Compte rendu hebdomadaire de la Harvard Law School Forum on Corporate Governance | 27 janvier 2017

Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 27 janvier 2017.

J’ai relevé les principaux billets.

Bonne lecture !

Attentes réciproques | C.A. et direction

Vous trouverez ci-dessous les grandes lignes d’un article publié par Richard Leblanc* dans la revue mensuelle de Governance Centre of excellence à propos de ce que le conseil d’administration attend de la direction, et vice-versa.

Ce sont des questions qui me sont fréquemment posées.

L’auteur a su présenter les réponses à ces questions en des termes clairs. Je vous invite à télécharger ce court article.

Bonne lecture !

What the Board Expects from Management

Here is what a good board is entitled to expect from management, in no particular order:

No Surprises or Spin
Bad News Must Rise
Deep Expertise in the Business
Visibility of Management Thinking
Full Information

What Management Expects from the Board

Management, in turn, has expectations of the board. They are:

Candor
Integrity and Independence
Direction
React in a Measured Way
Trust and Confidence
Knowledge of the Business
Meeting Preparation
Asking Good Questions

Download the full article by Dr. Richard Leblanc >

*Dr. Richard Leblanc is the facilitator for the Board Dynamics and Culture – Behaviours That Make or Break Your Board program that will be taking place on February 10, 2017. Attend this program to learn more about board relationship dynamics and setting expectations.

Article originally submitted by Dr. Richard Leblanc for the February 2013 issue of BOARDS.

Dix thèmes majeurs pour les administrateurs de sociétés en 2017

Aujourd’hui, je partage avec vous la liste des dix thèmes majeurs en gouvernance que les auteurs Kerry E. Berchem* et Rick L. Burdick* ont identifiés pour l’année 2017.

Vous êtes assurément au fait de la plupart de ces dimensions, mais il faut noter l’importance accrue à porter aux questions stratégiques, aux changements politiques, aux relations avec les actionnaires, à la cybersécurité, aux nouvelles réglementations de la SEC, à la composition du CA, à l’établissement de la rémunération et aux répercussions possibles des changements climatiques.

Afin de mieux connaître l’ampleur de ces priorités de gouvernance pour les administrateurs de sociétés, je vous invite à lire l’ensemble du rapport publié par Akin Gump.

Bonne lecture !

Dix thèmes majeurs pour les administrateurs de sociétés en 2017

1. Corporate strategy: Oversee the development of the corporate strategy in an increasingly uncertain and volatile world economy with new and more complex risks

Directors will need to continue to focus on strategic planning, especially in light of significant anticipated changes in U.S. government policies, continued international upheaval, the need for productive shareholder relations, potential changes in interest rates, uncertainty in commodity prices and cybersecurity risks, among other factors.

2. Political changes: Monitor the impact of major political changes, including the U.S. presidential and congressional elections and Brexit

Many uncertainties remain about how the incoming Trump administration will govern, but President-elect Trump has stated that he will pursue vast changes in diverse regulatory sectors, including international trade, health care, energy and the environment. These changes are likely to reshape the legal landscape in which companies conduct their business, both in the United States and abroad.

With respect to Brexit, although it is clear that the United Kingdom will, very probably, leave the European Union, there is no certainty as to when exactly this will happen or what the U.K.’s future relationship, if any, with the EU will be. Once the negotiations begin, boards will need to be quick to assess the likely shape of any deal between the U.K. and the EU and to consider how to adjust their business model to mitigate the threats and take advantage of the opportunities that may present themselves.

3. Shareholder relations: Foster shareholder relations and assess company vulnerabilities to prepare for activist involvement

The current environment demands that directors of public companies remain mindful of shareholder relations and company vulnerabilities by proactively engaging with shareholders, addressing shareholder concerns and performing a self-diagnostic analysis. Directors need to understand their company’s vulnerabilities, such as a de-staggered board or the lack of access to a poison pill, and be mindful of them in any engagement or negotiation process.

4. Cybersecurity: Understand and oversee cybersecurity risks to prepare for increasingly sophisticated and frequent attacks

As cybercriminals raise the stakes with escalating ransomware attacks and hacking of the Internet of Things, companies will need to be even more diligent in their defenses and employee training. In addition, cybersecurity regulation will likely increase in 2017. The New York State Department of Financial Services has enacted a robust cybersecurity regulation, with heightened encryption, log retention and certification requirements, and other regulators have issued significant guidance. Multinational companies will continue implementation of the EU General Data Protection Regulation requirements, which will be effective in May 2018. EU-U.S. Privacy Shield will face a significant legal challenge, particularly in light of concerns regarding President-elect Trump’s protection of privacy. Trump has stated that the government needs to be “very, very tough on cyber and cyberwarfare” and has indicated that he will form a “cyber review team” to evaluate cyber defenses and vulnerabilities.

5. SEC scrutiny: Monitor the SEC’s increased scrutiny and more frequent enforcement actions, including whistleblower developments, guidance on non-GAAP measures and tougher positions on insider trading

2016 saw the Securities and Exchange Commission (SEC) award tens of millions of dollars to whistleblowers and bring first-of-a-kind cases applying new rules flowing from the protections now afforded to whistleblowers of potential violations of the federal securities laws. The SEC was also active in its review of internal accounting controls and their ability to combat cyber intrusions and other modern-day threats to corporate infrastructure. The SEC similarly continued its comprehensive effort to police insider trading schemes and other market abuses, and increased its scrutiny of non-GAAP (generally accepted accounting principles) financial measure disclosures. 2017 is expected to bring the appointment of three new commissioners, including a new chairperson to replace outgoing chair Mary Jo White, which will retilt the scales at the commissioner level to a 3-2 majority of Republican appointees. 2017 may also bring significant changes to rules promulgated previously under Dodd-Frank.

6. CFIUS: Account for CFIUS risks in transactions involving non-U.S. investments in businesses with a U.S. presence

Over the past year, the interagency Committee on Foreign Investment in the United States (CFIUS) has been particularly active in reviewing—and, at times, intervening in—non-U.S. investments in U.S. businesses to address national security concerns. CFIUS has the authority to impose mitigation measures on a transaction before it can proceed, and may also recommend that the President block a pending transaction or order divestiture of a U.S. business in a completed transaction. Companies that have not sufficiently accounted for CFIUS risks may face significant hurdles in successfully closing a deal. With the incoming Trump administration, there is also the potential for an expanded role for CFIUS, particularly in light of campaign statements opposing certain foreign investments.

7. Board composition: Evaluate and refresh board composition to help achieve the company’s goals, increase diversity and manage turnover

In order to promote fresh, dynamic and engaged perspectives in the boardroom and help the company achieve its goals, a board should undertake focused reassessments of its underlying composition and skills, including a review and analysis of board tenure, continuity and diversity in terms of upbringing, educational background, career expertise, gender, age, race and political affiliation.

8. Executive compensation: Determine appropriate executive compensation against the background of an increased focus on CEO pay ratios

Executive compensation will continue to be a hot topic for directors in 2017, especially given that public companies will soon have to start complying with the CEO pay ratio disclosure rules. Recent developments suggest that such disclosure might not be as burdensome or harmful to relations with employees and the public as was initially feared.
The SEC’s final rules allow for greater flexibility and ease in making this calculation, and a survey of companies that have already estimated their ratios indicates that the ratio might not be as high, on average, as previously reported.

9. Antitrust scrutiny: Monitor the increased scrutiny of the antitrust authorities and the implications on various proposed combinations

Despite the promise of synergies and the potential to transform a company’s future, antitrust regulators have become increasingly hostile toward strategic transactions, with the Department of Justice and Federal Trade Commission suing to block 12 transactions since 2015. Although directors should brace for a longer antitrust review, to help navigate the regulatory climate, work upfront can dramatically improve prospects for success. Company directors should develop appropriate deal rationales and, with the benefit of upfront work, allocate antitrust risk in the merger agreement. Merger and acquisition activity may also benefit from the Trump administration, taking, at least for certain industries, a less-aggressive antitrust enforcement stance.

10. Environmental disasters and contagious diseases: Monitor the impact of increasingly volatile weather events and contagious disease outbreaks on risk management processes, employee needs and logistics planning

While the causes of climate change remain a political sticking point, it cannot be debated that volatile weather events, environmental damage and a rise in the diseases that tend to follow, are having increasingly adverse impacts on businesses and markets. Businesses will need to account for, or transfer the risk of, the increasing likelihood of these impacts. The SEC recently announced investigations into climate-risk disclosures within the oil and gas sector to ensure that they adequately allow investors to account for these effects on the bottom line. The growing number of shareholder resolutions and suits addressing climate change confirm that investors want this information, regardless of the position of the next administration.

The complete publication is available here.

*Kerry E. Berchem is partner and head of the corporate practice, and Rick L. Burdick is partner and chair of the Global Energy & Transactions group, at Akin Gump Strauss Hauer & Feld LLP.

Compte rendu hebdomadaire de la Harvard Law School Forum on Corporate Governance | 19 janvier 2017

Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 19 janvier 2017.

J’ai relevé les principaux billets.

Bonne lecture !

Compte rendu hebdomadaire de la Harvard Law School Forum on Corporate Governance | 12 janvier 2017

Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 12 janvier 2017.

J’ai relevé les principaux billets.

Bonne lecture !

Principales tendances en gouvernance à l’échelle internationale en 2017

Voici un excellent résumé des principales tendances en gouvernance à l’échelle internationale. L’article paru sur le site de la Harvard Law School Forum est le fruit des recherches effectuées par Rusty O’Kelley, membre de CEO and Board Services Practice, et Anthony Goodman, membre de Board Effectiveness Practice de Russell Reynolds Associates.

Les auteurs ont interviewé plusieurs investisseurs activistes et institutionnels ainsi que des administrateurs de sociétés publiques et des experts de la gouvernance afin d’appréhender les tendances qui se dessinent pour les entreprises cotées en 2017.

Parmi les conclusions de l’étude, notons :

Le besoin de se coller plus étroitement à des normes de gouvernance universellement acceptées ;
La nécessité de bien se préparer aux nouveaux risques et aux nouvelles opportunités amenées par la montée des gouvernements populistes de droite ;
Une responsabilité accrue des administrateurs de sociétés pour la création de valeur à long terme ;
L’importance d’une solide compréhension des changements globaux eu égard à l’exercice d’une bonne gouvernance, notamment dans les états suivants :

– États-Unis

– Union européenne

– Japon

– Inde

– Brésil

Cette lecture nous donne une perspective globale des défis qui attendent les administrateurs et les CA de grandes sociétés publiques en 2017.

Bonne lecture !

Global and Regional Trends in Corporate Governance for 2017

Russell Reynolds Associates recently interviewed numerous institutional and activist investors, pension fund managers, public company directors and other governance professionals about the trends and challenges that public company boards will face in 2017. Our conversations yielded a wide array of perspectives about the forces that are driving change in the corporate governance landscape.

The changing pressures and dynamics that boards will face in the coming year are diverse and significant in their impact. Institutional investors will continue their push for more uniform standards of corporate governance globally, while also increasing their expectations of the role that boards should play in responsibly representing shareholders. Political uncertainty and the surprise results of the US Presidential and “Brexit” votes may require that boards take a more active role in scenario planning and helping management to navigate increasingly costly risks. The movement for companies and investors to adopt a more long-term orientation has gained momentum, with several large institutional investors now pressuring boards to demonstrate that they are actively involved in guiding a company’s strategy for long-term value creation.

Higher Expectations and Greater Alignment Around Corporate Governance Norms

Continuing the trend from last year, large institutional investors and pension funds are pushing for more aligned approaches to corporate governance across borders to support long-term value creation. Regulators are responding, particularly in emerging economies and those with nascent corporate governance regimes. Recent reforms in Japan, India and Brazil have borrowed heavily from the US or UK models. Where regulators have not yet caught up to or agreed with investor expectations, institutional investors are engaging companies directly to advocate for the governance reforms they want to see. These investors also expect more from their boards than ever before and are increasingly willing to intervene when they do not feel they are being responsibly represented in the boardroom.

Corporate Governance in an Era of Political Uncertainty

Populist political movements have gained broad support in several countries around the world, contributing to uncertainty about the future regulatory and political environments of two of the world’s five largest economies. In the UK, the Conservative government has signaled potential support for shareholder influence over executive pay and disclosure of the CEO-employee pay ratio. In the US, President-elect Trump has demonstrated a willingness to “name and shame” specific companies that he perceives to have benefited unfairly from trade deals or moved jobs overseas. Boards must be prepared to navigate these new reputational risks and intense media scrutiny, and review management’s assumptions about the political implications of certain decisions.

Increasing Board Accountability for Long-Term Value Creation

Efforts to encourage a more long-term market orientation have intensified in recent years, with several prominent business leaders and investors, most notably Larry Fink, Chairman and CEO of BlackRock, urging companies to focus on sustained value creation rather than maximizing short-term earnings. In his 2016 letter to chief executives of S&P 500 companies and large European corporations, Mr. Fink specifically called for increased board oversight of a company’s strategy for long-term value creation, noting that BlackRock’s corporate governance team would be looking for assurances of this oversight when engaging with companies.

Global and Regional Trends in Corporate Governance in 2017

Based on our global experience as a firm and our interviews with experts around the world, we believe that public companies will likely face the following trends in 2017:

Increasing expectations around the oversight role of the board, to include greater oversight of strategy and scenario planning, investor engagement, and executive succession planning.

Continued focus on board refreshment and composition, with particular attention being paid to directors’ skill profiles, the currency of directors’ knowledge, director overboarding, diversity, and robust mechanisms for board refreshment that go beyond box-ticking exercises.

Greater scrutiny of company plans for sustained value creation, as concerns increase that activist settlements and other market forces are causing short-term priorities to compromise long-term interests.

Greater focus on Environmental, Social and Governance (ESG) issues, and in particular those related to climate change and sustainability, as industries beyond the extractive sector begin to feel investor pressure in this area.

We explore these trends and their implications for five key regions and markets: the United States, the European Union, India, Japan and Brazil.

United States

The surprise election of Donald Trump has increased regulatory and legislative uncertainty. Certain industries, such as financial services, natural resources and healthcare, may face less pressure and government scrutiny. We expect nominees to the Securities and Exchange Commission (SEC) to be less supportive of the increased disclosure requirements around executive pay and diversity. However, public pension funds and institutional investors will continue to push governance issues through increased specific engagement with individual companies.

Investors continue to push boards to demonstrate that they are taking a strategic and proactive approach to board refreshment. In particular, they are looking for indicators that boards are adding directors with the skill sets necessary to complement the company’s strategic direction, and ensuring a diversity of backgrounds and perspectives to guide that strategy. Some investors see tenure and age limits as too blunt an instrument, preferring internal or external board evaluations to ensure that every director is contributing effectively. Several large institutional investors will continue to push boards to conduct external board evaluations by third parties to increase the quality of feedback and improve governance.

Ongoing fallout from the Wells Fargo scandal will increase pressure on boards to split the CEO/Chair role, particularly in the financial services sector. Given investor pressure, particularly from pension funds, we also anticipate increased demand for clawbacks, a trend that is likely to go beyond the banking sector.

We expect that 2017 will be a significant year for ESG issues, and in particular those related to climate change and sustainability. Industries beyond the extractive sector will begin to feel investor pressure in this area. While this pressure is being exerted by a number of stakeholder groups, the degree to which the baton has been picked up by mainstream institutional investors is notable.

Increased attention on climate risk is also changing the way many companies and investors think about materiality and disclosure, which will have significant implications for audit committees. Michael Bloomberg is currently leading the Financial Stability Board’s Task Force on Climate-related Financial Disclosures, which will seek to develop consistent, voluntary standards for companies to provide information about climate-related financial risk. The Task Force’s recommendations are expected in mid-2017.

Boards will increasingly be expected to ensure sufficient succession planning not just at the CEO level but in other key C-suite roles as well, as investors want to know that boards are actively monitoring the pipeline of talent. Additionally, there is a relatively new trend of some boards conducting crisis management exercises as a supplement to the activism risk assessment we have seen over the past couple of years.

In the event that all or parts of the Dodd-Frank regulations are repealed, investors will likely turn to private ordering—seeking to persuade companies to change their by-laws—to keep the elements that are most important to them (e.g. “say on pay”). Current SEC rules require that companies begin disclosing their CEO-employee pay ratio in 2018, but we believe this to be a likely target for repeal.

European Union

Across many countries in Europe, the push for board and management diversity will continue apace in 2017. Executive pay continues to be the focus of government, investor and media attention with various proposals for reining in compensation. Work being done in the UK on board oversight of corporate culture has the potential to spill across European borders and travel farther afield over the next few years.

Many countries in Europe continue to push ahead with encouraging gender diversity at the board level, as national laws regulating the number of female directors proliferate. In the UK, the Hampton-Alexander Review recommended that the Corporate Governance Code be amended to require FTSE 350 companies to disclose the gender balance of their executive committees in their annual report.

After ebbing slightly in 2014, activism has made a comeback in Europe: whereas 51 companies were targeted in 2014, 64 were targeted in the first half of 2016 alone. We anticipate that European activists will continue to apply less aggressive and more collaborative tactics than those seen in the US. Additionally, we expect to see US and European institutional investors to be supportive of European activist investors, particularly those who are self-described “constructive activists”, who take a less aggressive approach than their US counterparts.

The EU is expected to amend its Shareholder Rights Directive in 2017 to include an EU-wide “say on pay” framework that would give shareholders the right to regular votes on prospective and retrospective remuneration. While these votes are not expected to be binding, the directive does require that pay be based on a shareholder-approved policy and that issuers must address failed votes. Germany saw a sharp increase in dissents on “say on pay” proposals this year, jumping from 8% to over 20%. In France, the government is currently debating whether to make “say on pay” votes binding, spurred by the public outcry about the Renault board’s decision to confirm the CEO’s 2015 compensation, despite a rejection by a majority of shareholders.

The UK government is expected to continue its push for compensation practice reform in 2017, having recently published a series of proposed policies, including mandatory disclosure of the CEO pay ratio, employee representation in executive compensation decisions, and making shareholder votes on executive compensation binding. We also expect continued strong media coverage and related public opposition to large public company pay packages, which could put UK boards in the spotlight.

In Germany, the ongoing fallout from the Volkswagen scandal is the likely impetus for proposed amendments to the corporate governance code that would underscore boards’ obligations to adhere to ethical business practices. The proposed amendments also acknowledge the increasingly common practice of investor engagement with the supervisory board, and recommend that the supervisory board chair be prepared to discuss relevant topics with investors.

In the UK, boards will be focused on implementing the recommendations of the recent Financial Reporting Council (FRC) report on corporate culture and the role of boards, which makes the case that long-term value creation is directly linked to company culture and the role of business in society.

India

Indian boards continue to struggle with the implementation of many of the major changes to corporate governance practices required by the 2013 Companies Act, but reform is progressing. While the complete fallout from the recent Tata leadership imbroglio is not yet clear, it will almost certainly reverberate through the Indian corporate governance landscape for years to come.

Recent regulatory changes have increased the scope of responsibilities for the Nomination and Remuneration Committee, requiring boards to ensure that directors have the right set of skills to deliver on these new responsibilities. Increased emphasis on CEO succession planning and board evaluations have necessitated that Committee members become more fluent in these governance processes and methodologies, particularly as the requirement to report on them annually has increased the spotlight on the board’s role in these processes.

The introduction in 2013 of a mandatory minimum of at least one female director for most listed companies has increased India’s gender diversity at the board level to one of the highest rates in Asia, with 14% of all directorships currently held by women. However, concerns persist about the potential for “tokenism”, as a sizeable portion of the women appointed come from the controlling families of the company.

India has also attempted to integrate ESG and Corporate Social Responsibility (CSR) issues at the board level, having mandated that every board establish a CSR committee and that the company spend 2% of net profits on CSR activities. However, companies will need to ensure that their approach to CSR amounts to more than a box-ticking exercise if they want to attract the support of the growing cadre of ESG-focused investors.

Boards are increasingly expected to take a more active role in risk management, particularly cybersecurity risks. Boards should also ensure that their companies are adequately anticipating and responding to cybersecurity threats.

Changes to the 2013 Companies Act have considerably enhanced the duties and liabilities of directors, along with strict penalties for any breach of these duties and the potential for class action lawsuits against individual directors. While potentially helpful in increasing director accountability, these changes also significantly increase the personal risk that a director assumes when joining a board.

Japan

Japan’s Corporate Governance Code was reformulated in 2015, as part of the “Abenomics” push for structural reforms. Japanese companies continue to implement the corporate governance principles resulting from the new regulations, with many hoping that the adoption of more Western norms will help prompt the return of foreign investors.

The overhaul of Japan’s corporate governance model in 2015 has begun to yield significant results, as 96% of Japanese boards now have at least one outside director and 78% have at least two. However, Japan’s famously deferential corporate culture may make it difficult for boards to unlock the value of these independent perspectives, as seniority and family ownership often still take precedence.

Increasing investor interest in the Japanese market is likely to increase pressure on boards to adopt more Western norms of corporate governance. CalPERS, the California public pension fund, recently began an explicit program of engagement in Japan, their second-largest equity market, in order to encourage the adoption of more Western norms, including increased board independence and diversity, defining narrower standards of independence, and increasing the disclosure of director qualifications.

Gender diversity remains a challenge for Japanese boards, with only 3% of directorships held by women. However, women account for 22% of outside directors, suggesting that gender diversity on boards will likely continue to increase as the appointment of independent directors becomes more common. A new law, introduced in April 2016, now requires companies with more than 300 employees to publish data on the number of women they employ and how many hold management positions. We anticipate this increased scrutiny at all levels of the company to have a knock-on effect for boards.

While other elements of the new Corporate Governance Code have seen near unanimous compliance, only 55% of listed companies have complied with the stipulation to conduct formal board evaluations. Moreover, the quality and format of the evaluations that are occurring vary significantly, with many adopting a self-evaluation process that amounts to little more than a box-ticking exercise.

The common Japanese practice of former executives and chairs remaining in “advisor” roles beyond the end of their formal tenure is now coming under increasing scrutiny. ISS will now generally vote against amendments to create new advisory positions, unless the advisors will serve on the board and therefore be held accountable to shareholders.

Brazil

Brazil’s corporate governance regime has evolved significantly in the last decade, as various regulatory entities have sought to apply greater protections for minority shareholders and better align standards with other Western models to attract greater foreign investment.

As Brazil continues to navigate the fallout of the Petrobras scandal, many are questioning how the mechanisms for encouraging and enforcing investor stewardship and corporate governance can be strengthened.

AMEC, Brazil’s association of institutional investors, recently released the country’s first Investor Stewardship Code, calling on investors to adhere to seven principles, including implementing mechanisms to manage conflicts of interest, taking ESG issues into account, and being active and diligent in the exercise of voting rights.

In an effort to address the high levels of absenteeism among institutional investors at general meetings, Brazil’s Security and Exchange Commission (CVM) will, beginning in 2017, require that listed companies allow shareholders to vote by mail or email, rather than requiring that they (or their proxy) be physically present to cast their vote. Brazilian companies, and their boards, should be prepared for the increased requests for investor engagement that are likely to result from the more active participation of institutional investors in the voting process.

New regulations for the country’s Novo Mercado segment of listed companies will be announced in 2017. Highlights of the proposed changes include the required establishment of audit, compensation and appointment committees, a minimum of two independent directors, and more stringent disclosure of directors’ relationships to related companies and other parties.

Compte rendu hebdomadaire de la Harvard Law School Forum on Corporate Governance | 5 janvier 2017

Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 5 janvier 2017.

Bonne lecture !

harvard_forum_corpgovernance_small

Le rôle du conseil d’administration dans les procédures de conformité

Voici un cas de gouvernance, publié en décembre sur le site de Julie Garland McLellan* qui illustre comment la direction d’une société publique peut se retrouver en situation d’irrégularité malgré une culture du conseil d’administration axée sur la conformité.

L’investigation du vérificateur général (VG) a révélé plusieurs failles dans les procédures internes de la société. De ce fait, Kyle le président du comité d’audit, risque et conformité, est interpellé par le président du conseil afin d’aider la direction à trouver des solutions durables pour remédier à la situation.

Même si Kyle est conscient qu’il ne possède pas l’autorité requise pour régler les problèmes constatés par le VG, il comprend qu’il est impératif que son message passe.

Le cas présente la situation de manière assez succincte, mais explicite ; puis, trois experts en gouvernance se prononcent sur le dilemme qui se présente aux personnes qui vivent des situations similaires.

Bonne lecture ! Vos commentaires sont toujours les bienvenus.

Le rôle du conseil d’administration dans les procédures de conformité

Kyle is chairman on the Audit, Risk and Compliance committee of a government authority board which is subject to a Public Access to Information Act. The auditor general has just completed an audit of several authorities bound by that Act and Kyle’s authority was found to have several breeches of the Act, in particular;

– some contracts valued at $150,000 or more were not recorded in the contracts register

– some contracts were not entered into the register within 45 working days of the contracts becoming effective

– there were instances where inaccurate information was recorded in the register when compared with the contracts, and

– additional information required for certain classes of contracts was not disclosed in some registers.

The Board Chairman is rightly concerned that this has happened in what all directors believed to be a well governed authority with a strong culture of compliance. The Board Chairman has asked Kyle to oversee management’s response to the Auditor General and the development of systems to ensure that these breeches do not reoccur. Kyle is mindful that he remains a non-executive and has no authority within the chain of management command. He is keen to help and knows that the CEO is struggling with the complexity of her role and will need assistance with any increase in workload.

How can Kyle help without getting embroiled in management affairs?

Raz’s Answer

The issue I spot here, is one which I’ve encountered myself – as a seasoned professional, you have the internal urge to roll your sleeves and get right into it, and solve the problem. From the details disclosed in this dilemma, there’s evidence that the authority’s internal culture is compliant, therefore it’s hard to believe there’s foul play which caused these discrepancies in the reports. I would have guessed that there are some legacy processes, or even old technology, which needs to be looked at and discover where the gap is.

The CEO is under immense pressure to fix this issue, being exposed to public scrutiny, but with the government’s limited resources at her disposal, the pressure is even higher. Making decisions under such pressure, especially when a board member, the chair of the Audit, Risk and Compliance Committee is looking over her shoulder, will likely to force her to make mistakes.

Kyle’s dilemma is simple to explain, but more delicate to handle: « How do I fix this, without sticking my nose into the operations? »

As a NED, what Kyle needs to be is a guide to the CEO, providing a calm and supportive environment for the CEO to operate in. Kyle needs to consult with the CEO, and get her on side, to ensure she’ll devote whichever resources she does have, to deal with this issue. This won’t be a Band-Aid solution, but a solution which will require collaboration of several parts of the organisations, orchestrated by the CEO herself.

Raz Chorev is Partner at Orange Sky and Managing Director at CXC Global. He is based in Sydney, Australia.

Julie’s Answer

The Auditor General has asked management to respond and board oversight of management should be done by and through the CEO.

Kyle cannot help without putting his fingers (or intellect) into the organisation. To do that without causing upset he will need to inform the CEO of the Chairman’s request, offer to help and make sure that he reports to her before he reports elsewhere. Handled sensitively the CEO, who appears to be struggling, should welcome any assistance with the task. Handled insensitively this could be a major issue because the statutory definitions of directors’ roles in public sector companies are less fluid than those in the private sector.

Kyle should also take this as a wake-up call – he assumes a culture of compliance and good governance but that is obviously not correct. The audit committee should regularly review the regulatory and legislative compliance framework and verify that all is as it should be; that has clearly not happened and Kyle should work with the company secretary or chief compliance/legal officer to review the entire framework and make sure nothing else is missing from the regular schedule of reviews. The committee must ask for what it needs to oversight effectively not just read what they are given.

The prevailing attitude should be one of thankfulness that the issue has been found and can be corrected. If Kyle detects a cultural rejection of the need to comply and cooperate with the AG in establishing good governance then Kyle must report to the whole board so remedial action can be planned.

Once management have responded to the AG with their proposed actions to remedy the matter. The audit committee should review to check that the actions have been implemented and that they effectively lead to compliance with the requirements. Likely remedies include amending the position descriptions of staff doing tendering or those setting up vendors in the payments system to include entry of details to the register, training in compliance, design of an internal audit system for routine review of registers and comparison to workloads to ensure that nothing has ‘dropped between the cracks’, and regular reporting of register completion and audit to the board audit committee.

Sean’s Answer

The Audit Risk and Compliance Committee (« Committee ») is to assist the Board in fulfilling its corporate governance and oversight responsibilities in relation to the bodies’ financial reporting, internal control structure, risk management systems, compliance and the external audit function.

The external auditors are responsible for auditing the bodies’ financial reports and for reviewing the unaudited interim financial reports. The Financial Management and Accountability Act 1997 calls for auditing financial statements and performance reviews by the Auditor General.

As Committee Chairman Kyle must be independent and must have leadership experience and a strong finance, accounting or business background. So too must the CEO and CFO have appropriate and sufficient qualifications, knowledge, competence, experience and integrity and other personal attributes to undertake their roles.

It should be the responsibility of the Committee to maintain free and open communication between the Committee, external auditors and management. The Committee’s function is principally oversight and review.

The appointment and ongoing assessment, mentoring and discipline of the CEO rests with the board but the delegation of this authority in relation to compliance often rests with the Committee and Board Chairs.

Kyle may invite members of management (CFO and maybe the CEO) or others to attend meetings and the Committee should have authority, within the scope of its responsibilities, to seek information it requires, and assistance from any employee or external party. Inviting the CFO and or CEO to the Committee allows visibility and a holistic and independent forum where deficiencies may be isolated and functions (but not responsibility) delegated to others.

There is a disconnect or deficiency in one or more functions; Kyle should ensure that the Committee holistically review its own charter, discuss with management and the external auditors the adequacy and effectiveness of the internal controls and reporting functions (including the Bodies’s policies and procedures to assess, monitor and manage these controls), as well as a review of the internal quality control procedures (because these are also suspected to be deficient).

It will rapidly become apparent to management, the Committee, Kyle, the board and the Chairman where the deficiencies lie or did lie, and how they have been corrected. Underlying behavioural problems and or abilities to function will also become apparent and with these appropriately addressed similar deficiencies in other areas of the body may be contemporaneously corrected and all reported to the Auditor General.

Sean Rothsey is Chairman and Founder of the Merkin Group. He is based in Cooroy, Queensland, Australia.

*Julie Garland McLellan is a practising non-executive director and board consultant based in Sydney, Australia. www.mclellan.com.au/newsletter.html

Compte rendu hebdomadaire de la Harvard Law School Forum on Corporate Governance

Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 29 décembre 2016.

Bonne lecture !

A “Successful” Case of Activism at the Canadian Pacific Railway: Lessons in Corporate Governance, posted by Yvan Allaire and François Dauphin, IGOPP and UQAM, on Friday, December 23, 2016
U.K. Proposed Enhancements to Corporate Governance: Will the New U.S. Administration Follow?, posted by Cydney S. Posner, Cooley LLP, on Friday, December 23, 2016
Delaware Supreme Court Ruling in Zynga: Reasonable Doubt of Director Independence , posted by Thomson Reuters Practical Law, Corporate & Securities Service, on Saturday, December 24, 2016
Do CEO Bonus Plans Serve a Purpose?, posted by Wayne R. Guay and John D. Kepler, University of Pennsylvania, on Monday, December 26, 2016
2016 Corporate Governance Annual Summary, posted by Michael McCauley, Florida State Board of Administration, on Monday, December 26, 2016
Areas of Focus for Global Audit Regulators, posted by Steven B. Harris, Public Company Accounting Oversight Board, on Tuesday, December 27, 2016
Rethinking US Financial Regulation in Light of the 2016 Election, posted by Reena Agrawal Sahni, Shearman & Sterling LLP, on Tuesday, December 27, 2016
2016 Spencer Stuart Board Index, posted by Spencer Stuart, on Wednesday, December 28, 2016
Results of the 2016 Proxy Season in Silicon Valley, posted by David A. Bell, Fenwick & West LLP, on Wednesday, December 28, 2016
Female Directors, Board Committees and Firm Performance, posted by Colin Green and Swarnodeep Homroy, Lancaster University, on Thursday, December 29, 2016
Executive Compensation: Analysis of Recent Incentive Financial Goals, posted by John R. Sinkular and Julia Kennedy, Pay Governance LLC, on Thursday, December 29, 2016

Le Spencer Stuart Board Index | 2016

Voici le rapport annuel toujours très attendu de Spencer Stuart*.

Ce document présente un compte rendu très détaillé de l’état de la gouvernance dans les grandes sociétés publiques américaines (S&P 500).

On y découvre les résultats des changements dans le domaine de la gouvernance aux É.U. en 2016, ainsi que certaines tendances pour 2017.

Les thèmes abordés sont les suivants :

La composition des Boards

L’indépendance du président du CA

Les mandats des administrateurs et les limites aux nombres de mandats

L’âge de la retraite des administrateurs

L’évaluation des Boards

La nature des relations du Boards et de la direction avec les actionnaires

L’amélioration de la performance des Boards

Diverses informations, notamment :

Only 19% of new independent directors are active CEOs, chairs, presidents and chief operating officers, compared with 24% in 2011, 29% in 2006 and 49% in 1998, the first year we looked at this data for S&P 500 companies.

Active executives with financial backgrounds (CFOs, other financial executives, as well as investors and bankers) represent 15% of new independent directors this year, an increase from 12% last year. Another 10% of new directors are retired finance and public accounting executives.

On average, S&P 500 directors have 2.1 outside corporate board affiliations, although most directors aren’t restricted from serving on more.

The number of boards with no female directors dropped to the lowest level we have seen; six S&P 500 boards (1%) have no women, a noteworthy decline from 2006, when 52 boards (11%) included no female members. Women now constitute 21% of all S&P 500 directors.

Among the boards of the 200 largest S&P companies, the total number of minority directors has held steady at 15% since 2011. 88% of the top 200 companies have at least one minority director, the same as 10 years ago.

Only 43% of S&P 500 CEOs serve on one or more outside corporate boards in addition to their own board, the same as in 2015. In 2006, 55% of CEOs served on at least one outside board.

Boards met an average of 8.4 times for regularly scheduled and special meetings, up from 8.1 last year and 8.2 five years ago. The median number of meetings rose from 7.0 last year to 8.0.

The average annual total compensation for S&P 500 directors, excluding the chairman’s compensation, is $280,389.

Over time, the compensation mix for directors has evolved, with more stock grants and fewer stock options. Today, stock grants represent 54% of total director compensation, versus 48% five years ago, while stock options represent 6% of compensation today, down from 10% five years ago. Cash accounts for 38% of director compensation, versus 39% in 2011.

95% of the independent chairmen of S&P 500 boards receive an additional fee, averaging $165,112. Nearly two-thirds of lead and presiding directors, 65%, receive additional compensation. The average premium paid to lead and presiding directors is $33,354.

2016 Spencer Stuart Board Index

Investor attention to board performance and governance continues to escalate, and, increasingly, it’s large institutional investors—so-called “passive” investors—who are making known their expectations in areas such as board composition, disclosure and shareholder engagement. Long-term investors have shifted their posture to taking positions on good governance, and are increasingly demonstrating common ground with activists on governance topics.

Board composition is a particular area of focus, as traditional institutional investors have become more explicit in demanding that boards demonstrate that they are being thoughtful about who is sitting around the board table and that directors are contributing. They are looking more closely at disclosures related to board refreshment, board performance and assessment practices, in some cases establishing voting policies on governance.

Boards are taking notice. Directors want to ensure that their boards contribute at the highest level, aligning with shareholder interests and expectations. In response, boards are enhancing their disclosures on board composition and leadership, reviewing governance practices and establishing protocols for engaging with investors. Here are some of the trends we are seeing in the key areas of investor concern.

Board composition

The composition of the board—who the directors are, the skills and expertise they bring, and how they interact—is critical for long-term value creation, and an area of governance where investors increasingly expect greater transparency. Shareholders are looking for a well-explained rationale for why the group of people sitting around the board table are the right ones based on the strategic priorities of the business. They want to know that the board has the processes in place to review and evolve board composition in light of emerging needs, and that the board regularly evaluates the contributions and tenure of current board members and the relevance of their experience.

Acknowledging investor interest in their composition, more boards are reviewing how to best communicate their thinking about the types of expertise needed in the board—and how individual directors provide that expertise. More than one-third of the 96 corporate secretaries responding to our annual governance survey, conducted each year as part of the research for the Spencer Stuart Board Index, said their board has changed the way it reports director bios/qualifications; among those that have not yet made changes, 15% expect the board to change how they present director qualifications in the future.

What’s happening to board composition in practice after all of the talk about increasing board turnover? In 2016, we actually saw a small decline in the number of new independent directors elected to S&P 500 boards. S&P 500 boards included in our index elected 345 new independent directors during the 2016 proxy year—averaging 0.72 new directors per board. Last year, S&P 500 boards added a total of 376 new directors (0.78 new directors per board).

Nearly one-third (32%) of the new independent directors on S&P 500 boards are serving on their first outside corporate board. Women account for 32% of new directors, the highest rate of female representation since we began tracking this data for the S&P 500. This year’s class of new directors, however, includes fewer minority directors (defined as African-American, Hispanic/Latino and Asian); 15% of the 345 new independent directors are minorities, a decrease from 18% in 2015.

With the rise of shareholder activism, we’ve also seen an increase in investors and investment managers on boards. This year, 12% of new independent directors are investors, compared with 4% in 2011 and 6% in 2006.

Independent board leadership

Boards continue to feel pressure from some shareholders to separate the chair and CEO roles and name an independent chairman. And, indeed, 27% of S&P 500 boards, versus 21% in 2011, have an independent chair. An independent chair is defined as an independent director or a former executive who has met applicable NYSE or NASDAQ rules for independence over time. This actually represents a small decline from 29% last year. Meanwhile, naming a lead director remains the most common form of independent board leadership: 87% of S&P 500 boards report having a lead or presiding director, nearly all of whom (98%) are identified by name in the proxy.

In our governance survey, 12% of respondents said their board has recently separated the roles of chairman and CEO, while 33% said their board has discussed whether to split the roles within the next five years. Among boards that expect to or have recently separated the chair and CEO roles, 72% cite a CEO transition as the reason, while 20% believe the chair/CEO split represents the best governance.

In response to investor interest in board leadership structure—and sometimes demands for an independent chairman—more boards are discussing their leadership structure in their proxies, for example, explaining the rationale for maintaining a combined chair/CEO role and delineating the responsibilities of the lead director. Among the lead director responsibilities boards highlight: approving the agenda for board meetings, calling meetings and executive sessions of independent directors, presiding over executive sessions, providing board feedback to the CEO following executive sessions, leading the performance evaluation of the CEO and the board assessment, and meeting with major shareholders or other external parties, when necessary. Some proxies include a letter to shareholders from the lead independent director.

Tenure and term limits

Director tenure continues to be a hot topic for some shareholders. While some rating agencies and investors have questioned the independence of directors with “excessive” tenure, there are no specific regulations or listing standards in the U.S. that speak to director independence based on tenure. And, in fact, most companies do not have governance rules limiting tenure; only 19 S&P 500 boards (4%) set an explicit term limit for non-executive directors, a modest increase from 2015 when 13 boards (3%) had director term limits.

Just 3% of survey respondents said their boards are considering establishing director term limits, but many boards are disclosing more in their proxies about director tenure. Specifically, boards are describing their efforts to ensure a balance between short-tenured and long-tenured directors. And several companies have included a short summary of the board’s average tenure accompanied by a pie chart breaking down the tenure of directors on the board (e.g., directors with less than five years tenure, between five and 10 years, and more than 10 years tenure on the board).

Among S&P 500 boards overall, the average board tenure is 8.3 years, a slight decrease from 8.7 five years ago. The median tenure has declined as well in that time, from 8.4 to 8.0. The majority of boards, 63%, have an average tenure between six and 10 years, but 19% of boards have an average tenure of 11 or more years.

We also looked this year at the tenure of individual directors: 35% of independent directors have served on their boards for five years or less, 28% have served for six to 10 years, and 22% for 11 to 15 years. Fifteen percent of independent directors have served on their boards for 16 years or more.

Mandatory retirement

In the absence of term or tenure limits, most S&P 500 boards rely on mandatory retirement ages to promote turnover. About three-quarters (73%) of S&P 500 boards report having a mandatory retirement age for directors. Eleven percent report that they do not have a mandatory retirement age, and 16% do not discuss mandatory retirement in their proxies.

Retirement ages have crept up in recent years, as boards have raised them to allow experienced directors to serve longer. Thirty-nine percent of boards have mandatory retirement ages of 75 or older, compared with 20% in 2011 and just 9% in 2006. Four boards have a retirement age of 80. The most common mandatory retirement age is 72, set by 45% of S&P 500 boards.

As retirement ages have increased, so has the average age of independent directors. The average age of S&P 500 independent directors is 63 today, two years older than a decade ago. In that same period, the median age rose from 61 to 64. Meanwhile, the number of older boards has increased; 37% of S&P 500 boards have an average age of 64 or older, compared with 19% a decade ago, and 15 of today’s boards (3%) have an average age of 70 or greater, versus four (1%) a decade ago.

Board evaluations

Another topic on which large institutional investors have become more vocal is board performance evaluations. Shareholders are seeking greater transparency about how boards address their own performance and the suitability of individual directors—and whether they are using assessments as a catalyst for refreshing the board as new needs arise.

We have seen a growing trend in support of individual director assessments as part of the board effectiveness assessment—not to grade directors, but to provide constructive feedback that can improve performance. Yet the pace of adoption of individual director assessments has been measured. Today, roughly one-third (32%) of S&P 500 boards evaluate the full board, committees and individual directors annually, an increase from 29% in 2011.

In our survey of corporate secretaries, respondents said evaluations are most often conducted by a director, typically the chairman, lead director or a committee chair. A wide range of internal and external parties are also tapped to conduct board assessments, including in-house and external legal counsel, the corporate secretary and board consulting firms. Thirty-five percent use director self-assessments, and 15% include peer reviews. According to proxies, a small number of boards, but more than in the past, disclose that they used an outside consultant to facilitate all or a portion of the evaluation process.

Shareholder engagement

In light of investors’ growing desire for direct engagement with directors, more boards have established frameworks for shareholders to raise questions and engage in meaningful, two-way discussions with the board. In addition to improving disclosures about board composition, assessment and other key governance areas, some boards include in their proxies a summary of their shareholder outreach efforts. For example, they detail the number of investors the board met with, the issues discussed and how the company and board responded. A few boards facilitate direct access to the board by providing contact information for individual directors, including the lead director and audit committee chair.

Going further, many boards now proactively reach out to their company’s largest shareholders. In our survey, 83% of respondents said management or the board contacted the company’s large institutional investors or largest shareholders, an increase from 70% the year prior. The most common topic about which companies engaged with shareholders was proxy access (52%), an increase from 33% in 2015. Other topics included “say on pay” (51%), CEO compensation (40%), director tenure (30%), board refreshment (27%), shareholder engagement approach (27%) and chairman independence (24%). Survey respondents also wrote in more than a dozen additional topics, including majority/cumulative voting, disclosure enhancements, environmental issues and gender pay equity.

Enhancing board performance

The topic of board refreshment can be a highly charged one for boards. But having the right skills around the table is critical for the board’s ability to provide the appropriate guidance and oversight of management. Furthermore, the capabilities and perspectives that a board needs evolve over time as the business context changes. Boards can ensure that they have the right perspectives around the table and are well-equipped to address the issues that drive shareholder value—which, after all, is what investors are looking for—by doing the following:

Viewing director recruitment in terms of ongoing board succession planning, not one-off replacements. Boards should periodically review the skills and expertise on the board to identify gaps in skills or expertise based on changes in strategy or the business context.

Proactively communicating the skill sets and expertise in the boardroom—and the roadmap for future succession. Publishing the board’s skill matrix and sharing the board’s thinking about the types of expertise that are needed on the board—and how individual directors provide that expertise—signals to investors that the board is thoughtful about board succession.

Setting expectations for appropriate tenure both at the aggregate and individual levels. By setting term expectations when new directors join, boards can combat the perceived stigma attached to leaving a board before the mandatory retirement age. Ideally, boards will create an environment where directors are willing to acknowledge when the board would benefit from bringing on different expertise.

Thinking like an activist and identifying vulnerabilities in board renewal and performance. Proactive boards conduct board evaluations annually to identify weaknesses in expertise or performance. They periodically engage third parties to manage the process and are disciplined about identifying and holding themselves accountable for action items stemming from the assessment.

Establishing a framework for engaging with investors. This starts with proactive and useful disclosure, which demonstrates that the board has thought about its composition, performance and other specific issues. In addition, it is valuable to have a protocol in place enumerating responsibilities related to shareholder engagement.

*Note: The Spencer Stuart Board Index (SSBI) is based on our analysis of the most recent proxy reports from the S&P 500, plus an extensive supplemental survey. The complete publication draws on the latest proxy statements from 482 companies filed between May 15, 2015, and May 15, 2016, and responses from 96 companies to our governance survey conducted in the second quarter of 2016. Survey respondents are typically corporate secretaries, general counsel or chief governance officers. Proxy and survey data have been supplemented with information compiled in Spencer Stuart’s proprietary database.

The complete publication, including footnotes, is available here.

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.

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 :

Préparez un plan d’action concret ;
Établissez de bonnes relations avec les investisseurs institutionnels et avec les actionnaires ;
La direction doit entretenir une constante communication avec le CA ;
Mettez en place de solides pratiques de divulgations ;
Informez et éduquez les parties prenantes ;
Faites vos devoirs et analysez les menaces et les vulnérabilités susceptibles d’inviter les actionnaires activistes ;
Communiquez avec les actionnaires activistes et tentez de comprendre les raisons de leurs intérêts pour le changement ;
Comprenez bien tous les aspects juridiques relatifs à une cause ;
Explorez les différentes options qui s’offrent à l’entreprise ciblée ;
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]

It’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)

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*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.

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.

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 :

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.
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.
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.
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.
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.
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

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

Voici un article d’Ann Yerger, directrice du Center for Board Matters, de la firme Ernst & Young, qui porte sur l’évolution significative des politiques de divulgation des comités d’audit aux actionnaires des entreprises cotées en bourse aux États-Unis en 2106. L’article est paru sur le site du Harvard Law School Forum on Corporate Governance le 9 octobre.

L’étendue des divulgations aux actionnaires est vraiment très importante dans certains cas. Par exemple, en 2012, seulement 42 % des entreprises dévoilaient explicitement que le comité d’audit était responsable de l’engagement, de la rémunération et de la surveillance des auditeurs externes, alors qu’en 2016, 82 % divulguent, souvent en détail, les informations de cette nature.

Plusieurs autres résultats font état de changements remarquables dans la reddition de compte des comités d’audit aux actionnaires des entreprises.

Ceux-ci sont maintenant plus en mesure d’évaluer la portée des décisions des comités d’audit eu égard à la qualité du travail des auditeurs externes, aux raisons invoquées pour changer d’auditeur externe, à la fixation du mandat de l’auditeur externe, à la composition du comité d’audit, à l’augmentation des honoraires des firmes comptables dans les quatre catégories suivantes : audit, relié aux travaux d’audit, fiscalité et autres services connexes, etc.

Bonne lecture !

Audit Committee Reporting to Shareholders in 2016

Audit committees have a key role in overseeing the integrity of financial reporting. Nevertheless, relatively little information is required to be disclosed by US public companies about the audit committee’s important work. Since our first publication in this series in 2012, we have described efforts by investors, regulators and other stakeholders to seek increased audit-related disclosures, as well as the resulting voluntary disclosures to respond to this interest.

Over 2015–2016, US regulators have placed a spotlight on audit-related disclosures and financial reporting more generally. The US Securities and Exchange Commission (SEC) and the US Public Company Accounting Oversight Board (PCAOB) have both taken action to consider the possibility of requiring new disclosures relating to the audit.

SEC representatives also have used speeches to urge companies and audit committees to increase disclosures in this area voluntarily. While additional disclosure requirements for audit committees are not expected in the near term, regulators continue to monitor developments in this area. This post seeks to shed light on the evolving audit-related disclosure landscape.

Context

Public company audit committees are responsible for overseeing financial reporting, including the external audit. Under US securities laws, audit committees are “directly responsible for the appointment, compensation, retention and oversight” of the external auditor, and must include a report in annual proxy statements about their work. This audit committee report, however, currently must affirm only that the committee carried out certain specific responsibilities related to communications with the external auditor, and this requirement has not changed since 1999.

In recent years, a variety of groups have brought attention to the relative lack of information available about the audit committee and the audit, including their view that this area of disclosure may not have kept up with the needs of investors and other proxy statement users. These groups include pension funds, asset managers, investors, corporate governance groups, and domestic and foreign regulators. As efforts to seek additional information have continued, there has been a steady increase in voluntary audit-related disclosures.

Over the last year, the SEC has taken a series of actions to consider whether and how to improve transparency around audit committees, audits and financial reporting more generally. The combined effect of these activities has been to increase engagement by issuers, audit firms, investors and other stakeholders in discussions about the current state of financial reporting related disclosure as well as how it should change.

Findings

Our analysis of the 2016 proxy statements of Fortune 100 companies indicates that voluntaryaudit-related disclosures continue to trend upward in a number of areas. The CBM data for this review is based on the 78 companies on the 2016 Fortune 100 list that filed proxy statements each year from 2012 to 2016 for annual meetings through August 15, 2016. Below are highlights from our research:

The percentage of companies that disclosed factors considered by the audit committee when assessing the qualifications and work quality of the external auditor increased to 50%, up from 42% in 2015. In 2012, only 17% of audit committees disclosed this information.

Another significant increase was in disclosures stating that the audit committee believed that the choice of external auditor was in the best interests of the company and/or the shareholders. In 2016, 73% of companies disclosed such information; in 2015, this percentage was 63%. In 2012, only 3% of companies made this disclosure.

The audit committees of 82% of the companies explicitly stated that they are responsible for the appointment, compensation and oversight of the external auditor; in 2012, only 42% of audit committees provided such disclosures.

31% of companies provided information about the reasons for changes in fees paid to the external auditor compared to 21% the previous year. Reasons provided in these disclosures include one-time events, such as a merger or acquisition. Under current SEC rules, companies are required to disclose fees paid to the external auditor, divided into the following categories: audit, audit-related, tax and all other fees. They are not, however, required to discuss the reasons why these fees have increased or decreased. From 2012 to 2016, the percentage of companies disclosing information to explain changes in audit fees rose from 9% to 31%. Additional CBM research examined the disclosures of the subset of studied companies (43) that had changes in audit fees of +/- 5% or more compared to the previous year. Out of these 43 companies, roughly 20% provided explanatory disclosures regarding the change in audit fees.

29 of the 43 companies had fee increases of 5% or more, out of which 8 companies disclosed the reasons for the increases. 14 of the 43 companies had fee decreases of 5% or more, out of which only one company provided an explanatory disclosure.

53% of companies disclosed that the audit committee considered the impact of changing auditors when assessing whether to retain the current auditor. This was a 6 percentage point increase over 2015. In 2012, this disclosure was made by 3% of the Fortune 100 companies. Over the past five years, the number of companies disclosing that the audit committee was involved in the selection of the lead audit partner has grown dramatically, up to 73% in 2016. In 2015, 67% of companies disclosed this information, while in 2012, only 1% of companies did so.

51% of companies disclosed that they have three or more financial experts on their audit committees, up from 47% in 2015 and 36% in 2012.

Summary: Trends in Audit Committee Disclosure

(Cliquez pour agrandir)

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.

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.

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

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

Vous trouverez, ci-dessous, les dix thèmes les plus importants pour les administrateurs de sociétés selon Kerry E. Berchem, associé du groupe de pratiques corporatives à la firme Akin Gump Strauss Hauer & Feld LLP. Cet article est paru aujourd’hui sur le blogue le Harvard Law School Forum on Corporate Governance.

Bien qu’il y ait peu de changements dans l’ensemble des priorités cette année, on peut quand même noter :

(1) l’accent crucial accordé au long terme ;

(2) Une bonne gestion des relations avec les actionnaires dans la foulée du nombre croissant d’activités menées par les activistes ;

(3) Une supervision accrue des activités liées à la cybersécurité…

Pour plus de détails sur chaque thème, je vous propose la lecture synthèse de l’article ci-dessous.

Bonne lecture !

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

U.S. public companies face a host of challenges as they enter 2016. Here is our annual list of hot topics for the boardroom in the coming year:

Oversee the development of long-term corporate strategy in an increasingly interdependent and volatile world economy

Cultivate shareholder relations and assess company vulnerabilities as activist investors target more companies with increasing success

Oversee cybersecurity as the landscape becomes more developed and cyber risk tops director concerns

Oversee risk management, including the identification and assessment of new and emerging risks

Assess the impact of social media on the company’s business plans

Stay abreast of Delaware law developments and other trends in M&A

Review and refresh board composition and ensure appropriate succession

Monitor developments that could impact the audit committee’s already heavy workload

Set appropriate executive compensation as CEO pay ratios and income inequality continue to make headlines

Prepare for and monitor developments in proxy access

Strategic Planning Considerations

Strategic planning continues to be a high priority for directors and one to which they want to devote more time. Figuring out where the company wants to—and where it should want to—go and how to get there is not getting any easier, particularly as companies find themselves buffeted by macroeconomic and geopolitical events over which they have no control.

In addition to economic and geopolitical uncertainty, a few other challenges and considerations for boards to keep in mind as they strategize for 2016 and beyond include:

finding ways to drive top-line growth

focusing on long-term goals and enhancing long-term shareholder value in the face of mounting pressures to deliver short-term results

the effect of low oil and gas prices

figuring out whether and when to deploy growing cash stockpiles

assessing the opportunities and risks of climate change and resource scarcity

addressing corporate social responsibility.

Shareholder Activism

Shareholder activism and “suggestivism” continue to gain traction. With the success that activists have experienced throughout 2015, coupled with significant new money being allocated to activist funds, there is no question that activism will remain strong in 2016.

In the first half of 2015, more than 200 U.S. companies were publicly subjected to activist demands, and approximately two-thirds of these demands were successful, at least in part. [1] A much greater number of companies are actually targeted by activism, as activists report that less than a third of their campaigns actually become public knowledge. [2] Demands have continued, and will continue, to vary: from requests for board representation, the removal of officers and directors, launching a hostile bid, advocating specific business strategies and/or opining on the merit of M&A transactions. But one thing is clear: the demands are being heard. According to a recent survey of more than 350 mutual fund managers, half had been contacted by an activist in the past year, and 45 percent of those contacted decided to support the activist. [3]

With the threat of activism in the air, boards need to cultivate shareholder relations and assess company vulnerabilities. Directors—who are charged with overseeing the long-term goals of their companies—must also understand how activists may look at the company’s strategy and short-term results. They must understand what tactics and tools activists have available to them. They need to know and understand what defenses the company has in place and whether to adopt other protective measures for the benefit of the overall organization and stakeholders.

Cybersecurity

Nearly 90 percent of CEOs worry that cyber threats could adversely impact growth prospects. [4] Yet in a recent survey, nearly 80 percent of the more than 1,000 information technology leaders surveyed had not briefed their board of directors on cybersecurity in the last 12 months. [5] The cybersecurity landscape has become more developed and as such, companies and their directors will likely face stricter scrutiny of their protection against cyber risk. Cyber risk—and the ultimate fall out of a data breach—should be of paramount concern to directors.

One of the biggest concerns facing boards is how to provide effective oversight of cybersecurity. The following are questions that boards should be asking:

Governance. Has the board established a cybersecurity review > committee and determined clear lines of reporting and > responsibility for cyber issues? Does the board have directors with the necessary expertise to understand cybersecurity and related issues?

Critical asset review. Has the company identified what its highest cyber risks assets are (e.g., intellectual property, personal information and trade secrets)? Are sufficient resources allocated to protect these assets?

Threat assessment. What is the daily/weekly/monthly threat report for the company? What are the current gaps and how are they being resolved?

Incident response preparedness. Does the company have an incident response plan and has it been tested in the past six months? Has the company established contracts via outside counsel with forensic investigators in the event of a breach to facilitate quick response and privilege protection?

Employee training. What training is provided to employees to help them identify common risk areas for cyber threat?

Third-party management. What are the company’s practices with respect to third parties? What are the procedures for issuing credentials? Are access rights limited and backdoors to key data entry points restricted? Has the company conducted cyber due diligence for any acquired companies? Do the third-party contracts contain proper data breach notification, audit rights, indemnification and other provisions?

Insurance. Does the company have specific cyber insurance and does it have sufficient limits and coverage?

Risk disclosure. Has the company updated its cyber risk disclosures in SEC filings or other investor disclosures to reflect key incidents and specific risks?

The SEC and other government agencies have made clear that it is their expectation that boards actively manage cyber risk at an enterprise level. Given the complexity of the cybersecurity inquiry, boards should seriously consider conducting an annual third-party risk assessment to review current practices and risks.

Risk Management

Risk management goes hand in hand with strategic planning—it is impossible to make informed decisions about a company’s strategic direction without a comprehensive understanding of the risks involved. An increasingly interconnected world continues to spawn newer and more complex risks that challenge even the best-managed companies. How boards respond to these risks is critical, particularly with the increased scrutiny being placed on boards by regulators, shareholders and the media. In a recent survey, directors and general counsel identified IT/cybersecurity as their number one worry, and they also expressed increasing concern about corporate reputation and crisis preparedness. [6]

Given the wide spectrum of risks that most companies face, it is critical that boards evaluate the manner in which they oversee risk management. Most companies delegate primary oversight responsibility for risk management to the audit committee. Of course, audit committees are already burdened with a host of other responsibilities that have increased substantially over the years. According to Spencer Stuart’s 2015 Board Index, 12 percent of boards now have a stand-alone risk committee, up from 9 percent last year. Even if primary oversight for monitoring risk management is delegated to one or more committees, the entire board needs to remain engaged in the risk management process and be informed of material risks that can affect the company’s strategic plans. Also, if primary oversight responsibility for particular risks is assigned to different committees, collaboration among the committees is essential to ensure a complete and consistent approach to risk management oversight.

Social Media

Companies that ignore the significant influence that social media has on existing and potential customers, employees and investors, do so at their own peril. Ubiquitous connectivity has profound implications for businesses. In addition to understanding and encouraging changes in customer relationships via social media, directors need to understand and weigh the risks created by social media. According to a recent survey, 91 percent of directors and 79 percent of general counsel surveyed acknowledged that they do not have a thorough understanding of the social media risks that their companies face. [7]

As part of its oversight duties, the board of directors must ensure that management is thoughtfully addressing the strategic opportunities and challenges posed by the explosive growth of social media by probing management’s knowledge, plans and budget decisions regarding these developments. Given new technology and new social media forums that continue to arise, this is a topic that must be revisited regularly.

M&A Developments

M&A activity has been robust in 2015 and is on track for another record year. According to Thomson Reuters, global M&A activity exceeded $3.2 trillion with almost 32,000 deals during the first three quarters of 2015, representing a 32 percent increase in deal value and a 2 percent increase in deal volume compared to the same period last year. The record deal value mainly results from the increase in mega-deals over $10 billion, which represented 36 percent of the announced deal value. While there are some signs of a slowdown in certain regions based on deal volume in recent quarters, global M&A is expected to carry on its strong pace in the beginning of 2016.

Directors must prepare for possible M&A activity in the future by keeping abreast of developments in Delaware case law and other trends in M&A. The Delaware courts churned out several noteworthy decisions in 2015 regarding M&A transactions that should be of interest to directors, including decisions on the court’s standard of review of board actions, exculpation provisions, appraisal cases and disclosure-only settlements.

Board Composition and Succession Planning

Boards have to look at their composition and make an honest assessment of whether they collectively have the necessary experience and expertise to oversee the new opportunities and challenges facing their companies. Finding the right mix of people to serve on a company’s board of directors, however, is not necessarily an easy task, and not everyone will agree with what is “right.” According to Spencer Stuart’s 2015 Board Index, board composition and refreshment and director tenure were among the top issues that shareholders raised with boards. Because any perceived weakness in a director’s qualification could open the door for activist shareholders, boards should endeavor to have an optimal mix of experience, skills and diversity. In light of the importance placed on board composition, it is critical that boards have a long-term board succession plan in place. Boards that are proactive with their succession planning are able to find better candidates and respond faster and more effectively when an activist approaches or an unforeseen vacancy occurs.

Audit Committees

Averaging 8.8 meetings a year, audit continues to be the most time-consuming committee. [8] Audit committees are burdened not only with overseeing a company’s risks, but also a host of other responsibilities that have increased substantially over the years. Prioritizing an audit committee’s already heavy workload and keeping directors apprised of relevant developments, including enhanced audit committee disclosures, accounting changes and enhanced SEC scrutiny will be important as companies prepare for 2016.

Executive Compensation

Perennially in the spotlight, executive compensation will continue to be a hot topic for directors in 2016. But this year, due to the SEC’s active rulemaking in 2015, directors will have more to fret about than just say-on-pay. Roughly five years after the Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted, the SEC finally adopted the much anticipated CEO pay ratio disclosure rules, which have already begun stirring the debate on income inequality and exorbitant CEO pay. The SEC also made headway on other Dodd-Frank regulations, including proposed rules on pay-for-performance, clawbacks and hedging disclosures. Directors need to start planning how they will comply with these rules as they craft executive compensation for 2016.

Proxy Access

2015 was a turning point for shareholder proposals seeking to implement proxy access, which gives certain shareholders the ability to nominate directors and include those nominees in a company’s proxy materials. During the 2015 proxy season, the number of shareholder proposals relating to proxy access, as well as the overall shareholder support for such proposals, increased significantly. Indeed, approximately 110 companies received proposals requesting the board to amend the company’s bylaws to allow for proxy access, and of those proposals that went to a vote, the average support was close to 54 percent of votes cast in favor, with 52 proposals receiving majority support. [9] New York City Comptroller Scott Springer and his 2015 Boardroom Accountability Project were a driving force, submitting 75 proxy access proposals at companies targeted for perceived excessive executive compensation, climate change issues and lack of board diversity. Shareholder campaigns for proxy access are expected to continue in 2016. Accordingly, it is paramount that boards prepare for and monitor developments in proxy access, including, understanding the provisions that are emerging as typical, as well as the role of institutional investors and proxy advisory firms.

The complete publication is available here.

Endnotes:

[1] Activist Insight, “2015: The First Half in Numbers,” Activism Monthly (July 2015).
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[2] Activist Insight, “Activist Investing—An Annual Review of Trends in Shareholder Activism,” p. 8. (2015).
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[3] David Benoit and Kirsten Grind, “Activist Investors’ Secret Ally: Big Mutual Funds,” The Wall Street Journal (August 9, 2015).
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[4] PwC’s 18th Annual Global CEO Survey 2015.
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[5] Ponemon Institute’s 2015 Global Megatrends in Cybersecurity (February 2015).
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[6] Kimberley S. Crowe, “Law in the Boardroom 2015,” Corporate Board Member Magazine (2^nd Quarter 2015). See also, Protiviti, “Executive Perspectives on Top Risks for 2015.”
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[7] Kimberley S. Crowe, supra.
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[8] 2015 Spencer Stuart Board Index, at p. 26.
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[9] Georgeson, 2015 Annual Corporate Governance Review, at p. 5.
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Recrudescence de l’activisme des actionnaires en Europe

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

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

Bonne lecture !

Activist Investing in Europe: A Special Report

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

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

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

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

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

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

United Kingdom

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

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

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

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

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

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

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

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

Shareholder Activism—recent developments in the U.K.

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

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

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

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

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

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

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

France

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

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

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

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

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

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

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

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

France is in the process of strengthening its Say on Pay

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

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

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

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

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

Germany

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

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

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

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

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

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

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

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

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

New players rising

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

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

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

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

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

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

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

Italy

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

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

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

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

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

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

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

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

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

Switzerland

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

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

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

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

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

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

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

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

La SEC propose le bulletin de vote « universel »

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

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

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

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

Bonne lecture !

SEC Proposes Universal Proxy Ballots

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

The proposal would—

mandate the use of universal proxy cards for most contested director elections,

establish notice and filing requirements for both companies and dissidents,

require dissidents to undertake a minimum solicitation effort, and

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—

clearly distinguish between management nominees, dissident nominees, and any proxy access nominees,

within each group of nominees, list the nominees in alphabetical order,

use the same font type, style and size to present all nominees,

disclose the maximum number of nominees for which authority to vote can be granted, and

disclose the treatment of a proxy executed in a manner that grants authority to vote for more, or fewer, nominees than the number of directors being elected, or does not grant authority to vote for any nominees. A universal proxy card would be permitted to offer the ability to vote for all management nominees as a group or all dissident nominees as a group, but only if both parties have proposed a full slate of nominees and there are no proxy access candidates.

Voting Standards Disclosure and Voting Options

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

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

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

How Is This Different From Proxy Access?

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

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

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

What’s Next?

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

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

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

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

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

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

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

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

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

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

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

par

Nicolle Forget*

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

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

nicolle-forget

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

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

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

Malaise !

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Encore une fois, pour quoi ? Pour qui ?

Pourquoi pas aux activistes de toutes origines ?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Malaise !

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

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

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

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

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

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

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

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

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

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

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

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

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1. Corporate strategy: Oversee the development of the corporate strategy in an increasingly uncertain and volatile world economy with new and more complex risks

2. Political changes: Monitor the impact of major political changes, including the U.S. presidential and congressional elections and Brexit

3. Shareholder relations: Foster shareholder relations and assess company vulnerabilities to prepare for activist involvement

4. Cybersecurity: Understand and oversee cybersecurity risks to prepare for increasingly sophisticated and frequent attacks

5. SEC scrutiny: Monitor the SEC’s increased scrutiny and more frequent enforcement actions, including whistleblower developments, guidance on non-GAAP measures and tougher positions on insider trading

6. CFIUS: Account for CFIUS risks in transactions involving non-U.S. investments in businesses with a U.S. presence

7. Board composition: Evaluate and refresh board composition to help achieve the company’s goals, increase diversity and manage turnover

8. Executive compensation: Determine appropriate executive compensation against the background of an increased focus on CEO pay ratios

9. Antitrust scrutiny: Monitor the increased scrutiny of the antitrust authorities and the implications on various proposed combinations

10. Environmental disasters and contagious diseases: Monitor the impact of increasingly volatile weather events and contagious disease outbreaks on risk management processes, employee needs and logistics planning

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Higher Expectations and Greater Alignment Around Corporate Governance Norms

Corporate Governance in an Era of Political Uncertainty

Increasing Board Accountability for Long-Term Value Creation

Global and Regional Trends in Corporate Governance in 2017

United States

European Union

India

Japan

Brazil

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Board composition

Independent board leadership

Tenure and term limits

Mandatory retirement

Board evaluations

Shareholder engagement

Enhancing board performance

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Annual Voting Review

Director Elections

Executive Compensation

Asset Owner/Asset Manager Peer Benchmarking

Active Ownership

Notable Votes

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Building Block 1: Be Prepared

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

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

Building Block 4: Maintain Transparent Disclosure Practices

Building Block 5: Educate Third Parties

Building Block 6: Do Your Homework

Building Block 7: Communicate With the Activist

Building Block 8: Understand the Role of Litigation

Building Block 9: Factor in Contingencies and Options

Building Block 10: Understand the Role of Regulators

Endnotes

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Six mesures pour améliorer la gouvernance des organismes publics au Québec

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Context

Findings

Summary: Trends in Audit Committee Disclosure

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Selected Editorial Reviews

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Strategic Planning Considerations

Shareholder Activism

Cybersecurity

Risk Management

Social Media

M&A Developments

Board Composition and Succession Planning

Audit Committees

Executive Compensation

Proxy Access

Endnotes:

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United Kingdom

Shareholder Activism—recent developments in the U.K.

France

France is in the process of strengthening its Say on Pay