Les priorités en gouvernance en 2014 selon Harvard Law School *


Je vous propose une lecture parue dans Harvard Law School Forum on Corporate Governance, publiée par Holly J. Gregory du « Corporate Governance and Executive Compensation group » de la firme Sidley Austin LLP.

On y décrit les priorités que les conseils d’administration doivent considérer en 2014 :

Les investisseurs institutionnels

Le conseil d’administration

Les priorités

Global Governance: A Review of Multilateralism...La performance de l’entreprise et l’orientation stratégique

La sélection du PCD, la rémunération, la relève

Les contrôles internes, la gestion du risque et la conformité

La préparation pour la gestion de crises

L’activisme et les relations avec le C.A.

La composition du C.A. et le leadership

Bonne lecture !

Governance Priorities for 2014

 

As the fallout from the financial crisis recedes and both institutional investors and corporate boards gain experience with expanded corporate governance regulation, the coming year holds some promise of decreased tensions in board-shareholder relations. With governance settling in to a “new normal,” influential shareholders and boards should refocus their attention on the fundamental aspects of their roles as they relate to the creation of long-term value.

Institutional investors and their beneficiaries, and society at large, have a decided interest in the long-term health of the corporation and in the effectiveness of its governing body. Corporate governance is likely to work best in supporting the creation of value when the decision rights and responsibilities of shareholders and boards set out in state corporate law are effectuated.

This article identifies and examines the key areas of focus that institutional investors and boards should prioritize in 2014.

Institutional Investors

  1. Apply a long-term value approach.
  2. Vote on a company-specific basis where possible.
  3. Focus on core issues.

The Board

Despite increased shareholder decision rights and influence, the board’s fundamental mandate remains to direct the affairs of the company. Key areas for boards to focus on include:

  1. Defining board priorities.
  2. Monitoring company performance and setting strategic direction.
  3. Selecting and compensating the CEO and planning for succession.
  4. Attending to internal controls, risk management and compliance.
  5. Preparing for a crisis.
  6. Engaging with shareholders and responding to shareholder activism.
  7. Determining board composition needs and leadership structure.

Board Priorities

Boards determine how to apportion their very limited time based on board responsibilities and the unique needs of the company. Each board must define the priorities that will shape its agenda and determine the information it needs to govern, driven by the needs of the business. Boards add value when they help management cope with the complex context in which the company operates, and when they support management in focusing on the long-term interests of the company and its shareholders.

Active board engagement in overseeing company performance, strategy and the culture of ethics should help to align the company’s approach to compensation, financial disclosure, internal controls, risk management and compliance. Therefore, in most circumstances the majority of board time should be reserved for matters related to company performance and strategy, and the ethical tone within the company.

Outside directors require considerable amounts of information as they get to know the business and the environment in which the company operates. Active involvement in prioritizing the agenda and defining information needs positions outside directors to provide objective guidance and judgment. The board should not leave decisions about the board agenda and information needs to management alone.

Company Performance and Strategic Direction

Challenges for boards include:

  1. Reserving appropriate time for review and discussion of company performance.
  2. Taking an active role in strategic planning while maintaining objectivity. (This is especially critical in enabling the board to assess the positions of activist shareholders versus management’s plans.)
  3. Supporting appropriate long-term investment and prudent risk-taking in the face of significant short-term pressures for immediate returns or other conflicts.
  4. Balancing guidance and support of management with objective assessment and constructive criticism.
  5. Holding management accountable for results in light of the agreed strategy by determining and applying performance benchmarks.
  6. Helping management anticipate and understand the potential for abrupt and long-term changes in the company’s economic, political and social environment.
  7. Testing key assumptions that underpin management’s proposed strategic plans and major transactions, including assumptions about risks.
  8. Maintaining appropriate deference to management on day-to- day operations without becoming unduly passive.

CEO Selection, Compensation and Succession

Challenges for boards include:

  1. Setting goals for the CEO (and other key executives) in line with corporate strategy, objectives and plans.
  2. Providing appropriate support, guidance and deference to the CEO while maintaining objectivity about performance.
  3. Designing compensation to attract and retain talent while aligning it with performance.
  4. Considering the CEO’s contributions in the context of the contributions of the broader team, an issue that will be highlighted with the new pay ratio disclosures.
  5. Discussing management development and succession planning on a regular basis, even regarding a new, young or high-performing CEO.
  6. Understanding and considering shareholder views about CEO compensation and succession without substituting those views for the board’s own objective judgment.
  7. Ensuring that company disclosures adequately communicate the board’s views and activities regarding compensation and succession planning.

Internal Controls, Risk Management and Compliance

Challenges for boards include:

  1. Ensuring that appropriate time is devoted to these key issues without becoming overly focused on controls and compliance.
  2. Using board committees efficiently to address these issues while keeping the entire board appropriately informed and involved.
  3. Remaining vigilant for red flags, which are often a series of yellow flags.
  4. Creating incentives for management to establish and maintain an appropriate control, risk management and compliance environment.
  5. Ensuring that the company has adopted appropriate standards of corporate social responsibility consistent with evolving societal expectations.
  6. Monitoring compliance with legal and ethical standards.

Preparing For Crisis

Shareholder Engagement and Activism

Board Composition and Leadership

________________________________

* En reprise

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Les priorités en gouvernance en 2014 selon Harvard Law School


Je vous propose une lecture parue dans Harvard Law School Forum on Corporate Governance, publiée par Holly J. Gregory du « Corporate Governance and Executive Compensation group » de la firme Sidley Austin LLP.

On y décrit les priorités que les conseils d’administration doivent considérer en 2014 :

Les investisseurs institutionnels

Le conseil d’administration

Les priorités

Global Governance: A Review of Multilateralism...La performance de l’entreprise et l’orientation stratégique

La sélection du PCD, la rémunération, la relève

Les contrôles internes, la gestion du risque et la conformité

La préparation pour la gestion de crises

L’activisme et les relations avec le C.A.

La composition du C.A. et le leadership

Bonne lecture !

Governance Priorities for 2014

As the fallout from the financial crisis recedes and both institutional investors and corporate boards gain experience with expanded corporate governance regulation, the coming year holds some promise of decreased tensions in board-shareholder relations. With governance settling in to a “new normal,” influential shareholders and boards should refocus their attention on the fundamental aspects of their roles as they relate to the creation of long-term value.

Institutional investors and their beneficiaries, and society at large, have a decided interest in the long-term health of the corporation and in the effectiveness of its governing body. Corporate governance is likely to work best in supporting the creation of value when the decision rights and responsibilities of shareholders and boards set out in state corporate law are effectuated.

This article identifies and examines the key areas of focus that institutional investors and boards should prioritize in 2014.

Institutional Investors

  1. Apply a long-term value approach.
  2. Vote on a company-specific basis where possible.
  3. Focus on core issues.

The Board

Despite increased shareholder decision rights and influence, the board’s fundamental mandate remains to direct the affairs of the company. Key areas for boards to focus on include:

  1. Defining board priorities.
  2. Monitoring company performance and setting strategic direction.
  3. Selecting and compensating the CEO and planning for succession.
  4. Attending to internal controls, risk management and compliance.
  5. Preparing for a crisis.
  6. Engaging with shareholders and responding to shareholder activism.
  7. Determining board composition needs and leadership structure.

Board Priorities

Boards determine how to apportion their very limited time based on board responsibilities and the unique needs of the company. Each board must define the priorities that will shape its agenda and determine the information it needs to govern, driven by the needs of the business. Boards add value when they help management cope with the complex context in which the company operates, and when they support management in focusing on the long-term interests of the company and its shareholders.

Active board engagement in overseeing company performance, strategy and the culture of ethics should help to align the company’s approach to compensation, financial disclosure, internal controls, risk management and compliance. Therefore, in most circumstances the majority of board time should be reserved for matters related to company performance and strategy, and the ethical tone within the company.

Outside directors require considerable amounts of information as they get to know the business and the environment in which the company operates. Active involvement in prioritizing the agenda and defining information needs positions outside directors to provide objective guidance and judgment. The board should not leave decisions about the board agenda and information needs to management alone.

Company Performance and Strategic Direction

Challenges for boards include:

  1. Reserving appropriate time for review and discussion of company performance.
  2. Taking an active role in strategic planning while maintaining objectivity. (This is especially critical in enabling the board to assess the positions of activist shareholders versus management’s plans.)
  3. Supporting appropriate long-term investment and prudent risk-taking in the face of significant short-term pressures for immediate returns or other conflicts.
  4. Balancing guidance and support of management with objective assessment and constructive criticism.
  5. Holding management accountable for results in light of the agreed strategy by determining and applying performance benchmarks.
  6. Helping management anticipate and understand the potential for abrupt and long-term changes in the company’s economic, political and social environment.
  7. Testing key assumptions that underpin management’s proposed strategic plans and major transactions, including assumptions about risks.
  8. Maintaining appropriate deference to management on day-to- day operations without becoming unduly passive.

CEO Selection, Compensation and Succession

Challenges for boards include:

  1. Setting goals for the CEO (and other key executives) in line with corporate strategy, objectives and plans.
  2. Providing appropriate support, guidance and deference to the CEO while maintaining objectivity about performance.
  3. Designing compensation to attract and retain talent while aligning it with performance.
  4. Considering the CEO’s contributions in the context of the contributions of the broader team, an issue that will be highlighted with the new pay ratio disclosures.
  5. Discussing management development and succession planning on a regular basis, even regarding a new, young or high-performing CEO.
  6. Understanding and considering shareholder views about CEO compensation and succession without substituting those views for the board’s own objective judgment.
  7. Ensuring that company disclosures adequately communicate the board’s views and activities regarding compensation and succession planning.

Internal Controls, Risk Management and Compliance

Challenges for boards include:

  1. Ensuring that appropriate time is devoted to these key issues without becoming overly focused on controls and compliance.
  2. Using board committees efficiently to address these issues while keeping the entire board appropriately informed and involved.
  3. Remaining vigilant for red flags, which are often a series of yellow flags.
  4. Creating incentives for management to establish and maintain an appropriate control, risk management and compliance environment.
  5. Ensuring that the company has adopted appropriate standards of corporate social responsibility consistent with evolving societal expectations.
  6. Monitoring compliance with legal and ethical standards.

Preparing For Crisis

Shareholder Engagement and Activism

Board Composition and Leadership

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Sérieux rapprochement entre les actionnaires activistes et les actionnaires institutionnels


Je vous invite à lire cet article de Vincent Ryan paru dans Capital Markets du site CFO. On y décrit un changement significatif dans l’influence que peuvent exercer les actionnaires des grandes sociétés cotées en se rapprochant des positions des activistes, lesquels ont un solide parcours (Track Record). Voici un extrait de ce court article.

Bonne lecture. Vos commentaires sont les bienvenus !

Management and the board of directors may assume that a company’s institutional shareholders will be their allies in a fight against an activist investor. They shouldn’t.

 Shareholders Getting Chummy with Activists

Shareholder activists continue to take on boards of directors and management, especially at large companies. Of the 137 financial or board-seat activist campaigns announced as of August 12, nearly 30 percent involved companies with a market capitalization of more than $1 billion at the time the campaign was initiated, according to SharkRepellent.net, up from 20 percent in 2012.

While companies may just be more vulnerable to activist campaigns, experts say a key driver is that institutional shareholders are more often embracing these much-maligned investors instead of siding with the company against them.

“There is real change in how activists are perceived by the investing public,” says Alexander Khutorsky, managing director of The Valence Group, a specialist investment bank. In the past, if an institutional investor didn’t like a company’s performance or its management team, it “voted with its feet” and sold the shares. But now many investors are “more open to outsider influence,” says Khutorsky. “They’re willing to concede that a company could be made better through activism, so they are sticking around and voting for changes.”

A note from SharkRepellent.net highlights “an increased willingness by mainstream mutual funds and other institutional investors to side with activists, which is absolutely essential [for a hedge fund] to effect changes with a small ownership stake, as they often do when targeting larger companies.”

The goals of activists often align with investors: returning excess balance-sheet cash to shareholders, selling underperforming or noncore business units or even ousting an ineffective board of directors.

“As much as management may feel they are being attacked, their shareholders will not necessarily share that view,” Khutorsky says.

In addition, activist investors have a “good track record” of creating value, at least in the nominal sense, says Khutorsky. “The stock [often] goes up so they can show very straightforward returns; they’re not necessarily creating long-term value, but they have credibility in helping shareholders realize near-term value,” he says.

 Articles reliés au sujet des activistes :

Adjusting to Shareholder Activism as the New Normal (blogs.law.harvard.edu)

How You Can Profit from the Actions of Activist Investors (business2community.com)

What to Do When an Activist Comes Knocking (clsbluesky.law.columbia.edu)

The value of activist shareholders (lawprofessors.typepad.com)

How institutional investors have come to recognize the value of activist investing (valuewalk.com)

Marty Lipton: Shareholder Champion, Stakeholder Protector or Management Tool? (aswathdamodaran.blogspot.com)

Élaboration d’un processus d’engagement des investisseurs institutionnels


Voici un article très pertinent sur l’étude du processus d’implication (engagement) entre les actionnaires institutionnels et les conseils d’administration des sociétés cotées. L’auteur de l’article, John Mellor, est le fondateur de la Foundation for Governance Research and Education (FGRE), une OBNL dont la mission est de développer les meilleures pratiques et les plus hauts standards d’éthique dans le domaine du leadership en gouvernance.

L’article décrit très bien les caractéristiques de « l’engagement » entre les parties, montre en quoi cet engagement est important, propose une nouvelle approche pour susciter l’implication des investisseurs à long terme, et met l’accent sur les incitatifs nécessaires à adopter pour accroître l’efficacité des pratiques d’engagement.

Nous reproduisons ici la teneur de cette publication. Bonne lecture. Quelles sont vos impressions de cette approche ?

STEWARDSHIP AND ENGAGEMENT

Shareholder engagement and fund management 

  1. Engagement incorporating constructive and challenging dialogue, based on trust and mutual respect between institutional shareholders and company boards, should be an integral part of stewardship. However, such engagement does not apply or is not relevant to all investment funds.
  2. Investment funds cover a range from long-only funds to shorter term, e.g. hedge funds, high frequency trading funds. Investment strategies reflect the nature of the fund and for many, engagement is not a relevant activity. This applies particularly to those with a short term investment focus. As a guide, this may be set at no more than one or, at most, two years.
  3. Contemporary practice of engagement indicates that it falls broadly into two categories – reactive engagement and pro-active engagement:
    1. Reactive engagement, meaning reacting to events, is the practice most commonly observed amongst institutional shareholders.
    2. Pro-active engagement may have one or other of two objectives.
      1. Engagement over a limited period of time with the sole objective of driving up the company share price in the short term with a view to selling out and capturing the capital gain. This is the practice most commonly employed by so-called ‘activist’ shareholders.
      2. Engagement with the objective of company long-term value creation. This engagement is described in 1. above and, as a result of supporting the increase in company value over the long-term, aims to benefit the economy and provide sustainable returns for investors and, ultimately, savers. This engagement is, therefore, necessarily linked into a long-term investment strategy.

Effective engagement takes place in private (rather than in public) and through shareholders acting collaboratively, usually over an extended period of time.

Samsung Electronics’ 44th Annual General Share...
Samsung Electronics’ 44th Annual General Shareholders’ Meeting (Photo credit: samsungtomorrow)

Why this engagement matters

It has already been stated above that engagement linked into a long-term investment strategy has implications for the economy and savers, but the crucial point must surely be that sustained economic growth and efficient allocation of capital will not happen without it. Investment in research and development and in new industries with global growth potential, which our nation requires, is dependent upon a sustained and pragmatic relationship between capital and business. This requires a long-term investment approach and constructive engagement between the parties.

Engagement and holding company boards accountable

Engagement with boards is part of the process of holding company directors accountable and, therefore, an integral part of the corporate governance framework. It is regarded as an ingredient to the maintenance of the ‘comply or explain’ regime which underpins the UK Corporate Governance Code. Important though this is, it is ancillary to the main reason explained above of why constructive engagement over the long-term matters.

The economic case for engagement

By the very nature of the engagement which is the focus of this Paper, increase in company and investment value can only be realised over the long-term. It is, therefore, not surprising that sufficient robust evidence has yet to be accumulated to make the economic case. What evidence exists relates mainly to activist investors, such as hedge funds and focus funds, with a pro-active short-term focus on driving up the share price and selling out to realise the capital gain.

A new approach to engagement for long-only investors

This Paper is focussed upon engagement which rests on constructive and challenging dialogue between institutional shareholders and company boards, with a view to building trust and mutual respect between the parties, and with the all-important purpose of enhancing and sustaining company value to benefit the economy and savers. Necessarily, this conforms to the interest of long-only investment funds, those with a long-term perspective on investment. Specifically:

  1. A more holistic approach to engagement needs to be adopted by aligning the dialogue more closely with the duties of directors as expressed in Section 172(1) of the Companies Act 2006, which binds directors to promote the success of the company for the benefit of its members as a whole and, in particular, to have regard to likely consequences in the long-term of any decision.
  2. In line with adoption of the more holistic approach, long-only investors should also take into account the capital structure and needs (equity and debt) of the company as a basis for engagement.
  3. With a view to a more effective holistic approach to engagement, organisations should synchronise the engagement activities and practices of equity and debt (bond) fund managers.

Review of incentives

  1. Without meaningful incentives the quality and effectiveness of engagement practice is unlikely to make significant progress. To counter asset owner inertia, and with a view to winning investment business, asset managers should devise attractive long-only investment products which incorporate engagement. These products would be structured based upon intrinsic rather than relative value models, and would, therefore, differentiate these providers from the present mass of asset managers whose offerings are structured based upon relative performance criteria.
  2. The limitation of quarterly reporting (already a Government action) should aid a shift in thinking from the short to a longer term view of fund performance, which in turn should encourage a longer term perspective on the part of asset owners.
  3. To encourage long-term holding of shares, a variety of incentives have over time been proposed, and remain under consideration with typically firm views for and against. Perhaps some form of tax incentive holds the greater promise, for example, that which distinguishes between short and long-term investment with the former attracting a higher rate of income tax and the latter a lower rate of capital gains tax.

Recommendations for next steps

Asset managers should:

      1. Review what lessons for fund managers might be drawn from comparing the engagement practice of holders of private and public debt (bonds)
      2. Explore the practical implications of more synchronisation between equity and debt (bonds) analysis and engagement
      3. Review and take into account any differences in approach to engagement for different sectors, e.g. capital goods, consumer goods, utilities, resource companies, financial services
      4. Give serious consideration, in the light of the above, to resourcing for engagement and, in particular, the level of skills required and the implications for training and development.

Business School education, particularly at post-graduate and executive levels, has a crucial role to play in changing culture and mind sets to value the importance of constructive engagement between capital and business and a long-term investment approach. Programmes and courses should be redesigned to meet the need for change.

A data bank on the performance of selected long-only funds, adopting the approach to engagement advocated above, should be constructed with a view to collecting records over a sufficiently long period of time (up to 10 years) to provide evidence to demonstrate the economic value of constructive engagement.

____________________________________

* Dr John Mellor, is FGRE’s Founder and Director of Research. A former international banker with Citigroup, he has written and lectured extensively on governance. He is a former NatWest Visiting Senior Fellow in Corporate Leadership at the University of Exeter and Visiting Professor in Governance at the University of the West of England from 2003 to 2012.

Shareholder power and responsibilities (councilcommunity.wordpress.com)

Shareholder Activism Metamorphosed In The U.S. (valuewalk.com)

It’s OK to Give Shareholders Access to Outside Directors (blogs.hbr.org)

Investors – In it for the long-term? (sustainability.com)

Aguilar on Institutional Investors: Power and Responsibility (clsbluesky.law.columbia.edu)

Un guide pour améliorer les communications entre l’entreprise et ses investisseurs | ICSA


Vous trouverez, ci-dessous, un document de l’Institute of Chartered Secretaries and Administrators (ICSA) qui se veut un guide de bonnes pratiques en vue de faciliter les communications entre l’entreprise et ses investisseurs institutionnels. Le guide est particulièrement intéressant en ce sens qu’il met l’accent sur des moyens concrets d’accroître la qualité des rencontres entre les deux parties. Voici le sommaire exécutif du guide :

New Guidance : Enhancing Stewardship Dialogue

  1. This guidance, developed jointly by companies and institutional investors, is intended to facilitate good engagement practices. This is important in supporting long-term investment, based on increased levels of trust between a company and its owners.
  2. The guidance has been designed to provide practical advice on: (1) making meetings between companies and institutional investors more productive – helping make the best use of all participants’ time, and creating the optimum conditions for dialogue (2) creating a more meaningful dialogue between companies and institutional investors – outside of the traditional results season – on strategy and long-term performance (3) improving the feedback process – in both directions – between companies and institutional investors on the quality of meetings (4) using the learning developed as a result to improve engagement practices.
  3. The guidance emphasises four key messages: (A) The need to develop an engagement strategy (B) The importance of getting housekeeping issues right (C) Strengthening the conversation on strategy and long-term performance (D) Providing feedback in a way that adds value for all participants.
  4. A key principle of the guidance is that that there should be a regular and consistent process of engagement, over time, between a company and its key investors, in order to establish, develop and maintain relationships. For these reasons, both companies and institutional investors need to have a clear understanding of each other’s expectations in terms of the nature and frequency of engagement; avoid an automatic presumption that there is ‘no need’ to pursue engagement; and should review this understanding periodically to ensure its continuing relevance.
  5. The guidance suggests there may be benefits for a company in developing a critical mass of shareholders who can provide constructive engagement, and outlines some considerations for the use of collective meetings.
  6. The one particular area of engagement which the guidance recommends strengthening concerns the conversation on strategy and long-term sustainable performance. Once a year, a company and its owners should focus on the company’s approach to creating value, and protecting that value, looking at issues such as strategy, performance, succession, board effectiveness, culture, risk and reputation. Individual issues, such as remuneration, should be placed in that context, rather than dominating the wider strategy discussion.
  7. Feedback – in both directions – between companies and institutional investors, is an important means of assessing the degree to which each other’s expectations have been met in terms of the quality and quantity of engagement activity. Honest, nuanced, constructive and, as necessary, challenging feedback is best for all parties.