, as the FT observes, it is a website “where he waxes eloquent about boardroom fails.”
In a speech at the University of Oxford, hedge fund investor William Ackman says he believes activist investing will be an increasing trend in Europe. The demand for returns by pensioners in the U.K. and the rest of Europe “will drive shareholder-run activism,” the NYT quotes him as saying, also noting that he believes shareholder activism is about a decade behind where it is in the U.S.
One less thing to put a busy CEO's plate: Procter & Gamble Co. announces that its chief executive, A.G. Lafley, will not be participating in the quarterly earnings calls. The company's IR director says, “We're making this change to put even greater emphasis on annual results and trends versus quarterly results.”
One less independent consulting firm for a CEO to hire: PricewaterhouseCoopers agrees to buy management consultant Booz & Co. The WSJ expects the deal to help PwC “tap into Booz's experience developing strategies for clients.”
In a client memo, John Wilcox, chairman of advisory firm Sodali, offers this warning: “Companies preparing for their annual shareholder meetings in 2014 should be aware of a new governance challenge: opposition to the election of individual directors is becoming a strategy of choice not only for activists but for ‘responsible' investors seeking change at portfolio companies. . . . Targeting directors gets the immediate attention of companies, promotes dialogue, attracts media coverage and increases pressure on other investors to support shareholder initiatives.”
Under attack by activist Daniel Loeb, Sotheby's puts in place a poison pill defense. Loeb is seeking to oust the auction house's chairman and CEO, William Ruprecht. Loeb also takes a stake in Nokia, which the FT characterizes as a move to put pressure on the Finnish company to return cash to shareholders after the sale of its handsets business to Microsoft.
November
The aging board: The average age of independent directors on S&P 500 boards has risen to 63 years from 60 a decade ago, and in 2013, for the first time, nearly half of the 339 newly elected directors are retired, according to the 28th annual Spencer Stuart Board Index (SSBI). The study reveals that more retired CEOs, COOs, presidents and chairs than active executives in those roles joined boards in the past year. Also, boards are raising mandatory retirement ages to allow experienced directors to serve longer: nearly one-quarter of boards have raised their retirement age to 75 or older compared with 3% having that retirement age a decade ago.
Award winners: The National Association of Corporate Directors presents its 2013 Director of the Year awards to Linda Rabbitt, founder and CEO of Rand Construction Corp., and Bill Ayer, chairman of Alaska Air Group and Puget Sound Energy. Jack Lowe Jr., chairman of Zale Corp. and TD Industries, receives the NACD's B. Kenneth West Lifetime Achievement Award. Foley & Lardner LLP, at its annual National Directors Institute (NDI), presents its inaugural Director of the Year awards to Richard Donnelly, chairman of the board of Oshkosh Corp., as Public Company Director of the Year, and Marie Meisenbach Graul, audit committee chairperson and a member of the board of Pelican Products Inc., as Private Company Director of the Year.
In a referendum on a radical proposal, Swiss voters reject a mandate that would have made it illegal for a company operating in Switzerland to pay any staff more than 12 times the wage paid to the lowest earner. Voters “clearly rejected pay being dictated by the state,” the head of a Swiss business lobby tells the FT.
In the activism crosshairs this month is Darden Restaurants, with Barrington Capital announcing that it has hired an investment bank and a proxy solicitation firm as it pushes for a breakup of the company into separate restaurant businesses. Recognition grows at how big pension funds are aligning with activist investors to instigate change at their portfolio companies. In an article titled “How to Profit from Today's Shareholder Activism,” Barron's trumpets, “Activist investing has entered a new golden age that could yield benefits for ordinary investors as well as the Wall Street pros.” The FT reports that the number of activist campaigns waged against companies has more than doubled in the past three years, with 415 instances of corporate activism across the world in the prior 12 months, up from 172 in 2010.
The SEC drops disclosure of corporate political spending from its agenda of priorities for 2014. The Washington Post reports that Sen. Robert Menendez of New Jersey is introducing legislation that would require political spending disclosures, and that “investor groups plan to keep up the pressure” on the agency. Also, the SEC releases its annual report on its whistleblower program, which shows that $15 million has been awarded and that it is sitting on $439 million in funds to pay future awards, according to Jordan Thomas, an architect of the program who now represents whistleblowers for the Labaton Sucharow law firm.
Sustainability and the board: Australia's BHP Billiton faces a climate-change activist who wants to be elected to its board. Pension fund CalSTRS is supporting the election of the former Royal Dutch Shell executive who intends “to get the world's largest mining company to tackle global warming more aggressively” (FT).
Delaware judiciary: Myron T. Steele steps down as chief justice of the Supreme Court of Delaware. He joins Delaware law firm Potter Anderson & Corron LLP. He was appointed chief justice in 2004. Leo Strine Jr., chancellor of the Delaware Court of Chancery, throws his hat in the ring for the opening on the Supreme Court. (He will be confirmed as chief justice in January 2014.)
The ‘Pac-Man defense' resurfaces: After Men's Wearhouse ousted founder and chairman George Zimmer (see June), Jos. A. Bank Clothiers jumped in with an offer to buy its competitor. When it drops its proposal this month, Men's Wearhouse turns around and offers to buy Jos. A. Bank in a $1.5 billion deal.
Smaller boards are better proposal: A Pennsylvania lawmaker introduces a bill to shrink the board of Penn State University from 30 to 23 voting members — “a change designed to make the board work more efficiently and create a more inclusive system for doing business,” the AP reports.
Board quota: The German government introduces legislation requiring companies to allot 30% of their nonexecutive board seats to women, with a 2016 deadline. Women currently hold about 13% of board seats at German companies.
A big ‘ouch' for J.P. Morgan Chase shareholders: The bank settles with the Justice Department to the tune of $13 billion over abuses related to the sale of mortgage-backed securities. The good news, as the FT states, is that “Shareholders typically welcome legal settlements because they eliminate uncertainty.”
A record run makes for some happy C-suites and boardrooms: The Dow Jones Industrial Average this month crosses 16000 for a new high, and the Nasdaq Composite Index closes above 4000 for the first time in 13 years.
December
ISS calculates that 68% of proxy fights for board representatives resulted in success for activists in 2013 (vs. 43% in 2012), the FT reports, adding that this total “does not include cases where the agitators were invited on to the board before launching a fight.”
SEC Chair Mary Jo White gives a speech in which she encourages boards to engage with shareholders to help improve corporate governance. As reported by Thomson Reuters, the SEC leader says, “It was not that long ago the activist moniker had a distinctly negative connotation. That view of shareholder activists is not necessarily the current view.” Also, “The process has become less defensive and more proactive. We are seeing a concerted effort to persuade shareholders of the wisdom of management's choices and practices. That is a good thing.”
Martin Lipton, whose year-end list of “Key Issues for Directors” in the coming year is always a closely read advisory, includes this on his recommended action steps for boards: “Developing an understanding of shareholder perspectives on the company and fostering long-term relationships with shareholders, as well as dealing with the requests of shareholders for meetings to discuss governance and the business portfolio and operating strategy.”
Women on Boards: Women held only 16.9% of corporate board seats in 2013, “indicating no significant year-over-year uptick for the 8th straight year,” according to this month's release of the Catalyst 2013 Census of the Fortune 500 boards. And only 14.6% of executive officer positions were held by women — “the 4th consecutive year of no year-over-year growth.” Women of color continued to fare particularly poorly, Catalyst notes, holding just 3.2% of all board seats. Ten percent of companies had no women serving on their boards.
Twitter gets its woman board member: After the controversy generated by going public with an all-male board (see October), the company adds Marjorie Scardino, the former chief executive of Pearson PLC, to its board.
Pension fund CalPERS adopts a set of core competencies for its board members. The list includes more than 20 criteria in areas including board governance, health care, and financial markets. “These criteria are designed to enhance the competency of the board and will help us better serve our members and employers,” says Rob Feckner, president of the board.
Starting in 2014, ISS will change its guidelines to recommend ousting directors who don't implement a shareholder proposal that got a majority of votes cast at the 2013 annual meeting, reports the WSJ, adding that previously ISS recommended “no” votes on directors only if the proposal received a majority of all the shares outstanding — “a more forgiving standard for directors because many shares go uncast.”
In a shareholder vote at a California bank, a controversy erupts about whether activist investors can offer to pay bonuses to directors whom they get seated on boards. Critics argue that such payments threaten to compromise the independence of the designated directors, dubbing the payments a “golden leash.”
Activist Starboard Value LLP joins the push to reorganize Darden Restaurants Inc. (see November) after management announces a plan to spin off or sell its Red Lobster chain. Finishing out an active year, Carl Icahn reaches an agreement to add two of his representatives to the board of Hologic Inc., a manufacturer of surgical products and medical imaging systems.
“Address cybersecurity” is one of the “Top 10 Topics for Directors in 2014” in a client alert from Akin Gump. Also on the list: “Assess the impact of health care reform on the company's benefit plans and cost structure,” and “Cultivate shareholder relations and strengthen defenses as activist hedge funds target more companies.”
Governance Book of the Year: Boards That Lead
A navigational guide for “drawing the best from the boardroom” is how Michael Useem describes Boards That Lead. Published by Harvard Business Review Press in December 2013, the book came in right under the wire for consideration as the top governance book of the year. It was the clear champion. It offers a compelling account of a new leadership model for the modern corporation, in which decisions that once belonged solely to the CEO are now being shared with the board as directors take on greater leadership roles in the organization. Adding even greater value, Boards That Lead tells the inside story behind the successes and pitfalls of this new leadership model. Useem collaborated with Ram Charan, an adviser to the boards and CEOs of many companies, including DuPont, GE, Novartis and Verizon, and high-level recruiter Dennis Carey, vice chairman of Korn/Ferry International, in writing the book. Useem is the William and Jacalyn Egan Professor of Management at the Wharton School of the University of Pennsylvania and director of Wharton's Center for Leadership and Change Management. Directors & Boards published a longer excerpt from the book — an article titled “The Disruptive Power of the Dysfunctional Director” — in the First Quarter 2014 issue. Now with its Governance Book of the Year designation, we take pleasure in revisiting Boards That Lead with Mike Useem as he fielded a few questions on the book's development.
— James Kristie
There are already a lot of books on corporate governance. Why did you choose to do a book on boards of directors?
We have many great books on how corporate directors can best monitor company executives, and we recommend a number of them in Boards That Lead. Far less is known, however, about how directors actually work with executives to ensure that their company is going in the right directions, selecting the right executives, and making the right decisions. Management still runs the corporation, of course, but directors can also step forward to help lead the firm — not just monitor management — on the most crucial issues. Doing so, however, requires that boards know when to take charge, when to partner, and when to stay out of the way. Building on the recent experience of a number of companies in the U.S. and abroad, we have sought to draw a practical map for doing so.
How did you come to collaborate with Dennis and Ram on the book?
As vice chairman of Korn/Ferry International, Dennis Carey has recruited chief executives and directors for many of America's most prominent firms, and he runs round-
tables for CEOs and lead directors. As an independent business advisor, Ram Charan has worked with executives and directors of many companies, and he has authored or co-authored many books along the way, including Execution. They know well how boardrooms operate because they have been there or have placed many in there. What started as an informal dialogue among the three of us about how