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Les politiques des Cégeps et la gouvernance créatrice de valeur


Nous publions ici un billet de Danielle Malboeuf* qui nous renseigne sur une gouvernance créatrice de valeur eu égard à la gestion des CÉGEP.

Comme à l’habitude, Danielle nous propose son article à titre d’auteure invitée.

Je vous souhaite bonne lecture. Vos commentaires sont appréciés.

 

Cégeps : politiques et gouvernance

par

Danielle Malboeuf*  

 

Résultats de recherche d'images pour « gouvernance créatrice de valeur »

 

Un enjeu à ne pas négliger

 

Chaque année, des personnes motivées et intéressées investissent leur temps et leur énergie dans les conseils d’administration (CA) des collèges. Elles surveillent particulièrement la gestion financière du collège et assurent une utilisation efficace et efficiente des sommes d’argent qui y sont dédiées. Toutefois, comme j’ai pu le constater lors de mes échanges avec des administrateurs, ces personnes souhaitent jouer un rôle qui va au-delà de celui de « fiduciaire ». Elles veulent avoir une contribution significative à la mission première du Cégep : donner une formation pertinente et de qualité où l’étudiant et sa réussite éducative sont au cœur des préoccupations. Elles désirent ainsi soutenir les cégeps dans leur volonté d’améliorer leur efficacité et leur efficience, de se développer et d’assurer la qualité et la pertinence de leurs services. Le nouveau mode de gouvernance qui est actuellement encouragé dans les institutions tant publiques que privées répond à ces attentes. Il s’agit d’une « gouvernance créatrice de valeurs » (1). Ce mode de gouvernance permet à chacun de contribuer sur la base de ses expériences et compétences au développement de nos collèges.

Pour permettre au CA de jouer pleinement son rôle de « créateur de valeurs », les collèges doivent compter sur des administrateurs compétents qui veillent au respect de ses obligations et à l’atteinte de haut niveau de performance. D’ailleurs, dans la suite de la parution d’un rapport de la vérificatrice générale en 2016 portant sur la gestion administrative des cégeps (2), j’ai rédigé un article dans lequel, je rappelais l’importance d’avoir, au sein des conseils d’administration (CA) des collèges, des administrateurs compétents qui ont, entre autres, une bonne connaissance des politiques, directives et exigences réglementaires en vigueur afin de répondre adéquatement aux attentes formulées dans ce rapport. La vérificatrice générale y recommandait entre autres, au regard des modes de sollicitation, le respect de la réglementation et des politiques internes (3). Il m’apparaît donc essentiel que les administrateurs soient en mesure d’évaluer régulièrement leur pertinence et leur mise en application.

Ainsi, parmi les responsabilités confiées au conseil, on retrouve celles-ci (4) :

  1. s’assurer que l’institution est administrée selon des normes reconnues et en conformité avec les lois.
  2. définir les politiques et les règlements de l’institution, les réviser périodiquement et s’assurer qu’ils sont appliqués.

 

Les collèges ont cinquante ans. Tout au cours de ces années, on a élaboré et mis en œuvre de nombreuses politiques et règlements qui ont été adoptés par les CA. Ces documents sont apparus au fil des ans pour répondre à des exigences légales et ministérielles, mais également à des préoccupations institutionnelles. Pour assurer l’application de ces politiques et règlements, les gestionnaires ont produit des outils de gestion : programmes, directives et procédures. On retrouve donc dans les collèges, des Cahiers de gestion qui regroupent tous ces documents et qui amènent des défis de mise en œuvre, de suivi et de révision.

Des collèges reconnaissent ces défis. En effet, la Commission d’évaluation de l’enseignement collégial (CEEC) fait le constat suivant dans son bilan des travaux portant sur l’évaluation de l’efficacité des systèmes d’assurance qualité. « Certains collèges ont entrepris…, la mise en place d’outils de gestion concertée et intégrée de la qualité ». « Certains collèges estiment toutefois que du travail reste à faire pour améliorer la synergie entre les mécanismes » (5).

Considérant les préoccupations actuelles et les attentes formulées par la Vérificatrice générale, j’invite tous les collèges à se doter de mécanismes au regard des politiques et règlements qui s’inscrivent dans les bonnes pratiques de gouvernance :

  1. Valider la pertinence de toute cette documentation ;

D’abord, les administrateurs doivent connaître le contenu des politiques et règlements, car ils ont, rappelons-le, la responsabilité de s’assurer qu’ils sont appliqués. Ils doivent également valider que tous ces documents sont encore pertinents. Constate-t-on des redondances ? Si c’est le cas, il faut apporter des correctifs.

2. Assurer la cohérence de toute cette documentation ;

À la lecture de documents institutionnels, on constate que les termes politiques, règlements, programmes, directives et procédures n’ont pas la même signification d’un collège à l’autre et à l’intérieur d’un même collège. On note la présence de politiques et de programmes qui sont rattachés au même objet. Alors qu’une politique est un ensemble d’orientation et de principes, un programme est un « ensemble des intentions d’action et des projets que l’institution doit mettre en œuvre pour respecter les orientations gouvernementales ou institutionnelles. »

À titre d’exemple, pour se conformer à une exigence ministérielle, les collèges ont élaboré, il y a plusieurs années, une Politique de gestion des ressources humaines pour le personnel membre d’une association accréditée au sens du Code du travail (on exclut ici les hors-cadre et cadres). Cette politique devait inclure des dispositions concernant l’embauche, l’insertion professionnelle, l’évaluation et le perfectionnement de ces employés. Dans certains collèges, ces dispositions se sont traduites par des programmes et d’autres par des politiques. Dans un même collège, on peut retrouver pour l’évaluation du personnel, un programme pour certaines catégories de personnel et une politique pour d’autres employés. Rappelons encore ici que le CA porte un regard sur les politiques et non les programmes. Cela pose un problème de cohérence, mais également d’équité.

De plus, on peut retrouver dans une politique des modalités de fonctionnement. Rappelons qu’une politique est un « ensemble d’orientations et de principes qui encadrent les actions que doit mettre en œuvre l’institution en vue d’atteindre les principes généraux préalablement fixés par le Ministère ou le CA. » Donc, dans une politique, on ne devrait pas retrouver des actions ou des modalités de fonctionnement qui s’apparentent à des directives ou des procédures. Le CA n’a pas à d’adopter des modalités de fonctionnement, car c’est une responsabilité de la direction générale.

3. Valider l’applicabilité des politiques et règlements en vigueur

Tel que suggéré par l’IGOPP (Institut sur la gouvernance d’organisations privées et publiques), le comité d’audit devrait avoir, entre autres, le mandat de :

Prendre connaissance au moins une fois l’an des mesures de conformité aux lois, règlements et politiques (6).

Un exemple de l’importance pour le CA de s’assurer de l’application des Lois et politiques est celle liée à la gestion contractuelle. La Loi sur les contrats dans les organismes publics demande à chaque collège de nommer un responsable de l’observation des règles contractuelles (RORC). Cette personne doit transmettre au CA et au Secrétariat du Conseil du trésor un rapport qui fait état de ses activités, de ses observations et de ses recommandations. Le but visé est de valider que la gestion contractuelle du collège se conforme à la loi, aux directives et aux règlements (du gouvernement et du collège). Il faut s’assurer que cela soit fait.

4. Procéder à la révision de ces politiques et règlements de façon systématique ;

La majorité des politiques et des règlements prévoient des moments de révision. A-t-on un calendrier de suivi à cet effet ?

J’encourage donc les conseils d’administration des collèges et les gestionnaires à inscrire la validation et l’évolution des politiques et règlements, à leurs priorités institutionnelles. On permet ainsi aux administrateurs de jouer pleinement leur rôle et de participer au développement de nos institutions.


(1) Le modèle de gouvernance « Créatrice de valeurs »®, préconisé par l’Institut sur la gouvernance d’organisations privées et publiques est celui développé par le professeur Yvan Allaire, président exécutif du conseil de l’IGOPP.

(2) Rapport du Vérificateur général du Québec à l’Assemblée nationale pour l’année 2016-2017, Gestion administrative des cégeps, Automne 2016

(3) idem, p.4

(4) Extraits du séminaire sur la gouvernance ; vers une gouvernance « Créatrice de valeurs », IGOPP (Institut sur la gouvernance d’organisations privées et publiques)

(5) Bilan de l’an 3-2016-2017, principaux constats découlant des audits de l’an 3, Évaluation de l’efficacité des systèmes d’assurance qualité des collèges québécois, p.20

(6) Extrait du séminaire sur la gouvernance ; vers une gouvernance « Créatrice de valeurs », IGOPP (Institut sur la gouvernance d’organisations privées et publiques), charte du comité de vérification et de finances.

_____________________________________

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


 

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

 

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

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

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

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

(5) La gouvernance des CÉGEPS | Une responsabilité partagée

(6) La gouvernance des Cégeps | Le rapport du Vérificateur général du Québec

Une revue de l’activisme actionnarial


Excellente revue de l’activisme actionnarial en 2018 par Jim Rossman, directeur de Shareholder Advisory de la firme Lazard. L’article a été publié sur le forum de la Harvard Law School aujourd’hui.

Vous trouverez ci-dessous les faits marquants de l’année. Je vous encourage à prendre connaissance des nombreuses illustrations infographiques dans la version complète.

Bonne lecture !

2018 Review of Shareholder Activism

 

 Résultats de recherche d'images pour « Shareholder Activism »

1. A New High-Water Mark for Global Activist Activity

  1. A record 226 companies were targeted in 2018, as compared to 188 companies in 2017
  2. $65.0bn of capital deployed in 2018, up from $62.4bn in 2017
  3. In spite of significant market volatility, Q4 2018 was the most active Q4 on record both by campaign volume and capital deployed
  4. Against the backdrop of a robust M&A market, 33% of 2018 activist campaigns were M&A related

2. Broadening Use of Activism as a Tactic

  1. A record 131 investors engaged in activism in 2018, reflecting the continued expansion of activism as a tactic
  2. 40 “first timers” launched activist campaigns in 2018, as compared to 23 “first timers” in 2017
  3. Nine of the top 10 activists (by current activist positions [1]) invested more than $1bn in 2018 (60 new campaigns in aggregate)
  4. Elliott continued to be the most prolific activist, with 22 new campaigns launched in 2018

3. Activism Is Reshaping Boardrooms

  1. 161 Board seats won in 2018, [2] up 56% from 2017 and 11% higher than the previous record of 145 seats in 2016
  2. Starboard led the way in 2018, winning 29 seats exclusively through negotiated settlements
  3. Activists continue to name accomplished candidates, with 27% of activist appointees having public company CEO/CFO experience
  4. However, only 18% of activist appointees in 2018 were female, as compared to 40% of new S&P 500 directors in 2018 [3]

4. Activism Has Global Reach

  1. Activist campaigns in Europe and APAC accounted for 23% and 12% of companies targeted, respectively
  2. 58 European campaigns and 30 APAC campaigns in 2018 were each record highs
  3. National champions, iconic family owned companies and regulated industries featured prominently among targeted companies

5. Traditional Active Managers Are the “New Vocalists”

  1. Traditional active managers are increasingly comfortable sharing their views on major activist campaigns in private interactions with
    management and more public forums
  2. Traditional managers like T. Rowe Price, Janus Henderson and GBL publicly voiced their opinions on major activist campaigns

6. Shareholder Dynamics Are Attracting Scrutiny

  1. BlackRock’s Larry Fink set the tone for the year, calling on companies to identify and follow through on their social purpose
  2. Stakeholder duties, employee Board representation and capital allocation / share buybacks became political issues
  3. Voting power of index funds remains a highly debated topic, and regulators have begun to explore the influence of proxy advisory firms and the proxy voting process itself

The complete publication, including Appendix, is available here.

Top 10 de Harvard Law School Forum on Corporate Governance au 24 janvier 2019


Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 24 janvier 2019.

Comme à l’habitude, j’ai relevé les dix principaux billets.

Bonne lecture !

 

Résultats de recherche d'images pour « top 10 »

 

Résultats de recherche d'images pour « Top 10 en gouvernance Harvard Law School »

 

 

  1. Incorporating Social Activism
  2. Public Hedge Funds
  3. 10 Tips for 10-Ks and Proxy Statement
  4. OCIE Examination Priorities for 2019
  5. Another Look at “Super Options”
  6. Corporate Governance Survey: 2018 Proxy Season
  7. Directors: Older and Wiser, or Too Old to Govern?
  8. Market Power and Inequality
  9. Purpose & Profit
  10. Global Antitakeover and Antiactivist Devices

L’âge des administrateurs de sociétés représente-t-il un facteur déterminant dans leur efficacité comme membres indépendants de conseils d’administration ?


Voici une question que beaucoup de personnes expertes avec les notions de bonne gouvernance se posent : « L’âge des administrateurs de sociétés représente-t-il un facteur déterminant dans leur efficacité comme membres indépendants de conseils d’administration ? »

En d’autres termes, les administrateurs indépendants (AI) de 65 ans et plus sont-ils plus avisés, ou sont-ils carrément trop âgés ?

L’étude menée par Ronald Masulis* de l’Université de New South Wales Australian School of Business et de ses collègues est très originale dans sa conception et elle montre que malgré toutes les réformes réglementaires des dernières années, l’âge des administrateurs indépendants est plus élevé au lieu d’être plus bas, comme on le souhaitait.

L’étude montre que pendant la période allant de 1998 à 2014, l’âge médian des administrateurs indépendants (AI) des grandes entreprises américaines est passé de 60 à 64 ans. De plus, le pourcentage de firmes ayant une majorité de AI de plus de 65 ans est passé de 26 % à 50 % !

L’étude montre que le choix d’administrateurs indépendants de plus de 65 ans se fait au détriment d’une nouvelle classe de jeunes administrateurs dynamiques et compétents. Cela a pour effet de réduire le bassin des nouveaux administrateurs requis pour des postes d’administrateurs de la relève, ainsi que pour les besoins criants d’une plus grande diversité.

In our new study Directors: Older and Wiser, or Too Old to Govern?, we investigate this boardroom aging phenomenon and examine how it affects board effectiveness in terms of firm decision making and shareholder value creation. On the one hand, older independent directors can be valuable resources to firms given their wealth of business experience and professional connections accumulated over the course of their long careers. Moreover, since they are most likely to have retired from their full-time jobs, they should have more time available to devote to their board responsibilities. On the other hand, older independent directors can face declining energy, physical strength, and mental acumen, which can undermine their monitoring and advisory functions. They can also have less incentive to build and maintain their reputation in the director labor market, given their dwindling future directorship opportunities and shorter expected board tenure as they approach normal retirement age.

Dans la foulée des mouvements activistes, plusieurs entreprises semblent faire le choix d’AI plus âgés. Cependant, l’analyse coût/bénéfice de l’efficacité des AI plus âgés montre que leurs rendements est possiblement surfait et que la tendance à éliminer ou à retarder l’âge limite de retraite doit faire l’objet d’une bonne réflexion !

Si le sujet vous intéresse, je vous invite à lire l’article original. Vos commentaires sont les bienvenus.

Bonne lecture !

Directors: Older and Wiser, or Too Old to Govern?

 

 

figure 3

 

 

The past two decades have witnessed dramatic changes to the boards of directors of U.S. public corporations. Several recent governance reforms (the 2002 Sarbanes-Oxley Act, the revised 2003 NYSE/Nasdaq listing rules, and the 2010 Dodd-Frank Act) combined with a rise in shareholder activism have enhanced director qualifications and independence and made boards more accountable. These regulatory changes have significantly increased the responsibilities and liabilities of outside directors. Many firms have also placed limits on how many boards a director can sit on. This changing environment has reduced the ability and incentives of active senior corporate executives to serve on outside boards. Faced with this reduced supply of qualified independent directors and the increased demand for them, firms are increasingly relying on older director candidates. As a result, in recent years the boards of U.S. public corporations have become notably older in age. For example, over the period of 1998 to 2014, the median age of independent directors at large U.S. firms rose from 60 to 64, and the percentage of firms with a majority of independent directors age 65 or above nearly doubled from 26% to 50%.

In our new study Directors: Older and Wiser, or Too Old to Govern?, we investigate this boardroom aging phenomenon and examine how it affects board effectiveness in terms of firm decision making and shareholder value creation. On the one hand, older independent directors can be valuable resources to firms given their wealth of business experience and professional connections accumulated over the course of their long careers. Moreover, since they are most likely to have retired from their full-time jobs, they should have more time available to devote to their board responsibilities. On the other hand, older independent directors can face declining energy, physical strength, and mental acumen, which can undermine their monitoring and advisory functions. They can also have less incentive to build and maintain their reputation in the director labor market, given their dwindling future directorship opportunities and shorter expected board tenure as they approach normal retirement age.

We analyze a sample of S&P 1500 firms over the 1998-2014 period and define an independent director as an “older independent director” (OID) if he or she is at least 65 years old. We begin by evaluating individual director performance by comparing board meeting attendance records and major board committee responsibilities of older versus younger directors. Controlling for a battery of director and firm characteristics as well as director, year, and industry fixed effects, we find that OIDs exhibit poorer board attendance records and are less likely to serve as the chair or a member of an important board committee. These results suggest that OIDs either are less able or have weaker incentives to fulfill their board duties.

We next examine major corporate policies and find a large body of evidence consistently pointing to monitoring deficiencies of OIDs. To measure the extent of boardroom aging, we construct a variable, OID %, as the fraction of all independent directors who are categorized as OIDs. As the percentage of OIDs on corporate boards rises, excess CEO compensation increases. This relationship is mainly driven by the cash component of CEO compensation. A greater OID presence on corporate boards is also associated with firms having lower financial reporting quality, poorer acquisition profitability measured by announcement returns, less generous payout polices, and lower CEO turnover-to-performance sensitivity. Moreover, we find that firm performance, measured either by a firm’s return on assets or its Tobin’s Q, is significantly lower when firms have a greater fraction of OIDs on their boards. These results collectively support the conclusion that OIDs suffer from monitoring deficiencies that impair the board’s effectiveness in providing management oversight.

We employ a number of approaches to address the endogeneity issue. First, we include firm-fixed effects wherever applicable to control for unobservable time-invariant firm-specific factors that may correlate with both the presence of OIDs and the firm outcome variables that we study. Second, we employ an instrumental variable regression approach where we instrument for the presence of OIDs on a firm’s board with a measure capturing the local supply of older director candidates in the firm’s headquarters state. We find that all of our firm-level results continue to hold under a two-stage IV regression framework. Third, we exploit a regulatory shock to firms’ board composition. The NYSE and Nasdaq issued new listing standards in 2003 following the passage of the Sarbanes-Oxley Act (SOX), which required listed firms to have a majority of independent directors on the board. We show that firms non-compliant with the new rule experienced a significantly larger increase in the percentage of OIDs over the 2000-2005 period compared to compliant firms. A major reason for this difference is that noncompliant firms needed to hire more OIDs to comply with the new listing standards. Using a firm’s noncompliance status as an instrument for the change in the board’s OID percentage, we find that firm performance deteriorates as noncompliant firms increase OIDs on their boards. We also conduct two event studies, one on OID appointment announcements and the other on the announcements of firm policy changes that increase the mandatory retirement age of outside directors. We find that shareholders react negatively to both announcements.

In our final set of analysis, we explore cross-sectional variations in the relation between OIDs and firm performance and policies. We find that the negative relation between OIDs and firm performance is more pronounced when OIDs hold multiple outside board seats. This evidence suggests that “busyness” exacerbates the monitoring deficiency of OIDs. We also find that for firms with high advisory needs, the relation between OIDs and firm performance is no longer significantly negative and in some cases, becomes positive. These results are consistent with OIDs using their experience and resources to provide valuable counsel to senior managers in need of board advice. Also consistent with OIDs performing a valuable advisory function, our analysis of acquirer returns shows that the negative relation between OIDs and acquirer returns is limited to OIDs who have neither prior acquisition experience, nor experience in the target industry. For OIDs with either type of experience, their marginal effect on acquirer returns is non-negative, and sometimes significantly positive.

Our research is the first investigation of the pervasive and growing phenomenon of boardroom aging at large U.S. corporations and its impact on board effectiveness and firm performance. As the debate over director age limits continues in the news media and among activist shareholders and regulators, our findings on the costs and benefits associated with OIDs can provide important and timely policy guidance. For companies considering lifting or waiving mandatory director retirement age requirements, so as to lower the burden of recruiting and retaining experienced independent directors, our evidence should give them pause. Similarly, while recent corporate governance reforms and the rise in shareholder activism have made boards, and especially independent directors, more accountable for managerial decisions and firm performance, they may also have created the unintended consequence of shrinking the supply of potential independent directors who are younger active executives. This result has led firms to tap deeper into the pool of older director candidates, which our analysis shows can undermine the very objectives that corporate governance reforms seek to accomplish.

The complete paper is available for download here.

___________________________________________________________________________________

*Ronald Masulis is Scientia Professor of Finance at University of New South Wales Australian School of Business; Cong Wang is Professor of Finance at The Chinese University of Hong Kong, Shenzhen and the associate director of Shenzhen Finance Institute; Fei Xie is Associate Professor of Finance at the University of Delaware; and Shuran Zhang is Associate Professor of Finance at Jinan University. This post is based on their recent paper.

Top 10 de Harvard Law School Forum on Corporate Governance au 17 janvier 2019


Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 17 janvier 2019.

Comme à l’habitude, j’ai relevé les dix principaux billets.

Bonne lecture !

 

Résultats de recherche d'images pour « top 10 »

 

Résultats de recherche d'images pour « Top 10 en gouvernance Harvard Law School »

 

 

  1. Quarterly Reporting—What’s Next?
  2. Top Priorities for Boards in 2019
  3. Compensation Season 2019
  4. The Board, CEO Misconduct, and Corporate Culture
  5. Corporate Governance Failures and Interim CEOs
  6. Transparency in Corporate Groups
  7. 2019 Proxy Letter—Aligning Corporate Culture with Long-Term Strategy
  8. Electronic Proxy Statement Dissemination and Shareholder Monitoring
  9. Top 10 Topics for Directors in 2019
  10. 2018 Private Equity Year in Review

Dix sujets « hots » pour les administrateurs en 2019


Voici dix thèmes « chauds » qui devraient préoccuper les administrateurs en 2019.

Ils ont été identifiés par Kerry BerchemChristine LaFollette, et Frank Reddick, associés de la firme Akin Gump Strauss Hauer & Feld.

Le billet est paru aujourd’hui sur le forum du Harvard Law School.

Bonne lecture ! Quels sont vos points de vue à ce sujet ?

 

Top 10 Topics for Directors in 2019

 

 

Résultats de recherche d'images pour « Akin Gump Strauss Hauer & Feld »

 

1. Corporate Culture

The corporate culture of a company starts at the top, with the board of directors, and directors should be attuned not only to the company’s business, but also to its people and values across the company. Ongoing and thoughtful efforts to understand the company’s culture and address any issues will help the board prepare for possible crises, reduce potential liability and facilitate appropriate responses internally and externally.

2. Board Diversity

As advocates and studies continue to highlight the business case for diversity, public companies are facing increasing pressure from corporate governance groups, investors, regulators and other stakeholders to improve gender and other diversity on the board. As a recent McKinsey report highlights, many successful companies regard inclusion and diversity as a source of competitive advantage and, specifically, as a key enabler of growth.

3. #MeToo Movement

A responsible board should anticipate the possibility that allegations of sexual harassment may arise against a C-suite or other senior executive. The board should set the right tone from the top to create a respectful culture at the company and have a plan in place before these incidents occur. In that way, the board is able to quickly and appropriately respond to any such allegations. Any such response plan should include conducting an investigation, proper communications with the affected parties and the implementation of any necessary remedial steps.

4. Corporate Social Responsibility

Corporate social responsibility (CSR) concerns remained a hot-button issue in 2018. Social issues were at the forefront this year, ranging from gun violence, to immigration reform, to human trafficking, to calls for greater accountability and action from the private sector on issues such as climate change. This reflects a trend that likely foretells continued and increased focus on environmental, social and governance issues, including from regulatory authorities.

5. Corporate Strategy

Strategic planning should continue to be a high priority for boards in 2019, with a focus on the individual and combined impacts of the U.S. and global economies, geopolitical and regulatory uncertainties, and mergers and acquisitions activity on their industries and companies. Boards should consider maximizing synergies from recent acquisitions or reviewing their companies’ existing portfolios for potential divestitures.

6. Sanctions

During the second year of the Trump administration, U.S. sanctions expanded significantly to include new restrictions that target transactions with Iran, Russia and Venezuela. Additionally, the U.S. government has expanded its use of secondary sanctions to penalize non-U.S. companies that engage in proscribed activities involving sanctioned persons and countries. To avoid sanctions-related risks, boards should understand how these evolving rules apply to the business activities of their companies and management teams.

7. Shareholder Activism

There has been an overall increase in activism campaigns in 2018 regarding both the number of companies targeted and the number of board seats won by these campaigns. This year has also seen an uptick in traditionally passive and institutional investors playing an active role in encouraging company engagement with activists, advocating for change themselves and formulating express policies for handling activist campaigns.

8. Cybersecurity

With threats of nation-states infiltrating supply chains, and landmark laws being passed, cybersecurity and privacy are critical aspects of director oversight. Directors must focus on internal controls to guard against cyber-threats (including accounting, cybersecurity and insider trading) and expand diligence of third-party suppliers. Integrating both privacy and security by design will be critical to minimizing ongoing risk of cybersecurity breaches and state and federal enforcement.

9. Tax Cuts and Jobs Act

A year has passed since President Trump signed the Tax Cuts and Jobs Act (TCJA) into law, and there will be plenty of potential actions and new faces on the tax landscape in 2019. Both the Senate Finance Committee and the Ways and Means Committee will have new chairs, and Treasury regulations implementing the TCJA will be finalized. President Trump will continue to make middle-class tax cuts a priority heading into next year. Perennial issues, such as transportation, retirement savings and health care, will likely make an appearance, and legislation improving the tax reform bill could be on the table depending on the outcome of the Treasury regulations.

10. SEC Regulation and Enforcement

To encourage public security ownership, the Securities and Exchange Commission (SEC) has adopted and proposed significant revisions to update and simplify disclosure requirements for public companies. It has taken steps to enhance the board’s role in evaluating whether to include shareholder proposals in a company’s proxy statement. It has also solicited comments on the possible reform of proxy advisor regulation, following increasing and competing calls from corporations, investor advocates and congressional leaders to revise these regulations. Boards and companies should monitor developments in this area, as well as possible changes in congressional and administration emphasis following the 2018 midterm elections.

Bonus: Midterm Elections

The 2018 midterm elections are officially over. Americans across the country cast their ballots for candidates for the House of Representatives and the Senate in what was widely perceived to be a referendum on President Trump’s first two years in office. With Democrats taking control of the House, and Republicans maintaining control of the Senate, a return to divided government will bring new challenges for effective governance. Compromise and bipartisanship will be tested by what is expected to be an aggressive oversight push from House Democrats. However, areas where there may be possible compromise include federal data privacy standards, infrastructure development, criminal justice reform and pharmaceutical drug pricing initiatives.

The complete publication is available here.

De nombreux programmes de formation continue à l’intention des administrateurs de sociétés


Que l’on soit soumis à une politique de formation continue ou non, janvier est un bon moment pour planifier des formations d’appoint.

Ayant une bonne connaissance des formations offertes aux membres de conseils d’administration, je me permets de vous suggérer les formations offertes par le Collège des administrateurs de sociétés (CAS).

Les formations du Collège sont à la fine pointe en matière de perfectionnement des administrateurs.

En plus de leurs formations spécialisées (PME, TI, OBNL), le Collège offre des programmes de perfectionnement pour les administrateurs (ASC ou non) qui sont variés et pertinents.

De plus, je vois que les formations sont offertes en présentiel et même en ligne. Voilà un bon moyen de cumuler des heures de formation continue, sans même se déplacer !

Bonne lecture !

 

Entête programme de perfectionnement

 

 

FAIRE RAYONNER L’EXCELLENCE DES ADMINISTRATEURS DE SOCIÉTÉS CERTIFIÉS

On constate une évolution progressive dans la composition des conseils d’administration


Les plus jeunes administrateurs sont appelés à devenir de nouvelles voix influentes dans les conseils ;

 

New Voices in the Boardroom: The Gradual Evolution of Board Composition

 

Résultats de recherche d'images pour « evolution composition CA »

 

The stakes for having the right people around the boardroom table have never been higher. Directors need to have the skills and experiences that not only align with their company’s long-term strategic direction but also enable their boards to effectively advise management amid unprecedented change and business disruption. Board succession has emerged as a key priority for shareholders, who increasingly expect boards to have a rigorous process in place for assessing board composition and refreshment. Of particular concern are whether there is enough diversity in the boardroom, whether the board has the right combination of skills, and how the board views director tenure.

Notably, directors with diverse profiles are increasingly joining US boardrooms. However, a chronically low rate of director turnover is bringing about only gradual shifts in the overall makeup of US boards. The modest pace of change is likely to persist, meaning that corporate boards are likely to evolve only incrementally.

Directors with diverse profiles are increasingly joining US boardrooms.

Looking to the year ahead, the following represent the board trends Spencer Stuart believes will continue or accelerate in 2019, and how they are likely to shape board composition in 2019 and beyond.

 

Turnover will continue to be driven by director departures and mandatory retirement in the near term.

 

In 2018, S&P 500 companies added the highest number of new directors since 2004 — roughly 0.88 new independent directors per board. That said, overall turnover in US boardrooms is modest, and is likely to remain so for the foreseeable future, impeding meaningful year-over-year change in the overall composition of S&P 500 boards. During the 2018 proxy season, a little more than half of S&P 500 boards (57%) added one or more new directors.

Barring changes in boardroom refreshment practices, this trend is likely to continue. Limits on director tenure are rare today. Only 25 S&P 500 boards (5%) set explicit term limits for nonexecutive directors, with terms ranging from 9 to 20 years. Additionally, it does not appear that individual and/or peer assessments are regularly used by boards to promote refreshment. Only 38 percent of S&P 500 companies report some form of individual director evaluations, a percentage largely unchanged over the past five years.

Instead, S&P 500 boards are likely to continue relying on mandatory retirement policies to stimulate board turnover. Today, 71 percent of S&P 500 boards disclose a mandatory retirement age for directors, consistent with the past five years. Retirement ages also continue to climb. In 2008, a meager 11 percent of S&P 500 companies with mandatory retirement policies set the age limit at 75 or older, compared to 43.5 percent today. More than half of these companies mandate a retirement age of at least 73 or older. Three boards have a retirement age of 80.

 

 

Three-quarters of the independent directors who left S&P 500 boards in the 2018 proxy season served on boards with mandatory retirement ages. The age limits appeared to have influenced many of these departures — 37 percent of retirees had reached or exceeded the age limit at retirement, and another 16 percent left within three years of the retirement age. Currently, only 16 percent of the independent directors on S&P 500 boards with age caps are within three years of mandatory retirement.

Experience as a CEO, board chair, or similar position is no longer viewed as the only qualifying credential for director candidates.

The boardroom will gradually be reshaped by new perspectives and expertise.

 

While modest turnover will continue, evidence suggests that boards will use openings from director departures to inject fresh perspectives and expertise into emerging areas of need.

For one thing, experience as a CEO, board chair, or similar position is no longer viewed as the only qualifying credential for director candidates. Of the 428 new independent directors added to S&P 500 boards in the 2018 proxy year, only 35.5 percent were active or retired CEOs, board chairs, or similar, down from 47 percent a decade ago. Nor is a background in a public company boardroom a requirement. First-time public company directors constituted 33 percent of the 2018 class of new S&P 500 directors. These first-timers are younger than their peers and more likely to be actively employed (64% versus 53%). They are less likely to be CEOs or chief operating officers, and more likely to have other managerial experiences such as line or functional backgrounds or to hold roles in division/subsidiary leadership. They are also more likely to be minorities: 24 percent of first-time directors in 2018 are minorities, versus 19 percent of all new S&P 500 directors.

Of the 428 new independent directors added to S&P 500 boards in the 2018 proxy year, only 35.5 percent were active or retired CEOs, board chairs, or similar, down from 47 percent a decade ago.

*Includes directors who had served or were serving as an executive director on a public company board.

 

Recognizing the strategic imperative for new perspectives and experience in the boardroom, boards are increasingly adding directors with backgrounds in technology, digital transformation and technologies, consumer marketing, and other areas of emerging importance. Financial talent remains prized, especially the experiences of chief financial officers, finance executives, and/or investment professionals. That said, as investors have continued to press for more gender diversity, S&P 500 boards have increased the number of women directors, reaching a new high: 40 percent of new directors in the 2018 proxy year are women, an increase from 36 percent in 2017.

Financial talent remains prized, especially the experiences of chief financial officers, finance executives, and/or investment professionals.

 

Boards are also likely to enhance disclosures about composition. As interest in boardroom composition among investors has increased, a growing number of companies are voluntarily enhancing their disclosures to highlight the diversity of their boards and to showcase how director skills and qualifications align with company strategy. In fact, nearly a third (30%) of S&P 500 companies have published a board matrix spotlighting the skills and qualifications of each director on their governance web page.

Younger directors may become a potent new voice in the boardroom.

 

As boards prioritize new areas of expertise — such as industry and functional experience in technology and digital transformation, and certain areas of marketing and finance — many are tapping “next-generation” directors whose qualifications align with the needs of their organizations. One out of six directors (17%) in the 2018 class of new directors is age 50 or younger.

Given that their backgrounds and profiles differ from more traditional board members, these directors are likely to bring varied perspectives to boardroom discussions. Nearly two-thirds of these “next-gen” corporate directors have expertise in three sectors: technology/telecommunications (34%), consumer goods (16%), and private equity/investments (14%). A majority (almost two-thirds) are serving on their first public company board. More than half (53%) are women.

Interestingly, these directors may also be less likely to have lengthy tenures, due to factors such as the demands of their careers, a desire to move on, or dissatisfaction with their board experience. Twenty-eight (7%) of the 417 directors who left an S&P 500 board seat in the 2018 proxy season were 55 years old or younger, with an average tenure of five years. Other directors who departed their boards over the same period had a much longer tenure on average (12.7 years) and were 68.4 years old on average.

Business demands and investor pressure are likely to change how boards think about composition and refreshment strategies.

The implications for your board

 

Business demands and investor pressure are likely to change how boards think about composition and refreshment strategies. Increasingly, directors are recognizing that board composition should support and reflect the strategic needs of the organization. Boards can use the following recommendations to enhance short- and long-term approaches to their composition:

Have an ongoing refreshment strategy.

The composition of the board should be viewed as a strategic asset. Boards will be better prepared to plan for and take advantage of openings if there is a formal approach to refreshment. This includes regularly reviewing and aligning the board’s makeup to the company’s strategic direction, identifying desired competencies for future directors, and regularly infusing the board with perspectives relevant to the organization’s future needs.

Increasingly, investors consider meaningful full-board and individual assessments as “best practice” not only for evaluating and enhancing board and director performance but also for promoting boardroom refreshment. While annual evaluations have become the norm for boards, far fewer — 38 percent of S&P 500 boards — report some form of individual director evaluations. Proactive boards assess skills and attributes, incorporating results from board self-assessments. They also take a multiyear view of departures, including upcoming board leadership changes, and set clear expectations around director tenure.

Key Questions for Directors to Consider:

 

  1. Does the board as currently constituted give the company its best shot at success in supporting the strategy?
  2. What additional, and potentially underrepresented, skills or expertise would significantly enhance the board’s ability to do its job?
  3. What are our refreshment mechanisms and strategy, and how are they communicated to stakeholders, including investors?
  4. Are we using board evaluations to help identify gaps in expertise and skills the board may require in the coming years?
  5. Is our onboarding program robust and tailored to individual director needs and backgrounds?
Position new directors for success.

The nominating and governance committee chair and other board leaders should ensure that the board has a robust new-director orientation program in place. Incoming directors, particularly younger and first-time board members, benefit from an orientation and continuing education that familiarize them with the company’s needs and the board’s approach to governance. At a minimum, a director onboarding program should provide insights about public disclosures and nonpublic materials (such as board meeting minutes, forecasts, budgets, strategic plans, etc.) and socialize the new director(s) with key executives and members of senior management. Additionally, the board should recognize that new directors may find it helpful to partner with a mentor — formally or informally — who they can turn to for questions and feedback.

With greater focus on diversity, board culture becomes critical.

Boards are adding new perspectives to enhance board deliberations and improve outcomes. But greater diversity also increases the likelihood of misunderstanding and tension among directors with different points of view and backgrounds. In the past, boards tended to be more homogeneous and, as a result, there was typically more implicit agreement about director interaction and behavior. Today, with higher levels of diversity in the boardroom — whether in terms of experiences, skills, gender, race, ethnicity, nationality, and/or age — it’s critical to create a boardroom culture that facilitates constructive interactions between board members. All boards can benefit from cultures that value inquisitiveness and flexibility, and where directors are comfortable challenging one another’s — and management’s — assumptions and ideas.

_____________________________________________________________

Note: This article was originally published in the NACD 2019 Governance Outlook.

*Julie Hembrock Daum leads the North American Board Practice and was a long standing board member of Spencer Stuart. She consults with corporate boards, working with companies of all sizes from the Fortune 10 to pre-IPO companies. She has conducted more than 1,000 board director assignments, recently recruiting outside directors for Johnson & Johnson, Whole Foods, Amazon, Saudi Aramco, Nike, numerous IPOs and spin off boards.

Top 10 de Harvard Law School Forum on Corporate Governance au 10 janvier 2019


Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 10 janvier 2019.

Comme à l’habitude, j’ai relevé les dix principaux billets.

Bonne lecture !

 

Résultats de recherche d'images pour « top 10 »

 

Résultats de recherche d'images pour « Top 10 en gouvernance Harvard Law School »

 

 

  1. Shareholder Resolutions and IPOs
  2. NACD Public Company Governance Survey
  3. Boardrooms Without Female Representation
  4. Blockholder Heterogeneity, Multiple Blocks, and the Dance Between Blockholders
  5. Climate Change and Proxy Voting in the U.S. and Europe
  6. Why Are Firms with More Managerial Ownership Worth Less?
  7. A Regulatory Classification of Digital Assets
  8. The Government Shutdown’s Effect on Deals
  9. Looking Ahead: Key Trends in Corporate Governance
  10. Investor Demand for Internal Control Audits of Large U.S. Companies

Éléments susceptibles d’influer sur les décisions relatives à la gouvernance des grandes entreprises en 2019


L’article ci-dessous brosse un portrait de ce qui attend les grandes entreprises en 2019. Le billet de Holly J. Gregory, associé de la firme Sidley Austin, a été publié sur le site de Harvard Law School Forum aujourd’hui.

Quelles sont les variables susceptibles d’influer sur les décisions relatives à la gouvernance ainsi que sur les relations avec les actionnaires ?

L’auteur fait ressortir les éléments critiques suivants :

  1. Le maintien des caractéristiques du rôle du conseil et des devoirs des administrateurs;
  2. L’examen approfondi de la primauté des actionnaires et de leur influence;
  3. La réforme du vote par procuration et la réglementation des conseillers en vote;
  4. La poursuite de la convergence des idées sur les pratiques de gouvernance d’entreprise;
  5. Un accent encore plus affirmé sur les questions environnementales, sociales et de gouvernance (ESG);
  6. Une demande continue d’engagement des actionnaires et d’attention envers les investisseurs activistes.

 

Bonne lecture !

 

Looking Ahead: Key Trends in Corporate Governance

Résultats de recherche d'images pour « trend en gouvernance »

Board’s Role and Director Duties Remain Durable

 

While the corporate governance environment is always changing, board responsibilities and the fiduciary duties of directors under state corporate law have proven remarkably durable. Directors must:

Manage or direct the affairs of the company and cannot abdicate that responsibility by deferring to shareholder pressure.

Act with due care, without conflict, in good faith, and in the company’s best interest.

Delegate and oversee management of the company (for example, by selecting the CEO, monitoring the CEO’s performance, and planning for succession), and oversee strategy and risk management.

Ensuring that the day-to-day management of the company is in the right hands, providing management with forward-looking strategic guidance, and monitoring management’s efforts to identify and manage risk, including risks that pose an existential threat, remain at the heart of the board’s role. To accomplish this, boards need to understand and address disruptive risks. Boards should be mindful that adequate time is reserved on the agenda for these matters, with less focus on formal management presentations and more focus on the problems and concerns management is grappling with.

The National Association of Corporate Directors (NACD) Blue Ribbon Commission recently provided guidance on oversight of risks that pose an existential threat (NACD, Adaptive Governance: Board Oversight of Disruptive Risks (Oct. 2018), available at nacdonline.org). The Commission recommends that boards prioritize certain actions, including:

Understanding and addressing disruptive risks “in the context of the [company’s] specific circumstances, strategic assumptions, and objectives.”

Allocating oversight of disruptive risks between and among the full board and its committees, and clarifying the allocation of responsibilities in committee charters.

Recognizing that enterprise risk management processes may not capture disruptive risks.

Evaluating board culture regularly for “openness to sharing
concerns, potential problems, or bad news; response to mistakes; and acceptance of nontraditional points of view.”

Assessing “leadership abilities in an environment of disruptive risks” in CEO selection and evaluation processes.

Aligning the company’s “talent strategy” with “the skills and structure needed to navigate disruptive risks.”

Refraining from automatically re-nominating directors as a “default decision.”

Treating board diversity as “a strategic imperative, not a compliance issue.”

Requiring continuing learning of all directors, and assessing that factor in the board’s evaluation process.

Ensuring risk reports provide “forward-looking information about changing business conditions and potential risks in a format that enables productive dialogue and decision making.”

Holding a substantive discussion, at least annually, of the company’s vulnerability to disruptive risks, “using approaches such as scenario planning, simulation exercises, and stress testing to inform these discussions.”

Shareholder Primacy and Shareholder Influence Under Scrutiny

 

While it is prudent for directors to listen to and engage with shareholders and understand their interests, directors must apply their own business judgment and determine what course is in the best interests of the company. This means that they cannot merely succumb to pressures from activist investors and other shareholders (see, for example, In re PLX Tech., Inc. Stockholders Litig., 2018 WL 5018535, at *45 (Oct. 16, 2018) (an activist “succeeded in influencing the directors to favor a sale when they otherwise would have decided to remain independent” and the incumbent directors improperly deferred to the activist and allowed him “to take control of the sale process when it mattered most”)).

However, shareholders have gained considerable power relative to boards over the last 20 years, making it difficult to resolve shareholder pressures that conflict with director viewpoints regarding the best course for the company. The forces that have strengthened shareholder influence include:

Concentration of shareholding in the hands of powerful institutional investors (with institutions owning 70% of US public company shares in 2018).

The activation of institutional investors regarding proxy voting (with institutional voting participation at 91% compared to retail shareholder participation at 28%).

The rise of proxy advisory firms that serve to coordinate proxy voting.

The dismantling of classic corporate defenses, such as classified boards and poison pills.

The rise in shareholder engagement and negotiation (or “private ordering”) of governance processes. (Broadridge, 2018 Proxy Season Review (Oct. 2, 2018), available at broadridge.com.)

While there is no sign that shareholder influence will dissipate, recent legislative developments suggest that shareholder primacy (the premise that a company is run for the benefit of its shareholders in the first instance) is under some pressure. For example, in August 2018, US Senator Elizabeth Warren proposed the Accountable Capitalism Act, which among other things would require directors of US companies with $1 billion or more in annual revenues to obtain a charter as a “United States Corporation” and consider the interests of all corporate stakeholders, including employees, customers, and communities, in their decision-making, in addition to the interests of shareholders. (S. 3348, 115th Cong. § 5(c)(1)(B) (2017–2018); for more information, search Looking Ahead: Key Trends in Corporate Governance on Practical Law.)

In addition, there are increasing calls for the responsible use of power by large institutional investors, which have a considerable and growing influence on the companies in which they invest. The underlying concern is the responsible use of significant economic power, given the substantial impact on society that large institutional investors and companies have. For example, in January 2018, BlackRock CEO Larry Fink wrote to the CEOs of BlackRock portfolio companies that “society increasingly is turning to the private sector and asking that companies respond to broader societal challenges. … To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate” (Annual Letter to CEOs from Larry Fink, Chairman and CEO, BlackRock, available at blackrock.com).

This broader view of a company’s purpose recognizes that, while social interests and shareholder interests are often viewed as in tension, outside of a short-term perspective social interests and shareholder interests tend to align. For pension funds and many other institutional investors, the interests of their beneficiaries are aligned with the successful performance of healthy companies over a period of years.

Given the size of institutional investors’ portfolios, they face challenges in applying their influence on a company-specific basis. While some of the largest institutional investors are investing in the human resources and technology needed to make informed voting decisions on a case-by-case, company-specific basis, with respect to a large number of companies in their portfolios, many institutional investors still apply set policies on a one-size-fits-all basis, without nuanced analysis of the circumstances, in voting their shares. Institutional investors should assess whether they:

Are well positioned to vote their shares on an informed basis.

Have designed screens that consider company performance and other factors that may support a change from standard policy, if relying on the application of pre-set policies.

When institutional investors turn to proxy advisory firms to make voting decisions, they should evaluate how the proxy advisor is positioned to make sophisticated and nuanced case-by-case determinations, and whether resource constraints require the proxy advisor to rely heavily on the use of set policies (see below Convergence of Ideas on Corporate Governance Practices Continues).

In January 2017, a group of institutional investors launched the Investor Stewardship Group (ISG) and issued Stewardship Principles and Corporate Governance Principles that took effect on January 1, 2018 (available at isgframework.org). The Stewardship Principles set forth a stewardship framework for institutional investors that includes the following principles:

Principle A: Institutional investors are accountable to those whose money they invest.

Principle B: Institutional investors should demonstrate how they evaluate corporate governance factors with respect to the companies in which they invest.

Principle C: Institutional investors should disclose, in general terms, how they manage potential conflicts of interest that may arise in their proxy voting and engagement activities.

Principle D: Institutional investors are responsible for proxy voting decisions and should monitor the relevant activities and policies of third parties that advise them on those decisions.

Principle E: Institutional investors should address and attempt to resolve differences with companies in a constructive and pragmatic manner.

Principle F: Institutional investors should work together, where appropriate, to encourage the adoption and implementation of the Corporate Governance Principles and Stewardship Principles.

Reform of Proxy Voting and Regulation of Proxy Advisors Under Consideration

 

The Securities and Exchange Commission (SEC) staff recently held a roundtable to assess whether the SEC should update its rules governing proxy voting mechanics and the shareholder proposal process, and strengthen the regulation of proxy advisory firms. These issues have been under consideration since the SEC solicited public comment on the proxy system in 2010. (SEC, November 15, 2018: Roundtable on the Proxy Process, available at sec.gov; Concept Release on the U.S. Proxy System, 75 Fed. Reg. 42982-01, 2010 WL 2851569 (July 22, 2010).)

Topics discussed at the roundtable included:

Proxy voting mechanics and technology. Panelists agreed that the current proxy voting system needs to be modernized and simplified, for example, by:

implementing a vote confirmation process so that shareholders may verify, before the vote deadline, that voting instructions were followed and their votes were counted;

using technology to encourage wider participation and reduce costs and delays in the voting process;

studying why retail shareholder participation has fallen and whether more direct communication channels would improve information flow and participation; and

mandating use of universal proxy cards in proxy contests.

The shareholder proposal process. Some panelists asserted that the current shareholder proposal process functions well, while others identified areas for reform, including:

revisiting the ownership thresholds and holding period required to submit a shareholder proposal (currently, the lesser of $2,000 or 1%, and one year);

increasing resubmission thresholds to address reappearance of a proposal even though a majority of shareholders voted it down year after year;

providing more SEC guidance on no-action decisions and rationales;

requiring proxy disclosure of the name of the shareholder proponent (and its proxy, if any) and its level of holdings; and

requiring disclosure of preliminary vote tallies.

The role and regulation of proxy advisory firms. While no significant consensus emerged regarding whether proxy advisory firms should be subject to further SEC regulation, areas under discussion included:

improving accuracy of proxy advisor reports and affording all companies opportunities to review and verify information in advance of publication; and

improving procedures to monitor and manage, and enhancing disclosure of, conflicts of interest.

The Corporate Governance Reform and Transparency Act

 

The Corporate Governance Reform and Transparency Act, H.R. 4015, would require proxy advisory firms to register with the SEC, which would require:

Sufficient staffing to provide voting recommendations based on current and accurate information.

The establishment of procedures to permit companies reasonable time to review and provide meaningful comment on draft proxy advisory firm recommendations, including the opportunity to present (in person or telephonically) to the person responsible for the recommendation.

The employment of an ombudsman to receive and timely resolve complaints about the accuracy of voting information used in making recommendations.

Policies and procedures to manage conflicts of interest.

Disclosure of procedures and methodologies used in developing proxy recommendations and analyses.

Designation of a compliance officer responsible for administering the required policies and procedures.

Annual reporting to the SEC on the proxy advisory firm’s recommendations, including the number of companies that are also consulting division clients, as well as the number of proxy advisory firm staff who reviewed and made recommendations.

The bill would also direct the SEC staff to withdraw two no-action letters issued by the SEC in 2004, which the fact sheet suggests “have led to overreliance on proxy advisory firm recommendations.” (The SEC rescinded those two no-action letters in September 2018.)

The bill is supported by both Nasdaq and the New York Stock Exchange, as well as leading business groups and the Society for Corporate Governance. It is opposed by the Council of Institutional Investors, the Consumer Federation of America, and many public pension fund managers.

(See, for example, Nelson Griggs, Nasdaq, U.S. House of Representatives Passes Proxy Advisory Firm Reform Legislation (Dec. 16, 2017), available at nasdaq.com; Council of Institutional Investors, CII Urges Members to Contact Congressional Reps, Opposing Proxy Advisors Bill (Jan. 13, 2018), available at cii.org.) The bill is unlikely to be passed into law before the current congressional term ends, but may be reintroduced during the following congressional term.

It remains to be seen whether the SEC will incorporate input from the roundtable into future rulemaking or new SEC staff guidance or practice. The SEC is more likely to focus on proxy reform as a priority than on regulation of proxy advisory firms absent pressure from Congress.

Two bills seeking SEC regulation of proxy advisory firms were introduced in the 115th Congress:

The Corporate Governance Reform and Transparency Act, H.R. 4015. In June 2018, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing on this bill, which was sent by the House of Representatives to the Senate in December 2017 for consideration. (See Box, The Corporate Governance Reform and Transparency Act.)

The Corporate Governance Fairness Act, S. 3614. In November 2018, this bill was introduced in the Senate to amend the Investment Advisers Act of 1940 (Advisers Act) to expressly require proxy advisory firms to register as investment advisers under the Advisers Act, thereby subjecting them to enhanced fiduciary duties and SEC oversight, including regular SEC staff examinations into their conflict of interest policies and programs, and whether they knowingly have made false statements to clients or have omitted to state material facts that would be necessary to make statements to clients not misleading.

Both bills would subject proxy advisory firms to SEC regulation, and focus on policies and procedures regarding conflicts of interest and accuracy. H.R. 4015 goes further by mandating
maintenance of certain staffing levels and annual reporting relating to recommendations. Neither bill is likely to be passed into law by the end of the current session of Congress.

 

Convergence of Ideas on Corporate Governance Practices Continues

 

Proxy advisory firms are often criticized for imposing a one-size-fits-all view of corporate governance on public companies in the US. However, the divide is narrowing between what investors and their proxy advisors, on the one hand, and corporate directors and CEOs, on the other hand, think are good corporate governance practices.

Recently, a high-profile group of senior executives from major public companies and institutional investors issued the Commonsense Principles 2.0 to revise corporate governance principles that the group published in 2016 (available at governanceprinciples.org). The Commonsense Principles 2.0 describe corporate governance practices that have become widely accepted among leading companies and their institutional investors, including in previously controversial areas such as majority voting in uncontested director elections and proxy access. A majority of S&P 500 companies already practice most of the recommendations, and many of the recommendations are requirements for publicly traded companies under SEC regulations or stock exchange listing rules. For example, the Commonsense Principles 2.0 provide that:

One-year terms for directors are generally preferable, but if a board is classified, the reason for that structure should be explained.

The independent directors should decide whether to have combined or separate chair and CEO roles based on the circumstances. If they combine the chair and CEO roles, they should designate a strong lead independent director. In any event, the reasons for combining or separating the roles should be explained clearly.

A director who fails to receive a majority of votes in uncontested elections should resign and the board should accept the resignation or explain to shareholders why it is not accepted.

These recommendations are in line with evolving practices.

The Commonsense Principles 2.0 address some recommendations to institutional investors and asset managers, and call on them to use their influence transparently and responsibly. Among other things, they urge asset managers to disclose their proxy voting guidelines and reliance on proxy advisory firms, and be satisfied that the information that they are relying on is accurate and relevant.

Notably, the Commonsense Principles 2.0 reflect the convergence of viewpoints through agreement among a coalition of high-profile leaders of well-known public companies, institutional investors, and one activist hedge fund. Signatories include Mary Barra of General Motors, Ed Breen of DowDupont, Warren Buffet of Berkshire Hathaway, Jamie Dimon of JPMorgan Chase, Larry Fink of BlackRock, Bill McNabb of Vanguard, Ronald O’Hanley of State Street, and Jeff Ubben of ValueAct Capital. The Council of Institutional Investors and the Business Roundtable have expressed support for or endorsed the Commonsense Principles 2.0.

 

Shifting Focus of Private Ordering to ESG Issues

 

The convergence of views among corporate leaders and large institutional investors on corporate governance practices reflects to a significant degree the success shareholders have had in influencing corporate governance reforms through engagement with boards, or private ordering. Shareholders are continuing to engage companies and press for reforms in the areas of shareholder rights and board composition and quality, but they are also increasing their focus on ESG issues, such as climate change, diversity, and board effectiveness, and the impact of ESG issues on companies’ financial performance. ESG is no longer a fringe issue of interest only to special issue investors. Mainstream institutional investors are recognizing that attention to ESG and corporate social responsibility impacts portfolio company financial performance.

The rising interest in ESG among investors is apparent in the sharp rise in US-domiciled assets under management using ESG strategies ($12.0 trillion at the start of 2018, up 38% since 2016 and an 18-fold increase since 1995, as reported by the US SIF Foundation), increasing support for shareholder proposals relating to ESG issues, as well as in the focus of engagement efforts. According to Broadridge, institutional investor support for social and environmental proposals increased from 19% in 2014 to 29% in 2018 (Broadridge, 2018 Proxy Season Review (Oct. 2, 2018), available at broadridge.com).

 

Continuing Demand for Shareholder Engagement and Attention to Activist Investors

 

In this era of enhanced shareholder influence, directors need to be especially attuned to the interests and concerns of significant shareholders, while continuing to apply their own judgment about the best interests of the company. This requires active outreach and engagement with the company’s core shareholders and, in particular, the persons responsible for voting proxies and setting the governance policies that often drive voting decisions. Caution, balance, and effective communication are also necessary to ensure that director judgment is not replaced with shareholder appeasement.

In the first half of 2018, record numbers of hedge fund activist campaigns were launched, backed by record levels of capital. Activist investors are having greater success in negotiating board seats and in winning seats in contested elections. The general level of vote support for directors is falling. For example, 416 directors failed to receive majority shareholder support in the 2018 proxy season (an 11% increase over 2017) and 1,408 directors failed to attain at least 70% shareholder support (a 14% increase over 2017) (Broadridge, 2018 Proxy Season Review (Oct. 2, 2018), available at broadridge.com).

Understanding key shareholders’ interests and developing relationships with long-term shareholders can help position the company to address calls by activist investors for short-term actions that may impair long-term value. However, boards also should view the input they receive from activist investors as valuable, because it could help identify potential areas of vulnerability. Moreover, establishing an open and positive dialogue with activist investors, and engaging with them in meaningful discussions, can assist boards in avoiding a public shareholder activist campaign in the future. This requires:

Identifying the company’s key shareholders and the issues about which they care the most.

Objectively assessing strategy and performance from the perspective of an activist investor, including proactively identifying areas in which the company may be subject to activism.

Monitoring corporate governance benchmarks and trends in shareholder activism to keep abreast of “hot topic” issues.

Comparing the company’s corporate governance practices to evolving best practice.

Attending to potential vulnerabilities in board composition. Activist investors scrutinize the tenure, age, demographics, and experience of each director. They will target directors whose expertise is arguably outdated, who have poor track records as officers or directors of other companies, or who have served on the board for long tenures. They will also look for gaps in the expertise needed by the board given the current dynamic business environment, and for a lack of gender or ethnic diversity. Boards should monitor developments in these areas (see, for example, Institutional Shareholder Services Inc. (ISS), 2019 ISS Americas Policy Updates (Nov. 19, 2018), available at issgovernance.com (announcing that, beginning in 2020, ISS will oppose the nominating committee chair at Russell 3000 or S&P 1500 companies when there are no women on the board); 2018 Cal. Legis. Serv. ch. 954 (S.B. 826) (to be codified at Cal. Corp. Code §§ 301.3, 2115.5) (mandating gender quotas for boards of US public companies that are headquartered in California)).

Addressing potential vulnerabilities in CEO compensation, including disparity with respect to peer companies and other named executive officers. Activist investors could claim that this signals a culture in which too much deference is given to the CEO and there is a lack of team emphasis in the compensation of management.

Reviewing structural defenses with the assistance of seasoned proxy fight and corporate governance counsel. Many companies have not reviewed their charter and bylaws recently, and in a proxy contest the language of many bylaw provisions can take on a different meaning. Boards should be aware that proxy advisory firm ISS recently announced that it will generally oppose management proposals to ratify a company’s existing charter or bylaw provisions, unless the provisions align with best practice (2019 ISS Americas Policy Updates, at 11).

Effectively communicating long-term plans with respect to strategy and performance pressures, defending past performance, and addressing calls for an exploration of strategic alternatives.

Preparing a response plan for engaging with activist investors to ensure that the board and management convey a measured and unified position.

Il y a encore trop de CA sans représentation féminine !


Lyla Qureshi, analyste chez Equilar, vient de publier un article très intéressant sur les caractéristiques des entreprises du Russell 3000 qui n’ont pas de femmes siégeant au conseil d’administration.

L’une des raisons invoquées pour ne pas avoir de représentation féminine au conseil est que la composition du CA n’est pas une priorité pour les actionnaires ! Qu’en pensez-vous ?

La situation change, mais pas suffisamment rapidement selon les spécialistes de la gouvernance.

Bonne lecture !

 

Boardrooms Without Female Representation

 

Board diversity is a governance issue that has been getting a large amount of attention for the past couple of years. This year, gender diversity, particularly in relation to board member appointments, has been in the limelight. This heightened focus comes in part thanks to SB-826, a recently-passed California bill that will mandate that public companies headquartered in the state must place at least one woman on their board by the end of 2019. Furthermore, the legislation directs publicly listed companies to have two women on boards with five members, and three on those which have six or more members by 2021. To find out where the current Russell 3000, not just California, stands in terms of board gender diversity, Equilar conducted a study to examine which companies have not had a woman on their board.

 

 

Out of the entire Russell 3000 index, 344 companies have not had a female board member in the history of the Equilar database, which goes back to the year 2000. Additionally, the two sectors with the highest count of companies without a female on their board are the financial and technology sectors, with each having approximately 48 companies with all male boards. Healthcare, as well as the services sector, both had at least 40 companies with all male boards for their entire Equilar database history. On the flip side, companies that are a part of the utilities sector account for approximately 1.4% of the companies with all-male boards.

According to The Guardian, one of the reasons cited by companies for not recruiting females to their boards is the fact that the make-up of boards is not a priority for shareholders. However, that excuse may not necessarily hold true. For instance, BlackRock, one of the largest shareholders of American companies, stated in the beginning of this year that they would like to see at least two female board members at companies in which it invests. As mentioned in The Wall Street Journal, Michelle Edkins, Global Head of Investment Stewardship at BlackRock, wrote, “We believe that a lack of diversity on the board undermines its ability to make effective strategic decisions. That, in turn, inhibits the company’s capacity for long-term growth.” Yet another reason provided by companies to justify male-dominated boards is due to an alleged dearth of qualified female candidates and “over-boarding” of women who are experienced. Research conducted on this indicates that rather than a lack of expertise, what women tend to lack is board experience. This is because many businesses prefer veteran female directors over novices. Women trying to enter the world of board memberships have a tough time landing their first board position; however the same is not true for men. While speaking with The Wall Street Journal, Bill George, former head of Medtronic PLC, said, “To gain their first corporate board seat, women still have to overcome strong cultural issues that most men don’t have to overcome.” Furthermore, men also have the advantage of having a wider network made up of other powerful, well-positioned men. Coco Brown, founder of Athena Alliance, told The Journal, “Women on the whole are outside the trusted networks of public company boards. So they end up with the bar that requires board experience.”

Although the numbers provided above are not encouraging, what is positive is that there were approximately 44 new companies that added a female to their board in the second quarter of 2018. An interesting trend observed in the proxies of these companies is that almost all of the documents had a disclosure regarding diversity in them. Out of the 44 companies in discussion, 38 had text that addressed the topic of diversity, while 29 of those 38 disclosures had text pertaining specifically to gender diversity. The disclosures stated that the company recognized the importance of diversity and relayed the fact that they were cognizant that changes must be made to the organization in order show how truly committed they are to rectifying the male-dominated board structure. The appointments of female directors by these companies shortly after the release of their proxies showed that the companies followed through with their promise of making their board more gender balanced.

Although the numbers reported in this study with respect to the prevalence of all-male boards paint a bleak picture regarding gender equity in American boardrooms, the increased focus on gender-balanced boards has resulted in companies making concrete changes, as witnessed by the rise in female board members this year alone. In a study earlier this year, Equilar reported that the percentage of women on Russell 3000 boards increased from 16.9% to 17.7% between March 31 and June 30, 2018. Despite the fact that for some the pace of change is not fast enough, one hopes that if present efforts to ensure equal gender representation on boards continue, gender-balanced boardrooms will become a reality in the near future.

Top 10 de Harvard Law School Forum on Corporate Governance au 3 janvier 2019


Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 3 janvier 2019.

Comme à l’habitude, j’ai relevé les dix principaux billets.

Bonne lecture !

 

Résultats de recherche d'images pour « top 10 »

 

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  1. Stock Exchanges and Shareholder Rights: A Race to the Top, Not the Bottom?
  2. Fighting the Rising Tide of Federal Disclosure Suits
  3. 2019 Global & Regional Trends in Corporate Governance
  4. The CFTC and Market Manipulation
  5. SEC Cyber Briefing: Regulatory Expectations for 2019
  6. Politics and Antitrust: Lessons from the Gilded Age
  7. California Courts and Forum Selection Bylaws
  8. Activism: The State of Play at Year-End 2018
  9. Matters to Consider for the 2019 Annual Meeting and Reporting Season
  10. Confronting the Problem of Fraud on the Board

La prévalence de l’activisme actionnarial en 2019


Voici une mise à jour de Martin Lipton*, associé fondateur de la firme Wachtell, Lipton, Rosen & Katz, qui se spécialise dans les politiques et stratégies organisationnelles ayant un impact sur la gouvernance des entreprises. L’article a été publié aujourd’hui sur le site de HLS Forum sur la gouvernance.

En 2019, les auteurs prédisent que la menace de l’activisme sera encore plus prévalente.

Bonne lecture !

 

Activism: The State of Play at Year-End 2018

 

Résultats de recherche d'images pour « activisme actionnarial »

 

As we noted [in 2018], the threat of activism continues to be high, and has become a global phenomenon. The conclusion of a volatile and dynamic 2018 prompts a brief update of the state of play.

  1. Activist assets under management remain at elevated levels, encouraging continued attacks on large successful companies in the U.S. and abroad. In many cases, activists have been taking advantage of recent stock market declines to achieve attractive entry points for new positions. These trends have been highlighted in several recent media reports, including in The Wall Street Journal and Bloomberg.
  2. While the robust M&A environment of much of 2018 has recently subsided, deal-related activism remains prevalent, with activists instigating deal activity, challenging announced transactions (e.g., the “bumpitrage” strategy of pressing for a price increase) and/or pressuring the target into a merger or a private equity deal with the activist itself.
  3. “Short” activists, who seek to profit from a decline in the target’s market value, remain highly aggressive in both the equity and corporate debt markets. In debt markets, we have also recently seen a rise in “default activism,” where investors purchase debt on the theory that a borrower is already in default and then actively seek to enforce that default in a manner by which they stand to profit.
  4. Elliott Management was the most active and in many cases aggressive activist of 2018. The Wall Street Journal noted that Elliott has publicly targeted 24 companies in 2018, with Icahn and Starboard runners-up with nine public targets each. The New Yorker published a lengthy profile of Paul Singer and Elliott in August, “Paul Singer, Doomsday Investor”. “Singer has excelled in this field in part because of a canny ability to discern his opponents’ weaknesses and a seeming imperviousness to public disapproval.”
  5. Enhanced ESG disclosure remains a topic of great interest to institutional investors and the corporate governance community. In October, two prominent business law professors, supported by investors and other entities with over $5 trillion in assets under management, filed a petition for rulemaking calling for the SEC to “develop a comprehensive framework requiring issuers to disclose identified environmental, social, and governance (ESG) aspects of each public-reporting company’s operations.” In November, the Embankment Project of the Coalition for Inclusive Capitalism issued its report outlining proposed ways to measure long-term sustainable value creation beyond financial results. And earlier this month, ESG disclosure was the subject of a lively discussion at a meeting of the SEC’s Investor Advisory Committee, with various views expressed regarding the merits of regulatory efforts versus private ordering in this area.

It has become increasingly evident that the activism-driven corporate world is relatively fragile and is proving to be unsustainable, particularly when viewed in the broader context of rapidly changing political and social norms and increasing divisiveness across many planes of the social contract. A number of initiatives have been underway to establish a modern corporate governance framework that is calibrated to the current environment. For our part, at the request of the World Economic Forum, we prepared a paper titled, The New Paradigm: A Roadmap for an Implicit Corporate Governance Partnership Between Corporations and Investors to Achieve Sustainable Long-Term Investment and Growth, which was issued in September 2016 and most recently updated in our memo, Some Thoughts for Boards of Directors in 2019.

In essence, The New Paradigm conceives of corporate governance as a collaboration among corporations, shareholders and other stakeholders working together to achieve long-term value and resist short-termism. While we have seen considerable interest in The New Paradigm and similar initiatives from major institutional investors and other key stakeholders, until such a framework is widely adopted, it is unlikely that absent legislation, there will be any decrease in activism. Accordingly, companies should regularly review and adjust their plans to avoid an activist attack and to successfully deal with an activist attack if one should occur. Effective engagement with major shareholders is the essential element of activist defense.

____________________________________________________________

*Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy, and Zachary S. Podolsky is a corporate associate. This post is based on a Wachtell Lipton memorandum authored by Mr. Lipton and Mr. Podolsky. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here); Dancing with Activists by Lucian Bebchuk, Alon Brav, Wei Jiang, and Thomas Keusch (discussed on the Forum here); and Who Bleeds When the Wolves Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System by Leo E. Strine, Jr. (discussed on the Forum here).

Tendances globales en gouvernance et « Trends » régionaux


À l’occasion de la nouvelle année 2019, je partage avec vous une étude de la firme Russell Reynolds Associates sur les tendances en gouvernance selon différentes régions du monde.

L’article a été publié sur le site de Harvard Law School Forum par Jack « Rusty » O’Kelley, III, Anthony Goodman et Melissa Martin.

Ce qu’il y a de particulier dans cette publication ,c’est que l’on identifie cinq (5) grandes tendances globales et que l’on tente de prédire les Trends dans plusieurs régions du monde telles que :

(1) Les États-Unis et le Canada

(2) L’Union européenne

(3) La Grande-Bretagne

(4) Le Brésil

(5) l’Inde

(6) Le Japon

Les grandes tendances observées sont :

(1) la qualité et la composition du CA

(2) le degré d’attention apportée à la surveillance de la culture organisationnelle

(3) les activités des investisseurs qui limitent la primauté des actionnaires en mettant l’accent sur le long terme

(4) la responsabilité sociale des entreprises qui constitue toujours une variable critique et

(5) les investisseurs activistes qui continuent d’exercer une pression sur les CA.

Je vous recommande la lecture intégrale de cette publication pour vous former une opinion réaliste de l’évolution des saines pratiques de gouvernance. Les États-Unis et le Canada semblent mener la marche, mais les autres régions du globe ont également des préoccupations qui rejoignent les tendances globales.

C’est une lecture très instructive pour toute personne intéressée par la gouvernance des sociétés.

Bonne lecture et Bonne Année 2019 !

 

2019 Global & Regional Trends in Corporate Governance

 

 

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Institutional investors (both active managers and index fund giants) spent the last few years raising their expectations of public company boards—a trend we expect to see continue in 2019. The demand for board quality, effectiveness, and accountability to shareholders will continue to accelerate across all global markets. Toward the end of each year, Russell Reynolds Associates interviews a global mix of institutional and activist investors, pension fund managers, proxy advisors, and other corporate governance professionals regarding the trends and challenges that public company boards may face in the coming year. This year we interviewed over 40 experts to develop our insights and identify trends.

Overview of Global Trends

 

In 2019, we expect to see the emergence or continued development of the following key global governance trends:

 

1. Board quality and composition are at the heart of corporate governance.

Since investors cannot see behind the boardroom veil, they have little choice but to rely on various governance criteria as a stand-in for board quality: whether the board is truly independent, whether its composition is deliberate and under regular review, and whether board competencies align with and support the company’s forward-looking strategy. Directors face increased scrutiny around how equipped the board is with industry knowledge, capital allocation skills, and transformation experience. Institutional investors are pushing to further encourage robust, independent, and regular board evaluation processes that may result in board evolution. Boards will need to be vigilant as they consider individual tenure, director overboarding, and gender imbalance—all of which may provoke votes against the nominating committee or its chair. Gender diversity continues to be an area of focus across many countries and investors. Companies can expect increased pressure to disclose their prioritization of board competencies, board succession plans, and how they are building a diverse pipeline of director candidates. Norges Bank Investment Management, the world’s largest sovereign wealth fund, has set a new standard for at least two independent directors with relevant industry experience on each of their 9,000 investee boards.

2. Deeper focus on oversight of corporate culture.

Human capital and intangible assets, including organizational culture and reputation, are important aspects of enterprise value, as they directly impact the ability to attract and retain top talent. Culture risk exists when there is misalignment between the values a company seeks to embody and the behaviors it demonstrates. Investors are keen to learn how boards are engaging with management on this issue and how they go about understanding corporate culture. A few compensation committees are including culture and broader human capital issues as part of their remit.

3. Investors placing limits on shareholder primacy and emphasizing long-termism.

The role of corporations in many countries is evolving to include meeting the needs of a broader set of stakeholders. Global investors are increasingly discussing social value; long-termism; and environment, social, and governance (ESG) changes that are shifting corporations from a pure shareholder primacy model. While BlackRock CEO Larry Fink’s 2018 letter to investee companies on the importance of social purpose and a strategy for achieving long-term growth generated discussion in the US, much of the rest of the world viewed this as further confirmation of the focus on broader stakeholder, as well as shareholder, concerns. Institutional investors are more actively focusing on long-termism and partnering with groups to increase the emphasis on long-term, sustainable results.

4. ESG continues to be a critical issue globally and is at the forefront of governance concerns in some countries.

Asset managers and asset owners are integrating ESG into investment decisions, some under the framework of sustainability or integrated reporting. The priority for investors will be linking sustainability to long-term value creation and balancing ESG risks with opportunities. ESG oversight, improved disclosure, relative company performance against peers, and understanding how these issues are built into corporate strategy will become key focus areas. Climate change and sustainability are critical issues to many investors and are at the forefront of governance in many countries. Some investors regard technology disruption and cybersecurity as ESG issues, while others continue to categorize them as a major business risk. Either way, investors want to understand how boards are providing adequate oversight of technology disruption and cyber risk.

5. Activist investors continue to impact boards.

Activist investors are using various strategies to achieve their objectives. The question for boards is no longer if, but when and why an activist gets involved. The characterization of activists as hostile antagonists is waning, as some activists are becoming more constructive with management. Institutional investors are increasingly open to activists’ perspectives and are deploying activist tactics to bring about desired change. Activists continue to pay close attention to individual director performance and oversight failures. We are seeing even more boards becoming “their own activist” or commissioning independent assessments to preemptively identify vulnerabilities. Firms such as Russell Reynolds are conducting more director-vulnerability analysis, looking at the strengths and weaknesses of board composition and proactively identifying where activists may attack director composition. In the following sections, we explore these trends and how they will impact the United States and Canada, the European Union and the United Kingdom, Brazil, India, and Japan.

 

The United States and Canada

Investor stewardship.

Eighty-eight percent of the S&P 500 companies have either Vanguard, BlackRock, or State Street as the largest shareholder, and together these investors collectively own 18.7 percent of all the shares in the S&P 500. Because the index funds’ creators are obligated to hold shares for as long as a company is included in a relevant index (e.g., Dow Jones, S&P 500, Russell 3000), the institutional investors view themselves as permanent capital. These investors view governance not as a compliance exercise, but as a key component of value creation and risk mitigation. Passive investors are engaging even more frequently with companies to ensure that their board and management are taking the necessary actions and asking the right questions. Investors want to understand the long-term value creation story and see disclosure showing the right balance between the long term and short term. They take this very seriously and continue to invest in stewardship and governance oversight. Several of the largest institutional investors want greater focus on long-term, sustainable results and are partnering with organizations to drive the dialogue toward the long term.

Board quality.

Investors are pushing for improved board quality and view board composition, diversity, and the refreshment process as key elements. There is similarly a push for richer insight into director skill relevancy. The Boardroom Accountability Project 2.0 has encouraged more companies to disclose a “board matrix,” setting out the skills, experiences, and demographic profile of directors. That practice is fast becoming the norm for proxy disclosure. Many more institutional investors want richer disclosure around director competencies and a clearer, more direct link between each director’s skills and the company’s strategy. As one investor noted, “We want to know why this collection of directors was selected to lead the company and whether they are prepared for change and disruption.” Some of the largest US institutional investors are pushing for better board succession and board evaluation processes and the use of external firms to assess board quality, composition, and effectiveness. Institutional investors are even more concerned about board succession processes and the continued use of automatic refreshment mechanisms (retirement ages and tenure limits) rather than a “foundational assessment process over time with a mix of internal and external reviewers.”

Board diversity.

In 2019, directors should expect more investors to vote against the nominating committee or its chair if there are no women on the board (or fewer than two women in some cases). Investors want to see an increased diversity of thought and experiences to better enable the board to identify risks and improve company performance. In the US, gender diversity has become a proxy for cognitive diversity. Institutional Shareholder Services (ISS) has updated its policies on gender diversity for Russell 3000 and S&P 1500 companies and may recommend votes against nominating committee chairs or members beginning in 2020. This follows recent California legislation requiring gender diversity for California-headquartered companies. Some very large investors are starting to take a broader approach to diversity, particularly as it relates to ethnicity and race. In Canada, nearly 40 percent of TSX-listed companies have no women on their boards. Proxy advisors have recently established voting guidelines related to the disclosure of formal gender diversity policies and gender diversity by TSX-listed companies.

ESG.

Investors are pushing companies to consider their broader societal impact—both what they do and how they disclose it. ESG has moved from being a discrete topic to a fundamental part of how investors evaluate companies. They will increasingly focus on how companies explain their approach to value creation, the impact of the company on society, and how companies weigh various stakeholder interests. Other investors will continue to look at ESG primarily through a financial lens, screening for risk identification and measurement, incorporation of ESG into strategy and long-term value creation, and executive compensation. There is continued and growing focus in the US on sustainability and climate change across a range of sectors. In Canada, proactive companies will consider developing and disclosing their own ESG policies and upgrading boards—through both changes in director education and, on occasion, board composition—to ensure that directors are equipped to understand ESG risk.

Oversight of corporate culture.

Given many high-profile failures in corporate culture and leadership over the last few years, investors and regulators will expect more disclosure and will ask more questions regarding how a board understands the company’s culture. When engaging with institutional investors, boards should expect questions regarding how they are understanding and assessing the health of a corporation’s culture. Boards need to reflect on whether they really understand the company culture and how they plan to assess hot spots and potential issues.

Activist investing.

Shareholder activism remains part of the US corporate governance landscape and is continuing to grow in Canada. In Canada, the industries with the highest levels of activism include basic materials, energy, banking, and financial institutions, and emerging sectors with high growth potential (e.g., blockchain, cannabis) could be next. Proxy battles are showing no signs of slowing down, but activists are using other methods to promote change, such as constructive engagement. Canadian companies are also seeing an increase in proxy contests launched by former insiders or company founders. Experts in Canada anticipate this trend will continue and, as a result, increased shareholder engagement will be critical.

Executive compensation.

Investors are looking for better-quality disclosure around pay-for-performance metrics, particularly sustainability metrics linked to risk management and strategy. In the US, institutional investors may vote against pay plans where there is misalignment and against compensation committees where there is “excessive” executive pay for two or more consecutive years. Some investors are uncomfortable with stock performance being a primary driver of CEO compensation since it may not reflect real leadership impact. In Canada, investors are urging companies to adopt say-on-pay policies in the absence of a mandatory vote, even though such adoption rates have been sluggish to date. Investors will likely continue to push for this reform.

Governance codes.

Earlier this year, the Corporate Governance Principles of the Investor Stewardship Group (ISG) went into effect with the purpose of setting consistent governance standards for the US market. Version 2.0 of the Commonsense Principles of Corporate Governance was also published. US companies will want to consider proactive disclosure of how they comply with these sets of principles.

European Union

Investors more active.

Institutional investors are expanding resources for their engagement and stewardship teams in Europe. In 2019, investors will focus on connecting governance to long-term value creation through board oversight of talent management, ESG, and corporate culture. Additionally, some US activists are setting their sights on Europe and raising funds focused on European companies. Institutional investors are more willing to support activist investors if inadequate oversight by the board has led to poor share price and total shareholder return (TSR) performance.

Company and board diversity.

Though EU boards tend to have more women directors due to legislation and regulation, progress on gender diversity has not carried over into the C-suite. Boards can expect to engage with investors on this topic and will need to explain the root causes and plans to address it through talent management processes and diversity and inclusion initiatives. With gender diversity regulations already widely adopted across Europe, Austria has now also stipulated that public company boards have at least 30 percent women directors. However, since board terms are usually for five years, the full impact likely will not be visible until future election cycles.

ESG.

Many investors are encouraging use of the Task Force on Climate-related Financial Disclosures (TCFD) framework for consistent measurement, assessment, and disclosure of ESG risks. Investors are likely to integrate climate-change competency and risk oversight into their voting guidelines in some form, and boards will need to demonstrate that they are thinking strategically about the opportunities, risks, and impact of climate change. A new legislative proposal in France could mandate that companies consider various stakeholders, the social environment, and the nonfinancial outcome of their actions.

Revised governance codes.

A recent study found strong compliance rates for the German Corporate Governance Code, except for the areas of executive remuneration and board composition recommendations. German boards should expect more investor engagement and pressure on these matters, including enhanced disclosure. Next year, the German code may include amendments impacting director independence and executive compensation. The revised governance code in the Netherlands focuses more closely on how long-term value creation and culture are vital elements within the governance framework. Denmark’s code now recommends that remuneration policies be approved at least every four years and bars retiring CEOs from stepping into the chairman or vice chairman role.

Board leadership.

Norges Bank Investment Management (commonly referred to as The Government Pension Fund Global) is pushing globally for the separation of CEO and chairman roles and independent chair appointments. In France, investors are focused on board composition and quality. Boards should expect to see continued pressure on separating the CEO and chairman roles as well as strengthening the role and prevalence of the lead director. Companies without a lead director could see negative votes against the reelection of the CEO/chair.

United Kingdom

Revised code.

Recent legislation and market activity have set the stage for the United Kingdom to implement governance reforms that will continue to influence global markets. The new UK Corporate Governance code will apply to reporting periods starting from January 1, 2019, although many companies have begun to apply it more quickly. The new code was complemented by updated and enhanced Guidance on Board Effectiveness to reemphasize that boards need to focus on improving their effectiveness—not just their compliance. Meanwhile the voluntary principle of “comply or explain” is itself being tested as the Kingman Review reconsiders the Financial Reporting Council’s powers and its twin role as both the government-designated regulator and the custodian of a voluntary code. Proxy advisors, who are growing more powerful, are also frequently voting against firms choosing to “explain” rather than comply. 2019 code changes include guidance around the board’s duty to consider the perspective of key stakeholders and to incorporate their interests into discussion and decisionmaking. Employees can be engaged via designating an existing non-executive director (already on the board), a workforce advisory committee, or a workforce representative on the board.

Board leadership and composition.

Other changes in the code include prioritizing non-executive chair succession planning and capping non-executive chair total tenure at nine years (including any time spent previously as a non-executive director)—a recommendation which could impact over 10 percent of the FTSE 350. Several investors noted that they understand the new tenure rule may cause unintended consequences around board chair succession planning. Investors are likely to focus on skills mix, diversity, and functional and industry experience. While directors can expect negative votes against their reelection if they are currently on more than four boards, better disclosure of director capacity and commitment may help sway investors.

Culture oversight.

The board’s evolving role in overseeing corporate culture—now explicit in the revised code—will be a primary focus for investors in 2019. The Financial Reporting Council has suggested that culture can be measured using several factors, such as turnover and absenteeism rates, reward and promotion decisions, health and safety data, and exit interviews. The code emphasizes that the board is responsible for a healthy culture that should promote delivering long-term sustainable performance. Auditor reform. Given public concern about recent corporate collapses, the role of external auditor and the structure of the audit firm market are under scrutiny. The government is under pressure to improve auditing and increase competition. Audit independence, rigor, and quality are likely to be examined, and boards may face greater pressure to change auditors more regularly. ISS is changing its policies for its UK/Ireland (and Continental European) policies beginning in 2019. ISS will begin tracking significant audit quality issues at the lead engagement partner level and will identify (when possible) any lead audit partners who have been linked to significant audit controversies.

Activist investors.

While institutional investors’ concerns center around the impact of disruption and how companies are responding with an eye toward long-termism and sustainability, activist campaigns continue to act as a potential counterweight. UK companies account for about 55 percent of activist campaigns in Europe, and UK companies will likely continue to be targeted next year.

Company diversity.

Diversity will continue to be a priority for board attention, including gender and ethnic diversity. The revised code broadened the role of the nominating committee to oversee the development of diversity in senior management ranks and to review diversity and inclusion initiatives and outcomes throughout the business.

Brazil

Outlook.

Following the highly polarized presidential election, Brazil is still facing some political uncertainty around the potential business and political agenda the new government will pursue. Despite recent ministry appointments being generally well received, global investors will likely still be cautious about investing in the country given the government’s deep history of entanglement with corporate affairs.

Governance reforms and stewardship.

Governance regulation is still in its early stages in Brazil and continues to be focused on overhauling compliance practices and implementing governance reforms. Securities regulator CVM recently issued guidelines regarding indemnity agreements between companies and board members (and other company stakeholders), which could lead to possible disclosure implications. The guidance serves to warn companies about potential conflicts of interest, and directors are cautioned to pay close attention to these new policies. Brazilian public companies are now required to file a comply-or-explain governance report as part of the original mandate stemming from the 2016 Corporate Governance Code, with an emphasis on the quality of such disclosures. Stewardship continues to be of growing importance, and boards are at the center of that discussion. The Association of Capital Market Investors is focusing on ensuring that the CVM and other market participants are holding companies to the highest governance standards not issuing waivers or failing to hold companies accountable for their actions.

Improved independence.

There is an ongoing push for more independence within the governance framework. More independent directors are being appointed to boards due to wider capital distribution. Brazil is working toward implementing reforms targeting political appointments within state-owned enterprises (SOE), but progress could slow depending upon the new government’s priorities. Recently, the Brazilian Chamber of Deputies approved legislation that would allow politicians to once again be nominated to SOE boards. The Federal Senate will soon decide on the proposal, but its approval could trigger a backlash. Organizations like the Brazilian Institute of Corporate Governance are firmly positioning themselves against the law change, viewing it as a step back from recent governance progress. However, the Novo Mercado rules and Corporate Governance Code are strengthening the definition of independence and using shareholder meetings to confirm the independence of those directors.

Remote voting.

The recent introduction of the remote voting card for shareholders could have a major impact on boards. Public companies required to implement the new system should expect to see more flexibility and inclusion of minority shareholder-backed nominees on the ballot. While Brazil is making year-over-year progress toward minority shareholder protections, they continue to be a challenge.

Board effectiveness.

Experts anticipate increased pressure to upgrade board mechanics and processes, including establishing a nominations policy regarding board director and committee appointments, routine board evaluation processes, succession planning, and onboarding/training programs. CVM, along with B3 (the Brazilian stock exchange), continues to push for higher governance standards and processes. There is an increased focus on board and director assessment (whether internally or externally led) to ensure board effectiveness and the right board composition. Under the Corporate Governance Code, companies will have to comply or explain why they do not have a board assessment process.

Compensation disclosure.

For almost a decade, Brazilian companies used a court injunction (known as the “IBEF Injunction”) to avoid having to disclose the remuneration of their highest-paid executives. Now that this has been overturned, public companies will be expected to start disclosing compensation information for their highest-paid executives and board members. Companies are concerned that the disclosure may trigger a backlash among minority shareholders and negative votes against remuneration.

India

Regulatory reform.

Motivated by a desire to attract global investments, curb corruption, and strengthen corporate governance, India is continuing to push for regulatory reform. In the spring of 2018, much to the surprise of many, the Securities and Exchange Board of India (SEBI) adopted many of the 81 provisions put forward by the Kotak Committee. The adoption of the recommendations has caused many companies to consider and aspire to meet this new standard. Kotak implementation has triggered a significant wave of governance implications centered around improving transparency and financial reporting. The adoption of these governance reforms is staggered, with most companies striving to reach compliance between April 2019 and April 2020.

Board composition, leadership, and independence.

Boards will face enhanced disclosure rules regarding the skills and experience of directors, which has triggered many companies to engage in board composition assessments. Directors will also be limited in the number of boards they can serve on simultaneously: eight in 2019; seven in 2020. The top 1,000 listed companies in India will need to ensure they have a minimum of six directors on their boards by April 2019, with the next 1,000 having an additional year to comply. Among other changes are new criteria for independence determinations and changes to director compensation. Additionally, the CEO or managing director role and the chair role must be separated and cannot be held by the same person for the top 500 listed companies by market capitalization. This will significantly change board leadership and control in many companies where the role was held by the same person, and it will boost overall independence. To further drive board and director independence, the definition of independence was strengthened, and board interlocks will receive greater scrutiny.

Board diversity.

India continues to make improvements toward gender diversity five years after the Companies Act of 2013 and ongoing pressure from investors and policymakers. Nevertheless, institutional investors and proxy advisors are calling for more progress, as a quarter of women appointments are held by family members of the business owners (and are thus not independent). Starting in 2019, boards of the top 500 listed companies will need to ensure they have at least one independent woman director; by 2020, the top 1,000 listed companies will need to comply.

Board effectiveness.

The reforms also include a requirement for the implementation of an oversight process for succession planning and updating the board evaluation and director review process.

Investor expectations.

Governance stakeholders are eager to see how much progress Indian companies will make during the next 18 months, but many are not overly optimistic given the magnitude of change required in such a short period of time. Investors are setting their expectations accordingly and understand that regional governance norms will not transform overnight. While it is unclear exactly how the government and regulators will respond to noncompliance, companies and their boards are feeling anxious about the potential repercussions and penalties.

Japan

Continued focus on governance.

The Japanese government continues to be a driving force for corporate governance improvements. To make Japan more attractive to global investors, policymakers are increasingly focused on improving board accountability. Despite a trend toward more proactive investor stewardship, regulatory bodies including the Financial Services Agency continue to lead reforms, with several new comply-or-explain guidelines added to the Amended Corporate Governance Code that came into effect in 2018. These guidelines, such as minimum independence requirements, establishing an objective CEO succession and dismissal process, and the unloading of cross-shareholdings, are aimed at enhancing transparency.

Director independence.

Director independence has been a concern for investors, with outside directors taking only about 31 percent of board seats. Though some observers perceive a weakening of language in the code regarding independence, investors are unlikely to lower their expectations and standards. The amended code now calls for at least one-third of the board to be composed of outside directors (up from the quota requirement of two directors that existed previously). The change is intended to encourage transparency and accountability around the board’s decision-making process. Starting next year, ISS will adopt a similar approach to its Japanese governance policies, employing a one-third independence threshold as well.

Executive compensation.

Given recent scandals, institutional investors and regulators will continue to pay close attention to the structure of executive compensation. Performance-based compensation plans will be a major area of focus in 2019. More companies are introducing new types of equity-based compensation schemes, such as restricted stock, and are expected to follow the trend into next year. Board diversity. Over 50 percent of listed companies still have no women on their boards. To upgrade board quality and performance, investors will likely engage more forcefully on gender diversity, board composition and processes, board oversight duties and roles, and the board director evaluation process.

ESG.

In 2019, boards can expect more shareholder interest in sustainability metrics and strategy. Investors are keen to see enhanced disclosure that aids their understanding of value creation and the link to performance targets, as well as explanations concerning board monitoring.

Activist investing.

Activism continues to rise in Japan, and we expect that trend to continue. Activists are showing a willingness to demand a board seat and engage in proxy battles, and institutional investors are increasingly willing to support the activist recommendations.

Governance practices.

Investors also will be paying close attention to several other governance practices, such as the earlier disclosure of proxy materials and delivery in digital format, and protecting the interest of minority shareholders. The code further emphasizes succession planning by requiring companies to implement a fair and transparent process for the CEO’s removal and succession. As a result, more companies are introducing nominating committees and discussing

CEO succession.

Companies are also being urged to unload their cross-shareholdings (when a listed company owns stock of another company in the same listing) and adopt controls that will determine whether the ownership of such equity is appropriate. Such holdings are likely to be policed more by regulators due to the tendency of such holdings to insulate boards from external pressure, including takeover bids.

___________________________________________________________

*Jack “Rusty” O’Kelley, III is Global Leader of the Board Advisory & Effectiveness Practice, Anthony Goodman is a member of the Board Consulting and Effectiveness Practice, and Melissa Martin is a Board and CEO Advisory Group Specialist at Russell Reynolds Associates.at Russell Reynolds Associates. This post is based on a Russell Reynolds memorandum by Mr. O’Kelley, Mr. Goodman, and Ms. Martin.

 

Recommandations des firmes de conseils en votation pour l’année 2019


Comme à chaque fin d’année, le blogue du Harvard Law School on Corporate Governance Forum, présente un sommaire des grandes tendances en gouvernance.

Voici les recommandations que les firmes-conseils en votation Institutional Shareholder Services (ISS) et Glass Lewis & Co. font aux actionnaires qui voteront lors des assemblées annuelles de 2019.

Ces changements aux politiques de votation nous offrent une belle occasion de constater l’évolution des pratiques de saine gouvernance.

Bonne lecture !

 

ISS and Glass Lewis Policy Updates for the 2019 Proxy Season

 

Résultats de recherche d'images pour « recommandations de Institutional Shareholder Services (ISS) »

 

The key changes to ISS’ proxy voting policies for 2019 relate to:

Board Gender Diversity—Beginning in 2020, ISS will generally recommend voting against nominating committee chairs (and potentially other directors) at companies with no female directors unless certain mitigating factors apply.

Economic Value Added Data for Pay-For-Performance Evaluation—In 2019, solely for informational purposes, ISS will include on a phased-in basis Economic Value Added (EVA) data in its proxy research reports as a supplement to GAAP/accounting performance measures to provide additional insight into company performance when evaluating pay-for-performance alignment. ISS will continue to explore the potential future use of EVA data as part of its pay-for-performance evaluation.

Management Ratification Proposals

Under a new policy, ISS will generally recommend voting against management proposals to ratify provisions of the company’s existing charter or bylaws, unless such provisions align with best practice.

ISS will also recommend voting against or withholding from individual directors, members of the governance committee or the full board, where boards ask shareholders to ratify existing charter or bylaw provisions considering specified factors.

Under a revised policy, if a management proposal to ratify existing charter or bylaw provisions fails to receive majority support, ISS will conduct a board responsiveness analysis for the next annual meeting.

Chronic Poor Attendance by Directors—In cases of “chronic poor attendance” by a director (defined as three or more consecutive years of poor attendance without reasonable explanation), in addition to recommending votes against the director(s) with chronic poor attendance, ISS will generally recommend voting against or withholding from appropriate members of the nominating/governance committee or the full board.

Director Performance Evaluation—Under a revised policy, when evaluating director performance, ISS will assess a company’s 5-year total shareholder returns (TSR) as part of the initial screen for underperformance rather than during the second step of its evaluation.

Reverse Stock Splits—Under a revised policy, ISS will evaluate on a case-by-case basis certain management proposals to implement reverse stock splits, taking into consideration (i) disclosure of substantial doubt about the company’s ability to continue as a going concern without additional financing, (ii) the company’s rationale or (iii) other factors as applicable.

Shareholder Proposals on Environmental and Social (E&S) Issues—Under a revised policy, ISS expanded the factors it will consider when analyzing E&S shareholder proposals to include whether there are significant controversies, fines, penalties or litigation associated with the company’s E&S practices.

Excessive Non-Employee Director Compensation—ISS will delay until at least 2020 its previously-announced new policy of potentially issuing negative vote recommendations against members of the board committee responsible for setting or approving excessive non-employee director compensation in two or more consecutive years without a compelling rationale or other mitigating factors.

Top 10 de Harvard Law School Forum on Corporate Governance au 20 décembre 2018


Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 20 décembre 2018.

Comme à l’habitude, j’ai relevé les dix principaux billets.

Bonne lecture !

 

 

Résultats de recherche d'images pour « top 10 »

 

Résultats de recherche d'images pour « Top 10 en gouvernance Harvard Law School »

 

  1. Common Ownership: The Investor Protection Challenge of the 21st Century
  2. Remarks to the SEC Investor Advisory Committee
  3. Some Thoughts for Boards of Directors in 2019
  4. The Prescience of 5% of Investors: A Monsanto Case Study
  5. The Lifecycle Theory of Dual-Class Structures
  6. ISS and Glass Lewis Policy Updates for the 2019 Proxy Season
  7. Mutual Fund Board Connections and Proxy Voting
  8. Audit: Radical Change on the Horizon?
  9. Roundup of Key Federal Securities Litigation Developments
  10. Soft Shareholder Activism

Top 10 de Harvard Law School Forum on Corporate Governance au 13 décembre 2018


Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 13 décembre 2018.

Comme à l’habitude, j’ai relevé les dix principaux billets.

Bonne lecture !

 

 

Résultats de recherche d'images pour « top ten »

 

Résultats de recherche d'images pour « Top 10 en gouvernance Harvard Law School »

 

Nouvelles perspectives pour la gouvernance en 2018


Aujourd’hui, je vous propose la lecture d’un excellent article de Martin Lipton* sur les nouvelles perspectives de la gouvernance en 2018. Cet article est publié sur le site du Harvard Law School Forum on Corporate Governance.

Après une brève introduction portant sur les meilleures pratiques observées dans les entreprises cotées, l’auteur se penche sur les paramètres les plus significatifs de la nouvelle gouvernance.

Les thèmes suivants sont abordés dans un contexte de renouvellement de la gouvernance pour le futur :

  1. La notion de l’actionnariat élargie pour tenir compte des parties prenantes ;
  2. L’importance de considérer le développement durable et la responsabilité sociale des entreprises ;
  3. L’adoption de stratégies favorisant l’engagement à long terme ;
  4. La nécessité de se préoccuper de la composition des membres du CA ;
  5. L’approche à adopter eu égard aux comportements d’actionnaires/investisseurs activistes ;
  6. Les attentes eu égard aux rôles et responsabilités des administrateurs.

À l’approche de la nouvelle année 2018, cette lecture devrait compter parmi les plus utiles pour les administrateurs et les dirigeants d’entreprises ainsi que pour toute personne intéressée par l’évolution des pratiques de gouvernance.

Bonne lecture ! Vos commentaires sont appréciés.

 

Some Thoughts for Boards of Directors in 2018

 

 

Introduction

 

As 2017 draws to a conclusion and we reflect on the evolution of corporate governance since the turn of the millennium, a recurring question percolating in boardrooms and among shareholders and other stakeholders, academics and politicians is: what’s next on the horizon for corporate governance? In many respects, we seem to have reached a point of relative stasis. The governance and takeover defense profiles of U.S. public companies have been transformed by the widespread adoption of virtually all of the “best practices” advocated to enhance the rights of shareholders and weaken takeover defenses.

While the future issues of corporate governance remain murky, there are some emerging themes that portend a potentially profound shift in the way that boards will need to think about their roles and priorities in guiding the corporate enterprise. While these themes are hardly new, they have been gaining momentum in prompting a rethinking of some of the most basic assumptions about corporations, corporate governance and the path forward.

First, while corporate governance continues to be focused on the relationship between boards and shareholders, there has been a shift toward a more expansive view that is prompting questions about the broader role and purpose of corporations. Most of the governance reforms of the past few decades targeted the ways in which boards are structured and held accountable to the interests of shareholders, with debates often boiling down to trade-offs between a board-centric versus a more shareholder-centric framework and what will best create shareholder value. Recently, efforts to invigorate a more long-term perspective among both corporations and their investors have been laying the groundwork for a shift from these process-oriented debates to elemental questions about the basic purpose of corporations and how their success should be measured and defined.

In particular, sustainability has become a major, mainstream governance topic that encompasses a wide range of issues such as climate change and other environmental risks, systemic financial stability, labor standards, and consumer and product safety. Relatedly, an expanded notion of stakeholder interests that includes employees, customers, communities, and the economy and society as a whole has been a developing theme in policymaking and academic spheres as well as with investors. As summarized in a 2017 report issued by State Street Global Advisor,

“Today’s investors are looking for ways to put their capital to work in a more sustainable way, one focused on long-term value creation that enables them to address their financial goals and responsible investing needs. So, for a growing number of institutional investors, the environmental, social and governance (ESG) characteristics of their portfolio are key to their investment strategy.”

While both sustainability and expanded constituency considerations have been emphasized most frequently in terms of their impact on long-term shareholder value, they have also been prompting fresh dialogue about the societal role and purpose of corporations.

Another common theme that underscores many of the corporate governance issues facing boards today is that corporate governance is inherently complex and nuanced, and less amenable to the benchmarking and quantification that was a significant driver in the widespread adoption of corporate governance “best practices.” Prevailing views about what constitutes effective governance have morphed from a relatively binary, check-the-box mentality—such as whether a board is declassified, whether shareholders can act by written consent and whether companies have adopted majority voting standards—to tackling questions such as how to craft a well-rounded board with the skills and experiences that are most relevant to a particular corporation, how to effectively oversee the company’s management of risk, and how to forge relationships with shareholders that meaningfully enhance the company’s credibility. Companies and investors alike have sought to formulate these “next generation” governance issues in a way that facilitates comparability, objective assessment and accountability. For example, many companies have been including skills matrices in their proxy statements to show, in a visual snapshot, that their board composition encompasses appropriate skills and experiences. Yet, to the extent that complicated governance issues cannot be reduced to simple, user-friendly metrics, it remains to be seen whether this will prompt new ways of defining “good” corporate governance that require a deeper understanding of companies and their businesses, and the impact that could have on the expectations and practices of stakeholders.

Against this backdrop, a few of the more significant issues that boards of directors will face in the coming year, as well as an overview of some key roles and responsibilities, are highlighted below. Parts II through VI contain brief summaries of some of the leading proposals and thinking for corporate governance of the future. In Part VII, we turn to the issues boards of directors will face in 2018 and suggestions as to how to prepare to deal with them.

 

Expanded Stakeholders

 

The primacy of shareholder value as the exclusive objective of corporations, as articulated by Milton Friedman and then thoroughly embraced by Wall Street, has come under scrutiny by regulators, academics, politicians and even investors. While the corporate governance initiatives of the past year cannot be categorized as an abandonment of the shareholder primacy agenda, there are signs that academic commentators, legislators and some investors are looking at more nuanced and tempered approaches to creating shareholder value.

In his 2013 book, Firm Commitment: Why the Corporation is Failing Us and How to Restore Trust in It, and a series of brilliant articles and lectures, Colin Mayer of the University of Oxford has convincingly rejected shareholder value primacy and put forth proposals to reconceive the business corporation so that it is committed to all its stakeholders, including the community and the general economy. His new book, Prosperity: Better Business Makes the Greater Good, to be published by Oxford University Press in 2018, continues the theme of his earlier publications and will be required reading.

Similarly, an influential working paper by Oliver Hart and Luigi Zingales argues that the appropriate objective of the corporation is shareholder welfare rather than shareholder wealth. Hart and Zingales advocate that corporations and asset managers should pursue policies consistent with the preferences of their investors, specifically because corporations may be able to accomplish objectives that shareholders acting individually cannot. In such a setting, the implicit separability assumption underlying Milton Friedman’s theory of the purpose of the firm fails to produce the best outcome for shareholders. Indeed, even though Hart and Zingales propose a revision that remains shareholder-centered, by recognizing the unique capability of corporations to engage in certain kinds of activities, their theory invites a careful consideration of other goals such as sustainability, board diversity and employee welfare, and even such social concerns, as, for example, reducing mass violence or promoting environmental stewardship. Such a model of corporate decision-making emphasizes the importance of boards establishing a relationship with significant shareholders to understand shareholder goals, beyond simply assuming that an elementary wealth maximization framework is the optimal path.

Perhaps closer to a wholesale rejection of the shareholder primacy agenda, an article by Joseph L. Bower and Lynn S. Paine, featured in the May-June 2017 issue of the Harvard Business Review, attacks the fallacies of the economic theories that have been used since 1970 to justify shareholder-centric corporate governance, short-termism and activist attacks on corporations. In questioning the benefits of hedge fund activism, Bower and Paine argue that some of the value purportedly created for shareholders by activists is not actually value created, but rather value transferred from other parties or from the public purse, such as shifting a company’s tax domicile to a lower-tax jurisdiction or eliminating exploratory research and development. The article supports the common sense notion that boards have a fiduciary duty not just to shareholders, but also to employees, customers and the community—a constituency theory of governance penned into law in a number of states’ business corporation laws.

Moreover, this theme has been metastasizing from a theoretical debate into specific reform initiatives that, if implemented, could have a direct impact on boards. For example, Delaware and 32 other states and the District of Columbia have passed legislation approving a new corporate form—the benefit corporation —a for-profit corporate entity with expanded fiduciary obligations of boards to consider other stakeholders in addition to shareholders. Benefit corporations are mandated by law to consider their overall positive impact on society, their workers, the communities in which they operate and the environment, in addition to the goal of maximizing shareholder profit.

This broader sense of corporate purpose has been gaining traction among shareholders. For example, the endorsement form for the Principles published by the Investor Stewardship Group in 2017 includes:

“[I]t is the fiduciary responsibility of all asset managers to conduct themselves in accordance with the preconditions for responsible engagement in a manner that accrues to the best interests of stakeholders and society in general, and that in so doing they’ll help to build a framework for promoting long-term value creation on behalf of U.S. companies and the broader U.S. economy.”

Notions of expanded stakeholder interests have often been incorporated into the concept of long-termism, and advocating a long-term approach has also entailed the promotion of a broader range of stakeholder interests without explicitly eroding the primacy of shareholder value. Recently, however, the interests of other stakeholders have increasingly been articulated in their own right rather than as an adjunct to the shareholder-centric model of corporate governance. Ideas about the broader social purpose of corporations have the potential to drive corporate governance reforms into uncharted territory requiring navigation of new questions about how to measure and compare corporate performance, how to hold companies accountable and how to incentivize managers.

 

Sustainability

 

The meaning of sustainability is no longer limited to describing environmental practices, but rather more broadly encompasses the sustainability of a corporation’s business model in today’s fast-changing world. The focus on sustainability encompasses the systemic sustainability of public markets and pressures boards to think about corporate strategy and how governance should be structured to respond to and compete in this environment.

Recently, the investing world has seen a rise of ESG-oriented funds—previously a small, niche segment of the investment community. Even beyond these specialized funds, ESG has also become a focus of a broad range of traditional investment funds and institutional investors. For instance, BlackRock and State Street both offer their investors products that specifically focus on ESG-oriented topics like climate change and impact investing—investing with an intention of generating a specific social or environmental outcome alongside financial returns.

At the beginning of 2017, State Street’s CEO Ronald P. O’Hanley wrote a letter advising the boards of the companies in which State Street invests that State Street defines sustainability “as encompassing a broad range of environmental, social and governance issues that include, for example, effective independent board leadership and board composition, diversity and talent development, safety issues, and climate change.” The letter was a reminder that broader issues that impact all of a company’s stakeholders may have a material effect on a company’s ability to generate returns. Chairman and CEO of BlackRock, Laurence D. Fink remarked similarly in his January 2017 letter that

“[e]nvironmental, social and governance factors relevant to a company’s business can provide essential insights into management effectiveness and thus a company’s long-term prospects. We look to see that a company is attuned to the key factors that contribute to long-term growth: sustainability of the business model and its operations, attention to external and environmental factors that could impact the company, and recognition of the company’s role as a member of the communities in which it operates.”

Similarly, the UN Principles for Responsible Investment remind corporations that ESG factors should be incorporated into all investment decisions to better manage risk and generate sustainable, long-term returns.

Shareholders’ engagement with ESG issues has also increased. Previously, ESG was somewhat of a fringe issue with ESG-related shareholder proxy proposals rarely receiving significant shareholder support. This is no longer the case. In the 2017 proxy season, the two most common shareholder proposal topics related to social (201 proposals) and environmental (144 proposals, including 69 on climate change) issues, as opposed to 2016’s top two topics of proxy access (201) and social issues (160). Similar to cybersecurity and other risk management issues, sustainability practices involve the nuts and bolts of operations—e.g., life-cycle assessments of a product and management of key performance indicators (KPIs) using management information systems that facilitate internal and public reporting—and provide another example of an operational issue that has become a board/governance issue.

The expansion of sustainability requires all boards—not just boards of companies with environmentally sensitive businesses—to be aware of and be ready to respond to ESG-related concerns. The salient question is whether “best” sustainability practices will involve simply the “right” messaging and disclosures, or whether investors and companies will converge on a method to measure sustainability practices that affords real impact on capital allocation, risk-taking and proactive—as opposed to reactive—strategy.

Indeed, measurement and accountability are perhaps the elephants in the room when it comes to sustainability. Many investors appear to factor sustainability into their investing decisions. Other ways to measure sustainability practices include the presence of a Chief Sustainability Officer or Corporate Responsibility Committee. However, while there are numerous disclosure frameworks relating to sustainability and ESG practices, there is no centralized ESG rating system. Further, rating methodologies and assessments of materiality vary widely across ESG data providers and disclosure requirements vary across jurisdictions.

Pending the development of clear and agreed standards to benchmark performance on ESG issues, boards of directors should focus on understanding how their significant investors value and measure ESG issues, including through continued outreach and engagement with investors focusing on these issues, and should seek tangible agreed-upon methodologies to address these areas, while also promoting the development of improved metrics and disclosure.

Promoting a Long-Term Perspective

 

As the past year’s corporate governance conversation has explored considerations outside the goal of maximizing shareholder value, the conversation within the shareholder value maximization framework has also continued to shift toward an emphasis on long-term value rather than short term. A February 2017 discussion paper from the McKinsey Global Institute in cooperation with Focusing Capital on the Long Term found that long-term focused companies, as measured by a number of factors including investment, earnings quality and margin growth, generally outperformed shorter-term focused companies in both financial and other performance measures. Long-term focused companies had greater, and less volatile, revenue growth, more spending on research and development, greater total returns to shareholders and more employment than other firms.

This empirical evidence that corporations focused on stakeholders and long-term investment contribute to greater economic growth and higher GDP is consistent with innovative corporate governance initiatives. A new startup, comprised of veterans of the NYSE and U.S. Treasury Department, is working on creating the “Long-Term Stock Exchange”—a proposal to build and operate an entirely new stock exchange where listed companies would have to satisfy not only all of the normal SEC requirements to allow shares to trade on other regulated U.S. stock markets but, in addition, other requirements such as tenured shareholder voting power (permitting shareholder voting to be proportionately weighted by the length of time the shares have been held), mandated ties between executive pay and long-term business performance and disclosure requirements informing companies who their long-term shareholders are and informing investors of what companies’ long-term investments are.

In addition to innovative alternatives, numerous institutional investors and corporate governance thought leaders are rethinking the mainstream relationship between all boards of directors and institutional investors to promote a healthier focus on long-term investment. While legislative reform has taken a stronger hold in the U.K. and Europe, leading American companies and institutional investors are pushing for a private sector solution to increase long-term economic growth. Commonsense Corporate Governance Principles and The New Paradigm: A Roadmap for an Implicit Corporate Governance Partnership Between Corporations and Investors to Achieve Sustainable Long-Term Investment and Growth were published in hopes of recalibrating the relationship between boards and institutional investors to protect the economy against the short-term myopic approach to management and investing that promises to impede long-term economic prosperity. Under a similar aim, the Investor Stewardship Group published its Stewardship Principles and Corporate Governance Principles, set to become effective in January 2018, to establish a framework with six principles for investor stewardship and six principles for corporate governance to promote long-term value creation in American business. A Synthesized Paradigm for Corporate Governance, Investor Stewardship, and Engagement provides a synthesis of these and others in the hope that companies and investors would agree on a common approach. In fact, over 100 companies to date have signed The Compact for Responsive and Responsible Leadership: A Roadmap for Sustainable Long-Term Growth and Opportunity, sponsored by the World Economic Forum, which includes the key features of The New Paradigm.

Similarly, the BlackRock Investment Stewardship team has proactively outlined five focus areas for its engagement efforts: Governance, Corporate Strategy for the Long-Term, Executive Compensation that Promotes Long-Termism, Disclosure of Climate Risks, and Human Capital Management. BlackRock’s outline reflects a number of key trends, including heightened transparency by institutional investors, more engagement by “passive” investors, and continued disintermediation of proxy advisory firms. In the United Kingdom, The Investor Forum was founded to provide an intermediary to represent the views of its investor members to investee companies in the hope of reducing activism, and appears to have achieved a successful start.

Similarly, in June 2017, the Coalition for Inclusive Capitalism and Ernst & Young jointly announced the launch of a project on long-term value creation. Noting among other elements that trust and social cohesion are necessary ingredients for the long-term success of capitalism, the project will emphasize reporting mechanisms and credible measurements supporting long-term value, developing and testing a framework to better reflect the full value companies create beyond simply financial value. There is widespread agreement that focusing on long-term investment will promote long-term economic growth. The next step is a consensus between companies and investors on a common path of action that will lead to restored trust and cohesion around long-term goals.

 

Board Composition

 

The corporate governance conversation has become increasingly focused on board composition, including board diversity. Recent academic studies have confirmed and expanded upon existing empirical evidence that hedge fund activism has been notably counterproductive in increasing gender diversity—yet another negative externality of this type of activism. Statistical evidence supports the hypothesis that the rate of shareholder activism is higher toward female CEOs holding all else equal, including industries, company sizes and levels of performance. A study forthcoming in the Journal of Applied Psychology investigated the reasons that hedge fund activists seemingly ignore the evidence for gender-diverse boards in their choices for director nominees and disproportionately target female CEOs. The authors suggest these reasons may include subconscious biases of hedge funds against women leaders due to perceptions and cultural attitudes.

In the United Kingdom, the focus on board diversity has spread into policy. The House of Commons Business, Energy, and Industrial Strategy Committee report on Corporate Governance, issued in 2017, included recommendations for improving ethnic, gender and social diversity of boards, noting that “[to] be an effective board, individual directors need different skills, experience, personal attributes and approaches.” The U.K. government’s response to this report issued in September 2017 notes its agreement on various diversity-related issues, stating that the “Government agrees with the Committee that it makes business sense to recruit directors from as broad a base as possible across the demographic of the UK” and further, tying into themes of stakeholder capitalism, that the “Government believes that greater diversity within the boardroom can help companies connect with their workforces, supply chains, customers and shareholders.”

In the United States, institutional investors are focused on a range of board composition issues, including term limits, board refreshment, diversity, skills matrices and board evaluation processes, as well as disclosures regarding these issues. In a recent letter, Vanguard explained that it considers the board to be “one of a company’s most critical strategic assets” and looks for a “high-functioning, well-composed, independent, diverse, and experienced board with effective ongoing evaluation practices,” stating that “Good governance starts with a great Board.” The New York Comptroller’s Boardroom Accountability Project 2.0 is focused on increasing diversity of boards in order to strengthen their independence and competency. In connection with launching this campaign, the NYC Pension Funds asked the boards of 151 U.S. companies to disclose the race and gender of their directors alongside board members’ skills in a standardized matrix format. And yet, similar to the difficulty of measuring and comparing sustainability efforts of companies, investors and companies alike continue to struggle with how to measure and judge a board’s diversity, and board composition generally, as the conversation becomes more nuanced. Board composition and diversity aimed at increasing board independence and competency is not a topic that lends itself to a “check-the-box” type measurement.

In light of the heightened emphasis on board composition, boards should consider increasing their communications with their major shareholders about their director selection and nomination processes to show the board understands the importance of its composition. Boards should consider disclosing how new director candidates are identified and evaluated, how committee chairs and the lead director are determined, and how the operations of the board as a whole and the performance of each director are assessed. Boards may also focus on increasing tutorials, facility visits, strategic retreats and other opportunities to increase the directors’ understanding of the company’s business—and communicate such efforts to key shareholders and constituents.

 

Activism

 

Despite the developments and initiatives striving to protect and promote long-term investment, the most dangerous threat to long-term economic prosperity has continued to surge in the past year. There has been a significant increase in activism activity in countries around the world and no slowdown in the United States. The headlines of 2017 were filled with activists who do not fit the description of good stewards of the long-term interests of the corporation. A must-read Bloombergarticle described Paul Singer, founder of Elliott Management Corp., which manages $34 billion of assets, as “aggressive, tenacious and litigious to a fault” and perhaps “the most feared activist investor in the world.” Numerous recent activist attacks underscore that the CEO remains a favored activist target. Several major funds have become more nuanced and taken a merchant banker approach of requesting board representation to assist a company to improve operations and strategy for long-term success. No company is too big for an activist attack. Substantial new capital has been raised by activist hedge funds and several activists have created special purpose funds for investment in a single target. As long as activism remains a serious threat, the economy will continue to experience the negative externalities of this approach to investing—companies attempting to avoid an activist attack are increasingly managed for the short term, cutting important spending on research and development and focusing on short-term profits by effecting share buybacks and paying dividends at the expense of investing in a strategy for long-term growth.

To minimize the impact of activist attacks, boards must focus on building relationships with major institutional investors. The measure of corporate governance success has shifted from checking the right boxes to building the right relationships. Major institutional investors have reiterated their commitment to bringing a long-term perspective to public companies, including, for example, Vanguard, which sent an open letter to directors of public companies world-wide explaining that a long-term perspective informed every aspect of its investment approach. Only by forging relationships of trust and credibility with long-term shareholders can a company expect to gain support for its long-term strategy when it needs it. In many instances, when an activist does approach, a previously established relationship provides a foundation for management and the board to persuade key shareholders that short-term activism is not in their best interest—an effort that is already showing some promise. General Motors’ resounding defeat of Greenlight Capital’s attempt to gain shareholder approval to convert its common stock into two classes shows a large successful company’s ability to garner the

support of its institutional investors against financial engineering. Trian’s recent proxy fight against Procter & Gamble shows the importance of proactively establishing relationships with long-term shareholders. Given Trian’s proven track record of success in urging changes in long-term strategy, Nelson Peltz was able to gain support for a seat on P&G’s board from proxy advisors and major institutional investors. We called attention to importantlessons from this proxy fight (discussed on the Forum here and here).

 

Spotlight on Boards

 

The ever-evolving challenges facing corporate boards prompts an updated snapshot of what is expected from the board of directors of a major public company—not just the legal rules, but also the aspirational “best practices” that have come to have equivalent influence on board and company behavior. In the coming year, boards will be expected to:

Oversee corporate strategy and the communication of that strategy to investors;

Set the tone at the top to create a corporate culture that gives priority to ethical standards, professionalism, integrity and compliance in setting and implementing strategic goals;

Choose the CEO, monitor the CEO’s and management’s performance and develop a succession plan;

Determine the agendas for board and committee meetings and work with management to assure appropriate information and sufficient time are available for full consideration of all matters;

Determine the appropriate level of executive compensation and incentive structures, with awareness of the potential impact of compensation structures on business priorities and risk-taking, as well as investor and proxy advisor views on compensation;

Develop a working partnership with the CEO and management and serve as a resource for management in charting the appropriate course for the corporation;

Oversee and understand the corporation’s risk management and compliance efforts, and how risk is taken into account in the corporation’s business decision-making; respond to red flags when and if they arise (see Risk Management and the Board of Directors, discussed on the Forum here);

Monitor and participate, as appropriate, in shareholder engagement efforts, evaluate potential corporate governance proposals and anticipate possible activist attacks in order to be able to address them more effectively;

Evaluate the board’s performance on a regular basis and consider the optimal board and committee composition and structure, including board refreshment, expertise and skill sets, independence and diversity, as well as the best way to communicate with investors regarding these issues;

Review corporate governance guidelines and committee charters and tailor them to promote effective board functioning;

Be prepared to deal with crises; and

Be prepared to take an active role in matters where the CEO may have a real or perceived conflict, including takeovers and attacks by activist hedge funds focused on the CEO.

To meet these expectations, major public companies should seek to:

Have a sufficient number of directors to staff the requisite standing and special committees and to meet expectations for diversity;

Have directors who have knowledge of, and experience with, the company’s businesses, even if this results in the board having more than one director who is not “independent”;

Have directors who are able to devote sufficient time to preparing for and attending board and committee meetings;

Meet investor expectations for director age, diversity and periodic refreshment;

Provide the directors with the data that is critical to making sound decisions on strategy, compensation and capital allocation;

Provide the directors with regular tutorials by internal and external experts as part of expanded director education; and

Maintain a truly collegial relationship among and between the company’s senior executives and the members of the board that enhances the board’s role both as strategic partner and as monitor.

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*Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton publication by Mr. Lipton, Steven A. Rosenblum, Karessa L. Cain, Sabastian V. Niles, Vishal Chanani, and Kathleen C. Iannone.

Une saine tension entre le CA et la direction : Gage d’une bonne gouvernance | Billet revisité


Dans son édition d’avril 2016, le magazine Financier Worldwide présente une excellente analyse de la dynamique d’un conseil d’administration efficace.

Pour l’auteur, il est important que le président du conseil soit habileté à exercer un niveau de saine tension entre les administrateurs et la direction de l’entreprise.

Il n’y a pas de place pour la complaisance au conseil. Les membres doivent comprendre que leur rôle est de veiller aux « intérêts supérieurs » de l’entreprise, notamment des propriétaires-actionnaires, mais aussi d’autres parties prenantes.

Le PDG de l’entreprise est recruté par le CA pour faire croître l’entreprise et exécuter une stratégie liée à son modèle d’affaires. Lui aussi doit travailler en fonction des intérêts des actionnaires… mais c’est la responsabilité fiduciaire du CA de s’en assurer en mettant en place les mécanismes de surveillance appropriés.

La théorie de l’agence stipule que le CA représente l’autorité souveraine de l’entreprise (puisqu’il possède la légitimité que lui confèrent les actionnaires). Le CA confie à un PDG (et à son équipe de gestion) le soin de réaliser les objectifs stratégiques retenus. Les deux parties — le Board et le Management — doivent bien comprendre leurs rôles respectifs, et trouver les bons moyens pour gérer la tension inhérente à l’exercice de la gouvernance et de la gestion.

Les administrateurs doivent s’efforcer d’apporter une valeur ajoutée à la gestion en conseillant la direction sur les meilleures orientations à adopter, et en instaurant un climat d’ouverture, de soutien et de transparence propice à la réalisation de performances élevées.

Il est important de noter que les actionnaires s’attendent à la loyauté des administrateurs ainsi qu’à leur indépendance d’esprit face à la direction. Les administrateurs sont élus par les actionnaires et sont donc imputables envers eux. C’est la raison pour laquelle le conseil d’administration doit absolument mettre en place un processus d’évaluation de ces membres et divulguer sa méthodologie.

Également, comme mentionné dans un billet daté du 5 juillet 2016 (la séparation des fonctions de président du conseil et de président de l’entreprise [CEO] est-elle généralement bénéfique ?), les autorités réglementaires, les firmes spécialisées en votation et les experts en gouvernance suggèrent que les rôles et les fonctions de président du conseil d’administration soient distincts des attributions des PDG (CEO).

En fait, on suppose que la séparation des fonctions, entre la présidence du conseil et la présidence de l’entreprise (CEO), est généralement bénéfique à l’exercice de la responsabilité de fiduciaire des administrateurs, c’est-à-dire que des pouvoirs distincts permettent d’éviter les conflits d’intérêts, tout en rassurant les actionnaires.

Cependant, cette pratique cède trop souvent sa place à la volonté bien arrêtée de plusieurs PDG d’exercer le pouvoir absolu, comme c’est encore le cas pour plusieurs entreprises américaines. Pour plus d’information sur ce sujet, je vous invite à consulter l’article suivant : Séparation des fonctions de PDG et de président du conseil d’administration | Signe de saine gouvernance !

Le Collège des administrateurs de sociétés (CAS) offre une formation spécialisée de deux jours sur le leadership à la présidence.

 

Banque des ASC

Gouvernance et leadership à la présidence

 

Vous trouverez, ci-dessous, l’article du Financier Worldwide qui illustre assez clairement les tensions existantes entre le CA et la direction, ainsi que les moyens proposés pour assurer la collaboration entre les deux parties.

J’ai souligné en gras les passages clés.

Bonne lecture ! Vos commentaires sont appréciés.

 

In this age of heightened risk, the need for effective governance has caused a dynamic shift in the role of the board of directors. Cyber security, rapid technological growth and a number of corporate scandals resulting from the financial crisis of 2008, all underscore the necessity of boards working constructively with management to ensure efficient oversight, rather than simply providing strategic direction. This is, perhaps, no more critical than in the middle market, where many companies often don’t have the resources larger organisations have to attract board members, but yet their size requires more structure and governance than smaller companies might need.

Following the best practices of high-performing boards can help lead to healthy tension between management and directors for improved results and better risk management. We all know conflict in the boardroom might sometimes be unavoidable, as the interests of directors and management don’t necessarily always align. Add various personalities and management styles to the mix, and discussions can sometimes get heated. It’s important to deal with situations when they occur in order to constructively manage potential differences of opinion to create a healthy tension that makes the entire organisation stronger.

Various conflict management styles can be employed to ensure that any potential boardroom tension within your organisation is healthy. If an issue seems minor to one person but vital to the rest of the group, accommodation can be an effective way to handle tension. If minor issues arise, it might be best to simply avoid those issues, whereas collaboration should be used with important matters. Arguably, this is the best solution for most situations and it allows the board to effectively address varying opinions. If consensus can’t be reached, however, it might become necessary for the chairman or the lead director to use authoritarian style to manage tension and make decisions. Compromise might be the best approach when the board is pressed for time and needs to take immediate action.

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The board chairperson can be integral to the resolution process, helping monitor and manage boardroom conflict. With this in mind, boards should elect chairs with the proven ability to manage all personality types. The chairperson might also be the one to initiate difficult conversations on topics requiring deeper scrutiny. That said, the chairperson cannot be the only enforcer; directors need to assist in conflict resolution to maintain a proper level of trust throughout the group. And the CEO should be proactive in raising difficult issues as well, and boards are typically most effective when the CEO is confident, takes the initiative in learning board best practices and works collaboratively.

Gone are the days of the charismatic, autocratic CEO. Many organisations have separated the role of CEO and chairperson, and have introduced vice chairs and lead directors to achieve a better balance of power. Another way to ensure a proper distribution of authority is for the board to pay attention to any red flags that might be raised by the CEO’s behaviour. For example, if a CEO feels they have all the answers, doesn’t respect the oversight of the board, or attempts to manage or marginalise the board, the chairperson and board members will likely need to be assertive, rather than simply following the CEO’s lead. Initially this might seem counterintuitive, however, in the long-run, this approach will likely create a healthier tension than if they simply ‘followed the leader’.

Everyone in the boardroom needs to understand their basic functions for an effective relationship -executives should manage, while the board oversees. In overseeing, the board’s major responsibilities include approving strategic plans and goals, selecting a CEO, determining a mission or purpose, identifying key risks, and providing oversight of the compliance of corporate policies and regulations. Clearly understanding the line between operations and strategy is also important.

Organisations with the highest performing boards are clear on the appropriate level of engagement for the companies they represent – and that varies from one organisation to the next. Determining how involved the board will be and what type of model the board will follow is key to effective governance and a good relationship with management. For example, an entity that is struggling financially might require a more engaged board to help put it back on track.

Many elements, such as tension, trust, diversity of thought, gender, culture and expertise can impact the delicate relationship between the board and management. Good communication is vital to healthy tension. Following best practices for interaction before, during and after board meetings can enhance conflict resolution and board success.

Before each board meeting, management should prepare themselves and board members by distributing materials and the board package in a timely manner. These materials should be reviewed by each member, with errors or concerns forwarded to the appropriate member of management, and areas of discussion highlighted for the chair. An agenda focused on strategic issues and prioritised by importance of matters can also increase productivity.

During the meeting, board members should treat one another with courtesy and respect, holding questions held until after presentations (or as the presenter directs). Board-level matters should be discussed and debated if necessary, and a consensus reached. Time spent on less strategic or pressing topics should be limited to ensure effective meetings. If appropriate, non-board-level matters might be handed to management for follow-up.

Open communication should also continue after board meetings. Sometimes topics discussed during board meetings take time to digest. When this happens, board members should connect with appropriate management team members to further discuss or clarify. There are also various board committee meetings that need to occur between board meetings. Board committees should be doing the ‘heavy lifting’ for the full board, making the larger group more efficient and effective. Other more informal interactions can further strengthen the relationship between directors and management.

Throughout the year, the board’s engagement with management can be broadened to include discussions with more key players. Gaining multiple perspectives by interacting with other areas of the organisation, such as general counsels, external and internal auditors, public relations and human resources, can help the board identify and address key risks. By participating in internal and external company events, board members get to know management and the company’s customers on a first-hand basis.

Of course, a strategy is necessary for the board as well, as regulatory requirements have increased, leading to greater pressure for high-quality performance. Effective boards maintain a plan for development and succession. They also implement CEO and board evaluation processes to ensure goals are being met and board members are performing optimally. In addition to the evaluation process, however, board members must hold themselves totally accountable for instilling trust in the boardroom.

Competition in today’s increasingly global and complex business environment is fierce, and calls for new approaches for success. Today’s boards need to build on established best practices and create good relationships with management to outperform competitors. The highest performing boards are clear on their functions, and understand the level of engagement appropriate for the companies they support. They are accountable and set the right tone, while being able to discern true goals and aspirations from trendiness. They are capable of understanding and dealing with the ‘big issues’ and are strategic in their planning and implementation of approaches that work for the companies they serve. With the ever-changing risk universe, the ability to work with the right amount of healthy tension is essential to effective governance.

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Hussain T. Hasan is on the Consulting Leadership team as well as a board member at RSM US LLP.

Guide des pratiques exemplaires en matière de gestion des risques | Les responsabilités des administrateurs


Les administrateurs de sociétés doivent apporter une attention spéciale à la gestion des risques telle qu’elle est mise en œuvre par les dirigeants des entreprises.

Les préoccupations des fiduciaires pour la gestion des risques, quoique fondamentales, sont relativement récentes, et les administrateurs ne savent souvent pas comment aborder cette question.

L’article présenté, ci-dessous, est le fruit d’une recherche de Martin Lipton, fondateur de la firme Wachtell, Lipton, Rosen & Katz, spécialisée dans les fusions et acquisitions ainsi que dans les affaires de gouvernance.

L’auteur et ses collaborateurs ont produit un guide des pratiques exemplaires en matière de gestion des risques. Cet article de fond s’adresse aux administrateurs et touche aux éléments-clés de la gestion des risques :

(1) la distinction entre la supervision des risques et la gestion des risques ;

(2) les leçons que l’on doit tirer de la supervision des risques à Wells Fargo ;

(3) l’importance accordée par les investisseurs institutionnels aux questions des risques ;

(4) « tone at the top » et culture organisationnelle ;

(5) les devoirs fiduciaires, les contraintes réglementaires et les meilleures pratiques ;

(6) quelques recommandations spécifiques pour améliorer la supervision des risques ;

(7) les programmes de conformité juridiques ;

(8) les considérations touchant les questions de cybersécurité ;

(9) quelques facettes se rapportant aux risques environnementaux, sociaux et de gouvernance ;

(10) l’anticipation des risques futurs.

 

Voici donc l’introduction de l’article. Je vous invite à prendre connaissance de l’article au complet.

Bonne lecture !

 

Risk Management and the Board of Directors

 

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Overview

The past year has seen continued evolution in the political, legal and economic arenas as technological change accelerates. Innovation, new business models, dealmaking and rapidly evolving technologies are transforming competitive and industry landscapes and impacting companies’ strategic plans and prospects for sustainable, long-term value creation. Tax reform has created new opportunities and challenges for companies too. Meanwhile, the severe consequences that can flow from misconduct within an organization serve as a reminder that corporate operations are fraught with risk. Social and environmental issues, including heightened focus on income inequality and economic disparities, scrutiny of sexual misconduct issues and evolving views on climate change and natural disasters, have taken on a new salience in the public sphere, requiring companies to exercise utmost care to address legitimate issues and avoid public relations crises and liability.

Corporate risk taking and the monitoring of corporate risk remain prominently top of mind for boards of directors, investors, legislators and the media. Major institutional shareholders and proxy advisory firms increasingly evaluate risk oversight matters when considering withhold votes in uncontested director elections and routinely engage companies on risk-related topics. This focus on risk management has also led to increased scrutiny of compensation arrangements throughout the organization that have the potential for incentivizing excessive risk taking. Risk management is no longer simply a business and operational responsibility of management. It has also become a governance issue that is squarely within the oversight responsibility of the board. This post highlights a number of issues that have remained critical over the years and provides an update to reflect emerging and recent developments. Key topics addressed in this post include:

the distinction between risk oversight and risk management;

a lesson from Wells Fargo on risk oversight;

the strong institutional investor focus on risk matters;

tone at the top and corporate culture;

fiduciary duties, legal and regulatory frameworks and third-party guidance on best practices;

specific recommendations for improving risk oversight;

legal compliance programs;

special considerations regarding cybersecurity matters;

special considerations pertaining to environmental, social and governance (ESG) risks; and

anticipating future risks.

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