Tag: Board meetings

The Board-Centric Annual Meeting

John Wilcox is Chairman of Sodali and former Head of Corporate Governance at TIAA-CREF. This post is based on a Sodali publication by Mr. Wilcox.

For a growing number of listed companies around the world the annual shareholder meeting has come to resemble a trial by ordeal. Instead of the traditional town-meeting business forum, the AGM has morphed into a jousting field where activists, proxy advisors and various special interest groups play a dominant role. This state of affairs has evolved because for the past three decades companies have been resistant to change and defensive about governance reform, while shareholders and activists have taken the lead in successfully promoting greater board accountability and stronger governance rules. Corporate scandals, the financial crisis, escalating CEO pay, declining public trust in business leaders together with enhanced shareholder rights have transformed the annual meeting into an event where companies often focus on damage control rather than showcasing their business.


Special Meeting Proposals

Avrohom J. Kess is partner and head of the Public Company Advisory Practice at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher memorandum by Mr. Kess, Karen Hsu Kelley, and Yafit Cohn. The complete publication, including footnotes, is available here.

Shareholders petitioning the board for the special meeting right propose either to create the right or, in circumstances where the right already exists, to lower the minimum share ownership threshold required to exercise the right. As of June 30, 2015, 339 companies in the S&P 500 and Fortune 500 already provided their shareholders with the right to call a special meeting outside of the usual annual meeting. During the 2015 proxy season, 20 special meeting shareholder proposals went to a vote at Russell 3000 companies. Of these, six proposed to create the right, and 14 proposed to lower the ownership threshold with respect to an existing right. Only four special meeting shareholder proposals received majority support: three created the right for the first time and one lowered the threshold for an existing right to 25%. Overall, shareholder proposals relating to special meetings received average shareholder support of 43.6% this proxy season.

Balancing Division of Board Labor with Overall Director Responsibilities

Eric Geringswald is Director of CSC® Publishing at Corporation Service Company. This post is an excerpt from the 2015 Edition of The Directors’ Handbook, by Thomas J. Dougherty of Skadden, Arps.

In this year’s Foreword, Dougherty argues that an increasing complexity of corporate governance and the growing list of action items assigned to directors has led to a division of labor that leaves some directors uninvolved or unaware of important board activities and responsibilities.

The Culture-Structure Interplay

We tend to think of board structure in relation to its stock exchange-mandated board committees, or other standing committees, including Audit, Compensation, Nominating, Governance, Finance and M&A. Much of the Handbook is taken up with discussion of those committees and related director duties. Deservedly so.

But there is a predicate question and, I submit, a related concern that should be addressed, at least annually, regarding board structure. That is the interplay between board structure and board culture, which manifests itself, for good or bad, in many ways. The board’s division of labor across its standing committees facilitates decision-making in our world of audit, compensation and governance complexity. But in the process, there are manifold opportunities for some directors, who are not on one committee or the other, to get “left behind” other directors in their exposure to, and grasp of, key risks, opportunities and even basic operational desiderata. Much of the responsibility to avoid that eventuality rests mutually with the respective committee chairs (whose regular reports to the full board and committee minutes must be robust) and with those directors not on a given committee. The latter should from time to time attend committee meetings or otherwise become sufficiently informed of each committee’s work that they are both comfortable that its work is being well-handled and also educated enough about its process that they can intelligently assess the reporting-out by the committee chair.


Trends in Board of Director Compensation

The following post comes to us from Pay Governance LLC and is based on a Pay Governance memorandum by Steve Pakela and John Sinkular.

Over the past 15 years, the methods of compensating non-employee directors have changed in tandem with the risk and workload of being a director. The catalyst for change over this time period includes a variety of regulatory requirements, such as Sarbanes-Oxley and Dodd Frank, enhanced proxy disclosure rules and increases in shareholder activism. By way of examples, Audit Committees meet more frequently and must have at least one qualified financial expert, and Compensation Committees have greater workloads. Today’s corporate director needs to dedicate more time to the job, assume greater risk, and meet higher qualification standards. Arguably, these issues, and newer issues such as director tenure limits, have reduced the pool of available individuals who are willing to serve as a director. As with all things impacted by supply and demand, the total compensation provided to directors has increased. Over the past decade, total director remuneration has grown by approximately 5% per year on average.

With the changing role and the increase in total compensation, the design of director compensation programs has changed over time as well. The basic construct of the director compensation arrangement continues to be a mix of cash and equity. However, the means of delivering these two elements has changed rather dramatically over the past decade. Below we review key elements of director compensation programs.


Considerations on the Use of Electronic Board Portals

The following post comes to us from Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication.

Board portals and other mechanisms for the electronic dissemination of information to directors of public companies, non-profits and other organizations are in widespread use. Many companies have found that these portals can offer significant benefits, including improved document security, speed and ease of distribution and, for many directors, improved efficiency and ease of access to board materials.

Boards and management should be aware, however, that there is increasing discussion, including among Delaware jurists and practitioners on both the plaintiff and defense sides, concerning possible negatives associated with board portals and other electronic communications, if not properly managed. There are two areas in particular that merit thoughtful attention.


Communication and Decision-Making in Corporate Boards

The following post comes to us from Nadya Malenko of the Finance Department at Boston College.

The board of directors is a collective body, whose members have diverse expertise in various aspects of the company’s business. Therefore, communication between directors is critical to successful board functioning. In recent years, regulators, shareholders, and directors themselves have been paying increased attention to decision-making policies that could increase the quality of board discussions. Executive sessions that exclude the management, separation of the CEO and chairman positions, board retreats, and separate committees on specific topics have been put in place to promote more effective communication. As governance experts Carter and Lorsch (2004) emphasize, “If we could offer only one piece of advice, it would be to strive for open communication among board members.”


The Autonomous Board

John Wilcox is chairman of Sodali, a co-chair of ShareOwners.org, and former Head of Corporate Governance at TIAA-CREF. This post is based on a Sodali publication by Mr. Wilcox.

“Can we end the long tradition of the boardroom as a sealed chamber…? Can we move toward more transparency about the boardroom process…?”
—Leon Panetta

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. Withholding (or threatening to withhold) votes for incumbent directors, supporting short slate campaigns, or voting for dissident candidates in proxy contests are no longer considered hardball tactics for use only in extreme cases. Institutional investors who in the past would routinely support incumbent directors have learned an important lesson from the success of hedge funds and activists: targeting directors gets the immediate attention of companies, promotes dialogue, attracts media coverage and increases pressure on other investors to support shareholder initiatives.


Global Trends in Board-Shareholder Engagement

Matteo Tonello is managing director of corporate leadership at The Conference Board. This post relates to an issue of The Conference Board’s Director Notes series authored by James Kim and Jason D. Schloetzer; the complete publication, including footnotes, is available here.

There has been a rapid increase in shareholder requests for special meetings with the board. This report discusses the potential benefits and complexities of the board-shareholder engagement process, reviews global trends in engagement practices, provides insights into engagement activities at U.S. companies, and highlights developments in the use of technology to facilitate engagement. It also provides perspectives from institutional investors on the design of an effective engagement process.

The annual general meeting is the main channel of communication between a company’s board and its shareholders. Among other important meeting activities, shareholders have the opportunity to hear executives and directors discuss recent performance and outline the company’s long-term strategy.

Since 2007, there has been an increase in shareholder requests for special meetings with the board. A recent study of board-shareholder engagement activities shows that 87 percent of security issuers, 70 percent of asset managers, and 62 percent of asset owners reported at least one engagement in the previous year. Moreover, the level of engagement is increasing rapidly, with 50 percent of issuers, 64 percent of asset managers, and 53 percent of asset owners reporting that they were engaging more. Only 6 percent of issuers and almost no investors reported a decrease in engagement. Shareholders, particularly institutional investors, believe that annual meetings are too infrequent and do not provide sufficient content to address their concerns.


Board Evaluation – A Window into the Boardroom

The following post comes to us from Maria Cristina Ungureanu, a consultant at Crisci & Partners.

Board behavior and effectiveness are becoming increasingly visible to investors and other stakeholders. In the past few years, the European Commission has reinforced its focus on the corporate governance matters, issuing several rules and guidelines in this regard. Most of these raise, among other aspects, the issue of increased board responsibility in the corporate governance framework through better functioning and more appropriate structures.

In accordance with most best practice requirements laid out in corporate governance codes, the majority of European listed companies are now conducting board performance evaluations. Board evaluation is increasingly acknowledged as a vital process for improving board performance and dynamics, whatever the size, status or type of organization. If thoroughly conducted, a board evaluation (also called “board assessment”, “board review”) has the potential to significantly enhance board effectiveness, maximize strengths and tackle weaknesses.


From Vigilance to Vision

Jennifer Mailander is director of CSCPublishing at Corporation Service Company. This post is an excerpt from the 2013 Edition of The Directors’ Handbook, by Thomas J. Dougherty, partner and head of the Litigation Group of Skadden, Arps, Slate, Meagher & Flom LLP.

Directors receive a continuous stream of information and try to be vigilant in order to discern from the mix of background and foreground company data those dissonant notes, those underappreciated inputs, those gaps in analysis. They listen to identify the things that don’t add up.

But it’s getting harder to detect those subtle yet critical notes buried in the morass of reading material now available to directors. Only a few years ago, the volume of pre-meeting materials was limited to the width of a three-ring binder and the size of a standard FedEx box, which typically arrived at the director’s office or home a few days before the meeting. As I’ve pointed out in this Handbook, the director most up-to-speed on these “pre-reading” materials was often the director who made the longest plane trip to attend the meeting. Those directors, poring through their binders stuffed with pre-reading materials, were a common sight in the first-class sections of commercial airliners. The binder was a bulky carry-on, but at least its size limited the volume of pre-reading. Not so anymore.

Today, services like BoardLink permit companies to transmit vast amounts of information to dedicated devices supplied by boards to their directors. There is a consequent proliferation of PowerPoints, appendices, memos, advisories, agendas, draft minutes, and so on. There is also a potential collapse in timing, because content can be added or revised and resent without FedEx deadlines. The result: significantly more pre-reading, less time.

Directors need the board to put reasonable limits and priorities on this phenomenon. It is true that so long as directors make well-informed decisions without conflict of interest, they should not be held liable for business judgments that do not lead to successful outcomes, and under Delaware law can be exonerated from personal liability by company charter so long as they meet that standard of conduct. However, having more data does not necessarily mean that directors are better informed.