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Une culture empreinte de corruption mène habituellement à de sérieux manquements organisationnels !


Si l’on pouvait identifier les variables qui contribuent à créer une culture d’entreprise corrompue, pourrait-on prévoir les comportements corporatifs fautifs ?

C’est essentiellement la question de recherche à laquelle Xiaoding Liu, professeur de finance à University of Oregon’s Lundquist College of Business, a tenté de répondre dans un article utilisant une méthodologie originale et une solide analyse.

L’auteur avance qu’une culture d’entreprise souffrant d’un certain degré de corruption, c’est-à-dire ayant une culture interne plus tolérante envers le manque d’éthique, est plus susceptible de mener à des manquements corporatifs significatifs eu égard aux malversations, aux conflits d’intérêts et aux comportements organisationnels  «opportunistes».

In particular, they ask whether a firm’s inherent tendency to behave opportunistically is deeply rooted in its corporate culture, commonly defined as the shared values and beliefs of a firm’s employees.

Cet article montre qu’il y a un lien significatif entre une culture interne basée sur de faibles valeurs éthiques et la probabilité d’inconduite de la direction.

De plus, l’article montre que les comportements des employés basés sur de faibles valeurs éthiques sont transmissibles à d’autres organisations et que ces conclusions s’appliquent tout autant à la direction.

C’est la raison pour laquelle les conseils d’administration doivent se préoccuper de la culture de l’entreprise, s’assurer d’avoir le pouls du climat interne et être vigilants eu égard aux manquements à l’éthique.

Il est également crucial de s’assurer d’avoir une équipe d’auditeurs internes indépendants et bien outillés qui se rapporte au comité d’audit de l’entreprise.

À la suite de ce compte rendu, vous aurez sûrement des questions d’ordre méthodologique. Si vous voulez en savoir davantage sur la démarche de l’auteur, je vous encourage fortement, même si c’est ardu, de lire l’article au complet.

Bonne lecture !

Corruption Culture and Corporate Misconduct

 

A key question in corporate governance is how to control problems arising from conflicts of interest between agents and principals. The existing literature has extensively investigated traditional ways of dealing with agency problems such as hostile takeovers, the board of directors, and institutional investors, and has found mixed evidence regarding their effectiveness. Acknowledging the difficulty in designing effective governance rules to curb corporate scandals and bank failures, regulators and academics have recently turned their attention inward to the firm’s employees. In particular, they ask whether a firm’s inherent tendency to behave opportunistically is deeply rooted in its corporate culture, commonly defined as the shared values and beliefs of a firm’s employees.

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In my article, Corruption Culture and Corporate Misconduct, recently published in the Journal of Financial Economics, I investigate this question by studying the role of corporate culture in influencing corporate misconduct. To do so, I create a measure of corporate corruption culture, which captures a firm’s general attitude toward opportunistic behavior. Specifically, corporate corruption culture is calculated as the average corruption attitudes of insiders (i.e., officers and directors) of a company. To measure corruption attitudes of insiders, I use a recently developed methodology from the economics literature that is generally described as the epidemiological approach (Fernández, 2011). It is based on the key idea that when individuals emigrate from their native country to a new country, their cultural beliefs and values travel with them, but their external environment is left behind. Moreover, these immigrants not only bring their beliefs and values to the new country, they also pass down these beliefs to their descendants. Thus, relevant economic outcomes at the country of ancestry are used as proxies of culture for immigrants and their descendants. Applying this approach, I use corruption in the insiders’ country of ancestry to capture corruption attitudes for insiders in the U.S., where the country of ancestry is identified based on surnames using U.S. Census data.

Using a sample of over 8,000 U.S. companies, I test the main prediction that firms with high corruption culture, which tend to be more tolerant toward corrupt behavior, are more likely to engage in corporate misconduct. Consistent with this prediction, I find that corporate corruption culture has a significant positive effect on various types of corporate misconduct such as earnings management, accounting fraud, option backdating, and opportunistic insider trading. The effects are also economically significant: a one standard deviation increase in a firm’s corruption culture is associated with an increase in the likelihood of corporate misconduct by about 2% to 7%, which are comparable to the effects of other governance measures such as board independence.

I further show that my findings are robust to controlling for time-varying local and industry factors, and traditional measures of corporate governance including the board size, the percentage of insider directors, the presence of institutional investors, and the threat of hostile takeovers. Van den Steen (2010) proposes a model of corporate culture and predicts that the appointment of a new CEO will lead to turnover through both selection and self-sorting. Thus, although corporate culture tends to be persistent over time, it is likely to change in a significant way around new CEO appointments. Motivated by this prediction, I examine corporate misconduct 5 years before and after the appointment of a new CEO while controlling for firm fixed effects. I continue to find a significant positive relation between corruption culture and corporate misconduct, which further alleviates endogeneity concerns.

The theoretical literature has predictions regarding the mechanisms through which corporate culture would affect opportunistic behavior. The first channel predicts that corruption culture acts as a selection mechanism by attracting or selecting individuals with similar corruption attitudes to the firm, where these individuals act according to their internal norms that are then reflected in corporate outcomes (Schneider, 1987). Consistent with this channel, I find that individuals with high corruption attitudes are more likely to join firms with high corruption culture and an insider is more likely to leave the firm if his corruption attitudes are more distant from the corruption attitudes of the other insiders in the firm. The second channel predicts that corruption culture can operate beyond internal norms and have a direct effect on individual behavior through group norms (Hackman, 1992). To test this channel, I examine misconduct at the insider level and focus on the sample of insiders that have moved across firms. Holding the individual constant, results show that when the same individual joins a firm with high corruption culture, his likelihood of engaging in personal misconduct increases compared to when he was at a firm with low corruption culture, consistent with corruption culture working through group norms.

In summary, I show that a firm’s corruption culture is an important determinant of the firm’s likelihood of engaging in corporate misconduct. This finding echoes the growing focus on corporate culture by regulators in an effort to curb corporate wrongdoing. Moreover, I provide evidence on the inner workings of corruption culture, showing that it influences corporate misconduct by both acting as a selection mechanism and having a direct influence on individual behavior. To the best of my knowledge, this is the first paper to construct a novel measure of corporate culture based on the ancestry origins of company insiders. By doing so, I contribute to a growing finance literature examining the influence of corporate culture on corporate behavior, where the main challenge is measurement.

The full article is available for download here.

L’évolution de la divulgation des comités d’audit aux actionnaires


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 Committee Reporting to Shareholders in 2016

 

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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.

Context

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.

Findings

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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

(Cliquez pour agrandir)

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Le point sur la gouvernance au Canada en 2016 | Rapport de Davies Ward Phillips Vineberg


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 !

Rapport de Davies sur la gouvernance 2016

 

Davies Governance Insights 2016, provides analysis of the top governance trends and issues important to Canadian boards, senior management and governance observers.

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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.

 

Les devoirs des administrateurs eu égard à un climat de travail malsain | Un cas pratique


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.

 

Un cas culture organisationnelle déficiente !

 

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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 ?


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 !

How much is a director worth ?

 

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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.”

PRIVATELY UNDERPAID?

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.

PUBLICLY EXPOSED

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.

EQUITY COMPENSATION

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.

RICHER REWARDS

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.

 

Deux livres phares sur la gouvernance d’entreprise


On me demande souvent de proposer un livre qui fait le tour de la question eu égard à ce qui est connu comme statistiquement valide sur les relations entre la gouvernance et le succès des organisations (i.e. la performance financière !)

Le volume publié par David F. Larcker et Brian Tayan, professeurs au Graduate School de l’Université Stanford, en est à sa deuxième édition et il donne l’heure juste sur l’efficacité des principes de gouvernance.

Je vous recommande donc vivement ce volume.

Également, je profite de l’occasion pour vous indiquer que je viens de recevoir la dernière version  des Principes de gouvernance d’entreprise du G20 et de l’OCDE en français et j’ai suggéré au Collège des administrateurs de sociétés (CAS) d’inclure cette publication dans la section Nouveauté du site du CAS.

Il s’agit d’une publication très attendue dans le monde de la gouvernance. La documentation des organismes internationaux est toujours d’abord publiée en anglais. Ce document en français de l’OCDE sur les principes de gouvernance est la bienvenue !

Voici une brève présentation du volume de Larcker. Bonne lecture !

This is the most comprehensive and up-to-date reference for implementing and sustaining superior corporate governance. Stanford corporate governance experts David Larcker and Bryan Tayan carefully synthesize current academic and professional research, summarizing what is known and unknown, and where the evidence remains inconclusive.

Corporate Governance Matters, Second Edition reviews the field’s newest research on issues including compensation, CEO labor markets, board structure, succession, risk, international governance, reporting, audit, institutional and activist investors, governance ratings, and much more. Larcker and Tayan offer models and frameworks demonstrating how the components of governance fit together, with updated examples and scenarios illustrating key points. Throughout, their balanced approach is focused strictly on two goals: to “get the story straight,” and to provide useful tools for making better, more informed decisions.

Book cover: Corporate Governance Matters, 2nd edition

This edition presents new or expanded coverage of key issues ranging from risk management and shareholder activism to alternative corporate governance structures. It also adds new examples, scenarios, and classroom elements, making this text even more useful in academic settings. For all directors, business leaders, public policymakers, investors, stakeholders, and MBA faculty and students concerned with effective corporate governance.

Selected Editorial Reviews

An outstanding work of unique breadth and depth providing practical advice supported by detailed research.
Alan Crain, Jr., Senior Vice President and General Counsel, Baker Hughes
Extensively researched, with highly relevant insights, this book serves as an ideal and practical reference for corporate executives and students of business administration.
Narayana N.R. Murthy, Infosys Technologies
Corporate Governance Matters is a comprehensive, objective, and insightful analysis of academic and professional research on corporate governance.
Professor Katherine Schipper, Duke University, and former member of the Financial Accounting Standards Board

Les grandes sociétés sont plus résistantes que l’on est porté à le croire !


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.

The new Methuselahs

 

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.

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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.

…..

Enquête mondiale sur les conseils d’administration et la gouvernance


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.

 

2016 Global Board of Directors Survey

 

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.

 boardroom presentation

Boardroom presentation

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:

  1. Political and economic landscape
  2. Company strategy and risks
  3. Board governance and effectiveness
  4. Board diversity and quotas
  5. 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.

Key Findings

Political and Economic Landscape: Uncertainty dominates boardroom outlook.

ss1Our 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.

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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.

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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.”

ss4

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.

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%).ss5

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?”

ss6Not 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.

ss7

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.”

ss8

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 throuss9gh 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.

Conclusion

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.

Les CEO adoptent une vision à long terme, mais ils doivent souvent rechercher des objectifs à court terme pour y arriver !


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 :

  1. 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.
  2. 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.

 

A Theory of Efficient Short-Termism

 

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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.

References

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.

Assurer une efficacité supérieure du conseil d’administration


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 :

  1. Le suivi des réunions du CA par le président du conseil
  2. L’intégration des nouveaux membres du conseil
  3. La formation en gouvernance et l’apprentissage des rouages de l’entreprise
  4. Les sessions de planification stratégique
  5. 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

 

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« 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.

Educational sessions

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.

La relève dans une entreprise familiale | Une possibilité de conflits de rôles !


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.

 

Cas de relève familiale

 

spb-cinq-conditions-gagnantes-assurer-releve-entreprise-familiale_2

 

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.

 

L’efficacité du rôle du président du conseil


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) [1]. 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.

president-du-conseil-dadministration

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 [2] 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) [3] contribue à assurer le développement des institutions collégiales dans un contexte de saine gestion.

Un CA performant est guidé par un président compétent.


[1] https://jacquesgrisegouvernance.com/2014/01/24/le-role-du-president-du-conseil-dadministration-pca-le-cas-des-cegep/

[2] Ministre de l’Enseignement supérieur, de la Recherche, de la Science et de la Technologie

[3] 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

(1) Les grands enjeux de la gouvernance des institutions d’enseignement collégiaux

(2) L’exercice de la démocratie dans la gouvernance des institutions d’enseignement collégiaux

(3) LE RÔLE DU PRÉSIDENT DU CONSEIL D’ADMINISTRATION (PCA) | LE CAS DES CÉGEP

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Comment procéder à l’évaluation du CA, des comités et des administrateurs | Un sujet d’actualité !


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.

Evaluer-et-faire-évoluer-©-Jingling-Water-Fotolia

 

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 :

L’évaluation des conseils d’administration et des administrateurs | Sept étapes à considérer

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)

Évaluation des membres de Conseils

Bonne lecture !

Getting the Most from the Evaluation Process

 

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. [1] 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.

1. Questionnaires

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.

3. Interviews

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. [2] 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:

  1. 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.
  2. “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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.

Endnotes:

[1] 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).
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[2] 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.
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______________________________

*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.

Dix thèmes majeurs pour les administrateurs en 2016 | Harvard Law School Forum on Corporate Governance


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 !

 

Ten Topics for Directors in 2016 |   Harvard Law School Forum on Corporate Governance

 

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:

  1. Oversee the development of long-term corporate strategy in an increasingly interdependent and volatile world economy
  2. Cultivate shareholder relations and assess company vulnerabilities as activist investors target more companies with increasing success
  3. Oversee cybersecurity as the landscape becomes more developed and cyber risk tops director concerns
  4. Oversee risk management, including the identification and assessment of new and emerging risks
  5. Assess the impact of social media on the company’s business plans
  6. Stay abreast of Delaware law developments and other trends in M&A
  7. Review and refresh board composition and ensure appropriate succession
  8. Monitor developments that could impact the audit committee’s already heavy workload
  9. Set appropriate executive compensation as CEO pay ratios and income inequality continue to make headlines
  10. 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.

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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

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. [1] 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. [2] 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. [3]

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.

Cybersecurity

Nearly 90 percent of CEOs worry that cyber threats could adversely impact growth prospects. [4] 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. [5] 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

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. [6]

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.

Social Media

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. [7]

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 Developments

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.

Audit Committees

Averaging 8.8 meetings a year, audit continues to be the most time-consuming committee. [8] 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.

Executive Compensation

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.

Proxy Access

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. [9] 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.

Endnotes:

[1] Activist Insight, “2015: The First Half in Numbers,” Activism Monthly (July 2015).
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[2] Activist Insight, “Activist Investing—An Annual Review of Trends in Shareholder Activism,” p. 8. (2015).
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[3] David Benoit and Kirsten Grind, “Activist Investors’ Secret Ally: Big Mutual Funds,” The Wall Street Journal (August 9, 2015).
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[4] PwC’s 18th Annual Global CEO Survey 2015.
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[5] Ponemon Institute’s 2015 Global Megatrends in Cybersecurity (February 2015).
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[6] 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.”
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[7] Kimberley S. Crowe, supra.
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[8] 2015 Spencer Stuart Board Index, at p. 26.
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[9] Georgeson, 2015 Annual Corporate Governance Review, at p. 5.
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La composition du conseil d’administration | Élément clé d’une saine gouvernance


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 !

Investors and Board Composition

 

sans-titre

 

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

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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?

 

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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. [1] 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. [2] 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, [3] less than 2% of the Fortune 500 CEOs are Hispanic or Asian, and only 1% of the Fortune 500 CEOs are African-American. [4] 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?

 

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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,” [5] 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

 

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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. [6] 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. [7]

Investor concern

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?

 

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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.

  1. 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. [8]
  2. 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. [9] 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.
  3. 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.

Endnotes:

[1] United States Government Accountability Office, “Corporate Boards: Strategies to Address Representation of Women Include Federal Disclosure Requirements,” December 2015.
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[2] PwC, 2015 Annual Corporate Directors Survey, October 2015.
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[3] Catalyst, Women CEOs of the S&P 500, February 3, 2016.
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[4] “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.
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[5] 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.
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[6] Spencer Stuart, 2015 US Board Index, November 2015.
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[7] Spencer Stuart, 2015 US Board Index, November 2015.
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[8] 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.
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[9] PwC, 2015 Annual Corporate Directors Survey, October 2015. www.pwc.com/us/GovernanceInsightsCenter.

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*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.

Pourquoi séparer les fonctions de président du conseil (PCA) et de président et chef de la direction (PDG) ?


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 sur pied un programme de recherche 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’i1031_mgmnt_twojobs_630x420ndépendance 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 ».

L’importance de la confiance du président du conseil envers son CA | En reprise


Voici le point de vue de Liam McGee paru récemment dans la section Leadership de la revue du Harvard Business School (HBR). L’auteur relate son expérience alors qu’il était le président et chef de la direction (PCD) de la Hartford Financial Services Group.

Selon lui, tous les présidents de conseils d’administration tentent de « gérer leur CA » en utilisant diverses approches basées sur le contrôle et le pouvoir de l’information. Cependant, depuis une dizaine d’années, les conseils d’administration ont progressivement repris leurs droits ! Ils cherchent à maintenir une plus grande distance entre leurs rôles de fiduciaires et ceux qui incombent à la direction de l’organisation.

Pour l’auteur, il n’y a qu’une façon de réconcilier les deux parties : le partenariat. Celui-ci est fondé sur la confiance, et la confiance ne s’acquiert pas du jour au lendemain ! Il faut élaborer une stratégie et mettre en œuvre des mécanismes qui renforceront graduellement la confiance entre le CA et la haute direction. Selon lui, il vital que le PCD ait confiance en son CA.

Toute la carrière de l’auteur a été consacrée à l’établissement de liens de confiance essentiels aux bonnes pratiques de gouvernance. C’est de son expérience dont il est question dans ce bref extrait. Bonne lecture !

 

idees-installer-climat-confiance-dans-votre-PME-F

CEOs, Stop Trying to Manage the Board

 

It’s understandable that most CEOs try to manage their boards. With directors often attempting to take a more active role in decisions these days, CEOs naturally feel a bit threatened. They’re trying to lead a group of people who typically lack the time or expertise to fully understand what’s going on — but who have real power.

At most companies, despite all the best intentions, managing the board usually means keeping directors at arm’s length. Most CEOs I’ve known are inclined to give out just enough information to satisfy their fiduciary obligations, often in highly structured meetings that leave little to chance. They hold off on revealing the deeper challenges or complexities that might provoke tough questions.

But as I learned over the course of my career, there’s a better approach with boards. A CEO can work in partnership with directors without sacrificing his or her authority — and thereby accomplish far more than is possible with an arm’s-length relationship. It’s all a matter of developing trust. In my five years as CEO of The Hartford, a Fortune 100 insurer, winning trust was crucial to turning around the company in the aftermath of the global financial crisis.

Building trust can be a delicate thing, but it isn’t magic. You don’t need special charisma. All you really need is courage and self-confidence.

The first step is to show that you trust your directors. In practical terms, that means not trying to stage-manage board interactions. When I took over at The Hartford, the management team took up most of our board meetings going through long slide decks. I got rid of that barrier. We distilled the most important information into pre-reads for the directors to study in advance. The meetings themselves, aside from the CFO’s report on financials, focused on discussions of the main issues. Real transparency, I learned, isn’t so much in the numbers, but in open conversation.

That wasn’t easy at first for my executives, who were used to wielding their slide decks to control their presentations. I had to coach them not to worry and to remember that directors were genuinely interested in their businesses and in getting to know them as managers. So they should just be open to the discussions that came up.

These unscripted meetings not only freed directors to ask more questions, but also gave them more of a window into the company. They got to see the other executives in action, including my potential successors.

It’s important to remember that boards see only a small part of you, and even less of the company. They visit for a day or two and get a snapshot. How you work with them is often as important as the substance of what you say. If you give the board unfettered access to executives, you’ll build trust with the directors as well as with your management team. Openness and transparency in board meetings over time can go a long way toward making everyone comfortable with everyone else.

Still, those steps weren’t enough for me to build a strong basis of trust. It’s one thing to allow open discussion on the usual company topics. But what about the issues that involved me personally? How could I get the directors to trust me on my own performance? Obviously a CEO will want to maintain some discretion here. But openness on even these issues can pay off enormously.

A year into my tenure, a senior executive quit abruptly and, on the way out, criticized my management style to the board. I was concerned enough to get a coach, who conducted a full 360-degree feedback process for me. But instead of just telling the directors about the coaching, I decided to give them an overview of my coach’s findings. Her report was generally positive, but it had some tough parts in it, and I decided to discuss these openly. It may have been risky, but it helped to break the ice. The board members felt relaxed enough to give me some feedback of their own. My lead director even became something of a second coach. All of this was invaluable, and it wouldn’t have happened if I hadn’t made myself vulnerable in the first place.

That trust made a big difference in 2012, when an activist investor challenged us to restructure the company. We were still in the process of developing our new strategy, and the stock price was disappointingly low. The controversy could have led to my departure and, more important, a costly delay in the company’s revival. Instead the board stayed unified and we stuck to our plan, which turned out to be a better approach than the strategy the activist was pushing.

All along the way, as we developed trust, I grew to welcome the board members’ tough questions. I could see they were focused on helping me protect and improve the company. A CEO’s job is hard enough. One of your biggest responsibilities is to avoid making dumb decisions. Wouldn’t you want all the directors to feel comfortable challenging you and each other?


*Liam McGee was chairman and CEO of the Hartford Financial Services Group (“The Hartford”) from 2009 to June of 2014. He died in February 2015.

Recrudescence de l’activisme des actionnaires en Europe


Voici un article très bien documenté sur la recrudescence de l’activisme des actionnaires en Europe.

L’actif sous contrôle des activistes européens est passé de 21,7 B $, en 2012, à 27,5 B $, en 2015.

Bonne lecture !

Activist Investing in Europe: A Special Report

 

The inaugural edition of this report, published nearly two years ago, suggested that so long as opportunities presented themselves, activists would continue to seek governance, strategy and capital allocation reforms from European issuers. Indeed they have. After ebbing briefly in 2014, when only 51 companies were publicly targeted (after 61 in 2012 and 59 in 2013), activism has roared back, with 67 companies targeted in 2015 and 64 in the first half of 2016 alone. Assets under management for European activists have grown slowly in that period—from $21.7 billion in 2012 to $27.5 billion in 2015—suggesting the growth has been funded by new entrants and foreign players.

Even publicity-shy activists who have been working with companies behind closed doors for many years concede that the growth in activism in Europe is accelerating. Some see a cyclical boom, with activists hoping to catalyse M&A. Yet on topics such as remuneration, and with the launch of specialist European activist funds, the change appears built to last. Part of the evolution of activism in Europe has been the success of tactics seen as more common in the U.S., including proxy contests. Although longer-term participants and the bulk of campaigns suggest lowkey, collaborative approaches are still more common, activists are becoming less shy about testing where the boundaries lie.

The five countries covered in detail in this post represent approximately 80% of the companies targeted by activists since 2010, although in the past two-and-a-half years the level has been lower. Outside of their ranks, Scandinavia and the Netherlands are popular hunting grounds, while Southeastern Asset Management picked up a board seat at Spain’s Applus in July.

Future editions of this report will have to find a different flag for the front cover, following the U.K.’s decision to leave the European Union. The impact on activism in Europe could be still more profound. In the short period since the referendum, stock markets all over Europe dipped temporarily, creating buying opportunities at export-led companies. Elliott Management, a U.S. hedge fund with a well-established London office, has disclosed four positions since the vote (although it held some as toe-holds previously). Some of these companies were already subject to takeover offers, and Elliott has agitated for higher bids.

Another development, albeit not directly connected with traditional forms of activism, is the rise of activist short selling, where investors bet against a company and attempt to convince investors the stock price will drop. Such campaigns more than doubled from 2014 to 2015, and gained prominence after fuelling sell-offs at the likes of Quindell and Wirecard. Already in the first half of 2016, six companies had been targeted.

The U.S. has seen activism spread beyond a disciplined asset class in recent years. Whether European investors prove to be quite as demanding remains to be seen. But if markets continue to be volatile, opportunities for value investors, arbitrageurs and short sellers will be more plentiful. Recent events suggest there will be opportunists to match.

United Kingdom

Activism has roared back to prominence in the United Kingdom since 2014, with three high-profile proxy battles and the first FTSE 100 company accepting an activist into its boardroom.

ValueAct Capital Partners, a San Francisco-based hedge fund known for its engagements with Adobe and Microsoft, prefers to be seen as a cooperative investor. It generally avoids aggressive tactics such as proxy fights, lawsuits and public letter-writing, preferring testimonials from CEOs it has worked with in the past. Investing in Rolls-Royce Holdings, with its strategically important submarine business and stately shareholders, required a display of deference. As well as hiking its stake to above 10%, the fund worked with new CEO Warren East for over 200 days before its nominee was offered a board seat.

Others have taken less conciliatory paths. Sherborne Investors, defeated in a 2014 proxy contest at Electra Private Equity, raised its stake to 30% before finally winning two board seats the following year. Since then, almost all the other directors have been forced out, and the fund’s external manager served notice. Smoother contests saw victories for Elliott Management at Alliance Trust and the family office of Luis Amaral at Stock Spirits. Yet whereas the former has reformed slowly, attracting potential suitors in the process, the latter has descended into acrimony. The Stock Spirits board may have promised not to engage in acquisitions and to pay a special dividend, but risked conflict by designating the activist nominees non-independent.

Strong shareholder rights, including the ability to call a meeting with just 5% of shares, and a highly liquid and dispersed market, should mean the U.K. continues to be a focal point for activism in Europe. With stocks initially down sharply after the country voted to leave the European Union, a few bargain-hunters may even be preparing campaigns.

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Proxy fights have become increasingly common at U.K. companies, with activists claiming a better record of success than in previous years after the Alliance Trust watershed. Toscafund, fighting the first in its 16-year history, will hope that track record continues. Elliott Management has also made merger arbitrage central to its strategy in recent years. Although operational activist Cevian Capital appears to be more focused on Continental Europe, turnarounds at exporters Rolls-Royce Holdings and Meggit are attracting activist attention.

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Activism in the U.K. increased steadily after the financial crisis, culminating in the shareholder spring of 2012. Despite a dip thereafter, 2015 and 2016 have seen steadily more activity and this year is expected to be the busiest year yet.

* as of 30th June 2016. Projected full-year figure shown in dotted box.

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Easy access to shareholder rights, including meeting requisitions and proposals ensure that smaller companies are always vulnerable to activism. With several well funded and established activists setting up in London, however, large cap companies are starting to draw more attention.

Shareholder Activism—recent developments in the U.K.

Continuing the trend of previous years, the U.K. continues to see the lion’s share of activism in Europe. Over the last 12 months, approximately 43% of all European campaigns were played out in the U.K., according to Activist Insight data. Whilst the traditional mix of activist strategies were deployed, attempts to obtain board representation received most attention and generated most success.

In April 2015, Elliott Management’s criticism of Alliance Trust’s poor performance and high costs resulted in two new non-executive directors (“NED”) being appointed to the latter’s board. At Stock Spirits, Western Gate Private Investment’s (“WGPI”) complaints of “spiraling costs” and a board prone to “group-think” also resulted in the appointment of two NEDs following a shareholder vote. At Rolls- Royce Holdings, too, ValueAct Capital’s complaints regarding a fifth profit warning in two years resulted in a NED appointment for ValueAct’s chief operating officer in return for the promise that ValueAct would not lobby for a break-up of the company, nor increase its stake above 12.5%.

In each of these cases, the activists’ public rationale for supporting NED appointments has been to better long-term results through improved corporate governance and executive scrutiny. Also notable is that in two of the cases mentioned above, new appointments were subject to negotiation and compromise, with the activists accepting limitations on the extent of their directors’ participation in board meetings and board committees.

Board appointments have not gone without criticism, however, particularly regarding the perceived lack of independence of the new directors. Certainly, fears over conflicts of interest can have practical implications. In the case of Rolls-Royce,

ValueAct’s seat on the board was subject to limited rights: it has no ability to propose changes in strategy or management, call a shareholder meeting nor push for mergers or acquisitions. At Stock Spirits, the new NEDs have been prevented from sitting on certain committees and the chairman has publicly stated that they may be asked to leave meetings where commercially sensitive information, such as pricing, is discussed.

The U.K.’s legal, regulatory and political landscape remains supportive of shareholder engagement, and activists will leverage this to reinforce their (shorterterm) theses. Witness the increasing activity of Investor Forum (the “Forum”), whose 40 members own approximately 42% of the FTSE All Share Index. The Forum seeks to promote long-term investment and collective engagement with U.K. companies by its members. In August, after over a year of private engagement with Sports Direct alongside major institutions holding approximately 12% of Sports Direct, the Forum issued a press release calling for a comprehensive and independent review of corporate governance at the company.

Whilst the mechanics for investor engagement have remained largely constant over the last few years in the U.K., the grounds for activist shareholders to demand change remains dynamic. In addition to the traditional activist calling cards of under-par growth, over-inflated executive salaries and deficiencies in corporate governance, Britain’s recent referendum vote to leave the European Union may lead to some boards being challenged on their strategies to cope with Brexit. For so long as activists can continue to find intrinsic, unlocked value in U.K. companies, the facilitative environment and dynamic business conditions will continue to catalyse activism in the U.K.

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France

Controlling shareholders, double voting rights and government stakes in key industries make activism a challenging proposition in France, though there is no sign of activists abandoning their ambitions altogether. Last year, Airbus quietly sold its stake in Dassault Aviation in order to buyback shares, a year after The Children’s Investment Fund suggested the move.

Admittedly, not all activists have had such success. Elliott Management is currently in a legal battle with XPO Logistics Europe (formerly Norbert Dentressangle). Although it failed to remove CEO Troy Cooper at this year’s annual meeting, it owns enough to prevent the U.S. parent from delisting the company. In 2015, U.S.-based P. Schoenfeld Asset Management (“PSAM”) acquired a small stake in Vivendi and suggested selling Universal Music Group in order to pay larger dividends. Vivendi Chairman Vincent Bolloré increased his stake and pushed through double voting rights for long-term investors, enhancing his control.

Nonetheless, activism has begun to thrive in France. Electrical parts company Rexel waved goodbye to its CEO just months after Cevian Capital disclosed a stake earlier this year, Carrefour faced another request for board seats, and a merger between Maurel & Prom and MPI saw opposition from U.K. and South African funds. Meanwhile, the Paris-based hedge fund CI-AM has been making a name for itself, attempting to use the courts to stop the takeover of Club Med by China Fosun International and to reshape a licensing agreement between Euro Disney and The Walt Disney Company, to ensure investors in the Paris theme park were adequately compensated.

Activist short selling is also making its presence felt. In December, Muddy Waters Research released a 22-page report on grocery chain Groupe Casino, which it said was “dangerously leveraged, and… managed for the very short term.” Shares were down 11.6% a week after the report was published.

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Elliott has already been holding out at Norbert Dentressangle for more than a year, preventing the company from delisting following a takeover bid by XPO Logistics. An attempt to take the chairman role from CEO Troy Cooper at this year’s annual meeting failed, but the company has yet to be delisted–unlike MPI, which has now been merged with Maurel & Prom. Vincent Bolloré shows no signs being slowed down by U.S. activists such as P. Schoenfeld Asset Management, which won dividends but no seat on the board from a 2015 raid. In December, Muddy Waters Research released a much discussed short report on grocer Groupe Casino.

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2015 saw a sudden renewal of activist interest in France, coming close to the peak of 2012. So far, 2016 is off to a reasonable start, although it seems the country will continue to be targeted intermittently.

* as of 30th June 2016. Projected full-year figure shown in dotted box.

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Activist targets tend to be larger, on average, in France than in other countries, perhaps because they are more likely to be susceptible to international pressure. However, a rising number of campaigns at small cap companies may presage a busier market in future.

France is in the process of strengthening its Say on Pay

The emergence of shareholder activism in France over the last decade has been supported by the development of corporate governance rules and best practices. A number of campaigns following the global financial crisis focused on corporate governance, including the separation of chairmen and CEO roles, management performance and compensation.

Say on Pay was introduced in France in 2013 in the form of a soft law set forth in the corporate governance code applicable to French listed companies (the “AFEP-MEDEF Code”). France opted for an annual non-binding shareholder vote on all forms of compensation paid or granted to the company’s officers, including the chairman (vote consultatif des actionnaires). If compensation is rejected, a board is required to post a release on the company’s website following its next board meeting detailing how it intends to deal with such vote.

As the vote is non-binding, the general view until now is that boards may maintain compensation granted to the company’s officers, even when it is rejected by shareholders, or receives very limited support. In 2016, Renault and Alstom’s CEO compensation gave rise to a negative Say on Pay vote by shareholders. In the case of Renault, the board met immediately after the meeting and decided to confirm the 2015 compensation of the company’s CEO, generating criticism from the French state, which holds a significant stake in Renault, and politicians, as well as questions on the efficacy of French Say on Pay.

Following the Renault controversy, a public consultation was launched in order to, amongst other things, strengthen the Code’s Say on Pay provisions. The proposed new wording (likely to be in force from September 2016), is somewhat more restrictive than that currently in force, as it contemplates an express obligation for the board to amend the relevant officers’ compensation for the previous year or the company’s management compensation policy for the future. The French government also proposed in early June in a bill currently under discussion at the French Parliament (the “Loi Sapin II”) to introduce a binding Say on Pay in the French Commercial Code. This bill was highly debated and, at the date hereof, the French Assemblée Nationale and Sénat have taken different positions on this topic.

In the context of this reform, it is essential that French legislators bear in mind that the board has always been and shall remain the competent corporate body to fix the compensation granted to the company’s officers. In particular, the board is the sole corporate body which can set the applicable performance criteria for the annual and long-term variable remuneration of the company’s officers and assess whether or not these criteria have been met. In our view, the best way to achieve a well-balanced system would be to implement a Say on Pay inspired by the U.K. model, with (i) a binding shareholder vote every three or four years on the company’s compensation policy, and (ii) a nonbinding shareholder vote every year on the compensation granted to the company’s officers for the previous fiscal year, without any effect provided that such compensation complies with the management compensation policy approved by the shareholders.

Germany

Shareholders have always occupied a more complicated role in Germany, where a two-tier board structure gives labour unions and other interest groups a role, while limiting direct contact with executives.

In recent years, however, activists have descended on Germany. Knight Vinke, a Monaco-based hedge fund that specialises in large cap companies, has written a white paper on how E.On should be reshaped, while Cevian Capital has stakes in Bilfinger and ThyssenKrupp, where it is practising its traditional long-term, operational style of activism. Sports retailer Adidas has been forced to deny suggestions that Southeastern Asset Management was behind a decision to sell its golf division.

Events at Volkswagen since the emissions scandal highlight both the opportunities and the challenges for activism in Germany. London-based hedge fund The Children’s Investment Fund (“TCI”), wrote a scathing public letter in May, attacking executive compensation and deals with local state officials and unions that had damaged productivity levels.

Other investors sought to use Volkswagen’s annual meeting to send a message by attempting to deny management board members discharge from liability for their decisions and to halt dividend payments. Despite a number of investors speaking at the meeting and criticism from proxy voting advisers, the management resolutions were carried comfortably, reflecting the concentrated ownership of the Porsche and Piëch families.

A proxy contest at drugmaker Stada Arzneimittel may yet present activists with a path to influencing German companies, however. Investors defied management to elect a director selected by Active Ownership Capital (“AOC”), voted down Chairman Martin Abend and rejected the company’s remuneration plan. Other investors have openly called for the company to be sold, although AOC denied it would push for this.

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The proxy contest at Stada Arzneimittel is a rare beast in a country that generally encourages activists to work more with management than directors to get things done. Even The Children’s Investment Fund Management, which has a fearsome reputation, is relying on its bully pulpit as a shareholder in Volkswagen to get things done, rather than initiating a formal contest. Activists have appointed supervisory board members in the past, however. Cevian Capital, a big player in the region, is currently involved at several construction sector companies.

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A wave of merger arbitrage by activists such as Kerrisdale Capital and Elliott Management as well the traditional activism of Cevian Capital made 2013 a banner year for activism in Germany. Cevian are showing the country more attention than ever, with 2016 on course to finish strongly.

* as of 30th June 2016. Projected full-year figures shown in dotted box.

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Growing interest in activism in Germany has seen a wider range of market caps affected by activism since our last report. Both mid cap and large cap targets have increased in prominence, thanks to well-resourced activists showing interest in recent years.

New players rising

Shareholder activism in Germany continues to receive attention from the public, particularly with new domestic and short selling activists that understand how to utilise statutory legal instruments to implement their strategies entering the stage.

Elliott Management, a typical activist investor in special situations, continued to fiercely enforce its claim for an increase of the consideration for its 14.4% stake in Kabel Deutschland as part of the tender offer by Vodafone Group. In 2013, Elliott requested a special audit to review the offer of €84.53 per share. Since Vodafone vetoed a further special audit at the 2015 annual meeting, Elliott filed a court action requesting a further special audit alleging that €188 would have been fair; it seized upon its right pursuant to Sec. 145 German Stock Corporation Act (“AktG”). The court ruled in favour of Elliott, while the verdict of the further audit is outstanding.

Turning to “strategic” activists, with Active Ownership Capital (“AOC”) a new German player has entered the stage. In April 2016, AOC purchased a 5.1% position in Stada Arzneimittel and requested the replacement of initially five, later three, of the nine members of Stada’s supervisory board. Originally, Stada accepted these nominations but then changed its mind, eventually adjourning its annual meeting by nearly three months. Meanwhile AOC established a shareholders’ forum (Sec. 127a AktG) asking major shareholders to nominate candidates for election, eventually picking four to take into the proxy contest. Additionally, AOC called for the election of a new auditor; then it proposed the replacement of management board members even though the management board is appointed by the supervisory board whose members are independent from shareholders. AOC has been supported by Guy Wyser-Pratte and German Shareholder Value Management, drawing scrutiny by the German supervisory authority BaFin. It remains unclear whether AOC is seeking a longterm partnership or publicity to raise Stada’s market value, possibly with the goal of a sale; respective rumours of a partial or complete sale have evolved.

Besides the shareholders’ forum and direct communication with management, AOC essentially may use the following legal instruments: request that discharge of management not be granted on an individual basis (Sec. 120 para. 1 sent. 2 AktG), individual election of supervisory board members (Sec. 5.4.3 German Corporate Governance Code) and voting on its own director nominees prior to candidates proposed by management, thus enhancing their chances for election (Sec. 137 AktG).

The influence of activists is further proven by Cevian Capital’s investment in Bilfinger. For years Cevian has closely followed Bilfinger’s management and presumably “installed” Eckhard Cordes as chairman of the supervisory board, prompting various changes to the management board.

Aside from some other campaigns, a new kind of activists has emerged—those selling shares short and spreading news adversely affecting the share price. The lawfulness of this may be doubted. Examples include Muddy Waters (at Ströer) and Zatarra (Wirecard).

This illustrates the continuing increase in shareholder activism in Germany and that German law provides requisite instruments for it.

Italy

Shareholder representation on company boards is the rule and not the exception in Italy, with large investors dividing board seats amongst themselves and majority shareholders choosing managers. As of 2014, 83% of listed companies had a controlling shareholder, or a coalition of shareholders in control. However, the long-term trend is that the weight of the owners is slowly decreasing, and the presence of foreign institutional investors rising.

Moreover, the country’s prolonged economic crisis and new laws have weakened families and institutions that have controlled Italy’s largest companies for decades. Changes include the conversion of the largest co-operative banks into limited companies, a ban on director overboarding within competing entities in the financial sector, and limits on the grip of foundations on the country’s banks.

Railway signalling group Ansaldo STS has recently faced one of the most outspoken activist campaigns ever seen in the country, with Elliott Management and Amber Capital fighting for an increase in the price of a tender offer by Japan’s Hitachi—which recently acquired the Italian company’s controlling stake. Elliott also exploited Italy’s proxy access rules to elect three directors to the board of Ansaldo STS.

London-based Amber, which has an office in Milan, is also fighting a battle at dairy multinational Parmalat, where it has a board seat and accuses the controlling shareholder of improper related-party transactions.

In the 2016 proxy season, the Investment Managers’ Committee, an association assisting investment firms in nominating independent directors, submitted slates at 34 companies—up from 14 in 2013–and elected close to 60 board members, largely thanks to laws granting seats to minority shareholders.

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Elliott Management has launched one of the most outspoken activist campaigns ever seen in Italy, electing three directors at Ansaldo STS and filing a lawsuit to gain complete control of the board. Amber Capital is engaging with several companies, and a battle with Parmalat’s largest shareholder that started in 2012 is still ongoing. In 2015, Vincent Bolloré’s Vivendi won three seats on the board of Telecom Italia.

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Activism in Italy has been rising steadily since the eurozone crisis, and 2016 is the busiest year on record as regulatory reform increases the scope for investors to apply pressure.

* as of 30th June 2016. Projected full-year figures shown in dotted box.

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Activism in Italy is dominated by companies with a market capitalisation of less than 1.8 billion euros, although high-profile examples of large companies being targeted can be found.

Switzerland

Activism in Switzerland continues to play a role in several aspects of corporate life. Despite campaigns at the likes of Transocean, Xstrata and UBS, the country has previously been thought of as unfavourable to activism because, as in Germany, many companies have dual board structures. However, that failed to stop investors recently demanding changes to boards at Holcim, fashion retailer Charles Vögele and listed hedge fund Altin.

M&A activity including some of the largest Swiss companies, such as Syngenta and LafargeHolcim, has forced management teams to engage more meaningfully with shareholders, although investors have been less successful in wringing out meaningful concessions than in 2012, when a shareholder vote on golden parachutes for Xstrata executives forced the resignation of Chairman John Bond.

At Sika, a specialty chemicals company, Bill Gates’ family office Cascade Investment has opposed a takeover offer from Cie de Saint-Gobain, lobbying the takeover panel to force the bidder to tender for minority shareholders’ stakes. At the time of writing, Swiss courts were being asked to decide whether Sika could limit the majority voting rights of its founding family, which sold its 16% stake to the bidder.

A campaign at Altin highlights the lengths activists have to go to in Switzerland. In February, Alpine Select requisitioned a shareholder meeting to vote on the appointment of three new directors and a special dividend. When Alpine won just one seat on the board, its nominee resigned, and it went on to build a majority stake before negotiating an agreement whereby the company nominated three new directors, paid a hefty dividend and agreed to delist from the London Stock Exchange. Altin CEO Tony Morrongiello also announced his resignation in favour of Alpine’s Claudia Habermacher at the June annual meeting.

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The restricted power of dual-class Swiss boards often limits investors to complaining about decisions from outside the boardroom—as with the appointment of Adecco’s new CEO—or legal action—as Bill Gates’ family office Cascade Investment is pursuing at Sika. Mergers have also catalysed activism, with Syngenta and Holcim targeted. As ever, Cevian Capital is present through its stake in ABB, while Swiss activist Telios may be one to watch in the future.

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After an exceptionally busy 2015, this year has a lot to live up to. However, activists have started strongly, targeting more companies than in any year before 2015.

* as of 30th June 2016. Projected full-year figures shown in dotted box.

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The make up of activist targets has changed only slightly in recent years. Many Swiss targets of activists being international by nature and often involved in crossborder mergers, the predominance of large cap targets is perhaps not surprising.

La SEC propose le bulletin de vote « universel »


Ce billet présente la proposition de la Securities and Exchange Commission (SEC) eu égard à l’utilisation d’un bulletin de vote dit universel dans le cas d’élections contestées lors de l’assemblée annuelle.

En fait, la SEC veut revoir le mode d’élection des administrateurs en obligeant les parties à solliciter les votes pour leurs candidats (la « slate »), mais à la condition d’inclure les noms de tous les autres candidats-administrateurs sur leur bulletin de vote.

Les actionnaires auront ainsi la possibilité de choisir parmi tous les candidats, plutôt que de choisir une « slate » ou une autre.

Cet article a été publié dans Harvard Law School Forum par Ron Cami, Joseph A. Hall, Phillip R. Mills, Ning Chiu, et Rebecca E. Crosby de la firme Davis Polk & Wardwell LLP ; il présente tous les arguments pour une telle proposition tout en montrant les différences avec l’accès au bulletin de vote (« proxy access ») par les groupes d’actionnaires possédant plus de 3 % du capital sur la période des trois dernières années.

Bonne lecture !

SEC Proposes Universal Proxy Ballots

 

On October 26, the Securities and Exchange Commission proposed long-expected changes to the proxy rules in order to mandate the use of universal proxy cards in contested elections at annual meetings. The proposal is designed to address the current inability of shareholders to vote for the combination of board nominees of their choice in an election involving a proxy contest. Under the proposal, each party in a contested election—management and one or more dissident shareholders—would continue to distribute its own proxy materials and use its own proxy card to solicit votes for its preferred slate of nominees. However, each party’s proxy card would be required to include the nominees of all parties, and thus enable the proxy voter to select its preferred combination of candidates.

The proposal would—

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  1. mandate the use of universal proxy cards for most contested director elections,
  2. establish notice and filing requirements for both companies and dissidents,
  3. require dissidents to undertake a minimum solicitation effort, and
  4. prescribe form and presentation criteria for the proxy card.

What seems clear to us is that the universal proxy would ultimately move the balance of corporate power further from the board and closer to the shareholders. As the SEC observed in the proposing release, “[i]f the proposed amendments result in additional dissident representation, it is difficult to predict whether such additional dissident representation would enhance or detract from board effectiveness and shareholder value.” The SEC is seeking comment from all affected constituencies, including companies, on this critical question. The deadline for comments on the proposal is expected to fall in late December 2016, 60 days after publication of the proposal in the Federal Register. Given the timing of the proposal and comment period, there is little chance that a universal proxy card would be required for the 2017 proxy season.

Why Is the SEC Acting?

Currently, a shareholder voting by proxy in a contested election is effectively required to choose between the slate of nominees put forward by management and the slate put forward by the dissident. By contrast, a shareholder who attends a meeting in person can pick and choose between directors nominated by management and directors nominated by dissidents. In the SEC’s view this creates a kink in the proxy plumbing, the overarching goal of which is to make proxy voting as close as possible to voting at a shareholder meeting, due to the interplay between two rules—

– “Bona fide nominee” rule—Under the SEC’s rules, one party’s director nominee may not be included on the opposing party’s proxy card unless the nominee gives his or her consent to the opposing party. Since this rarely happens, the bona fide nominee rule usually results in two separate proxy cards, forcing a shareholder voting by proxy to choose one slate or the other.

– “Last in time” rule—Delaware and other state corporate laws generally provide that the latest proxy revokes any earlier proxy executed by a shareholder. The last-in-time rule therefore effectively stymies a shareholder’s attempt to submit multiple proxy cards to vote for a combination of nominees from different slates, even if the aggregate number of nominees selected is the same as the number of seats up for election. In 1992, the SEC introduced a modification to the bona-fide-nominee rule to permit a dissident to propose a “short slate” of nominees—that is, a slate where the dissident nominees would constitute a minority of the board—and then to “round out” the dissident proxy card by identifying management nominees that the dissident would not vote for, resulting in a proxy voter’s remaining votes being cast for the unnamed management nominees. While the short-slate rule allows proxy voters to vote for a combination of dissident and management nominees, albeit in a roundabout way, the shareholder is still unable to mix and match as it sees fit, since the combination of dissident and management nominees is dictated by the dissident.

Key Features of the Proposal

Mandatory use. The proposal would require universal proxy cards for most contested director elections at annual meetings. Each soliciting party would continue to distribute its own proxy materials and its own version of the universal proxy card. The proposal would not require the cards to be identical; rather, each party would be permitted to design its own card so long as the content, format and presentation comply with the proposal’s criteria.

Mandatory use only applies to solicitations that involve a contested election where a dissident is proposing a competing slate of director candidates. However, with the amendment to the bona-fide-nominee rule, a dissident could name all of management’s nominees on a proxy card in order to solicit against their election, or to seek their removal, even without a universal proxy card. A dissident could also solicit for a proposal other than an election of directors but name all of management’s nominees in order to have a proxy card that could be used for all matters to be voted on at the meeting.

Mandatory use also would not apply to “exempt solicitations” under the proxy rules or to registered investment companies or business development companies.

Revision of the bona-fide-nominee rule. The proposal would define a “bona fide nominee” as a person who has consented to being named in any proxy statement relating to the company’s next meeting of shareholders for the election of directors. The proposal would retain the requirement that a nominee intend to serve, if elected. If a nominee intends to serve only if his or her nominating party’s slate is elected, the proxy statement would need to disclose that fact.

Elimination of the short-slate rule. The proposal would eliminate the short-slate rule because universal proxy cards obviate the need for dissidents to round out partial slates with management nominees. Dissidents would however retain the ability to recommend their preferred management nominees in their proxy materials.

Notice and filing. The proposal would require a dissident shareholder to provide the company with notice of its intent to solicit proxies and the names of its nominees at least 60 days before the anniversary of the previous year’s annual meeting, or about two to four weeks prior to the time the company would typically mail its proxy statement. The company would then be required to provide the dissident with the names of management’s nominees at least 50 days before that anniversary. The dissident would need to file its proxy statement by the later of 25 days before the meeting date or five days after management files its proxy statement.

Minimum solicitation effort. Dissidents would be obligated to solicit holders of shares representing at least a majority of the company’s voting power, which would mean a dissident must expend its own resources in order to trigger use of the mandatory universal proxy card. However, because dissidents would not be required to solicit all shareholders, many shareholders (such as retail investors) may not receive proxy statements containing information about the dissident nominees—thereby decreasing the financial burden on the dissident. The SEC is seeking comment on whether dissidents should be required to solicit all shareholders.

Presentation and formatting. The proposal prescribes formatting and presentation criteria intended to ensure that information is presented clearly and fairly.

A universal proxy card would be required to—

  1. clearly distinguish between management nominees, dissident nominees, and any proxy access nominees,
  2. within each group of nominees, list the nominees in alphabetical order,
  3. use the same font type, style and size to present all nominees,
  4. disclose the maximum number of nominees for which authority to vote can be granted, and
  5. disclose the treatment of a proxy executed in a manner that grants authority to vote for more, or fewer, nominees than the number of directors being elected, or does not grant authority to vote for any nominees. A universal proxy card would be permitted to offer the ability to vote for all management nominees as a group or all dissident nominees as a group, but only if both parties have proposed a full slate of nominees and there are no proxy access candidates.

Voting Standards Disclosure and Voting Options

The SEC has proposed additional rules governing all meetings, not just contested situations, for the election of directors. Due to concerns that some company proxy statements have ambiguous or inaccurate disclosures about voting standards in director elections, the proposal would mandate changes to proxy cards and the disclosure of those voting standards in the proxy statement.

If a company uses a majority vote standard for the election of directors and a vote cast against a nominee would have legal effect under state law, the proxy card would be required to include the options to vote “against” the nominee and to “abstain” from voting. The company would not be permitted to offer an option to “withhold” against a director.

A company that applies plurality voting standards for director elections, including a plurality voting standard with a director resignation policy (often known as “plurality plus”), would need to disclose in its proxy statement the treatment and effect of a “withhold” vote in the election—namely, that “withholds” have no legal effect.

How Is This Different From Proxy Access?

Over the past two years, many companies have adopted “proxy access” bylaws that permit shareholders, typically those who have held at least 3% of the company’s shares for at least three years, to nominate candidates for inclusion in the proxy materials distributed by the company.

The SEC acknowledged that some are concerned that a universal proxy card could be viewed as a substitute for proxy access. However, the SEC indicated that significant differences exist. Unlike proxy access, using a universal proxy card would not require a company to include in its proxy materials the names of the nominating shareholder’s nominees, disclosure about the nominating shareholder and its nominees and a supporting statement from the nominating shareholder. Shareholders making nominations under proxy access can rely on the company’s proxy materials and are not required to prepare and file their own proxy materials, disseminate those materials and use them to solicit shareholders.

With universal proxy cards, by contrast, dissidents would need to spend the time and effort and incur the costs to develop their own proxy statements and solicit shareholders. A company need only include dissident nominees on the universal proxy card it uses, and can choose to provide no other information in the company’s proxy materials about the dissident’s nominees.

What’s Next?

The SEC nodded to concerns that have been raised over allowing universal proxy cards, including the potential for investor confusion and the implication that the soliciting party endorses the other party’s nominees. Though it believes its proposal addresses these issues, the SEC acknowledged that other unknowns remain, including whether universal proxy cards would have an impact on the number of dissident nominees elected, whether they would increase the frequency of contested elections, and what the impact of these developments would be on board effectiveness and, ultimately, shareholder value. The SEC is seeking comment on all of these questions, and the responses it receives could shape any final rules in ways that differ materially from the proposal.

We expect the proposal to generate a lively debate among companies, institutional investors and shareholder advocates. The timing of the proposal, coming in the final days of the Obama Administration, suggests that any definitive action on universal proxy cards may be left to an SEC composed largely of newly appointed members, who may have priorities and concerns that differ from the current commissioners.

Whether or not the SEC adopts its proposal, it would make sense for companies to review their disclosure about voting standards and voting options on their proxy cards for the upcoming proxy season. The SEC staff has expressed concerns that some proxy statements contain ambiguities or inaccuracies under existing law and the Division of Corporation Finance may issue comments in advance of the final rules when it thinks companies may be making inaccurate disclosures.

Malaise au conseil | Les effets pervers de l’obligation de divulgation des rémunération de la haute direction (en rappel)


Aujourd’hui, je cède la parole à Mme Nicolle Forget*, certainement l’une des administratrices de sociétés les plus chevronnées au Québec (sinon au Canada), qui nous présente sa vision de la gouvernance « réglementée » ainsi que celle du rôle des administrateurs dans ce processus.

L’allocution qui suit a été prononcée dans le cadre du Colloque sur la gouvernance organisée par la Chaire de recherche en gouvernance de sociétés le 6 juin 2014. Je pensais tout d’abord faire un résumé de son texte, mais, après une lecture attentive, j’en ai conclu que celui-ci exposait une problématique de fond et constituait une prise de position fondamentale en gouvernance. Il me semblait essentiel de vous faire partager son article au complet.

Nous avons souvent abordé les conséquences non anticipées de la réglementation, principalement celles découlant des exigences de divulgation en matière de rémunération. Cependant, dans son allocution, l’auteure apporte un éclairage nouveau, inédit et audacieux sur l’exercice de la gouvernance dans les sociétés publiques.

Elle présente une solide argumentation et expose clairement certains malaises vécus par les administrateurs eu égard à la lourdeur des mécanismes réglementaires de gouvernance. Les questionnements présentés en conclusion de l’article sont, en grande partie, fondés sur sa longue expérience comme membre de nombreux conseils d’administration.

Comment réagissez-vous aux constats que fait Mme Forget ? Les autorités réglementaires vont-elles trop loin dans la prescription des obligations de divulgation ? Pouvons-nous éviter les effets pervers de certaines dispositions sans pour autant nuire au processus de divulgation d’informations importantes pour les actionnaires et les parties prenantes.

Vos commentaires sont les bienvenus. Je vous souhaite une bonne lecture.

 

MALAISE AU CONSEIL | Les effets pervers de l’obligation de divulgation en matière de rémunération

 par

Nicolle Forget*

 

Merci aux organisateurs de ce colloque de me donner l’occasion de partager avec vous quelques constatations et interrogations qui m’habitent depuis quatre ou cinq ans concernant diverses obligations imposées aux entreprises à capital ouvert (inscrites en Bourse). Je souligne d’entrée de jeu que la présentation qui suit n’engage que moi.

Depuis l’avènement de quelques grands scandales financiers, ici et ailleurs, on en a mis beaucoup sur le dos des administrateurs de sociétés. On voudrait qu’un administrateur soit un expert en semblable matière.  Il ne l’est pas.  Il arrive avec son bagage, c’est pourquoi on l’a choisi.  On lui prépare un programme de formation pour lui permettre de comprendre l’entreprise au conseil de laquelle il a accepté de siéger, mais il n’en saura jamais autant que la somme des savoirs de l’entreprise.  C’est utopique de s’attendre au contraire.  Même un administrateur qui ne ferait que cela, siéger au conseil de cette entreprise, ne le pourrait pas.

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Des questions reviennent constamment dans l’actualité : où étaient les administrateurs ? N’ont-ils rien vu venir ou rien vu tout court?  Ont-ils rempli leur devoir fiduciaire?  Tout juste si on ne conclut pas qu’ils sont tous des incompétents.  Les administrateurs étaient là.  Ils savaient ce que l’on a bien voulu leur faire savoir. (ex. Saccage de la Baie-James. Les administrateurs de la SEBJ, convoqués en Commission parlementaire à Québec, au printemps 1983,  ont appris, par un avocat venu y témoigner, l’existence d’un avis juridique qu’il avait préparé à la demande de la direction.  La SEBJ poursuivait alors les responsables du saccage et un très long procès était sur le point de commencer.  Avoir eu connaissance de son contenu, au moment où il a été livré au PDG, aurait eu un impact sur nos décisions.  J’étais alors membre du conseil d’administration).

Posons tout de suite que la meilleure gouvernance qui soit n’empêchera jamais des dirigeants qui veulent cacher au conseil certains actes d’y parvenir — surtout si ces actes sont frauduleux. Même avec de belles politiques et de beaux codes d’éthique, plusieurs directions d’entreprise trouvent encore qu’un conseil d’administration n’est rien d’autre qu’un mal nécessaire.  Les administrateurs sont parfois perçus comme s’ingérant dans les affaires de la direction ou dans les décisions qu’elle prend. Aussi, ces dirigeants ont-ils tendance à placer les conseils devant des faits accomplis ou des dossiers tellement bien ficelés qu’il est difficile d’y trouver une fissure par laquelle entrevoir une faille dans l’argumentation au soutien de la décision à prendre. Pourtant, et nous le verrons plus loin, en vertu de la loi, le conseil « exerce tous les pouvoirs nécessaires pour gérer les activités et les affaires internes de la société ou en surveiller l’exécution ».

Les conseils d’administration, comme les entreprises et leurs dirigeants, sont soumis à quantité de législations, réglementations, annexes à celles-ci, avis, lignes directrices et autres exigences émanant d’autorités multiples — et davantage les entreprises œuvrent dans un secteur d’activités qui dépasse les frontières d’une province ou d’un pays. Et, selon ce que l’on entend, il faudrait que l’administrateur ait toujours tout vu, tout su…

Malaise!

En 2007, Yvan Allaire écrivait que « … la gouvernance par les conseils d’administration est devenue pointilleuse et moins complaisante, mais également plus tatillonne, coûteuse et litigieuse ; les dirigeants se plaignent de la bureaucratisation de leur entreprise, du temps consacré pour satisfaire aux nouvelles exigences » 1. Denis Desautels, lui, signalait que « Certains prétendent que le souci de la conformité aux lois et aux règlements l’emporte sur les discussions stratégiques et sur la création de valeur.  Et d’autres, que l’adoption ou l’endossement des nouvelles normes n’est pas toujours sincère et, qu’au fond, la culture de l’entreprise n’a pas réellement changé » 2.

Pour mémoire, voyons quelques obligations (de base) d’un administrateur de sociétés.

Au Québec, la Loi sur les sociétés par actions (L.r.Q., c. S-31.1) prévoit que les affaires de la société sont administrées par un conseil d’administration qui « exerce tous les pouvoirs nécessaires pour gérer les activités et les affaires internes de la société ou en surveiller l’exécution » (art. 112) et que, « Sauf dans la mesure prévue par la loi, l’exercice de ces pouvoirs ne nécessite pas l’approbation des actionnaires et ceux-ci peuvent être délégués à un administrateur, à un dirigeant ou à un ou plusieurs comités du conseil. »

De façon générale, les administrateurs de sociétés sont soumis aux obligations auxquelles est assujetti tout administrateur d’une personne morale en vertu du Code civil. « En conséquence, les administrateurs sont notamment tenus envers la société, dans l’exercice de leurs fonctions, d’agir avec prudence et diligence de même qu’avec honnêteté et loyauté dans son intérêt » (art. 119). L’intérêt de la société, pas l’intérêt de l’actionnaire.  La loi fédérale présente des concepts semblables.  (La Cour Suprême du Canada a d’ailleurs rappelé dans l’affaire BCE qu’il n’existe pas au Canada de principe selon lequel les intérêts d’une partie — les actionnaires, par exemple — doivent avoir priorité sur ceux des autres parties.)

Si la société fait appel publiquement à l’épargne, elle devient un émetteur assujetti. Alors s’ajoutent les règles de la Bourse concernant les exigences d’inscription initiale ainsi que celles concernant le maintien de l’inscription. S’ajoutent aussi les obligations édictées dans la Loi sur les valeurs mobilières (L.R.Q., c. V-1.1), de même que les règlements qui en découlent, et dont l’Autorité des marchés financiers (AMF) est chargée de l’application. L’émetteur assujetti est tenu aux obligations d’information continue. Si vous êtes un administrateur ou un haut dirigeant d’un tel émetteur ou même d’une filiale d’un tel émetteur, vous êtes un initié avec des obligations particulières.

L’article 73 de cette Loi stipule que tel émetteur « … fournit, conformément aux conditions et modalités déterminées par règlement, l’information périodique au sujet de son activité et de ses affaires internes, dont ses pratiques en matière de gouvernance, l’information occasionnelle au sujet d’un changement important et toute autre information prévue par règlement. ». «L’émetteur assujetti doit organiser ses affaires conformément aux règles établies par règlement en matière de gouvernance». (art.73.1)

La mission de l’Autorité, (entendre ici AMF) telle qu’énoncée à l’article 276.1 de la Loi sur les valeurs mobilières se décline comme suit :

  1. Favoriser le bon fonctionnement du marché des valeurs mobilières ;
  2. Assurer la protection des épargnants contre les pratiques déloyales, abusives et frauduleuses ;
  3. Régir l’information des porteurs de valeurs mobilières et du public sur les personnes qui font publiquement appel à l’épargne et sur les valeurs émises par celles-ci ;
  4. Encadrer l’activité des professionnels des valeurs mobilières et des organismes chargés d’assurer le fonctionnement d’un marché des valeurs mobilières.

Dans sa loi constituante, l’Autorité a une mission plus élaborée qui reprend sensiblement les mêmes thèmes, mais en appuyant davantage sur la protection des consommateurs de produits et utilisateurs de services financiers. (art.4, L.R.Q., c. A-33.2)

Aux termes de la législation en vigueur, « L’Autorité exerce la discrétion qui lui est conférée en fonction de l’intérêt public» (art.316, L.R.Q., c. V-1.1) et un règlement pris en vertu de la présente loi confère un pouvoir discrétionnaire à l’Autorité » (art.334).  En outre, toujours selon cette Loi, « Les instructions générales sont réputées constituer des règlements dans la mesure où elles portent sur un sujet pour lequel la loi nouvelle prévoit une habilitation réglementaire et qu’elles sont compatibles avec cette loi et les règlements pris pour son application. »

Je vous fais grâce du Règlement sur les valeurs mobilières (Décret 660-83 ; 115 G.O.2, 1511) ; quant à l’Annexe (51-102A5), portant sur la Circulaire de sollicitation de procuration par la direction, et celle (51-102A6) portant spécifiquement sur la Déclaration de la rémunération de la haute direction, j’y reviendrai plus loin.

Ceci pour une société qui ne fait affaire qu’au Québec, et à l’exclusion de toutes les autres législations et les nombreux règlements portant sur un secteur d’activité en particulier. Pensons juste aux activités qui peuvent affecter l’environnement, même de loin.  Alors, si une société fait affaire ailleurs au Canada et aux É.-U. ou sur plusieurs continents — ajoutez des obligations, des modes différents de divulgation de l’information — et cela peut vous donner une petite idée de « l’industrie » qu’est devenue la gouvernance d’entreprise avec l’obligation de livrer l’information en continu et sous une forme de plus en plus détaillée.  Et les administrateurs devraient tout savoir, avoir tout vu…

Les très nombreuses informations que nous publions rencontrent-elles l’objectif à l’origine de ces exigences ? Carol Liao soutient que « les autorités réglementaires sont par définition orientées vers l’actionnaire ce qui aurait mené à une augmentation des droits de ces derniers, bien au-delà de ce que les lois canadiennes (sur les sociétés) envisageaient. »  On a vu plus haut que la Loi sur les sociétés par actions édicte que « les administrateurs sont notamment tenus envers la société dans l’exercice de leurs fonctions, d’agir avec prudence et diligence de même qu’avec honnêteté et loyauté dans son intérêt ».  Se pourrait-il que « ce qui est dans l’intérêt supérieur des actionnaires ne coïncide pas avec une meilleure gouvernance ? (doesn’t align with better governance – that’s where the practice falls down »3.)

J’aime à croire que l’origine de l’obligation qui est faite aux entreprises de dire qui elles sont, ce qu’elles font, comment elles le font, et avec qui elles le font, est la protection du petit investisseur — vous et moi qui plaçons nos économies en prévision de nos vieux jours — comme disaient les anciens.

À moins d’y être obligé par son travail, qui comprend le contenu des circulaires de sollicitation de procuration par la direction, émises à l’intention des actionnaires ? Les Notices annuelles ? D’abord, qui les lit?  Chaque fois que l’occasion m’en est donnée, je pose la question  – et partout le même commentaire :  si je n’avais pas les lire je ne les lirais pas. La quantité de papier rebute en partant ; la complexité des informations à publier en la forme prescrite est difficile à comprendre pour un non-expert, alors imaginez pour un petit investisseur.  Si même  il s’aventure à lire le document.

Donc, si tant est que les circulaires et les notices ne soient pratiquement lues que par ceux qui n’ont pas le choix de le faire, il serait peut-être temps de se demander à quoi, ou plutôt, à qui elles servent ? Et à quels coûts pour l’entreprise. A-t-on une idée de combien d’experts s’affairent avec le personnel de l’entreprise à préparer ces documents sans compter les réunions des comités d’Audit, de Ressources humaines, de Gouvernance et du conseil qui se pencheront sur diverses versions des mêmes documents ?

Encore une fois, pour quoi ? Pour qui ?

Pourquoi pas aux activistes de toutes origines ?

La dernière crise financière (2008/2009) semble avoir été l’accélérateur de l’activisme de groupes, autour des actionnaires, de même que l’arrivée d’experts de toutes sortes en gouvernance d’entreprise. Une industrie venait de naître!  Le Rapport sur la gouvernance 2013, de Davies Ward Phillips & Vineberg, s.e. n.c. r. l., soutient qu’il s’agit d’une tendance alimentée surtout « par le nombre accru d’occasions d’activisme découlant de certaines  tendances actuelles de la législation et des pratiques à vouloir que plus de questions soient soumises à l’approbation des actionnaires » 4.

Mais, l’a-t-on oublié ? Les administrateurs ont un devoir de fiduciaire envers la société, pas juste envers les actionnaires.  Ils doivent assurer la pérennité de l’entreprise et pas juste afficher un rendement à court terme qui entraîne des effets pervers sur la gestion des ressources humaines et ne tient pas suffisamment compte d’une saine gestion des risques.  Question :  est-ce que la mesure de l’efficacité consiste en une reddition de compte trimestrielle ? Est-ce que cette reddition de compte, toute formatée, n’est pas en train de remplacer la responsabilité et l’engagement personnel des hauts dirigeants ? La pression  mise sur les conseils d’administration, par certains activistes (d’ailleurs pas toujours actionnaires de l’entreprise !), et de leurs conseillers divers, pour discuter avec le président du conseil et le président du comité de ressources humaines est perçue comme une tentative de la part de ces activistes d’imposer leur programme — au détriment des autres actionnaires et de l’intérêt même de l’émetteur.  Et comme certains fournisseurs de ces activistes (agences de conseils en vote) produisent des analyses pour leur clientèle en vue d’une recommandation de vote lors d’une assemblée annuelle — cette démarche peut être interprétée comme une pression à la limite de l’intimidation.

Venons-en aux obligations de divulgation portant sur la rémunération des membres de la haute direction visés.

Les prêteurs, les actionnaires, ont le droit de connaître — à terme — les obligations de l’entreprise, y compris celles envers ses hauts dirigeants. Remarquez, ils ont aussi le droit de savoir s’il y a exagération ou abus. Mais, ont-ils besoin, entre autres, de connaître dans le détail les objectifs personnels fixés à Monsieur X ou à Madame Y?; pour quel % cela compte-t-il dans la rémunération incitative à court terme?; à quel % tels objectifs ont-ils été rencontrés?; pourquoi l’ont-ils été à ce %?.  Peut-on sérieusement croire qu’une entreprise va publier que telle ou telle personne n’est pas à la hauteur, 12 à 15 mois après les faits?.  Ou bien cette personne a rencontré les objectifs fixés de façon satisfaisante ou bien elle n’est plus là.  Denis Desautels avance, dans le texte cité plus haut, qu’il « n’est pas sage d’appuyer les régimes de rémunération sur des formules trop quantitatives ou mathématiques et d’allouer une trop grande portion de la rémunération globale à la partie variable ou à risque de la rémunération ».  Pourtant, les pressions ne cessent d’augmenter pour que cela soit le cas (Pay for Performance) et que ce soit basé sur des mesures objectives et connues comme le cours de l’action ou le résultat par action… le tout par rapport au groupe de référence.  Performance devient le nouveau leitmotiv.  S’est-on jamais demandé ce que cette divulgation pouvait avoir comme effet d’« emballement » sur la rémunération des hauts dirigeants?  Et les politiques de rémunération doivent continuellement s’ajuster.

Le Règlement 51-102, à son Annexe A6 (Déclaration de la rémunération de la haute direction) prescrit non seulement le contenu, mais aussi la forme que doit prendre cette déclaration :

L’ensemble de la rémunération payée, payable, attribuée, octroyée, donnée ou fournie de quelque autre façon, directement ou indirectement, par la société ou une de ses filiales à chaque membre de la haute direction visé et chaque administrateur, à quelque titre que ce soit, notamment l’ensemble de la rémunération en vertu d’un plan ou non, les paiements directs ou indirects, la rétribution, les attributions d’ordre financier ou monétaire, les récompenses, les avantages, les cadeaux ou avantages indirects qui lui sont payés, payables, attribués, octroyés, donnés ou fournis de quelque autre façon pour les services rendus et à rendre, directement ou indirectement, à la société ou à une de ses filiales. (art. 1.3 par, 1 a).

L’émetteur assujetti doit, en outre, produire une analyse de la rémunération, laquelle doit :

1) Décrire et expliquer tous les éléments significatifs composant la rémunération attribuée, payée, payable aux membres de la haute direction visés, ou gagnée par ceux-ci, au cours du dernier exercice, notamment les suivants :

  1. a) les objectifs de tout programme de rémunération ou de toute stratégie en la matière ;
  2. b) ce que le programme de rémunération vise à récompenser ;
  3. c) chaque élément de la rémunération ;
  4. d) les motifs de paiement de chaque élément ;
  5. e) la façon dont le montant de chaque élément est fixé, en indiquant la formule, le cas échéant ;
  6. f) la façon dont chaque élément de la rémunération et les décisions de la société sur chacun cadrent avec les objectifs généraux en matière de rémunération et leur incidence sur les décisions concernant les autres éléments.

2) Le cas échéant, expliquer les actions posées, les politiques établies ou les décisions prises après la clôture du dernier exercice qui pourraient influencer la compréhension qu’aurait une personne raisonnable de la rémunération versée à un membre de la haute direction visé au cours du dernier exercice.

3) Le cas échéant, indiquer clairement la référence d’étalonnage établie et expliquer les éléments qui la composent, notamment les sociétés incluses dans le groupe de référence et les critères de sélection.

4) Le cas échéant, indiquer les objectifs de performance ou les conditions similaires qui sont fondés sur des mesures objectives et connues, comme le cours de l’action de la société ou le résultat par action. Il est possible de décrire les objectifs de performance ou les conditions similaires qui sont subjectifs sans indiquer de mesure précise.

Si les objectifs de performance ou les conditions similaires publiés ne sont pas des mesures financières conformes aux PCGR, en expliquer la méthode de calcul à partir des états financiers de la société.

Et le tout dans un langage clair, concis et « présenté de façon à permettre à une personne raisonnable, faisant des efforts raisonnables de comprendre (…)

  1. a) la façon dont sont prises les décisions concernant la rémunération des membres de la haute direction visés et des administrateurs ;
  2. b) le lien précis entre la rémunération des membres de la haute direction visés et des administrateurs et la gestion et la gouvernance de la société (par. 10). »

L’Instruction générale relative au règlement 51-102 sur les obligations d’information continue définit, en son article 1.5, ce qu’il faut entendre par langage simple.  C’est en quatorze points ; je vous en fais grâce.  Je rappelle ici qu’une instruction générale est réputée constituer un règlement.

Trop, c’est comme pas assez. C’est aussi ce que  pourrait se dire la personne raisonnable après avoir fait des efforts raisonnables pour comprendre tout cela. Cette personne pour laquelle l’entreprise publie toutes les informations réclamées par le législateur/autorité réglementaire poussé par l’industrie de la gouvernance qui, elle, bénéficie de la complexification des règles.

L’émetteur est placé devant ces obligations auxquelles il veut bien se conformer, mais pas au point de livrer des éléments importants de ses stratégies de développement au premier lecteur venu. Ce qui pourrait même être contre l’intérêt des actionnaires, et finalement ne bénéficier qu’à la concurrence.  Ce qui fait que l’on en est rendu à se demander comment éviter de divulguer « les secrets de familles », si je puis dire, sans indisposer les autorités réglementaires — surtout si on doit aller au marché dans les mois qui suivent.

Malaise!

Si mon souvenir est bon, les pressions sont venues de groupes divers (investisseurs institutionnels, gestionnaires de fonds et autres) qui jugeaient les rémunérations des hauts dirigeants extravagantes et non méritées. Pour eux, les administrateurs étaient responsables de cet état de fait. Alors, on a légiféré, réglementé, permis le Say on Pay et diverses propositions d’actionnaires.  La rémunération a-t-elle baissé ? Non. Les parachutes ont-ils disparu?  Non.  Chacun se compare à l’autre et ne voit pas pourquoi il ne serait pas rémunéré comme son vis-à-vis de l’entreprise Z.  Et les PDG de se négocier un contrat blindé — pourquoi pas?  Ils sont assis sur un siège éjectable.

Ne pourrait-on pas se demander maintenant si partie ou toutes ces exigences ne produisent pas davantage d’effets pervers que de bénéfices ? (Dans le plan d’affaires 2013-2016 des ACVM. Les deux dernières priorités sont :  réglementation des marchés ; et efficacité des mesures d’application de la loi).

Ne pourrait-on pas aussi se demander si exiger une durée minimale de détention de l’actionnariat pour obtenir le droit de vote à une assemblée générale ne serait pas souhaitable ?

Si publier les résultats deux fois l’an, au lieu de quatre, ne donnerait pas un peu d’oxygène aux entreprises — un début de délivrance de la tyrannie du rendement à court terme ? Et, quant à y être, pourquoi continuer de publier l’information telle qu’exigée, si elle n’est pas lue ?

Et puis, à quoi servent les administrateurs si les actionnaires peuvent s’immiscer dans la gestion d’une entreprise et imposer leurs volontés en tout temps ?

Et à quel actionnaire permettre quoi ? Un Hedge Fund qui achète et vend des millions d’actions par minute ? Un fond mutuel qui garde des actions quelques années ?  Un retraité qui conserve ses actions depuis 20 ans ?

D’ici à ce que l’on ait réfléchi à tout cela, ne peut-on pas marquer le pas ?


  1. 1. Allaire, Yvan, Pourquoi cette vague de privatisation d’entreprises cotées en Bourse, La Presse, mars 2007.
  2. 2. Desautels, Denis, OC, FCA, Les défis les plus difficiles des administrateurs de sociétés, Collège des administrateurs de sociétés, Conférence annuelle, 11 mars 2009.
  3. 3. Carol Liao, A Canadian Model of Corporate Governance, Where do shareholders really stand? Director Journal, January/February 2014, p. 37
  4. 4. p. 55.

*Nicolle Forget siège au conseil d’administration du Groupe Jean Coutu (PJC) Inc., de Valener Inc. et de ses filiales et du Collège des administrateurs de sociétés. Elle a, entre autres, fait partie d’un comité d’éthique de la recherche et des nouvelles technologies et de comités d’éthique clinique, de même que du Groupe de travail sur l’éthique, la probité et l’intégrité des administrateurs publics et a présidé le Groupe de travail sur les difficultés d’accès au financement pour les femmes entrepreneuses.

Madame Forget a été chargée de cours à l’École des Hautes Études commerciales et elle est l’auteure de cas en gestion de même que de quelques ouvrages biographiques. Madame Forget a d’abord fait du journalisme à Joliette avant de se consacrer à la gestion d’organismes de recherche et de formation durant les années 1970. Elle a aussi été membre (juge administratif) de tribunaux administratif et quasi judiciaire durant les années 1980 et 1990.

Madame Forget est diplômée de l’UQÀM (brevet d’enseignement spécialisé en administration), des HEC (baccalauréat en sciences commerciales) et de l’Université de Montréal (licence en droit et DESS en bioéthique). Elle fût membre du Barreau du Québec jusqu’en 2011.

Madame Forget a siégé à de nombreux conseils d’administration dont : Fédération des femmes du Québec, Conseil économique du Canada, SEBJ, Hydro-Québec, Hydro-Québec International, Gaz Métro Inc., Agence québécoise de valorisation industrielle de la recherche, Fonds de solidarité des travailleurs du Québec, Université de Montréal, École polytechnique, Innotermodal. Elle a, de plus, présidé les conseils de Accesum Inc., Nouveler Inc., Accès 51, Ballet Eddy Toussaint, Festival d’été de Lanaudière et Association des consommateurs du Québec.

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