Bras de fer entre Osisko et Goldcorp | Réflexions sur le rôle des administrateurs

Dans le cadre du cours à la maîtrise de Gouvernance de l’entreprise (DRT-6056) dispensé à la Faculté de droit de l’Université Laval, le professeur Ivan Tchotourian a bénéficié du Programme d’appui au développement pédagogique 2013-2014 et il a mis en place des méthodes innovantes d’apprentissage. Dans le cadre de ce programme, il a été proposé aux étudiants non seulement de mener des travaux de recherche sur des sujets qui font l’actualité en gouvernance de l’entreprise, mais encore d’utiliser un format original permettant la diffusion des résultats. Le présent billet expose le résultat des recherches menées par M. Philippe Côté et M^mesPatricia Gingras et Émilie Le-Huy.

Ce travail revient sur l’offre publique hostile qui a été lancée en janvier 2014 par l’entreprise Goldcorp sur la société québécoise aurifère Osisko et ouvre le débat entourant le contenu des devoirs fiduciaires des administrateurs.

Je vous en souhaite bonne lecture et suis certain que vous prendrez autant de plaisir à le lire que j’ai pu en prendre à le corriger. Merci encore à Jacques de permettre la diffusion de ce travail et d’offrir ainsi la chance à des étudiants de contribuer aux riches discussions dont la gouvernance d’entreprise est l’objet.

Ivan Tchotourian

Bras de fer entre Osisko et Goldcorp : réflexions sur le rôle des administrateurs

En janvier 2014, la minière vancouvéroise Goldcorp a lancé une offre publique d’achat dans le but de prendre le contrôle de la minière Osisko, une compagnie québécoise aurifère exploitée à Malartic, en Abitibi, et employant près de huit cent personnes. Osisko n’exploite pas seulement la plus grosse mine du Québec, mais aussi la plus grosse mine d’or du Canada.

D’« Osisko pour tous » à « tous pour Osisko »

Considérant que l’offre de Goldcorp ne s’insérait pas dans l’intérêt de la société et de ses parties prenantes, le conseil d’administration d’Osisko a fait connaître son désaccord à cette offre publique d’achat, devenue dès lors « hostile » (ci-après « OPA hostile »), et a multiplié depuis les mesures défensives dans l’espoir de contrer celle-ci et de protéger sa société. Elle a ainsi saisi la Cour supérieure[1] et sollicité de nouveaux investisseurs. Tel que l’illustre l’importante couverture médiatique entourant la guerre ouverte ayant cours entre Osisko et Goldcorp, cette dernière ne laisse personne indifférent. Il faut reconnaître qu’une prise de contrôle de la société Osisko par Goldcorp pourrait vraisemblablement mener à la perte d’un siège social important pour le Québec qui verrait un grand moteur économique lui échapper, ce qui n’est pas sans inquiéter les parties prenantes d’Osisko. La bataille d’Osisko a récemment connu un nouveau souffle avec l’arrivée d’un chevalier blanc, mettant à profit certaines des parties prenantes de sa société[2] et augmentant ainsi considérablement ses chances de bloquer l’OPA hostile de Goldcorp[3]. Soulignons toutefois que la partie est loin d’être gagnée puisque Goldcorp a récemment bonifié son offre afin de concurrencer celle du chevalier blanc d’Osisko, la minière torontoise Yamana[4].

Du « déjà-vu » sous le thème des OPA hostiles

Alors que l’aventure d’Osisko se poursuit, celle-ci ramène au premier plan les préoccupations énoncées par la communauté des affaires au cours des dernières années, alors que Rona et Fibrek faisaient face à la menace d’une OPA hostile. Elle rappelle également, par voie de conséquences, les recommandations que l’Autorité des marchés financiers (ci-après l’« AMF ») ainsi que le groupe de travail mandaté par le gouvernement (ci-après le « Groupe de travail ») ont respectivement formulées récemment en vue d’améliorer la protection des sociétés eu égard aux OPA hostiles[5]. Elle met à nouveau en lumière les incohérences du droit des sociétés et du droit boursier devant guider les décisions des administrateurs dans l’exercice de leur devoir fiduciaire. La bataille entre Osisko et Goldcorp relance un débat qui ne s’est finalement jamais conclu : quelle discrétion devrait être accordée aux administrateurs d’une société dans l’exercice des moyens défensifs visant à contrer une OPA hostile ?

Une question d’intérêt

Rappelons que les administrateurs d’une société doivent en tout temps agir dans l’intérêt de la société en vertu des lois québécoise et canadienne[6]. Ces lois ne définissant pas clairement le critère de « l’intérêt de la société », celui-ci demeure sujet à interprétation. Il appert d’ailleurs des récents développements en gouvernance qu’il y a effectivement matière à interprétation : l’intérêt de la société oscille toujours entre sa conception traditionnelle, fondée sur la primauté des actionnaires, soutenue par une réglementation boursière formaliste, commandant de favoriser les actionnaires envers et contre tout, et son courant plus libéral, largement influencé par nos voisins américains, puis supportée par d’importantes décisions de la Cour suprême du Canada, telles que les causes Peoples[7] et BCE[8]. Il en ressort ainsi que la grande déférence qu’accordent les tribunaux judiciaires aux décisions des administrateurs[9] se voit limitée, par ailleurs, par la réglementation des autorités canadiennes en valeurs mobilière qui leur commande de garantir le libre choix des actionnaires de la société, à qui l’OPA hostile est adressée[10]. Bien que cette réglementation se justifie aisément en raison du contrôle qu’elle permet d’exercer sur l’opportunisme des administrateurs de la société, il n’en demeure pas moins qu’elle réduit considérablement la discrétion des administrateurs dans l’évaluation du meilleur intérêt de la société, lequel prendra naturellement des allures traditionnelles.

L’espoir du renouveau

Par leur nature fortement inspirée du droit émanant du Delaware[11], les recommandations de l’AMF et du Groupe de travail semblent s’insérer dans une volonté de plus en plus populaire d’élargir la discrétion des administrateurs, afin qu’ils puissent considérer plus librement l’intérêt des parties prenantes dans l’exercice de leur pouvoir décisionnel face à une OPA hostile, ce qui pourrait contribuer d’autant à la clarification de leur devoir fiduciaire dans un tel contexte. Cependant, ces mesures n’auront rien d’une panacée tant que les autres provinces canadiennes n’adopteront pas des mesures semblables à celles proposées par l’AMF et n’emboîteront pas le pas au Québec, ce qui est loin d’être chose faite[12].

Le dernier acte

Pour l’heure, il semble bien que le salut d’Osisko repose entièrement sur l’ardeur de ses administrateurs à préserver l’intérêt à long terme de la société, qui s’inscrit du même coup dans l’intérêt de ses parties prenantes. Dans un monde où le meilleur intérêt de la société ne fait pas consensus, laissant planer le spectre d’une lourde responsabilité à l’encontre de toute décision des administrateurs s’éloignant de la traditionnelle conception de la primauté des actionnaires, il y a lieu de se demander jusqu’où les administrateurs pourront porter leur étendard avant de se voir attribuer l’étiquette des opportunistes.

Philippe Côté

Patricia Gingras

Émilie Le-Huy

Anciens étudiants du cours DRT-6056 Gouvernance de l’entreprise

_____________________________________________________

[1] Osisko, qui reprochait à Goldcorp d’avoir agi de mauvaise foi dans le cadre de la présentation de son OPA, a finalement retiré sa poursuite. Voir Agence France-Presse, « Osisko retire sa poursuite contre Goldcorp », affaires.lapresse.ca, 3 mars 2014.

[2] Lesaffaires.com, « Osisko trouve son sauveur: Yamana Gold », lesaffaires.com, 2 avril 2014 ; Sylvain Larocque, « La Caisse appuie le chevalier blanc d’Osisko », affaires.lapresse.ca, 2 avril 2014.

[3] En effet, avec l’aide de la Caisse de dépôt et de placement du Québec ainsi que l’Office d’investissement du Régime de pensions du Canada (OIRPC), l’entreprise torontoise Yamana Gold propose d’acheter la moitié de la société aurifère québécoise pour un montant 1,37 milliard, une offre qui vient concurrencer celle de Goldcorp. Voir J.-P. Décarie, « Osisko, un très bon coup de la Caisse », affaires.lapresse.ca, 5 avril 2014.

[4] Lesaffaires.com, « Goldcorp bonifie son offre pour Osisko », lesaffaires.com, 10 avril 2014.

[5] L’AMF propose dans son rapport des modifications radicales de la règlementation concernant le rôle des régulateurs de valeurs mobilières. Selon certains experts, ses propositions se rapprochent de la législation du Delaware, où plus de 60 % des grandes entreprises ont leur siège juridique.Voir le rapport de l’AMF : AUTORITÉ DES MARCHÉS FINANCIERS, Un regard différent sur l’intervention des autorités en valeurs mobilières dans les mesures de défense, Document de consultation, Montréal, 2013. Voir également à ce sujet Y. allaire, « Le Québec : sièges sociaux et prises de contrôle », lesaffaires.com, 24 février 2014. Quant aux recommandations du Groupe de travail, voir Groupe de travail sur la protection des entreprises au Québec, Le maintien et le développement des sièges sociaux au Québec, Québec, Gouvernement du Québec, 2014.

[6] Loi sur les sociétés par actions, L.R.Q. c. S-31.1, art. 119 ; Loi canadienne sur les sociétés par actions, L.R.C. 1985, c. C-44, art. 122.

[7] Magasins à rayons Peoples inc. c. Wise, [2004] 3 R.C.S. 461.

[8] BCE Inc. c. Détenteurs de débentures de 1976, [2008] 3 R.C.S. 560.

[9] Sur la règle de l’appréciation commerciale, voir R. Crête et S. Rousseau, Droit des sociétés par actions, 3^e éd., Montréal, Éditions Thémis, 2011, aux par. 1036-1058.

[10] Règlement 62-104 sur les offres publiques d’achat et de rachat, L.R.Q. c. V-1.1, r. 35 ; Avis 62-202 relatif aux mesures de défense contre une offre publique d’achat, Bulletin hebdomadaire, vol. XXXIV, n^o 28, 18 juillet 2003.

[11] Sur le droit du Delaware, voir S. Rousseau et P. Desalliers, Les devoirs des administrateurs lors d’une prise de contrôle : étude comparative du droit du Delaware et du droit canadien, Montréal, Édtions Themis, 2007.

[12] Pensons notamment aux défis que représente l’harmonisation d’un tel régime avec l’ensemble des législations fédérales et provinciales (autres que québécoises) auxquelles seront confrontées tôt ou tard les entreprises québécoises désirant s’inscrire à la Bourse de Toronto. Voir M. Vallières, « Québec devrait s’aligner avec les provinces et Ottawa », lesaffaires.com, 22 février 2014.

Attention aux huis clos !

Nous avons déjà abordé l’importance d’inscrire un item « huis clos » à l’ordre du jour des réunions du conseil d’administration. Celui-ci doit normalement être à la fin de la réunion et comporter une limite de temps afin d’éviter que la réunion ne s’éternise … et que les membres de la direction (qui souvent attendent la fin de la rencontre) soient mieux informés.

Ensuite, le président du conseil d’administration (PCA) devrait rencontrer le président et chef de la direction (PCD) en privé, et dans les meilleurs délais, afin de rendre compte des résultats et de la portée du huis clos. Cette responsabilité du PCD est déterminante car les dirigeants ont de grandes attentes et un souci eu égard aux discussions du huis clos.

Plusieurs dirigeants et membres de conseil m’ont fait part de leurs préoccupations concernant la tenue des huis clos. Il y a des malaises dissimulés en ce qui a trait à cette activité; il faut donc s’assurer de bien gérer la situation car les huis clos peuvent souvent avoir des conséquences inattendues, voire contre-productives !

Ainsi, le huis clos :

(1) ne doit pas être une activité imprévue et occasionnelle inscrite à l’ordre du jour,

(2) doit comporter une limite de temps,

(3) doit être piloté par le PCA,

(4) doit comporter un suivi systématique et,

(5) doit se dérouler dans un lieu qui permet de préserver la confidentialité absolue des discussions.

J’insiste sur cette dernière condition parce que l’on a trop souvent tendance à la négliger ou à l’oublier, carrément. Dans de nombreux cas, la rencontre du conseil a lieu dans un local inapproprié, et les dirigeants peuvent entendre les conversations, surtout lorsqu’elles sont très animées …

Au début de la séance, les membres sont souvent insoucieux; avec le temps certains peuvent s’exprimer très (trop) directement, impulsivement et de manière inconvenante. Si, par mégarde, les membres de la direction entendent les propos énoncés, l’exercice peut prendre l’allure d’une véritable calamité et avoir des conséquences non-anticipées sur le plan des relations interpersonnelles entre les membres de la direction et avec les membres du conseil. 26856_10028886_1367856120_conseil-administration

L’ajout d’un huis clos à l’ordre du jour témoigne d’une volonté de saine gouvernance mais, on le comprend, il y a un certain nombre de règles à respecter si on ne veut pas provoquer la discorde. Les OBNL, qui ont généralement peu de moyens, sont particulièrement vulnérables aux manquements à la confidentialité ! Je crois que dans les OBNL, les dommages collatéraux peuvent avoir des incidences graves sur les relations entre employés, et même sur la pérennité de l’organisation.

J’ai à l’esprit plusieurs cas de mauvaise gestion des facteurs susmentionnés et je crois qu’il vaut mieux ne pas prendre le bien fondé du huis clos pour acquis.

Ayant déjà traité des bienfaits des huis clos lors d’un billet antérieur, je profite de l’occasion pour vous souligner, à nouveau, un article intéressant de Matthew Scott sur le site de Corporate Secretary qui aborde un sujet qui préoccupe beaucoup de hauts dirigeants : le huis clos lors des sessions du conseil d’administration ou de certains comités.

L’auteur explique très bien la nature et la nécessité de cette activité à inscrire à l’ordre du jour du conseil. Voici les commentaires que j’exprimais à cette occasion.

« Compte tenu de la « réticence » de plusieurs hauts dirigeants à la tenue de cette activité, il est généralement reconnu que cet item devrait toujours être présent à l’ordre du jour afin d’éliminer certaines susceptibilités.

Le huis clos est un temps privilégié que les administrateurs indépendants se donnent pour se questionner sur l’efficacité du conseil et la possibilité d’améliorer la dynamique interne; mais c’est surtout une occasion pour les membres de discuter librement, sans la présence des gestionnaires, de sujets délicats tels que la planification de la relève, la performance des dirigeants, la rémunération globale de la direction, les poursuites légales, les situations de conflits d’intérêts, les arrangements confidentiels, etc. On ne rédige généralement pas de procès-verbal à la suite de cette activité, sauf lorsque les membres croient qu’une résolution doit absolument apparaître au P.V.

La mise en place d’une période de huis clos est une pratique relativement récente, depuis que les conseils d’administration ont réaffirmé leur souveraineté sur la gouvernance des entreprises. Cette activité est maintenant considérée comme une pratique exemplaire de gouvernance et presque toutes les sociétés l’ont adoptée.

Notons que le rôle du président du conseil, en tant que premier responsable de l’établissement de l’agenda, est primordial à cet égard. C’est lui qui doit informer le PCD de la position des membres indépendants à la suite du huis clos, un exercice qui demande du tact !

Je vous invite à lire l’article ci-dessous. Vos commentaires sont les bienvenus ».

Are you using in-camera meetings ?

Bien comprendre les droits et responsabilités des actionnaires de sociétés !

Ci-dessous, l’extrait d’un article très simple sur les devoirs attendus de la part des actionnaires. Si vous avez décidé d’investir dans une entreprise, vous possédez une part de la propriété de celle-ci !

Il est donc important de lire la documentation fournie par le conseil d’administration et par la direction de l’entreprise afin de vous former une opinion sur sa gouvernance, et vous devriez vous faire un devoir d’exercer vos droits de votes.

L’article récemment publié par The Canadian Press saura-t-il éveiller chez vous le sens de la responsabilité de l’actionnaire ? En ce qui me concerne, j’ai décidé, il y a quelques années, de me faire un devoir de lire les documents préparatoires à l’AGA et de voter, par la poste, sur les items de l’ordre du jour qui sollicitent l’assentiment des actionnaires.

Understand your rights as a shareholder: experts – Business – The Telegram

Documents sent to shareholders ahead of the meeting can include the management proxy circular, annual information form and the company’s annual report. The information form and annual report give the financial statements and an update by management on the business and the direction for the company — both key documents for shareholders.

Walmart Shareholders’ Meeting 2011 (Photo credit: Walmart Corporate)

The proxy circular includes information related to the annual meeting, including the nominees for the board of directors and the appointment of the auditors. It can also include shareholder proposals or major changes at the company that require shareholder approval.

Eleanor Farrell, director of the Office of the Investor at the Ontario Securities Commission, says shareholders have the right to vote on matters that affect the company, including the election of the board of directors. “That is a very important governance piece for the company,” Farrell says.

“The board is the one that approves the strategic plan. It sets the direction of the company. They appoint the CEO, they evaluate the CEO and they also approve the compensation plan.” Farrell says if shareholders don’t approve of a nominated director they can withhold their vote and, at most large companies, if a majority of the votes cast withhold a vote for a particular director, that director would be forced to step aside.

“Shareholders in the last few years have certainly become and gotten a lot more powerful and a lot more powers, I would say,” Farrell said. “Corporate governance has been a very big concern for institutional investors, certainly, and companies are much more concerned about corporate governance.”

The information circulars also include detailed descriptions about how much the company’s directors receive in compensation and what the senior executives are paid in salary, shares or options, as well as the size of their bonuses and the value of any other perks. The circular will also include how the board arrived at that compensation as well as comparisons with previous years. Certain provisions, such as how much a chief executive will receive if the company is taken over or if they are let go, are also often included.

Comportements néfastes liés au narcissisme de certains PCD (CEO) *

Il est indéniable qu’un PCD (CEO) doit avoir une personnalité marquante, un caractère fort et un leadership manifeste. Ces caractéristiques tant recherchées chez les premiers dirigeants peuvent, dans certains cas, s’accompagner de traits de personnalité dysfonctionnels tels que le narcissisme.

C’est ce que Tomas Chamorro-Premuzic soutien dans son article publié sur le blogue du HuffPost du 2 janvier 2014. Il cite deux études qui confirment que le comportement narcissique de certains dirigeants (1) peut avoir des effets néfastes sur le moral des employés, (2) éloigner les employés potentiels talentueux et (3) contribuer à un déficit de valeurs d’intégrité à l’échelle de toute l’organisation.

L’auteur avance que les membres des conseils d’administration, notamment ceux qui constituent les comités de Ressources humaines, doivent être conscients des conséquences potentiellement dommageables des leaders flamboyants et « charismatiques ». En fait, les études montrent que les vertus d’humilité, plutôt que les traits d’arrogance, sont de bien meilleures prédicteurs du succès d’une organisation.

La première étude citée montre que les organisations dirigées par des PCD prétentieux et tout-puissants ont tendances à avoir de moins bons résultats, tout en étant plus sujettes à des fraudes.

La seconde étude indique que les valeurs d’humilité incarnées par un leader ont des conséquences positives sur l’engagement des employés.

Voici en quelques paragraphes les conclusions de ces deux études. Bonne lecture.

In the first study, Antoinette Rijsenbilt and Harry Commandeur assessed the narcissism levels of 953 CEOs from a wide range of industries, as well as examining objective performance indicators of their companies during their tenure. Unsurprisingly, organizations led by arrogant, self-centered, and entitled CEOs tended to perform worse, and their CEOs were significantly more likely to be convicted for corporate fraud (e.g., fake financial reports, rigged accounts, insider trading, etc.). Interestingly, the detrimental effects of narcissism appear to be exacerbated when CEOs are charismatic, which is consistent with the idea that charisma is toxic because it increases employees’ blind trust and irrational confidence in the leader. If you hire a charismatic leader, be prepared to put up with a narcissist.

In the second study, Bradley Owens and colleagues examined the effects of leader humility on employee morale and turnover. Their results showed that « in contrast to rousing employees through charismatic, energetic, and idealistic leadership approaches (…) a ‘quieter’ leadership approach, with listening, being transparent about limitations, and appreciating follower strengths and contributions [is the most] effective way to engage employees. » This suggests that narcissistic CEOs may be good at attracting talent, but they are probably better at repelling it. Prospective job candidates, especially high potentials, should therefore think twice before being seduced by the meteoric career opportunities outlined by charismatic executives. Greed is not only contagious, but competitive and jealous, too…

The Dark Side of Executive Narcissism: How CEOs Destroy Companies’ Reputation and Employee Morale

If we can educate organizations, in particular board members, on the virtues of humility and the destructive consequences of narcissistic and charismatic leadership, we may see a smaller proportion of entitled, arrogant, and fraudulent CEOs — to everyone’s benefit. Instead of worshiping and celebrating the flamboyant habits of corporate bosses, let us revisit the wise words of Peter Drucker, who knew a thing or two about management:

The leaders who work most effectively, it seems to me, never say ‘I’. And that’s not because they have trained themselves not to say ‘I’. They don’t think ‘I’. They think ‘we’; they think ‘team’. They understand their job to be to make the team function. They accept responsibility and don’t sidestep it, but ‘we’ gets the credit.

* En reprise

Les PDG d’OBNL doivent-ils (ou doivent-elles) être membres de leurs C.A. ? *

Quels sont les pratiques exemplaires de gouvernance eu égard à l’appartenance des PDG (DG/CEO) aux conseils d’administration de leurs organisations, plus particulièrement des OBNL ?

C’est l’une des recherches les plus effectuées sur Google avec plus de cinq millions de références reliées à ce sujet… On note également des discussions très animées sur les groupes de discussion LinkedIn, tels que Non-Profit Management Professionals.

C’est un sujet très populaire et, comme vous vous en doutez, les avis diffèrent largement en fonction du (1) type d’organisation, (1) de son histoire, (3) de sa mission et (4) des obligations règlementaires.

Dans certaines organisations à but non lucratif, le ou la PDG siège au conseil d’administration mais, à mon avis, ce n’est pas le cas pour la plupart des associations de bénévoles, des fondations et des entreprises philanthropiques. Une recherche rapide montre que les PDG ne siègent pas sur des entreprises telles que la Croix Rouge canadienne, le Festival d’été de Québec, Centraide du grand Montréal, le Club Musical, l’OSQ, Musique de chambre à Sainte-Pétronille, l’Ordre des administrateurs agréés du Québec, pour n’en nommer que quelques-unes.

Français : Sainte Prétonille, Île d'Orléans, p... — Français : Sainte Prétonille, Île d’Orléans, province de Québec, Canada (Photo credit: Wikipedia)

Généralement, si la législation ou la réglementation l’autorise, c’est au conseil d’administration de décider si le ou la PDG a le statut de membre du C.A., avec plein droit de vote, ou sans droit de vote. On observe que certaines législations américaines (la Californie, notamment) ne permettent pas aux PDG de voter à titre de membres du conseil. Au Québec, c’est le cas du CLD de Québec, par exemple.

Dans les sociétés d’état québécoises, les PDG sont nommé(e)s par le gouvernement sur recommandation du C.A.; les PDG siègent habituellement de plein droit sur les conseils d’administration. Dans le monde municipal, les DG ne sont pas membres des conseils municipaux, des MRC et des CRÉ.

Comme on le constate, un tour d’horizon rapide indique qu’il y a plusieurs possibilités : (1) le ou la PDG est membre à part entière du C.A., (2) le ou la PDG est membre du C.A., mais sans droit de vote, (3) le ou la PDG n’est pas membre du C.A. Dans presque tous les cas cependant, les PDG assistent aux réunions du conseil à titre de personnes ressource, même sans être membres du C.A.

Afin de bien départager les rôles complémentaires exercés par les membres du conseil et les membres de la direction et éviter les conflits qui pourraient naître dans certaines zones d’intérêt, notamment dans le domaine lié aux rémunérations, il m’apparaît être une bonne pratique de gouvernance de ne pas accorder un statut de membre du conseil d’administration à un ou une PDG.

Pour les organisations qui vivent avec une situation particulière, il serait souhaitable que le C.A., par l’intermédiaire du ou de la PCA, mette en œuvre une stratégie de changement (à plus ou moins long terme) pour revoir cet aspect de leur gouvernance.

L’article ci-dessous publié par Eugene Fram, Professeur émérite au Saunders College of Business du Rochester Institute of Technology, explique un peu la situation. Vos commentaires sont les bienvenus.

Voici un extrait de l’article :

Should a Nonprofit CEO Be a Voting Member of the Board of Directors ?

Here are the issues as I see them:

State Legislation: Most nonprofit charters are issued by states, and it appears that the vast majority of American nonprofits are governed by these regulations. California does not permit the CEO to be a voting member. Until a recent change, New York did allow the CEO to become a board member. The motivations behind the legislation center on preventing a CEO developing conflicts-of interest, especially as they relate to salary decisions. Also, there is a feeling among some nonprofit directors that the board must be the « boss. » This attitude can even go as far as one nonprofit board member’s comment: « We tell the CEO exactly what to do. »

It appears that the restriction is considered a « best practice. » Some nonprofits move around it by naming the CEO an ex-official member of the board, a member without a vote. However, there is a « better practice, » available where permitted by legislation.

Developing An Even Better Practice in a Nonprofit

Start At The Top: Allow the CEO to hold the title of President/CEO and allow the senior volunteer to become board chair. This signals to staff and public that the board has full faith in the CEO as a professional manager. In addition, the change absolves the senior volunteer of potential financial liability, not unlike the volunteer who unwittingly received a $200,000 bill from the IRS because it appeared he had strong control of a bankrupt nonprofit’s finances and operations.

Ask The CEO: Make certain the CEO is willing and able to accept full responsibility for operations. Not all CEOs, designated as Executive Directors, want the increased responsibilities attached to such a title and to become a board member. These managers only feel comfortable with having the board micromanage operations and often openly discuss their reservations.

The CEO Becomes A Communications Nexus: Under the CEO’s guidance, board-staff contact takes place on task forces, strategic planning projects, at board orientations and at organization celebrations. It openly discourages the staff making « end runs » to board members, not a small problem in community-focused nonprofits

Brand Image: As a board director, the CEO can be more active in fund development. The board position and the title can easily help the CEO to build the organization’s public brand image through the clear public perceptions of the board’s choice to lead the organization. This provides leverage to make greater use of the board-CEO relationship required to develop funds. It can allow the CEO to be the spokesperson for the organization’s mission.

Peer Not Powerhouse: Probably descending from early religious nonprofits, its personnel may be seen by part of the public as not being « worldly. » They must be over-viewed by a group of laypersons that encounters the real world daily. The CEO, as a voting member and a team peer, takes on increasing importance to reducing these attitudes. As long as the CEO works successfully as a peer not a powerhouse, there should be substantial benefits to the organization.

* En reprise

Comment résoudre les conflits potentiels dans les entreprises familiales ? *

Voici un article très intéressant publié par Barney Jordaan dans les publications de Corporate Governance Forum sur l’importance de bien comprendre les enjeux de gouvernance propres aux entreprises familiales.

L’article illustre particulièrement bien le contexte managérial dans lequel les entreprises familiales évoluent. Il y a de nombreux avantages pour une PME à ne pas se soucier de procédures, de règles, de structures, … au début ! Mais un jour ou l’autre, l’entreprise devra faire face à un plus grand besoin de structure et d’organisation et à l’utilisation de mécanismes de règlements de conflits.

L’auteur explique quatre réponses susceptibles d’être envisagées lors de l’émergence de conflits; il propose un processus de médiation adapté aux entreprises familiales dans le règlement des différents.

Également, l’article présente plusieurs mesures préventives concrètes à mettre en place avant que les conflits se manifestent. Enfin, l’auteur présente un cadre conceptuel très utile pour mieux saisir les relations entre (1) la confiance et (2) la formalisation. Les personnes qui œuvrent dans des entreprises familiales comprendront aisément l’analyse de M. Jordaan !

Vous trouverez, ci-dessous, un extrait des grandes lignes de l’argumentation de l’auteur.

Resolving Differences in Family-Owned Businesses

« Some of the same aspects of family-owned businesses that can give them a competitive advantage are also the factors that contribute to the high levels of destructive conflict that often occur in them. For example, close family ties can contribute to strong bonds of trust and cooperation, but they also can add emotional fuel to the fire when conflicts arise. Barney Jordaan argues that the best cure for these conflicts is prevention—through establishing basic family governance structures and, failing that, dispute resolution processes that are sensitive to the distinctive dynamic and singular needs of a family-owned business.

Small Business Administration Awards Luncheon (Photo credit: MDGovpics)

Corporate governance is often, and wrongly, regarded as the exclusive domain of large corporations with shares that are traded in global stock exchanges. Perhaps this is because the data of those corporations are public and available for scrutiny by investors, journalists, and academics. However, the need for better governance is even more important for smaller, nonlisted family businesses. Listed companies are as visible as the tip of an iceberg, but below the waterline we find a much larger number of companies, mostly family-controlled. In Brazil, for example, about 400 companies are listed on BM&F Bovespa Stock Exchange, whereas 55,000 medium and large (more than 100 employees) companies are not listed. In the United States, unofficial statistics show that 5.6 million family businesses produce 57 percent of the gross domestic product and employ 63 percent of the workforce. Financially, they outperform listed companies and are a perpetual source of much-needed innovation and entrepreneurship.

Listed companies must comply with an extensive set of laws and regulations and are under permanent supervision. Nonlisted family businesses, by contrast, are less subject to external controls and are notoriously light in their use of bureaucracy, as noted in Barney Jordaan’s paper. Yet they have the same governance needs of listed companies, and a few more needs of their own. One of the biggest strategic advantages a family business can have is its bloodline. Family corporations, when run by a few tightly knit family members, can almost always move far faster than corporate bureaucracies can. In case of conflicts, relationships between family members must be preserved, and judicial solutions must be regarded as a last, not first alternative. On the other hand, the nature of family relationships adds several degrees of complexity to such issues as related-party transactions, employment of family members, private use of company assets, and dividend decisions, just to mention a few. These problems are aggravated by ownership and managerial succession issues as well as by the participation of different generations. Corporate governance conflicts in family businesses often involve corporate and family law. Corporate legal advice will often destroy family relationships, and it is practically impossible for judicial decisions to be constructive in both areas, all of which builds a positive case for nonjudicial approaches. Jordaan describes the financial and nonfinancial consequences of conflicts and typical responses. He makes a strong case for mediation as a cost-saving and relationships-repairing mechanism between family members, either by involving a trained professional mediator in the dispute or by having ongoing involvement of the mediator to facilitate family council meetings ». _____________________________________ * En reprise

La bonne gouvernance selon Munger, vice-président du C.A. de Berkshire *

Aujourd’hui, je vous propose une très intéressante lecture publiée par David F. Larcker et Brian Tayan, de la Stanford Graduate School of Business qui porte sur la conception que se fait Charles Munger de la bonne gouvernance des sociétés.

Les auteurs nous proposent de répondre à trois questions relatives à la position de Munger, vice-président du conseil de Berkshire :

1. Le système de gouvernance basé sur la confiance avancé par Munger pourrait-il s’appliquer à différents types d’organisations ?

2. Quelles pratiques de gouvernance sont-elles nécessaires et quelles pratiques sont-elles superflues ?

3. Comment s’assurer que la culture organisationnelle survivra à un processus de succession du PCD ?

À la suite de la lecture de l’article ci-dessous, quelles seraient vos réponses à ces questions.

Voici un résumé de la pensée de Munger, suivi d’un court extrait. Bonne lecture !

Berkshire Hathaway Vice Chairman Charlie Munger is well known as the partner of CEO Warren Buffett and also for his advocacy of “multi-disciplinary thinking” — the application of fundamental concepts from across various academic disciplines to solve complex real-world problems. One problem that Munger has addressed over the years is the optimal system of corporate governance.

Munger advocates that corporate governance systems become more simple, rather than more complex, and rely on trust rather than compliance to instill ethical behavior in employees and executives. He advocates giving more power to a highly capable and ethical CEO, and taking several steps to improve the culture of the organization to reduce the risk of self-interested behavior.

Corporate Governance According to Charles T. Munger

How should an organization be structured to encourage ethical behavior among organizational participants and motivate decision-making in the best interest of shareholders? His solution is unconventional by the standards of governance today and somewhat at odds with regulatory guidelines. However, the insights that Munger provides represent a contrast to current “best practices” and suggest the potential for alternative solutions to improve corporate performance and executive behavior.

Trust-Based Governance

The need for a governance system is based on the premise that individuals working in a firm are selfinterested and therefore willing to take actions to further their own interest at the expense of the organization’s interests. To discourage this tendency, companies implement a series of carrots (incentives) and sticks (controls). The incentives might be monetary, such as performance-based compensation that aligns the financial interest of executives with shareholders. Or they might be or cultural, such as organizational norms that encourage certain behaviors. The controls include policies and procédures to limit malfeasance and oversight mechanisms to review executive decisions.

_______________________________

* En reprise

Histoire récente de l’essor des investisseurs activistes | Conditions favorables et avenir prévisible ? *

Ce matin, je vous convie à une lecture révélatrice des facteurs qui contribuent aux changements de fond observés dans la gouvernance des grandes sociétés cotées, lesquels sont provoqués par les interventions croissantes des grands investisseurs activistes.

Cet article de quatre pages, publié par John J. Madden de la firme Shearman & Sterling, et paru sur le blogue du Harvard Law School Forum on Corporate Governance and Financial Regulation, présente les raisons de l’intensification de l’influence des investisseurs dans la stratégie et la direction des entreprises, donc de la gouvernance, un domaine du ressort du conseil d’administration, représentants des actionnaires … et des parties prenantes.

English: Study on alternative investments by i... — English: Study on alternative investments by institutional investors. (Photo credit: Wikipedia)

Après avoir expliqué l’évolution récente dans le monde de la gouvernance, l’auteur brosse un tableau plutôt convainquant des facteurs d’accélération de l’influence des activistes eu égard aux orientations stratégiques.

Les raisons qui expliquent ces changements peuvent être résumées de la manière suivante :

Un changement d’attitude des grands investisseurs, représentant maintenant 66 % du capital des grandes corporations, qui conduit à des intérêts de plus en plus centrés sur l’accroissement de la valeur ajoutée pour les actionnaires;
Un nombre accru de campagnes (+ de 50 %) initiées par des activistes lesquelles se traduisent par des victoires de plus en plus éclatantes;
Un retour sur l’investissement élevé (13 % entre 2009 et 2012) accompagné par des méthodes analytiques plus sophistiquées et plus crédibles (livres blancs);
Un accroissement du capital disponible notamment par l’apport de plus en plus grand des investisseurs institutionnels (fonds de pension, compagnies d’assurance, fonds commun de placement, caisses de retraite, etc.);
Un affaiblissement dans les moyens de défense des C.A. et une meilleure communication entre les actionnaires;
Un intérêt de plus en plus marqué des C.A. et de la direction par un engagement avec les investisseurs activistes.

À l’avenir, les activistes vont intensifier leurs efforts pour exiger des changements organisationnels significatifs (accroissement des dividendes, réorganisation des unités d’affaires, modification des règles de gouvernance, présence sur les conseils, séparation des rôles de PCD et PCA, alignement de la rémunération des dirigeants avec la performance, etc.).

Ci-dessous, un extrait des passages les plus significatifs. Bonne lecture !

The Evolving Direction and Increasing Influence of Shareholder Activism

One of the signal developments in 2012 was the emerging growth of the form of shareholder activism that is focused on the actual business and operations of public companies. We noted that “one of the most important trendline features of

2012 has been the increasing amount of strategic or operational activism. That is, shareholders pressuring boards not on classic governance subjects but on the actual strategic direction or management of the business of the corporation.”… Several of these reform initiatives of the past decade continue to be actively pursued. More recently, however, the most significant development in the activism sphere has been in strategically-focused or operationally-focused activism led largely by hedge funds.

The 2013 Acceleration of “Operational” Activism

Some of this operational activism in the past few years was largely short-term return focused (for example, pressing to lever up balance sheets to pay extraordinary dividends or repurchase shares), arguably at the potential risk of longer-term corporate prosperity, or simply sought to force corporate dispositions; and certainly there continues to be activism with that focus. But there has also emerged another category of activism, principally led by hedge funds, that brings a sophisticated analytical approach to critically examining corporate strategy and capital management and that has been able to attract the support of mainstream institutional investors, industry analysts and other market participants. And this growing support has now positioned these activists to make substantial investments in even the largest public companies. Notable recent examples include ValueAct’s $2.2 billion investment in Microsoft (0.8%), Third Point’s $1.4 billion investment in Sony (7%), Pershing Square’s $2 billion investment in Procter & Gamble (1%) and its $2.2 billion investment in Air Products & Chemicals (9.8%), Relational Investor’s $600 million investment in PepsiCo (under 1%), and Trian Fund Management’s investments of $1.2 billion in DuPont (2.2%) and of more than $1 billion in each of PepsiCo and Mondelez. Interestingly, these investors often embark on these initiatives to influence corporate direction and decision-making with relatively small stakes when measured against the company’s total outstanding equity—as in Microsoft, P&G, DuPont and PepsiCo, for example; as well as in Greenlight Capital’s 1.3 million share investment in Apple, Carl Icahn’s 5.4% stake in Transocean, and Elliot Management’s 4.5% stake in Hess Corp.

In many cases, these activists target companies with strong underlying businesses that they believe can be restructured or better managed to improve shareholder value. Their focus is generally on companies with underperforming share prices (often over extended periods of time) and on those where business strategies have failed to create value or where boards are seen as poor stewards of capital.

Reasons for the Current Expansion of Operational Activism

Evolving Attitudes of Institutional Investors.

… Taken together, these developments have tended to test the level of confidence institutional investors have in the ability of some boards to act in a timely and decisive fashion to adjust corporate direction, or address challenging issues, when necessary in the highly competitive, complex and global markets in which businesses operate. And they suggest a greater willingness of investors to listen to credible external sources with new ideas that are intelligently and professionally presented.

Tangible evidence of this evolution includes the setting up by several leading institutional investors such as BlackRock, CalSTRS and T. Rowe Price of their own internal teams to assess governance practices and corporate strategies to find ways to improve corporate performance. As the head of BlackRock’s Corporate Governance and Responsible Investor team recently commented, “We can have very productive and credible conversations with managements and boards about a range of issues—governance, performance and strategy.”

Increasing Activist Campaigns Generally; More Challenger Success. The increasing number of activist campaigns challenging incumbent boards—and the increasing success by challengers—creates an encouraging market environment for operational activism. According to ISS, the resurgence of contested board elections, which began in 2012, continued into the 2013 proxy season. Proxy contests to replace some or all incumbent directors went from 9 in the first half of 2009 to 19 in the first half of 2012 and 24 in the first half of 2013. And the dissident win rate has increased significantly, from 43% in 2012 to 70% in 2013. Additionally, in July 2013, Citigroup reported that the number of $1 billion + activist campaigns was expected to reach over 90 for 2013, about 50% more than in 2012.

Attractive Investment Returns; Increasing Sophistication and Credibility. While this form of activism has certainly shown mixed results in recent periods (Pershing Square’s substantial losses in both J.C. Penney and Target have been among the most well-publicized examples of failed initiatives), the overall recent returns have been strong. Accordingly to Hedge Fund Research in Chicago, activist hedge funds were up 9.6% for the first half of 2013, and they returned an average of nearly 13% between 2009 and 2012.

In many instances, these activists develop sophisticated and detailed business and strategic analyses—which are presented in “white papers” that are provided to boards and managements and often broadly disseminated—that enhance their credibility and help secure the support, it not of management, of other institutional shareholders.

Increasing Investment Capital Available; Greater Mainstream Institutional Support. The increasing ability of activist hedge funds to raise new money not only bolsters their firepower, but also operates to further solidify the support they garner from the mainstream institutional investor community (a principal source of their investment base). According to Hedge Fund Research, total assets under management by activist hedge funds has doubled in the past four years to $84 billion today. And through August this year their 2013 inflows reached $4.7 billion, the highest inflows since 2006. Particularly noteworthy in this regard, Pershing Square’s recent $2.2 billion investment in Air Products & Chemicals was funded in part with capital raised for a standalone fund dedicated specifically to Air Products, without disclosing the target’s name to investors.

In addition to making capital available, mainstream institutions are demonstrating greater support for these activists more generally. In a particularly interesting vote earlier this year, at the May annual meeting of Timken Co., 53% of the shareholders voting supported the non-binding shareholder proposal to split the company in two, which had been submitted jointly by Relational Investors (holding a 6.9% stake) and pension fund CalSTRS (holding 0.4%). To build shareholder support for their proposal, Relational and CalSTRS reached out to investors both in person and through the internet. Relational ran a website (unlocktimken . com) including detailed presentations and supportive analyst reports. They also secured the support of ISS and Glass Lewis. Four months after the vote, in September, Timken announced that it had decided to spin off its steel-making business.

The Timken case is but one example of the leading and influential proxy advisory firms to institutional investors increasingly supporting activists. Their activist support has been particularly noticeable in the context of activists seeking board representation in nominating a minority of directors to boards.

These changes suggest a developing blurring of the lines between activists and mainstream institutions. And it may be somewhat reminiscent of the evolution of unsolicited takeovers, which were largely shunned by the established business and financial communities in the early 1980s, although once utilized by a few blue-chip companies they soon became a widely accepted acquisition technique.

Weakened Board-Controlled Defenses; Increasing Communication Among Shareholders. The largely successful efforts over the past decade by certain pension funds and other shareholder-oriented organizations to press for declassifying boards, redeeming poison pills and adopting majority voting in director elections have diminished the defenses available to boards in resisting change of control initiatives and other activist challenges. Annual board elections and the availability of “withhold” voting in the majority voting context increases director vulnerability to investor pressure.

And shareholders, particularly institutional shareholders and their representative organizations, are better organized today for taking action in particular situations. The increasing and more sophisticated forms of communication among shareholders—including through the use of social media—is part of the broader trend towards greater dialogue between mainstream institutions and their activist counterparts. In his recent op-ed article in The Wall Street Journal, Carl Icahn said he would use social media to make more shareholders aware of their rights and how to protect them, writing that he had set up a Twitter account for that purpose (with over 80,000 followers so far) and that he was establishing a forum called the Shareholders Square Table to further these aims.

Corporate Boards and Managements More Inclined to Engage with Activists. The several developments referenced above have together contributed to the greater willingness today of boards and managements to engage in dialogue with activists who take investments in their companies, and to try to avoid actual proxy contests.

One need only look at the recent DuPont and Microsoft situations to have a sense of this evolution toward engagement and dialogue. After Trian surfaced with its investment in DuPont, the company’s spokesperson said in August 2013: “We are aware of Trian’s investment and, as always, we routinely engage with our shareholders and welcome constructive input. We will evaluate any ideas Trian may have in the context of our ongoing initiatives to build a higher value, higher growth company for our shareholders.” Also in August, Microsoft announced its agreement with ValueAct to allow the activist to meet regularly with the company’s management and selected directors and give the activist a board seat next year; thereby avoiding a potential proxy contest for board representation by ValueAct. Soon thereafter, on September 17, Microsoft announced that it would raise its quarterly dividend by 22% and renew its $40 billion share buyback program; with the company’s CFO commenting that this reflected Microsoft’s continued commitment to returning cash to its shareholders.

What to Expect Ahead

The confluence of the factors identified above has accelerated the recent expansion of operational activism, and there is no reason in the current market environment to expect that this form of activism will abate in the near term. In fact, the likelihood is that it will continue to expand… Looking ahead, we fully expect to see continuing efforts to press for the structural governance reforms that have been pursued over the past several years. Campaigns to separate the Chair and CEO roles at selected companies will likely continue to draw attention as they did most prominently this year at JPMorgan Chase. And executive compensation will remain an important subject of investor attention, and of shareholder proposals, at many companies where there is perceived to be a lack of alignment between pay and performance. We can also expect that the further development of operational activism, and seeing how boards respond to it, will be a central feature of the governance landscape in the year ahead.

___________________________________________

* En reprise

Finding Value in Shareholder Activism (clsbluesky.law.columbia.edu)

The Corporate Social Responsibility Report and Effective Stakeholder Engagement (venitism.blogspot.com)

The Evolving Direction and Increasing Influence of Shareholder Activism (blogs.law.harvard.edu)

Shareholder activism on the rise in Canada (business.financialpost.com)

Dealing With Activist Hedge Funds (blogs.law.harvard.edu)

American Activist Investors Get Ready To Invade Europe (forbes.com)

Activist Investors Help Companies, Not Workers – Bloomberg (bloomberg.com)

The Separation of Ownership from Ownership (blogs.law.harvard.edu)

Réflexions capitales pour les Boards en 2014 – The Harvard Law School (jacquesgrisegouvernance.com)

Shareholder Activism as a Corrective Mechanism in Corporate Governance by Paul Rose, Bernard S. Sharfman (togovern.wordpress.com)

Les dirigeants d’entreprises privées font-ils de bons administrateurs d’OBNL ?

Est-ce que les hauts dirigeants, reconnus pour leurs habiletés de gestionnaires, font de bons administrateurs d’organisations à buts non lucratifs (OBNL) ?

La thèse de William G. Bowen* (1994) est à l’effet que beaucoup de représentants du monde des affaires, siégeant sur des conseils d’administration d’OBNL, le font pour une multitude de raisons n’ayant pas toujours de relations avec les intérêts de l’organisation, mais servent plutôt à faire avancer leurs intérêts personnels !

Eugene H. Fram**, expert en gouvernance des OBNL et auteur du billet publié sur le blogue Nonprofit Management, croit qu’il faut peindre un portrait plus nuancé en 2014. Selon lui, les comités de gouvernance et de mise en nomination ne devraient cependant jamais prendre pour acquis que l’efficacité d’un gestionnaire dans une entreprise privée sera garante d’une valeur ajoutée pour l’OBNL.

Les perceptions de ceux-ci sont trop souvent à l’effet que les OBNL sont plus permissives, moins exigeantes, moins sérieuses … La réalité est tout autre et les dirigeants devraient y penser à deux fois avant de s’engager sur un C.A. d’OBNL ! Plusieurs témoigneront que les réunions de ces conseils sont très souvent complexes, sensitives, moins structurées et, souvent, éprouvantes pour des « gestionnaires chevronnés »…

On a ici un beau sujet d’étude (de recherche) car le modèle d’affaires des OBNL suppose toujours une contribution remarquable des gens d’affaires !

Pensez-vous que la situation a beaucoup évoluée depuis l’affirmation de Bowen, il y a 20 ans ? La gouvernance des OBNL a-t-elle changée au point de modifier les perceptions des gens d’affaires ?

Vos commentaires sont les bienvenus. Bonne lecture !

Do Today’s Business Leaders Make Effective Nonprofit Directors?

The names of the new board nominees have been announced. They include several outstanding recruits from the business community. Will these new formidable directors perform well in the nonprofit environment? William G. Bowen, a veteran director in both the for-profit and nonprofit environments, raised the following questions about such beginnings in a 1994 article:* Is it true that well-regarded representatives of the business world are often surprisingly ineffective as members of nonprofit boards? Do they seem to have checked their analytical skills and their “toughness” at the door? If this is true in some considerable number of cases, what is the explanation?

An example of the U.S. Nonprofit Organization postage meter marking made with a Pitney Bowes mailstream system. Letter. 2007. Русский: Пример штампа франкировальной машины системы Pitney Bowes, имеющего тариф « Nonprofit Organization » (США, 2007). Письмо. (Photo credit: Wikipedia)

Are Bowen’s observations about directors’ questionable motivations for accepting director positions still applicable in the 21st century? He noted that some nonprofit directors accept board positions because they are dedicated to the organization’s mission, vision and values. But he also hypothesized that business leaders are sometimes motivated to join nonprofit boards for a variety of other reasons. They may regard board membership as a “vacation from the bottom line … or the enjoyment of a membership in a new ‘club’.” Also they perhaps join nonprofit boards to “soften” community perceptions that, as tough bottom-line executives, they also may care as much about human issues as they care about shareholder returns. (It would probably be costly or impossible to obtain objective data of this observation.) Press reports through the years, since 1994, have indicated that such attitudes still hold leadership sway in nonprofit organizations. (See: Nonprofit Board Crisis.com)

In today’s nonprofit environment, there may remain senior business leaders or groups who are less serious about the responsibilities incumbent upon board members, as noted by Bowen. If this is the situation, a high level of board permissiveness, allowed by business-oriented directors and others, is still causing a level of board dysfunction business leaders would never allow on their own boards.

…

____________________________________

21st Century Reflections on Bowen’s Observations

Since Bowen’s 1994 observations, there have been some improvements. The Sarbanes-Oxley Act has driven some of the changes in audit committee’s procedures, overviews of internal controls, whistle-blower requirement, CEO’s & CFOs signatures attesting to financial statement accuracy, etc. Although not required by law, some larger nonprofits have adhered to all the provisions of the Act. I also feel business leaders now think more deeply about joining a nonprofit board, especially after the Penn State scandal and the reputation embarrassment the board encountered.

But do these changes indicate substantial change reducing the permissiveness in the nonprofit environment Bowen described? Anecdotally, here is a typical comment that I continue to hear, this one from the board chair large nonprofit with 300 employees. “We don’t expect the same standards of management performance that the business organization has.”

However, I am optimistic about the future. As nonprofit boards select more professional type CEO’s to lead their organizations, whether they are hired internally or externally, more change will take place. Hopefully, if boards want to retain these people, this movement should place some subtle pressures on board nomination committees to seek more candidates whose motivation is to focus on mission, vision and values, along with balanced budgets. A new breed should readily understand that this focus has the same meaning to nonprofit stakeholders, as a profit focus does to business stakeholders.

_____________________________________________

* William G. Bowen (1994), “When a Business Leader Joins a Nonprofit Board,” Harvard Business Review, September-October. Bowen currently is president emeritus of the Andrew W. Mellon Foundation and former president of Princeton University in Princeton. He has served as an outside director for a wide variety of for-profit and nonprofit organizations.

**Eugene H. Fram PRACTITIONER AND PROFESSOR OF MARKETING AND MANAGEMENT, AUTHOR & CONSULTANT. ALSO SIGNIFICANT EXPERTISE WITH BUSINESS & NONPROFIT BOARDS OF DIRECTORS.

Comment échapper aux mythes trompeurs de la rémunération des PCD ?

Voici un texte de Michael Dorff, professeur à Southwestern Law School, qui se questionne sérieusement sur le processus de rémunération des CEO (PCD), plus particulièrement sur les indicateurs utilisés pour en établir la valeur.

Dans son livre à paraître bientôt, « Indispensable and other myths : The empirical truth about CEO pay », il avance qu’il faut échapper à l’envie d’utiliser l’approche de la comparaison (Benchmark) avec les pairs pour fixer les rémunérations des PCD, et à l’idée de relier trop étroitement leurs rémunérations avec la capitalisation boursière de l’entreprise.

Selon lui, il n’y a pas de marché pour les talents des PCD et ceux-ci ont peu de possibilités de trouver un poste similaire dans une autre entreprise. Pourquoi alors entretenir le mythe de leur situation monopolistique, toute puissante ?

L’auteur présente une vision assez révolutionnaire de la manière de concevoir la rétribution des présidents et chefs de direction (PCD).

Je reproduis ci-dessous le billet paru sur son site Indispensable and other myths. Quel est votre point de vue sur le sujet ?

Quels sont les critères les plus raisonnables pour établir la rémunération des hauts dirigeants ? Vos commentaires sont les bienvenus !

Escaping the Conformity Trap

Pearl Meyer & Partners has just released their contribution to the NACD’s new Governance Challenges 2014 and Beyond report, “Escaping the Conformity Trap: Aligning Executive Pay Programs with Business and Leadership Objectives.” I love the overall theme, which is that companies should not default to cookie-cutter measures of executive performance just because their peer companies do. The report also indicates that companies shouldn’t defer to peers on the amount of pay, though this point is less prominent. I make a similar — though more sweeping — argument in my forthcoming book, Indispensable and Other Myths: Why the CEO Pay Experiment Failed, and How to Fix It. (The book should be out around the end of May.)

Office Politics: A Rise to the Top (Photo credit: Alex E. Proimos)

Unfortunately, while there’s a lot in the Pearl Meyer report that is laudable, there’s also a fair amount of rehashing of typical errors. On page 18 (the report starts on p. 17 for some reason), the report describes the growth in CEO pay of 12% from 2009-2012 in Fortune 100 firms as “comparatively conservative.” This is technically true, if by “comparatively conservative” Pearl Meyer means that there have been much steeper rises in executive pay. But the rationale seems to be different. The report points out that the market capitalization of Fortune 100 firms increased by 50% over this same period, and credits external scrutiny of CEO pay and a desire to remain within peers’ norms for restraining CEO pay.

The clear implication here is that CEO pay should rise in proportion to the company’s stock price. (The report says this more explicitly on page 19 when it says total shareholder return is often a good performance metric.) As I point out in Indispensable, this is a dangerous fallacy. CEOs do not control their companies’ stock price. They can influence price (especially in the short term), but careful empirical studies have repeatedly demonstrated that executives’ actions account for only a small percentage of share price movement. The external environment broadly — and in the industry more particularly — drive the bulk of share price movement. So why should companies peg CEO pay to the growth in share price that for the most part is independent of their actions? This sort of rhetorical move is particularly disappointing in a report whose laudable aims seems to be to move companies in precisely the opposite direction, away from easy, off-the-shelf measures like share price that fail to capture what companies should really care about.
The report also backtracks when it comes to using comparable companies to set the amount of CEO pay. Despite having at least hinted that this is a poor strategy elsewhere in the report, it states (on p. 18):

Of course, there is nothing inherently wrong with providing executives with pay opportunities that reflect market norms for comparable positions in similarly sized and oriented companies. With well-designed long-term performance metrics and goals, establishing pay opportunities at market median will help ensure that actual, realizable pay is appropriately positioned based on relative performance outcomes.

But there absolutely is something wrong with this. As Charles Elson and Craig Ferrere have recently demonstrated, there is no market for CEO talent. Since CEOs have little ability to move to another company, why should a company care what its competitors are paying their own CEOs? Why not try to get a bargain by paying less, if the CEO can’t get a comparable job elsewhere? Scholars have advanced plenty of rationales (which I explore in the book but don’t have room to delve into here), but none of them work very well.

Although I’m disappointed that the report does not go nearly far enough, I was heartened that a major compensation consultant is at least beginning to question the conventional wisdom. It’s a small step, but at least it’s in the right direction.

La bonne gouvernance selon Munger, vice-président du C.A. de Berkshire

Les auteurs nous proposent de répondre à trois questions relatives à la position de Munger, vice-président du conseil de Berkshire :

1. Le système de gouvernance basé sur la confiance avancé par Munger pourrait-il s’appliquer à différents types d’organisations ?

2. Quelles pratiques de gouvernance sont-elles nécessaires et quelles pratiques sont-elles superflues ?

3. Comment s’assurer que la culture organisationnelle survivra à un processus de succession du PCD ?

À la suite de la lecture de l’article ci-dessous, quelles seraient vos réponses à ces questions.

Voici un résumé de la pensée de Munger, suivi d’un court extrait. Bonne lecture !

Corporate Governance According to Charles T. Munger

How should an organization be structured to encourage ethical behavior among organizational participants and motivate decision-making in the best interest of shareholders? His solution is unconventional by the standards of governance today and somewhat at odds with regulatory guidelines. However, the insights that Munger provides represent a contrast to current “best practices” and suggest the potential for alternative solutions to improve corporate performance and executive behavior.

Trust-Based Governance

The need for a governance system is based on the premise that individuals working in a firm are selfinterested and therefore willing to take actions to further their own interest at the expense of the organization’s interests. To discourage this tendency, companies implement a series of carrots (incentives) and sticks (controls). The incentives might be monetary, such as performance-based compensation that aligns the financial interest of executives with shareholders. Or they might be or cultural, such as organizational norms that encourage certain behaviors. The controls include policies and procédures to limit malfeasance and oversight mechanisms to review executive decisions.

La disqualification des candidats administrateurs qui sont rétribués par les activistes | Carl Icahn

Un grand débat fait présentement rage dans le monde des actionnaires activistes : la dénonciation des amendements apportés aux règlements internes de l’entreprise (Bylaws) qui ont pour buts de disqualifier les candidats aux postes d’administrateurs qui sont rémunérés par les actionnaires activistes en vue de leur élection lors des assemblées annuelles.

L’article ci-joint, publié par Carl Icahn dans le Harvard Law School Forum on Corporate Governance, tente de justifier la façon de faire des activistes en montrant que cette approche est le nouveau moyen de défense utilisé par certaines organisations pour bloquer la venue de nouveaux administrateurs « dissidents ». L’adoption de cet amendement se fait sans le consentement des actionnaires.

Je vous propose donc la lecture de la position de M. Icahn lui-même sur cette question. Il présente un ensemble d’arguments soutenant le droit des actionnaires à une représentation qui relève d’eux, et non de la direction ou des administrateurs en place !

Quel est votre point de vue sur les moyens de défense utilisés par les organisations qui sont les cibles des actionnaires activistes organisés ? Voici un court extrait de l’article pour vous mettre en contexte.

Disqualifying Dissident Nominees: A New Trend in Incumbent Director Entrenchment

There are many good, independent boards of directors at public companies in the United States. Unfortunately, there are also many ineffectual boards composed of cronies of CEOs and management teams, and such boards routinely use corporate capital to hire high-priced “advisors” to design defense mechanisms, such as the staggered board and poison pill, that serve to insulate them from criticism. Recently, these advisors have created a particularly pernicious new mechanism to protect their deep-pocketed clients—a bylaw amendment (which we call the “Director Disqualification Bylaw”) that disqualifies certain people from seeking to replace incumbent members of a board of directors.

Under a Director Disqualification Bylaw, a person is not eligible for election to the board of directors if he is nominated by a shareholder and the shareholder has agreed to pay the nominee a fee, such as a cash payment to compensate the nominee for taking the time and effort to seek election in a proxy fight, or compensation that is tied to performance of the company. [1]

We believe that the Director Disqualification Bylaw is totally misguided. It is absolutely offensive for an incumbent board to unilaterally adopt a Director Disqualification Bylaw without shareholder approval, and shareholders should also reject a Director Disqualification Bylaw if their incumbent board puts one up for a vote in the future. For the reasons explained below, we believe it is more appropriate for shareholders to continue, as they have in the past, to evaluate candidates individually based on their merits, including their experience, relationships and interests, all of which is required to be fully disclosed in a proxy statement.

As of November 30, 2013, thirty-three (33) public companies had unilaterally (i.e. without shareholder approval) amended their bylaws to include a Director Disqualification Bylaw. [2] In response, on January 13, 2014, Institutional Shareholder Services (“ISS”) stated that it may recommend a vote against or withhold from directors that adopt a Director Disqualification Bylaw without shareholder approval. In adopting this new policy position, ISS noted, as we do below, that “the ability to elect directors is a fundamental shareholder right” and that Director Disqualification Bylaws “unnecessarily infringe on this core franchise right.”

_________________________________

Carl Icahn is the majority shareholder of Icahn Enterprises. The following post is based on a commentary featured today at the Shareholders’ Square Table.

Comportements néfastes liés au narcissisme de certains PCD (CEO)

La première étude citée montre que les organisations dirigées par des PCD prétentieux et tout-puissants ont tendances à avoir de moins bons résultats, tout en étant plus sujettes à des fraudes. La seconde étude indique que les valeurs d’humilité incarnées par un leader ont des conséquences positives sur l’engagement des employés.

Voici en quelques paragraphes les conclusions de ces deux études. Bonne lecture.

In the first study, Antoinette Rijsenbilt and Harry Commandeur assessed the narcissism levels of 953 CEOs from a wide range of industries, as well as examining objective performance indicators of their companies during their tenure. Unsurprisingly, organizations led by arrogant, self-centered, and entitled CEOs tended to perform worse, and their CEOs were significantly more likely to be convicted for corporate fraud (e.g., fake financial reports, rigged accounts, insider trading, etc.). Interestingly, the detrimental effects of narcissism appear to be exacerbated when CEOs are charismatic, which is consistent with the idea that charisma is toxic because it increases employees’ blind trust and irrational confidence in the leader. If you hire a charismatic leader, be prepared to put up with a narcissist.

In the second study, Bradley Owens and colleagues examined the effects of leader humility on employee morale and turnover. Their results showed that « in contrast to rousing employees through charismatic, energetic, and idealistic leadership approaches (…) a ‘quieter’ leadership approach, with listening, being transparent about limitations, and appreciating follower strengths and contributions [is the most] effective way to engage employees. » This suggests that narcissistic CEOs may be good at attracting talent, but they are probably better at repelling it. Prospective job candidates, especially high potentials, should therefore think twice before being seduced by the meteoric career opportunities outlined by charismatic executives. Greed is not only contagious, but competitive and jealous, too…

The Dark Side of Executive Narcissism: How CEOs Destroy Companies’ Reputation and Employee Morale

If we can educate organizations, in particular board members, on the virtues of humility and the destructive consequences of narcissistic and charismatic leadership, we may see a smaller proportion of entitled, arrogant, and fraudulent CEOs — to everyone’s benefit. Instead of worshiping and celebrating the flamboyant habits of corporate bosses, let us revisit the wise words of Peter Drucker, who knew a thing or two about management:

The leaders who work most effectively, it seems to me, never say ‘I’. And that’s not because they have trained themselves not to say ‘I’. They don’t think ‘I’. They think ‘we’; they think ‘team’. They understand their job to be to make the team function. They accept responsibility and don’t sidestep it, but ‘we’ gets the credit.

Histoire récente de l’essor des investisseurs activistes | Conditions favorables et avenir prévisible ?

Les raisons qui expliquent ces changements peuvent être résumées de la manière suivante :

Un changement d’attitude des grands investisseurs, représentant maintenant 66 % du capital des grandes corporations, qui conduit à des intérêts de plus en plus centrés sur l’accroissement de la valeur ajoutée pour les actionnaires;
Un nombre accru de campagnes (+ de 50 %) initiées par des activistes lesquelles se traduisent par des victoires de plus en plus éclatantes;
Un retour sur l’investissement élevé (13 % entre 2009 et 2012) accompagné par des méthodes analytiques plus sophistiquées et plus crédibles (livres blancs);
Un accroissement du capital disponible notamment par l’apport de plus en plus grand des investisseurs institutionnels (fonds de pension, compagnies d’assurance, fonds commun de placement, caisses de retraite, etc.);
Un affaiblissement dans les moyens de défense des C.A. et une meilleure communication entre les actionnaires;
Un intérêt de plus en plus marqué des C.A. et de la direction par un engagement avec les investisseurs activistes.

Ci-dessous, un extrait des passages les plus significatifs. Bonne lecture !

The Evolving Direction and Increasing Influence of Shareholder Activism

One of the signal developments in 2012 was the emerging growth of the form of shareholder activism that is focused on the actual business and operations of public companies. We noted that “one of the most important trendline features of

2012 has been the increasing amount of strategic or operational activism. That is, shareholders pressuring boards not on classic governance subjects but on the actual strategic direction or management of the business of the corporation.”… Several of these reform initiatives of the past decade continue to be actively pursued. More recently, however, the most significant development in the activism sphere has been in strategically-focused or operationally-focused activism led largely by hedge funds.

The 2013 Acceleration of “Operational” Activism

Some of this operational activism in the past few years was largely short-term return focused (for example, pressing to lever up balance sheets to pay extraordinary dividends or repurchase shares), arguably at the potential risk of longer-term corporate prosperity, or simply sought to force corporate dispositions; and certainly there continues to be activism with that focus. But there has also emerged another category of activism, principally led by hedge funds, that brings a sophisticated analytical approach to critically examining corporate strategy and capital management and that has been able to attract the support of mainstream institutional investors, industry analysts and other market participants. And this growing support has now positioned these activists to make substantial investments in even the largest public companies. Notable recent examples include ValueAct’s $2.2 billion investment in Microsoft (0.8%), Third Point’s $1.4 billion investment in Sony (7%), Pershing Square’s $2 billion investment in Procter & Gamble (1%) and its $2.2 billion investment in Air Products & Chemicals (9.8%), Relational Investor’s $600 million investment in PepsiCo (under 1%), and Trian Fund Management’s investments of $1.2 billion in DuPont (2.2%) and of more than $1 billion in each of PepsiCo and Mondelez. Interestingly, these investors often embark on these initiatives to influence corporate direction and decision-making with relatively small stakes when measured against the company’s total outstanding equity—as in Microsoft, P&G, DuPont and PepsiCo, for example; as well as in Greenlight Capital’s 1.3 million share investment in Apple, Carl Icahn’s 5.4% stake in Transocean, and Elliot Management’s 4.5% stake in Hess Corp.

In many cases, these activists target companies with strong underlying businesses that they believe can be restructured or better managed to improve shareholder value. Their focus is generally on companies with underperforming share prices (often over extended periods of time) and on those where business strategies have failed to create value or where boards are seen as poor stewards of capital.

Reasons for the Current Expansion of Operational Activism

Evolving Attitudes of Institutional Investors.

… Taken together, these developments have tended to test the level of confidence institutional investors have in the ability of some boards to act in a timely and decisive fashion to adjust corporate direction, or address challenging issues, when necessary in the highly competitive, complex and global markets in which businesses operate. And they suggest a greater willingness of investors to listen to credible external sources with new ideas that are intelligently and professionally presented.

Tangible evidence of this evolution includes the setting up by several leading institutional investors such as BlackRock, CalSTRS and T. Rowe Price of their own internal teams to assess governance practices and corporate strategies to find ways to improve corporate performance. As the head of BlackRock’s Corporate Governance and Responsible Investor team recently commented, “We can have very productive and credible conversations with managements and boards about a range of issues—governance, performance and strategy.”

Increasing Activist Campaigns Generally; More Challenger Success. The increasing number of activist campaigns challenging incumbent boards—and the increasing success by challengers—creates an encouraging market environment for operational activism. According to ISS, the resurgence of contested board elections, which began in 2012, continued into the 2013 proxy season. Proxy contests to replace some or all incumbent directors went from 9 in the first half of 2009 to 19 in the first half of 2012 and 24 in the first half of 2013. And the dissident win rate has increased significantly, from 43% in 2012 to 70% in 2013. Additionally, in July 2013, Citigroup reported that the number of $1 billion + activist campaigns was expected to reach over 90 for 2013, about 50% more than in 2012.

Attractive Investment Returns; Increasing Sophistication and Credibility. While this form of activism has certainly shown mixed results in recent periods (Pershing Square’s substantial losses in both J.C. Penney and Target have been among the most well-publicized examples of failed initiatives), the overall recent returns have been strong. Accordingly to Hedge Fund Research in Chicago, activist hedge funds were up 9.6% for the first half of 2013, and they returned an average of nearly 13% between 2009 and 2012.

In many instances, these activists develop sophisticated and detailed business and strategic analyses—which are presented in “white papers” that are provided to boards and managements and often broadly disseminated—that enhance their credibility and help secure the support, it not of management, of other institutional shareholders.

Increasing Investment Capital Available; Greater Mainstream Institutional Support. The increasing ability of activist hedge funds to raise new money not only bolsters their firepower, but also operates to further solidify the support they garner from the mainstream institutional investor community (a principal source of their investment base). According to Hedge Fund Research, total assets under management by activist hedge funds has doubled in the past four years to $84 billion today. And through August this year their 2013 inflows reached $4.7 billion, the highest inflows since 2006. Particularly noteworthy in this regard, Pershing Square’s recent $2.2 billion investment in Air Products & Chemicals was funded in part with capital raised for a standalone fund dedicated specifically to Air Products, without disclosing the target’s name to investors.

In addition to making capital available, mainstream institutions are demonstrating greater support for these activists more generally. In a particularly interesting vote earlier this year, at the May annual meeting of Timken Co., 53% of the shareholders voting supported the non-binding shareholder proposal to split the company in two, which had been submitted jointly by Relational Investors (holding a 6.9% stake) and pension fund CalSTRS (holding 0.4%). To build shareholder support for their proposal, Relational and CalSTRS reached out to investors both in person and through the internet. Relational ran a website (unlocktimken . com) including detailed presentations and supportive analyst reports. They also secured the support of ISS and Glass Lewis. Four months after the vote, in September, Timken announced that it had decided to spin off its steel-making business.

The Timken case is but one example of the leading and influential proxy advisory firms to institutional investors increasingly supporting activists. Their activist support has been particularly noticeable in the context of activists seeking board representation in nominating a minority of directors to boards.

These changes suggest a developing blurring of the lines between activists and mainstream institutions. And it may be somewhat reminiscent of the evolution of unsolicited takeovers, which were largely shunned by the established business and financial communities in the early 1980s, although once utilized by a few blue-chip companies they soon became a widely accepted acquisition technique.

Weakened Board-Controlled Defenses; Increasing Communication Among Shareholders. The largely successful efforts over the past decade by certain pension funds and other shareholder-oriented organizations to press for declassifying boards, redeeming poison pills and adopting majority voting in director elections have diminished the defenses available to boards in resisting change of control initiatives and other activist challenges. Annual board elections and the availability of “withhold” voting in the majority voting context increases director vulnerability to investor pressure.

And shareholders, particularly institutional shareholders and their representative organizations, are better organized today for taking action in particular situations. The increasing and more sophisticated forms of communication among shareholders—including through the use of social media—is part of the broader trend towards greater dialogue between mainstream institutions and their activist counterparts. In his recent op-ed article in The Wall Street Journal, Carl Icahn said he would use social media to make more shareholders aware of their rights and how to protect them, writing that he had set up a Twitter account for that purpose (with over 80,000 followers so far) and that he was establishing a forum called the Shareholders Square Table to further these aims.

Corporate Boards and Managements More Inclined to Engage with Activists. The several developments referenced above have together contributed to the greater willingness today of boards and managements to engage in dialogue with activists who take investments in their companies, and to try to avoid actual proxy contests.

One need only look at the recent DuPont and Microsoft situations to have a sense of this evolution toward engagement and dialogue. After Trian surfaced with its investment in DuPont, the company’s spokesperson said in August 2013: “We are aware of Trian’s investment and, as always, we routinely engage with our shareholders and welcome constructive input. We will evaluate any ideas Trian may have in the context of our ongoing initiatives to build a higher value, higher growth company for our shareholders.” Also in August, Microsoft announced its agreement with ValueAct to allow the activist to meet regularly with the company’s management and selected directors and give the activist a board seat next year; thereby avoiding a potential proxy contest for board representation by ValueAct. Soon thereafter, on September 17, Microsoft announced that it would raise its quarterly dividend by 22% and renew its $40 billion share buyback program; with the company’s CFO commenting that this reflected Microsoft’s continued commitment to returning cash to its shareholders.

What to Expect Ahead

The confluence of the factors identified above has accelerated the recent expansion of operational activism, and there is no reason in the current market environment to expect that this form of activism will abate in the near term. In fact, the likelihood is that it will continue to expand… Looking ahead, we fully expect to see continuing efforts to press for the structural governance reforms that have been pursued over the past several years. Campaigns to separate the Chair and CEO roles at selected companies will likely continue to draw attention as they did most prominently this year at JPMorgan Chase. And executive compensation will remain an important subject of investor attention, and of shareholder proposals, at many companies where there is perceived to be a lack of alignment between pay and performance. We can also expect that the further development of operational activism, and seeing how boards respond to it, will be a central feature of the governance landscape in the year ahead.

Finding Value in Shareholder Activism (clsbluesky.law.columbia.edu)

The Corporate Social Responsibility Report and Effective Stakeholder Engagement (venitism.blogspot.com)

The Evolving Direction and Increasing Influence of Shareholder Activism (blogs.law.harvard.edu)

Shareholder activism on the rise in Canada (business.financialpost.com)

Dealing With Activist Hedge Funds (blogs.law.harvard.edu)

American Activist Investors Get Ready To Invade Europe (forbes.com)

Activist Investors Help Companies, Not Workers – Bloomberg (bloomberg.com)

The Separation of Ownership from Ownership (blogs.law.harvard.edu)

Réflexions capitales pour les Boards en 2014 – The Harvard Law School (jacquesgrisegouvernance.com)

Shareholder Activism as a Corrective Mechanism in Corporate Governance by Paul Rose, Bernard S. Sharfman (togovern.wordpress.com)

Liens étroits entre les PCD (CEO) et les administrateurs des comités d’audit

Voici un article choc publié par Dena Aubin et diffusé par l’agence Reuters le 10 décembre 2013. Il est ici question d’une recherche universitaire menée par deux professeurs de l’Université de Tilburg aux Pays-Bas qui montre que 40 % des administrateurs responsables de la supervision des affaires financières entretiennent des liens sociaux très étroits avec la haute direction de l’entreprise, laissant une impression de non-indépendance et de possibilité de conflit d’intérêt entre des personnes qui ont des liens d’amitié et d’affinité.

De là à penser que ces administrateurs seront plus susceptibles d’adopter des positions plus favorables à la direction, il n’y a qu’un pas à franchir. Et les chercheurs n’ont pas hésité à pousser leur investigation dans ce sens.

L’étude montre que ces situations de « proximité » peuvent donner lieu à de plus faibles contrôles financiers, notamment à des manipulations comptables, suivies de tentatives d’étouffer la vérité.

Ce sont des études comme celle-ci qui amène les autorités règlementaires à resserrer les critères d’indépendance des membres des comités d’audit.

Bonne lecture; vos commentaires sont les bienvenus.

Clubby ties between U.S. CEOs and board audit committees: study

NEW YORK (Reuters) – Almost 40 percent of U.S. corporate directors with responsibility for monitoring the profit-and-loss ledger have social ties to the chief executive, a study says, making them look more like lapdogs than watchdogs.

Conducted by two accounting professors at Tilburg University in The Netherlands, the study reinforces long-held perceptions of a clubby culture on U.S. corporate boards, where members seldom challenge the executives they are meant to police.

The study looked at about 2,000 U.S. companies and their board audit committees, which are responsible for overseeing outside auditors and making sure financial reports are accurate. It found that personal friends of senior managers were often appointed to these committees, making the directors more likely to go along with the company’s reporting practices.

Where that was the case, earnings manipulation was more frequent and problems such as weak financial controls were covered up, the study found.

Tilburg University (Photo credit: Wikipedia)

Regulations put in place over a decade ago after accounting scandals at Enron and WorldCom required audit committees to be made up only of independent directors. That meant they were never employed by the company or a firm doing business with it.

Even so, audit committee members often have long-standing social ties to executives, belonging to the same elite clubs or charity boards, the study found.

« Although such firms appear to have independent audit committees, in reality these committees offer little to no monitoring at all, » the study found.

The study, by accounting professors Liesbeth Bruynseels and Eddy Cardinaels, researched social ties with BoardEx, a business intelligence service. It appears in the January 2014 issue of the American Accounting Association’s Accounting Review.

The professors suggested that legislators consider requiring more disclosure about social connections between audit committees and CEOs, given the committees’ importance.

Charles Elson, director of the Weinberg Center for Corporate Governance in Newark, Delaware, said it would be difficult for regulators to define social ties.

« Is it one lunch a week, is it two lunches? Inevitably, social ties will develop when you’re on a board – you have to see that person on a regular basis, » he said.

The United States made a major push to improve audit committees’ effectiveness with the passage of the 2002 Sarbanes-Oxley Act, which tightened membership requirements.

More recently, regulators in Europe and the United Kingdom have been trying to get audit committees to be more rigorous in choosing outside auditors and monitoring them.

Clubby ties between U.S. CEOs and board audit committees-study (xe.com)

Le comité de gouvernance du C.A. | Élément clé d’une solide stratégie (jacquesgrisegouvernance.com)

US audit watchdog reviving controversial plan to require firms to disclose names of people who work on audits – @Reuters (reuters.com)

Business Basics – Corporate Audits (business2community.com)

Auditors told to up their game by Financial Reporting Council (theguardian.com)

Les PDG d’OBNL doivent-ils (ou doivent-elles) être membres de leurs C.A. ?

Quels sont les pratiques exemplaires de gouvernance eu égard à l’appartenance des PDG (DG/CEO) aux conseils d’administration de leurs organisations, plus particulièrement des OBNL ?

Voici un extrait de l’article :

Should a Nonprofit CEO Be a Voting Member of the Board of Directors ?

Here are the issues as I see them:

State Legislation: Most nonprofit charters are issued by states, and it appears that the vast majority of American nonprofits are governed by these regulations. California does not permit the CEO to be a voting member. Until a recent change, New York did allow the CEO to become a board member. The motivations behind the legislation center on preventing a CEO developing conflicts-of interest, especially as they relate to salary decisions. Also, there is a feeling among some nonprofit directors that the board must be the « boss. » This attitude can even go as far as one nonprofit board member’s comment: « We tell the CEO exactly what to do. »

Français : Sainte Prétonille, Île d’Orléans, province de Québec, Canada (Photo credit: Wikipedia)

It appears that the restriction is considered a « best practice. » Some nonprofits move around it by naming the CEO an ex-official member of the board, a member without a vote. However, there is a « better practice, » available where permitted by legislation.

Developing An Even Better Practice in a Nonprofit

Start At The Top: Allow the CEO to hold the title of President/CEO and allow the senior volunteer to become board chair. This signals to staff and public that the board has full faith in the CEO as a professional manager. In addition, the change absolves the senior volunteer of potential financial liability, not unlike the volunteer who unwittingly received a $200,000 bill from the IRS because it appeared he had strong control of a bankrupt nonprofit’s finances and operations.

Ask The CEO: Make certain the CEO is willing and able to accept full responsibility for operations. Not all CEOs, designated as Executive Directors, want the increased responsibilities attached to such a title and to become a board member. These managers only feel comfortable with having the board micromanage operations and often openly discuss their reservations.

The CEO Becomes A Communications Nexus: Under the CEO’s guidance, board-staff contact takes place on task forces, strategic planning projects, at board orientations and at organization celebrations. It openly discourages the staff making « end runs » to board members, not a small problem in community-focused nonprofits

Brand Image: As a board director, the CEO can be more active in fund development. The board position and the title can easily help the CEO to build the organization’s public brand image through the clear public perceptions of the board’s choice to lead the organization. This provides leverage to make greater use of the board-CEO relationship required to develop funds. It can allow the CEO to be the spokesperson for the organization’s mission.

Peer Not Powerhouse: Probably descending from early religious nonprofits, its personnel may be seen by part of the public as not being « worldly. » They must be over-viewed by a group of laypersons that encounters the real world daily. The CEO, as a voting member and a team peer, takes on increasing importance to reducing these attitudes. As long as the CEO works successfully as a peer not a powerhouse, there should be substantial benefits to the organization.

Once Again! Should a Nonprofit CEO Be a Voting Member of the Board of Directors? (huffingtonpost.com)

Nonprofit Board Chair and CEO (nonprofitboardcrisis.typepad.com)

Le comité de gouvernance du C.A. | Élément clé d’une solide stratégie (jacquesgrisegouvernance.com)

Réflexions capitales pour les Boards en 2014 — The Harvard Law School

Le document ci-dessous du The Harvard Law School Forum on Corporate Governance and Financial Regulation (HLS) publié par Martin Lipton, associé fondateur de Wachtell, Lipton, Rosen & Katz, expose plusieurs considérations à prendre en compte par les administrateurs en 2014.

Voici un extrait de cet article. Bonne lecture.

Some Thoughts for Boards of Directors in 2014

In many respects, the relentless drive to adopt corporate governance mandates seems to have reached a plateau: essentially all of the prescribed “best practices”—including say-on-pay, the dismantling of takeover defenses, majority voting in the election of directors and the declassification of board structures—have been codified in rules and regulations or voluntarily adopted by a majority of S&P 500 companies. Only 11 percent of S&P 500 companies have a classified board, 8 percent have a poison pill and 6 percent have not adopted a majority vote or plurality-vote-plus-resignation standard to elect directors. The activists’ “best practices” of yesterday have become the standard practices of today. While proxy advisors and other stakeholders in the corporate governance industry will undoubtedly continue to propose new mandates, we are currently in a period of relative stasis as compared to the sea change that began with the Sarbanes-Oxley Act and unfolded over the last decade.

In other respects, however, the corporate governance landscape continues to evolve in meaningful ways. We may be entering an era of more nuanced corporate governance debates, where the focus has shifted from check-the-box policies to more complex questions such as how to strike the right balance in recruiting directors with complementary skill sets and diverse perspectives, and how to tailor the board’s role in overseeing risk management to the specific needs of the company. Shareholder engagement has been an area of particular focus, as both companies and institutional investors have sought to engage in more regular dialogue on corporate governance matters. The evolving trend here is not only the frequency and depth of engagement, but also a more fundamental re-thinking of the nature of relationships with shareholders and the role that these relationships play in facilitating long-term value creation. Importantly, this trend is about more than just expanding shareholder influence in corporate governance matters; instead, there is an emphasis on the roles and responsibilities of both companies and shareholders in facilitating thoughtful conversations instead of reflexive, off-the-shelf mandates on corporate governance issues, and cultivating long-term relationships that have the potential to curb short-termist pressures in the market.

Conclusions:

In 2005, Martin Lipton wrote for a symposium commemorating the 25th anniversary of his article attacking financial market short-termism and supporting the legality of corporate management to take actions to defeat hostile takeovers. The conclusion to that piece is as relevant today as it was in 2005:

In the words of [famous educator and management consultant] Peter Drucker, “the Enterprise can be said to be the one innovation that created the Modern Economy—far more so than any other invention, whether material or conceptual.” The American enterprise is the systematic risk-taker and risk-sharer of our economy—the primary means through which wealth and prosperity are generated on a macroeconomic level. Central to this structure is a delicate interrelationship among the enterprise, the CEO (who manages it), the board of directors (which oversees its management) and shareholders and society at large (who benefit from it).

If special-interest shareholders and other “activists” [and the academics who support them] prevail in their latest battle—that is, if additional, more demanding governance and “shareholder empowerment” measures and personal liability for directors become integrated into the regulatory and common law landscape—we will have altered the structure of the enterprise and moved toward excising the board from its principal role. Not only will the board as an institution suffer from the curtailment of its ability to manage the corporation, but we will not be able to attract competent, responsible people to serve as directors of public companies. Moreover, faced with a punitive regime that could extend to any perceived failure of a director (whether or not intentional and whether or not egregious), the people who do serve on boards will focus on their self-protection, and will be hesitant to take risks that may benefit the corporation. As [then] Treasury Secretary John Snow . . . remarked, “some investments that should have been undertaken, that would have been good for society, good for investors, good for shareholders, and good for the economy’s growth, won’t be undertaken.” In short, director passivity will have triumphed over the entrepreneurialism that has always been at the heart of the business judgment rule. We must all brace ourselves for this next battle. And we must do all we can to ensure that the train does not fly off the tracks.

Some Thoughts for Boards of Directors in 2014 (blogs.law.harvard.edu)

What are the fundamental principles of corporate governance? (newstatesman.com)

2013 Annual Corporate Governance Review (blogs.law.harvard.edu)

Posting of Annual Corporate Governance Report in Company websites mandated by SEC (ocalundan.info)

Finding Value in Shareholder Activism (clsbluesky.law.columbia.edu)

Corporate governance in multicultural organization (leadershipbyvirtue.blogspot.com)

Carol Hansell: Corporate governance is a part of every major decision (jacquesgrisegouvernance.com)

Fact and Fiction in Corporate Law and Governance (blogs.law.harvard.edu)

Qu’est-ce qu’une « contestation » pour le contrôle d’une entreprise ?

On assiste à de plus en plus de « contestations » de la part d’actionnaires activistes pour l’obtention du contrôle des entreprises cotées.

Qu’est-ce qu’une campagne de contestation (proxy contest) ? Quelles formes ces contestations prennent-elles ? Quels raisons incitent certains actionnaires activistes à aller de l’avant avec leurs propositions de changement ? Que peuvent faire les conseils d’administration pour se préparer à une attaque éventuelle et pour se protéger efficacement ?

Le document, préparé conjointement par Corporate Board Member du NYSE et Kroll, un leader mondial dans le conseil en gouvernance, répond très bien à ces questions. Voici un court extrait d’un article où Bob Brenner, associé de Kroll, répond aux questions. Bonne lecture.

Proxy Contests and Corporate Control

In general, the term corporate contest refers to several different situations in which a shareholder(s) or other corporate entity tries to force a change of control in a company. The two most common situations where we get involved are proxy fights and takeover attempts.

Proxy fights generally arise in two types of situations. In the first, an existing shareholder(s) seeks board representation to change corporate behavior or governance because the shareholder is unhappy with the company’s performance and the unwillingness of the board of directors to alter course or change the status quo. Typically, such a contest begins after quiet, protracted negotiation between the board/management and a prominent shareholder, during which the shareholder expresses ideas for change or displeasure with policy or direction and is rebuffed.

The second type of proxy fight, which we describe as “opportunistic,” does not start with an existing investment or position. Instead, it is marked by a rapid accumulation of stock by a new shareholder. The shareholder, or group of shareholders, acquires the stock on the premise that the board and/or management is failing to maximize the company’s assets. If the new shareholder can pressure the company to change policy, management, or board composition, fine. If not, they are prepared to force the issue.

“Activist” investors have had great success in these types of corporate contests. Typically, they target companies that have seen a decrease in share price over time. The well-funded activist investor claims to be ready, able, and more than willing to roll up its sleeves and implement change.

Historically, outright unsolicited or hostile takeover bids have formed a large part of the corporate contest world. In the case of a takeover bid, one corporate entity offers to buy another, frequently a competitor or an entity with a good synergistic fit. In far fewer instances, an activist shareholder may desire to purchase the outstanding shares of an entity from existing shareholders in order to obtain control of that entity so that it may effectuate immediate change. These types of contests are rarely launched by activist funds as these efforts require large amounts of capital to be sunk into one investment, a tactic that hedge funds generally try to avoid. True hostile takeover bids have declined in recent years.

Proxy Contests on the Rise – Activists Emboldened by Success (levick.com)

Statistiques sur les « Proxy Contests » (jacquesgrisegouvernance.com)

Career Consequences of Proxy Contests (blogs.law.harvard.edu)

Investor hints at proxy fight with Bob Evans because of ‘board’s apathetic posture’ (bizjournals.com)

Board Members Versus Hedge Fund Activists (venitism.blogspot.com)

Boards Should Minimize the Role of Proxy Advisors (blogs.law.harvard.edu)

La référence en matière de gouvernance corporative | Les enseignements de Gilles Paquet

Il est rare, dans ce blogue, que je fasse ouvertement la promotion d’un ouvrage sur la gouvernance des sociétés; mais lorsqu’il s’agit d’une œuvre synthèse de la gouvernance corporative telle que vue par le professeur Gilles Paquet*, pionnier, bâtisseur, penseur, défricheur, éclaireur et leader-précurseur des notions de gouvernance dans toutes les catégories d’entreprises, je crois que je rends un grand service aux partisans de la saine gouvernance, notamment à toute la communauté des administrateurs de sociétés certifiés (ASC) qui ont bénéficiés des enseignements du professeur Paquet.

Je vous présente donc, en primeur, le dernier volume de Gilles Paquet qui paraîtra le 22 novembre 2013. Comme l’extrait ci-dessous l’indique, il est le résultat des nombreuses présentations de l’auteur dans le cadre du programme en gouvernance du Collège des administrateurs de sociétés, au cours des huit dernières années.

Voici donc un court résumé du volume tel que rédigé par l’auteur. Je joins également en annexe la table des matières du livre que vous pourrez vous procurer en allant sur son site :

http://www.gouvernance.ca/index.php?page=pubs&lang=ce

Le professeur Paquet a également conçu une capsule vidéo très populaire pour le Collège des administrateurs de sociétés : https://www.cas.ulaval.ca/cms/site/college/cas-gouvernance/outils-gouvernance/capsules-experts

Ce petit livre reprend en gros le contenu de la conférence d’ouverture livrée dans le programme de certification universitaire en gouvernance de sociétés du Collège des administrateurs de sociétés de l’Université Laval au cours des dernières années. Gouvernance corporative connote ici la coordination efficace et dynamique de l’organisation quand pouvoir, ressources et information sont vastement distribués entre plusieurs mains – dans le privé, le public, le communautaire, etc.

La Partie I présente la philosophie générale de la gouvernance corporative telle qu’elle se définit depuis les années 1970, montre ses pathologies, et explore la philosophie de rechange qui commence à s’imposer.

La Partie II expose les principes généraux qui aident à définir et à fonder l’architecture d’une bonne gouvernance corporative, et examine certaines façons de corriger les vices de structures existants.

La Partie III se penche sur l’ingénierie de la gouvernance corporative, et évalue les radoubs possibles à court terme et la refondation envisageable à plus long terme pour éliminer ou contenir les effets toxiques des pathologies de gouvernance observées.

La Partie IV fait le pont entre les considérations plus générales des premières parties et le travail pratique sur le terrain de ceux qui doivent improviser pour construire une gouvernance corporative satisfaisante sur mesure, en réfléchissant sur le meccano de la gouvernance corporative, et en montrant toute l’importance de la dimension éthique dans le renouvellement de la gouvernance corporative dans tous les secteurs.

De quoi préparer les esprits à aborder de manière critique la gouvernance corporative, et engendrer un changement d’attitude quant à ce qu’on peut faire pratiquement pour assurer une meilleure gouvernance.

Gilles Paquet

____________________________________________

*Gilles Paquet est professeur émérite à l’École de gestion Telfer, et directeur de recherches au Centre d’études en gouvernance de l’Université d’Ottawa. Économiste, historien, journaliste, il a publié plusieurs ouvrages, et de nombreux textes scientifiques et travaux de vulgarisation. Pour plus de renseignements, visitez son site web au http://www.gouvernance.ca.

Gouvernance corporative: Une entrée en matières

Table des matières

Préambule

On construit sur les cendres de deux mythes

Un détour obligé par trois recadrages

Ampleur de la tâche

Le volume à vol d’oiseau

Invitation au voyage

Un contexte qui change

Perspective gouvernance

Problématique gouvernance

Annexe : la Caisse de dépôt et placement du Québec

PARTIE I : Philosophie de la gouvernance corporative

Chapitre 1 : Dérive de la gouvernance corporative

Deux paradigmes

Pourquoi le modèle européo-japonais est-il

le moins insatisfaisant?

Quelques illustrations

La situation au Canada : mise en contexte

À la recherche d’un troisième paradigme

Pertinence pour les secteurs public et communautaire

Radiographie du conseil d’administration

Conclusion

Chapitre 2 : Pathologies de gouvernance

Certaines causes majeures

D’un détour obligé par un processus de transition

Conclusion

PARTIE II : Architecture de la gouvernance corporative

Chapitre 3 : Principes, mécanismes et stratagèmes

Attitude design

Éléments de grammaire du design

Conclusion

Chapitre 4 : Par quatre chemins

Sources de difficultés

Quatre avenues plus ou moins subversives

Conclusion

PARTIE III : Ingénierie de la gouvernance corporative

Chapitre 5 : Technologies, bricolage et radoubs dans l’immédiat

Modus operandi

Radoubs

Les propositions Allaire-Firsirotu

Conclusion

Chapitre 6 : Repères pour la refondation à plus long terme

Deux avenues

Libération des servitudes

Invitation à une conversation avec les prototypes

Et le sens de l’honneur dans tout cela?

Il y a plus que l’honneur dans la culture publique commune

PARTIE IV : Meccano et éthique de la gouvernance corporative

Chapitre 7 : Préliminaires au travail sur le terrain

Simplification nécessaire dans cette entrée en matières

Quelques balises pour fixer les idées

La division du travail

Le conseil d’administration et la planification stratégique : perspective traditionnelle

Le conseil d’administration et la planification stratégique : perspective dynamique

La culture organisationnelle

Deux méta-principes : la subsidiarité active et le corridor éthique

Chapitre 8 : Ce que l’éthique n’est pas et ce qu’elle est

Ce que l’éthique n’est pas

Trois groupes de mots pour aider à vivre la contrainte éthique

Quelques constats et mises en garde

Apprentissage collectif et imagination morale

Conclusion

Conclusion : Quo vadis ?

Tendances lourdes

Travail au mésoscope

Attitude design

Effective Governance | Top Ten Steps to Improving Corporate Governance | Effective Governance (jacquesgrisegouvernance.com)

Vous vous préparez à occuper un poste d’administrateur d’une entreprise ? (jacquesgrisegouvernance.com)

Menaces à la gouvernance « traditionnelle » | Nouveaux moyens de défense !

Aujourd’hui, je vous propose la lecture d’un article exceptionnel écrit par DAVID GELLES du New York Times, sur les moyens de préparation et de défense des directions et des conseils d’administration face aux éventuelles attaques des investisseurs activistes.

Certaines entreprises, susceptibles d’être la cible de contestataires activistes très bien organisés, se sont adaptées en se préparant systématiquement aux attaques. Bien que les moyens de défenses traditionnels tels les « poison pills » et les « staggered boards » sont toujours utilisés pour contrer les attaques des activistes et les tentatives de « takeover », celles-ci sont de moins en moins efficaces devant les interventions accrues, et plus sophistiqués, des « Hedge Funds » et des autres groupes d’investisseurs activistes … opportunistes (souvent non sans fondement).

À chaque action, sa réaction ! Nous assistons à des batailles rangées entre protagonistes très bien préparés et très bien équipés. Les activistes ne réussissent pas toujours mais ils sont menaçants. Les firmes spécialisées dans les conseils légaux et stratégiques aux entreprises vulnérables sont de plus en plus sollicitées …

L’article explique les nouvelles problématiques de gouvernance qui font rage dans le milieu des grandes entreprises cotées et expose les nouvelles approches utilisées par ces dernières pour conserver leur autonomie et s’acquitter de leurs responsabilités fiduciaires envers tous les actionnaires.

La plupart des grandes entreprises ont changé leur approche face aux activistes. On ne se referme plus sur soi, on étudie les risques, on identifie les vulnérabilités, on engage une discussion avec les grands actionnaires-investisseurs (actifs et passifs) ainsi qu’avec la masse des petits actionnaires.

Voici un court extrait de l’article. Je vous invite à le lire attentivement. Également, je vous invite à prendre connaissance de l’article partagé par Louise Champoux-Paillé : When Facing Activist Investors, Fight Has Gone 24/7!

Vous serez ainsi à jour, et avisés, sur les grands défis qui attendent les administrateurs de demain !

Boardrooms Rethink Tactics to Defang Activist Investors

Executives and board members used to fear hostile bids above all else. In response, they devised defense mechanisms like poison pills and staggered boards to thwart attacks.

Today, hostile deals are on the wane, but a new threat has emerged that has put boardrooms on edge: activist investors.

“Companies now view the threat of shareholder activism similarly to how they viewed the threat of hostile takeovers in the 1980s,” said Gregg Feinstein, head of mergers and acquisitions at Houlihan Lokey.

Until recently, many companies responded to activists by simply refusing to meet with them and hoping they would go away.

When Daniel S. Loeb of Third Point Management took a stake in Yahoo in 2011, the company was initially dismissive. In an early phone call between Mr. Loeb and Yahoo, the company’s chairman, Roy Bostock, reportedly hung up on him. But a year and a half later, Mr. Loeb had forced out Yahoo’s chief executive and was on the board.

After a string of such debacles, and with activism today more established and prolific than ever before, that approach has fallen out of favor.

“The bunker mentality that had been advised in some quarters is fading as an approach,” said James C. Woolery, deputy chairman at Cadwalader, Wickersham & Taft. “Today you need real substantive preparation and real engagement.”

Vous vous préparez à occuper un poste d’administrateur d’une entreprise ? (jacquesgrisegouvernance.com)

Boardrooms Rethink Tactics to Defang Activist Investors (dealbook.nytimes.com)

LIVE: Dan Loeb Is Giving A Rare Interview Right Now (businessinsider.com)

When Facing Activist Investors, Fight Has Gone 24/7 (dealbook.nytimes.com)

Sérieux rapprochement entre les actionnaires activistes et les actionnaires institutionnels (jacquesgrisegouvernance.com)

Booming shareholder activism puts big business at risk (cnbc.com)

When Facing Activist Investors, Fight Has Gone 24/7!

Bras de fer entre Osisko et Goldcorp : réflexions sur le rôle des administrateurs

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Gouvernance corporative: Une entrée en matières

Table des matières

PARTIE I : Philosophie de la gouvernance corporative

PARTIE II : Architecture de la gouvernance corporative

PARTIE III : Ingénierie de la gouvernance corporative

PARTIE IV : Meccano et éthique de la gouvernance corporative

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