Ce matin, je partage avec vous les conclusions d’une enquête effectuée par Ira Kay et Blaine Martin, pour le compte de la SEC, et parue dans la revue Pay Governance.
Quelle part de l’accroissement de l’inégalité des revenus aux États-Unis a été occasionnée par les rémunérations « excessives » des CEO ? Cette inégalité est-elle attribuable à une défaillance de la gouvernance des sociétés ?
Le mandat répond à certaines questions de la SEC, notamment :
Question 1 : Is the recent increase in US income inequality caused primarily by the increase in the number of public company executives in the top .1% of earners?
Question 3 : Is CEO pay aligned with the performance of their employer?
Question 4 : Have corporate governance failures caused excessive executive compensation levels at public companies, thus exacerbating the inequality issue?
Question 5 : Are shareholders dissatisfied with the US executive pay model?
Cet article apporte des réponses qui surprendront probablement les spécialistes de la gouvernance. Les auteurs tirent des conclusions très utiles pour les comités de rémunérations à l’occasion de l’évaluation de la paie de leurs CEO. « The conclusion of our research is that relatively high executive compensation at public companies, allegedly enabled by compliant boards, is not the primary explanation for rising income inequality in the US ».
Voici quelques considérations à l’intention des comités de rémunération :
Ensure that competitive executive compensation opportunity levels are monitored annually against the median of an appropriately-sized peer group. This will provide a robust context for the CEO pay ratio.
Ensure that executive compensation program design provides appropriate pay-for-performance linkage, including setting challenging performance goals and providing the majority of compensation in long-term equity.
Apply best-practice compensation policies including robust stock ownership guidelines, clawback provisions, and prohibitions on hedging and pledging company shares to further link executive income and wealth to the performance of the company.
Maintain strong corporate governance practices including nominating directors using an independent Nominating Committee, using independent compensation consultants and legal counsel, and holding executive sessions at each Compensation Committee meeting.
Ensure that all employees are competitively and appropriately paid relative to the profitability, fairness and economics of the company.
Consider whether the Compensation Committee should review supplemental analyses related to the CEO pay ratio and broad-based pay practices (e.g., comparison of executive versus broad-based pay increases, review of number of employees covered under benefit programs, and review of pay ratio and median employee data to peers).
Consider how the Company will address and explain the disclosure of the ratio of CEO to median employee pay in the 2018 proxy. Since supporters of the CEO pay ratio believe that this disclosure will reduce “excessive” CEO pay caused by weak governance, companies may need to be explicit in responding to this theory. The data and analysis presented here could help in this regard.
The SEC’s Madated CEO Pay Ratio in the Context of Income Inequality : Perspectives for Compensation Committees
While the income inequality controversy started as a sociological and public Policy debate, Compensation Committees should have a strong understanding of the Relationship between public company executive compensation and income inequality.
The impending disclosure of the ratio of CEO to median employee pay in 2018 proxy statements, as required Under Dodd–‐Frank, will dramatically bring such discussions into the Compensation Committee in the near future. Supporters of the CEO pay ratio believe that this disclosure will reduce “excessive” CEO pay and lower the pay multiple.
Many “overpaid” executives subject to weak boards and poor corporate governance for being the primary cause of US income inequality. This is not accurate. While corporate executives are paid well, public company executives represent a smaller portion of the highest .1% in more recent times than they did in the mid–‐1990s.
Additionally, for the top .1%, growth in public company executive compensation actually lags the growth in private company executive pay and finance Professional pay over the same 13–‐year time period.
Pay Governance’s analyses of realizable pay for performance indicate that pay–‐for–‐performance is operating among US companies.
Improvements in corporate governance practices combined with similar executive pay levels and designs for private company executives suggest that high levels of public company CEO pay are not the result of corporate governance failure.
Further, widespread investor support for say–‐on–‐pay votes in the past six years indicate broad investor support of the current executive compensation regime.
We make strong arguments that the CEO pay ratio for a particular company will be indicative of market–‐driven industry, size and performance factors, rather than a failure of corporate governance.
As Compensation Committees consider the context of inequality issues and executive compensation decisions, Committees should focus on robust corporate governance practices, independent advice, and the company’s strategy for addressing the disclosure of the ratio of CEO to median employee pay in 2018.
The complete publication, including footnotes, is available here.
Aujourd’hui, je partage avec vous les réflexions de Ben W. Heineman, Jr*, ex-conseiller en chef de GE et Fellow de la Harvard Law School et de la Kennedy School of Government.
L’article illustre certaines dysfonctions du processus politique américain et montre que les sociétés américaines sont, en partie responsable du climat de méfiance de la population envers Washington.
L’auteur identifie plusieurs moyens que le monde des affaires devrait explorer afin de remédier aux lacunes observées dans le fonctionnement de notre démocratie et des relations entre le gouvernement et les sociétés :
- Limitation des sommes investies par les entreprises dans les campagnes politiques (7 milliards US en 2016)
- Divulgation financière accrue
- Meilleure identification des éléments factuels en matière politique
- Reconnaître la nécessité de se mettre à la place de l’autre partie dans le but d’atteindre un équilibre des valeurs
- Bâtir de larges coalitions
- Garder la tête froide afin d’éviter la confrontation
- Éviter la partisanerie
Le monde des entreprises ne doit pas s’ériger en modèle eu égard à la gestion des affaires de l’État ; cependant, je crois que les organisations doivent prendre en compte les moyens suggérés par l’auteur afin d’améliorer la communication et la bonne gouvernance.
Bonne lecture !
Many business people are appalled at the current state of our politics. Few, however, would admit that the “business community” is responsible, in part, for our dysfunctional political culture. And fewer yet may be prepared to think about how business can take steps—in concert with other political actors—to help soothe the distemper.
But, this dreary campaign season is a good time for corporate leaders to consider specific changes in political processes—less money, more disclosure, fair facts, balanced proposals, broad coalitions, cooler rhetoric, bi-partisanship—which could help fix our broken politics and rehabilitate business’s own political standing. Such process changes proceed from an understanding that there will always be significant substantive policy differences about societal problems but that those differences require a national politics that promotes common sense, civility and compromise to move the country forward, as has happened before in our history.
First a brief background sketch on the sorry state of our current political discourse.
The problem in our political system is not just the cacophony of the campaigns which distorts and obscures the real issues facing the nation. Below the noise, we have a populist revolt among a significant segment of the electorate that is more sharply critical of business than the general anti-corporate undercurrent which has long been present in American politics. That revolt stems partly from genuine problems of recession and a changing economy which is leaving some people behind but partly from the demagogic appeals to latent anger about race, immigration, Islam and trade. Moreover, the two major parties have been dead-locked for a long time on how to deal with major issues of paramount concern to the economy and the country—e.g., taxes, trade, worker dislocation, inequality, stimulus/deficit, infrastructure, immigration, education, energy and the environment—yielding a Congressional approval rating of only 14 percent!
Moreover, the well-publicized problems in the corporate community have added to political dysfunction, leading to low levels of trust in business’ role in policy and politics. These include: a steady drumbeat of corporate scandals (Wells Fargo is only the latest); ever higher executive compensation combined with stagnant real income of average citizens; corporate mistakes relating to leverage and liquidity as a major cause of the Great Recession; the perception that business elites are have disproportionate influence due to money in politics; and an aggregate sense that too much of corporate involvement in policy is in the service of “crony capitalism”, the range of subsidies, loopholes, franchises, concessions et al. that have little or no basis in advancing the broad public interest.
Business is hardly alone in its credibility problems with parts of the electorate. Other prominent actors—for example, unions, consumers, environmentalists and political parties—also have perceived failings. And, while some of the general distrust is due to political hyperventilation, there are, as noted, genuine substantive differences about whether libertarian, conservative, populist or liberal ideas are the right approach to various national problems.
But the rude noise of our current politics and the genuine substantive differences suggest that business ought to consider working with other actors in our political system on at least the following issues of political process to engender more civility and compromise. Each of these subjects is worthy of extended, book-length discussions, but here are the headlines:
New substantive limits on campaigns awash in money (more than $7B estimated in 2016 federal elections).
Although “independent” spending for educational purposes or in support of candidates is protected speech under the First Amendment, it may be limited under the Constitution if improperly “coordinated” with candidates’ campaigns or if used for “corrupt” purposes. Similarly, “educational” efforts by social welfare organizations authorized by the IRS could be more carefully circumscribed only to include genuine charitable and less partisan activities. Congress could take such narrowing steps or authorize the IRS and a reconstituted Federal Election Commission (which could have a tie-breaking chair appointed by the party in power) to address these issues.
More financial disclosure.
In elections, the Federal Election Commission and the IRS could require more real time disclosure of contributors and expenditures for “independent” entities organized under their jurisdiction. This timely disclosure (the IRS is particularly slow) would also cover more campaign finance if the scope of campaign activity funded through IRS entities was limited, forcing independent funds into the more transparent FEC Super PACs. And, the IRS could consider whether there should be an exception to the general rule of non-disclosure regarding contributors for trade associations or other authorized 501(c)(3) entities engaged in “education” on campaign issues during a defined political season.
Develop fairer, clearer facts in policy disputes.
Corporations and other parties could work with public officials to devise better, honest methods for establishing a record of consensus facts in legislative and regulatory disputes and identifying the assumptions underlying contested facts so that the battle of experts is more clearly understood by decision-makers and the public.
Acknowledge the need to balance values in conflict.
Corporations and other parties should identify and acknowledge the values on both sides of most regulatory and legislative debates and make a good faith effort to give weight to all the values in conflict, e.g. finding a fair balance between the verities of equity and efficiency in social welfare legislation or between access, cost and quality in healthcare legislation or between expedition and safety in drug approvals or between short-term cost and long-term benefit in environmental regulation.
Build broad coalitions.
Too often business public policy efforts take place in the self-referential echo-chamber of trade associations or other business groups. Working with other interested parties to create coalitions that include, but are not limited to, business allies increases the chances of broad-minded approaches that can secure approval and provide durable benefits. Indeed, there no united “business community,” and disagreements among business actors (e.g. global v. domestic, tech v. industrial) means broader coalition building is necessary.
Cool the rhetoric.
One of the poisonous aspects of our current political culture is rhetoric that demonizes opponents with words like “hate” or that bemoans an approaching American Armageddon. Business, especially, should use calm and reasoned civil discourse, recognizing that there are usually legitimate opposing values in political debates and helping find a middle ground that does not demand total victory.
Corporations should seek bipartisan or nonpartisan solutions to our most pressing problems to mitigate the anger and hostility exchanged across the aisle on so many pressing national issues which require sensible compromises. Too often relations in Congress or between Congress and the Executive look like an insoluble “blood feud.”
There should be no mistake. These political process issues—relating to money, facts, balance, coalitions, rhetoric and bipartisanship—may be as vexing and controversial for the business community as substantive policy positions. Some companies will resist, inter alia, because they believe their particular substantive position is more important than general process or because they believe gridlock in public policy is better than compromise.
Nonetheless, a timely question is whether corporations, by focusing on these and other process issues, can help heal, rather than exacerbate, the manifest ills in our political system—ills posing serious threats to the maintenance of a healthy constitutional democracy and a sound mixed economy in which vital public goods can be secured and private enterprise can flourish? These issues relating to the process of political participation should be central to a company’s future debates about what constitutes being a “good corporate citizen.” This subject is too vast for a single corporation, but a broad based “coalition of the willing,” extending far beyond corporations, may be the way past the dystopic present—what leading political scientist Francis Fukuyama has warned is American “political decay”—to a post-election future of a vibrant and workable democracy.
*Ben W. Heineman, Jr. is former GE General Counsel and is a senior fellow at Harvard Law School and Harvard Kennedy School of Government. He is author of the new book, The Inside Counsel Revolution: Resolving the Partner-Guardian Tension (Ankerwycke 2016), as well as High Performance with High Integrity (Harvard Business Press 2008).
Le 28 septembre 2016, le gouvernement fédéral a proposé un certain nombre de modifications à la Loi canadienne sur les sociétés par actions (projet de loi C-25) afin de clarifier les obligations de divulgation des émetteurs canadiens. Les amendements à la loi ont deux objectifs :
(1) s’assurer que certaines règles adoptées par le Toronto Stock Exchange (TSX) soient clarifiées et incorporées dans la loi canadienne sur les sociétés par actions ;
(2) faire en sorte que la loi amendée reflète davantage les bonnes pratiques de gouvernance généralement reconnue.
Dans leur compte rendu sur les implications de ce projet de loi, paru sur le site du Harvard Law School Forum on Corporate Governance, Louis-Martin O’Neill et Jennifer Longhurst, associés de la firme Davies Ward Phillips & Vineberg LLP, discutent de trois changements susceptibles d’affecter la gouvernance et les modes de divulgation des sociétés.
Voici les changements proposés :
- True majority voting: requiring shareholders to cast their votes “for” or “against” each individual director’s election (rather than slate voting), and prohibiting a director who has not been elected by a majority of the votes cast from serving as a direcror, except in “prescribed circumstances”;
- Annual director elections: requiring corporations to hold annual elections for all directors of a company’s board, effectively prohibiting staggered boards; and
- Diversity disclosures: requiring corporations to place before shareholders, at each AGM, information respecting diversity among the directors and among the members of senior management.
Je vous encourage à prendre connaissance de ce bref article.
L’article suivant est également : Proposed Changes to the Canada Business Corporations Act – How Could this Affect You?
Bonne lecture !
True majority voting requirement
In 2014, the Toronto Stock Exchange (TSX) implemented rules requiring majority voting for most TSX-listed issuers. This entailed adopting a majority voting policy requiring any undersupported director (i.e., a nominee who does not receive a majority of “for” votes) in an uncontested director election to tender his or her resignation to the board; the board is then required to consider and, save for “exceptional circumstances,” accept that resignation and publicly announce its decision. Since then, there has been some lingering controversy surrounding the TSX’s majority voting standard as a result of many boards rejecting the resignations of undersupported directors in reliance on those so-called exceptional circumstances, despite the expressed will of the shareholders.
For example, our Davies Governance Insights 2015 report revealed that in 2015 only one of 10 directors who failed to achieve majority support from shareholders had their resignation accepted by the board. The report explained how some of the boards relied on the “exceptional circumstances” carve-out to allow undersupported directors to remain on the board. Our most recent Davies Governance Insights 2016 report, however, suggests that this trend may be changing: in 2016, in those cases where directors of issuers on the TSX/S&P Composite and SmallCap indices received less than majority approval, the boards accepted their resignations.
The Proposed Amendments would put an end to this debate. They provide that (1) the shareholders of a distributing corporation will be able to vote only “for” or “against” each individual director (as opposed to withholding their votes); and (2) each director is elected only if the number of “for” votes represents a majority of the total shareholder votes cast. Slate voting would no longer be permitted, except for certain “prescribed corporations” (to be outlined in revised regulations, not yet published, to the CBCA). Moreover, the Proposed Amendments also provide that a director who is not elected by a majority cannot be appointed by the remaining directors to fill a vacancy on the board, except in “prescribed circumstances.”
In doing so, the Proposed Amendments would reverse the current practice that has developed under the TSX rules: rather than having an undersupported nominee elected as a matter of law and leaving to the board the decision on whether to accept their resignation, the Proposed Amendments would mean that a nominee who fails to get a majority of “for” votes is not elected as a matter of law, and may be appointed by the directors only in “prescribed circumstances.” Whether the Proposed Amendments will result in meaningful change to the current practice for TSX-listed companies will, however, depend on what those “prescribed circumstances” are, to be set out in the not yet released regulations to the CBCA.
Annual elections now required
The TSX rules currently require its listed companies to hold annual director elections, effectively prohibiting staggered boards, a fairly uncommon practice in Canada. The Proposed Amendments will bring the CBCA up to speed with this current corporate governance best practice. We note that an exception included in the Proposed Amendments allows for elections to be held in accordance with existing CBCA requirements, which allow for three-year terms and staggered boards, in the case of “any prescribed class of distributing corporations” or “any prescribed circumstances respecting distributing corporations.” There is currently no such exception in the TSX rules, save for foreign issuers. The impact of this change will, therefore, depend upon the prescribed categories of corporations and circumstances that will be proposed in the CBCA regulations, if this change is implemented.
Disclosure relating to diversity
TSX-listed and other non-venture issuers are currently required, under National Instrument 58-101—Disclosure of Corporate Governance Practices (NI 58-101), to disclose certain information relating to the diversity of their board and executive officers, including whether they have adopted a written policy regarding female representation on the board, whether they consider the level of female representation when making board or executive officer nominations or appointments, and whether they have adopted a target regarding the representation of women on the board or in senior management; if not, the issuer must disclose why not. The Proposed Amendments to the CBCA would require “prescribed corporations” to provide the “prescribed information” respecting diversity among their directors and members of senior management.
Once again, the “prescribed corporations” and “prescribed information” that will need to be disclosed have not yet been determined. Accordingly, until proposed regulations clarifying these concepts have been released, it remains unclear whether the Proposed Amendments will alter the existing “comply or explain” model under NI 58-101 or impose stricter requirements on subject companies. We do not, however, expect the Proposed Amendments to impose targets or quotas on issuers; instead, they are likely to promote a similar approach to that currently in place under securities laws.
The majority voting requirement set forth in the Proposed Amendments is likely to bring an end to the debate over those circumstances in which an undersupported director may remain on the board. The questions, however, that are still unanswered will be whether boards will be inclined to use the Proposed Amendments to fill a vacancy by appointing an undersupported director whose failed election created the vacancy in the first place; and, in such a situation, how stringent the “prescribed circumstances” will be that would allow the directors to appoint an undersupported director. We also note there are some inconsistencies between the TSX rules and the Proposed Amendments that could subject some TSX-listed CBCA companies to potentially different (and potentially conflicting) sets of rules. We expect the regulators are attuned to and will be focused on minimizing that risk. In any case, if the Proposed Amendments are adopted, we expect TSX-listed issuers that are governed by the CBCA may need to revisit and revise their majority voting policies to ensure compliance with the Proposed Amendments.
While some view the Proposed Amendments as a welcome modernization of the federal corporate statute and a reflection of the need to enhance companies’ corporate governance practices, in many ways the Proposed Amendments are entrenching practices or policies that are already addressed under the TSX rules and securities laws. By delving into these areas, there remains a risk that the Proposed Amendments could lead to compliance and interpretational issues, as well as confusion over the appropriate mandates for each of the regulators, a concern expressed by some commentators in response to Industry Canada’s initial December 2013 consultation paper on the potential CBCA amendments. In addition, several undetermined exceptions and terms that will be laid out in revised CBCA regulations have yet to be published—only once they are will the full impact of the Proposed Amendments be known.
Voici un bref article de Gary Larkin, associé à The Conference Board Governance Center, qui porte sur la perspective de concevoir un code de gouvernance qui s’adresse à l’ensemble des entreprises publiques (cotées) américaines.
Le projet de code est l’initiative de quelques leaders d’entreprises cotées, de gestionnaires d’actif, d’un gestionnaire de fonds de pension et d’un actionnaire activiste.
Cet énoncé des grands principes de gouvernance se veut un exercice devant jeter les bases d’un code de gouvernance comme on en retrouve dans plusieurs pays, notamment au Royaume-Uni.
Voici les points saillants des principes retenus :
Every board should meet regularly without the CEO present, and every board should have active and direct engagement with executives below the CEO level.
Directors should be elected by a majority of either “for” or “against/withhold” votes (with abstentions and non-votes not be counted)
Board refreshment should always be considered in order that the board’s skillset and perspectives remain current.
Every board should have members with complementary and diverse skills, backgrounds and experiences.
If the board decides on a combined CEO/Chair role, it is essential that the board have a strong independent director.
Institutional investors that make decisions on proxy issues important to long-term value creation should have access to the company, its management, and, in some circumstances, the board.
Companies should only provide earnings guidance to the extent they believe it is beneficial to shareholders.
Bonne lecture !
Over the summer, one of the most interesting pieces of corporate governance literature was the Commonsense Corporate Governance Principles.
The publication was the result of meetings between a group of leading executives of public companies, asset managers, a public pension fund, and a shareholder activist. The principles themselves may not have broken new ground—they addressed such basic issues as director independence, board refreshment and diversity, the need for earnings guidance, and shareholder engagement. But the fact that such a publication was released at a time when some in Congress to roll back Dodd-Frank corporate-governance-related regulations is impressive.
It’s impressive because of who was in the meetings. It’s impressive because the meetings took place without any government or third-party instigation. It’s impressive because it might be the beginning of a new strategy for overseeing corporate governance in the United States. It shows that sometimes industry can lead by example without rules and regulations to tell them how to govern their own companies and boards.
Maybe these principles could be the start of the first true US corporate governance code, something that our brethren in the UK have had for years. Even smaller markets such as South Africa and Singapore have codes that are used to guide corporate governance.
Granted, those at the meetings, some of who included J. P. Morgan Chase CEO Jamie Dimon, Berkshire Hathaway chief Warren Buffett, General Motors head Mary Barra, BlackRock Chair and CEO Larry Fink, and Canada Pension Plan Investment Board President and CEO Mark Machin might not have envisioned themselves as U.S. corporate governance pioneers. But it’s a first step toward a true principles-based approach to good corporate governance in a country that is used to following rules and hiring attorneys to find the loopholes.
If you look at the main points made in the Commonsense Principles, you can see the foundation for such a code:
- Every board should meet regularly without the CEO present, and every board should have active and direct engagement with executives below the CEO level.
- Directors should be elected by a majority of either “for” or “against/withhold” votes (with abstentions and non-votes not be counted)
- Board refreshment should always be considered in order that the board’s skillset and perspectives remain current.
- Every board should have members with complementary and diverse skills, backgrounds and experiences.
- If the board decides on a combined CEO/Chair role, it is essential that the board have a strong independent director.
- Institutional investors that make decisions on proxy issues important to long-term value creation should have access to the company, its management, and, in some circumstances, the board.
- Companies should only provide earnings guidance to the extent they believe it is beneficial to shareholders.
Microsoft, a Governance Center member, is satisfied with the Commonsense Principles because it aligns with what it has in place, according to a blog from Microsoft Corporate Secretary John Seethoff. “For example, we’ve made a concerted effort to assure board refreshment occurs with a focus on diversity in skillsets, backgrounds, and experiences,” he wrote. “The Principles agree with this emphasis, asserting, ‘Diversity along multiple dimensions is critical to a high-functioning board. Director candidates should be drawn from a rigorously diverse pool.’ Board tenure receives similarly thoughtful consideration, with the Principles underscoring the need to temper ‘fresh thinking and new perspectives’ with ‘age and experience.’”
Seethoff concluded: “At Microsoft, we’ve long believed that good corporate governance encourages accountability and transparency, as well as promotes sound decision-making to support our business over time. The ultimate goal is to create a system that provides appropriate structure for the company at present, allows flexibility to change in the future, and has a long-term perspective that matches our business objectives and strategy. As part of this open, constructive mindset, we applaud the leaders for outlining these Principles and look forward to continued dialogue on this important effort.”
If you ask me, the Commonsense Principles can definitely be the US Corporate Governance Code Version 1.0. They could be treated like climate change agreements (i.e. the 2015 Paris Climate Change Agreement) where countries come together and sign on. The original group of executives could hold a follow-up meeting or convention that would allow US companies to promise to follow the principles, similar to The Giving Pledge started by Buffet and Microsoft founder Bill Gates.
Voici un article d’Ann Yerger, directrice du Center for Board Matters, de la firme Ernst & Young, qui porte sur l’évolution significative des politiques de divulgation des comités d’audit aux actionnaires des entreprises cotées en bourse aux États-Unis en 2106. L’article est paru sur le site du Harvard Law School Forum on Corporate Governance le 9 octobre.
L’étendue des divulgations aux actionnaires est vraiment très importante dans certains cas. Par exemple, en 2012, seulement 42 % des entreprises dévoilaient explicitement que le comité d’audit était responsable de l’engagement, de la rémunération et de la surveillance des auditeurs externes, alors qu’en 2016, 82 % divulguent, souvent en détail, les informations de cette nature.
Plusieurs autres résultats font état de changements remarquables dans la reddition de compte des comités d’audit aux actionnaires des entreprises.
Ceux-ci sont maintenant plus en mesure d’évaluer la portée des décisions des comités d’audit eu égard à la qualité du travail des auditeurs externes, aux raisons invoquées pour changer d’auditeur externe, à la fixation du mandat de l’auditeur externe, à la composition du comité d’audit, à l’augmentation des honoraires des firmes comptables dans les quatre catégories suivantes : audit, relié aux travaux d’audit, fiscalité et autres services connexes, etc.
Bonne lecture !
Audit committees have a key role in overseeing the integrity of financial reporting. Nevertheless, relatively little information is required to be disclosed by US public companies about the audit committee’s important work. Since our first publication in this series in 2012, we have described efforts by investors, regulators and other stakeholders to seek increased audit-related disclosures, as well as the resulting voluntary disclosures to respond to this interest.
Over 2015–2016, US regulators have placed a spotlight on audit-related disclosures and financial reporting more generally. The US Securities and Exchange Commission (SEC) and the US Public Company Accounting Oversight Board (PCAOB) have both taken action to consider the possibility of requiring new disclosures relating to the audit.
SEC representatives also have used speeches to urge companies and audit committees to increase disclosures in this area voluntarily. While additional disclosure requirements for audit committees are not expected in the near term, regulators continue to monitor developments in this area. This post seeks to shed light on the evolving audit-related disclosure landscape.
Public company audit committees are responsible for overseeing financial reporting, including the external audit. Under US securities laws, audit committees are “directly responsible for the appointment, compensation, retention and oversight” of the external auditor, and must include a report in annual proxy statements about their work. This audit committee report, however, currently must affirm only that the committee carried out certain specific responsibilities related to communications with the external auditor, and this requirement has not changed since 1999.
In recent years, a variety of groups have brought attention to the relative lack of information available about the audit committee and the audit, including their view that this area of disclosure may not have kept up with the needs of investors and other proxy statement users. These groups include pension funds, asset managers, investors, corporate governance groups, and domestic and foreign regulators. As efforts to seek additional information have continued, there has been a steady increase in voluntary audit-related disclosures.
Over the last year, the SEC has taken a series of actions to consider whether and how to improve transparency around audit committees, audits and financial reporting more generally. The combined effect of these activities has been to increase engagement by issuers, audit firms, investors and other stakeholders in discussions about the current state of financial reporting related disclosure as well as how it should change.
Our analysis of the 2016 proxy statements of Fortune 100 companies indicates that voluntaryaudit-related disclosures continue to trend upward in a number of areas. The CBM data for this review is based on the 78 companies on the 2016 Fortune 100 list that filed proxy statements each year from 2012 to 2016 for annual meetings through August 15, 2016. Below are highlights from our research:
- The percentage of companies that disclosed factors considered by the audit committee when assessing the qualifications and work quality of the external auditor increased to 50%, up from 42% in 2015. In 2012, only 17% of audit committees disclosed this information.
- Another significant increase was in disclosures stating that the audit committee believed that the choice of external auditor was in the best interests of the company and/or the shareholders. In 2016, 73% of companies disclosed such information; in 2015, this percentage was 63%. In 2012, only 3% of companies made this disclosure.
- The audit committees of 82% of the companies explicitly stated that they are responsible for the appointment, compensation and oversight of the external auditor; in 2012, only 42% of audit committees provided such disclosures.
- 31% of companies provided information about the reasons for changes in fees paid to the external auditor compared to 21% the previous year. Reasons provided in these disclosures include one-time events, such as a merger or acquisition. Under current SEC rules, companies are required to disclose fees paid to the external auditor, divided into the following categories: audit, audit-related, tax and all other fees. They are not, however, required to discuss the reasons why these fees have increased or decreased. From 2012 to 2016, the percentage of companies disclosing information to explain changes in audit fees rose from 9% to 31%. Additional CBM research examined the disclosures of the subset of studied companies (43) that had changes in audit fees of +/- 5% or more compared to the previous year. Out of these 43 companies, roughly 20% provided explanatory disclosures regarding the change in audit fees.
- 29 of the 43 companies had fee increases of 5% or more, out of which 8 companies disclosed the reasons for the increases. 14 of the 43 companies had fee decreases of 5% or more, out of which only one company provided an explanatory disclosure.
- 53% of companies disclosed that the audit committee considered the impact of changing auditors when assessing whether to retain the current auditor. This was a 6 percentage point increase over 2015. In 2012, this disclosure was made by 3% of the Fortune 100 companies. Over the past five years, the number of companies disclosing that the audit committee was involved in the selection of the lead audit partner has grown dramatically, up to 73% in 2016. In 2015, 67% of companies disclosed this information, while in 2012, only 1% of companies did so.
- 51% of companies disclosed that they have three or more financial experts on their audit committees, up from 47% in 2015 and 36% in 2012.
Summary: Trends in Audit Committee Disclosure
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Dans ce billet, je vous présente un sommaire de l’allocution que j’ai exposé devant les membres de la commission des institutions de l’Assemblée nationale, le 21 septembre, et qui concerne la position de l’ordre des administrateurs agréés eu égard à la modernisation de la gouvernance du système professionnel québécois (Projet de loi 98).
Voici donc le sommaire de notre mémoire. Vous pouvez consulter la version complète du Mémoire de l’Ordre des administrateurs agréés du Québec en vous rendant sur le site de l’assemblée nationale et en cliquant sur le document PDF en question.
L’Ordre des administrateurs agréés du Québec (« OAAQ ») accueille favorablement les mesures visant à moderniser la gouvernance des ordres professionnels. Le recentrage des responsabilités des conseils d’administration vers la vigie et la stratégie, la réduction de la taille des conseils et la distinction des rôles de président et de directeur général devraient favoriser le fonctionnement de nos organisations vouées à la protection du public.
Les principes de gouvernance qui sous-tendent cette réforme sont d’ailleurs implantés à l’OAAQ depuis 2011. L’OAAQ appuie vigoureusement l’obligation pour les administrateurs de se soumettre à une formation en gouvernance et en éthique. Compte tenu de son expertise, l’OAAQ invite les acteurs du système professionnel à lui confier ce mandat de formation.
Le projet de loi nº 98 donne également suite à quatre recommandations de la Commission Charbonneau, notamment quant aux pouvoirs du syndic. Tout en appuyant ces mesures, l’OAAQ souhaite que la réflexion sur la contribution du système professionnel au défi de l’intégrité soit l’occasion de réfléchir au potentiel lié à la professionnalisation de la gestion, un axe malheureusement occulté dans la réponse à donner aux suites de la Commission Charbonneau.
En effet, le rôle joué par certains professionnels de la gestion – chargés de projets, cadres municipaux et administrateurs de contrats – a été remis en question. En sa qualité d’ordre professionnel encadrant la pratique des gestionnaires et veillant à la promotion de normes déontologiques et d’éthique, l’OAAQ peut compléter le dispositif en place aux fins de mitiger les risques d’inconduites dans le domaine des affaires et de la gestion. L’OAAQ interpelle l’État et l’invite à favoriser l’adhésion des gestionnaires au système professionnel ainsi qu’à l’OAAQ.
L’OAAQ appuie la volonté gouvernementale visant à assurer une meilleure efficacité des ordres dans leur mission de protection du public.
Toutefois, les ordres à titres réservés, comme l’OAAQ, doivent avoir les moyens d’exister pour remplir cette mission. Cette consultation sur la réforme du Code des professions est l’occasion de sensibiliser les parlementaires à l’enjeu de la pérennité auquel fait face notre ordre et d’exprimer nos attentes légitimes. Alors que l’OAAQ doit accentuer les mécanismes de protection du public, il doit d’autre part relever le défi de recruter des membres qui s’astreindront à des devoirs déontologiques et à des responsabilités supplémentaires (inspection, formation, assurance) sans bénéficier d’actes réservés.
Si l’État souhaite renforcer la protection du public et la contribution des ordres à titres réservés à cette mission, son action doit être cohérente et des mesures structurantes doivent être mises en œuvre.
Malheureusement, et bien que les consultations et travaux de l’Office des professions du Québec soient terminés, le projet de loi nº 98 ne comporte pas de disposition modernisant les champs descriptifs des ordres du secteur des affaires. L’OAAQ est également en attente de mesures législatives pour la réserve d’acte en gestion de copropriété, une action recommandée par l’Office des professions du Québec.
LISTE DES RECOMMANDATIONS
Que l’État reconnaisse le potentiel lié à la professionnalisation de la gestion comme une réponse à la Commission Charbonneau et que l’administration publique encourage et favorise l’adhésion des gestionnaires au système professionnel ainsi qu’à l’OAAQ.
Que le Code des professions soit amendé afin de renforcer la gouvernance des ordres professionnels et consacre les principes suivants :
- Recentrage des responsabilités du conseil d’administration vers la surveillance, les orientations stratégiques et la gouvernance ;
- Réduction de la taille des conseils d’administration ;
- Distinction des rôles de président (la gouvernance) et de directeur général (la gestion) ;
- Obligation d’adopter un code d’éthique et de déontologie pour les administrateurs des ordres et de se soumettre à une formation en gouvernance ;
- Discrétion accordée aux ordres dans leur choix de porte-parole.
Que le Code des professions consacre l’obligation de se soumettre à une formation en matière de gouvernance et d’éthique pour les administrateurs des ordres et que les acteurs du système professionnel confient à l’OAAQ ce mandat de formation.
Que la modernisation des champs descriptifs des ordres du secteur des affaires soit intégrée au projet de loi n° 98 (modifications au paragraphe i de l’article 37 du Code des professions).
Que le gouvernement donne suite aux orientations de l’Office des professions du Québec visant la modernisation des champs d’exercice des professions du secteur des affaires et légifère pour réserver l’activité de l’administration de copropriétés.
Le rapport annuel de Davies est toujours très attendu car il brosse un tableau très complet de l’évolution de la gouvernance au Canada durant la dernière année.
Le document qui vient de sortir est en anglais mais la version française devrait suivre dans peu de temps.
Je vous invite donc à en prendre connaissance en lisant le court résumé ci-dessous et, si vous voulez en savoir plus sur les thèmes abordés, vous pouvez télécharger le document de 100 pages sur le site de l’entreprise.
Cliquez sur le lien ci-dessous. Bonne lecture !
Davies Governance Insights 2016, provides analysis of the top governance trends and issues important to Canadian boards, senior management and governance observers.
The 2016 edition provides readers with our take on important topics ranging from shareholder engagement and activism to leadership diversity and the rise in issues facing boards and general counsel. We also provide practical guidance for boards and senior management of public companies and their investors on these and many other corporate governance topics that we expect will remain under focus in the 2017 proxy season.
Voici un cas de gouvernance publié sur le site de Julie Garland McLellan* qui illustre les contradictions entre les valeurs énoncées par une école privée et celles qui semblent animer les administrateurs et les parents.
Le cas montre comment un administrateur, nouvellement élu sur un CA d’une école privée, peut se retrouver dans une situation embarrassante impliquant des comportements de harcèlement et de menaces qui affectent la santé mentale et le bien-être des employés.
Cette situation semble se présenter de plus en plus fréquemment dans les institutions d’enseignement qui visent des rendements très (trop !) élevés.
Comment Ignacio peut-il s’y prendre pour bien faire comprendre aux administrateurs de son CA leurs devoirs et leurs obligations légales d’assurer un climat de travail sain, absent d’agression de la part de certains parents ?
Le cas présente, de façon claire, une situation de culture organisationnelle déficiente ; puis, trois experts en gouvernance se prononcent sur le dilemme qui se présente aux administrateurs qui vivent des expériences similaires.
Bonne lecture ! Vos commentaires sont toujours les bienvenus.
Ignacio is an old boy of a private school with a proud sporting tradition. He was invited onto the board last year when a long-serving director retired. The school is well run with a professional principal who has the respect of the staff as well as many of the boys.
The school has worked hard to develop academic excellence and its place in rankings has improved with a greater percentage of boys qualifying for university.
At the last board meeting the CEO was absent. The chairman explained that he had taken stress leave because he couldn’t cope with bullying from some of the parents. Some directors sniggered and the rest looked embarrassed. There were a few comments about ‘needing to grow a backbone’, ‘being a pansy’, and ‘not having the guts to stand up to parents or lead the teams to victory on the field’.
Ignacio was aghast – he asked about the anti-harassment and workplace health and safety policies and was given leave by the chair « to look into ‘covering our backs’ if necessary ».
Ignacio met with the HR manager and discovered the policies were out of date and appeared to have been cut and pasted from the original Department of Education advice without customisation. From his experience running a business Ignacio is aware of the importance of mental health issues in the modern workplace and also of the legal duty of directors to provide a workplace free from bullying and harassment. School staff are all aware of a discrepancy between the stated School values and those of the board and some parents. The HR manager tells him that recent bullying by parents has become more akin to verbal and even physical assault. Staff believe the board will not support them against fee paying parents even though the school is, in theory, a not-for-profit institution.
How can Ignacio help lead his board to an understanding of their duty to provide a safe workplace?
Chris’s Answer …..
Julie’s Answer ….
Leanne’s Answer ….
*Julie Garland McLellan is a practising non-executive director and board consultant based in Sydney, Australia.
Quelle est la rémunération globale des administrateurs canadiens ?
C’est une question que beaucoup de personnes me posent, et qui n’est pas évidente à répondre !
L’article ci-dessous, publié par Martin Mittelstaedt, chercheur et ex-rédacteur au Globe and Mail, apporte un éclairage très intéressant sur la question de la rémunération des administrateurs canadiens.
Les études sur le sujet sont rares et donnent des résultats différents compte tenu de la taille, de la nature privée ou publique des entreprises, du secteur d’activité, des différentes composantes de la rémunération globale, etc.
De manière générale, il semble que les rémunérations des administrateurs canadiens et américains soient similaires et que les postes d’administrateurs des entreprises publiques commandent une rémunération globale d’environ quatre fois la rémunération offerte par les entreprises privées.
Une étude montre que la base médiane de la rémunération des administrateurs de sociétés privées au Canada est de 25 000 $, avec un jeton de présence de 1 500 $ et quatre réunions annuelles. Le nombre d’administrateurs est de six, incluant trois administrateurs indépendants et une femme ! La somme de la rémunération globale s’établirait à environ 31 000 $ US. Mais on parle ici de grandes entreprises privées…
Le montant de la rémunération dépend aussi beaucoup des plans de distribution d’actions, des privilèges, des bonis, etc.
Évidemment, pour toute entreprise publique, il est facile de connaître la rémunération détaillée des administrateurs et des cinq hauts dirigeants puisque ces renseignements se retrouvent dans les circulaires aux actionnaires.
Je vous encourage à lire cet article. Vous en saurez plus long sur les raisons qui font que les informations sont difficiles à obtenir dans le secteur privé.
Bonne lecture !
Determining director compensation at private companies is more of an art than a science, with a wide range of practices and no one-size-fits-all formula.
Unlike publicly traded companies, where detailed information about director remuneration is as close as the nearest proxy circular, compensation at private boards is like “a black box,” according to Steve Chan, principal at Hugessen Consulting, who says retainers, meeting fees and share-based awards “are all over the map.”
Not much is known about private director compensation “for good reason,” observes David Anderson, president of Anderson Governance Group. “There is not a lot of data out there.”
Private company directorships can be prized assignments because they don’t involve the heavy compliance and regulatory burdens that occupy increasing amounts of time at public company boards.
But what private boards should be paid is difficult to determine, when there is little research to guide individual directors or companies. Some of the available data suggest private directors are being underpaid, at least relative to their public counterparts. But this information does not include the fact that the work may be different and much of the compensation at public boards may not ultimately pay off because it is linked to share price performance.
It is difficult to benchmark best practices with so little hard data, making it unsurprising that how best to set private company directors’ compensation is the most frequently asked question made by members to the ICD.
One of the few ongoing attempts to analyze compensation indicates remuneration is far higher at public boards, about four times higher in fact, although the amounts are skewed by the heavy use of stock-linked awards at publicly traded companies.
The private company survey, by Lodestone Global, was based on a questionnaire posed to members of the Young Presidents’ Organization, an international group of corporate présidents and CEOs, including many from Canada.
The Lodestone survey looked at medium-sized family or closely held firms, companies that are more established than early-stage startups, but smaller than large global corporations.
“The survey is not casually designed. The data is pretty rigorous and it’s global,” says Bernard Tenenbaum, managing partner at Princeton, N.J.-based Lodestone.
Tenenbaum says he started investigating private company board compensation because of the paucity of data on the subject. No one seemed to know what was going on. “People kept asking me, ‘Well how much should we pay directors?’ I’d say: ‘I don’t know. How much do you pay them now?’ And I started surveying.”
The firm’s most recent survey, based on 2014 data, had responses from more than 250 private companies, including 19 from Canada. The median revenue at the Canadian companies was $100-million, with the median number of employees at 325.
According to Tenenbaum, the median Canadian retainer was $25,000, with a $1,500 meeting fee and four meetings annually. The median number of directors was six, with three independent and one woman. The total of fees and retainers came to $31,000 (all dollar figures U.S.)
Interestingly, the overall U.S. compensation figure matched the Canadian one, but with a different composition. The median U.S. retainer was lower at $21,000, but the meeting fee was higher at $2,500. Including a few other miscellaneous items, like teleconference fees, U.S. compensation was $33,000, compared to $32,250 in Canada, a closeness that Tenenbaum termed “a kissing distance.”
The Lodestone figures give an indication of director compensation, although it is worth cautioning that the sample size is small, the figures are based on the median or middle-ranked firm, and there was a wide variety in size among the companies, given that they included a few smaller tech and industrial firms.
To benchmark private company director compensation, it is worthwhile to look at what comparable publicly traded companies are paying. One useful comparator is the smaller companies embedded in the BDO 600 survey of director compensation at medium-sized public companies. It has access to highly accurate data based on shareholder proxy circulars.
BDO’s 2014 survey found that among firms with revenue between $25-million and $325-million, cash compensation through retainer and committee fees averaged $54,000, while directors typically received another $65,000 in stock awards and options for a total of $119,000.
There is a small amount of information available in Canada on private board compensation, but the amount of data isn’t large enough to make generalized statements on remuneration and involves larger companies.
For example, in its director compensation, Canadian Tire Corp. breaks out amounts paid to the company’s non-publicly traded banking subsidiary, Canadian Tire Bank. In 2014, three directors on both boards were paid about $55,000 each for retainers and meeting fees for serving at the bank. Similarly, Loblaw Companies Ltd. paid $58,000 to a director who also served on President’s Choice Bank, a privately-held subsidiary.
The amounts are relatively low for blue-chip Canadian companies, but both banks are far smaller than their parent companies, with Canadian Tire Bank at $5.6-billion in assets and PC Bank at $3.3-billion.
Hugessen’s Chan says that in his experience, the larger, family-run private companies that have global operations compensate directors at roughly the same amounts as similarly sized public firms.
“Among the larger public companies versus the private companies, they’re comparable,” Chan says.
Tenenbaum says that based on his research and the figures from BDO, directors are being paid about $20,000 annually for taking on the added hassle of serving on a public company. He discounted the value of the stock-based compensation because it is conditional on share-price performance.
“There is a premium that you pay a director for taking the risk” of public company exposure, Tenenbaum says.
Directors also need to take into account some of the non-monetary factors of the board experience. Given that so much time on a public board is spent on compliance with regulatory requirements, being freed of this responsibility has value.
“When you’re on a private board, you don’t need to worry about all of the compliance that you have to worry about on a public company board,” says Larry Macdonald, who has served on both types of boards in the oil and gas sector. “You can spend more time on the issues which are probably more important to the company on a private board than you can on public board.”
Macdonald currently chairs publicly-traded Vermilion Energy Inc., but has also served on several private and volunteer boards.
One consequence of the difference in focus is that private boards can often have fewer members because directors can be more focused on company business needs, rather than on compliance requirements. Decision making can also be quicker and easier.
Macdonald says a public board may need eight to 10 people to handle the volume of work, compared to only five or six on a similar private company. As an example of the efficiency of a private board, a company that has a particularly good year and wants to pay employees a bonus can easily decide to do so.
At a public company, however, making this payment wouldn’t be as straightforward. Directors would have to compile a detailed explanation of why they wanted to pay the bonus and include it in shareholder circulars.
While some companies are downgrading the importance of meeting fees, Macdonald thinks they are necessary, with a range of $1,000 to $1,500 being sufficient. “There should be a permeeting fee. You want your directors to show up in person, if at all possible, and if you’re not going to give them a permeeting fee they’re going to be phoning it in or not showing up, so you’ve got to keep everybody interested,” he says.
He would set the retainer with an eye to any equity compensation. “If there is a pretty good option plan, I would think that $10,000 a year would be adequate, but if the option plan is weaker, you have to up the annual fee,” Macdonald says.
The amount of equity reserved for directors in private companies is a disputed topic. Tenenbaum says equity compensation at private companies, in his experience, is rare. But Chan says a figure often used is to allocate 10 percent of the equity for directors and executives.
If the director is “pounding the pavement with the CEO, a big chunk ofthe [equity] pool might go to directors,” Chan says.
The amount of equity reserved for executives and the board could be as high as 20 percent to 30 percent in the early life of a technology company, but lower than 10 percent in a capital intensive business. “It all depends on size. You’re not going to give 10 percent away of a $1-billion company,” he says.
Macdonald considers the 10 percent of stock reserved for management and directors a good ball park figure. The bulk of the stock typically goes to management, with one or two percent earmarked for directors, he says.
Public boards are typically egalitarian, with all directors receiving the same base compensation. Private boards, however, can and do pay differing amounts, depending on the specialized skills companies are trying to assemble among their directors. Macdonald says a private oil company looking to pick up older fields, which may have environmental issues, might award extra compensation to attract a director with recognized skills in health, safety and environment.
To be sure, compensation is only one factor in attracting directors to a board. Tenenbaum says academic research has found that the reasons directors cite to join boards are led by the quality of top management, the opportunity to learn and to be challenged. Personal prestige, compensation and stock ownership are far down the list.
These factors may explain why many people want to serve on private boards. “The qualitative experience of private company directors is quite different from public company directors,” says Anderson.
“They avoid a lot of the perceived risk of public company boards and they get the benefit of doing what, as business people, they really like doing, which is thinking about the business and applying their knowledge and experience to business problems.”
This article originally appeared in the Director Journal, a publication of the Institute of Corporate Directors (ICD). Permission has been granted by the ICD to use this article for non-commercial purposes including research, educational materials and online resources. Other uses, such as selling or licensing copies, are prohibited.
Voici un excellent article partagé par Paul Michaud, ASC, et publié dans The Economist.
Il y a plusieurs pratiques du management et de la gouvernance à revoir à l’âge des grandes entreprises internationales qui se démarquent par l’excellence de leur modèle d’acquisiteur, de consolidateur et de synergiste.
Incumbents have always had a tendency to grow fat and complacent. In an era of technological disruption, that can be lethal. New technology allows companies to come from nowhere (as Nokia once did) and turn entire markets upside down. Challengers can achieve scale faster than ever before. According to Bain, a consultancy, successful new companies reach Fortune 500 scale more than twice as fast as they did two decades ago. They can also take on incumbents in completely new ways: Airbnb is competing with the big hotel chains without buying a single hotel.
Vous trouverez, ci-dessous un bref extrait de cet article que je vous encourage à lire.
IN SEPTEMBER 2009 Fast Company magazine published a long article entitled “Nokia rocks the world”. The Finnish company was the world’s biggest mobile-phone maker, accounting for 40% of the global market and serving 1.1 billion users in 150 countries, the article pointed out. It had big plans to expand into other areas such as digital transactions, music and entertainment. “We will quickly become the world’s biggest entertainment media network,” a Nokia vice-president told the magazine.
It did not quite work out that way. Apple was already beginning to eat into Nokia’s market with its smartphones. Nokia’s digital dreams came to nothing. The company has become a shadow of its former self. Having sold its mobile-phone business to Microsoft, it now makes telecoms network Equipment.
There are plenty of examples of corporate heroes becoming zeros: think of BlackBerry, Blockbuster, Borders and Barings, to name just four that begin with a “b”. McKinsey notes that the average company’s tenure on the S&P 500 list has fallen from 61 years in 1958 to just 18 in 2011, and predicts that 75% of current S&P 500 companies will have disappeared by 2027. Ram Charan, a consultant, argues that the balance of power has shifted from defenders to attackers.
Incumbents have always had a tendency to grow fat and complacent. In an era of technological disruption, that can be lethal. New technology allows companies to come from nowhere (as Nokia once did) and turn entire markets upside down. Challengers can achieve scale faster than ever before. According to Bain, a consultancy, successful new companies reach Fortune 500 scale more than twice as fast as they did two decades ago. They can also take on incumbents in completely new ways: Airbnb is competing with the big hotel chains without buying a single hotel.
Next in line for disruption, some say, are financial services and the car industry. Anthony Jenkins, a former chief executive of Barclays, a bank, worries that banking is about to experience an “Uber moment”. Elon Musk, a founder of Tesla Motors, hopes to dismember the car industry (as well as colonise Mars).
It is perfectly possible that the consolidation described so far in this special report will prove temporary. But two things argue against it. First, a high degree of churn is compatible with winner-takes-most markets. Nokia and Motorola have been replaced by even bigger companies, not dozens of small ones. Venture capitalists are betting on continued consolidation, increasingly focusing on a handful of big companies such as Tesla. Sand Hill Road, the home of Silicon Valley’s venture capitalists, echoes with talk of “decacorns” and “hyperscaling”.
Second, today’s tech giants have a good chance of making it into old age. They have built a formidable array of defences against their rivals. Most obviously, they are making products that complement each other. Apple’s customers usually buy an entire suite of its gadgets because they are designed to work together. The tech giants are also continuously buying up smaller companies. In 2012 Facebook acquired Instagram for $1 billion, which works out at $30 for each of the service’s 33m users. In 2014 Facebook bought WhatsApp for $22 billion, or $49 for each of the 450m users. This year Microsoft spent $26.2 billion on LinkedIn, or $60.5 for each of the 433m users. Companies that a decade ago might have gone public, such as Nest, a company that makes remote-control gadgets for the home, and Waze, a mapping service, are now being gobbled up by established giants.
Voici un récent article publié par Julie Hembrock Daum, directrice à Spencer Stuart et Susan Stauberg, PDG à Fondation WomenCorporateDirectors.
Cet article a été publié dans le Harvard Law School Forum aujourd’hui et il présente l’état de la gouvernance à l’échelle internationale (60 pays) en mettant particulièrement l’accent sur la diversité et les différences de perception entre les hommes et les femmes qui occupent des postes d’administrateurs de grandes sociétés privées ou publiques.
On me demande souvent de proposer des références en relation avec la gouvernance globale. Les gens veulent connaître les tendances et les progrès des efforts entrepris dans le domaine de la diversité dans le monde.
L’enquête citée ci-dessous fournit des données actuelles sur les principaux enjeux concernant les Board.
Je crois que tous les gestionnaires seront intéressés par la présentation succincte, claire et bien illustrée des données de la mondialisation de la gouvernance.
Bonne lecture ; vos commentaires sont appréciés.
The growing demands on corporate boards are transforming boardrooms globally, with directors taking on a more strategic, dynamic and responsive role to help steer their companies through a hypercompetitive and volatile business environment. Economic and political uncertainties make long-term planning more difficult. The proliferation of cyber attacks—and their consequences for business in financial olosses and reputational damage—increases the scope of risk oversight. A rise in institutional and activist shareholder activity requires boards to identify vulnerabilities in board renewal and performance and, in some cases, establish protocols for engagement. And all of these demands have pushed issues around board composition and diversity to the fore, as boards cannot afford to have directors around the table who aren’t delivering value.
In this context, Spencer Stuart, the WomenCorporateDirectors (WCD) Foundation, Professor Boris Groysberg and doctoral candidate Yo-Jud Cheng of Harvard Business School and researcher Deborah Bell partnered together on the 2016 Global Board of Directors Survey, one of the most comprehensive surveys of corporate directors around the world.
We received responses from more than 4,000 male and female directors from 60 countries, providing a comprehensive snapshot of the business climate and strategic priorities as seen from the boardroom of many of the world’s top public and large, privately held companies.
The survey explores in depth how boards think and operate. It captures in detail the governance practices, strategic priorities and views on board effectiveness of corporate directors around the world. It also confirmed many of our observations from working with boards. The economy is top of mind, and many directors are uncertain about economic prospects and not seeing growth in the future. At the same time, directors are responding proactively to the many new demands they face, looking for opportunities to enhance composition and improve board performance.
Findings compare and contrast the views between male and female corporate board directors, and highlight similarities and differences between public and private companies and among directors from different regions in five key areas:
- Political and economic landscape
- Company strategy and risks
- Board governance and effectiveness
- Board diversity and quotas
- Director identification and recruitment
This post highlights key findings around these topics, providing directors an overview of how their peers view their own boards and the challenges that their companies face. In subsequent reports, we will dive deeper into specific governance areas and explore additional perspectives on board composition, risk areas, and strengths and weaknesses in boardrooms today.
Political and Economic Landscape: Uncertainty dominates boardroom outlook.
Our survey finds that directors around the world are uncertain about global growth prospects, with directors in North America and Western Europe least confident about the prospects for growth. Sixty-three percent of directors in these regions see uncertain economic conditions, compared with 36% in Asia and 40% in Africa.
Only 2% of directors across all regions predict a period of strong global growth over the next three years, while 16% expect a global slowdown. “This pessimism about growth is one of the most surprising findings of our survey,” said Boris Groysberg of Harvard Business School. “It seems that the market volatility and low prospects for growth as well as the unpredictable economic outlook are what keep board members awake at night.”
More than one-third of directors of companies headquartered in Asia and roughly one-quarter of directors of companies in Australia/New Zealand expect relatively faster growth in emerging economies versus developed countries.
Political and Economic Landscape: Economy, regulations and cybersecurity top issues for directors.
Across all industries and regions, directors rank the economy and the regulatory environment as the political issues most relevant to them. Cybersecurity is an increasingly important issue in many regions. More than one-third of directors of companies in Australia/New Zealand, North America and Western Europe say cybersecurity is a top issue. “Cybersecurity continues to be a leading issue on the agenda from a regulatory, reputational and contingency standpoint,” says Julie Hembrock Daum, head of Spencer Stuart’s North American Board Practice.
“We see boards considering a number of different approaches to getting smart about the broader impact of technology on the business. In certain cases they have added a director with a strong digital or security background. However, the board should not isolate cybersecurity responsibility with just this one board member, but continue to view cybersecurity as a full board priority.”
Political instability is a concern in several regions. In Central and South America, one-half of directors cite political instability as an issue. Corporate tax rates are an issue particularly in North America.
Company Risks: Women directors report higher concerns about risk than male directors.
Directors globally express the most concern about regulatory and reputational risks, followed by cybersecurity, and less about activist investors and supply chain risks. In general, directors report that their companies are prepared to handle the most important risks, with companies’ level of readiness matching the most concerning areas of risk. However, directors of private companies systematically rank their boards as being less prepared versus public company boards when it comes to such risks.
Nearly across the board, female directors report a higher level of concern about various risks to a company than their male peers—from concerns about activist investors and cybersecurity to regulatory risk and the supply chain. However, female directors also feel that their companies have a higher level of readiness to address these risks than do their male cohorts.
Susan Stautberg, chairman and CEO of the WCD Foundation, believes that women directors may be educating themselves more about the potential risks:
“We believe that women in particular bring a real thirst for knowledge and curiosity to their board service, and this includes getting up-to-speed on what the real risks are to an organization. All good directors do this, but we think being relatively new to the boardroom can create a greater sense of urgency to learn.”
Strategy: Top challenges differ for public and private companies.
Talent, regulations, global and domestic competition, and innovation are seen by directors as the top impediments to achieving their companies’ strategic objectives. How those challenges rank specifically depends in part on whether directors are serving public or private companies.
Nearly half of private company directors (versus 38% of public company directors) rate attracting and retaining talent as a key challenge to achieving their company’s strategic objectives. This is followed by domestic competitive threats, the regulatory environment, innovation and global competitive threats. Among public companies, 43% of directors (versus 32% of private company directors) say the regulatory environment is a top challenge, followed by attracting and retaining talent, global competitive threats, innovation and domestic competitive threats.
“This was interesting because we do see in larger, more established public companies a greater maturity in their HR processes and deeper resources invested in talent management and development,” says Daum. “Identifying and recruiting individuals who fit the culture, bring impact to the organization and endure is a high priority for nearly all companies. However, many private companies, which tend to be smaller and have less brand awareness as a whole, often have less robust HR structures to attract the level of talent across the organization.”
Perceived challenges also differ somewhat by industry and region, with the regulatory environment being more concerning for companies in the energy/utilities, financials/professional services and healthcare industries, and in Asia, Australia/New Zealand, North America and Western Europe. Global competitive threats are the leading concern for companies in the industrials and materials sectors, and in Western Europe.
Interestingly, while cybersecurity is viewed as an important risk, few directors consider it a major challenge to achieving strategic objectives. Similarly, activist shareholders, compensation, cost of commodities and supply chain risk are not perceived as challenges to achieving strategic goals.
Boardroom Grades: Directors consider boards weaker in people-related processes.
On average, directors rate their board’s overall performance as being slightly above average (3.7 out of 5). Directors see their boards as having the strongest processes related to staying current on the company and the industry, compliance, financial planning and board composition, and weakest in cybersecurity, the evaluation of individual directors, CEO succession planning and HR/talent management.
“These ratings underscore directors’ views that attracting and retaining top talent is a common challenge, and underline the need for these HR competencies on boards,” says Stautberg. Harvard Business School doctoral candidate Yo-Jud Cheng adds, “Despite the fact that directors recognize their weaknesses in these areas, boards continue to prioritize more conventional areas of expertise, such as industry knowledge and auditing, in their appointments of new directors.”
Public company directors rate their overall board performance slightly higher than private company directors (3.8 versus 3.4) and give themselves higher marks for creating effective board structures, evaluation of individual directors, cybersecurity and compliance. We also see some variation across regions.
Board Turnover: Directors—especially women—favor tools to trigger change.
A little more than one-third of boards have term limits for directors, averaging six years, while approximately one-quarter of boards have a mandatory retirement age, averaging 72 years. Boards in Western Europe are most likely to have term limits, and boards in North America are least likely to set term limits. However, boards in North America are more likely to have a mandatory retirement age than boards in Western Europe (34% versus 18%). We also see a stark contrast between public and private companies in both term limits (39% versus 30%) and mandatory retirement ages (33% versus 12%).
While these tools for triggering director turnover generally have not been widely adopted, the survey indicates that directors favor adoption of such mechanisms. Sixty percent of directors think that boards should have mandatory term limits for directors, and 45% think that there should be a mandatory retirement age. Even in private companies, which are considerably less likely to adopt these practices today, directors shared similar opinions as compared to their counterparts in public companies. Female directors even more strongly support triggers for turnover; 68% (versus 56% of men) favor director term limits and 57% (versus 39% of men) support mandatory retirement ages.
“It was encouraging to see the majority of respondents in favor of retirement ages and term limits. Turnover among S&P 500 companies has trended at 5% to 7%—roughly 300 to 350 seats a year. Boards need tools they can use to ensure that new perspectives and thinking are regularly being brought to the boardroom,” says Daum. “This isn’t just an issue tied to activist shareholders, but something institutional shareholders are asking about as well: what are boards doing to ensure independent and fresh thinking?”
Not surprisingly, 43% of directors believe that a director loses his or her independence after about 10 years. Respondents from North America are less likely to tie director independence to years served, with only one-third agreeing that a director loses independence after a certain amount of time on the board.
Board Diversity: Greater independence doesn’t always drive greater diversity.
Public companies represented in the survey have larger boards than private companies—on average 8.9 directors versus 7.6—and a larger representation of independent directors, 74% versus 54%. Yet, public and private company boards are similar in terms of the representation of women, minorities and new directors. On average, 18% of board members are women, 7% are ethnic minorities and 13% have been appointed in the past 12 months.
“This finding was very interesting. There has been much debate about the use and effectiveness of quotas. To see the relative parity of diversity among public and private companies reinforces that the tone needs to come from the top regarding bringing a fresh, diverse perspective representative of the company’s stakeholders and interests,” says Daum. Groysberg adds, “Although we are hearing more talk about the importance of diversity from boards, it’s not necessarily translating into numbers. Unfortunately, we haven’t seen as much progress as we were hoping for compared to our past survey on the diversity of boards.”
Boards are largest in the financials/professional services sector (9.1 directors) and smallest in the IT/telecom sector (7.5 directors). Female representation is highest (20% or more) in the consumer staples, financial services/professional services and consumer discretionary sectors, and lowest in IT/telecom (13%).
Looking across regions, board size is smallest in Australia/New Zealand, where boards average 6.7 members, as compared to the global average of 8.5 members. Boards in Australia/New Zealand and North America have the highest proportion of independent directors, and boards in Asia have the lowest proportion. Female representation is lowest in Central and South America and Asia.
Boardroom Diversity: Why isn’t the number of women on boards increasing?
As the percentage of women on boards remains stagnant, there is both a gender divide and a generation divide on why this is. Male directors, especially older respondents, report the “lack of qualified female candidates,” while women directors most often cite the fact that diversity is not a priority in board recruiting and that traditional networks tend to be male-dominated. Younger male directors surveyed (those 55 and younger) are inclined to agree with women that traditional networks tend to be male-dominated. “Men in the younger generation, I think, just see their qualified female colleagues out there, but know that the traditional board networks still tend to be male,” says Stautberg. “It’s often hard to see an informal ‘network’ if you are in the middle of it, but you can see it very clearly when you’re on the outside.”
Boardroom Diversity: Quotas not supported overall.
Nearly 75% of surveyed directors do not personally support boardroom diversity quotas, but support for quotas varies significantly by gender and, to a lesser degree, by age. Forty-nine percent of female directors support diversity quotas, but only 9% of male directors do. Older women are less likely to favor quotas than younger women; 67% of female directors ages 55 and younger personally support boardroom quotas, compared with 36% of female directors over 55 (the majority of male directors, of any age, do not support quotas). Female directors also are more likely to be in favor of government regulatory agencies requiring boards to disclose specific practices/steps being taken to seat diverse candidates (43% versus 14% of male directors).
If quotas aren’t the answer, what do directors think would increase board diversity? Male and female directors agree that having board leadership that champions board diversity is the most effective way to build diverse corporate boards. Men feel more strongly than women that efforts to develop a pipeline of diverse board candidates through director advocacy, mentorship and training is an effective way to increase diversity.
Directors as a whole agree that shareholder pressure and board targets are less effective tools for increasing board diversity.
Boardroom Diversity: Search firms have been successful in expanding the talent pool of qualified female directors.
Directors take a variety of pathways to the boardroom: in roughly equal measures, directors were known to the board or another director, recruited by a search firm or known by the CEO. Public company directors are more likely to be recruited by an executive search firm than private company directors, while private company directors are more likely to have been appointed by a major shareholder.
The survey highlights gender differences, as well, in the paths to the boardroom. Female directors are more likely than their male counterparts to have been recruited by an executive search firm, while male directors are more likely to have been appointed by a major shareholder. “Search firms may be able to open doors that networking opportunities may not have been doing until relatively recently, at least for women,” says Stautberg. “Building up networks and getting known is something that women directors are engaging in much more actively now.”
And, indeed, 39% of female directors report that their gender was a significant factor in their board appointment, versus 1% of men.
Corporate boards face no shortage of challenges—from economic uncertainty to strategic and competitive shifts to a dynamic set of risks. Investor attention to board performance and governance has also escalated, and many boards are holding themselves to higher standards. Directors want to ensure that their boards contribute at the highest level, incorporating diverse perspectives, aligning with shareholder interests and setting a positive tone at the top for the organization.
Yet our research has revealed a gap between best practice and reality, especially in areas such as board diversity, HR/talent management, CEO succession planning and director evaluations. But the study provides hope that boards will make progress, as directors support practices that can help promote change. Future research is needed to track progress on these fronts and to study the impact of measures such as quotas and diversity on board performance.
Amid the many challenges confronting corporations—and the growing expectations on corporate boards—directors must be thoughtful about defining the skill sets needed around the board table and diligent in recruiting the right directors, planning for CEO succession and evaluating their own performance. In this way, they will be best positioned to contribute at the high levels which they are demanding of themselves, and to which others are holding them accountable.
The complete publication is available here.
*Julie Hembrock Daum leads the North American Board Practice at Spencer Stuart, and Susan Stautberg is the Chairman and CEO of the WomenCorporateDirectors Foundation. This post relates to the 2016 Global Board of Directors Survey, a co-publication from Spencer Stuart and the WCD Foundation authored by Ms. Daum; Ms. Stautberg; Dr. Boris Groysberg, Richard P. Chapman Professor of Business Administration at Harvard Business School; Yo-Jud Cheng, doctoral candidate at Harvard Business School; and Deborah Bell, researcher.
Cet article récemment publié par Richard T. Thakor*, dans le Harvard Law School Forum on Corporate Governance, aborde une problématique très singulière des projets organisationnels de nature stratégique.
L’auteur tente de prouver que même si les CEO ont généralement une vision à long terme de l’organisation, ils doivent adopter des positions qui s’apparentent à des comportements courtermistes pour pouvoir évoluer avec succès dans le monde des affaires. Ainsi, l’auteur insiste sur l’efficacité de certaines actions à court terme lorsque la situation l’exige pour garantir l’avenir à long terme.
Aujourd’hui, le courtermisme a mauvaise presse, mais il faut bien se rendre à l’évidence que c’est très souvent l’approche poursuivie…
L’étude montre qu’il existe deux situations susceptibles d’exister dans toute entreprise :
- il y a des circonstances qui amènent les propriétaires à choisir des projets à court terme, même si ceux-ci auraient plus de valeur s’ils étaient effectués avec une vision à long terme. L’auteur insiste pour avancer qu’il y a certaines situations qui retiennent l’attention des propriétaires pour des projets à long terme.
- ce sont les gestionnaires détestent les projets à court terme, même si les propriétaires les favorisent. Pour les gestionnaires, ils ne voient pas d’avantages à faire carrière dans un contexte de court terme.
L’auteur donne des exemples de situations qui favorisent l’une ou l’autre approche. Ou les deux !
Bonne lecture. Vos commentaires sont les bienvenus.
In the area of corporate investment policy and governance, one of the most widely-studied topics is corporate “short-termism” or “investment myopia”, which is the practice of preferring lower-valued short-term projects over higher-valued long-term projects. It is widely asserted that short-termism is responsible for numerous ills, including excessive risk-taking and underinvestment in R&D, and that it may even represent a danger to capital quiism itself. Yet, short-termism continues to be widely practiced, exhibits little correlation with firm performance, and does not appear to be used only by incompetent or unsophisticated managers (e.g. Graham and Harvey (2001)). In A Theory of Efficient Short-termism, I challenge the notion that short-termism is inherently a misguided practice that is pursued only by self-serving managers or is the outcome of a desire to cater to short-horizon investors, and theoretically ask whether there are circumstances in which it is economically efficient.
I highlight two main findings related to this question. First, there are circumstances in which the owners of the firm prefer short-term projects, even though long-term projects may have higher values. There are other circumstances in which the firm’s owners prefer long-term projects. Moreover, this is independent of any stock market inefficiencies or pressures. Second, it is the managers with career concerns who dislike short-term projects, even when the firm’s owners prefer them.
These results are derived in the context of a model of internal governance and project choice, with a CEO who must approve projects that are proposed by a manager. The projects are of variable quality—they can be good (positive NPV) projects or bad (negative NPV) projects. The manager knows project quality, but the CEO does not. Regardless of quality, the project can be (observably) chosen to be short-term or long-term, and a long-term project has higher intrinsic value. The probability of success for any good project depends on managerial ability, which is ex ante unknown to everybody.
In this setting, the manager has an incentive to propose only long-term projects, because shorter projects carry with them a risk of revealing negative information about the manager’s ability in the interim. Put differently, by investing in a short-term project that reveals early information about managerial ability, the manager gives the firm (top management) the option of whether to give him a second-period project with managerial private benefits linked to it, whereas with the long-term project the manager keeps this option for himself. The option has value to the firm and to the manager. Thus, the manager prefers to retain the option rather than surrendering it to the firm.
The CEO recognizes the manager’s incentive, and may thus impose a requirement that any project that is funded in the first period must be a short-term project. This makes investing in a bad project in the first period more costly for the manager because adverse information is more likely to be revealed early about the project and hence about managerial ability. The manager’s response may be to not request first-period funding if he has only a bad project. Such short-termism generates another benefit to the firm in that it speeds up learning about the manager’s a priori unknown ability, permitting the firm to condition its second-period investment on this learning.
There are a number of implications of the analysis. First, not all firms will practice short-termism. For example, firms for which the value of long-term projects is much higher than that of short-term projects—such as some R&D-intensive firms—will prefer long-term projects, so not all firms will display short-termism. Second, since short-termism is intended to prevent lower-level managers from investing in bad projects, its use should be greater for managers who typically propose “routine” projects and less for top managers (like the CEO) who would typically be involved in more strategic projects. Related to this, since it is more difficult to ascertain an individual employee’s impact on a project’s payoffs at lower levels of the hierarchy, this suggests that the firm is more likely to impose a short-termism constraint on lower-level managers. Third, the analysis may be particularly germane for managers who care about how their ability is perceived prior to the realization of project payoffs. As an example of this, it is not uncommon for a manager to enter a job with the intention or expectation of finding a new job within a few years. The analysis then suggests that the manager would rather not jeopardize future employment opportunities by allowing (potentially risky) project outcomes to be revealed in the short-term, instead preferring that those outcomes be revealed at a time when the manager need not be concerned about the result (i.e. in a different job).
Overall, the most robust result from this analysis is that informational frictions may bias the investment horizons of firms, and that the bias towards short-termism may, in fact, be value-maximizing in the presence of such frictions. This means that castigating short-termism as well as the rush to regulate CEO compensation to reduce its emphasis on the short term may be worth re-examining. Indeed, not engaging in short-termism may signal an inability or unwillingness on the CEO’s part to resolve intrafirm agency problems and thus adversely affect the firm’s stock price. This is not to suggest that short-termism is necessarily always a value-maximizing practice, since some of it may be undertaken only to boost the firm’s stock price. The point of this paper is simply that some short-termism reduces agency costs and benefits the shareholders.
For example, the project horizon for a beer brewery is typically 15-20 years. Similarly, R&D investments by drug companies have payoff horizons typically exceeding 10 years.
The paper is available for download here.
Graham, John R., and Campbell R. Harvey, 2001, “The Theory and Practice of Corporate Finance: Evidence from the Field”. Journal of Financial Economics, 60 (2-3), 187-243.
This is in line with Roe (2015), who states: “Critics need to acknowledge that short-term thinking often makes sense for U.S. businesses, the economy and long-term employment … it makes no sense for brick-and-mortar retailers, say, to invest in long-term in new stores if their sector is likely to have no future because it will soon become a channel for Internet selling.”
One can think about the long-term and short-term projects concretely through examples. Within each firm, there are typically both short-term and long-term projects. For example, for an appliance manufacturer, investing in modifying some feature of an existing appliance, say the size of the freezer section in a refrigerator, would be a short-term project. By contrast, building a plant to make an entirely new product—say a high-technology blender that does not exist in the company’s existing product portfolio—would be a long-term project. The long-term project will have a longer gestation period, with not only a longer time to recover the initial investment through project cash flows, but also a longer time to resolve the uncertainty about whether the project has positive NPV in an ex post sense. There may also be industry differences that determine project duration. For example, long-distance telecom companies (e.g. AT&T) will typically have long-duration projects, whereas consumer electronics firms will have short-duration projects.
*Richard T. Thakor, Assistant Professor of Finance at the University of Minnesota Carlson School of Management.
Aujourd’hui, je cède la parole à Johanne Bouchard* qui agit, de nouveau, à titre d’auteure invitée sur mon blogue en gouvernance.
Celle-ci a une solide expérience d’interventions de consultation auprès de conseils d’administration de sociétés américaines ainsi que d’accompagnements auprès de hauts dirigeants de sociétés publiques (cotées), d’organismes à but non lucratif (OBNL) et d’entreprises en démarrage.
Dans cet article publié dans la revue Ethical Boardroom, Achieving higher board effectiveness, elle aborde un sujet qui lui tient particulièrement à cœur : Assurer une efficacité supérieure du conseil d’administration.
L’auteure insiste sur les points suivants :
- Le suivi des réunions du CA par le président du conseil
- L’intégration des nouveaux membres du conseil
- La formation en gouvernance et l’apprentissage des rouages de l’entreprise
- Les sessions de planification stratégique
- L’évaluation du leadership du CEO, du conseil et du management
L’expérience de Johanne Bouchard auprès d’entreprises cotées en bourse est soutenue ; elle en tire des enseignements utiles pour tous les types de conseils d’administration.
Bonne lecture ! Vos commentaires sont toujours les bienvenus.
« Achieving higher board effectiveness goes well beyond adhering to rules, regulations, legal and ethical compliance. While there are many experts who address the regulatory requirements, an aspect that requires the utmost attention, and is often underestimated and even ignored, is the human element »
That is the basic and subtle dynamics and the complexities inherent in having individuals with diverse experience, different views and perspective, and varied cultural and personal backgrounds gathering a few times a year to serve an entity to which they are not privy on a day-to-day basis. It’s further complicated by the fact that these individuals often don’t know each other outside of their board service.
How can a board maintain its independence, make critical decisions, provide valuable and timely insights to management and be effective as a group of individuals if they have minimal access to the ins and outs of an organisation? How can they truly assess the leadership potential of the CEO, the board and management and effectively minimise vulnerabilities and risk when they’re outsiders?
There are initiatives that a board should commit to that can heighten the potential of every director within the context of their roles and responsibilities, allowing them collectively to achieve higher effectiveness. It is fundamentally critical to the board’s ability to stay current, effective and focussed in enhancing long-term shareholder value.
These initiatives include: board meeting follow-ups with the chair and the CEO; on-boarding and integration of new directors; educational sessions; strategic planning sessions; and CEO, board and management leadership effectiveness assessments.
Board meeting follow-ups with the chair and CEO
Whenever directors come together to meet to fulfill their roles and responsibilities, the chair and the CEO can’t assume that the directors have felt that they’ve made their optimal contributions; that they didn’t feel intimidated or even shy to share their insights. That they felt at ease with the dynamics of the meeting, were satisfied with the results of the board meeting and were comfortable with the way the chair led the meeting and the CEO interacted as an executive director. It is important for a chair and for the CEO to take the initiative of reaching out to all directors immediately after the meeting to do a simple check-in.
This provides an opportunity to gain input about the meeting’s outcomes as well as following up with each director on a one-on-one basis to seek their views about the meeting. It’s an opportunity to constructively share their expectations about the director for that meeting and his/her level of preparedness for that meeting and any committee duties, rather than not addressing it or postponing it to an annual board effectiveness assessment. The individual directors’ effectiveness (including the CEO) as well as the chair’s, are too important not to be handled after each meeting. These check-ins are significant to ensure that the possible ‘elephants in the boardroom’ are promptly addressed. They also enable each director and the chair, and each director and the CEO to get to know each other better.
In any relationship, it is important to have the ability to readily share what works, what is missing and what could have been done better. It takes time and, from my experiences with boards, it makes a great difference when every director is prepared to allocate time between meetings to evaluate the prior meeting before attending the next one. These frank exchanges benefit the chair in preparing the agenda for the next meeting and in leading the board meeting itself. Furthermore, it is also the chair’s responsibility to poll each director, in person or over the phone, to get a pulse about his/her ability to stay abreast of the strategy.
On-boarding and integration
It is tempting to let a director join a board and attend his/her first meeting without proper on-boarding. A board can’t afford for a new director to join for his/her first board meeting without a formal on-boarding process. A director is a human being who is being asked to participate, not to simply fill in a seat. A formal on-boarding can include a meeting with the chair and the CEO shortly after the director has been voted in by the board to formally welcome him/her, confirm their expectations and his/her expectations in having joined the board; bring the director up to date with any crisis, strategic priorities and networking opportunities where he/she could specifically provide insights; and to update the director about board governance processes the directors need to understand.
It is good business, tactful and sensible to acknowledge the need to create a proper introduction of the board and the organisation for all new directors as well as introducing and integrating the incoming directors within the board integration event can last 30 minutes to an hour and is planned and professionally facilitated, thus ensuring that the board doesn’t create a climate of ‘us and them’ as the board augments and/or is refreshed. Proper on-boarding and integration enables new directors to quickly get to know the rest of the board and enables all board directors to further connect, respect and trust each other. While a brief session, it is very powerful to welcoming an incoming director and to further integrating all existing directors within the board.
Our business ecosystem is becoming more complex and is being intermittently disrupted. A board can’t afford not to be current on the trends that can affect their organisation, even if, at a glance, the trend might not appear to have any potential impact on their strategic roadmap. It is important for a CEO with his/her chair to be on top of trends and to identify specific topics that need to be addressed internally at a high level to keep the board informed as a group – but not necessarily within the scheduled meeting, due to time constraints.
I have written in the past about ‘the four pillars’ that make a great relationship between a chair and a CEO. One of the pillars is communication. It is crucial for the chair and CEO to take the time to speak in person, or at least on the phone, or remotely via video-conferencing tools to check in about their relationship, their effectiveness in their respective roles and to ensure that together they address how to keep the board current about market and industry dynamics. Topics can include how the digital economy is impacting the organisation; the cybersecurity evolution and its associated threats; new strategic considerations for the organisation, vis-à-vis corporate social responsibility; shifting the organisation’s focus from shareholders to stakeholders; making an organisational commitment to sustainability, etc.
There is a plethora of topics that a board must address and can’t realistically address within their formal meetings. This creates an opportunity for the board to further align on strategic priorities, to further ascertain how vulnerable the composition of its board may or may not be and whether the board composition needs to be refreshed or augmented. Industry and expert speakers can be invited to present and conduct small roundtables at these educational sessions.
Strategic planning sessions
Since the National Association of Corporate Directors (NACD) in the United States stipulates that boards have the responsibility to engage in the development and amendment of strategy, it is imperative for boards to participate in an annual strategic planning session – in addition to each director staying current about the industry trends. Not only are strategic planning sessions important to aligning the board on strategy, but they also contribute to evaluating human behaviour dynamics and assessing the entire leadership potential of the board.
Directors must be and stay fully informed about the organisation they serve. In particular, when directors are independent, they must have knowledge of the industry and about the business they commit to serve, given that they are not connected to the business, meeting only four-to-six times a year. Better aligned boards can be more effective in assessing the accuracy, completeness, relevance and validity of information presented to them.
A board has an opportunity to really see in action the effectiveness of their CEO when participating in the annual strategic planning session. Likewise, a CEO gets the same opportunity to experience first-hand the agility of its board during such sessions.
The chair (and CEO) should commit to an annual strategic planning session. This initiative ensures that:
■ Board effectiveness is not affected by information asymmetry that would impede its ability to adequately provide guidance, make decisions and constructively challenge the executive team. The board must be continually informed about industry dynamics, the competitive landscape, the organisation’s business model, its value proposition and its strategic milestones. It is unrealistic that a board can approve financial projections, detect overly ambitious production targets and ascertain budgets and profitability objectives without a clear understanding of strategy and key strategic performance indicators
■ The board is exposed to organisational dynamics and to the dynamics of the CEO with selected or most key executive members, which will assist with its identifying warning flags about the company’s strategic priorities and help reconsider performance indicators as needed
A board has an opportunity to really see in action the effectiveness of their CEO when participating in the annual strategic planning session. Likewise, a CEO gets the same opportunity to experience first-hand the agility of its board during such sessions.
The adoption of strategic planning enables the CEO to share more openly among themselves, with the CEO and with management. I have often seen as a result of these sessions healthier effectiveness within the entire Pivotal Leadership Trio (Board, CEO and Executive Team).
CEO, board and management leadership effectiveness assessment
The effectiveness of a board is highly dependent on having the right leader for the organisation during major and critical strategic inflection points of the organisation, having the right leader of the board with the optimal board composition, and the right leadership in all functional areas of the organisation.
A board needs to know when the CEO can’t step up to leadership and organisational challenges, as well as when any board director or member of the management team can’t fulfil their role.
CEO leadership effectiveness assessment
For the board to adequately fulfil its duty of addressing CEO succession, it has a responsibility to evaluate the CEO’s leadership effectiveness. A board can’t assume that the CEO has the skill set, experience and leadership maturity to lead the organisation through different stages of growth, crisis and changes.
This initiative should be conducted by an objective third party. The process should include:
■ A custom and comprehensive inquiry, specifically created to evaluate the CEO of the organisation that the board serves
■ A custom inquiry to address the CEO’s role as an executive director on the board
■ In-person meetings conducted between the CEO and a third-party professional, and between each direct report to the CEO and the third-party professional and each director of the board and the third-party professional
■ Presentation of the CEO’s leadership effectiveness results to the CEO and the chair before being presented to the board as a group
Board and management leadership effectiveness assessments
The evaluation of the directors and the management team also needs to be conducted annually to appropriately support overall succession planning. These should ideally be conducted at the same time as the CEO’s to maximise everyone’s time. For the board assessments, the process should include:
■ A custom and comprehensive inquiry, specifically created to evaluate the board thoroughly
■ In-person meetings between directors and the third-party professional
■ Custom inquiries to capture the insights of the CFO, the CHRO and the general counsel
■ In-person individual meetings between the CFO, the CHRO, the general counsel and the third-party professional
■ Presentation of the board leadership assessment results to the chair and the governance chair before they’re presented to the board as a group
A similar process needs to be adopted for the management team.
It is good practice for the board assessment inquiry to include a director self-assessment, a peer review and an examination of the governance practices.
Leadership effectiveness assessments are natural processes and need to be positioned as such and should not be threatening.
Achieving higher board effectiveness has to be intentional by all directors, individually and collectively as a board, beyond check lists and formal systematic processes. Without a conscious intention, a board will not raise the bar of its effectiveness to the level where it can and should operate. While maintaining independence, the board has to be cognisant of the importance of not assuming anything at any time, not overlooking the need to coalesce on priorities, calibrating and stepping back afresh each time it works together, being in alignment on strategic priorities and refreshing leadership as needed.
Directors can’t afford to underestimate the cultural and values tone they are establishing with their CEO. The board has to pause and ask itself every time it gathers if it is as effective as it should be.
*Johanne Bouchard est consultante auprès de conseils d’administration, de chefs de la direction et de comités de direction. Johanne a développé une expertise au niveau de la dynamique et de la composition de conseils d’administration. Après l’obtention de son diplôme d’ingénieure en informatique, sa carrière l’a menée à œuvrer dans tous les domaines du secteur de la technologie, du marketing et de la stratégie à l’échelle mondiale.
Voici un cas de gouvernance publié sur le site de Julie Garland McLellan* qui concerne les relations entre la présidente du conseil et sa fille nouvellement nommée comme CEO de cette entreprise privée de taille moyenne.
Le cas illustre le processus de transition familiale et les efforts à exercer afin de ne pas interférer avec les affaires de l’entreprise.
Il s’agit d’un cas très fréquent dans les entreprises familiales. Comment Hannah peut-elle continuer à faire profiter sa fille de ses conseils tout en s’assurant de ne pas empiéter sur ses responsabilités ?
Le cas présente la situation de manière assez succincte, mais explicite ; puis, trois experts en gouvernance se prononcent sur le dilemme qui se présente aux personnes qui vivent des situations similaires.
Bonne lecture ! Vos commentaires sont toujours les bienvenus.
Hannah prepared for the transition. She did a course of director education and understands her duties as a non-executive. She loves her daughter, trusts her judgement as CEO and genuinely wants to see her succeed. Nothing is going wrong but Hannah can’t help interfering. She is bored and longs for the days when she could visit customers or sit and strategise with her management team.
Once a week she has a formal meeting with the CEO in her office. In between times she is in frequent contact. Although by mutual agreement these contacts should be purely social or family oriented Hannah finds herself talking business and is hurt when her daughter suggests they leave it for the weekly meeting or put it onto the board agenda.
Over the past few months Hannah has improved governance, record-keeping, training and succession planning systems but she is running out of projects she can do without undermining her daughter. She also recognises that, as a medium sized unlisted business, the company does not need any more governance structures.
How can Hannah find fulfilment in her new role?
Paul’s Answer …..
Julie’s Answer ….
Jakob’s Answer ….
*Julie Garland McLellan is a practising non-executive director and board consultant based in Sydney, Australia.
Nous publions ici un quatrième billet de Danielle Malboeuf* laquelle nous a soumis ses réflexions sur les grands enjeux de la gouvernance des institutions d’enseignement collégial les 23 et 27 novembre 2013, à titre d’auteure invitée.
Dans un premier billet, publié le 23 novembre 2013 sur ce blogue, on insistait sur l’importance, pour les CA des Cégep, de se donner des moyens pour assurer la présence d’administrateurs compétents dont le profil correspond à celui recherché.
D’où les propositions adressées à la Fédération des cégeps et aux CA pour préciser un profil de compétences et pour faire appel à la Banque d’administrateurs certifiés du Collège des administrateurs de sociétés (CAS), le cas échéant. Un autre enjeu identifié dans ce billet concernait la remise en question de l’indépendance des administrateurs internes.
Le deuxième billet publié le 27 novembre 2013 abordait l’enjeu entourant l’exercice de la démocratie par différentes instances au moment du dépôt d’avis au conseil d’administration.
Le troisième billet portait sur l’efficacité du rôle du président du conseil d’administration (PCA).
Ce quatrième billet est une mise à jour de son dernier article portant sur le rôle du président de conseil.
Voici donc l’article en question, reproduit ici avec la permission de l’auteure.
Vos commentaires sont appréciés. Bonne lecture.
LE RÔLE DU PRÉSIDENT DU CONSEIL D’ADMINISTRATION | LE CAS DES INSTITUTIONS D’ENSEIGNEMENT COLLÉGIAL
par Danielle Malboeuf*
Il y a deux ans, je publiais un article sur le rôle du président du conseil d’administration (CA) . J’y rappelais le rôle crucial et déterminant du président du CA et j’y précisais, entre autres, les compétences recherchées chez cette personne et l’enrichissement attendu de son rôle.
Depuis, on peut se réjouir de constater qu’un nombre de plus en plus élevé de présidents s’engagent dans de nouvelles pratiques qui améliorent la gouvernance des institutions collégiales. Ils ne se limitent plus à jouer un rôle d’animateurs de réunions, comme on pouvait le constater dans le passé.
Notons, entre autres, que les présidents visent de plus en plus à bien s’entourer, en recherchant des personnes compétentes comme administrateurs. D’ailleurs, à cet égard, les collèges vivent une situation préoccupante. La Loi sur les collèges d’enseignement général et professionnel prévoit que le ministre  nomme les administrateurs externes. Ainsi, en plus de connaître des délais importants pour la nomination de nouveaux administrateurs, les collèges ont peu d’influence sur leur choix.
Présentement, les présidents et les directions générales cherchent donc à l’encadrer. Ils peuvent s’inspirer, à cet égard, des démarches initiées par d’autres organisations publiques en établissant, entre autres, un profil de compétences recherchées qu’ils transmettent au ministre. Ils peuvent ainsi tenter d’obtenir une complémentarité d’expertise dans le groupe d’administrateurs.
Une fois les administrateurs nommés, les présidents doivent se préoccuper d’assurer leur formation continue pour développer les compétences recherchées. Ils se donnent ainsi l’assurance que ces personnes comprennent bien leur rôle et leurs responsabilités et qu’elles sont outillées pour remplir le mandat qui leur est confié. De plus, ils doivent s’assurer que les administrateurs connaissent bien l’organisation, qu’ils adhèrent à sa mission et qu’ils partagent les valeurs institutionnelles. En présence d’administrateurs compétents, éclairés, et dont l’expertise est reconnue, il est plus facile d’assurer la légitimité et la crédibilité du CA et de ses décisions.
Un président performant démontrera aussi de grandes qualités de leadership. Il fera connaître à toutes les instances du milieu le mandat confié au CA. Il travaillera à mettre en place un climat de confiance au sein du CA et avec les gestionnaires de l’organisation. Il cherchera à exploiter l’ensemble des compétences et à faire jouer au CA un rôle qui va au-delà de celui de fiduciaire, soit celui de contribuer significativement à la mission première du cégep : donner une formation pertinente et de qualité où l’étudiant et sa réussite éducative sont au cœur des préoccupations.
Plusieurs ont déjà fait le virage… c’est encourageant ! Les approches préconisées par l’Institut sur la gouvernance des organismes publics et privés (IGOPP) et le Collège des administrateurs de sociétés (CAS) puis reprises dans la loi sur la gouvernance des sociétés d’État ne sont sûrement pas étrangères à cette évolution. En fournissant aux présidents de CA le soutien, la formation et les outils appropriés pour améliorer leur gouvernance, le Centre collégial des services regroupés (CCSR)  contribue à assurer le développement des institutions collégiales dans un contexte de saine gestion.
Un CA performant est guidé par un président compétent.
 Ministre de l’Enseignement supérieur, de la Recherche, de la Science et de la Technologie
 Formation développée en partenariat avec l’Institut sur la gouvernance des organisations privées et publiques (IGOPP)
*Danielle Malboeuf est consultante et formatrice en gouvernance ; elle possède une grande expérience dans la gestion des CEGEP et dans la gouvernance des institutions d’enseignement collégial et universitaire. Elle est CGA-CPA, MBA, ASC, Gestionnaire et administratrice retraité du réseau collégial et consultante.
Articles sur la gouvernance des CEGEP
Les conseils d’administration sont de plus en plus confrontés à l’exigence d’évaluer l’efficacité de leur fonctionnement par le biais d’une évaluation annuelle du CA, des comités et des administrateurs.
En fait, le NYSE exige depuis dix ans que les conseils procèdent à leur évaluation et que les résultats du processus soient divulgués aux actionnaires. Également, les investisseurs institutionnels et les activistes demandent de plus en plus d’informations au sujet du processus d’évaluation.
Les résultats de l’évaluation peuvent être divulgués de plusieurs façons, notamment dans les circulaires de procuration et sur le site de l’entreprise.
L’article publié par John Olson, associé fondateur de la firme Gibson, Dunn & Crutcher, professeur invité à Georgetown Law Center, et paru sur le forum du Harvard Law School, présente certaines approches fréquemment utilisées pour l’évaluation du CA, des comités et des administrateurs.
On recommande de modifier les méthodes et les paramètres de l’évaluation à chaque trois ans afin d’éviter la routine susceptible de s’installer si les administrateurs remplissent les mêmes questionnaires, gérés par le président du conseil. De plus, l’objectif de l’évaluation est sujet à changement (par exemple, depuis une décennie, on accorde une grande place à la cybersécurité).
C’est au comité de gouvernance que revient la supervision du processus d’évaluation du conseil d’administration. L’article décrit quatre méthodes fréquemment utilisées.
(1) Les questionnaires gérés par le comité de gouvernance ou une personne externe
(2) les discussions entre administrateurs sur des sujets déterminés à l’avance
(3) les entretiens individuels avec les administrateurs sur des thèmes précis par le président du conseil, le président du comité de gouvernance ou un expert externe.
(4) L’évaluation des contributions de chaque administrateur par la méthode d’auto-évaluation et par l’évaluation des pairs.
Chaque approche a ses particularités et la clé est de varier les façons de faire périodiquement. On constate également que beaucoup de sociétés cotées utilisent les services de spécialistes pour les aider dans leurs démarches.
La quasi-totalité des entreprises du S&P 500 divulgue le processus d’évaluation utilisé pour améliorer leur efficacité. L’article présente deux manières de diffuser les résultats du processus d’évaluation.
(1) Structuré, c’est-à-dire un format qui précise — qui évalue quoi ; la fréquence de l’évaluation ; qui supervise les résultats ; comment le CA a-t-il agi eu égard aux résultats de l’opération d’évaluation.
(2) Information axée sur les résultats — les grandes conclusions ; les facteurs positifs et les points à améliorer ; un plan d’action visant à corriger les lacunes observées.
Notons que la firme de services aux actionnaires ISS (Institutional Shareholder Services) utilise la qualité du processus d’évaluation pour évaluer la robustesse de la gouvernance des sociétés. L’article présente des recommandations très utiles pour toute personne intéressée par la mise en place d’un système d’évaluation du CA et par sa gestion.
Voici trois articles parus sur mon blogue qui abordent le sujet de l’évaluation :
Quels sont les devoirs et les responsabilités d’un CA ? (la section qui traite des questionnaires d’évaluation du rendement et de la performance du conseil)
Bonne lecture !
More than ten years have passed since the New York Stock Exchange (NYSE) began requiring annual evaluations for boards of directors and “key” committees (audit, compensation, nominating/governance), and many NASDAQ companies also conduct these evaluations annually as a matter of good governance.  With boards now firmly in the routine of doing annual evaluations, one challenge (as with any recurring activity) is to keep the process fresh and productive so that it continues to provide the board with valuable insights. In addition, companies are increasingly providing, and institutional shareholders are increasingly seeking, more information about the board’s evaluation process. Boards that have implemented a substantive, effective evaluation process will want information about their work in this area to be communicated to shareholders and potential investors. This can be done in a variety of ways, including in the annual proxy statement, in the governance or investor information section on the corporate website, and/or as part of shareholder engagement outreach.
To assist companies and their boards in maximizing the effectiveness of the evaluation process and related disclosures, this post provides an overview of several frequently used methods for conducting evaluations of the full board, board committees and individual directors. It is our experience that using a variety of methods, with some variation from year to year, results in more substantive and useful evaluations. This post also discusses trends and considerations relating to disclosures about board evaluations. We close with some practical tips for boards to consider as they look ahead to their next annual evaluation cycle.
Common Methods of Board Evaluation
As a threshold matter, it is important to note that there is no one “right” way to conduct board evaluations. There is room for flexibility, and the boards and committees we work with use a variety of methods. We believe it is good practice to “change up” the board evaluation process every few years by using a different format in order to keep the process fresh. Boards have increasingly found that year-after-year use of a written questionnaire, with the results compiled and summarized by a board leader or the corporate secretary for consideration by the board, becomes a routine exercise that produces few new insights as the years go by. This has been the most common practice, and it does respond to the NYSE requirement, but it may not bring as much useful information to the board as some other methods.
Doing something different from time to time can bring new perspectives and insights, enhancing the effectiveness of the process and the value it provides to the board. The evaluation process should be dynamic, changing from time to time as the board identifies practices that work well and those that it finds less effective, and as the board deals with changing expectations for how to meet its oversight duties. As an example, over the last decade there have been increasing expectations that boards will be proactive in oversight of compliance issues and risk (including cyber risk) identification and management issues.
Three of the most common methods for conducting a board or committee evaluation are: (1) written questionnaires; (2) discussions; and (3) interviews. Some of the approaches outlined below reflect a combination of these methods. A company’s nominating/governance committee typically oversees the evaluation process since it has primary responsibility for overseeing governance matters on behalf of the board.
The most common method for conducting board evaluations has been through written responses to questionnaires that elicit information about the board’s effectiveness. The questionnaires may be prepared with the assistance of outside counsel or an outside advisor with expertise in governance matters. A well-designed questionnaire often will address a combination of substantive topics and topics relating to the board’s operations. For example, the questionnaire could touch on major subject matter areas that fall under the board’s oversight responsibility, such as views on whether the board’s oversight of critical areas like risk, compliance and crisis preparedness are effective, including whether there is appropriate and timely information flow to the board on these issues. Questionnaires typically also inquire about whether board refreshment mechanisms and board succession planning are effective, and whether the board is comfortable with the senior management succession plan. With respect to board operations, a questionnaire could inquire about matters such as the number and frequency of meetings, quality and timeliness of meeting materials, and allocation of meeting time between presentation and discussion. Some boards also consider their efforts to increase board diversity as part of the annual evaluation process.
Many boards review their questionnaires annually and update them as appropriate to address new, relevant topics or to emphasize particular areas. For example, if the board recently changed its leadership structure or reallocated responsibility for a major subject matter area among its committees, or the company acquired or started a new line of business or experienced recent issues related to operations, legal compliance or a breach of security, the questionnaire should be updated to request feedback on how the board has handled these developments. Generally, each director completes the questionnaire, the results of the questionnaires are consolidated, and a written or verbal summary of the results is then shared with the board.
Written questionnaires offer the advantage of anonymity because responses generally are summarized or reported back to the full board without attribution. As a result, directors may be more candid in their responses than they would be using another evaluation format, such as a face-to-face discussion. A potential disadvantage of written questionnaires is that they may become rote, particularly after several years of using the same or substantially similar questionnaires. Further, the final product the board receives may be a summary that does not pick up the nuances or tone of the views of individual directors.
In our experience, increasingly, at least once every few years, boards that use questionnaires are retaining a third party, such as outside counsel or another experienced facilitator, to compile the questionnaire responses, prepare a summary and moderate a discussion based on the questionnaire responses. The desirability of using an outside party for this purpose depends on a number of factors. These include the culture of the board and, specifically, whether the boardroom environment is one in which directors are comfortable expressing their views candidly. In addition, using counsel (inside or outside) may help preserve any argument that the evaluation process and related materials are privileged communications if, during the process, counsel is providing legal advice to the board.
In lieu of asking directors to complete written questionnaires, a questionnaire could be distributed to stimulate and guide discussion at an interactive full board evaluation discussion.
2. Group Discussions
Setting aside board time for a structured, in-person conversation is another common method for conducting board evaluations. The discussion can be led by one of several individuals, including: (a) the chairman of the board; (b) an independent director, such as the lead director or the chair of the nominating/governance committee; or (c) an outside facilitator, such as a lawyer or consultant with expertise in governance matters. Using a discussion format can help to “change up” the evaluation process in situations where written questionnaires are no longer providing useful, new information. It may also work well if there are particular concerns about creating a written record.
Boards that use a discussion format often circulate a list of discussion items or topics for directors to consider in advance of the meeting at which the discussion will occur. This helps to focus the conversation and make the best use of the time available. It also provides an opportunity to develop a set of topics that is tailored to the company, its business and issues it has faced and is facing. Another approach to determining discussion topics is to elicit directors’ views on what should be covered as part of the annual evaluation. For example, the nominating/governance could ask that each director select a handful of possible topics for discussion at the board evaluation session and then place the most commonly cited topics on the agenda for the evaluation.
A discussion format can be a useful tool for facilitating a candid exchange of views among directors and promoting meaningful dialogue, which can be valuable in assessing effectiveness and identifying areas for improvement. Discussions allow directors to elaborate on their views in ways that may not be feasible with a written questionnaire and to respond in real time to views expressed by their colleagues on the board. On the other hand, they do not provide an opportunity for anonymity. In our experience, this approach works best in boards with a high degree of collegiality and a tradition of candor.
Another method of conducting board evaluations that is becoming more common is interviews with individual directors, done in-person or over the phone. A set of questions is often distributed in advance to help guide the discussion. Interviews can be done by: (a) an outside party such as a lawyer or consultant; (b) an independent director, such as the lead director or the chair of the nominating/governance committee; or (c) the corporate secretary or inside counsel, if directors are comfortable with that. The party conducting the interviews generally summarizes the information obtained in the interview process and may facilitate a discussion of the information obtained with the board.
In our experience, boards that have used interviews to conduct their annual evaluation process generally have found them very productive. Directors have observed that the interviews yielded rich feedback about the board’s performance and effectiveness. Relative to other types of evaluations, interviews are more labor-intensive because they can be time-consuming, particularly for larger boards. They also can be expensive, particularly if the board retains an outside party to conduct the interviews. For these reasons, the interview format generally is not one that is used every year. However, we do see a growing number of boards taking this path as a “refresher”—every three to five years—after periods of using a written questionnaire, or after a major event, such as a corporate crisis of some kind, when the board wants to do an in-depth “lessons learned” analysis as part of its self-evaluation. Interviews also offer an opportunity to develop a targeted list of questions that focuses on issues and themes that are specific to the board and company in question, which can contribute further to the value derived from the interview process.
For nominating/governance committees considering the use of an interview format, one key question is who will conduct the interviews. In our experience, the most common approach is to retain an outside party (such as a lawyer or consultant) to conduct and summarize interviews. An outside party can enhance the effectiveness of the process because directors may be more forthcoming in their responses than they would if another director or a member of management were involved.
Individual Director Evaluations
Another practice that some boards have incorporated into their evaluation process is formal evaluations of individual directors. In our experience, these are not yet widespread but are becoming more common. At companies where the nominating/governance committee has a robust process for assessing the contributions of individual directors each year in deciding whether to recommend them for renomination to the board, the committee and the board may conclude that a formal evaluation every year is unnecessary. Historically, some boards have been hesitant to conduct individual director evaluations because of concerns about the impact on board collegiality and dynamics. However, if done thoughtfully, a structured process for evaluating the performance of each director can result in valuable insights that can strengthen the performance of individual directors and the board as a whole.
As with board and committee evaluations, no single “best practice” has emerged for conducting individual director evaluations, and the methods described above can be adapted for this purpose. In addition, these evaluations may involve directors either evaluating their own performance (self-evaluations), or evaluating their fellow directors individually and as a group (peer evaluations). Directors may be more willing to evaluate their own performance than that of their colleagues, and the utility of self-evaluations can be enhanced by having an independent director, such as the chairman of the board or lead director, or the chair of the nominating/governance committee, provide feedback to each director after the director evaluates his or her own performance. On the other hand, peer evaluations can provide directors with valuable, constructive comments. Here, too, each director’s evaluation results typically would be presented only to that director by the chairman of the board or lead director, or the chair of the nominating/governance committee. Ultimately, whether and how to conduct individual director evaluations will depend on a variety of factors, including board culture.
Disclosures about Board Evaluations
Many companies discuss the board evaluation process in their corporate governance guidelines.  In addition, many companies now provide disclosure about the evaluation process in the proxy statement, as one element of increasingly robust proxy disclosures about their corporate governance practices. According to the 2015 Spencer Stuart Board Index, all but 2% of S&P 500 companies disclose in their proxy statements, at a minimum, that they conduct some form of annual board evaluation.
In addition, institutional shareholders increasingly are expressing an interest in knowing more about the evaluation process at companies where they invest. In particular, they want to understand whether the board’s process is a meaningful one, with actionable items emerging from the evaluation process, and not a “check the box” exercise. In the United Kingdom, companies must report annually on their processes for evaluating the performance of the board, its committees and individual directors under the UK Corporate Governance Code. As part of the code’s “comply or explain approach,” the largest companies are expected to use an external facilitator at least every three years (or explain why they have not done so) and to disclose the identity of the facilitator and whether he or she has any other connection to the company.
In September 2014, the Council of Institutional Investors issued a report entitled Best Disclosure: Board Evaluation (available here), as part of a series of reports aimed at providing investors and companies with approaches to and examples of disclosures that CII considers exemplary. The report recommended two possible approaches to enhanced disclosure about board evaluations, identified through an informal survey of CII members, and included examples of disclosures illustrating each approach. As a threshold matter, CII acknowledged in the report that shareholders generally do not expect details about evaluations of individual directors. Rather, shareholders “want to understand the process by which the board goes about regularly improving itself.” According to CII, detailed disclosure about the board evaluation process can give shareholders a “window” into the boardroom and the board’s capacity for change.
The first approach in the CII report focuses on the “nuts and bolts” of how the board conducts the evaluation process and analyzes the results. Under this approach, a company’s disclosures would address: (1) who evaluates whom; (2) how often the evaluations are done; (3) who reviews the results; and (4) how the board decides to address the results. Disclosures under this approach do not address feedback from specific evaluations, either individually or more generally, or conclusions that the board has drawn from recent self-evaluations. As a result, according to CII, this approach can take the form of “evergreen” proxy disclosure that remains similar from year to year, unless the evaluation process itself changes.
The second approach focuses more on the board’s most recent evaluation. Under this approach, in addition to addressing the evaluation process, a company’s disclosures would provide information about “big-picture, board-wide findings and any steps for tackling areas identified for improvement” during the board’s last evaluation. The disclosures would identify: (1) key takeaways from the board’s review of its own performance, including both areas where the board believes it functions effectively and where it could improve; and (2) a “plan of action” to address areas for improvement over the coming year. According to CII, this type of disclosure is more common in the United Kingdom and other non-U.S. jurisdictions.
Also reflecting a greater emphasis on disclosure about board evaluations, proxy advisory firm Institutional Shareholder Services Inc. (“ISS”) added this subject to the factors it uses in evaluating companies’ governance practices when it released an updated version of “QuickScore,” its corporate governance benchmarking tool, in Fall 2014. QuickScore views a company as having a “robust” board evaluation policy where the board discloses that it conducts an annual performance evaluation, including evaluations of individual directors, and that it uses an external evaluator at least every three years (consistent with the approach taken in the UK Corporate Governance Code). For individual director evaluations, it appears that companies can receive QuickScore “credit” in this regard where the nominating/governance committee assesses director performance in connection with the renomination process.
What Companies Should Do Now
As noted above, there is no “one size fits all” approach to board evaluations, but the process should be viewed as an opportunity to enhance board, committee and director performance. In this regard, a company’s nominating/governance committee and board should periodically assess the evaluation process itself to determine whether it is resulting in meaningful takeaways, and whether changes are appropriate. This includes considering whether the board would benefit from trying new approaches to the evaluation process every few years.
Factors to consider in deciding what evaluation format to use include any specific objectives the board seeks to achieve through the evaluation process, aspects of the current evaluation process that have worked well, the board’s culture, and any concerns directors may have about confidentiality. And, we believe that every board should carefully consider “changing up” the evaluation process used from time to time so that the exercise does not become rote. What will be the most beneficial in any given year will depend on a variety of factors specific to the board and the company. For the board, this includes considerations of board refreshment and tenure, and developments the board may be facing, such as changes in board or committee leadership. Factors relevant to the company include where the company is in its lifecycle, whether the company is in a period of relative stability, challenge or transformation, whether there has been a significant change in the company’s business or a senior management change, whether there is activist interest in the company and whether the company has recently gone through or is going through a crisis of some kind. Specific items that nominating/governance committees could consider as part of maintaining an effective evaluation process include:
- Revisit the content and focus of written questionnaires. Evaluation questionnaires should be updated each time they are used in order to reflect significant new developments, both in the external environment and internal to the board.
- “Change it up.” If the board has been using the same written questionnaire, or the same evaluation format, for several years, consider trying something new for an upcoming annual evaluation. This can bring renewed vigor to the process, reengage the participants, and result in more meaningful feedback.
- Consider whether to bring in an external facilitator. Boards that have not previously used an outside party to assist in their evaluations should consider whether this would enhance the candor and overall effectiveness of the process.
- Engage in a meaningful discussion of the evaluation results. Unless the board does its evaluation using a discussion format, there should be time on the board’s agenda to discuss the evaluation results so that all directors have an opportunity to hear and discuss the feedback from the evaluation.
- Incorporate follow-up into the process. Regardless of the evaluation method used, it is critical to follow up on issues and concerns that emerge from the evaluation process. The process should include identifying concrete takeaways and formulating action items to address any concerns or areas for improvement that emerge from the evaluation. Senior management can be a valuable partner in this endeavor, and should be briefed as appropriate on conclusions reached as a result of the evaluation and related action items. The board also should consider its progress in addressing these items.
- Revisit disclosures. Working with management, the nominating/governance committee and the board should discuss whether the company’s proxy disclosures, investor and governance website information and other communications to shareholders and potential investors contain meaningful, current information about the board evaluation process.
 See NYSE Rule 303A.09, which requires listed companies to adopt and disclose a set of corporate governance guidelines that must address an annual performance evaluation of the board. The rule goes on to state that “[t]he board should conduct a self-evaluation at least annually to determine whether it and its committees are functioning effectively.” See also NYSE Rules 303A.07(b)(ii), 303A.05(b)(ii) and 303A.04(b)(ii) (requiring annual evaluations of the audit, compensation, and nominating/governance committees, respectively).
 In addition, as discussed in the previous note, NYSE companies are required to address an annual evaluation of the board in their corporate governance guidelines.
*John Olson is a founding partner of the Washington, D.C. office at Gibson, Dunn & Crutcher LLP and a visiting professor at the Georgetown Law Center.
Les investisseurs et les actionnaires reconnaissent le rôle prioritaire que les administrateurs de sociétés jouent dans la gouvernance et, conséquemment, ils veulent toujours plus d’informations sur le processus de nomination des administrateurs et sur la composition du conseil d’administration.
L’article qui suit, paru sur le Forum du Harvard Law School, a été publié par Paula Loop, directrice du centre de la gouvernance de PricewaterhouseCoopers. Il s’agit essentiellement d’un compte rendu sur l’évolution des facteurs clés de la composition des conseils d’administration. La présentation s’appuie sur une infographie remarquable.
Ainsi, on apprend que 41 % des campagnes menées par les activistes étaient reliées à la composition des CA, et que 20 % des CA ont modifié leur composition en réponse aux activités réelles ou potentielles des activistes.
L’article s’attarde sur la grille de composition des conseils relative aux compétences et habiletés requises. Également, on présente les arguments pour une plus grande diversité des CA et l’on s’interroge sur la situation actuelle.
Enfin, l’article revient sur les questions du nombre de mandats des administrateurs et de l’âge de la retraite de ceux-ci ainsi que sur les préoccupations des investisseurs eu égard au renouvellement et au rajeunissement des CA.
Le travail de renouvellement du conseil ne peut se faire sans la mise en place d’un processus d’évaluation complet du fonctionnement du CA et des administrateurs.
À mon avis, c’est certainement un article à lire pour bien comprendre toutes les problématiques reliées à la composition des conseils d’administration.
Bonne lecture !
In today’s business environment, companies face numerous challenges that can impact success—from emerging technologies to changing regulatory requirements and cybersecurity concerns. As a result, the expertise, experience, and diversity of perspective in the boardroom play a more critical role than ever in ensuring effective oversight. At the same time, many investors and other stakeholders are seeking influence on board composition. They want more information about a company’s director nominees. They also want to know that boards and their nominating and governance committees are appropriately considering director tenure, board diversity and the results of board self-evaluations when making director nominations. All of this is occurring within an environment of aggressive shareholder activism, in which board composition often becomes a central focus.
Shareholder activism and board composition
At the same time, a growing number of companies are adopting proxy access rules—allowing shareholders that meet certain ownership criteria to submit a limited number of director candidates for inclusion on the company’s annual proxy. It has become a top governance issue over the last two years, with many shareholders viewing it as a step forward for shareholder rights. And it’s another factor causing boards to focus more on their makeup.
So within this context, how should directors and investors be thinking about board composition, and what steps should be taken to ensure boards are adequately refreshing themselves?
Assessing what you have–and what you need
In a rapidly changing business climate, a high-performing board requires agile directors who can grasp concepts quickly. Directors need to be fiercely independent thinkers who consciously avoid groupthink and are able to challenge management—while still contributing to a productive and collegial boardroom environment. A strong board includes directors with different backgrounds, and individuals who understand how the company’s strategy is impacted by emerging economic and technological trends.
Sample board composition grid: What skills and attributes does your board need?
In assessing their composition, boards and their nominating and governance committees need to think critically about what skills and attributes the board currently has, and how they tie to oversight of the company. As companies’ strategies change and their business models evolve, it is imperative that board composition be evaluated regularly to ensure that the right mix of skills are present to meet the company’s current needs. Many boards conduct a gap analysis that compares current director attributes with those that it has identified as critical to effective oversight. They can then choose to fill any gaps by recruiting new directors with such attributes or by consulting external advisors. Some companies use a matrix in their proxy disclosures to graphically display to investors the particular attributes of each director nominee.
Board diversity is a hot-button issue
Diversity is a key element of any discussion of board composition. Diversity includes not only gender, race, and ethnicity, but also diversity of skills, backgrounds, personalities, opinions, and experiences. But the pace of adding more gender and ethnic diversity to public company boards has been only incremental over the past five years. For example, a December 2015 report from the US Government Accountability Office estimates that it could take four decades for the representation of women on US boards to be the same as men.  Some countries, including Norway, Belgium, and Italy, have implemented regulatory quotas to increase the percentage of women on boards.
Even if equal proportions of women and men joined boards each year beginning in 2015, GAO estimated that it could take more than four decades for women’s representation on boards to be on par with that of men’s.
—US Government Accountability Office, December 2015
According to PwC’s 2015 Annual Corporate Directors Survey, more than 80% of directors believe board diversity positively impacts board and company performance. But more than 70% of directors say there are impediments to increasing board diversity.  One of the main impediments is that many boards look to current or former CEOs as potential director candidates. However, only 4% of S&P 500 CEOs are female,  less than 2% of the Fortune 500 CEOs are Hispanic or Asian, and only 1% of the Fortune 500 CEOs are African-American.  So in order to get boards to be more diverse, the pool of potential director candidates needs to be expanded.
Is there diversity on US boards?
Source: Spencer Stuart US Board Index 2015, November 2015.
SEC rules require companies to disclose the backgrounds and qualifications of director nominees and whether diversity was a nomination consideration. In January 2016, SEC Chair Mary Jo White included diversity as a priority for the SEC’s 2016 agenda and suggested that the SEC’s disclosure rules pertaining to board diversity may be enhanced.
While those who aspire to become directors must play their part, the drive to make diversity a priority really has to come from board leadership: CEOs, lead directors, board chairs, and nominating and governance committee chairs. These leaders need to be proactive and commit to making diversity part of the company and board culture. In order to find more diverse candidates, boards will have to look in different places. There are often many untapped, highly qualified, and diverse candidates just a few steps below the C-suite, people who drive strategies, run large segments of the business, and function like CEOs.
How long is too long? Director tenure and mandatory retirement
The debate over board tenure centers on whether lengthy board service negatively impacts director independence, objectivity, and performance. Some investors believe that long-serving directors can become complacent over time—making it less likely that they will challenge management. However, others question the virtue of forced board turnover. They argue that with greater tenure comes good working relationships with stakeholders and a deep knowledge of the company. One approach to this issue is to strive for diversity of board tenure—consciously balancing the board’s composition to include new directors, those with medium tenures, and those with long-term service.
This debate has heated up in recent years, due in part to attention from the Council of Institutional Investors (the Council). In 2013, the Council introduced a revised policy statement on board tenure. While the policy “does not endorse a term limit,”  the Council noted that directors with extended tenures should no longer be considered independent. More recently, the large pension fund CalPERS has been vocal about tenure, stating that extended board service could impede objectivity. CalPERS updated its 2016 proxy voting guidelines by asking companies to explain why directors serving for over twelve years should still be considered independent.
We believe director independence can be compromised at 12 years of service—in these situations a company should carry out rigorous evaluations to either classify the director as non-independent or provide a detailed annual explanation of why the director can continue to be classified as independent.
— CalPERS Global Governance Principles, second reading, March 14, 2016
Factors in the director tenure and age debate
Source: Spencer Stuart US Board Index 2015, November 2015.
Many boards have a mandatory retirement age for their directors. However, the average mandatory retirement age has increased in recent years. Of the 73% of S&P 500 boards that have a mandatory retirement age in place, 97% set that age at 72 or older—up from 57% that did so ten years ago. Thirty-four percent set it at 75 or older.  Others believe that director term limits may be a better way to encourage board refreshment, but only 3% of S&P 500 boards have such policies. 
Some institutional investors have expressed concern about board composition and refreshment, and this increased scrutiny could have an impact on proxy voting decisions.
What are investors saying about board composition and refreshment?
Sources: BlackRock, Proxy voting guidelines for U.S. securities, February 2015; California Public Employees’ Retirement System, Statement of Investment Policy for Global Governance, March 16, 2015; State Street Global Advisors’ US Proxy Voting and Engagement Guidelines, March 2015.
Proxy advisors’ views on board composition—recent developments
Proxy advisory firm Institutional Shareholder Services’s (ISS) governance rating system QuickScore 3.0 views tenure of more than nine years as potentially compromising director independence. ISS’s 2016 voting policy updates include a clarification that a “small number” of long-tenured directors (those with more than nine years of board service) does not negatively impact the company’s QuickScore governance rating, though ISS does not provide specifics on the acceptable quantity.
Glass Lewis’ updated 2016 voting policies address nominating committee performance. Glass Lewis may now recommend against the nominating and governance committee chair “where the board’s failure to ensure the board has directors with relevant experience, either through periodic director assessment or board refreshment, has contributed to a company’s poor performance.” Glass Lewis believes that shareholders are best served when boards are diverse on the basis of age, race, gender and ethnicity, as well as on the basis of geographic knowledge, industry experience, board tenure, and culture.
How can directors proactively address board refreshment?
The first step in refreshing your board is deciding whether to add a new board member and determining which director attributes are most important. One way to do this is to conduct a self-assessment. Directors also have a number of mechanisms to address board refreshment. For one, boards can consider new ways of recruiting director candidates. They can take charge of their composition through active and strategic succession planning. And they can also use robust self-assessments to gauge individual director performance—and replace directors who are no longer contributing.
- Act on the results of board assessments. Boards should use their annual self-assessment to help spark discussions about board refreshment. Having a robust board assessment process can offer insights into how the board is functioning and how individual directors are performing. The board can use this process to identify directors that may be underperforming or whose skills may no longer match what the company needs. It’s incumbent upon the board chair or lead director and the chair of the nominating and governance committee to address any difficult matters that may arise out of the assessment process, including having challenging conversations with underperforming directors. In addition, some investors are asking about the results of board assessments. CalPERS and CalSTRS have both called on boards to disclose more information about the impact of their self-assessments on board composition decisions. 
- Take a strategic approach to director succession planning. Director succession planning is essential to promoting board refreshment. But, less than half of directors “very much” believe their board is spending enough time on director succession.  In board succession planning, it’s important to think about the current state of the board, the tenure of current members, and the company’s future needs. Boards should identify possible director candidates based upon anticipated turnover and director retirements.
- Broaden the pool of candidates. Often, boards recruit directors by soliciting recommendations from other sitting directors, which can be a small pool. Forward-looking boards expand the universe of potential qualified candidates by looking outside of the C-suite, considering investor recommendations, and by looking for candidates outside the corporate world—from the retired military, academia, and large non-profits. This will provide a broader pool of individuals with more diverse backgrounds who can be great board contributors.
In sum, evaluating board composition and refreshing the board may be challenging at times, but it’s increasingly a topic of concern for many investors, and it’s critical to the board’s ability to stay current, effective, and focused on enhancing long-term shareholder value.
The complete publication, including footnotes and appendix, is available here.
 United States Government Accountability Office, “Corporate Boards: Strategies to Address Representation of Women Include Federal Disclosure Requirements,” December 2015.
 PwC, 2015 Annual Corporate Directors Survey, October 2015.
 Catalyst, Women CEOs of the S&P 500, February 3, 2016.
 “McDonald’s CEO to Retire; Black Fortune 500 CEOs Decline by 33% in Past Year,” DiversityInc, January 29, 2015; http://www.diversityinc.com/leadership/mcdonalds-ceo-retire-black-fortune-500-ceos-decline-33-past-year.
 Amy Borrus, “More on CII’s New Policies on Universal Proxies and Board Tenure,” Council of Institutional Investors, October 1, 2013; http://www.cii.org/article_content.asp?article=208.
 Spencer Stuart, 2015 US Board Index, November 2015.
 Spencer Stuart, 2015 US Board Index, November 2015.
 California State Teachers’ Retirement System Corporate Governance Principles, April 3, 2015, http://www.calstrs.com/sites/main/files/file-attachments/corporate_governance_principles_1.pdf; The California Public Employees’ Retirement System Global Governance Principles, Updated March 14, 2016, https://www.calpers.ca.gov/docs/board-agendas/201603/invest/item05a-02.pdf.
 PwC, 2015 Annual Corporate Directors Survey, October 2015. www.pwc.com/us/GovernanceInsightsCenter.
*Paula Loop is Leader of the Governance Insights Center at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Ms. Loop and Paul DeNicola. The complete publication, including footnotes and appendix, is available here.
Vous trouverez, ci-dessous, les dix thèmes les plus importants pour les administrateurs de sociétés selon Kerry E. Berchem, associé du groupe de pratiques corporatives à la firme Akin Gump Strauss Hauer & Feld LLP. Cet article est paru aujourd’hui sur le blogue le Harvard Law School Forum on Corporate Governance.
Bien qu’il y ait peu de changements dans l’ensemble des priorités cette année, on peut quand même noter :
(1) l’accent crucial accordé au long terme ;
(2) Une bonne gestion des relations avec les actionnaires dans la foulée du nombre croissant d’activités menées par les activistes ;
(3) Une supervision accrue des activités liées à la cybersécurité…
Pour plus de détails sur chaque thème, je vous propose la lecture synthèse de l’article ci-dessous.
Bonne lecture !
U.S. public companies face a host of challenges as they enter 2016. Here is our annual list of hot topics for the boardroom in the coming year:
- Oversee the development of long-term corporate strategy in an increasingly interdependent and volatile world economy
- Cultivate shareholder relations and assess company vulnerabilities as activist investors target more companies with increasing success
- Oversee cybersecurity as the landscape becomes more developed and cyber risk tops director concerns
- Oversee risk management, including the identification and assessment of new and emerging risks
- Assess the impact of social media on the company’s business plans
- Stay abreast of Delaware law developments and other trends in M&A
- Review and refresh board composition and ensure appropriate succession
- Monitor developments that could impact the audit committee’s already heavy workload
- Set appropriate executive compensation as CEO pay ratios and income inequality continue to make headlines
- Prepare for and monitor developments in proxy access
Strategic Planning Considerations
Strategic planning continues to be a high priority for directors and one to which they want to devote more time. Figuring out where the company wants to—and where it should want to—go and how to get there is not getting any easier, particularly as companies find themselves buffeted by macroeconomic and geopolitical events over which they have no control.
In addition to economic and geopolitical uncertainty, a few other challenges and considerations for boards to keep in mind as they strategize for 2016 and beyond include:
finding ways to drive top-line growth
focusing on long-term goals and enhancing long-term shareholder value in the face of mounting pressures to deliver short-term results
the effect of low oil and gas prices
figuring out whether and when to deploy growing cash stockpiles
assessing the opportunities and risks of climate change and resource scarcity
addressing corporate social responsibility.
Shareholder activism and “suggestivism” continue to gain traction. With the success that activists have experienced throughout 2015, coupled with significant new money being allocated to activist funds, there is no question that activism will remain strong in 2016.
In the first half of 2015, more than 200 U.S. companies were publicly subjected to activist demands, and approximately two-thirds of these demands were successful, at least in part.  A much greater number of companies are actually targeted by activism, as activists report that less than a third of their campaigns actually become public knowledge.  Demands have continued, and will continue, to vary: from requests for board representation, the removal of officers and directors, launching a hostile bid, advocating specific business strategies and/or opining on the merit of M&A transactions. But one thing is clear: the demands are being heard. According to a recent survey of more than 350 mutual fund managers, half had been contacted by an activist in the past year, and 45 percent of those contacted decided to support the activist. 
With the threat of activism in the air, boards need to cultivate shareholder relations and assess company vulnerabilities. Directors—who are charged with overseeing the long-term goals of their companies—must also understand how activists may look at the company’s strategy and short-term results. They must understand what tactics and tools activists have available to them. They need to know and understand what defenses the company has in place and whether to adopt other protective measures for the benefit of the overall organization and stakeholders.
Nearly 90 percent of CEOs worry that cyber threats could adversely impact growth prospects.  Yet in a recent survey, nearly 80 percent of the more than 1,000 information technology leaders surveyed had not briefed their board of directors on cybersecurity in the last 12 months.  The cybersecurity landscape has become more developed and as such, companies and their directors will likely face stricter scrutiny of their protection against cyber risk. Cyber risk—and the ultimate fall out of a data breach—should be of paramount concern to directors.
One of the biggest concerns facing boards is how to provide effective oversight of cybersecurity. The following are questions that boards should be asking:
Governance. Has the board established a cybersecurity review > committee and determined clear lines of reporting and > responsibility for cyber issues? Does the board have directors with the necessary expertise to understand cybersecurity and related issues?
Critical asset review. Has the company identified what its highest cyber risks assets are (e.g., intellectual property, personal information and trade secrets)? Are sufficient resources allocated to protect these assets?
Threat assessment. What is the daily/weekly/monthly threat report for the company? What are the current gaps and how are they being resolved?
Incident response preparedness. Does the company have an incident response plan and has it been tested in the past six months? Has the company established contracts via outside counsel with forensic investigators in the event of a breach to facilitate quick response and privilege protection?
Employee training. What training is provided to employees to help them identify common risk areas for cyber threat?
Third-party management. What are the company’s practices with respect to third parties? What are the procedures for issuing credentials? Are access rights limited and backdoors to key data entry points restricted? Has the company conducted cyber due diligence for any acquired companies? Do the third-party contracts contain proper data breach notification, audit rights, indemnification and other provisions?
Insurance. Does the company have specific cyber insurance and does it have sufficient limits and coverage?
Risk disclosure. Has the company updated its cyber risk disclosures in SEC filings or other investor disclosures to reflect key incidents and specific risks?
The SEC and other government agencies have made clear that it is their expectation that boards actively manage cyber risk at an enterprise level. Given the complexity of the cybersecurity inquiry, boards should seriously consider conducting an annual third-party risk assessment to review current practices and risks.
Risk management goes hand in hand with strategic planning—it is impossible to make informed decisions about a company’s strategic direction without a comprehensive understanding of the risks involved. An increasingly interconnected world continues to spawn newer and more complex risks that challenge even the best-managed companies. How boards respond to these risks is critical, particularly with the increased scrutiny being placed on boards by regulators, shareholders and the media. In a recent survey, directors and general counsel identified IT/cybersecurity as their number one worry, and they also expressed increasing concern about corporate reputation and crisis preparedness. 
Given the wide spectrum of risks that most companies face, it is critical that boards evaluate the manner in which they oversee risk management. Most companies delegate primary oversight responsibility for risk management to the audit committee. Of course, audit committees are already burdened with a host of other responsibilities that have increased substantially over the years. According to Spencer Stuart’s 2015 Board Index, 12 percent of boards now have a stand-alone risk committee, up from 9 percent last year. Even if primary oversight for monitoring risk management is delegated to one or more committees, the entire board needs to remain engaged in the risk management process and be informed of material risks that can affect the company’s strategic plans. Also, if primary oversight responsibility for particular risks is assigned to different committees, collaboration among the committees is essential to ensure a complete and consistent approach to risk management oversight.
Companies that ignore the significant influence that social media has on existing and potential customers, employees and investors, do so at their own peril. Ubiquitous connectivity has profound implications for businesses. In addition to understanding and encouraging changes in customer relationships via social media, directors need to understand and weigh the risks created by social media. According to a recent survey, 91 percent of directors and 79 percent of general counsel surveyed acknowledged that they do not have a thorough understanding of the social media risks that their companies face. 
As part of its oversight duties, the board of directors must ensure that management is thoughtfully addressing the strategic opportunities and challenges posed by the explosive growth of social media by probing management’s knowledge, plans and budget decisions regarding these developments. Given new technology and new social media forums that continue to arise, this is a topic that must be revisited regularly.
M&A activity has been robust in 2015 and is on track for another record year. According to Thomson Reuters, global M&A activity exceeded $3.2 trillion with almost 32,000 deals during the first three quarters of 2015, representing a 32 percent increase in deal value and a 2 percent increase in deal volume compared to the same period last year. The record deal value mainly results from the increase in mega-deals over $10 billion, which represented 36 percent of the announced deal value. While there are some signs of a slowdown in certain regions based on deal volume in recent quarters, global M&A is expected to carry on its strong pace in the beginning of 2016.
Directors must prepare for possible M&A activity in the future by keeping abreast of developments in Delaware case law and other trends in M&A. The Delaware courts churned out several noteworthy decisions in 2015 regarding M&A transactions that should be of interest to directors, including decisions on the court’s standard of review of board actions, exculpation provisions, appraisal cases and disclosure-only settlements.
Board Composition and Succession Planning
Boards have to look at their composition and make an honest assessment of whether they collectively have the necessary experience and expertise to oversee the new opportunities and challenges facing their companies. Finding the right mix of people to serve on a company’s board of directors, however, is not necessarily an easy task, and not everyone will agree with what is “right.” According to Spencer Stuart’s 2015 Board Index, board composition and refreshment and director tenure were among the top issues that shareholders raised with boards. Because any perceived weakness in a director’s qualification could open the door for activist shareholders, boards should endeavor to have an optimal mix of experience, skills and diversity. In light of the importance placed on board composition, it is critical that boards have a long-term board succession plan in place. Boards that are proactive with their succession planning are able to find better candidates and respond faster and more effectively when an activist approaches or an unforeseen vacancy occurs.
Averaging 8.8 meetings a year, audit continues to be the most time-consuming committee.  Audit committees are burdened not only with overseeing a company’s risks, but also a host of other responsibilities that have increased substantially over the years. Prioritizing an audit committee’s already heavy workload and keeping directors apprised of relevant developments, including enhanced audit committee disclosures, accounting changes and enhanced SEC scrutiny will be important as companies prepare for 2016.
Perennially in the spotlight, executive compensation will continue to be a hot topic for directors in 2016. But this year, due to the SEC’s active rulemaking in 2015, directors will have more to fret about than just say-on-pay. Roughly five years after the Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted, the SEC finally adopted the much anticipated CEO pay ratio disclosure rules, which have already begun stirring the debate on income inequality and exorbitant CEO pay. The SEC also made headway on other Dodd-Frank regulations, including proposed rules on pay-for-performance, clawbacks and hedging disclosures. Directors need to start planning how they will comply with these rules as they craft executive compensation for 2016.
2015 was a turning point for shareholder proposals seeking to implement proxy access, which gives certain shareholders the ability to nominate directors and include those nominees in a company’s proxy materials. During the 2015 proxy season, the number of shareholder proposals relating to proxy access, as well as the overall shareholder support for such proposals, increased significantly. Indeed, approximately 110 companies received proposals requesting the board to amend the company’s bylaws to allow for proxy access, and of those proposals that went to a vote, the average support was close to 54 percent of votes cast in favor, with 52 proposals receiving majority support.  New York City Comptroller Scott Springer and his 2015 Boardroom Accountability Project were a driving force, submitting 75 proxy access proposals at companies targeted for perceived excessive executive compensation, climate change issues and lack of board diversity. Shareholder campaigns for proxy access are expected to continue in 2016. Accordingly, it is paramount that boards prepare for and monitor developments in proxy access, including, understanding the provisions that are emerging as typical, as well as the role of institutional investors and proxy advisory firms.
The complete publication is available here.
 Activist Insight, “2015: The First Half in Numbers,” Activism Monthly (July 2015).
 Activist Insight, “Activist Investing—An Annual Review of Trends in Shareholder Activism,” p. 8. (2015).
 David Benoit and Kirsten Grind, “Activist Investors’ Secret Ally: Big Mutual Funds,” The Wall Street Journal (August 9, 2015).
 PwC’s 18th Annual Global CEO Survey 2015.
 Ponemon Institute’s 2015 Global Megatrends in Cybersecurity (February 2015).
 Kimberley S. Crowe, “Law in the Boardroom 2015,” Corporate Board Member Magazine (2nd Quarter 2015). See also, Protiviti, “Executive Perspectives on Top Risks for 2015.”
 Kimberley S. Crowe, supra.
 2015 Spencer Stuart Board Index, at p. 26.
 Georgeson, 2015 Annual Corporate Governance Review, at p. 5.
Très bonnes réflexions d’Yvan Allaire sur le dogme de la séparation des rôles entre PCA et PDG. À lire sur le blogue Les Affaires .com.
Rien à rajouter à ce billet de l’expert en gouvernance qui , comme moi, cherche des réponses à plusieurs théories sur la gouvernance. Plus de recherches dans le domaine de la gouvernance serait grandement indiquées…
Le CAS et la FSA de l’Université Laval mettront ont pied un programme de recherche (Chaire en gouvernance) dont le but est de répondre à ce type de questionnement.
Pourquoi séparer les fonctions de président du conseil (PCA) et de président et chef de la direction (PDG) ?
« Parmi les dogmes de la bonne gouvernance, la séparation des rôles du PCA et du PDG vient au deuxième rang immédiatement derrière « l’indépendance absolue et inviolable » de la majorité des administrateurs. … Bien que les études empiriques aient grande difficulté à démontrer de façon irréfutable la valeur de ces deux dogmes, ceux-ci sont, semble-t-il, incontournables. Dans le cas de la séparation des rôles, le sujet a pris une certaine importance récemment chez Research in Motion ainsi que chez Air Transat. Le compromis d’un administrateur en chef (lead director) pour compenser pour le fait que le PCA et le PDG soit la même personne ne satisfait plus; le dogme demande que le président du conseil soit indépendant de la direction ».