Aujourd’hui, je partage avec vous un article publié dans le magazine suisse Le Temps.ch qui présente les résultats d’une recherche sur la bonne gouvernance des caisses de retraite en lien avec les recommandations des fonds de placement tels que BlackRock.
L’auteur, Emmanuel Garessus, montre que même si le lien entre la performance des sociétés et la bonne gouvernance semble bien établi, les caisses de retraite faisant l’objet de la recherche ont des indices de gouvernance assez dissemblables. L’étude montre que les caisses ayant des indices de gouvernance faibles ont des rendements plus modestes en comparaison avec les indices de référence retenus.
Également, il ressort de cette étude que c’était surtout la prédominance de la gestion des risques qui était associée à la performance des caisses de retraite.
Comme le dit Christian Ehmann, spécialisé dans la sélection de fonds de placement auprès de Safra Sarasin, « la gouvernance n’est pas une cause de surperformance, mais il existe un lien direct entre les deux ».
Encore une fois, il appert que BlackRock défend les petits épargnants-investisseurs en proposant des normes de gouvernance uniformisées s’appliquant au monde des entreprises cotées en bourses.
J’ai reproduit l’article en français ci-dessous afin que vous puissiez bien saisir l’objet de l’étude et ses conclusions.
Bonne lecture ! Vos commentaires sont les bienvenus.
Le principe de gouvernance selon lequel une action donne droit à une voix en assemblée générale est bafoué par de très nombreuses sociétés, surtout technologiques, au premier rang desquelles on trouve Facebook, Snap, Dropbox et Google. BlackRock, le plus grand groupe de fonds de placement du monde, demande aux autorités d’intervenir et de présenter des standards minimaux, indique le Financial Times.
Le groupe dont Philipp Hildebrand est vice-président préfère un appel à l’Etat plutôt que de laisser les fournisseurs d’indices (MSCI, Dow Jones, etc.) modifier la composition des indices en y intégrant divers critères d’exclusion. Barbara Novick, vice-présidente de BlackRock, a envoyé une lettre à Baer Pettit, président de MSCI, afin de l’informer de son désir de mettre de l’ordre dans les structures de capital des sociétés cotées.
Mark Zuckerberg détient 60% des droits de vote
De nombreuses sociétés ont deux catégories d’actions donnant droit à un nombre distinct de droits de vote. Les titres Facebook de la classe B ont par exemple dix fois plus de droits de vote que ceux de la classe A. Mark Zuckerberg, grâce à ses actions de classe B (dont il détient 75% du total), est assuré d’avoir 60% des droits de vote du groupe. A la suite du dernier scandale lié à Cambridge Analytica, le fondateur du réseau social ne court donc aucun risque d’être mis à la porte, explique Business Insider. L’intervention de BlackRock n’empêche pas l’un de ses fonds (Global Allocation Fund) d’avoir probablement accumulé des titres Facebook après sa correction de mars, selon Reuters, pour l’intégrer dans ses dix principales positions.
Cette structure du capital répartie en plusieurs catégories d’actions permet à un groupe d’actionnaires, généralement les fondateurs, de contrôler la société avec un minimum d’actions. Les titres ayant moins ou pas de droit de vote augmentent de valeur si la société se développe bien, mais leurs détenteurs ont moins de poids en assemblée générale. Les sociétés qui disposent d’une double catégorie de titres la justifient par le besoin de se soustraire aux réactions à court terme du marché boursier et de rester ainsi concentrés sur les objectifs à long terme. Ce sont souvent des sociétés technologiques.
Facebook respecte très imparfaitement les principes de bonne conduite en matière de gouvernance. Mark Zuckerberg, 33 ans, est en effet à la fois président du conseil d’administration et président de la direction générale. Ce n’est pas optimal puisque, en tant que président, il se contrôle lui-même. Sa rémunération est également inhabituelle. Sur les 8,9 millions de dollars de rémunération, 83% sont liés à ses frais de sécurité et le reste presque entièrement à l’utilisation d’un avion privé (son salaire est de 1 dollar et son bonus nul).
Quand BlackRock défend le petit épargnant
Le site de prévoyance IPE indique que le fonds de pension suédois AP7, l’un des plus grands actionnaires du réseau social, est parvenu l’an dernier à empêcher l’émission d’une troisième catégorie de titres Facebook. Cette dernière classe d’actions n’aurait offert aucun droit de vote. Une telle décision, si elle avait été menée à bien, aurait coûté 10 milliards de dollars à AP7. Finalement Facebook a renoncé.
BlackRock prend la défense du petit investisseur. Il est leader de la gestion indicielle et des ETF et ses produits restent investis à long terme dans tous les titres composant un indice. Il préfère influer sur la gouvernance par ses prises de position que de vendre le titre. Le plus grand groupe de fonds de placement du monde demande aux autorités de réglementation d’établir des standards de gouvernance en collaboration avec les sociétés de bourse plutôt que de s’en remettre aux fournisseurs d’indices comme MSCI.
La création de plusieurs classes d’actions peut être justifiée par des start-up en forte croissance dont les fondateurs ne veulent pas diluer leur pouvoir. BlackRock reconnaît ce besoin spécifique aux start-up en forte croissance, mais le gérant estime que «ce n’est acceptable que durant une phase transitoire. Ce n’est pas une situation durable.»
Le géant des fonds de placement aimerait que les producteurs d’indices soutiennent sa démarche et créent des «indices alternatifs» afin d’accroître la transparence et de réduire l’exposition aux sociétés avec plusieurs catégories de titres. L’initiative de BlackRock est également appuyée par George Dallas, responsable auprès du puissant International Corporate Governance Network (ICGN).
La gouvernance des «bonnes caisses de pension»
La recherche économique a largement démontré l’impact positif d’une bonne gouvernance sur la performance d’une entreprise. Mais presque tout reste à faire en matière de fonds de placement et de caisses de pension.
«La gouvernance n’est pas une cause de surperformance, mais il existe un lien direct entre les deux. Les caisses de pension qui appartiennent au meilleur quart en termes de bonne gouvernance présentent une surperformance de 1% par année par rapport au moins bon quart», explique Christian Ehmann, spécialisé dans la sélection de fonds de placement auprès de Safra Sarasin, lors d’une présentation organisée par la CFA Society Switzerland, à Zurich.
Ce dernier est avec le professeur Manuel Ammann coauteur d’une étude sur la gouvernance et la performance au sein des caisses de pension suisses (Is Governance Related to Investment Performance and Asset Allocation?, Université de Saint-Gall, 2016). «Le travail sur cette étude m’a amené à porter une attention particulière à la gouvernance des fonds de placement dans mon travail quotidien», déclare Christian Ehmann. Son regard porte notamment sur la structure de l’équipe de gestion, son organisation et son système de gestion des risques. «Je m’intéresse par exemple à la politique de l’équipe de gérants en cas de catastrophe», indique-t-il.
Claire surperformance
L’étude réalisée sur 139 caisses de pension suisses, représentant 43% des actifs gérés, consiste à noter objectivement la qualité de la gouvernance et à définir le lien avec la performance de gestion. L’analyse détaille les questions de gouvernance en fonction de six catégories, de la gestion du risque à la transparence des informations en passant par le système d’incitations, l’objectif et la stratégie d’investissement ainsi que les processus de placement. Sur un maximum de 60 points, la moyenne a été de 21 (plus bas de 10 et plus haut de 50). La dispersion est donc très forte entre les caisses de pension. Certaines institutions de prévoyance ne disposent par exemple d’aucun système de gestion du risque.
Les auteurs ont mesuré la performance sur trois ans (2010 à 2012), le rendement relatif par rapport à l’indice de référence et l’écart de rendement par rapport au rendement sans risque (ratio de Sharpe). Toutes ces mesures confirment le lien positif entre la gouvernance et la performance (gain de 2,7 points de base par point de gouvernance). Les moteurs de surperformance proviennent clairement de la gestion du risque et du critère portant sur les objectifs et la stratégie d’investissement. Les auteurs constatent aussi que même les meilleurs, en termes de gouvernance, sous-performent leur indice de référence.
La deuxième étape de la recherche portait sur l’existence ou non d’une relation entre le degré de gouvernance et l’allocation des actifs. Ce lien n’a pas pu être établi.
Voici un article très intéressant publié dans l’édition d’avril 2018 de la Harvard Business Review qui porte sur l’identification des grands principes qui guident les comportements des présidents de conseil d’administration.
L’auteur, Stanislav Shekshnia*, est professeur à l’Institut européen d’administration des affaires (INSEAD) et chercheur émérite dans le domaine de la gouvernance. Son article est basé sur une enquête auprès de 200 présidents de conseils.
Que doit-on retenir de cette recherche eu égard aux rôles distinctifs des présidents de conseils d’administration et aux caractéristiques qui les distinguent des CEO ?
Huit principes ressortent de ces analyses :
(1) Be the guide on the side; show restraint and leave room for others
(2) Practice teaming—not team building
(3) Own the prep work; a big part of the job is preparing the board’s agenda and briefings
(4) Take committees seriously; most of the board’s work is done in them
(5) Remain impartial
(6) Measure the board’s effectiveness by its inputs, not its outputs
(7) Don’t be the CEO’s boss
(8) Be a representative with shareholders, not a player.
Je vous invite à lire l’article au complet puisqu’il regorge d’exemples très efficaces.
The majority of board chairs are former CEOs, who are used to calling the shots and being stars. So it’s no surprise that many start behaving as if they are alternative chief executives of their firms. That sows conflict and confusion at the top. In addition, as research by INSEAD’s Corporate Governance Centre shows, the two jobs are distinctly different—and so are the skills needed in them. The chair leads the board, not the company, and that means being a facilitator of effective group discussions, not a team commander.
After surveying 200 board chairs and interviewing 140 chairs, directors, shareholders, and CEOs, INSEAD has distilled the requirements for the chair’s role down to eight principles: (1) Be the guide on the side; show restraint and leave room for others. (2) Practice teaming—not team building. (3) Own the prep work; a big part of the job is preparing the board’s agenda and briefings. (4) Take committees seriously; most of the board’s work is done in them. (5) Remain impartial. (6) Measure the board’s effectiveness by its inputs, not its outputs. (7) Don’t be the CEO’s boss. (8) Be a representative with shareholders, not a player. While many executives need to shift gears and mindsets to follow these, successful chairs say the effort pays off.
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*Stanislav Shekshnia is a professor at INSEAD. He is also a senior partner at Ward Howell, a global human capital consultancy firm, and a board member at a number of public and private companies in Central and Eastern Europe.
Quelle est la raison d’être d’une entreprise sur le plan juridique ? À qui doit-elle rendre des comptes ?
Une entreprise est-elle au service exclusif de ses actionnaires ou doit-elle obligatoirement considérer les intérêts de ses parties prenantes (stakeholders) avant de prendre des décisions de nature stratégiques ?
On conviendra que ces questions ont fréquemment été abordées dans ces pages. Cependant, la réalité de la conduite des organisations semble toujours refléter le modèle de la primauté des actionnaires, mieux connu maintenant sous l’appellation « démocratie de l’actionnariat ».
L’article de Martin Lipton* fait le point sur l’évolution de la reconnaissance des parties prenantes au cours des quelque dix dernières années.
Je crois que les personnes intéressées par les questions de gouvernance (notamment les administrateurs de sociétés) doivent être informées des enjeux qui concernent leurs responsabilités fiduciaires.
Bonne lecture. ! Vos commentaires sont les bienvenus.
Whether the purpose of the corporation is to generate profits for its shareholders or to operate in the interests of all of its stakeholders has been actively debated since 1932, when it was the subject of dueling law review articles by Columbia law professor Adolf Berle (shareholders) and Harvard law professor Merrick Dodd (stakeholders).
Following “Chicago School” economics professor Milton Friedman’s famous (some might say infamous) 1970 New York Times article announcing ex cathedra that the social responsibility of a corporation is to increase its profits, shareholder primacy was widely viewed as the purpose and basis for the governance of a corporation. My 1979 article, Takeover Bids in the Target’s Boardroom, arguing that the board of directors of a corporation that was the target of a takeover bid had the right, if not the duty, to consider the interests of all stakeholders in deciding whether to accept or reject the bid, was widely derided and rejected by the Chicago School economists and law professors who embraced Chicago School economics. Despite the 1985 decision of the Supreme Court of Delaware citing my article in holding that a board of directors could take into account stakeholder interests, and over 30 states enacting constituency (stakeholder) statutes, shareholder primacy continued to dominate academic, economic, financial and legal thinking—often disguised as “shareholder democracy.”
While the debate continued and stakeholder governance gained adherents in the new millennium, shareholder primacy continued to dominate. Only since the 2008 financial crisis and resulting recession has there been significant recognition that shareholder primacy has been a major driver of short-termism, encourages activist attacks on corporations, reduces R&D expenditures, depresses wages and reduces long-term sustainable investments—indeed, it promotes inequality and strikes at the very heart of our society. In the past five years, the necessity for changes has been recognized by significant academic, business, financial and investor reports and opinions. An example is the 2017 paper I and a Wachtell Lipton team prepared for the World Economic Forum, The New Paradigm: A Roadmap for an Implicit Corporate Governance Partnership Between Corporations and Investors to Achieve Sustainable Long-Term Investment and Growth, whichquotes or cites many of the others.
This year we are seeing important new support for counterbalancing shareholder primacy and promoting long-term sustainable investment. Among the many prominent examples is the January 2018 annual letter from Larry Fink, Chairman of BlackRock, to CEOs:
Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders. It will succumb to short-term pressures to distribute earnings, and, in the process, sacrifice investments in employee development, innovation, and capital expenditures that are necessary for long-term growth. It will remain exposed to activist campaigns that articulate a clearer goal, even if that goal serves only the shortest and narrowest of objectives. And ultimately, that company will provide subpar returns to the investors who depend on it to finance their retirement, home purchases, or higher education.
This was followed in March by the report of a commission appointed by the French Government recommending amendment to the French Civil Code to add, “The company shall be managed in its own interest, considering the social and environmental consequences of its activity,” following the existing, “All companies shall have a lawful purpose and be incorporated in the common interest of the shareholders.” The draft amendment is intended to establish the principle that each company should pursue its own interest—namely, the continuity of its operation, sustainability through investment, collective creation and innovation. The report notes that this amendment integrates corporate and social responsibility considerations into corporate governance and goes on to state that each company has a purpose not reducible to profit and needs to be aware of its purpose. The report recommends an amendment to the French Commercial Code for the purpose of entrusting the boards of directors to define a company’s purpose in order to guide the company’s strategy, taking into account its social and environmental consequences.
Subject to the outcome of its impact assessment, the Commission will table a legislative proposal to clarify institutional investors’ and asset managers’ duties in relation to sustainability considerations by Q2 2018. The proposal will aim to (i) explicitly require institutional investors and asset managers to integrate sustainability considerations in the investment decision-making process and (ii) increase transparency, towards end-investors on how they integrate such sustainability factors in their investment decisions in particular as concerns their exposure to sustainability risks.
Further, the Commission proposes a number of other laws or regulations designed to promote ESG, CSR and sustainable long-term investment.
In addition to these examples, there are similar policy statements by major investors and similar efforts at legislation to modulate or eliminate shareholder primacy in Great Britain and the United States. While it is not certain that any legislation will soon be enacted, it is clear that the problems have been identified, support is growing to find a way to address them and if implicit stakeholder governance does not take hold, legislation will ensue to assure it.
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*Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton publication by Mr. Lipton.
Les administrateurs de sociétés doivent apporter une attention spéciale à la gestion des risques telle qu’elle est mise en œuvre par les dirigeants des entreprises.
Les préoccupations des fiduciaires pour la gestion des risques, quoique fondamentales, sont relativement récentes, et les administrateurs ne savent souvent pas comment aborder cette question.
L’article présenté, ci-dessous, est le fruit d’une recherche de Martin Lipton, fondateur de la firme Wachtell, Lipton, Rosen & Katz, spécialisée dans les fusions et acquisitions ainsi que dans les affaires de gouvernance.
L’auteur et ses collaborateurs ont produit un guide des pratiques exemplaires en matière de gestion des risques. Cet article de fond s’adresse aux administrateurs et touche aux éléments-clés de la gestion des risques :
(1) la distinction entre la supervision des risques et la gestion des risques ;
(2) les leçons que l’on doit tirer de la supervision des risques à Wells Fargo ;
(3) l’importance accordée par les investisseurs institutionnels aux questions des risques ;
(4) « tone at the top » et culture organisationnelle ;
(5) les devoirs fiduciaires, les contraintes réglementaires et les meilleures pratiques ;
(6) quelques recommandations spécifiques pour améliorer la supervision des risques ;
(7) les programmes de conformité juridiques ;
(8) les considérations touchant les questions de cybersécurité ;
(9) quelques facettes se rapportant aux risques environnementaux, sociaux et de gouvernance ;
(10) l’anticipation des risques futurs.
Voici donc l’introduction de l’article. Je vous invite à prendre connaissance de l’article au complet.
The past year has seen continued evolution in the political, legal and economic arenas as technological change accelerates. Innovation, new business models, dealmaking and rapidly evolving technologies are transforming competitive and industry landscapes and impacting companies’ strategic plans and prospects for sustainable, long-term value creation. Tax reform has created new opportunities and challenges for companies too. Meanwhile, the severe consequences that can flow from misconduct within an organization serve as a reminder that corporate operations are fraught with risk. Social and environmental issues, including heightened focus on income inequality and economic disparities, scrutiny of sexual misconduct issues and evolving views on climate change and natural disasters, have taken on a new salience in the public sphere, requiring companies to exercise utmost care to address legitimate issues and avoid public relations crises and liability.
Corporate risk taking and the monitoring of corporate risk remain prominently top of mind for boards of directors, investors, legislators and the media. Major institutional shareholders and proxy advisory firms increasingly evaluate risk oversight matters when considering withhold votes in uncontested director elections and routinely engage companies on risk-related topics. This focus on risk management has also led to increased scrutiny of compensation arrangements throughout the organization that have the potential for incentivizing excessive risk taking. Risk management is no longer simply a business and operational responsibility of management. It has also become a governance issue that is squarely within the oversight responsibility of the board. This post highlights a number of issues that have remained critical over the years and provides an update to reflect emerging and recent developments. Key topics addressed in this post include:
the distinction between risk oversight and risk management;
a lesson from Wells Fargo on risk oversight;
the strong institutional investor focus on risk matters;
tone at the top and corporate culture;
fiduciary duties, legal and regulatory frameworks and third-party guidance on best practices;
specific recommendations for improving risk oversight;
legal compliance programs;
special considerations regarding cybersecurity matters;
special considerations pertaining to environmental, social and governance (ESG) risks; and
Aujourd’hui, je partage avec vous un cas publié sur le site de Julie Garland McLellan qui demande beaucoup d’analyse, de stratégie et de jugement.
Dans ce cas, Xandra, la présidente du comité d’audit d’une petite association professionnelle, propose une solution courageuse afin de mettre un terme au déclin du membership de l’organisation : une diminution des frais de cotisation en échange d’une hausse des frais de service et des frais associés à la formation.
La proposition a été jugée inéquitable par les membres, qui ont soulevé leur grande désapprobation, en la condamnant sur les réseaux sociaux.
Plusieurs membres insistent pour que cette décision soit mise au vote lors de l’AGA, et que le PDG soit démis de ses fonctions.
Étant donné que les règlements internes de l’organisation ne permettent pas aux membres de voter sur ces questions en assemblée générale (puisque c’est une prérogative du CA), le président du conseil demande à Xandra de préparer une défense pour le rejet de la requête.
Xandra est cependant consciente que la stratégie de communication arrêtée devra faire l’objet d’une analyse judicieuse afin de ne pas mettre la survie de l’organisation en danger.
Comment la responsable doit-elle procéder pour présenter une argumentation convaincante ?
La situation est exposée de manière assez synthétique ; puis, trois experts se prononcent sur le dilemme que vit Xandra.
Je vous invite donc à prendre connaissance de ces avis, en cliquant sur le lien ci-dessous, et me faire part vos commentaires.
This month our case study investigates the options for a board to respond to shareholders who know that they want something but don’t quite know how to get it. I hope you enjoy thinking about the governance and strategic implications of this dilemma:
Xandra chairs the audit committee of a small professional association. She has a strong working relationship with the chair and CEO who are implementing a strategic reform based on ‘user pays services’ to redress a fall in membership numbers and hence revenue. The strategy bravely introduced a reduced membership fee compensated by charges for advisory services and an increase in the cost of member events and education.
Some members felt that this was unfair as they used more services than others and would now pay a higher total amount each year. They have voiced their concerns through the company’s Facebook page and in an ‘open’ letter addressed to the board. In the letter they have said that they want to put a motion to the next AGM asking for a vote on the new pricing strategy and for the CEO to be dismissed. They copied the letter to a journalist in a national paper. The journalist has not contacted the company for comment or published the letter.
The CEO has checked the bylaws and the open letter does not meet the technical requirements for requisitioning a motion (indeed the authors seem to have confused their right to requisition an EGM with the right of members to speak at the AGM and ask questions of the board and auditor).
As the only person qualified in directorship on the association board, the Chair has asked Xandra « how can we push back against this request? »
Xandra is not sure that it is wise to rebuff a clear request for engagement with the members on an issue that is important for the survival of their association. She agrees that putting a motion to a members’ meeting could be dangerous. She also agrees that the matter needs to be handled sensitively and away from emotive online fora where passions are running unexpectedly high
Voici un article qui met en garde les structures de gouvernance telles que Facebook.
L’article publié sur le site de Directors&Boards par Eve Tahmincioglu soulève plusieurs questions fondamentales :
(1) L’actionnariat à vote multiple conduit-il à une structure de gouvernance convenable et acceptable ?
(2) Pourquoi le principe de gouvernance stipulant une action, un vote, est-il bafoué dans le cas de plusieurs entreprises de la Silicone Valley ?
(3) Quel est le véritable pouvoir d’un conseil d’administration où les fondateurs sont majoritaires par le jeu des actions à classe multiple ?
(4) Doit-on réglementer pour rétablir la position de suprématie du conseil d’administration dirigé par des administrateurs indépendants ?
(5) Dans une situation de gestion de crise comme celle qui confronte Facebook, quel est le rôle d’un administrateur indépendant, président de conseil ?
(6) Les médias cherchent à connaître la position du PDG sans se questionner sur les responsabilités des administrateurs. Est-ce normal en gestion de crise ?
Je vous invite à lire l’article ci-dessous et à exprimer vos idées sur les principes de bonne gouvernance appliqués aux entreprises publiques contrôlées par les fondateurs.
Facebook is arguably facing one of the toughest challenges the company has ever faced. But the slow and tepid response from leadership, including the boards of directors, concerns governance experts.
The scandal involving data-mining firm Cambridge Analytica allegedly led to 50 million Facebook users’ private information being compromised but a public accounting from Facebook’s CEO and chairman Mark Zuckerberg has been slow coming.
Could this be a governance breakdown?
“This high-powered board needs to engage more strongly,” says Steve Odland, CEO of the Committee for Economic Development and a board member for General Mills, Inc. and Analogic Corporation. Facebook’s board includes Netflix’s CEO Reed Hastings; Susan D. Desmond-Hellmann, CEO of The Gates Foundation; the former chairman of American Express Kenneth I. Chenault; and PayPal cofounder Peter A. Thiel, among others.
Odland points out that Facebook has two powerful and well-known executives, Zuckerberg and Facebook COO Sheryl Sandberg, who have been publicly out there on every subject, but largely absent on this one.
“They need to get out and publicly talk about this quickly,” Odland maintains. “They didn’t have to have all the answers. But this vacuum of communications gets filled by others, and that’s not good for the company.”
Indeed, politicians, the Federal Trade Commission and European politicians are stepping in, he says, “and that could threaten the whole platform.”
Typically, he adds, it comes back to management to engage and use the board, but “I don’t think Zuckerberg is all that experienced in that regard. This is where the board needs to help him.”
But how much power does the board have?
Charles Elson, director of the University of Delaware’s Weinberg Center for Corporate Governance, sees the dual-class ownership structure of Facebook that gives the majority of voting power to Zuckerberg and thus undermines shareholders and the board’s power.
“It’s his board because of the dual-class stock. There is nothing [directors] can do; neither can the shareholders and a lawsuit would yield really nothing,” he explains.
Increasingly, company founders have been opting to shore up control by creating stock ownership structures that undercut shareholder voting power, where only a decade ago almost all chose the standard and accepted one-share, one-vote model.
Now the Snap Inc. initial public offering (IPO) takes it even further with the first-ever solely non-voting stock model. It’s a stock ownership structure that further undercuts shareholder influence, undermines corporate governance and will likely shift the burden of investment grievances to the courts.
By offering stock in the company with no shareholder vote at all, Snap — the company behind the popular mobile-messaging app Snapchat that’s all about giving a voice to the many — has acknowledged that public voting power at companies with a hierarchy of stock ownership classes is only a fiction. And it begs the question: Why does Snap even need a board?
Alas, Facebook’s shares have tanked as a result of the Cambridge Analytica revelations, and it’s unclear what’s happening among the leaders at Facebook to deal with the crisis.
Facebook’s board, advises Odland, needs to get involved and help create privacy policies and if those are violated, they need to follow up.
“This is a relatively young company in a relatively young industry that has grown to be a powerhouse and incredibly important,” he explains. Given that, he says, there are “new forms of risk management this board needs to tackle.”
J’ai trouvé très intéressantes les questions qu’un nouvel administrateur pourrait se poser afin de mieux cerner les principaux facteurs liés à la bonne gouvernance d’un conseil d’administration.
Bien sûr, ce petit questionnaire peut également être utilisé par un membre de CA qui veut évaluer la qualité de la gouvernance de son propre conseil d’administration.
Les administrateurs peuvent interroger le président du conseil, les autres membres du conseil et le secrétaire corporatif.
Les douze questions énumérées ci-dessous ont fait l’objet d’une discussion lors d’une table ronde organisée par INSEAD Directors Forum du campus asiatique de Singapore.
Cet article a été publié par Noelle Ahlberg Kleiterp* sur le site de la Harvard Law School Forum on Corporate Governance.
Chaque question est accompagnée de quelques réflexions utiles pour permettre le passage à l’acte.
Bonne lecture ! Vos commentaires sont les bienvenus.
In many countries, boards of directors (particularly those of large organisations) have functioned too long as black boxes. Directors’ focus has often—and understandably so—been monopolised by a laundry list of issues to be discussed and typically approved at quarterly meetings.
The board’s own performance, effectiveness, processes and habits receive scant reflection. Many directors are happy to leave the corporate secretary with the task of keeping sight of governance best practices; certainly they do not regard it as their own responsibility.
It occurred to me later that these questions could be of broader use to directors as a framework for beginning a reassessment of their board role.
However, increased regulatory pressures are now pushing boards toward greater responsibility, transparency and self-awareness. In some countries, annual board reviews have become compulsory. In addition, mounting concerns about board diversity provide greater scope for questioning the status quo.
Achieving a more heterogeneous mix of specialisations, cultures and professional experiences entails a willingness to revise some unwritten rules that, in many instances, have governed board functions. And that is not without risk.
At the same time, the “diversity recruits” wooed for board positions may not know the explicit, let alone the implicit, rules. Some doubtless never anticipated they would be asked to join a board. Such invitations often come out of the blue, with little motivation or clarity about what is expected from the new recruit. No universal guidelines are available to aid candidates as they decide whether to accept their invitation.
Long-standing directors and outliers alike could benefit from a crash course in the fundamentals of well-run boards. This was the subject of a roundtable discussion held in February 2017 as part of the INSEAD Directors Forum on the Asia campus.
As discussion leader, I gave the participants, most of whom were recent recipients of INSEAD’s Certificate in Corporate Governance, a basic quiz designed to prompt reflection about how their board applies basic governance principles. It occurred to me later that these questions could be of broader use to directors as a framework for beginning a reassessment of their board role.
Questions and reflections
Q1) True/False: My board maintains a proper ratio of governing vs. executing.
Reflection: Recall basic principles of governance. If you are executing, who is maintaining oversight over you? Why aren’t the executive team executing and the board governing?
Q2) True/False: My board possesses the required competencies to fulfil its duties.
Reflection: Competencies can be industry-specific or universal (such as being an effective director). Many boards are reluctant to replace members, yet the needs of the organisation shift and demand new competencies, particularly in the digital age. Does your board have a director trained in corporate governance who could take the lead? Or does it adopt the outdated view of governance as a matter for the corporate secretary, perhaps in consultation with owners?
Q3) True/False: The frequency and duration of my board meetings are sufficient.
Reflection: Do you cover what you must cover and have ample time for strategy discussions? Are discussions taking place at the table that should be conducted prior to meetings?
Q4) How frequently does your chairperson meet with management: weekly, fortnightly, monthly, or otherwise?
Reflection: Meetings can be face-to-face or virtual. An alternative question is: Consider email traffic between the chair/board and management—is correspondence at set times (e.g. prior to scheduled meetings/calls) or random in terms of topic and frequency?
Q5) Is this frequency excessive, adequate or insufficient?
Reflection: Consider what is driving the frequency of the meetings (or email traffic). Is there a pressing topic that justifies more frequent interactions? Is there a lack of trust or lack of interest driving the frequency?
Q6) True/False: My board possesses the ideal mix of competencies to handle the most pressing issue on the agenda.
Reflection: If one issue continually appears on the agenda (e.g. marketing-related), there could be reason to review the board’s effectiveness with regards to this issue, and probably the mix of skills within the current board. If the necessary expertise were present at the table, could the board have resolved the issue?
Q7) True/False: The executive team is competent/capable. If “false”, is your board acting on this?
Reflection: At this point in the quiz, you should be considering whether incompetency is the issue. If so, is it being addressed? How comfortable are you, for example, that your executive team is capable of addressing digitisation?
Q8) True/False: My chairperson is effective.
Reflection: Perhaps incompetency rests with the chairperson or with a few board members. Are elements within control of the chairperson well managed? Does your board function professionally? If not, does the chair intervene and improve matters? Are you alone in your views regarding board effectiveness? A “false” answer here should lead you to take an activist role at the table to guide the chair and the board to effectiveness.
Q9) Yes/No: Does your board effectively make use of committees? If “yes”, how many and for which topics? If “no”, why not?
Reflection: Well-defined committees (e.g. audit, nomination, risk) improve the efficiency of board meetings and are a vital component of governance. In the non-profit arena, use of board committees is less common. However, non-profit boards can equally benefit from this basic guiding principle of good governance.
Q10) True/False: Recruitment/nomination of new board members adheres to a robust process.
Reflection: When are openings posted? Who reviews/targets potential candidates? How are candidate criteria determined? And is there a clear “on-boarding” process that is regularly revisited?
Q11) True/False: My board performs a board review annually.
Reflection: A board review will touch on many elements mentioned in previous questions. Obtaining buy-in for the first review might prove painful. Thereafter knowledge of an annual review will undoubtedly lead to more conscious governance and opportunities to introduce improvements (including replacement of board members). Procedurally, the review of the board as a whole should precede the review of individuals.
Q12) Think of a tough decision your board has made. Recall how the decision was reached and results were monitored. Was “fair process leadership” (FPL) at play?
Reflection: Put yourself in the shoes of a fellow board member, perhaps the one most dissatisfied with the outcome of a particular decision. Would that person agree that fair process was adhered to, despite his or her own feelings? Boards that apply fair process move on—as a team—from what is perceived to be a negative outcome for an individual board member. If decisions are made rashly and lack follow-up, FPL is not applied. Energies will quickly leave the room.
From reflection to action
Roundtable participants agreed that these questions should be applied in light of the longevity of the organisation concerned. Compared with most mature organisations, a start-up will need many more board meetings and more interactions between the board and the management team. The “exit” phase of an organisation (or a sub-part of the organisation) is another time in the lifecycle that requires intensified board involvement.
Particularly in the non-profit sector, where directors commonly work pro bono, passion for the organisational mission should be a prerequisite for all prospective board members. However, passion—in the form of a determination to see the organisation’s strategy succeed—should be a consideration for all board members and nominees, regardless of the sector.
Directors who apply the above framework and are dissatisfied with what they discover could seek solutions in their professional networks, corporate governance textbooks or a course such as INSEAD’s International Directors Programme.
If you are considering a board role, you could use the 12 questions, tweak them for your needs and evaluate your answers. Speak not only with the chair, but also with as many board members and relevant executive team members as you can. Understand your comfort level with how the board operates and applies governance principles before accepting a mandate.
Noelle Ahlberg Kleiterp, MBA, IDP-C, has worked for 25 years across three continents with companies including GE, KPMG, Andersen Consulting and Atradius. Noelle owns a sole proprietorship in Singapore and serves as a board member on a non-profit organisation in Singapore.
Le récent rapport de KPMG sur les grandes tendances en audit présente sept défis que les membres des CA, notamment les membres des comités d’audit, doivent considérer afin de bien s’acquitter de leurs responsabilités dans la gouvernance des sociétés.
Le rapport a été rédigé par des professionnels en audit de la firme KPMG ainsi que par le Conference Board du Canada.
Les sept défis abordés dans le rapport sont les suivants :
– talent et capital humain ;
– technologie et cybersécurité ;
– perturbation des modèles d’affaires ;
– paysage réglementaire en évolution ;
– incertitude politique et économique ;
– évolution des attentes en matière de présentation de l’information ;
– environnement et changements climatiques.
Je vous invite à consulter le rapport complet ci-dessous pour de plus amples informations sur chaque enjeu.
Alors que l’innovation technologique et la cybersécurité continuent d’avoir un impact croissant sur le monde des finances et des affaires à l’échelle mondiale, tant les comités d’audit que les chefs des finances reconnaissent le besoin de compter sur des talents de haut calibre pour contribuer à affronter ces défis et à en tirer parti.
Le rôle du comité d’audit est de s’assurer que l’organisation dispose des bonnes personnes possédant l’expérience et les connaissances requises, tant au niveau de la gestion et des opérations qu’au sein même de sa constitution. Il ne s’agit que de l’un des nombreux défis à avoir fait surface dans le cadre de ce troisième numéro du rapport Tendances en audit.
Les comités d’audit d’aujourd’hui ont la responsabilité d’aider les organisations à s’orienter parmi les nombreux enjeux et défis plus complexes que jamais auxquels ils font face, tout en remplissant leur mandat traditionnel de conformité et de présentation de l’information. Alors que les comités d’audit sont pleinement conscients de cette nécessité, notre rapport indique que les comités d’audit et les chefs des finances se demandent dans quelle mesure leur organisation est bien positionnée pour faire face à la gamme complète des tendances actuelles et émergentes.
Pour mettre en lumière cette préoccupation et d’autres enjeux clés, le rapport Tendances en audit se penche sur les sept défis qui suivent :
talent et capital humain;
technologie et cybersécurité;
perturbation des modèles d’affaires;
paysage réglementaire en évolution;
incertitude politique et économique;
évolution des attentes en matière de présentation de l’information;
environnement et changements climatiques.
Au fil de l’évolution des mandats et des responsabilités, ce rapport se révélera être une ressource précieuse pour l’ensemble des parties prenantes en audit.
Voici un sujet d’actualité brûlant sur le harcèlement sexuel au travail et les questions que le management des entreprises doit se poser à cet égard.
L’article publié par Arthur H. Kohn* sur le site de Harvard Law School on Corporate Governance, est très pertinent, autant pour la direction des organisations, que pour les administrateurs de sociétés.
Les auteurs présentent une série de huit (8) questions fondamentales auxquelles les responsables doivent répondre afin de bien s’acquitter de leurs responsabilités.
Il faut voir les questions comme une check-list des activités de diagnostic eu égard aux situations de harcèlement sexuel et de diverses formes d’inconduite.
J’espère que cette lecture sera utile aux gestionnaires soucieux de la qualité de l’environnement de travail des entreprises.
In recent months, sexual harassment allegations against well-known figures across a growing number of industries have become a common feature in news headlines. In the wake of these allegations, many companies have concluded that their current policies and procedures related to sexual harassment and discrimination are inadequate. Against the backdrop of this rapidly evolving landscape, companies are considering how to improve their policies and procedures not only to appropriately and effectively respond to allegations of sexual harassment, but also to deter inappropriate behavior going forward and foster an environment of openness, diversity and inclusion in their workplaces. To that end, below are 8 key questions that companies should be asking themselves in developing policies and procedures to confront sexual harassment and other forms of misconduct in today’s workplace.
The 8 Questions Companies Should Be Asking Themselves
1. Have we thought broadly, globally and proactively in developing our policies and procedures about workplace harassment?
Under both U.S. federal and state law, companies are incentivized to have policies and procedures in place that address sexual harassment and contain clear guidelines about what to do in the event an employee is sexually harassed. In addition to ensuring that their sexual harassment policies comply with applicable federal and state law, companies should consider developing other internal policies and trainings for employees and executives concerning inappropriate, offensive, or abusive behavior, including:
Policies concerning bullying, discrimination, retaliation, consensual relationships and nepotism.
Code of conduct, affirmatively establishing the expected company culture.
Trainings on unconscious bias, sensitivity in the workplace and behavioral responses to harassment and discrimination (e.g., understanding the “freeze” response to harassment).
In developing these policies and trainings, consideration should be given to the fact that the public’s perception of what constitutes harassment or inappropriate behavior has already begun, and will continue, to change. Likewise, some conduct that is unlikely to provide a basis for a legal claim against a company under the current state or federal law applicable to the company, may be the subject of future legislation. In addition, thinking not just about deterring illegal conduct but about fostering an environment in which such conduct is unlikely to occur is important. Training on unconscious bias, sensitivity in the workplace and behavioral responses to harassment and discrimination are just some ways in which the culture of a company can be improved.
As part of a comprehensive approach to developing policies on harassment, companies may also consider examining perspectives on harassment in foreign jurisdictions, including looking to local rules for guidance. Global organizations should not only adopt uniform policies across geographical areas that reflect global standards of conduct, but also should make sure that any local law requirements are adopted through addenda in relevant jurisdictions.
2. Do our employees trust the company’s procedure for reporting harassment?
If the behavior complained of is not expressly covered by a company’s sexual harassment policy or applicable law, employees may not think they have recourse through the company’s reporting procedures. Even if a company has put in place a clear procedure for reporting violations, employees may not use it if they do not trust that their complaints will be investigated thoroughly and without any repercussions. Employees may have the perception that the priorities of the individuals designated to receive complaints are more aligned with the accused or that these designated individuals have an obligation to presume innocence. Employees may moreover fear that their allegations will be perceived as overreactions or that they will face retaliation, particularly where the alleged perpetrator is a senior person or high performer. Where this is the case, employees may decide to escalate their complaints by going outside of their companies’ reporting procedures, including by sharing their stories more broadly:
through the press (Harvey Weinstein);
on social media (#MeToo);
on anonymous forums that are, or may become, open to the public (the “Sh%&ty Media Men” spreadsheet, Glassdoor.com, Blind conversation app); and
calling anonymous hotlines set up by organizations outside the company (National Organizations for Women; Equal rights advocates).
In light of this, companies should take steps to ensure that their human resources (“H.R.”) functions are sufficiently staffed and trained on how to handle concerns about harassment that they encounter outside of regular reporting channels. Companies may also consider having those in H.R. functions proactively monitor forums and other websites for allegations of harassment as a complement to their existing processes. A company’s failure to respond to allegations made in the press or on social media or to provide appropriate reporting mechanisms for harassment claims may contribute to a determination that the company has not exercised reasonable care in preventing and addressing harassment, thereby exposing the company to liability. In addition to legal risks, the publication of harassment allegations can also expose a company to reputational harm, which may be mitigated by a company’s proactive response to the allegations.
Companies should also take steps to ensure that all information concerning harassment allegations, even if not raised through the company’s reporting procedures or raised anonymously, is shared with appropriate individuals within the organization and also promptly escalated to senior management or the board. In order to comprehensively address allegations of harassment or unhealthy workplace cultures, it is essential that all known information about alleged violations be promptly and regularly escalated to senior management or the board.
3. Who is responsible for receiving complaints and do they have adequate resources and training?
Even if a company’s reporting procedures designate particular individuals as responsible for receiving complaints, employees may bring allegations to non-designated employees, including their managers and mentors. Employees may also report allegations directly to senior management. For example, recently developed apps like AllVoices enable victims of sexual harassment or discrimination to anonymously report incidents to a company’s CEO and board. Companies should thus ensure that senior management, as well as all employees and others who may receive complaints of harassment, receive training on how to respond to allegations of harassment and are well-versed on how to promptly escalate complaints within the organization. Employees should be reminded that they should never discourage someone from bringing forward an allegation of harassment and that any such allegations must be taken seriously and reported properly. As noted above, companies should also ensure that all information relevant to harassment allegations is shared with the appropriate individuals and escalated to senior management or the board on a regular basis.
Companies should also consider taking steps to assess the work environment before a complaint of harassment arises. For example, companies may consider conducting anonymous surveys of employees on their experiences in the workplace and the current harassment procedures, administering “climate assessments” in particular areas of the business, including H.R., holding skip-level meetings for senior management to gain insight into the culture at various levels of the organization, and establishing a clear open door policy to encourage openness between employees and senior management.
4. Who should be in charge of conducting investigations and do those in charge have adequate resources and independence?
Substantial consideration should be given to who is in charge of conducting an investigation into complaints of sexual harassment and to whether those directing the investigation are sufficiently independent. Companies may consider forming a committee consisting of representatives from different parts of the company to direct any harassment related investigations, including determining who should have responsibility for conducting the investigation. Depending on the nature of the allegations, an investigation by personnel in an H.R. function may be appropriate and cost effective. For allegations involving senior management or that involve pervasive behavior by a group or area within a company, a company may also consider bringing in outside counsel. In that scenario, consideration should be given to who retains the counsel and whether counsel is sufficiently independent.
Companies should also ensure that their investigations are conducted with the utmost confidentiality and assure employees that their harassment complaints are confidential and that they will be protected against retaliation. If, however, a company ultimately decides to settle with a complaining employee, it may consider reevaluating the use of non-disclosure agreements (“NDAs”), either in settlements or in existing employment contracts, which could be perceived as “hush money” or as perpetuating abusive work environments by protecting perpetrators, and which are the subject of proposed legislation in some state legislatures.
5. Has a disclosure obligation been triggered?
Additional considerations may apply with respect to responding to and preventing misconduct by senior executives. Such misconduct can create or exacerbate an abusive work environment and lead to serious reputational injury for the company. If allegations are made against an executive officer, the company should determine when and how to involve the board in dealing with those allegations. Public companies should also keep in mind that the change in employment conditions, resignation or termination of certain executives must be disclosed on a Form 8-K in the U.S., and that other foreign jurisdictions may have similar disclosure requirements.
Companies may also consider whether to review their contracts with senior executives to ensure that the contracts include provisions that require and incentivize compliance with the company’s behavioral expectations. To that end, some companies have chosen to consider, with respect to their new and existing contracts, what rights they have to terminate senior executives for cause for violations of the company’s harassment policies and to deny indemnification in such situations. One reason to consider negotiating arrangements with these protections in place is that payment of large severance packages can cause reputational harm to a company based on the perception that it is being “soft” on executives whose behavior violated its policies or rewarding executives for inappropriate behavior. On the other hand, these negotiations may present real challenges.
6. Does senior management communicate the message that harassment of any type will not be tolerated?
The adoption of strong internal codes of conduct, policies and robust procedures will have limited efficacy if senior management does not make clear that it will not tolerate harassment of any kind or by any perpetrator. Management’s failure to swiftly investigate claims of harassment or to penalize abusive behavior can exacerbate an already hostile work environment. Further, as noted above, consideration should be given to ensuring that management cannot be reasonably perceived as rewarding senior executives who do not comply with the company’s behavioral expectations or silencing victims of abuse.
Companies should encourage senior management to takes steps to facilitate openness and increased communication with their employees even before a complaint arises. Senior management should also regularly remind employees of the existence of their company’s policies and procedures related to harassment and should participate in trainings.
7. Is the board sufficiently informed on the company’s policies and procedures relating to sexual harassment?
Board members may be exposed to claims of breach of fiduciary duty following claims of sexual harassment perpetrated by executive officers or other employees of the company. In particular, public companies may face serious financial consequences following allegations of harassment at the company as a result of such claims. Boards should also be aware that there are financial risks that are not directly tied to payment of civil damages or to legal and remediation costs related to sexual harassment. The media has recently reported numerous incidents of allegations where executives have been accused of sexual harassment and other misconduct, and the companies have seen their stock price fall or lost advertising revenue, customers and business opportunities. In light of these risks and, most importantly, to protect the safety of the company’s employees, the board should periodically review the company’s sexual harassment policies, including training and reporting channels. The board should also ensure that it is being informed of violations of these policies, as appropriate, and has a sense of the day-to-day workplace culture as it relates to sexual harassment and other forms of inappropriate workplace behavior.
8. Does the company have effective standards, policies and processes, including diligence processes, to address sexual harassment issues at potential investment targets and existing subsidiaries and/or portfolio companies?
Companies may face major reputational and financial repercussions based on the misconduct of other companies that they have acquired or in which they have invested. During the diligence process, consideration should be given to inquiring into the target’s or partner’s implementation and maintenance of harassment policies and procedures, the existence of appropriate controls, and whether the investment target or its key personnel have a history of incidents, investigations or allegations of harassment issues. In addition, in appropriate circumstances, consideration should be given to engaging local counsel for investments outside the U.S. to consider whether the company’s policies comply with applicable local rules, and the impact any non-compliance could have post acquisition.
Private equity sponsors and other similar organizations should consider reevaluating policies and procedures at existing portfolio companies and subsidiaries in light of recent developments, and may further consider putting in place reporting requirements to ensure that portfolio companies and subsidiaries have implemented effective policies and ongoing training. Companies may also consider steps that can be taken internally to effectively implement appropriate policies, procedures, and training at their portfolio companies and subsidiaries. For example, consideration should be given to whether a company can leverage its own practices and policies across its portfolio companies and subsidiaries.
Conclusion
Sexual harassment related allegations are increasingly making headlines and rapidly changing perceptions concerning harassment and abusive behaviors. While the allegations initially centered on the entertainment industry, sexual harassment in the workplace has now become a major issue in a growing number of industries, including technology and finance. Companies across all industries are responding by developing strategies for tackling harassment in the workplace and minimizing risk by implementing strong policies, procedures, and complaint systems. To do so, it is essential that companies ask the right questions.
L’une des questions prédominantes — et souvent controversées — dans l’évaluation des principes de saine gouvernance concerne l’indépendance des administrateurs.
L’Institut sur la gouvernance (IGOPP) propose une approche nouvelle et originale sur la question de l’indépendance des membres des conseils d’administration.
Dans un document « L’indépendance des conseils : un enjeu de légitimité », l’IGOPP propose que toute organisation dotée d’un conseil d’administration cherche à constituer un conseil qui soit à la fois légitime et crédible.
L’enjeu n’est pas tellement l’indépendance des conseils mais bien leur légitimité et leur crédibilité. La qualité d’indépendance ne prend son sens que si elle contribue à rehausser la légitimité d’un conseil.
C’est par sa légitimité qu’un conseil acquiert le droit et l’autorité de s’imposer à la direction d’une organisation. Les conseils d’organisations publiques ou privées, sans actionnaire ou sans actionnaire actif détenant plus de 10 % du capital-actions ordinaire, devraient être composés d’une majorité nette d’administrateurs indépendants. De plus, tous leurs comités statutaires devraient être composés exclusivement de membres indépendants.
L’article ci-dessous, écrit à la suite d’une table ronde réunissant plusieurs spécialistes de la gouvernance européenne, aborde trois sujets incontournables, en tentant de tirer des enseignements pour le futur :
(1) l’indépendance des administrateurs et la pertinence du concept
(2) les divers aspects de la rémunération et les obligations fiduciaires
(3) l’identification des actionnaires et les questions de procuration des votes
Dans ce billet, nous vous proposons les questionnements reliés à l’indépendance des administrateurs.
L’indépendance est-elle une bonne idée ?
Quels sont les problèmes liés à l’indépendance ?
Quels sont les résultats de recherche qui montrent que l’indépendance améliore la qualité de la gouvernance ?
Comment composer avec l’influence des gestionnaires et des conflits d’intérêts ?
L’article publié par Christian Strenger*est paru sur le site de Harvard Law School Forum on Corporate Govervance.
Alors, selon vous, pourquoi l’indépendance des administrateurs est-elle un gage de bonne gouvernance ?
Bonne lecture ! Vos commentaires sont les bienvenus.
L’indépendance des administrateurs : panacée ou boîte de Pandore?
Board Independence: the Quality Question and dealing with Insider Issues
Background
A reliable formula for board effectiveness has been elusive, but the importance of effective boards warrants ongoing reflection and research by both academics and practitioners.
In spite of the diversity of governance models around the world, the concept of independence plays a prominent role in most, if not all, codes of governance globally as an intrinsic component of good board structure. For example, independence features, to varying degrees of emphasis, in the governance frameworks of the US, UK, Germany and Japan. It is also reflected in global frameworks, such as the ICGN Global Governance Principles or the OECD Corporate Governance Principles.
But what does independence mean in a corporate governance context, and does it deliver what we want it to? This session seeks to challenge how we think about independence and addresses several fundamental questions relating to boards and corporate governance:
Is board independence essential to quality in corporate governance—or is independence simply a placebo that doesn’t do anything but makes us feel better?
What do we expect board independence to achieve in practical terms?
Are independent directors really in a position to monitor and control corporate insiders?
These are questions that have relevance for company managers and directors, but also for investors, regulators and stakeholders.
Role of boards
A company’s board of directors is at the core of its corporate governance. Boards play a range of advisory and control functions. This includes strategic direction and risk/control oversight, along with the monitoring and reward of executive management.
At a more overarching level, agency theory suggests that one of the key roles of the board is to serve as an agent protecting the interests of shareholders vis-à-vis company management or controlling owners. This reflects a duty of care to support the company’s long-term success and sustainable value creation and to ensure the alignment of interests between management, controlling owners, minority investors—taking into account stakeholder interests as well.
Why is independence a good idea?
Shareholders and other stakeholders expect boards to have the ability and authority to think and act independently from company executives or controlling owners. The board may be unable to serve effectively in its agency role if its directors’ judgements are not free of conflicts or any other external influence other than promoting the long-term success of the firm.
What are the problems related to independence?
It is important to recognise that independence has to be looked at in the context of how it affects board processes, decisions and overall governance. Yet spite of the inherent virtues of independence, its realisation in practice is not an easy fix; nor does it intrinsically enhance board effectiveness. A director must be able to contribute something other than independence alone, whether that is in the form of sector knowledge, commercial experience, international experience, technical skills or other areas that support the board’s oversight of company management.
Moreover, independence is ultimately a state of mind, not a product of definitions. There are many different sets of criteria that seek to define independence for individual directors. While these sorts of criteria can be useful, they can also be crude, misleading or incomplete.
The Lehman Brothers board in 2008, the year of its demise, was an example of a nominally independent board. But was this board able to operate independently of a strong Chair/CEO? Was there enough financial sector expertise amongst this group of independent directors to provide a rigorous challenge? (See Annex 1 in the complete publication).
Does independence ensure quality? What is the evidence?
Independence may be real, but it can be hard, if not impossible, to measure in a meaningful way. It is much easier to measure structural features of boards than it is to measure the quality of board processes. But sometimes what is easily measurable is not worth measuring. So while it is possible (and very common) to calculate simple ratios, such as independent directors/total directors a common gauge of board independence, they may not tell us much. Indeed, the evidence of empirical studies using simplistic/conventional measures of independence has been inconclusive (See Annex 2).
Many board attributes, including independence, which are regarded as “best practice” lack clear empirical grounding, at least in an econometric context. So, in many features of our corporate governance codes we are dealing in effect with opinions more than facts.
How to deal with insider influence and vested interests?
Insider influences can vary depending on the nature of the company. For widely-held companies, the vested interests of executive management often take the form of high pay for limited performance. In controlled companies vested interests may be the controlling owners themselves in terms of entrenchment and self-dealing.
Are independent directors really equipped to challenge these insiders? Or is that possibly asking for a bit too much? The empirical evidence cited above suggests that independent directors may not have a meaningful impact on board governance. But the evidence does suggest in the area of audit committees that independence is important. This makes logical sense, but it also suggests that for an independent director to provide meaningful oversight, independence must be combined with other important attributes, including sectoral knowledge and financial expertise. Independence as a determinant of board effectiveness therefore may be a necessary, but not a sufficient, condition.
Conclusion
We need to recognise that independence may be overrated, or at least not always live up to its billing. At least as it is conventionally defined, independence has not proven to be a panacea or silver bullet to ensure good corporate governance. At the same time, however, the concept of board independence is important and worth preserving, if nothing else as an aspirational ideal.
Discussion Results
Independent directors seem to be an intuitive solution for the agency problem stemming from the separation of ownership and control, but also for limiting the power of controlling shareholders in a corporation.
The starting point of the discussion was: Why do we need independence in the first place? As investors and other stakeholders want to see their interests served and protected by the board, the absence of potential conflicts of interest between non-executive directors and managers or undue influence from a major shareholder are the answers. Disclosure of meaningful ties of the non-executive directors to the management or controlling shareholders is important. The discussion also emphasized that reasonable diversity can be a contributing factor for board independence, and that truly independent board members can play a key role in avoiding too much convergence in decision making, as well as in focusing on the well-being of the company itself, and not any separate vested interests. While the discussion highlighted many benefits of board independence, it also pointed to potential costs: board independence may come with costs relating to problems in information flows, access to information and processing. Thus, it is important to complement board independence with proper board procedures and processes.
A key point of the discussion was the definition of independence itself. Besides the obligatory disclosure of relevant ties of a non-executive board member to management or controlling shareholders, regulators tried to formalize criteria to define independent board members. Academic literature also strives to evaluate how predefined criteria affect company decisions. However, results of these efforts are mixed and can hardly achieve “true” independence. The description of certain characteristics could introduce independence on paper, but may not reflect correctly the individual case of a board member. A predefined strict categorization would in practice suffer from a “ticking the box” approach. Independence from a controlling shareholder is equally hard to define as thresholds for shareholdings may not reflect the individual circumstances. The discussion also highlighted that strict definitions of independence might also require companies to replace experienced board members with new independent board members. That could lead to a temporary loss of experience and industry expertise.
Ways for the Future:
The realistic description of board independence needs a detailed assessment of the individual and a disclosure of ties of a non-executive board member to the management or controlling shareholders. Furthermore, disclosure of the selection process of the nomination committee should bring important insights for investors and the stakeholders.
The discussion further emphasized that formal characteristics alone could be misleading to determine the independence of a board member, focusing on “independence in mind” as an important aspect. As this factor is difficult to gauge or measure, investors may have to communicate with the chair in individual cases.
A sensible and company specific skillset of personnel management, industry knowledge and experience must be represented in the board as a priority, as formal independence alone is not a sufficient prerequisite for the selection process. The discussion emphasized that extensive information is key to allow proper evaluation of true independence. This should be complemented by sufficient access to the chair for communication with investors. The latest German code revision emphasizes that chairs make themselves available to investors for such supervisory board related issues.
Ways for the Future:
Full disclosure of important ties between individual board members with management and controlling shareholders should be obligatory. To properly evaluate the board member proposals, the disclosure of the skillsets of board members and the selection process would bring further important insights for investors. An idea proposed to support the process was the development of a “board skills matrix” for individual boards.
The discussion highlighted the key role of the nomination committee in the identificatio n and evaluation of independent directors. It was therefore suggested that the chair of the nomination committee should make himself available to investors. This point was controversially discussed due to possible loss of a “One Voice” communication strategy, so that communication should be confined to the chair of the supervisory board.
Another important point of the discussion was the regular evaluation of non-executive board members, as this may bring improvements for independent guidance and decision making of the full board. It could also identify areas of strength and weaknesses for an improved performance of both boards. A key prerequisite for a successful evaluation is the independence of the conducting leader.
The discussants raised the issue of the differences emerging from national governance environments, such as different shareholder structures and cultural differences. While the Anglo American approach to independence appears to work in the UK, this differs from continental European countries such as Germany and France.
Ways for the Future:
A solution to cross-country differences is the development of “local optima” that reflect the special circumstances in each country, rather from pursuing a “one fits all” approach.
Conclusion
The participants concluded that board independence remains a central issue in the corporate governance debate. The discussion identified definition issues as critical. It was also highlighted that full disclosure of the individual independence is important. Formal independence alone does not ensure board or director effectiveness. It must be accompanied with skills, knowledge and experience to obtain satisfactory board work results. Disclosure on the individual board members’ selection process and independence characteristics should be made available to investors and the other stakeholders.
*Christian Strengeris Academic Director at the Center for Corporate Governance at HHL Leipzig Graduate School of Management. This post is based on a publication by Mr. Strenger and Jörg Rochell, President and Managing Director at ESMT Berlin, for a symposium held in Berlin on November 9, 2017, sponsored by ESMT Berlin and the Center for Corporate Governance at HHL Leipzig Graduate School of Management.
Gouvernance | Jacques Grisé 