Quelles sont les conséquences de ne pas divulguer une intrusion importante du système de sécurité informatique ?
Les auteurs, Matthew C. Solomon* et Pamela L. Marcogliese, dans un billet publié sur le forum du HLS, ont étudié de près la situation des manquements à la sécurité informatique de Yahoo et ils nous présentent les conséquences de la non-divulgation d’attaques cybernétiques et de bris à la sécurité des informations des clients.
Ils exposent le cas très clairement, puis ils s’attardent aux modalités des arrangements financiers avec la Securities and Exchange Commission (SEC).
Comme ce sont des événements susceptibles de se produire de plus en plus, il importe que les entreprises soient bien au fait de ce qui les attend en cas de violation des obligations de divulgation.
Les auteurs font les cinq (5) constats suivants eu égard à la situation vécue par Yahoo :
— First, public companies should take seriously the SEC’s repeated warnings that one of its top priorities is ensuring that public companies meet their obligations to adequately disclose material cybersecurity incidents and risks. This requires regular assessment of cyber incidents and risks in light of the company’s disclosures, with the assistance of outside counsel and auditors as appropriate, and ensuring that there are adequate disclosure controls in place for such incidents and risks.
— Second, the SEC’s recently released interpretive guidance on cybersecurity disclosure is an important guidepost for all companies with such disclosure obligations. The guidance specifically cited the fact that the SEC views disclosure that a company is subject to future cybersecurity attacks as inadequate if the company had already suffered such incidents. Notably, the Yahoo settlement specifically faulted the company for this precise inadequacy in its disclosures. Similarly, the recent guidance encouraged companies to adopt comprehensive policies and procedures related to cybersecurity and to assess their compliance regularly, including the sufficiency of their disclosure controls and procedures as they relate to cybersecurity disclosure. The Yahoo settlement also found that the company had inadequate such controls.
— Third, at the same time the SEC announced the settlement, it took care to emphasize that “[w]e do not second-guess good faith exercises of judgment about cyber-incident disclosure.” [7] The SEC went on to note that Yahoo failed to meet this standard with respect to the 2014 Breach, but by articulating a “good faith” standard the SEC likely meant to send a message to the broader market that it is not seeking to penalize companies that make reasonable efforts to meet their cyber disclosure obligations.
— Fourth, it is also notable that the SEC charges did not include allegations that Yahoo violated securities laws with respect to the 2013 Breach. Yahoo had promptly disclosed the 2013 Breach after learning about it in late 2016, but updated its disclosure almost a year later with significant new information about the scope of the breach. The SEC’s recent guidance indicated that it was mindful that some material facts may not be available at the time of the initial disclosure, as was apparently the case with respect to the 2013 Breach. [8] At the same time, the SEC cautioned that “an ongoing internal or external investigation – which often can be lengthy – would not on its own provide a basis for avoiding disclosures of a material cybersecurity incident.” [9]
— Finally, it is worth noting that the Commission did not insist on settlements with any individuals. Companies, of course, can only commit securities violations through the actions of their employees. While it is not unusual for the Commission to settle entity-only cases on a “collective negligence” theory, the SEC Chair and the Enforcement Division’s leadership have emphasized the need to hold individuals accountable in order to maximize the deterrent impact of SEC actions. [10]
On April 24, 2018, Altaba, formerly known as Yahoo, entered into a settlement with the Securities and Exchange Commission (the “SEC”), pursuant to which Altaba agreed to pay $35 million to resolve allegations that Yahoo violated federal securities laws in connection with the disclosure of the 2014 data breach of its user database. The case represents the first time a public company has been charged by the SEC for failing to adequately disclose a cyber breach, an area that is expected to face continued heightened scrutiny as enforcement authorities and the public are increasingly focused on the actions taken by companies in response to such incidents. Altaba’s settlement with the SEC, coming on the heels of its agreement to pay $80 million to civil class action plaintiffs alleging similar disclosure violations, underscores the increasing potential legal exposure for companies based on failing to properly disclose cybersecurity risks and incidents.
Background
As alleged, Yahoo learned in late 2014 that it had recently suffered a data breach affecting over 500 million user accounts (the “2014 Breach”). Yahoo did not disclose the 2014 Breach until September 2016. During the time period Yahoo was aware of the undisclosed breach, it entered into negotiations to be acquired by Verizon and finalized a stock purchase agreement in July 2016, two months prior to the disclosure of the 2014 Breach. Following the disclosure in September 2016, Yahoo’s stock price dropped 3% and it later renegotiated the stock purchase agreement to reduce the price paid for Yahoo’s operating business by $350 million.
In or about late 2016, following its disclosure of the 2014 Breach, Yahoo learned about a separate breach that had taken place in August 2013 and promptly announced that such breach had affected 1 billion users (the “2013 Breach”). In October 2017, Yahoo updated its disclosure concerning the 2013 Breach, announcing that it now believed that all 3 billion of its accounts had been affected.
The Settlement
Altaba’s SEC settlement centered on the 2014 Breach only. The SEC found that despite learning of the 2014 Breach in late 2014—which resulted in the theft of as many as 500 million of its users’ Yahoo usernames, email addresses, telephone numbers, dates of birth, hashed passwords, and security questions and answers, referred to internally as Yahoo’s “crown jewels”— Yahoo failed to timely disclose the material cybersecurity incident in any of its public securities filings until September 2016. Although Yahoo senior management and relevant legal staff were made aware of the 2014 Breach, according to the SEC, they “did not properly assess the scope, business impact, or legal implications of the breach, including how and where the breach should have been disclosed in Yahoo’s public filings or whether the fact of the breach rendered, or would render, any statements made by Yahoo in its public filings misleading.” [1] The SEC also faulted Yahoo’s senior management and legal staff because they “did not share information regarding the breach with Yahoo’s auditors or outside counsel in order to assess the company’s disclosure obligations in its public filings.” [2]
Among other things, the SEC found that Yahoo’s risk factor disclosures in its annual and quarterly reports from 2014 through 2016 were materially misleading in that they claimed the company only faced the risk of potential future data breaches, without disclosing that “a massive data breach” had in fact already occurred. [3]
The SEC also alleged that Yahoo management’s discussion and analysis of financial condition and results of operations (“MD&A”) in those reports was also misleading to the extent it omitted known trends or uncertainties with regard to liquidity or net revenue presented by the 2014 Breach. [4]Finally, the SEC further found that Yahoo did not maintain adequate disclosure controls and procedures designed to ensure that reports from Yahoo’s information security team raising actual incidents of the theft of user data, or the significant risk of theft of user data, were properly and timely assessed to determine how and where data breaches should be disclosed in Yahoo’s public filings. [5]
Based on these allegations, the SEC found that Yahoo violated Sections 17(a)(2) and 17(a)(3) of the Securities Act and Section 13(a) of the Securities Exchange Act. [6] To settle the charges, Altaba, without admitting or denying liability, agreed to cease and desist from any further violations of the federal securities laws and pay a civil penalty of $35 million.
Takeaways
There are several important takeaways from the settlement:
— First, public companies should take seriously the SEC’s repeated warnings that one of its top priorities is ensuring that public companies meet their obligations to adequately disclose material cybersecurity incidents and risks. This requires regular assessment of cyber incidents and risks in light of the company’s disclosures, with the assistance of outside counsel and auditors as appropriate, and ensuring that there are adequate disclosure controls in place for such incidents and risks.
— Second, the SEC’s recently released interpretive guidance on cybersecurity disclosure is an important guidepost for all companies with such disclosure obligations. The guidance specifically cited the fact that the SEC views disclosure that a company is subject to future cybersecurity attacks as inadequate if the company had already suffered such incidents. Notably, the Yahoo settlement specifically faulted the company for this precise inadequacy in its disclosures. Similarly, the recent guidance encouraged companies to adopt comprehensive policies and procedures related to cybersecurity and to assess their compliance regularly, including the sufficiency of their disclosure controls and procedures as they relate to cybersecurity disclosure. The Yahoo settlement also found that the company had inadequate such controls.
— Third, at the same time the SEC announced the settlement, it took care to emphasize that “[w]e do not second-guess good faith exercises of judgment about cyber-incident disclosure.” [7] The SEC went on to note that Yahoo failed to meet this standard with respect to the 2014 Breach, but by articulating a “good faith” standard the SEC likely meant to send a message to the broader market that it is not seeking to penalize companies that make reasonable efforts to meet their cyber disclosure obligations.
— Fourth, it is also notable that the SEC charges did not include allegations that Yahoo violated securities laws with respect to the 2013 Breach. Yahoo had promptly disclosed the 2013 Breach after learning about it in late 2016, but updated its disclosure almost a year later with significant new information about the scope of the breach. The SEC’s recent guidance indicated that it was mindful that some material facts may not be available at the time of the initial disclosure, as was apparently the case with respect to the 2013 Breach. [8] At the same time, the SEC cautioned that “an ongoing internal or external investigation – which often can be lengthy – would not on its own provide a basis for avoiding disclosures of a material cybersecurity incident.” [9]
— Finally, it is worth noting that the Commission did not insist on settlements with any individuals. Companies, of course, can only commit securities violations through the actions of their employees. While it is not unusual for the Commission to settle entity-only cases on a “collective negligence” theory, the SEC Chair and the Enforcement Division’s leadership have emphasized the need to hold individuals accountable in order to maximize the deterrent impact of SEC actions. [10]
8As we have previously discussed, the federal securities laws do not impose a general affirmative duty on public companies to continuously disclose material information and, as acknowledged in Footnote 37 of the interpretive guidance, circuits are split on whether a duty to update exists. However, in circuits where a duty to update has been found to exist, a distinction has often been drawn between statements of a policy nature that are within the company’s control and statements describing then current facts that would be expected to change over time. The former have been held subject to a duty to update while the latter have not. See In re Advanta Corp. Securities Litigation, 180 F.3d 525, 536 (3d Cir. 1997) (“[T]he voluntary disclosure of an ordinary earnings forecast does not trigger any duty to update.”); In re Burlington Coat Factory Securities Litigation, 114 F.3d 1410, 1433 (3d Cir. 1997); In re Duane Reade Inc. Securities Litigation, No. 02 Civ. 6478 (NRB), 2003 WL 22801416, at *7 (S.D.N.Y. Nov. 25, 2003), aff’d sub nom. Nardoff v. Duane Reade, Inc., 107 F. App’x 250 (2d Cir. 2004) (“‘company has no duty to update forward–looking statements merely because changing circumstances have proven them wrong.’”).(go back)
10See, e.g., Steven R. Peikin, Co-Director, Div. Enf’t., SEC, Reflections on the Past, Present, and Future of the SEC’s Enforcement of the Foreign Corrupt Practices Act, Keynote Address at N.Y.U. Program on Corporate Law and Enforcement Conference: No Turning Back: 40 Years of the FCAP and 20 Years of the OECD Anti-Bribery Convention Impacts, Achievements, and Future Challenges (Nov. 9, 2017), https://www.sec.gov/news/speech/speech-peikin2017-11-09;
SEC Div. Enf’t., Annual Report A Look Back at Fiscal Year 2017, at 2 (Nov. 15, 2017), https://www.sec.gov/files/enforcement-annual-report2017.pdf.(go back)
*Matthew C. Solomon and Pamela L. Marcogliese are partners and Rahul Mukhi is counsel at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb publication by Mr. Solomon, Ms. Marcogliese, Ms. Mukhi, and Kal Blassberger.
Aujourd’hui, je vous présente le point de vue de l’association Investor Stewardship Group (the “ISG”) Governance Principles, eu égard aux principes de gouvernance que celle-ci entend promouvoir.
Je reproduis ici les principaux éléments de l’article publié par Anne Meyer* et paru sur le forum du Harvard Law School, notamment les six principes qui gouvernent leur conduite.
1 — Les CA sont redevables envers les actionnaires ;
2 — Les actionnaires doivent avoir des droits de vote qui sont proportionnels à leurs intérêts économiques ;
3 — Les CA doivent être à l’écoute des actionnaires et être proactifs dans la compréhension de leurs perspectives ;
4 — Les CA doivent avoir une solide structure de leadership indépendante ;
5 — Les CA doivent adopter des structures de gouvernance qui mènent à des pratiques efficaces ;
6 — Les CA doivent adopter des structures de rémunération des dirigeants qui sont alignées sur la stratégie à long terme de l’entreprise.
Bonne lecture ! Vos commentaires sont les bienvenus.
In this post, we provide an overview of the Investor Stewardship Group (the “ISG”) Governance Principles and steps for public companies to consider when evaluating how the principles may be incorporated into their own disclosure and engagement priorities. The ISG’s website, including a link to the ISG Governance Principles, is available here. In January 2017, the Investor Stewardship Group (the “ISG”), a collective of large U.S.-based and international institutional investors and asset managers, announced the launch of its Framework for U.S. Stewardship and Governance (the “Framework”). The measure is an unprecedented attempt to establish a set of elementary corporate governance principles for U.S. listed companies (the “ISG Governance Principles”) as well as parallel stewardship principles for U.S. institutional investors. The Framework’s effective date was January 1, 2018, in order to provide U.S. listed companies with time to adjust to the corporate governance principles prior to the 2018 proxy season.
As the 2018 proxy season gets into full swing, there is evidence that ISG members will be utilizing the Framework as a tool for evaluating the governance regimes at their portfolio companies, informing their engagement priorities, and potentially factoring compliance with the ISG Governance Principles into selected voting policies and decisions. In December, the ISG issued a press release “encouraging companies to articulate how their governance structures and practices align with the ISG’s Corporate Governance Principles and where and why they differ in approach”, leaving it to companies to determine how and where to disclose such alignment. And at least one large investor, State Street Global Advisors, has specifically highlighted that it will screen portfolio companies for compliance with the principles.
As a result, companies and their boards should continue to benchmark and understand how their specific governance practices relate to ISG Governance Principles and remain cognizant of this new regime as they prepare for engagement with investors and draft public disclosures.
Background
The ISG’s global reach and financial influence is significant; currently consisting of 50 investors representing over $22 trillion invested in the U.S. equity markets. The ISG’s signatories includes some of the largest and most influential institutional investors, including BlackRock, CalSTRS, State Street Global Advisors, TIAA Investments, T. Rowe Price, ValueAct Capital and Vanguard, among others. The Framework’s stewardship principles emphasize that these institutional investors have a vested interest and responsibility for the long-term economic success of their portfolio companies.
The ISG’s roll-out of the Framework characterized it as a “sustained initiative” and emphasized an evolutionary view of the ability of U.S. companies and investors to work together under the Framework.
Corporate governance practices at U.S. listed companies have historically been informed by multiple regulatory and rules-based regimes. Rules and regulations of the Securities and Exchange Commission, stock exchange listing requirements, state corporate codes, case law and federal legislation adopted in the wake of past financial market crises, have been the primary dictating standards. More recently, shareholders and other stakeholders have played a larger role in influencing corporate governance norms at U.S. listed companies through engagement and various forms of shareholder activism. In contrast, the ISG Governance Principles are based substantially on U.K., Continental European and other non-U.S. frameworks that establish principles-based corporate governance standards and tend to rely on “comply-or-explain” accountability. [1] Advocates for this type of principles-based approach stress the flexibility that it gives for companies to adopt a tailored response to important tenets such as boardroom transparency, as opposed to responding more narrowly to prescriptive rules. As institutional investors continue to focus more attention on environmental and social matters, including related governance concerns, the Framework’s principles-based approach will be a tool, for both institutions and companies, to promote mutually agreeable objectives, particularly given the lack of rulemaking or legislation mandating more specific disclosure on trending topics such as board diversity and environmental concerns.
The ISG Governance Principles
The six ISG Governance Principles are broad principles that will not look new to those who have been following key issues in corporate governance over the past several years. Indeed, they were designed to reflect the common corporate governance principles that are already embedded in member institutions’ proxy voting and engagement guidelines. The principles emphasize the importance of boardroom effectiveness and oversight, alignment of executive compensation with long-term financial results, and board accountability demonstrated in part through the adoption of governance best practices, including a one-share one-vote capital structure and independent board leadership.
Principle 1: Boards are accountable to shareholders
This principle encompasses the annual election of directors, majority voting, proxy access and more robust disclosure surrounding board practices and corporate governance. Companies are also asked to explain how any anti-takeover measures are in the best long-term interest of the company.
Interestingly, BlackRock’s CEO Larry Fink recently published a letter to the CEOs at the world’s largest public companies in which he argued explicitly that boards are accountable to other stakeholders, such as employees and customers, in addition to shareholders.
Principle 2: Shareholders should be entitled to voting rights in proportion to their economic interest
This principle sets a base line of one-share one-vote and encourages companies with existing multi-class share structures to review and consider phasing out control shares.
In 2017, this issue became national news when Snap Inc. filed for an IPO of non-voting shares. Many large investors were vehemently opposed and at the urging of the Council for Institutional Investors and other investor advocates, the stock index provider FTSE Russell refused to include these shares in its indices.
Principle 3: Boards should be responsive to shareholders and be proactive in order to understand their perspectives
Under this principle, companies are expected to implement shareholder proposals that receive “significant” support or explain why they have not done so. Independent directors are encouraged to participate in engagement on matters that are meaningful to investors, and directors may be held accountable with “against” votes in instances where investors do not feel that their concerns have been adequately addressed.
Principle 4: Boards should have a strong, independent leadership structure
There are two common independent leadership structures at U.S. companies—an independent chairperson and an independent lead director (where the role of Chairman and CEO are combined)—and the principles acknowledge that signatory investors have differing opinions on whether they provide adequate independent oversight.
The overarching position under the principles is that the role of the independent board leader should be “clearly defined and sufficiently robust to ensure effective and constructive leadership.”
Principle 5: Boards should adopt structures and practices that enhance their effectiveness
This principle encompasses an array of board structure and effectiveness issues, including: strong board composition and board diversity; board and committee responsibilities; director attentiveness, preparedness and time commitments; and board refreshment.
Board diversity, in particular gender diversity, has emerged as a high priority for most of the largest institutional investors. There has also been a focus on screening for long-tenured directors and directors that are over-boarded or have poor attendance records as a proxy for identifying directors that may not be adequately engaged or independent.
Principle 6: Boards should develop management incentive structures that are aligned with the long-term strategy of the company
This principle emphasizes that the board, in particular the compensation committee, is responsible for ensuring that drivers and performance goals that underpin the company’s long-term strategy are adequately reflected in a company’s management incentive structure.
Steps to Consider
As noted, the ISG Governance Principles are intended to provide a framework of broad, high-level principles. The individual investors that comprise the ISG have their own voting guidelines and engagement priorities that are tailored to their own investment philosophy and strategy. Even on current hot button issues, such as board diversity, investors have differing views and companies should consider the practices they adopt depending upon their specific facts and circumstances. There are, however, general steps that we recommend companies take to address the growing influence of the Framework.
These include:
Understand how the company’s corporate governance structure and practices relate to the six ISG Governance Principles.
Review the company’s public disclosure regarding corporate governance structure and practices; consider enhancements to be responsive to the ISG’s request that companies disclose how their governance aligns or differs from the ISG Governance Principles.
As with other corporate governance benchmarking exercises, companies should be particularly cognizant of how and why their practices may differ from the ISG Governance Principles and whether these differences are adequately explained in public disclosures. As investors screen their portfolio companies’ governance practices, they will often consider valid explanations, but in the absence of effective disclosure the company may be unnecessarily penalized.
Management and the board should be informed and prepared to respond to questions about the company’s alignment with the ISG Governance Principles during shareholder engagements. Companies can also consider proactively addressing the issue in written materials or prepared remarks during investor presentations.
In preparing for shareholder engagements with ISG signatories, understand how and if they are explicitly incorporating the ISG Governance Principles into engagement and voting priorities and continue to screen their individual voting and engagement policies.
Companies should determine whether, and how, they wish to address and incorporate the ISG Governance Principles based upon their own specific governance profile, disclosure regime and approach to shareholder engagement.
Endnotes
1 See in particular the UK Investor Stewardship Code, on which the US ISG Principles are largely based. The UK Code “sets out a number of areas of good practice to which … institutional investors should aspire.” Available here.
*Anne Meyer is Senior Managing Director, Don Cassidy is Executive Vice President, and Rajeev Kumar is Senior Managing Director at Georgeson LLC. This post is based their recent Georgeson publication. Related research from the Program on Corporate Governance includes The Agency Problems of Institutional Investors by Lucian Bebchuk, Alma Cohen, and Scott Hirst.
Aujourd’hui, je partage avec vous un article publié dans le magazine suisse Le Temps.ch qui présente les résultats d’une recherche sur la bonne gouvernance des caisses de retraite en lien avec les recommandations des fonds de placement tels que BlackRock.
L’auteur, Emmanuel Garessus, montre que même si le lien entre la performance des sociétés et la bonne gouvernance semble bien établi, les caisses de retraite faisant l’objet de la recherche ont des indices de gouvernance assez dissemblables. L’étude montre que les caisses ayant des indices de gouvernance faibles ont des rendements plus modestes en comparaison avec les indices de référence retenus.
Également, il ressort de cette étude que c’était surtout la prédominance de la gestion des risques qui était associée à la performance des caisses de retraite.
Comme le dit Christian Ehmann, spécialisé dans la sélection de fonds de placement auprès de Safra Sarasin, « la gouvernance n’est pas une cause de surperformance, mais il existe un lien direct entre les deux ».
Encore une fois, il appert que BlackRock défend les petits épargnants-investisseurs en proposant des normes de gouvernance uniformisées s’appliquant au monde des entreprises cotées en bourses.
J’ai reproduit l’article en français ci-dessous afin que vous puissiez bien saisir l’objet de l’étude et ses conclusions.
Bonne lecture ! Vos commentaires sont les bienvenus.
Le principe de gouvernance selon lequel une action donne droit à une voix en assemblée générale est bafoué par de très nombreuses sociétés, surtout technologiques, au premier rang desquelles on trouve Facebook, Snap, Dropbox et Google. BlackRock, le plus grand groupe de fonds de placement du monde, demande aux autorités d’intervenir et de présenter des standards minimaux, indique le Financial Times.
Le groupe dont Philipp Hildebrand est vice-président préfère un appel à l’Etat plutôt que de laisser les fournisseurs d’indices (MSCI, Dow Jones, etc.) modifier la composition des indices en y intégrant divers critères d’exclusion. Barbara Novick, vice-présidente de BlackRock, a envoyé une lettre à Baer Pettit, président de MSCI, afin de l’informer de son désir de mettre de l’ordre dans les structures de capital des sociétés cotées.
Mark Zuckerberg détient 60% des droits de vote
De nombreuses sociétés ont deux catégories d’actions donnant droit à un nombre distinct de droits de vote. Les titres Facebook de la classe B ont par exemple dix fois plus de droits de vote que ceux de la classe A. Mark Zuckerberg, grâce à ses actions de classe B (dont il détient 75% du total), est assuré d’avoir 60% des droits de vote du groupe. A la suite du dernier scandale lié à Cambridge Analytica, le fondateur du réseau social ne court donc aucun risque d’être mis à la porte, explique Business Insider. L’intervention de BlackRock n’empêche pas l’un de ses fonds (Global Allocation Fund) d’avoir probablement accumulé des titres Facebook après sa correction de mars, selon Reuters, pour l’intégrer dans ses dix principales positions.
Cette structure du capital répartie en plusieurs catégories d’actions permet à un groupe d’actionnaires, généralement les fondateurs, de contrôler la société avec un minimum d’actions. Les titres ayant moins ou pas de droit de vote augmentent de valeur si la société se développe bien, mais leurs détenteurs ont moins de poids en assemblée générale. Les sociétés qui disposent d’une double catégorie de titres la justifient par le besoin de se soustraire aux réactions à court terme du marché boursier et de rester ainsi concentrés sur les objectifs à long terme. Ce sont souvent des sociétés technologiques.
Facebook respecte très imparfaitement les principes de bonne conduite en matière de gouvernance. Mark Zuckerberg, 33 ans, est en effet à la fois président du conseil d’administration et président de la direction générale. Ce n’est pas optimal puisque, en tant que président, il se contrôle lui-même. Sa rémunération est également inhabituelle. Sur les 8,9 millions de dollars de rémunération, 83% sont liés à ses frais de sécurité et le reste presque entièrement à l’utilisation d’un avion privé (son salaire est de 1 dollar et son bonus nul).
Quand BlackRock défend le petit épargnant
Le site de prévoyance IPE indique que le fonds de pension suédois AP7, l’un des plus grands actionnaires du réseau social, est parvenu l’an dernier à empêcher l’émission d’une troisième catégorie de titres Facebook. Cette dernière classe d’actions n’aurait offert aucun droit de vote. Une telle décision, si elle avait été menée à bien, aurait coûté 10 milliards de dollars à AP7. Finalement Facebook a renoncé.
BlackRock prend la défense du petit investisseur. Il est leader de la gestion indicielle et des ETF et ses produits restent investis à long terme dans tous les titres composant un indice. Il préfère influer sur la gouvernance par ses prises de position que de vendre le titre. Le plus grand groupe de fonds de placement du monde demande aux autorités de réglementation d’établir des standards de gouvernance en collaboration avec les sociétés de bourse plutôt que de s’en remettre aux fournisseurs d’indices comme MSCI.
La création de plusieurs classes d’actions peut être justifiée par des start-up en forte croissance dont les fondateurs ne veulent pas diluer leur pouvoir. BlackRock reconnaît ce besoin spécifique aux start-up en forte croissance, mais le gérant estime que «ce n’est acceptable que durant une phase transitoire. Ce n’est pas une situation durable.»
Le géant des fonds de placement aimerait que les producteurs d’indices soutiennent sa démarche et créent des «indices alternatifs» afin d’accroître la transparence et de réduire l’exposition aux sociétés avec plusieurs catégories de titres. L’initiative de BlackRock est également appuyée par George Dallas, responsable auprès du puissant International Corporate Governance Network (ICGN).
La gouvernance des «bonnes caisses de pension»
La recherche économique a largement démontré l’impact positif d’une bonne gouvernance sur la performance d’une entreprise. Mais presque tout reste à faire en matière de fonds de placement et de caisses de pension.
«La gouvernance n’est pas une cause de surperformance, mais il existe un lien direct entre les deux. Les caisses de pension qui appartiennent au meilleur quart en termes de bonne gouvernance présentent une surperformance de 1% par année par rapport au moins bon quart», explique Christian Ehmann, spécialisé dans la sélection de fonds de placement auprès de Safra Sarasin, lors d’une présentation organisée par la CFA Society Switzerland, à Zurich.
Ce dernier est avec le professeur Manuel Ammann coauteur d’une étude sur la gouvernance et la performance au sein des caisses de pension suisses (Is Governance Related to Investment Performance and Asset Allocation?, Université de Saint-Gall, 2016). «Le travail sur cette étude m’a amené à porter une attention particulière à la gouvernance des fonds de placement dans mon travail quotidien», déclare Christian Ehmann. Son regard porte notamment sur la structure de l’équipe de gestion, son organisation et son système de gestion des risques. «Je m’intéresse par exemple à la politique de l’équipe de gérants en cas de catastrophe», indique-t-il.
Claire surperformance
L’étude réalisée sur 139 caisses de pension suisses, représentant 43% des actifs gérés, consiste à noter objectivement la qualité de la gouvernance et à définir le lien avec la performance de gestion. L’analyse détaille les questions de gouvernance en fonction de six catégories, de la gestion du risque à la transparence des informations en passant par le système d’incitations, l’objectif et la stratégie d’investissement ainsi que les processus de placement. Sur un maximum de 60 points, la moyenne a été de 21 (plus bas de 10 et plus haut de 50). La dispersion est donc très forte entre les caisses de pension. Certaines institutions de prévoyance ne disposent par exemple d’aucun système de gestion du risque.
Les auteurs ont mesuré la performance sur trois ans (2010 à 2012), le rendement relatif par rapport à l’indice de référence et l’écart de rendement par rapport au rendement sans risque (ratio de Sharpe). Toutes ces mesures confirment le lien positif entre la gouvernance et la performance (gain de 2,7 points de base par point de gouvernance). Les moteurs de surperformance proviennent clairement de la gestion du risque et du critère portant sur les objectifs et la stratégie d’investissement. Les auteurs constatent aussi que même les meilleurs, en termes de gouvernance, sous-performent leur indice de référence.
La deuxième étape de la recherche portait sur l’existence ou non d’une relation entre le degré de gouvernance et l’allocation des actifs. Ce lien n’a pas pu être établi.
Voici un article très intéressant publié dans l’édition d’avril 2018 de la Harvard Business Review qui porte sur l’identification des grands principes qui guident les comportements des présidents de conseil d’administration.
L’auteur, Stanislav Shekshnia*, est professeur à l’Institut européen d’administration des affaires (INSEAD) et chercheur émérite dans le domaine de la gouvernance. Son article est basé sur une enquête auprès de 200 présidents de conseils.
Que doit-on retenir de cette recherche eu égard aux rôles distinctifs des présidents de conseils d’administration et aux caractéristiques qui les distinguent des CEO ?
Huit principes ressortent de ces analyses :
(1) Be the guide on the side; show restraint and leave room for others
(2) Practice teaming—not team building
(3) Own the prep work; a big part of the job is preparing the board’s agenda and briefings
(4) Take committees seriously; most of the board’s work is done in them
(5) Remain impartial
(6) Measure the board’s effectiveness by its inputs, not its outputs
(7) Don’t be the CEO’s boss
(8) Be a representative with shareholders, not a player.
Je vous invite à lire l’article au complet puisqu’il regorge d’exemples très efficaces.
The majority of board chairs are former CEOs, who are used to calling the shots and being stars. So it’s no surprise that many start behaving as if they are alternative chief executives of their firms. That sows conflict and confusion at the top. In addition, as research by INSEAD’s Corporate Governance Centre shows, the two jobs are distinctly different—and so are the skills needed in them. The chair leads the board, not the company, and that means being a facilitator of effective group discussions, not a team commander.
After surveying 200 board chairs and interviewing 140 chairs, directors, shareholders, and CEOs, INSEAD has distilled the requirements for the chair’s role down to eight principles: (1) Be the guide on the side; show restraint and leave room for others. (2) Practice teaming—not team building. (3) Own the prep work; a big part of the job is preparing the board’s agenda and briefings. (4) Take committees seriously; most of the board’s work is done in them. (5) Remain impartial. (6) Measure the board’s effectiveness by its inputs, not its outputs. (7) Don’t be the CEO’s boss. (8) Be a representative with shareholders, not a player. While many executives need to shift gears and mindsets to follow these, successful chairs say the effort pays off.
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*Stanislav Shekshnia is a professor at INSEAD. He is also a senior partner at Ward Howell, a global human capital consultancy firm, and a board member at a number of public and private companies in Central and Eastern Europe.
Aujourd’hui, je partage avec vous un cas publié sur le site de Julie Garland McLellan qui demande beaucoup d’analyse, de stratégie et de jugement.
Dans ce cas, Xandra, la présidente du comité d’audit d’une petite association professionnelle, propose une solution courageuse afin de mettre un terme au déclin du membership de l’organisation : une diminution des frais de cotisation en échange d’une hausse des frais de service et des frais associés à la formation.
La proposition a été jugée inéquitable par les membres, qui ont soulevé leur grande désapprobation, en la condamnant sur les réseaux sociaux.
Plusieurs membres insistent pour que cette décision soit mise au vote lors de l’AGA, et que le PDG soit démis de ses fonctions.
Étant donné que les règlements internes de l’organisation ne permettent pas aux membres de voter sur ces questions en assemblée générale (puisque c’est une prérogative du CA), le président du conseil demande à Xandra de préparer une défense pour le rejet de la requête.
Xandra est cependant consciente que la stratégie de communication arrêtée devra faire l’objet d’une analyse judicieuse afin de ne pas mettre la survie de l’organisation en danger.
Comment la responsable doit-elle procéder pour présenter une argumentation convaincante ?
La situation est exposée de manière assez synthétique ; puis, trois experts se prononcent sur le dilemme que vit Xandra.
Je vous invite donc à prendre connaissance de ces avis, en cliquant sur le lien ci-dessous, et me faire part vos commentaires.
This month our case study investigates the options for a board to respond to shareholders who know that they want something but don’t quite know how to get it. I hope you enjoy thinking about the governance and strategic implications of this dilemma:
Xandra chairs the audit committee of a small professional association. She has a strong working relationship with the chair and CEO who are implementing a strategic reform based on ‘user pays services’ to redress a fall in membership numbers and hence revenue. The strategy bravely introduced a reduced membership fee compensated by charges for advisory services and an increase in the cost of member events and education.
Some members felt that this was unfair as they used more services than others and would now pay a higher total amount each year. They have voiced their concerns through the company’s Facebook page and in an ‘open’ letter addressed to the board. In the letter they have said that they want to put a motion to the next AGM asking for a vote on the new pricing strategy and for the CEO to be dismissed. They copied the letter to a journalist in a national paper. The journalist has not contacted the company for comment or published the letter.
The CEO has checked the bylaws and the open letter does not meet the technical requirements for requisitioning a motion (indeed the authors seem to have confused their right to requisition an EGM with the right of members to speak at the AGM and ask questions of the board and auditor).
As the only person qualified in directorship on the association board, the Chair has asked Xandra « how can we push back against this request? »
Xandra is not sure that it is wise to rebuff a clear request for engagement with the members on an issue that is important for the survival of their association. She agrees that putting a motion to a members’ meeting could be dangerous. She also agrees that the matter needs to be handled sensitively and away from emotive online fora where passions are running unexpectedly high
Voici un article qui met en garde les structures de gouvernance telles que Facebook.
L’article publié sur le site de Directors&Boards par Eve Tahmincioglu soulève plusieurs questions fondamentales :
(1) L’actionnariat à vote multiple conduit-il à une structure de gouvernance convenable et acceptable ?
(2) Pourquoi le principe de gouvernance stipulant une action, un vote, est-il bafoué dans le cas de plusieurs entreprises de la Silicone Valley ?
(3) Quel est le véritable pouvoir d’un conseil d’administration où les fondateurs sont majoritaires par le jeu des actions à classe multiple ?
(4) Doit-on réglementer pour rétablir la position de suprématie du conseil d’administration dirigé par des administrateurs indépendants ?
(5) Dans une situation de gestion de crise comme celle qui confronte Facebook, quel est le rôle d’un administrateur indépendant, président de conseil ?
(6) Les médias cherchent à connaître la position du PDG sans se questionner sur les responsabilités des administrateurs. Est-ce normal en gestion de crise ?
Je vous invite à lire l’article ci-dessous et à exprimer vos idées sur les principes de bonne gouvernance appliqués aux entreprises publiques contrôlées par les fondateurs.
Facebook is arguably facing one of the toughest challenges the company has ever faced. But the slow and tepid response from leadership, including the boards of directors, concerns governance experts.
The scandal involving data-mining firm Cambridge Analytica allegedly led to 50 million Facebook users’ private information being compromised but a public accounting from Facebook’s CEO and chairman Mark Zuckerberg has been slow coming.
Could this be a governance breakdown?
“This high-powered board needs to engage more strongly,” says Steve Odland, CEO of the Committee for Economic Development and a board member for General Mills, Inc. and Analogic Corporation. Facebook’s board includes Netflix’s CEO Reed Hastings; Susan D. Desmond-Hellmann, CEO of The Gates Foundation; the former chairman of American Express Kenneth I. Chenault; and PayPal cofounder Peter A. Thiel, among others.
Odland points out that Facebook has two powerful and well-known executives, Zuckerberg and Facebook COO Sheryl Sandberg, who have been publicly out there on every subject, but largely absent on this one.
“They need to get out and publicly talk about this quickly,” Odland maintains. “They didn’t have to have all the answers. But this vacuum of communications gets filled by others, and that’s not good for the company.”
Indeed, politicians, the Federal Trade Commission and European politicians are stepping in, he says, “and that could threaten the whole platform.”
Typically, he adds, it comes back to management to engage and use the board, but “I don’t think Zuckerberg is all that experienced in that regard. This is where the board needs to help him.”
But how much power does the board have?
Charles Elson, director of the University of Delaware’s Weinberg Center for Corporate Governance, sees the dual-class ownership structure of Facebook that gives the majority of voting power to Zuckerberg and thus undermines shareholders and the board’s power.
“It’s his board because of the dual-class stock. There is nothing [directors] can do; neither can the shareholders and a lawsuit would yield really nothing,” he explains.
Increasingly, company founders have been opting to shore up control by creating stock ownership structures that undercut shareholder voting power, where only a decade ago almost all chose the standard and accepted one-share, one-vote model.
Now the Snap Inc. initial public offering (IPO) takes it even further with the first-ever solely non-voting stock model. It’s a stock ownership structure that further undercuts shareholder influence, undermines corporate governance and will likely shift the burden of investment grievances to the courts.
By offering stock in the company with no shareholder vote at all, Snap — the company behind the popular mobile-messaging app Snapchat that’s all about giving a voice to the many — has acknowledged that public voting power at companies with a hierarchy of stock ownership classes is only a fiction. And it begs the question: Why does Snap even need a board?
Alas, Facebook’s shares have tanked as a result of the Cambridge Analytica revelations, and it’s unclear what’s happening among the leaders at Facebook to deal with the crisis.
Facebook’s board, advises Odland, needs to get involved and help create privacy policies and if those are violated, they need to follow up.
“This is a relatively young company in a relatively young industry that has grown to be a powerhouse and incredibly important,” he explains. Given that, he says, there are “new forms of risk management this board needs to tackle.”
J’ai trouvé très intéressantes les questions qu’un nouvel administrateur pourrait se poser afin de mieux cerner les principaux facteurs liés à la bonne gouvernance d’un conseil d’administration.
Bien sûr, ce petit questionnaire peut également être utilisé par un membre de CA qui veut évaluer la qualité de la gouvernance de son propre conseil d’administration.
Les administrateurs peuvent interroger le président du conseil, les autres membres du conseil et le secrétaire corporatif.
Les douze questions énumérées ci-dessous ont fait l’objet d’une discussion lors d’une table ronde organisée par INSEAD Directors Forum du campus asiatique de Singapore.
Cet article a été publié par Noelle Ahlberg Kleiterp* sur le site de la Harvard Law School Forum on Corporate Governance.
Chaque question est accompagnée de quelques réflexions utiles pour permettre le passage à l’acte.
Bonne lecture ! Vos commentaires sont les bienvenus.
In many countries, boards of directors (particularly those of large organisations) have functioned too long as black boxes. Directors’ focus has often—and understandably so—been monopolised by a laundry list of issues to be discussed and typically approved at quarterly meetings.
The board’s own performance, effectiveness, processes and habits receive scant reflection. Many directors are happy to leave the corporate secretary with the task of keeping sight of governance best practices; certainly they do not regard it as their own responsibility.
It occurred to me later that these questions could be of broader use to directors as a framework for beginning a reassessment of their board role.
However, increased regulatory pressures are now pushing boards toward greater responsibility, transparency and self-awareness. In some countries, annual board reviews have become compulsory. In addition, mounting concerns about board diversity provide greater scope for questioning the status quo.
Achieving a more heterogeneous mix of specialisations, cultures and professional experiences entails a willingness to revise some unwritten rules that, in many instances, have governed board functions. And that is not without risk.
At the same time, the “diversity recruits” wooed for board positions may not know the explicit, let alone the implicit, rules. Some doubtless never anticipated they would be asked to join a board. Such invitations often come out of the blue, with little motivation or clarity about what is expected from the new recruit. No universal guidelines are available to aid candidates as they decide whether to accept their invitation.
Long-standing directors and outliers alike could benefit from a crash course in the fundamentals of well-run boards. This was the subject of a roundtable discussion held in February 2017 as part of the INSEAD Directors Forum on the Asia campus.
As discussion leader, I gave the participants, most of whom were recent recipients of INSEAD’s Certificate in Corporate Governance, a basic quiz designed to prompt reflection about how their board applies basic governance principles. It occurred to me later that these questions could be of broader use to directors as a framework for beginning a reassessment of their board role.
Questions and reflections
Q1) True/False: My board maintains a proper ratio of governing vs. executing.
Reflection: Recall basic principles of governance. If you are executing, who is maintaining oversight over you? Why aren’t the executive team executing and the board governing?
Q2) True/False: My board possesses the required competencies to fulfil its duties.
Reflection: Competencies can be industry-specific or universal (such as being an effective director). Many boards are reluctant to replace members, yet the needs of the organisation shift and demand new competencies, particularly in the digital age. Does your board have a director trained in corporate governance who could take the lead? Or does it adopt the outdated view of governance as a matter for the corporate secretary, perhaps in consultation with owners?
Q3) True/False: The frequency and duration of my board meetings are sufficient.
Reflection: Do you cover what you must cover and have ample time for strategy discussions? Are discussions taking place at the table that should be conducted prior to meetings?
Q4) How frequently does your chairperson meet with management: weekly, fortnightly, monthly, or otherwise?
Reflection: Meetings can be face-to-face or virtual. An alternative question is: Consider email traffic between the chair/board and management—is correspondence at set times (e.g. prior to scheduled meetings/calls) or random in terms of topic and frequency?
Q5) Is this frequency excessive, adequate or insufficient?
Reflection: Consider what is driving the frequency of the meetings (or email traffic). Is there a pressing topic that justifies more frequent interactions? Is there a lack of trust or lack of interest driving the frequency?
Q6) True/False: My board possesses the ideal mix of competencies to handle the most pressing issue on the agenda.
Reflection: If one issue continually appears on the agenda (e.g. marketing-related), there could be reason to review the board’s effectiveness with regards to this issue, and probably the mix of skills within the current board. If the necessary expertise were present at the table, could the board have resolved the issue?
Q7) True/False: The executive team is competent/capable. If “false”, is your board acting on this?
Reflection: At this point in the quiz, you should be considering whether incompetency is the issue. If so, is it being addressed? How comfortable are you, for example, that your executive team is capable of addressing digitisation?
Q8) True/False: My chairperson is effective.
Reflection: Perhaps incompetency rests with the chairperson or with a few board members. Are elements within control of the chairperson well managed? Does your board function professionally? If not, does the chair intervene and improve matters? Are you alone in your views regarding board effectiveness? A “false” answer here should lead you to take an activist role at the table to guide the chair and the board to effectiveness.
Q9) Yes/No: Does your board effectively make use of committees? If “yes”, how many and for which topics? If “no”, why not?
Reflection: Well-defined committees (e.g. audit, nomination, risk) improve the efficiency of board meetings and are a vital component of governance. In the non-profit arena, use of board committees is less common. However, non-profit boards can equally benefit from this basic guiding principle of good governance.
Q10) True/False: Recruitment/nomination of new board members adheres to a robust process.
Reflection: When are openings posted? Who reviews/targets potential candidates? How are candidate criteria determined? And is there a clear “on-boarding” process that is regularly revisited?
Q11) True/False: My board performs a board review annually.
Reflection: A board review will touch on many elements mentioned in previous questions. Obtaining buy-in for the first review might prove painful. Thereafter knowledge of an annual review will undoubtedly lead to more conscious governance and opportunities to introduce improvements (including replacement of board members). Procedurally, the review of the board as a whole should precede the review of individuals.
Q12) Think of a tough decision your board has made. Recall how the decision was reached and results were monitored. Was “fair process leadership” (FPL) at play?
Reflection: Put yourself in the shoes of a fellow board member, perhaps the one most dissatisfied with the outcome of a particular decision. Would that person agree that fair process was adhered to, despite his or her own feelings? Boards that apply fair process move on—as a team—from what is perceived to be a negative outcome for an individual board member. If decisions are made rashly and lack follow-up, FPL is not applied. Energies will quickly leave the room.
From reflection to action
Roundtable participants agreed that these questions should be applied in light of the longevity of the organisation concerned. Compared with most mature organisations, a start-up will need many more board meetings and more interactions between the board and the management team. The “exit” phase of an organisation (or a sub-part of the organisation) is another time in the lifecycle that requires intensified board involvement.
Particularly in the non-profit sector, where directors commonly work pro bono, passion for the organisational mission should be a prerequisite for all prospective board members. However, passion—in the form of a determination to see the organisation’s strategy succeed—should be a consideration for all board members and nominees, regardless of the sector.
Directors who apply the above framework and are dissatisfied with what they discover could seek solutions in their professional networks, corporate governance textbooks or a course such as INSEAD’s International Directors Programme.
If you are considering a board role, you could use the 12 questions, tweak them for your needs and evaluate your answers. Speak not only with the chair, but also with as many board members and relevant executive team members as you can. Understand your comfort level with how the board operates and applies governance principles before accepting a mandate.
Noelle Ahlberg Kleiterp, MBA, IDP-C, has worked for 25 years across three continents with companies including GE, KPMG, Andersen Consulting and Atradius. Noelle owns a sole proprietorship in Singapore and serves as a board member on a non-profit organisation in Singapore.
L’une des questions prédominantes — et souvent controversées — dans l’évaluation des principes de saine gouvernance concerne l’indépendance des administrateurs.
L’Institut sur la gouvernance (IGOPP) propose une approche nouvelle et originale sur la question de l’indépendance des membres des conseils d’administration.
Dans un document « L’indépendance des conseils : un enjeu de légitimité », l’IGOPP propose que toute organisation dotée d’un conseil d’administration cherche à constituer un conseil qui soit à la fois légitime et crédible.
L’enjeu n’est pas tellement l’indépendance des conseils mais bien leur légitimité et leur crédibilité. La qualité d’indépendance ne prend son sens que si elle contribue à rehausser la légitimité d’un conseil.
C’est par sa légitimité qu’un conseil acquiert le droit et l’autorité de s’imposer à la direction d’une organisation. Les conseils d’organisations publiques ou privées, sans actionnaire ou sans actionnaire actif détenant plus de 10 % du capital-actions ordinaire, devraient être composés d’une majorité nette d’administrateurs indépendants. De plus, tous leurs comités statutaires devraient être composés exclusivement de membres indépendants.
L’article ci-dessous, écrit à la suite d’une table ronde réunissant plusieurs spécialistes de la gouvernance européenne, aborde trois sujets incontournables, en tentant de tirer des enseignements pour le futur :
(1) l’indépendance des administrateurs et la pertinence du concept
(2) les divers aspects de la rémunération et les obligations fiduciaires
(3) l’identification des actionnaires et les questions de procuration des votes
Dans ce billet, nous vous proposons les questionnements reliés à l’indépendance des administrateurs.
L’indépendance est-elle une bonne idée ?
Quels sont les problèmes liés à l’indépendance ?
Quels sont les résultats de recherche qui montrent que l’indépendance améliore la qualité de la gouvernance ?
Comment composer avec l’influence des gestionnaires et des conflits d’intérêts ?
L’article publié par Christian Strenger*est paru sur le site de Harvard Law School Forum on Corporate Govervance.
Alors, selon vous, pourquoi l’indépendance des administrateurs est-elle un gage de bonne gouvernance ?
Bonne lecture ! Vos commentaires sont les bienvenus.
L’indépendance des administrateurs : panacée ou boîte de Pandore?
Board Independence: the Quality Question and dealing with Insider Issues
Background
A reliable formula for board effectiveness has been elusive, but the importance of effective boards warrants ongoing reflection and research by both academics and practitioners.
In spite of the diversity of governance models around the world, the concept of independence plays a prominent role in most, if not all, codes of governance globally as an intrinsic component of good board structure. For example, independence features, to varying degrees of emphasis, in the governance frameworks of the US, UK, Germany and Japan. It is also reflected in global frameworks, such as the ICGN Global Governance Principles or the OECD Corporate Governance Principles.
But what does independence mean in a corporate governance context, and does it deliver what we want it to? This session seeks to challenge how we think about independence and addresses several fundamental questions relating to boards and corporate governance:
Is board independence essential to quality in corporate governance—or is independence simply a placebo that doesn’t do anything but makes us feel better?
What do we expect board independence to achieve in practical terms?
Are independent directors really in a position to monitor and control corporate insiders?
These are questions that have relevance for company managers and directors, but also for investors, regulators and stakeholders.
Role of boards
A company’s board of directors is at the core of its corporate governance. Boards play a range of advisory and control functions. This includes strategic direction and risk/control oversight, along with the monitoring and reward of executive management.
At a more overarching level, agency theory suggests that one of the key roles of the board is to serve as an agent protecting the interests of shareholders vis-à-vis company management or controlling owners. This reflects a duty of care to support the company’s long-term success and sustainable value creation and to ensure the alignment of interests between management, controlling owners, minority investors—taking into account stakeholder interests as well.
Why is independence a good idea?
Shareholders and other stakeholders expect boards to have the ability and authority to think and act independently from company executives or controlling owners. The board may be unable to serve effectively in its agency role if its directors’ judgements are not free of conflicts or any other external influence other than promoting the long-term success of the firm.
What are the problems related to independence?
It is important to recognise that independence has to be looked at in the context of how it affects board processes, decisions and overall governance. Yet spite of the inherent virtues of independence, its realisation in practice is not an easy fix; nor does it intrinsically enhance board effectiveness. A director must be able to contribute something other than independence alone, whether that is in the form of sector knowledge, commercial experience, international experience, technical skills or other areas that support the board’s oversight of company management.
Moreover, independence is ultimately a state of mind, not a product of definitions. There are many different sets of criteria that seek to define independence for individual directors. While these sorts of criteria can be useful, they can also be crude, misleading or incomplete.
The Lehman Brothers board in 2008, the year of its demise, was an example of a nominally independent board. But was this board able to operate independently of a strong Chair/CEO? Was there enough financial sector expertise amongst this group of independent directors to provide a rigorous challenge? (See Annex 1 in the complete publication).
Does independence ensure quality? What is the evidence?
Independence may be real, but it can be hard, if not impossible, to measure in a meaningful way. It is much easier to measure structural features of boards than it is to measure the quality of board processes. But sometimes what is easily measurable is not worth measuring. So while it is possible (and very common) to calculate simple ratios, such as independent directors/total directors a common gauge of board independence, they may not tell us much. Indeed, the evidence of empirical studies using simplistic/conventional measures of independence has been inconclusive (See Annex 2).
Many board attributes, including independence, which are regarded as “best practice” lack clear empirical grounding, at least in an econometric context. So, in many features of our corporate governance codes we are dealing in effect with opinions more than facts.
How to deal with insider influence and vested interests?
Insider influences can vary depending on the nature of the company. For widely-held companies, the vested interests of executive management often take the form of high pay for limited performance. In controlled companies vested interests may be the controlling owners themselves in terms of entrenchment and self-dealing.
Are independent directors really equipped to challenge these insiders? Or is that possibly asking for a bit too much? The empirical evidence cited above suggests that independent directors may not have a meaningful impact on board governance. But the evidence does suggest in the area of audit committees that independence is important. This makes logical sense, but it also suggests that for an independent director to provide meaningful oversight, independence must be combined with other important attributes, including sectoral knowledge and financial expertise. Independence as a determinant of board effectiveness therefore may be a necessary, but not a sufficient, condition.
Conclusion
We need to recognise that independence may be overrated, or at least not always live up to its billing. At least as it is conventionally defined, independence has not proven to be a panacea or silver bullet to ensure good corporate governance. At the same time, however, the concept of board independence is important and worth preserving, if nothing else as an aspirational ideal.
Discussion Results
Independent directors seem to be an intuitive solution for the agency problem stemming from the separation of ownership and control, but also for limiting the power of controlling shareholders in a corporation.
The starting point of the discussion was: Why do we need independence in the first place? As investors and other stakeholders want to see their interests served and protected by the board, the absence of potential conflicts of interest between non-executive directors and managers or undue influence from a major shareholder are the answers. Disclosure of meaningful ties of the non-executive directors to the management or controlling shareholders is important. The discussion also emphasized that reasonable diversity can be a contributing factor for board independence, and that truly independent board members can play a key role in avoiding too much convergence in decision making, as well as in focusing on the well-being of the company itself, and not any separate vested interests. While the discussion highlighted many benefits of board independence, it also pointed to potential costs: board independence may come with costs relating to problems in information flows, access to information and processing. Thus, it is important to complement board independence with proper board procedures and processes.
A key point of the discussion was the definition of independence itself. Besides the obligatory disclosure of relevant ties of a non-executive board member to management or controlling shareholders, regulators tried to formalize criteria to define independent board members. Academic literature also strives to evaluate how predefined criteria affect company decisions. However, results of these efforts are mixed and can hardly achieve “true” independence. The description of certain characteristics could introduce independence on paper, but may not reflect correctly the individual case of a board member. A predefined strict categorization would in practice suffer from a “ticking the box” approach. Independence from a controlling shareholder is equally hard to define as thresholds for shareholdings may not reflect the individual circumstances. The discussion also highlighted that strict definitions of independence might also require companies to replace experienced board members with new independent board members. That could lead to a temporary loss of experience and industry expertise.
Ways for the Future:
The realistic description of board independence needs a detailed assessment of the individual and a disclosure of ties of a non-executive board member to the management or controlling shareholders. Furthermore, disclosure of the selection process of the nomination committee should bring important insights for investors and the stakeholders.
The discussion further emphasized that formal characteristics alone could be misleading to determine the independence of a board member, focusing on “independence in mind” as an important aspect. As this factor is difficult to gauge or measure, investors may have to communicate with the chair in individual cases.
A sensible and company specific skillset of personnel management, industry knowledge and experience must be represented in the board as a priority, as formal independence alone is not a sufficient prerequisite for the selection process. The discussion emphasized that extensive information is key to allow proper evaluation of true independence. This should be complemented by sufficient access to the chair for communication with investors. The latest German code revision emphasizes that chairs make themselves available to investors for such supervisory board related issues.
Ways for the Future:
Full disclosure of important ties between individual board members with management and controlling shareholders should be obligatory. To properly evaluate the board member proposals, the disclosure of the skillsets of board members and the selection process would bring further important insights for investors. An idea proposed to support the process was the development of a “board skills matrix” for individual boards.
The discussion highlighted the key role of the nomination committee in the identificatio n and evaluation of independent directors. It was therefore suggested that the chair of the nomination committee should make himself available to investors. This point was controversially discussed due to possible loss of a “One Voice” communication strategy, so that communication should be confined to the chair of the supervisory board.
Another important point of the discussion was the regular evaluation of non-executive board members, as this may bring improvements for independent guidance and decision making of the full board. It could also identify areas of strength and weaknesses for an improved performance of both boards. A key prerequisite for a successful evaluation is the independence of the conducting leader.
The discussants raised the issue of the differences emerging from national governance environments, such as different shareholder structures and cultural differences. While the Anglo American approach to independence appears to work in the UK, this differs from continental European countries such as Germany and France.
Ways for the Future:
A solution to cross-country differences is the development of “local optima” that reflect the special circumstances in each country, rather from pursuing a “one fits all” approach.
Conclusion
The participants concluded that board independence remains a central issue in the corporate governance debate. The discussion identified definition issues as critical. It was also highlighted that full disclosure of the individual independence is important. Formal independence alone does not ensure board or director effectiveness. It must be accompanied with skills, knowledge and experience to obtain satisfactory board work results. Disclosure on the individual board members’ selection process and independence characteristics should be made available to investors and the other stakeholders.
*Christian Strengeris Academic Director at the Center for Corporate Governance at HHL Leipzig Graduate School of Management. This post is based on a publication by Mr. Strenger and Jörg Rochell, President and Managing Director at ESMT Berlin, for a symposium held in Berlin on November 9, 2017, sponsored by ESMT Berlin and the Center for Corporate Governance at HHL Leipzig Graduate School of Management.
Gouvernance | Jacques Grisé 