Catégorie : Évaluation du Conseil

Résumé des activités en gouvernance des sociétés | 2016


Voici un article publié sur le site de la HLS par Michael McCauley* qui montre comment la Florida State Board of Administration (SBA) évalue la gouvernance des entreprises dans laquelle elle investit.

Il m’apparaît utile de comprendre le processus décisionnel des investisseurs institutionnels, si l’on veut connaître les variables de la gouvernance dont elles tiennent compte.

L’auteur explique la méthodologie utilisée par la SBA dans sa quête d’information sur les entreprises visées.

Bonne lecture et joyeux temps des fêtes !

2016 Corporate Governance Annual Summary

 

The Florida SBA’s annual corporate governance summary explains how the Board makes proxy voting decisions, describes the process and policies used to analyze corporate governance practices, and details significant market issues affecting global corporate governance practices at owned companies. The SBA acts as a strong advocate and fiduciary for Florida Retirement System (FRS) members and beneficiaries, retirees, and other non-pension clients to strengthen shareowner rights .and promote leading corporate governance practices at U.S. and international companies in which the SBA holds stock.

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The SBA’s corporate governance activities are focused on enhancing share value and ensuring that public companies are accountable to their shareowners with independent boards of directors, transparent disclosures, accurate financial reporting, and ethical business practices designed to protect the SBA’s investments.

The SBA’s annual corporate governance summary is designed to provide transparency of investment management activities involving responsible investment practices, proxy voting conduct, and engagement with owned companies. The report broadly conforms to the main principles for external responsibilities endorsed by the International Corporate Governance Network’s (ICGN) Global Stewardship Principles, most recently updated in June 2016. The ICGN Global Stewardship Principles provide a framework to implement stewardship practices in fulfilling an investor’s fiduciary obligations to beneficiaries or clients.

In addition to comprehensive data and information on corporate engagement, proxy voting, and regulatory issues, the complete 2016 report includes four topical sections detailed below:

Governance Patterns in the U.S. Banking Sector—market events this year demonstrate how a company’s governance regime can interact with its reputation and value.

CFOs serving on Boards in the UK—why is the British market so conducive for executives, including the CFO, to serve on their own boards?

Rule 14a-8 Governing Shareowner Resolutions—is it time for a more efficient way to make shareowner proposals during annual meetings?

UK Compensation Revolt—along with votes targeted at individual board members, investor votes on executive compensation exhibited high levels of dissent at many UK companies.

Annual Voting Review

During the 2016 proxy season, the SBA cast votes at over 10,300 public companies, voting more than 97,000 individual ballot items. The SBA actively engages portfolio companies throughout the year, addressing corporate governance concerns and seeking opportunities to improve alignment with the interests of our beneficiaries. Highlights from the 2016 proxy season included the continued record adoption of proxy access by U.S. companies, record high votes of dissent on pay packages for executives in the United Kingdom, and strong improvements in the level of independence among Japanese boards of directors. While SBA voting principles and guidelines are not pre-disposed to agree or disagree with management recommendations, some management positions may not be in the best interest of all shareowners. On behalf of participants and beneficiaries, the SBA emphasizes the fiduciary responsibility to analyze and evaluate all management recommendations very closely.

Across all voting items, the SBA voted 76.5 percent “For,” 20.2 percent “Against,” 3.1 percent “Withheld,” and 0.2 percent “Abstained” or “Did Not Vote” (due to various local market regulations or liquidity restrictions placed on voted shares). Of all votes cast, 22.2 percent were “Against” the management-recommended-vote (up from 19.4 percent during the same period last year). Among all global proxy votes, the SBA cast at least one dissenting vote at 7,689 annual shareowner meetings, or 74.6 percent of all meetings.

Director Elections

In uncontested director elections among all companies in the United States that are part of the Russell 3000 stock index, over 16,000 nominees received 96.1 percent average support from investors. This year’s figure was within two tenths of one percent from 2015’s statistic. Only 46 director nominees, or less than 0.3 percent, failed to receive a majority level of support from investors. Only two directors at large-capitalization companies within the Standard & Poor’s (S&P) 500 stock index failed to receive a majority level of support. Board elections represent one of the most critical areas in voting because shareowners rely on the board to monitor management. The SBA supported 78.5 percent of individual nominees for boards of directors, voting against the remaining portion of directors due to concerns about candidate independence, qualifications, attendance, or overall board performance. The SBA’s policy is to withhold support from directors who fail to observe good corporate governance practices or demonstrate a disregard for the interests of investors.

Executive Compensation

During the 2016 proxy season, the SBA utilized compensation research from Equilar, Inc., Glass, Lewis & Co., and Institutional Shareholder Services to assist in evaluating the proxy voting decisions on executive compensation share plans and general say-on-pay ballot items. Across all global equity markets, the SBA voted to approve approximately 55 percent of all remuneration reports, whereas in the U.S. market all other investors provided an average support level of 91.5 percent with only 1.5 percent of all advisory votes failing to achieve a majority. ISS found that over half of all U.S. companies conducting annual pay votes have received investor support of at least 90 percent in each of the last five years since the Dodd-Frank Act instituted advisory say-on-pay shareowner votes.

Among all U.S. companies, the average level of investor support for equity plan proposals stayed about the same year over year at approximately 88 percent. However, the number of individual equity plans that failed to garner majority support rose by 50 percent, from 6 to 9 plans. Given the extremely low number of equity plans that fail each year, investor support for individual plans is almost universal. Less than one percent of equity plans failed during the last year, which also marked a five-year low for the number of compensation-related investor proposals with not a single proposal receiving majority support. Over the last fiscal year, the SBA supported 51.2 percent of all non-salary (equity) compensation items, 60.8 percent of executive incentive bonus plans, and 25.2 percent of management proposals to approve omnibus stock plans in which company executives would participate (and 19.3 percent support for the amendment of such plans). Omnibus stock plan ballot items typically include ratification of more than one equity plan beyond a company’s long-term incentive plan (LTIP).

Asset Owner/Asset Manager Peer Benchmarking

In May 2016, the SBA completed an international benchmarking survey on the costs of corporate governance activities at seventeen large public pension funds and global asset managers. The information helped SBA staff to assess the Investment Programs & Governance (IP&G) unit’s cost structure and service utilization across a large number of direct peers. When total research and voting services costs were calculated, SBA had the second lowest dollar-cost per proxy vote among public fund peers and asset managers. The SBA also ranked among the top three funds and well ahead of the fourteen remaining peers with respect to the proxy votes cast per full-time employee. The benchmarking showed that SBA’s corporate governance program uses similar services to peers, but does so at considerably lower cost and with greater efficacy. Our overall program costs and activity levels, particularly when standardized by assets under management, were very favorable compared to peers.

Active Ownership

The SBA actively engages portfolio companies throughout the year, addressing corporate governance concerns and seeking opportunities to improve alignment with the interests of our beneficiaries. During the 2016 fiscal year, SBA staff conducted engagements with over 100 companies owned within Florida Retirement System portfolios, including Compass Group PLC, Microsoft, Coca-Cola, Prudential, Bank of Yokohama, Chevron, Bank of America, ENI, Amgen, Ethan Allen, Oracle, The Goldman Sachs Group, JPMorgan, RTI Surgical, Boeing, Terna Group SpA, Regions Financial Corporation, Red Electrica, and Time Warner. As part of evaluating voting decisions for several proxy contests, SBA staff also met with a number of activist hedge funds, including Red Mountain Capital (proxy campaign at iRobot), Harvest Capital (proxy campaign at Green Dot), and SilverArrow Capital (proxy campaign at Rofin-Sinar Technologies).

Notable Votes

There were numerous significant votes during the 2016 global proxy season, including proxy contests at iRobot Corporation in May and Ashford Hospitality Prime in June, the Facebook share reclassification in June, and the Stada Arzneimitell AG meeting in August. The SBA makes informed and independent voting decisions at investee companies, applying due care, intelligence, and judgment. The SBA makes all proxy voting decisions independently, casting votes based on written, internally-developed corporate governance principles and proxy voting guidelines that cover all expected ballot issues. More detail on each of these votes and the related SBA analysis is contained in the ‘Highlighted Proxy Votes’ section of the 2016 Annual Summary.

The SBA prepares additional reports on corporate governance topics and significant market developments, covering a wide range of shareowner issues. Historical information can be found within the governance section of the SBA’s website. (www.sbafla.com)

The complete publication is available on the SBA’s website here and can also be viewed here using the Issuu e-reader tool.

*Michael McCauley is Senior Officer, Investment Programs & Governance, of the Florida State Board of Administration (the “SBA”). This post is based on an excerpt from the SBA’s 2016 Corporate Governance Report written by Mike McCauley, Jacob Williams, Tracy Stewart, Hugh Brown, and Logan Rand.

Dix stratégies pour se préparer à l’activisme accru des actionnaires


La scène de l’activisme actionnarial a drastiquement évolué au cours des vingt dernières années. Ainsi, la perception négative de l’implication des « hedge funds » dans la gouvernance des organisations a pris une tout autre couleur au fil des ans.

Les fonds institutionnels détiennent maintenant 63 % des actions des corporations publiques. Dans les années 1980, ceux-ci ne détenaient qu’environ 50 % du marché des actions.

L’engagement actif des fonds institutionnels avec d’autres groupes d’actionnaires activistes est maintenant un phénomène courant. Les entreprises doivent continuer à perfectionner leur préparation en vue d’un assaut éventuel des actionnaires activistes.

L’article de Merritt Moran* publié sur le site du Harvard Law School Forum on Corporate Governance, est d’un grand intérêt pour mieux comprendre les changements amenés par les actionnaires activistes, c’est-à-dire ceux qui s’opposent à certaines orientations stratégiques des conseils d’administration, ainsi qu’à la toute-puissance des équipes de direction des entreprises.

L’auteure présente dix activités que les entreprises doivent accomplir afin de décourager les activistes, les incitant ainsi à aller voir ailleurs !

Voici la liste des étapes à réaliser afin d’être mieux préparé à faire face à l’adversité :

  1. Préparez un plan d’action concret ;
  2. Établissez de bonnes relations avec les investisseurs institutionnels et avec les actionnaires ;
  3. La direction doit entretenir une constante communication avec le CA ;
  4. Mettez en place de solides pratiques de divulgations ;
  5. Informez et éduquez les parties prenantes ;
  6. Faites vos devoirs et analysez les menaces et les vulnérabilités susceptibles d’inviter les actionnaires activistes ;
  7. Communiquez avec les actionnaires activistes et tentez de comprendre les raisons de leurs intérêts pour le changement ;
  8. Comprenez bien tous les aspects juridiques relatifs à une cause ;
  9. Explorez les différentes options qui s’offrent à l’entreprise ciblée ;
  10. Apprenez à connaître le rôle des autorités réglementaires.

 

J’espère vous avoir sensibilisé à l’importance de la préparation stratégique face à d’éventuels actionnaires activistes.

Bonne lecture !

 

Ten Strategic Building Blocks for Shareholder Activism Preparedness

 

Shareholder activism is a powerful term. It conjures the image of a white knight, which is ironic because these investors were called “corporate raiders” in the 1980s. A corporate raider conjures a much different image. As much as that change in terminology may seem like semantics, it is critical to understanding how to deal with proxy fights or hostile takeovers. The way someone is described and the language used are crucial to how that person is perceived. The perception of these so-called shareholder activists has changed so dramatically that, even though most companies’ goals are still the same, the playbook for dealing with activists is different than the playbook for corporate raiders. As such, a corresponding increase in the number of activist encounters has made that playbook required reading for all public company officers and directors. In fact, there have been more than 200 campaigns at U.S. public companies with market capitalizations greater than $1 billion in the last 10 quarters alone. [1]

4858275_3_f7e0_ces-derniers-mois-le-fonds-d-investissement_eccbb6dc5ed4db8b354a34dc3b14c30fIt’s not just the terminology concerning activists that has changed, though. Technologies, trading markets and the relationships activists have with other players in public markets have changed as well. Yet, some things have not changed.

The 1980s had arbitrageurs that would often jump onto any opportunity to buy the stock of a potential target company and support the plans and proposals raiders had to “maximize shareholder value.” Inside information was a critical component of how arbs made money. Ivan Boesky is a classic example of this kind of trading activity—so much so that he spent two years in prison for insider trading, and is permanently barred from the securities business. Arbs have now been replaced by hedge funds, some of which comprise the 10,000 or so funds that are currently trying to generate alpha for their investors. While arbitrageurs typically worked inside investment banks, which were highly regulated institutions, hedge funds now are capable of operating independently and are often willing allies of the 60 to 80 full time “sophisticated” activist funds. [2] Information is just as critical today as it was in the 1980s.

Institutions now occupy a far greater percentage of total share ownership today, with institutions holding about 63% of shares outstanding of the U.S. corporate equity market. In the 1980s, institutional ownership never crossed 50% of shares outstanding. [3] Not only has this resulted in an associated increase of voting power for institutions by the same amount, but also a change in their behavior and posture toward the companies in which they invest, at least in some cases. Thirty years ago, the idea that a large institutional investor would publicly side with an activist (formerly known as a “corporate raider”) would be a rare event. Today, major institutions have frequently sided with shareholder activists, and in some cases privately issued a “Request for Activism”, or “RFA” for a portfolio company, as it has become known in the industry.

It seldom, if ever, becomes clear as to whether institutions are seeking change at a company or whether an activist fund identifies a target and then seeks institutional support for its agenda. What is clear is that in today’s form of shareholder activism, the activist no longer needs to have a large stake in the target in order to provoke and drive major changes.

For example, in 2013, ValueAct Capital held less than 1% of Microsoft’s outstanding shares. Yet, ValueAct President, G. Mason Morfit forced his way onto the board of one of the world’s largest corporations and purportedly helped force out longtime CEO Steve Ballmer. How could a relatively low-profile activist—at the time at least—affect such dramatic change? ValueAct had powerful allies, which held many more shares of Microsoft than the fund itself who were willing to flex their voting muscle, if necessary.

The challenge of shareholder activism is similar to, yet different from, that which companies faced in the 1980s. Although public markets have changed tremendously since the 1980s, market participants are still subject to the same kinds of incentives today as they were 30 years ago.

It has been said that even well performing companies, complete with a strong balance sheet, excellent management, a disciplined capital allocation record and operating performance above its peers are not immune. In our experience, this is true. When the amount of capital required to drive change, perhaps unhealthy change, is much less costly than it is to acquire a material equity position for an activist, management teams and boards of directors must navigate carefully.

Below are 10 building blocks that we believe will help position a company to better equip itself to handle the stresses and pressures from the universe of activist investors and hostile acquirers, which may encourage the activists to instead knock at the house next door.

Building Block 1: Be Prepared

Develop a written plan before the activist shows up. By the time a Schedule 13-D is filed, an activist already has the benefit of sufficient time to study a target company, develop a view of its weaknesses and build a narrative that can be used to put a management team and board of directors on the defensive. Therefore, a company’s plan must have balance and must contemplate areas that require attention and improvement. While some activists are akin to 1980s-style corporate raiders with irrational ideas designed only to bump up the stock over a very short period, there are also very sophisticated activists who are savvy and have developed constructive, helpful ideas. A company’s plan and response protocol need to be well thought through and in place before an activist appears. In some cases, the activist response plan can be built into a company’s strategic plan.

The plan needs inclusion and buy-in from the board of directors and senior management. Some subset of this group needs to be involved in developing the plan, not only substantively, but also in the tactical aspects of implementing the plan and communicating with shareholders, including activists, if and when an activist appears.

This preparatory building block extends beyond simply having a process in place to react to shareholder activism. It should complement the company’s business plan and include the charter and bylaws and consideration of traditional takeover defense strategies. It should provide for an advisory team, including lawyers, bankers, a public relations firm and a forensic accounting firm. We believe that the plan should go to a level of detail that includes which members of management and the board are authorized by the board to communicate with the activist and how those communications should occur.

Building Block 2: Promote Good Shareholder Relations with Institutions and Individual Shareholders

If the lesson of the first block was “put your own house in order,” then the second lesson is, “know your tenants, what they want, and how they prefer to live in your building.” This goes well beyond the typical investor relations function. This is where in-depth shareholder research comes into play. We recommend conducting a detailed perception study that can give boards and management teams a clear picture of what the current shareholder base wants, as well as how former and prospective shareholders’ perceptions of the company might differ from the way management and the board see the company itself.

In a takeover battle or proxy contest, facts are ammunition. Suppositions and assumptions of what management thinks shareholders want are dangerous. It is critical to understand how shareholders feel about the dividend policy and the capital allocation plans, for example. Understand how they view the executive compensation or the independence of the board. Do not assume. Ask candidly and revise periodically.

Building Block 3: Inform, Teach and Consult with the Board

Good governance is not something that can be achieved in a reactive sort of manner or when it becomes known that an activist is building a position. Without shareholder-friendly corporate governance practices, the odds of securing good shareholder relations in a contest for control drops significantly and creates the wrong optics.

There are governance issues that can cause institutional shareholders to act, or at least think, akin to activists. Recently, there have been various shareholder rebellions against excessive executive compensation packages—or say-on-pay votes. In fact, Norges, the world’s largest sovereign wealth fund, has launched a public campaign targeting what it views as excessive executive compensation. The fund’s chief executive told the Financial Times that, “We are looking at how to approach this issue in the public space.” He is speaking for an $870 billion dollar fund. The way those votes are cast can mean the difference between victory and defeat in a proxy contest.

Building Block 4: Maintain Transparent Disclosure Practices

While this building block relates to maintaining good shareholder relations, it also recognizes that activists are smart, well informed, motivated and relentless. If a company makes a mistake, and no company is perfect, the activist will likely find it. Companies have write-downs, impairments, restatements, restructurings, events of change or challenges that affect operating performance. While any one of these events may invite activist attention, once a contest for control begins, an activist will find and use every mistake the company ever made and highlight the material ones to the marketplace.

A company cannot afford surprises. One “whoops” event can be all it takes to turn the tide of a proxy vote or a hostile takeover. That is why it is critical to disclose the good and the bad news before the contest begins rather than during the takeover attempt. It may be painful at the time, but with a history of transparency, the marketplace will trust a company that tells them the activist is in it for its own personal benefit and that the proposal the activist is making will not maximize shareholder value, but will only increase the activist’s short-term profit for its investors. Developing that kind of trust and integrity over time can be a critical factor in any contest for corporate control, especially when research shows that the activist has not been transparent in its prior transactions or has misled investors prior to or after achieving its intended result.

When a company has established good corporate governance policies, has been open and transparent, has financial statements consistent with GAAP and effective internal control over financial reporting and knows its shareholder base cold, what is the next step in preparing for the challenge of an activist shareholder?

Building Block 5: Educate Third Parties

Prominent sell-side analysts and financial journalists can, and do, move markets. In a contest for corporate control, or even in a short slate proxy contest, they can be invaluable allies or intractable adversaries. As with the company’s shareholder base, one must know the key players, have established relationships and trust long before a dispute, and have the confidence that the facts are on the company’s side. But winning them over takes time and research, and is another area where an independent forensic accounting firm can be of assistance.

For example, when our client, Allergan, was fighting off a hostile bid from Valeant and Pershing Square, we identified that Valeant’s “double-digit” sales growth came from excluding discontinued products and those with declining sales from its calculation. This piece of information served as key fodder for journalists, who almost unanimously sided against Valeant for this and other reasons. Presentations, investor letters and analyst days can make the difference in creating a negative perception of the adversary and spreading a company’s message.

Building Block 6: Do Your Homework

Before an activist appears, a company needs to understand what vulnerabilities might attract an activist in the first place. This is where independent third parties can be crucial. Retained by a law firm to establish the privilege, they can do a vulnerability assessment of the company compared to its peers.

This is a different sort of assessment than what building block two entails, essentially asking shareholders to identify perceived weaknesses. Here, a company needs to look for the types of vulnerabilities that institutional shareholders might not see—but that an activist surely will. When these vulnerabilities such as accounting practices or obscure governance structures are not addressed, an activist will use them on the offensive. Even worse are the vulnerabilities that are not immediately apparent. In any activist engagement, it is best to minimize surprises as much as possible.

Building Block 7: Communicate With the Activist

Before deciding whether to communicate, know the other players.

This includes a deep dive into the activist’s history—what level of success has the activist had in the past? Have they targeted similar companies? What strategies have they used? How do they negotiate? How have other companies reacted and what successes or failures have they experienced?

If the activist commences a proxy contest or a consent solicitation, turn that intelligence apparatus on the slate of board nominees the activist is proposing. Find out about their vulnerabilities and paint the full picture of their business record. Do they know the industry? Are they responsible fiduciaries? What is their personal track record? These are important questions that investigators can help answer.

Armed with information about the activist and having consulted with management, the board has to decide whether to communicate with the activist, and if so, what the rules of the road are for doing so. What are the objectives and goals and what are the pros and cons of even starting that communication process? If a decision is made to start communications with the activist, make sure to pick the time to do so and not just respond to what the media hype might be promoting. Poison pills can provide breathing room to make these determinations.

Always keep in mind that communications can lead to discussions, which in turn can lead to negotiations, which may result in a deal.

Before reaching a settlement deal, a company must be sure to have completed the preceding due diligence. More companies seem to be choosing to appease activists by signing voting agreements and/or granting board seats. Although this will likely buy more time to deal with the activist in private, it may simply delay an undesirable outcome rather than circumvent the issue. Whether or not the company signs a voting agreement with the activist, management and the board of directors should know the activist’s track record and current activities with other companies in great detail as the initial step in considering whether to reach any accommodation with the activist.

Building Block 8: Understand the Role of Litigation

Most of the building blocks thus far have involved making a business case to the marketplace and supporting that case with candid communications. But in many activist campaigns—especially the really adversarial ones—there will come a time when the company needs to make its case to a court or a regulator or both.

As with other building blocks, litigation goes to one of the most valuable commodities in a contest for corporate control: TIME. In most situations, the more time the target has to maintain the campaign, the better. The company’s legal team needs to work with the forensic accountants to understand and identify issues that relate to the activist’s prior transactions and business activities, while ensuring that the company is not living in a glass house when it throws stones. Armed with the facts, lawyers will do the legal analysis to determine whether the activist has complied with or broken state, federal or international law or regulation. If there are causes of action, then one way to resolve them is to litigate.

Building Block 9: Factor in Contingencies and Options

Contingencies can include additional activists, M&A and small issues that can become big issues. This building block is about understanding the environment in which the company is operating.

For example, are there hedge funds targeting the same company in a “wolfpack”, as the industry has coldly nicknamed them? If two or more hedge funds are acting in concert to acquire, hold, vote or dispose of a company’s securities, they can be treated as a group triggering the requirement to file a Schedule 13-D as such. Under certain circumstances, the remedy the SEC has secured for violating Section 13(d) of the Williams Act is to sterilize the vote of the shares held by the group’s members. So, if there is evidence indicating that funds are working together which have not jointly filed a Schedule 13-D, the SEC may be able to help. Or better yet, think about building block eight and litigate.

In the case of a hostile acquisition, consider whether there is an activist already on the board of the potential acquirer? Has the activist been a board member in prior transactions? If so, what kind of fiduciary has that activist shown himself to be?

Another contingency is exploring “strategic alternatives.”

Building Block 10: Understand the Role of Regulators

Despite the passage of the Dodd-Frank Act, regulators today may be less inclined to intervene in these kinds of issues than they were 30 years ago.

When an activist is engaging in questionable or illegal practices, contacting regulators should be considered. But this requires being proactive.

The best way to approach the regulators is to present a complete package of evidence that is verified by independent third parties. Determine the facts, apply legal analysis to those facts and have conclusions that show violations of the law. Do not just show one side of the case; show both sides, the pros and the cons of a possible violation. Why? Because if the package is complete and has all the work that the regulator would want to do under the circumstances, two things will happen. First, the regulator will understand that there is an issue, a potential harm to shareholders and the public interest which the regulator is sworn to protect. Second, the regulator will save time when it presents the case for approval to act.

Using forensic accountants before and when an activist appears is one of the major factors that can assist companies today and also help the lawyers who are advising the target company. If other advisors are conflicted, the company needs a reputable, independent third party who can help the company ascertain facts on a timely basis to make informed decisions, and if the determination is made to oppose the activist, make the case to shareholders, to analysts, to media, to regulators and to the courts.

Each of these buildings blocks is important. While they have remained mostly the same since the 1980s, tactics, strategies and the marketplace have changed. Even though activists may appear to act the same way, each is different and each activist approach has its own differences from all the others.

Endnotes

1FactSet, SharkRepellent.(go back)

2FactSet, SharkRepellent.(go back)

3The Wall Street Journal, Federal Reserve and Goldman Sachs Global Investment Research.(go back)

_____________________________________________

*Merritt Moran is a Business Analyst at FTI Consulting. This post is based on an FTI publication by Ms. Moran, Jason Frankl, John Huber, and Steven Balet.

La gouvernance des CÉGEPS | Une responsabilité partagée


Nous publions ici un cinquième 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, le 24 novembre 2014 et le 4 septembre 2015, à titre d’auteure invitée.

Dans un premier article, publié le 23 novembre 2013 sur ce blogue, on insistait sur l’importance, pour les CA des Cégeps, de se donner des moyens pour assurer la présence d’administrateurs compétents dont le profil correspond à celui qui est recherché. D’où les propositions adressées à la Fédération des cégeps et aux CA pour élaborer 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 article 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 article portait sur l’efficacité du rôle du président du conseil d’administration (PCA).

Le quatrième billet abordait les qualités et les caractéristiques des bons administrateurs dans le contexte du réseau collégial québécois (CÉGEP)

Dans ce cinquième billet, l’auteure réagit aux préoccupations actuelles de la ministre de l’Enseignement supérieur eu égard à la gouvernance des CÉGEPS.

 

La gouvernance des CÉGEPS | Une responsabilité partagée

par

Danielle Malboeuf*  

 

Dans les suites du rapport de la vérificatrice générale portant sur la gestion administrative des Cégeps, la ministre de l’Enseignement supérieur, madame Hélène David a demandé au ministère un plan d’action pour améliorer la gouvernance dans le réseau collégial. Voici un point de vue qui pourrait enrichir sa réflexion.

Rappelons que pour atteindre de haut standard d’excellence, les collèges doivent compter sur un conseil d’administration (CA) performant dont les membres font preuve d’engagement, de curiosité et de courage tout en possédant les qualifications suivantes : crédibles, compétents, indépendants, informés et outillés.

Considérant l’importance des décisions prises par les administrateurs, il est essentiel que ces personnes possèdent des compétences et une expertise pertinente. Parmi les bonnes pratiques en gouvernance, les CA devraient d’ailleurs élaborer un profil de compétences recherchées pour ses membres et l’utiliser au moment de la sélection des administrateurs.  Au moment de solliciter la nomination d’un administrateur externe auprès du gouvernement, ce profil devrait être fortement recommandé. Sachant que chacun des 48 CA des Collèges d’enseignement général et professionnel compte sept personnes nommées par la ministre pour un mandat de trois ans renouvelable, il est important de lui rappeler l’importance d’en tenir compte.

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Il est également essentiel qu’elle procède à ces nominations dans les meilleurs délais. À l’heure actuelle, on constate que, dans certains cas, le délai pour nommer et remplacer des administrateurs externes peut être de plusieurs mois. Cette situation est doublement préoccupante quand plusieurs membres quittent le CA en même temps. Sachant qu’il existe une banque de candidats dûment formés par le Collège des administrateurs de sociétés et des membres de plusieurs ordres professionnels qui répondent au profil de compétences recherchées par les collèges, il serait pertinent de recruter des candidats parmi ces personnes.

De plus, pour être en présence d’administrateurs performants, il est essentiel que ces personnes soient au fait de leurs rôles et responsabilités. Des formations devraient donc leur être offertes. Toutefois, cette formation ne doit pas se limiter à leur faire connaître les obligations légales et financières qui s’appliquent au réseau collégial, mais les bonnes pratiques de gouvernance doivent également leur être enseignées. À ce sujet, il faut se réjouir du souhait formulé par madame David afin d’offrir des formations en ce sens.

Signalons aussi que les administrateurs ne devraient pas se retrouver en situation de conflit d’intérêts. Ainsi, il faut s’assurer, entre autres, que les administrateurs internes ne subissent pas de pressions des  groupes d’employés dont ils proviennent. Les  conseils d’administration des collèges comptent quatre membres du personnel qui enrichissent les échanges par leurs expériences pertinentes. La Loi sur les collèges prévoit que ces administrateurs internes sont élus par leurs pairs. Dans plusieurs collèges, le processus de sélection est confié au syndicat qui procède à l’élection de leur représentant au conseil d’administration lors d’une assemblée syndicale. Ces personnes peuvent subir des pressions surtout quand certains syndicats inscrivent dans leur statut et règlement que ces personnes doivent représenter l’assemblée syndicale et y faire rapport. D’autres collèges ont prévu des modalités qui respectent beaucoup mieux l’esprit de la loi. On confie au secrétaire général, le mandat de recevoir les candidatures et de procéder dans le cadre de processus convenu à la sélection de ces personnes. Cette dernière pratique devrait être encouragée.

Considérant les pouvoirs du CA qui agit tant sur les aspects financiers et légaux que sur les orientations du collège, il est essentiel que la direction fasse preuve de transparence et transmette aux membres toutes les informations pertinentes. Pour permettre aux administrateurs de porter des jugements adéquats et de juger de la pertinence et de l’efficacité de sa gestion, le collège doit aussi leur fournir des indicateurs. Sachant que des indicateurs sont présents dans le plan stratégique, les administrateurs devraient, donc porter une attention toute particulière à ces indicateurs, et ce, sur une base régulière.

Par ailleurs, les administrateurs ne doivent pas hésiter à poser des questions et à demander des informations additionnelles, le cas échéant. Le président du CA peut, dans ce sens, jouer un rôle essentiel. Il doit, entre autres, porter un regard critique sur les documents qui sont transmis avant les rencontres et encourager la création de sous-comités pour enrichir les réflexions. Considérant le rôle qui lui est confié dans la Loi, les présidents de CA pourraient être tentés de se limiter à jouer un rôle d’animateur de réunions, ce qui n’est pas suffisant.

En résumé, la présence de CA performant dans les Cégeps exige une évolution des pratiques et idéalement, des modifications législatives qui mettront à contribution chacun des acteurs du réseau collégial.

_______________________

*Danielle Malboeuf est consultante et formatrice en gouvernance ; elle possède une grande expérience dans la gestion des CÉGEPS et dans la gouvernance des institutions d’enseignement collégial et universitaire. Elle est CGA-CPA, MBA, ASC, Gestionnaire et administratrice retraitée du réseau collégial et consultante.

___________________________

Articles sur la gouvernance des CÉGEPS publiés sur mon blogue par l’auteure :

(1) LE RÔLE DU PRÉSIDENT DU CONSEIL D’ADMINISTRATION (PCA) | LE CAS DES CÉGEPS

(2) Les grands enjeux de la gouvernance des institutions d’enseignement collégial

(3) L’exercice de la démocratie dans la gouvernance des institutions d’enseignement collégial

(4) Caractéristiques des bons administrateurs pour le réseau collégial | Danielle Malboeuf

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Six mesures pour améliorer la gouvernance des organismes publics au Québec | Yvan Allaire


Je suis tout à fait d’accord avec la teneur de l’article de l’IGOPP, publié par Yvan Allaire* intitulé « Six mesures pour améliorer la gouvernance des organismes publics au Québec », lequel dresse un état des lieux qui soulève des défis considérables pour l’amélioration de la gouvernance dans le secteur public et propose des mesures qui pourraient s’avérer utiles. Celui-ci fut a été soumis au journal Le Devoir, pour publication.

L’article soulève plusieurs arguments pour des conseils d’administration responsables, compétents, légitimes et crédibles aux yeux des ministres responsables.

Même si la Loi sur la gouvernance des sociétés d’État a mis en place certaines dispositions qui balisent adéquatement les responsabilités des C.A., celles-ci sont poreuses et n’accordent pas l’autonomie nécessaire au conseil d’administration, et à son président, pour effectuer une véritable veille sur la gestion de ces organismes.

Selon l’auteur, les ministres contournent allègrement les C.A., et ne les consultent pas. La réalité politique amène les ministres responsables à ne prendre principalement avis que du PDG ou du président du conseil : deux postes qui sont sous le contrôle et l’influence du ministère du conseil exécutif ainsi que des ministres responsables des sociétés d’État (qui ont trop souvent des mandats écourtés !).

Rappelons, en toile de fond à l’article, certaines dispositions de la loi :

– Au moins les deux tiers des membres du conseil d’administration, dont le président, doivent, de l’avis du gouvernement, se qualifier comme administrateurs indépendants.

– Le mandat des membres du conseil d’administration peut être renouvelé deux fois

– Le conseil d’administration doit constituer les comités suivants, lesquels ne doivent être composés que de membres indépendants :

1 ° un comité de gouvernance et d’éthique ;

2 ° un comité d’audit ;

3 ° un comité des ressources humaines.

– Les fonctions de président du conseil d’administration et de président-directeur général de la société ne peuvent être cumulées.

– Le ministre peut donner des directives sur l’orientation et les objectifs généraux qu’une société doit poursuivre.

– Les conseils d’administration doivent, pour l’ensemble des sociétés, être constitués à parts égales de femmes et d’hommes.

Yvan a accepté d’agir en tant qu’auteur invité dans mon blogue en gouvernance. Voici donc son article.

 

Six mesures pour améliorer la gouvernance des organismes publics au Québec

par Yvan Allaire*

 

La récente controverse à propos de la Société immobilière du Québec a fait constater derechef que, malgré des progrès certains, les espoirs investis dans une meilleure gouvernance des organismes publics se sont dissipés graduellement. Ce n’est pas tellement les crises récurrentes survenant dans des organismes ou sociétés d’État qui font problème. Ces phénomènes sont inévitables même avec une gouvernance exemplaire comme cela fut démontré à maintes reprises dans les sociétés cotées en Bourse. Non, ce qui est remarquable, c’est l’acceptation des limites inhérentes à la gouvernance dans le secteur public selon le modèle actuel.

 

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En fait, propriété de l’État, les organismes publics ne jouissent pas de l’autonomie qui permettrait à leur conseil d’administration d’assumer les responsabilités essentielles qui incombent à un conseil d’administration normal : la nomination du PDG par le conseil (sauf pour la Caisse de dépôt et placement, et même pour celle-ci, la nomination du PDG par le conseil est assujettie au veto du gouvernement), l’établissement de la rémunération des dirigeants par le conseil, l’élection des membres du conseil par les « actionnaires » sur proposition du conseil, le conseil comme interlocuteur auprès des actionnaires.

Ainsi, le C.A. d’un organisme public, dépouillé des responsabilités qui donnent à un conseil sa légitimité auprès de la direction, entouré d’un appareil gouvernemental en communication constante avec le PDG, ne peut que difficilement affirmer son autorité sur la direction et décider vraiment des orientations stratégiques de l’organisme.

Pourtant, l’engouement pour la « bonne » gouvernance, inspirée par les pratiques de gouvernance mises en place dans les sociétés ouvertes cotées en Bourse, s’était vite propagé dans le secteur public. Dans un cas comme dans l’autre, la notion d’indépendance des membres du conseil a pris un caractère mythique, un véritable sine qua non de la « bonne » gouvernance. Or, à l’épreuve, on a vite constaté que l’indépendance qui compte est celle de l’esprit, ce qui ne se mesure pas, et que l’indépendance qui se mesure est sans grand intérêt et peut, en fait, s’accompagner d’une dangereuse ignorance des particularités de l’organisme à gouverner.

Ce constat des limites des conseils d’administration que font les ministres et les ministères devrait les inciter à modifier ce modèle de gouvernance, à procéder à une sélection plus serrée des membres de conseil, à prévoir une formation plus poussée des membres de C.A. sur les aspects substantifs de l’organisme dont ils doivent assumer la gouvernance.

Or, l’État manifeste plutôt une indifférence courtoise, parfois une certaine hostilité, envers les conseils et leurs membres que l’on estime ignorants des vrais enjeux et superflus pour les décisions importantes.

Évidemment, le caractère politique de ces organismes exacerbe ces tendances. Dès qu’un organisme quelconque de l’État met le gouvernement dans l’embarras pour quelque faute ou erreur, les partis d’opposition sautent sur l’occasion, et les médias aidant, le gouvernement est pressé d’agir pour que le « scandale » s’estompe, que la « crise » soit réglée au plus vite. Alors, les ministres concernés deviennent préoccupés surtout de leur contrôle sur ce qui se fait dans tous les organismes sous leur responsabilité, même si cela est au détriment d’une saine gouvernance.

Ce brutal constat fait que le gouvernement, les ministères et ministres responsables contournent les conseils d’administration, les consultent rarement, semblent considérer cette agitation de gouvernance comme une obligation juridique, un mécanisme pro-forma utile qu’en cas de blâme à partager.

Prenant en compte ces réalités qui leur semblent incontournables, les membres des conseils d’organismes publics, bénévoles pour la plupart, se concentrent alors sur les enjeux pour lesquels ils exercent encore une certaine influence, se réjouissent d’avoir cette occasion d’apprentissage et apprécient la notoriété que leur apporte dans leur milieu ce rôle d’administrateur.

Cet état des lieux, s’il est justement décrit, soulève des défis considérables pour l’amélioration de la gouvernance dans le secteur public. Les mesures suivantes pourraient s’avérer utiles :

  1. Relever considérablement la formation donnée aux membres de conseil en ce qui concerne les particularités de fonctionnement de l’organisme, ses enjeux, ses défis et critères de succès. Cette formation doit aller bien au-delà des cours en gouvernance qui sont devenus quasi-obligatoires. Sans une formation sur la substance de l’organisme, un nouveau membre de conseil devient une sorte de touriste pendant un temps assez long avant de comprendre suffisamment le caractère de l’organisation et son fonctionnement.
  2. Accorder aux conseils d’administration un rôle élargi pour la nomination du PDG de l’organisme ; par exemple, le conseil pourrait, après recherche de candidatures et évaluation de celles-ci, recommander au gouvernement deux candidats pour le choix éventuel du gouvernement. Le conseil serait également autorisé à démettre un PDG de ses fonctions, après consultation du gouvernement.
  3. De même, le gouvernement devrait élargir le bassin de candidats et candidates pour les conseils d’administration, recevoir l’avis du conseil sur le profil recherché.
  4. Une rémunération adéquate devrait être versée aux membres de conseil ; le bénévolat en ce domaine prive souvent les organismes de l’État du talent essentiel au succès de la gouvernance.
  5. Rendre publique la grille de compétences pour les membres du conseil dont doivent se doter la plupart des organismes publics ; fournir une information détaillée sur l’expérience des membres du conseil et rapprocher l’expérience/expertise de chacun de la grille de compétences établie. Cette information devrait apparaître sur le site Web de l’organisme.
  6. Au risque de trahir une incorrigible naïveté, je crois que l’on pourrait en arriver à ce que les problèmes qui surgissent inévitablement dans l’un ou l’autre organisme public soient pris en charge par le conseil d’administration et la direction de l’organisme. En d’autres mots, en réponse aux questions des partis d’opposition et des médias, le ministre responsable indique que le président du conseil de l’organisme en cause et son PDG tiendront incessamment une conférence de presse pour expliquer la situation et présenter les mesures prises pour la corriger. Si leur intervention semble insuffisante, alors le ministre prend en main le dossier et en répond devant l’opinion publique.

_______________________________________________

*Yvan Allaire, Ph. D. (MIT), MSRC Président exécutif du conseil, IGOPP Professeur émérite de stratégie, UQÀM

Bâtir un conseil d’administration à « valeur ajoutée »


La question que pose l’auteur Robyn Bew, directeur à la National Association of Corporate Directors (NACD), est directe et d’une grande importance : Les Boards sont-ils prêts pour affronter les changements des 20 dernières années ?

En effet, cela fait déjà vingt ans que le rapport du NACD (Blue Ribbon Commission on Director Professionalism) a fait ses recommandations sur les principes de saine gouvernance.

Cet article nous invite à revisiter les règles de gouvernance à la lumière des changements significatifs survenus depuis 20 ans.

Il ne s’agit pas de rafraîchir la composition du CA, mais plutôt de s’assurer que ce dernier constitue un actif stratégique durable.

L’article a été publié aujourd’hui sur le site du Harvard Law School Forum on Corporate Governance.

Bonne lecture !

Building the Strategic-Asset Board

 

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In 1996, the Report of the NACD Blue Ribbon Commission on Director Professionalism made recommendations on issues including establishing mechanisms for appropriate director turnover/tenure limitations, evaluation of the full board and of individual directors, and ongoing director education. [1] It stated, “the primary goal of director selection is to nominate individuals who, as a group, offer a range of specialized knowledge, skills, and expertise that can contribute to the successful operation of the company,” and advocated that boards must “[expand] the pool of potential nominees considered to include a more diverse range of qualified candidates who meet established criteria.”[2]

Twenty years later, the world in which boards operate has been transformed in fundamental ways, including increased complexity in the business environment; rapidly changing technology; volatility in global politics as well as in international economic and trade flows; the proliferation of information; the presence of major threats such as cyberattacks; higher levels of engagement between companies, boards, and investors of all stripes, including activists; new regulatory requirements; and greater levels of scrutiny from the press and the public. The velocity of the changes directors are facing shows no signs of slowing down.

The NACD 2016 Blue Ribbon Commission began its dialogue by asking whether boards are keeping up, and concluded that there is no single answer. It is clear that advancing director ages and tenures, coupled with low boardroom turnover, are external symptoms that are of increasing concern to investors and other stakeholders. But equally—if not more—significant is the question of whether a board’s composition, director skill sets, and core board processes remain fit-for-purpose in a world where the board’s mandate is evolving in fundamental ways, including but not limited to earlier involvement in strategy-setting discussions with management and greater engagement between designated board members and major investors. This new mandate places substantially different demands on directors, and boards need to ask themselves, “Are we ready?”

Many stakeholders are focused on encouraging higher levels of director turnover—often termed “board refreshment”—through the use of tenure-limiting mechanisms. We believe that such mechanisms can help to drive needed change in the boardroom, but alone they are not sufficient to ensure that boards truly remain fit for-purpose over time. We are encouraging directors to think more holistically, and more ambitiously. Business as-usual approaches will not be sufficient.

As a starting point, directors should review the organization’s corporate governance guidelines, including the board’s mission and key operating principles. Are all board members familiar with them? How often are they reviewed and updated? How rigorously have they been implemented? Do they help to foster a culture of continuous improvement and ongoing learning?

Boards are unique entities. While (in the case of public companies) they are elected by and accountable to shareholders, they are self-constituting, self-evaluating, self-compensating, and self-perpetuating: that is, in the normal course of business, they control their own composition and succession planning. This also means that boards are equipped to take action to elevate their performance on an entirely self-directed, voluntary basis—and they should do so. Otherwise, if board leadership appears to be passive or slow to act in the face of a challenging competitive environment and greater scrutiny from all angles, directors should prepare for the possibility of “shock treatments” imposed from the outside, in the form of activist challenges, regulatory mandates, or quotas. Put another way, without sufficient and timely evolution, boards could face revolution.

Beyond “Board Refreshment”: Building a Strategic-Asset Board

Too many companies still view changes in their boardrooms as necessary primarily on an incremental basis and from the standpoint of director replacement—i.e., responding to the loss of directors due to age or other reasons for departure in a fairly reactive, one-off manner. And while (as noted above) the idea of “board refreshment” has attracted increasing attention in the corporate governance community, as well as with regulators and the press, in the words of one Commissioner, “the current definition [of board refreshment] can still be somewhat limiting—it can imply change for the sake of change.”

The Commission advocates a more ambitious approach, centered on proactive measures that help to build a strategic-asset board. Characteristics of this approach include:

A focus on continuous improvement of overall board composition, individual director skills, and boardroom processes—collectively aimed at achieving and maintaining a high-performance board—rather than a primarily reactive or event-driven approach to board change. One indicator of well-established continuous-improvement processes is that they are used in times of good performance, not just when the company is in a down cycle or facing external challenge

Using the company’s current and future needs as the starting point for determining board composition. Such an approach will certainly include considerations about maintaining an appropriate level of continuity and institutional memory in the boardroom—but in the words of Vanguard CEO Bill McNabb, “To be frank, board members cannot be more worried about their own seats than they are about the future of the company they oversee.”[3]

A set of tools and processes that works together as a system for continuous improvement—avoiding what one Commissioner called the “formulaic approach” of overreliance on automatic tenure-limiting mechanism

While outcomes will be specific to individual boards, in general, we expect to see improvements such as the following:

Boards that are composed of directors who collectively have the right skills and insights to support the formulation and execution of the organization’s strategy—in other words, boards where it is clear that the whole is greater than the sum of the parts

Boards that have the ability to adapt and retool themselves over time, so that they are able to maintain a superior level of oversight and guidance and evolve as the organization’s strategy and competitive environment evolve

Boards that are transparent in their communications with investors and other stakeholders about who they are and how they operatenacd-1

SECTION 1 of the report describes the ways in which the board’s mandate has evolved in response to external factors and strategic imperatives, and outlines the ways in which the Commission believes boards must respond: by moving beyond traditional approaches to “board refreshment” and establishing a system for continuous improvement in the boardroom.

SECTION 2 explores the key dimensions of continuous improvement, focusing on seven areas in particular: board leadership and oversight responsibilities; board composition and succession planning; recruiting and onboarding new directors; processes for board evaluation; continuing education; tenure-limiting mechanisms; and communication with shareholders and stakeholders.

SECTION 3 summarizes the Commission’s recommendations, and the Appendices provide tools and related resources to help boards implement the recommendations.

NACD has characterized the mission of the board as “[becoming] a strategic asset of the company measured by the contributions we make—collectively and individually—to the long-term success of the enterprise.” [4] We believe this report will help directors in organizations of all sizes and in all sectors to do exactly that.

Recommendations of the 2016 NACD Blue Ribbon Commission

  1. Boards should review their governance principles on a regular basis (at least every other year) to ensure they are complete, up-to-date, and fully understood by current members and director candidates. Governance principles should incorporate a definition of director responsibilities, including a commitment to ongoing learning and the belief that service on the board should not be considered to be a permanent appointment.
  2. The nominating and governance committee should oversee the board’s processes for continuous improvement, working in close coordination with the nonexecutive chair or lead director and with the endorsement of the full board.
  3. Director renominations should not be a default decision, but an annual consideration based on a number of factors, including an assessment of current and future skill sets and leadership styles that are needed on the board.
  4. Nominating and governance committees should develop a “clean-sheet” assessment of the board’s needs in terms of director skill sets and experience at least every two to three years, and use it as an input in continuous-improvement efforts (including recruitment and director education).
  5. The director recruitment process should have a time horizon that matches the organization’s long-term strategy, typically three to five years or more. The process should be designed to include candidates from diverse backgrounds.
  6. Recruiting and onboarding processes should familiarize prospective and new directors with the board’s governance principles and set expectations regarding criteria for renomination, ongoing director education, and other aspects of continuous improvement as defined by the board.
  7. Conduct annual evaluations at the full-board level, and evaluations of committees and individual directors at least once every two years. Use a qualified independent third party on a periodic basis, to encourage candor and add a neutral perspective.
  8. Participation in continuing education should be a requirement for all directors, regardless of experience level or length of board tenure.
  9. Tenure is an important aspect of boardroom diversity. Nominating and governance committees should strive for a mix of tenures on the board—for example, maintaining a composition that includes at least one director with <5, 5–10, and >10 years of service.
  10. High-performance boards will not need to rely exclusively on tenure-limiting mechanisms to ensure appropriate board turnover and composition. However, boards that use such policies should consider replacing or combining retirement age with a maximum term of service.
  11. Communications with investors and other key stakeholders should include a detailed explanation of the link between the organization’s strategic needs and the board’s composition and skill sets, as well as information about the board’s continuous-improvement processes.

Tools for Directors

The report’s 12 appendices enable boards to benchmark their current practices and implement the report’s recommendations. Examples of appendix content are below.

Early Engagement: Going Beyond Traditional Board Succession Planning

A reference list of more than 25 questions to help directors evaluate the board’s ability to manage succession planning as a portfolio, instead of as a series of one-off replacements of individual directors; the strength of the board’s search capabilities, including early-engagement activities and the depth of the candidate pipeline; and the role that board and company culture play in succession planning.

Considerations for Upgrading Board Evaluation Processes

The appendix provides guidance to help boards

  1. establish effective, ongoing rhythms for evaluation processes;
  2. avoid “evaluation fatigue”;
  3. inform the use of third-party facilitators;
  4. make evaluations more holistic by incorporating input from management; and
  5. act on evaluation results.

Guidelines for Developing Board and Individual-Director Learning Agendas

The appendix includes frameworks and questions to help inform full-board and individual-director education activities:

  1. Suggested categories and topic areas for education, with sourcing strategies
  2. A personal learning and development checklist for directors
  3. Outline of a “lifecycle approach” to learning and development for the board, with components of a global director leadership profile

Tools, Templates, and Examples

Multiyear board succession planning matrix

Sample board and committee-level evaluation questions

New-director onboarding checklist

Examples of effective disclosures of director skills, board evaluations, and director education

Examples of corporate governance principles and board tenure policies

* * *

The complete publication is available exclusively to NACD members and is available for download here.

Endnotes:

1NACD, Report of the Blue Ribbon Commission on Director Professionalism, 2011 ed. (Washington, DC: NACD, 2011), pp. 12, 5, 15, 10.(go back)

2Ibid., p. 13.(go back)

3F. William McNabb III, Getting to Know You: The Case for Significant Shareholder Engagement, Harvard Law School Forum on Corporate Governance and Financial Regulation, June 24, 2015.(go back)

4NACD, Report of the Blue Ribbon Commission on Board Evaluation: Improving Director Effectiveness, 3rd ed. (Washington, DC: NACD, 2010), p. 2.(go back)

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.

 

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 !

Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences (2nd edition)

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

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.”

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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.

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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.”

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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.

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.

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*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.

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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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

 

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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.

________________________________

*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.

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.

Prélude à un code de gouvernance aux É.U. !


Voici un bref article de Gary Larkin, associé à The Conference Board Governance Center, qui porte sur la perspective de concevoir un code de gouvernance qui  s’adresse à l’ensemble des entreprises publiques (cotées) américaines.

Le projet de code est l’initiative de quelques leaders d’entreprises cotées, de gestionnaires d’actif, d’un gestionnaire de fonds de pension et d’un actionnaire activiste.

Cet énoncé des grands principes de gouvernance se veut un exercice devant jeter les bases d’un code de gouvernance comme on en retrouve dans plusieurs pays, notamment au Royaume-Uni.

Voici les points saillants des principes retenus :

 

Every board should meet regularly without the CEO present, and every board should have active and direct engagement with executives below the CEO level.

Directors should be elected by a majority  of either “for” or “against/withhold” votes (with abstentions and non-votes not be counted)

Board refreshment should always be considered in order that the board’s skillset and perspectives remain current.

Every board should have members with complementary and diverse skills, backgrounds and experiences.

If the board decides on a combined CEO/Chair role, it is essential that the board have a strong independent director.

Institutional investors that make decisions on proxy issues important to long-term value creation should have access to the company, its management, and, in some circumstances, the board.

Companies should only provide earnings guidance to the extent they believe it is beneficial to shareholders.

Bonne lecture !

 

It’s Commonsense to Have a U.S. Corporate Governance Code

 

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Over the summer, one of the most interesting pieces of corporate governance literature was the Commonsense Corporate Governance Principles.

The publication was the result of meetings between a group of leading executives of public companies, asset managers, a public pension fund, and a shareholder activist. The principles themselves may not have broken new ground—they addressed such basic issues as director independence, board refreshment and diversity, the need for earnings guidance, and shareholder engagement.  But the fact that such a publication was released at a time when some in Congress to roll back Dodd-Frank corporate-governance-related regulations is impressive.

It’s impressive because of who was in the meetings. It’s impressive because the meetings took place without any government or third-party instigation. It’s impressive because it might be the beginning of a new strategy for overseeing corporate governance in the United States. It shows that sometimes industry can lead by example without rules and regulations to tell them how to govern their own companies and boards.

Maybe these principles could be the start of the first true US corporate governance code, something that our brethren in the UK have had for years. Even smaller markets such as South Africa and Singapore have codes that are used to guide corporate governance.

Granted, those at the meetings, some of who included J. P. Morgan Chase CEO Jamie Dimon, Berkshire Hathaway chief Warren Buffett, General Motors head Mary Barra, BlackRock Chair and CEO Larry Fink, and Canada Pension Plan Investment Board President and CEO Mark Machin might not have envisioned themselves as U.S. corporate governance pioneers. But it’s a first step toward a true principles-based approach to good corporate governance in a country that is used to following rules and hiring attorneys to find the loopholes.

If you look at the main points made in the Commonsense Principles, you can see the foundation for such a code:

  1. Every board should meet regularly without the CEO present, and every board should have active and direct engagement with executives below the CEO level.
  2. Directors should be elected by a majority  of either “for” or “against/withhold” votes (with abstentions and non-votes not be counted)
  3. Board refreshment should always be considered in order that the board’s skillset and perspectives remain current.
  4. Every board should have members with complementary and diverse skills, backgrounds and experiences.
  5. If the board decides on a combined CEO/Chair role, it is essential that the board have a strong independent director.
  6. Institutional investors that make decisions on proxy issues important to long-term value creation should have access to the company, its management, and, in some circumstances, the board.
  7. Companies should only provide earnings guidance to the extent they believe it is beneficial to shareholders.

Microsoft, a Governance Center member, is satisfied with the Commonsense Principles because it aligns with what it has in place, according to a blog from Microsoft Corporate Secretary John Seethoff. “For example, we’ve made a concerted effort to assure board refreshment occurs with a focus on diversity in skillsets, backgrounds, and experiences,” he wrote. “The Principles agree with this emphasis, asserting, ‘Diversity along multiple dimensions is critical to a high-functioning board. Director candidates should be drawn from a rigorously diverse pool.’ Board tenure receives similarly thoughtful consideration, with the Principles underscoring the need to temper ‘fresh thinking and new perspectives’ with ‘age and experience.’”

Seethoff concluded: “At Microsoft, we’ve long believed that good corporate governance encourages accountability and transparency, as well as promotes sound decision-making to support our business over time. The ultimate goal is to create a system that provides appropriate structure for the company at present, allows flexibility to change in the future, and has a long-term perspective that matches our business objectives and strategy. As part of this open, constructive mindset, we applaud the leaders for outlining these Principles and look forward to continued dialogue on this important effort.”

If you ask me, the Commonsense Principles can definitely be the US Corporate Governance Code Version 1.0. They could be treated like climate change agreements (i.e. the 2015 Paris Climate Change Agreement) where countries come together and sign on. The original group of executives could hold a follow-up meeting or convention that would allow US companies to promise to follow the principles, similar to The Giving Pledge started by Buffet and Microsoft founder Bill Gates.

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.

 

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 !)

Voici un article de James McRitchie, publié dans Corporate governance, qui commente succinctement le dernier volume de Richard Leblanc.

Comme je l’ai déjà mentionné dans un autre billet, le livre de Richard Leblanc est certainement l’un des plus importants ouvrages (sinon le plus important) portant sur la gouvernance du conseil d’administration.

Une révision du volume de Richard Leblanc | Handbook of Board Governance

The Handbook of Board Governance

 

Mentionnons également que 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. Voici une brève présentation du volume de Larcker.

Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences (2nd edition)

Je vous recommande donc vivement de vous procurer ces volumes.

Enfin, 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 !

Bonne lecture !

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.

ss3

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.

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.

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.

fotolia_100107623

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.

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

 

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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.