Étiquette : International

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


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

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

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

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

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

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

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

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

Bonne lecture !

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

 

 

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

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

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

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

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

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

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

The complete paper is available for download here.

___________________________________________________________________________________

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

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


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

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

L’auteur fait ressortir les éléments critiques suivants :

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

 

Bonne lecture !

 

Looking Ahead: Key Trends in Corporate Governance

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

Board’s Role and Director Duties Remain Durable

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Shareholder Primacy and Shareholder Influence Under Scrutiny

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Reform of Proxy Voting and Regulation of Proxy Advisors Under Consideration

 

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

Topics discussed at the roundtable included:

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

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

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

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

mandating use of universal proxy cards in proxy contests.

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

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

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

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

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

requiring disclosure of preliminary vote tallies.

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

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

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

The Corporate Governance Reform and Transparency Act

 

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

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

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

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

Policies and procedures to manage conflicts of interest.

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

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

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

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

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

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

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

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

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

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

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

 

Convergence of Ideas on Corporate Governance Practices Continues

 

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

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

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

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

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

These recommendations are in line with evolving practices.

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

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

 

Shifting Focus of Private Ordering to ESG Issues

 

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

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

 

Continuing Demand for Shareholder Engagement and Attention to Activist Investors

 

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

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

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

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

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

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

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

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

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

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

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

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

La prévalence de l’activisme actionnarial en 2019


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

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

Bonne lecture !

 

Activism: The State of Play at Year-End 2018

 

Résultats de recherche d'images pour « activisme actionnarial »

 

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

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

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

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

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

Tendances globales en gouvernance et « Trends » régionaux


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

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

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

(1) Les États-Unis et le Canada

(2) L’Union européenne

(3) La Grande-Bretagne

(4) Le Brésil

(5) l’Inde

(6) Le Japon

Les grandes tendances observées sont :

(1) la qualité et la composition du CA

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

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

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

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

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

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

Bonne lecture et Bonne Année 2019 !

 

2019 Global & Regional Trends in Corporate Governance

 

 

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

Overview of Global Trends

 

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

 

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

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

2. Deeper focus on oversight of corporate culture.

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

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

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

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

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

5. Activist investors continue to impact boards.

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

 

The United States and Canada

Investor stewardship.

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

Board quality.

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

Board diversity.

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

ESG.

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

Oversight of corporate culture.

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

Activist investing.

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

Executive compensation.

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

Governance codes.

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

European Union

Investors more active.

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

Company and board diversity.

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

ESG.

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

Revised governance codes.

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

Board leadership.

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

United Kingdom

Revised code.

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

Board leadership and composition.

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

Culture oversight.

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

Activist investors.

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

Company diversity.

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

Brazil

Outlook.

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

Governance reforms and stewardship.

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

Improved independence.

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

Remote voting.

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

Board effectiveness.

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

Compensation disclosure.

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

India

Regulatory reform.

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

Board composition, leadership, and independence.

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

Board diversity.

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

Board effectiveness.

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

Investor expectations.

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

Japan

Continued focus on governance.

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

Director independence.

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

Executive compensation.

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

ESG.

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

Activist investing.

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

Governance practices.

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

CEO succession.

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

___________________________________________________________

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

 

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


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

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

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

Bonne lecture !

 

ISS and Glass Lewis Policy Updates for the 2019 Proxy Season

 

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

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

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

Management Ratification Proposals

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

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

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

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

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

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

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

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

Guide pratique à la détermination de la rémunération des administrateurs de sociétés | En rappel


Aujourd’hui, je vous suggère la lecture d’un excellent guide publié par International Corporate Governance Network (ICGN). Ce document présente succinctement les grands principes qui devraient gouverner l’établissement de la rémunération des administrateurs indépendants (« non-executive »).

Il va de soi que la rémunération des administrateurs ne représente qu’une part infime du budget d’une entreprise, et celle-ci est relativement très inférieure aux rémunérations consenties aux dirigeants ! Cependant, il est vital d’apporter une attention particulière à la rémunération des administrateurs, car ceux-ci sont les fiduciaires des actionnaires, ceux qui doivent les représenter, en veillant à la saine gestion de la société.

Il est important que le comité de gouvernance se penche annuellement sur la question de la rémunération des administrateurs indépendants, et que ce comité propose une politique de rémunération qui tient compte du rôle déterminant de ces derniers. Plusieurs variables doivent être prises en ligne de compte notamment, la comparaison avec d’autres entreprises similaires, les responsabilités des administrateurs dans les différents rôles qui leur sont attribués au sein du conseil, la nature de l’entreprise (taille, cycle de développement, type de mission, circonstances particulières, etc.).

Personnellement, je suis d’avis que tous les administrateurs de sociétés obtiennent une compensation pour leurs efforts, même si, dans certains cas, les sommes affectées s’avèrent peu élevées. Les organisations ont avantage à offrir de justes rémunérations à leurs administrateurs afin (1) d’attirer de nouvelles recrues hautement qualifiées (2) de s’assurer que les intérêts des administrateurs sont en adéquation avec les intérêts des parties prenantes, et (3) d’être en mesure de s’attendre à une solide performance de leur part et de divulguer les rémunérations globales.

Le document du ICNG propose une réflexion dans trois domaines : (1) la structure de rémunération (2) la reddition de comptes, et (3) les principes de transparence.

On me demande souvent qui doit statuer sur la politique de rémunération des administrateurs, puisqu’il semble que ceux-ci déterminent leurs propres compensations !

Ultimement, ce sont les actionnaires qui doivent approuver les rémunérations des administrateurs telles que présentées dans la circulaire de procuration. Cependant, le travail en aval se fait, annuellement, par le comité de gouvernance lequel recommande au conseil une structure de rémunération des administrateurs non exécutifs. Notons que les comités de gouvernance ont souvent recours à des firmes spécialisées en rémunération pour les aider dans leurs décisions.

C’est cette recommandation qui devrait être amenée à l’assemblée générale annuelle pour approbation, même si dans plusieurs pays, la juridiction ne le requiert pas.

En tant qu’administrateur, si vous souhaitez connaître le point de vue du plus grand réseau de gouvernance à l’échelle internationale, je vous invite à lire ce document synthétique.

Bonne lecture. Vos commentaires sur le sujet sont sollicités.

 

ICGN Guidance on Non-executive Director Remuneration – 2016

 

 

 

Rôle du CA dans l’établissement d’une forte culture organisationnelle | Une référence essentielle


Vous trouverez, ci-dessous, un document partagé par Joanne Desjardins*, qui porte sur le rôle du CA dans l’établissement d’une solide culture organisationnelle.

C’est certainement l’un des guides les plus utiles sur le sujet. Il s’agit d’une référence essentielle en matière de gouvernance.

Je vous invite à lire le sommaire exécutif. Vos commentaires sont appréciés.

 

Managing Culture | A good practical guide – December 2017

 

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Executive summary

 

In Australia, the regulators Australian Prudential Regulation Authority (APRA) and Australian Securities and Investments Commission (ASIC) have both signalled that there are significant risks around poor corporate culture. ASIC recognises that culture is at the heart of how an organisation and its staff think and behave, while APRA directs boards to define the institution’s risk appetite and establish a risk management strategy, and to ensure management takes the necessary steps to monitor and manage material risks. APRA takes a broad approach to ‘risk culture’ – includingrisk emerging from a poor culture.

Regulators across the globe are grappling with the issue of risk culture and how best to monitor it. While regulators generally do not dictate a cultural framework, they have identified common areas that may influence an organisation’s risk culture: leadership, good governance, translating values and principles into practices, measurement and accountability, effective communication and challenge, recruitment and incentives. Ultimately, the greatest risk lies in organisations that are believed to be hypocritical when it comes to the espoused versus actual culture.

The board is ultimately responsible for the definition and oversight of culture. In the US, Mary Jo White, Chair of the Securities and Exchange Commission (SEC), recognised that a weak risk culture is the root cause of many large governancefailures, and that the board must set the ‘tone at the top’.

Culture also has an important role to play in risk management and risk appetite, and can pose significant risks that may affect an organisation’s long-term viability.

However, culture is much more about people than it is about rules. This guide argues that an ethical framework – which is different from a code of ethics or a code of conduct – should sit at the heart of the governance framework of an organisation. An ethical framework includes a clearly espoused purpose, supported by values and principles.

There is no doubt that increasing attention is being given to the ethical foundations of an organisation as a driving force of culture, and one method of achieving consistency of organisational conduct is to build an ethical framework in which employees can function effectively by achieving clarity about what the organisation deems to be a ‘good’ or a ‘right’ decision.

Culture can be measured by looking at the extent to which the ethical framework of the organisation is perceived to be or is actually embedded within day-to-day practices. Yet measurement and evaluation of culture is in its early stages, and boards and senior management need to understand whether the culture they have is the culture they want.

In organisations with strong ethical cultures, the systems and processes of the organisation will align with the ethical framework. And people will use the ethical framework in the making of day-to-day decisions – both large and small.

Setting and embedding a clear ethical framework is not just the role of the board and senior management – all areas can play a role. This publication provides high-level guidance to these different roles:

The board is responsible for setting the tone at the top. The board should set the ethical foundations of the organisation through the ethical framework. Consistently, the board needs to be assured that the ethical framework is embedded within the organisation’s systems, processes and culture.

Management is responsible for implementing and monitoring the desired culture as defined and set by the board. They are also responsible for demonstrating leadership of the culture.

Human resources (HR) is fundamental in shaping, reinforcing and changing corporate culture within an organisation. HR drives organisational change programs that ensure cultural alignment with the ethical framework of the organisation. HR provides alignment to the ethical framework through recruitment, orientation, training, performance management, remuneration and other incentives.

Internal audit assesses how culture is being managed and monitored, and can provide an independent view of the current corporate culture.

External audit provides an independent review of an entity’s financial affairs according to legislative requirements, and provides the audit committee with valuable, objective insight into aspects of the entity’s governance and internal controls including its risk management.

 

 

*Joanne Desjardins est administratrice de sociétés et consultante en gouvernance. Elle possède plus de 18 années d’expérience comme avocate et comme consultante en gouvernance, en stratégie et en gestion des ressources humaines. Elle est constamment à l’affût des derniers développements en gouvernance et publie des articles sur le sujet.

Quelles sont les tendances eu égard à l’évaluation des conseils d’administration à l’échelle internationale ?


Voici un article très intéressant sur les tendances en évaluation des CA à l’échelle internationale.

Les auteurs, Mark Fenwick* et Erik P. M. Vermeulen, ont étudié l’état de la situation de l’évaluation des conseils dans 20 juridictions différentes qu’ils ont classifiées en 5 groupes, allant d’absence de législation, à des réglementations détaillées et explicites.

Dans l’ensemble, l’étude montre que les juridictions qui sont explicites eu égard aux meilleures pratiques en matière d’évaluation des conseils sont plus susceptibles d’adopter des processus d’évaluation efficaces. La législation et la réglementation ont un grand pouvoir d’influence sur les pratiques exemplaires.

Les auteurs retiennent un certain nombre de constats sur les meilleures pratiques en évaluation des CA :

 

(1) Although there is “no one-size-fits-all” solution, and the design of the evaluation should be tailored to meet the needs of the individual company and the particular circumstances of that company, board evaluation needs to be a continuous and on-going process rather than a periodic event.

(2) Evaluation should include not only compliance and risk-management competencies, but also skills and experience in business-related and organization-related areas, such as strategy, innovation, marketing, globalization, and growth.

(3) Regulator-issued “best practice” principles and guidelines should provide enough detail to offer genuine help to companies in implementing and evaluation processes, but also leave enough flexibility for companies to tailor the process to their specific needs. Additional guidelines need to provide more information about the criteria, methods, and form of the evaluation process (without compelling companies to make use of them).

(4) The board member or committee responsible for driving the evaluation process should actively involve external experts if, and when, necessary. In addition, “Legal Tech”, specifically board evaluation software and application, can help facilitate the assessment process.

(5) Boards should engage in a more open and detailed form of communication and disclosure about the evaluation process and its outcomes.

 

Bonne lecture !

 

Board Evaluation: International Practice

 

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Corporate Governance Practice Framework

 

 

Although there is a broad consensus that we need “better corporate governance,” there is often less agreement as to what this actually means or how we might achieve it. Such uncertainties are hardly surprising. Contemporary corporate governance frameworks were significantly re-worked in the 2000s in response to a series of high-profile scandals. But these reforms appear to have had little effect on the performance of listed companies during the 2008 Financial Crisis. Moreover, the number, scale, and damage of corporate scandals and economic failures do not appear to be diminishing.

One possible reason for the poor performance of corporate governance measures has been an over-emphasis on the regulatory design of “checks-and-balances” in listed companies, rather than on the equally important question of how governance structures can add value to a firm. Our new paper, Evaluating the Board of Directors: International Practice, explores this latter issue, with particular reference to the role of boards and board evaluation.

In the conventional “checks and balances” model of corporate governance, authority and empowerment flow “downwards” from the shareholders (the legal and moral owners of a company) through the board of directors/supervisory board to the management and, eventually, employees. Corporate governance mechanisms are intended to curtail agency problems, notably those that arise between (potentially) self-interested management and investor-owners.

Since management is responsible to the board of directors or supervisory board that, in turn, owes a responsibility to the shareholders or owners of the firm, board members have also been heavily affected by the regulations that have been implemented over the last two decades. In particular, policymakers have emphasized the monitoring and oversight role of “independent” or “outside” directors as crucial in protecting shareholder interests and preventing self-interested transactions. In countries with controlling shareholders, which is common in Europe and Asia, board members are also expected to protect the interests of “minority investors” and other stakeholders in the company. This is deemed necessary because controlling block shareholders may engage in activities that are detrimental to the interests of minority shareholders or other stakeholders in the company.

As such, the dominant view of policymakers has been to treat the board as supervisor/monitors of the senior managers. In consequence, the board of directors has tended to focus on the control of management behavior and the monitoring of company past-performance and sustainability.

An alternative way of framing the issue, however, would be to move beyond a control perspective and recognize that a well-balanced board can be a competitive advantage for a company looking to create value and build its capacity for delivering innovation. Such a broader view can be found in the G20/OECD Principles of Corporate Governance, for instance, or, more recently, The New Paradigm, A Roadmap for an Implicit Corporate Governance Partnership Between Corporations and Investors to Achieve Sustainable Long-Term Investment and Growth, issued on 2 September 2016 by the World Economic Forum.

Moreover, companies themselves, as well as their investors, now recognize that the “monitoring” role is no longer sufficient and that the model of board supervision and independence constitutes a missed opportunity. Instead, more innovative firms have integrated a diverse range of individuals onto their boards in the expectation that they will work in collaboration with the firm’s CEO and other senior managers in developing new business strategies. These directors can help a firm stay relevant via the inclusion of diverse perspectives that are directly relevant to a company’s core business operation. A more collaborative model of the relationship between the board and senior management (and the companies’ investors) ensures that these different perspectives are properly integrated into the decision-making processes in a way that can add genuine value to a firm’s business performance.

It is in this context that policymakers, regulators and companies seek to understand better the factors that impact the effectiveness of board performance. As a consequence, board evaluation and evaluation processes have become a key point of interest. In particular, many boards have recognized that it is vital for them to evaluate and assess the effectiveness of their performance on a regular basis. This has resulted in more attention to board evaluations in many jurisdictions. Again, this trend can be seen in the G20/OECD Corporate Governance Principles which recommend including regular board evaluations in a country’s corporate governance framework

As is often the case, however, the risk of regulatory initiatives aimed at forcing or “nudging” changes in corporate behavior is that it merely encourages “box-ticking” in which managing the appearance of compliance becomes the overriding objective. Resources devoted to managing an image of compliance and not substantive compliance are wasted, and the potential gains from meaningful compliance—in this case, effective board evaluation—are never realized.

Our paper, therefore, aims to evaluate regulatory measures aimed at promoting meaningful board evaluation. An empirical study of twenty different jurisdictions was conducted employing multiple criteria. The jurisdictions were classified into five groups ranging from no legal provision for board evaluation to jurisdictions with detailed rules and procedures.

The evidence presented in our paper seems to indicate that companies that are listed in countries with more specific principles and rules, as well as substantive guidance on “best practice” do tend to adopt more meaningful and open forms of board evaluation practice than their counterparts in jurisdictions with no or less detailed requirements, i.e., there seems to be evidence that “law matters” in this context.

As to what constitutes “best practice” in board evaluation the paper makes a number of findings and suggestions. Crucial amongst them are the suggestions that (1) Although there is “no one-size-fits-all” solution, and the design of the evaluation should be tailored to meet the needs of the individual company and the particular circumstances of that company, board evaluation needs to be a continuous and on-going process rather than a periodic event. (2) Evaluation should include not only compliance and risk-management competencies, but also skills and experience in business-related and organization-related areas, such as strategy, innovation, marketing, globalization, and growth. (3) Regulator-issued “best practice” principles and guidelines should provide enough detail to offer genuine help to companies in implementing and evaluation processes, but also leave enough flexibility for companies to tailor the process to their specific needs. Additional guidelines need to provide more information about the criteria, methods, and form of the evaluation process (without compelling companies to make use of them). (4) The board member or committee responsible for driving the evaluation process should actively involve external experts if—and when—necessary. In addition, “Legal Tech”—specifically board evaluation software and applications—can help facilitate the assessment process. (5) Boards should engage in a more open and detailed form of communication and disclosure about the evaluation process and its outcomes.

“Done right”, board evaluation has the potential to enhance a board’s supervisory functions but—just as importantly—it can allow a firm to identify (and fill) expertise gaps on the board and leverage the expertise of board members to improve firm performance by building strategic partnerships with executives and senior management.

The complete paper is available for download here.

*Mark Fenwick is a Professor at Kyushu University Graduate School of Law and Erik P. M. Vermeulen is Professor of Business & Financial Law at Tilburg University. This post is based on a recent paper by Professor Fenwick and Professor Vermeulen.

Quand les opinions d’un président de compagnie deviennent-elles un sujet de préoccupation pour le CA ? | Un cas pratique


Voici un cas publié, sur le site de Julie Garland McLellan, qui met l’accent sur une problématique particulière pouvant ébranler la réputation d’une entreprise.

Quand une déclaration d’un président sur les médias sociaux (notamment Facebook) constitue-t-elle une entorse à la saine gestion d’une entreprise ? Comment un président peut-il faire connaître son point de vue sur une politique gouvernementale sans affecter la réputation de l’entreprise ?

Qui est responsable de proposer une stratégie pour réparer les pots cassés. Dans ce cas, à mon avis, le président du conseil est appelé à intervenir pour éviter les débordements sur la place publique et résorber une crise potentielle de réputation, le président sortant Finneas a également un rôle important à jouer.

Le cas est bref, mais présente la situation de manière assez explicite ; puis, trois experts se prononcent sur le dilemme que vit le président du conseil.

Bonne lecture ! Vos commentaires sont toujours les bienvenus.

 

Risques associés aux communications publiques des CEO sur les réseaux sociaux | un cas pratique

 

 

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Finneas chairs a medium-sized listed company board. He has been with the company through a very successful CEO transition and is enjoying the challenge of helping the new CEO to hone his leadership of the company.

The CEO has proved a good choice and the staff are settled and productive. Recently the government announced a new policy that will most likely increase the cost of doing business and decrease export competitiveness.

The CEO is rightly concerned. He has already made some personal statements opposing the policy – calling it ‘Stupid and short-sighted industrial vandalism’ – on his Facebook page. Fortunately, the CEO keeps his Facebook account mainly for friends and family so Finneas felt the comments hadn’t attracted much attention.

At his most recent meeting with the CEO, Finneas heard that a journalist had seen the comments and called the CEO asking if he would be prepared to participate in an interview. The CEO is excited at the opportunity to stimulate public debate about the issue. Finneas is more concerned that the CEO will cause people to think poorly of himself, as a harsh critic, and of the company. There are a couple of days before the scheduled interview.

How should Finneas proceed?

Voir les réponses de trois experts de la gouvernance | http://www.mclellan.com.au/archive/dilemma_201811.html

Quels sont les efforts à faire pour obtenir un poste d’administrateur de société de nos jours ? | Un rappel utile


Plusieurs personnes très qualifiées me demandent comment procéder pour décrocher un poste d’administrateur de sociétés… rapidement.

Dans une période où les conseils d’administration ont des tailles de plus en plus restreintes ainsi que des exigences de plus en plus élevées, comment faire pour obtenir un poste, surtout si l’on a peu ou pas d’expérience comme CEO d’une entreprise ?

Je leur réponds qu’ils doivent :

(1) viser un secteur d’activité dans lequel ils ont une solide expertise

(2) bien comprendre ce qui les démarque (en revisitant leur CV)

(3) se demander comment leurs avantages comparatifs peuvent ajouter de la valeur à l’organisation

(4) explorer comment ils peuvent faire appel à leurs réseaux de contacts

(5) s’assurer de bien comprendre l’industrie et le modèle d’affaires de l’entreprise

(6) bien faire connaître leurs champs d’intérêt et leurs compétences en gouvernance, notamment en communiquant avec le président du comité de gouvernance de l’entreprise convoitée, et

(7) surtout… d’être patients !

Si vous n’avez pas suivi une formation en gouvernance, je vous encourage fortement à consulter les programmes du Collège des administrateurs de sociétés (CAS).

L’article qui suit présente une démarche de recherche d’un mandat d’administrateur en six étapes. L’article a été rédigé par Alexandra Reed Lajoux, directrice de la veille en gouvernance à la National Association of Corporate Directors (NACD).

Vous trouverez, ci-dessous, une brève introduction de l’article paru sur le blogue de Executive Career Insider, ainsi qu’une énumération des 6 éléments à considérer.

Je vous conseille de lire ce court article en vous rappelant qu’il est surtout destiné à un auditoire américain. Vous serez étonné de constater les similitudes avec la situation canadienne.

 

6 Steps to Becoming a Corporate Director This Year

 

Of all the career paths winding through the business world, few can match the prestige and fascination of corporate board service. The honor of being selected to guide the future of an enterprise, combined with the intellectual challenge of helping that enterprise succeed despite the odds, make directorship a strong magnet for ambition and a worthy goal for accomplishment.

Furthermore, the pay can be decent, judging from the NACD and Pearl Meyer & Partners director compensation studies. While directors do risk getting underpaid for the accordion-like hours they can be called upon to devote (typical pay is a flat retainer plus stock, but hours are as needed with no upper limit), it’s typically equivalent to CEO pay, if considered hour for hour. For example, a director can expect to work a good 250 hours for the CEO’s 2,500 and to receive nearly 10 percent of the CEO’s pay. In a public company that can provide marketable equity (typically half of pay), the sums can be significant—low six figures for the largest global companies.

Granted, directorship cannot be a first career. As explained in my previous post, boards offer only part time engagements and they typically seek candidates with track records. Yet directorship can be a fulfilling mid-career sideline, and a culminating vocation later in life—for those who retire from day to day work, but still have much to offer.

So, at any age or stage, how can you get on a board? Here are 6 steps, representing common wisdom and some of my own insights based on what I have heard from directors who have searched for – or who are seeking – that first board seat.

 

1. Recast your resume – and retune your mindset – for board service. Before you begin your journey, remember that the most important readers of your resume will be board members in search of a colleague. As such, although they will be duly impressed by your skills and accomplishments as an executive, as they read your resume or talk to you in an interview they will be looking and listening for clues that you will be an effective director. Clearly, any board positions you have had – including nonprofit board service, work on special committees or task forces and the like should be prominent on your resume and in your mind.

2. Integrate the right keywords. Language can be tuned accordingly to “directorspeak.” Any language that suggests you singlehandedly brought about results should be avoided. Instead, use language about “working with peers,” “dialogue,” and “stewardship” or “fiduciary group decisions, » « building consensus, » and so forth. While terms such as “risk oversight,” “assurance,” “systems of reporting and compliance,” and the like should not be overdone (boards are not politbureaus) they can add an aura of governance to an otherwise ordinary resume. This is not to suggest that you have two resumes – one for executive work and one for boards. Your use of boardspeak can enhance an existing executive resume. So consider updating the resume you have on Bluesteps and uploading that same resume to NACD’s Directors Registry.

3. Suit up and show up—or as my colleague Rochelle Campbell, NACD senior member engagement manager, often says, “network, network, network.” In a letter to military leaders seeking to make a transition From Battlefield to Boardroom (BtoB)through a training program NACD offers for military flag officers, Rochelle elaborates: “Make sure you attend your local chapter events—and while you are there don’t just shake hands, get to know people, talk to the speakers, and create opportunities for people to learn about you and your capabilities, not just your biography.” Rochelle, who has helped military leaders convey the value of their military leadership experience to boards, adds: “Ensure when you are networking, that you are doing so with a purpose. Include in your conversations that you are ready, qualified, and looking for a board seat.” Rochelle also points out the value of joining one’s local Chamber of Commerce and other business groups in relevant industries.

4. Cast a wide net. It is unrealistic for most candidates to aim for their first service to be on a major public company board. Your first board seat will likely be an unpaid position on a nonprofit board, or an equity-only spot on a start-up private board, or a small-cap company in the U.S. or perhaps oversees. Consider joining a director association outside the U.S. Through the Global Network of Director Institutes‘ website you can familiarize yourself with the world’s leading director associations. Some of them (for example, the Institute of Directors in New Zealand) send out regular announcements of open board seats, soliciting applications. BlueSteps members also have access to board opportunities, including one currently listed for in England seeking a non-executive director.

5. Join NACD. As long as you serve as a director on a board (including even a local nonprofit) you can join NACD as an individual where you will be assigned your own personal concierge and receive an arrange of benefits far too numerous to list here. (Please visit NACDonline.org to see them.)  If you seek additional board seats beyond the one you have, you will be particularly interested in our Directors Registry, where NACD members can upload their resumes and fill out a profile so seeking boards can find them. Another aspect will be your ability to attend local NACD chapter events, many of which are closed to nonmembers. You can also join NACD as a Boardroom Executive Affiliate no matter what your current professional status.

6. Pace yourself. If you are seeking a public company board seat, bear in mind that a typical search time will be more than two years, according to a relevant survey from executive search firm Heidrick & Struggles and the affinity group WomenCorporateDirectors. That’s how long on average that both female and male directors responding to the survey said it took for them to get on a board once they started an active campaign. (An earlier H&S/WCD survey had indicated that it took more time for women than for men, but that discrepancy seems to have evened out now – good news considering studies by Credit Suisse and others showing a connection between gender diversity and corporate performance.)  Remember that the two years is how long it took successful candidates to land a seat (people looking back from a boardroom seat on how long it took to get them there). If you average in the years spent by those who never get a board seat and gave up, the time would be longer. This can happen.

An Uphill Battle

Jim Kristie, longtime editor of Directors & Boards, once shared a poignant letter from one of his readers, whose all too valid complaint he called “protypical”:
When I turned 50, I felt like I had enough experience to add value to a public board of directors. I had served on private boards. I joined the National Association of Corporate Directors, and began soliciting smaller public companies to serve on their boards. I even solicited pink sheet companies. I solicited private equity firms to serve on the boards of portfolio companies. I signed up with headhunters, and Nasdaq Board Recruiting. In the last several years, I have sent my CV to hundreds of people, and made hundreds of telephone calls. I have been in the running, but so far no board positions.

Jim responded that the individual had done “all the right things” (thanks for the endorsement!) and steered him to additional relevant resources.

Similarly, a highly respected military flag officer, an Army general who spent two solid years looking for a board seat with help from NACD, called his search an “uphill battle.”  While four-star generals tend to attract invitations for board service, flag officers and others do not always get the attention they merit from recruiters and nominating committees. In correspondence to our CEO, he praised the BtoB program, but had some words of realism:
My experience over the past two years has convinced me that until sitting board room members see the value and diversity of thought that a B2B member brings, we will never see an appreciable rise in board room membership beyond the defense industry and even then, they only really value flag membership for the access they bring. The ‘requirements’  listed for new board members coming from industry will rarely match with a B2B resume and until such time that boards understand the value that comes with having a B2B member as part of their leadership team, they probably never will.

We’ve heard similar words from other kinds of leaders—from human resources directors to chief internal auditors, to university presidents. With so few board seats opening up every year, and with a strong leaning toward for-profit CEOs, it’s a real challenge to get through the boardroom door.

One of NACD’s long-term goals is to educate existing boards on the importance of welcoming these important forms of leadership, dispelling the notion that only a for-profit CEO can serve. For example, I happen to believe that a tested military leader can offer boards as much as or more than a civilian leader in the current high-risk environment. But no matter what your theatre of action, you must prepare for a long campaign. It’s worth the battle!

L’état de la situation en matière d’activisme des actionnaires


Il est important pour les administrateurs de sociétés d’être bien informés de l’état de la situation eu égard au phénomène de l’activisme.

Qu’y a-t-il de nouveau à l’aube de 2019 ?

Martin Lipton* associé fondateur de la firme Wachtell, Lipton, Rosen & Katz, spécialisée dans les questions de fusions et acquisitions ainsi que dans les activités relatives à la gouvernance des entreprises cotées, nous offre une mise à jour des principales tendances dans le monde de l’activisme et des investissements à long terme.

L’article, publié par HLS Forum on Corporate Governance, peut être traduit en français instantanément en utilisant l’outil de traduction du navigateur Chrome. Même si le résultat est imparfait, cela permet de mieux comprendre certaines parties de l’article.

Voici donc les principaux facteurs à prendre en compte en 2019.

Bonne lecture !

 

Activism: The State of Play

 

 

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Conférencier d’honneur lors de la célébration du 10e anniversaire de l’IGOPP

 

  1. The threat of activism remains high, and has become increasingly global.
  2. Activist assets under management remain at elevated levels, encouraging continued attacks on many large successful companies in the U.S. and abroad.
  3. In the current robust M&A environment, deal-related activism is prevalent, with activists instigating deal activity, challenging announced transactions (e.g., the “bumpitrage” strategy of pressing for a price increase) and/or pressuring the target into a merger or a private equity deal with the activist itself.
  4. “Short” activists, who seek to profit from a decline in the target’s market value, are increasingly aggressive in both the equity and corporate debt markets.
  5. Activists continue to garner extensive coverage in both the business and broader press, including a lengthy profile of Paul Singer and Elliott Management in an August New Yorker article, “Paul Singer, Doomsday Investor”. “Singer has excelled in this field in part because of a canny ability to discern his opponents’ weaknesses and a seeming imperviousness to public disapproval.”
  6. Momentum for enhanced ESG disclosures is growing. The Coalition for Inclusive Capitalism continues to study ways to measure long-term sustainable value creation that will demonstrate the value companies create beyond financial results. Embankment Project for Inclusive Capitalism. And earlier this month, two prominent business law professors, supported by investors and other entities with over $5 trillion in assets under management, filed a petition for rulemaking calling for the SEC to “develop a comprehensive framework requiring issuers to disclose identified environmental, social, and governance (ESG) aspects of each public-reporting company’s operations.”
  7. In turn, activists have sought to enhance their profile among governance professionals, passive institutional investors and ESG-oriented investors, e.g., JANA Partners’ “impact investing” fund which has partnered with CalSTRS to request that Apple address overuse of its devices among youth, and Elliott Management’s “Head of Investment Stewardship” position, highlighted in an October 8, 2018 Wall Street Journal article.
  8. An important new study by Ed deHaan, David Larcker and Charles McClure, Long-Term Economic Consequences of Hedge Fund Activist Interventions, has found that on a value weighted basis, long-term returns are “insignificantly different from zero.”
  9. Gender diversity has become an increasingly prominent focus in the corporate governance conversation, with California recently becoming the first state to enact legislation instituting gender quotas for boards of directors of public companies headquartered in the state. In the current climate, it is prudent for public companies to work toward developing policies to promote equality in the workplace and ensure appropriate disclosure and shareholder engagement in that regard.

As we recently noted, with the (1) embrace of corporate purpose, ESG, and long-term investment strategy by BlackRock, State Street and Vanguard, (2) adoption and promotion by the World Economic Forum of The New Paradigm: A Roadmap for an Implicit Corporate Governance Partnership Between Corporations and Investors to Achieve Sustainable Long-Term Investment and Growth, (3) enactment of a benefit corporation law by Delaware and some 30 states, (4) introduction of legislation by Senator Warren to achieve stakeholder corporate governance by way of mandatory federal incorporation, and (5) the activities of Focusing Capital on the Long Term, Coalition for Inclusive Capitalism and Investors Stewardship Group, it is clear that we are reaching a new inflection point in corporate governance.

However, it is unlikely that today’s elevated level of activism will be curbed by legislation, regulation or market forces in the near term. Companies will have to follow closely activist developments and the opinions of their major investors. Companies should perfect and maintain their engagement activities. Companies should regularly review and adjust their plans designed to avoid an activist attack and to successfully deal with an activist attack if one should occur.

________________________________________________________

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

Étude sur le mix des compétences dans la composition des conseils d’administration


Aujourd’hui, je vous recommande la lecture d’un article publié par Anthony Garcia, vice-président de la firme ISS, paru sur le forum de Harvard Law School, qui aborde le sujet des compétences (skills) requises pour siéger à un conseil d’administration.

Plus précisément, l’auteur explore la nature des compétences exigées des administrateurs ; comment celles-ci opèrent-elles pour améliorer les pratiques de gouvernance des entreprises ?

D’abord, il faut noter que la recherche de la diversité des compétences au sein des conseils d’administration est considérée comme un atout important ; cependant, les entreprises mettent encore l’accent sur les compétences et les expertises traditionnelles : le leadership, les connaissances financières, une expérience de CEO, une connaissance des marchés de l’entreprise et une familiarité avec la fonction audit.

L’étude montre aussi que les administrateurs récemment nommés ont des compétences plus diversifiées, notamment eu égard aux connaissances des marchés internationaux, aux compétences reliées aux ventes et à l’expertise dans le domaine des technologies de l’information (TI).

Également, l’étude montre que les femmes administratrices sont plus qualifiées que les hommes dans plusieurs types de compétences.

Résultats de recherche d'images pour « compétences des administrateurs »

Enfin, les entreprises qui ont une plus grande diversité de compétences sont plus susceptibles de divulguer leurs politiques de risques concernant la gouvernance, les aspects sociaux et les considérations environnementales (ESG).

L’auteur résume les caractéristiques d’une matrice des compétences jugée efficace. L’article comporte également plusieurs illustrations assez explicites.

 

A matrix that does more than “check the box”: The NYC Fund’s Boardroom Accountability Project 2.0 has focused on having companies disclose a “matrix” of skills, as well as race and gender, of the directors. The Project has a “compendium of best practices” that provides examples of the formats and details that are considered within the scope disclosure best-practices. With regard to race and gender, some of the examples disclosed gender and racial information in aggregate format while others listed the race and gender for each board member. With regard to skills, some companies simply listed the skills of each nominee; some provided a brief description of the underlying qualifications for the skill; some also broke out the director’s biography categorically based on the identified skills; the best examples also highlighted the relevance of the particular skill in the context of the company’s business.

Standardized skill disclosure: There is guidance for what constitutes a financial expert for Sarbanes-Oxley compliance. While being a former or current CEO is straightforward answer for whether a director has that skill, something like technology is much less clear. Would working at a company in the information technology sector suffice? Does the director need to be a Chief Technology officer? Setting market standards would reduce the uncertainty and expense for each company to take on the responsibility individually and would also increase investor confidence in analyzing a board based on skills.

Skills mapped to specific responsibilities: The analysis shows that having a particular skill on the board will reduce ESG risks. However, a more in-depth assessment would also consider the skills that exist on the board’s committees and map those skills to the responsibilities of key committees. For example, if the board gives the audit committee oversight of cybersecurity, has the board included any audit committee members that have technology or risk management experience?

Bonne lecture !

 

Director Skills: Diversity of Thought and Experience in the Boardroom

 

 

Les enjeux de la diffusion des informations stratégiques sur les réseaux sociaux


Ce matin un article de Alissa Amico*, paru sur le forum de Harvard Law School, a attiré mon attention parce que c’est sur un sujet qui fait couler beaucoup d’encre dans le domaine la gouvernance des entreprises publiques (cotées en bourse).

En effet, quels sont les moyens appropriés de diffusion et de divulgation des informations à l’ère des médias sociaux ? L’auteure fait le tour de la question en rappelant qu’il existe encore beaucoup d’ambiguïté dans l’acceptation des nouveaux outils de communication.

On le sait, la SEC a réagi promptement aux annonces de Elon Musk, PDG et Chairman de Telsa, faites par le biais de Twitter qui ont été jugées trompeuses et qui ne respectaient pas le principe d’une diffusion de l’information à la portée de tous les actionnaires.

L’auteure rappelle que l’Autorité des Marchés Financiers français a pris une position ferme à ce propos en exigeant que les entreprises divulguent leurs réseaux sociaux privilégiés de communication sur leur site Internet.

La conclusion de l’article est révélatrice de grands changements à l’égard de la diffusion d’information stratégique.

The ultimate twist of irony is of course that the SEC, investigating Tesla and its CEO, is part of the same government whose President’s tweeting activity has been far from uncontroversial. Both Mr. Musk’s and Mr. Trump’s use of Twitter highlight that—whether we like it or not—social media may soon be the most consulted sort of media. Its impact, in both corporate or political circles, needs hence to be considered by policymakers seriously. It is clear that every boat—whether corporate or political—needs a captain responsible for setting the course and communicating it to the lighthouse to avoid collisions and confusion at sea. Yet, captains are not pirates, and in the era of social media, regulators need to devise new rules of the game to avoid investor collusion and collision.

Qu’en pensez-vous ?

Bonne lecture !

 

On Elon Musk, Donald Trump, and Corporate Governance

 

 

Résultats de recherche d'images pour « Elon Musk SEC »
SEC sues Tesla CEO Elon Musk for ‘misleading’ tweet »- ABC News

 

There was something Trumpian in Elon Musk’s tweet about taking Tesla private. “Am considering taking Tesla private at $420. Funding secured”, he boldly and succinctly announced on August 7, claiming that the necessary capital has been confirmed from the Public Investment Fund (PIF), the Saudi sovereign fund that is seeking to become the region’s largest according to the ambitions of its government, including through the much-debated public offering of Saudi Aramco.

Like in a Mexican soap opera, news about the PIF raising fresh capital through the transfer of its 70% stake in SABIC, the Saudi $100 billion petrochemicals giant and the largest listed company in the Kingdom to Saudi Aramco, as well its talks with Tesla’s rival Lucid followed shortly, immediately highlighting the perils of instant communication. As it turns out, tweeting 280-character messages is straightforward, explaining them takes a little more character and significantly more characters.

The Securities and Exchange Commission (SEC) has reacted promptly, issuing a subpoena to Tesla to probe into the accuracy of its communication to investors. Elon Musk is unfortunately not the first CEO to pay for taking to Twitter. Nestle’s attempt at humor on Twitter, which likened a massacre of Mexican students to its candy bar, resulted in calls for boycott, ultimately forcing the company to erase the message and apologize. Even the CEO of Twitter itself, Jack Dorsey, has had to apologize for one of his personal tweets, which unlike Tesla and Nestle cases, had nothing to do with his company.

Indeed, the emergence of new communication channels has occurred at a faster pace than regulation on how these should be employed by companies has emerged, whilst over-excited executives have taken to social media in attempt to build hype around their companies. In the world where the number of Instagram, Twitter and Facebook followers counts more than the number of public investors, social media has the potential of becoming the main channel for communication in the corporate world.

Although this phenomenon has gone largely unnoticed, its implications need to be considered in a wider context that is beyond this immediate Bermuda Triangle involving Mr. Musk, the PIF and Tesla. In fact, this episode raises two important and distinct questions: first, who should be able to speak on behalf of public shareholding companies in order to ensure the accuracy of communication, and second, how should this communication be made such that it reaches its ultimate target, the investor community.

In developed markets such as the United States, where Tesla is incorporated, disclosure by public companies is subject to a myriad of regulations including Rule 10b-5—first issued 70 years ago—which prohibits the release or omission of material information, resulting in fraud or deceit. It is also subject to a more recent Fair Disclosure Regulation which essentially forbids companies from releasing non-public material information to third parties, effectively stamping out the practice of selective disclosure by companies to specific investors.

These regulations provide the colorful context behind the SEC’s investigation into Mr. Musk’s unfortunate tweet, allowing the regulator to question whether he had misled investors: that is, whether funding for taking Tesla private has indeed been “secured”. Another issue—and one not raised in the media—is whether Twitter can effectively be considered as an appropriate means of communication to the investor community. In the United States, where 70% of public share ownership today is in the hands of institutional investors, this is a moot point.

Indeed, the SEC has officially allowed listed companies to use social media in 2013, prompted by an investigation into a Facebook post by the Netflix CEO Reed Hastings about the company passing a billion hours watched for the first time. The SEC did not penalize him and decided that henceforth social media could be used for communicating corporate announcements as long as investors are warned that this would be the case.

In the context of emerging markets however, this position would be potentially quite dangerous. In Saudi Arabia for example, home to the PIF—Tesla’s alleged buyer—trading in the stock market is 90% retail, whereas its underlying ownership is largely institutional. Communicating company news via social media presupposes that all investors have equal access to it, which may not necessarily be the case in retail marketplaces. Regulators in emerging markets, where guidelines on the use of social media for corporate announcements are generally lacking, would do well to address this before executives take to Twitter and Facebook.

They would need to keep in mind however, that habits of emerging market investors may not have shifted fast enough to be comfortable in the world of Twitter. In Egypt for example, the officially recognised channel for publishing financial results remains the country’s newspapers. Expecting investors to run from conventional—not to say outdated—means of communication, to judiciously tracking social media announcements appears overly ambitious.

Using social media as a means of communicating material corporate news raises another non-semantic point which is equally important to address in both emerging and developed markets. It is not only tweets of CEOs like Elon Musk that have the potential to affect share prices and investor perceptions. If CFOs, CROs, CIOs, COOs and other C-suite members take to Twitter, Facebook, Instagram or other platforms to offer their interpretation of company developments, the potential impact on investors could be quite disheartening.

Just like the CEO’s or the CFO’s ability to write a cheque is circumscribed by internal controls and board oversight of material transactions related to mergers and acquisitions for instance, their ability to speak on behalf of their companies should be addressed by policies including specific approval processes. This would effectively limit the possibility of senior executives or board members using their iPhone as a Megaphone, instead requiring rigorous processes to be introduced such that social media announcements are coherent with other disclosure channels and indeed with corporate strategy.

From a governance perspective, further thought should be given to centralizing the communication function within companies in the hands of the Head of Investor Relations or equivalent. Indeed, given the value of information in our era of fast-paced communication powered by social media and fast-paced stock exchanges powered by algorithmic and high-frequency trading, the role of a Chief Communication Officer may be justified in large publicly listed companies, just as the role of a Chief Risk Officer reporting to the board has been introduced in many large organisations following the financial crisis.

While forcing companies in a straightjacket of yet more corporate governance rules on how they should handle their corporate communications may be unwise, some thought about legal distinctions and limits between what is considered personal and corporate announcements appears warranted. Investors may need to be told that unless corporate announcements come from official company channels—which personal Twitter accounts are not—their interpretation of tweets by excited executives are to be made at their own peril, not subject to usual investor protections.

Likewise, publicly-traded companies need to inform the investor community of what constitutes their official communication channels and ensure that financial and non-financial information announced through these is pre-approved, synchronized and not in conflict with existing regulations. Some regulators such as the French securities regulator, Authorité des Marches Financiers, has done so almost 5 years ago, recommending that companies specify their social media accounts on their website as well as establish a charter addressing how executives and staff are to use their personal social media accounts.

The ultimate twist of irony is of course that the SEC, investigating Tesla and its CEO, is part of the same government whose President’s tweeting activity has been far from uncontroversial. Both Mr. Musk’s and Mr. Trump’s use of Twitter highlight that—whether we like it or not—social media may soon be the most consulted sort of media. Its impact, in both corporate or political circles, needs hence to be considered by policymakers seriously. It is clear that every boat—whether corporate or political—needs a captain responsible for setting the course and communicating it to the lighthouse to avoid collisions and confusion at sea. Yet, captains are not pirates, and in the era of social media, regulators need to devise new rules of the game to avoid investor collusion and collision.

 

*Alissa Amico is the Managing Director of GOVERN. This post is based on a GOVERN memorandum by Ms. Amico.

L’âge des nouveaux administrateurs est une variable de diversité trop souvent négligée dans la composition des CA !


Lorsque l’on parle de diversité au sein des conseils d’administration, on se réfère, la plupart du temps, à la composition du CA sur la base des genres et des origines ethniques.

L’âge des nouveaux administrateurs est une variable de diversité trop souvent négligée de la composition des CA. Dans cette enquête complète de PwC, les auteurs mettent l’accent sur les caractéristiques des administrateurs qui ont moins de 50 ans et qui servent sur les CA du S&P 500.

Cette étude de PwC est basée sur des données statistiques objectives provenant de diverses sources de divulgation des grandes entreprises américaines.

En consultant la table des matières du rapport, on constate que l’étude vise à répondre aux questions suivantes :

 

(1) Quelle est la population des jeunes administrateurs sur les CA du S&P 500 ?

Ils sont peu nombreux, et ils ne sont pas trop jeunes !

Ils ont été nommés récemment

Les femmes font une entrée remarquable, mais pas dans tous les groupes…

 

(2) Qu’y a-t-il de particulier à propos des « jeunes administrateurs » ?

96 % occupent des emplois comme hauts dirigeants, 31 % des jeunes administrateurs indépendants sont CEO provenant d’autres entreprises,

Plus de la moitié proviennent des secteurs financiers et des technologies de l’information

Ils sont capables de concilier les exigences de leurs emplois avec celles de leurs rôles d’administrateurs

Ils sont recherchés pour leurs connaissances en finance/investissement ou pour leurs expertises en technologie

90 % des jeunes administrateurs siègent à un comité du CA et 50 % siègent à deux comités

La plupart évitent de siéger à d’autres conseils d’administration

 

(3) Quelles entreprises sont les plus susceptibles de nommer de jeunes administrateurs ?

Les jeunes CEO représentent une plus grande probabilité d’agir comme administrateurs indépendants

Plus de 50 % des jeunes administrateurs indépendants proviennent des secteurs des technologies de l’information, et des produits aux consommateurs

Les secteurs les moins pourvus de jeunes administrateurs sont les suivants : télécommunications, utilités, finances et immobiliers

Les plus jeunes administrateurs expérimentent des relations mutuellement bénéfiques.

 

La conclusion de l’étude c’est qu’il est fondamental de repenser la composition des CA en fonction de l’âge. Les conseils prodigués relatifs à l’âge sont les suivants :

 

Have you analyzed the age diversity on your board, or the average age of your directors?

Does your board have an updated succession plan? Does age diversity play into considerations for new board members?

Are there key areas where your board lacks current expertise—such as technology or consumer habits? Could a new—and possibly younger—board member bring this knowledge?

Does your board have post-Boomers represented?

Does your board have a range of diversity of thought—not just one or two people in the room who you look to continually for the “diversity angle”?

Could younger directors bring some needed change to the boardroom?

 

Notons que cette étude a été faite auprès des grandes entreprises américaines. Dans l’ensemble de la population des entreprises québécoises, la situation est assez différente, car il y a beaucoup plus de jeunes sur les conseils d’administration.

Mais, à mon avis, il y a encore de nombreux efforts à faire afin de rajeunir et renouveler nos CA.

Bonne lecture !

 

 

Board composition: Consider the value of younger directors on your board

 

 

Résultats de recherche d'images pour « Board composition: Consider the value of younger directors on your board »

Résumé des principaux résultats

 

There are 315 Younger Directors in the S&P 500. Together, they hold 348 board seats of companies in the index. Of these 348 Younger Director seats, 260 are filled by independent Younger Directors.

Fewer than half of S&P 500 companies have a Younger Director. Only 43% of the S&P 500 (217 companies) have at least one Younger Director on the board. At 50 of those companies, one of the Younger Directors is the company’s CEO.

S&P 500 companies with younger CEOs are much more likely to have independent Younger Directors on the board. Sixty percent (60%) of the 527 companies with a CEO aged 50 or under have at least one independent Younger
Director on the board—as compared to just 42% of companies that have a CEO over the age of 50.

Almost one-third of Younger Directors are women. Women comprise a much larger percentage (31%) of Younger Directors than in the S&P 500 overall (22%). This is in spite of the fact that over 90% of Younger Directors nominated under
shareholder agreements—such as those with an activist, private equity investor or family shareholder—are men.

Information technology and consumer products companies are more likely to have Younger Directors. The three companies in the telecommunications sector have no Younger Directors.

Close to half of the independent Younger Directors have finance/investing backgrounds. Just under one-third are cited for their technology expertise, executive experience or industry knowledge.

Younger Directors fit in board service while pursuing their careers. According to their companies’ SEC filings, 96% of Younger Directors cite active jobs or positions in addition to their board service.

Younger Directors serve on fewer boards. The average independent S&P 500 director sits on 2.1 public company boards. In contrast, independent Younger Directors sit on an average of 1.7 boards. More than half serve on only one public board.

More than half of the independent Younger Directors have held their board seat for two years or less. Only 18% have been on the board for more than five yearsé

L’émergence de la Chine dans le monde de la gouvernance moderne


Aujourd’hui, je vous propose la lecture d’un article sur l’évolution de la gouvernance chinoise.

Les auteurs, Jamie Allen*et Li Rui, de la Asian Corporate Governance Association (ACGA), ont produit un excellent rapport sur les changements que vivent les entreprises chinoises eu égard à la gouvernance.

L’étude se base sur une enquête auprès d’entreprises chinoises et auprès d’investisseurs étrangers. Également, les auteurs présentent une mine d’information sur la situation de la gouvernance.J’ai reproduit, ci-après, un résumé de l’enquête.

Bonne lecture !

 

With its securities market continuing to internationalise and grow in complexity, China appears at a turning point in its application of CG and ESG principles.

The time is right to strengthen communication and understanding between domestic and foreign market participants.

 

 

Awakening Governance: ACGA China Corporate Governance Report 2018

 

 

Résultats de recherche d'images pour « gouvernance chinoise »

Introduction: Bridging the gap

 

The story of modern corporate governance in China is closely connected to the rapid evolution of its capital markets following the opening to the outside world in 1978. The 1980s brought the first issuance of shares by state-owned enterprises (SOEs) and a lively over-the-counter market. National stock markets were relaunched in Shanghai and Shenzhen in 1990 to 1991, while new guidance on the corporatisation and listing of SOEs was issued in 1992. The first overseas listing of a state enterprise came in October 1992 in New York, followed by the first SOE listing in Hong Kong in 1993. Corporate governance reform gained momentum in the late 1990s, but it was less a byproduct of the Asian Financial Crisis than a need to strengthen the governance of SOEs listing abroad. The early 2000s then brought a series of major reforms on independent directors, quarterly reporting and board governance aimed squarely at domestically listed firms.

A great deal has changed in China since then, with periods of intense policy focus on corporate governance followed by consolidation. In recent years, China’s equity market has undergone a renewed burst of internationalisation through Shanghai and Shenzhen Stock Connect, relaxed rules for Qualified Foreign Institutional Investors, and the landmark inclusion of 234 leading A shares in the MSCI Emerging Markets Index in June 2018. While capital controls and other restrictions on foreign investment remain, there seems little reason to doubt that foreign portfolio investment will play an increasing role in China’s public and private securities markets in the foreseeable future.

Running parallel to market internationalisation, and facilitated by it, is a broadening of the scope of corporate governance to include a focus on environmental and social factors (“ESG”), and a deepening concern about climate change and environmental sustainability. Pension funds and investment managers in China are now encouraged by the government to look closely at ESG risks and opportunities in their investment process. And green finance has become big business in China, with green bond issuance growing steadily. Indeed, these themes are also part of the newly revised Code of Corporate Governance for Listed Companies (2018) from the China Securities Regulatory Commission (CSRC); this is the first revision of the Code since 2002.

 

Turning point

 

China thus appears at a new turning point in its market development and application of corporate governance principles. While it is difficult to predict how this process will unfurl, we believe three broad developments would be beneficial:

-That unlisted and listed companies in China see corporate governance and ESG not merely as a compliance requirement, but as tools for enhancing organisational effectiveness and corporate performance over the longer term. This applies as much to entrepreneurial privately owned enterprises (POEs) as established SOEs. The view that good governance is not relevant or possible in young, innovative firms is misguided.

-That domestic institutional investors in China see corporate governance and ESG not only as tools for mitigating investment risk, but as a platform for enhancing the value of existing investments through active dialogue with investee companies. The process of engagement can also help investors differentiate between companies that take governance seriously and those which do not.

-That foreign institutional investors view corporate governance in China as something more nuanced than a division between “shareholder unfriendly” SOEs and “exciting but risky” POEs. We recommend foreign asset owners and managers spend more time on the ground in China and invest in studying China’s corporate governance system, if they are not already doing so.

Of course, there are many exceptions to these broad characterisations. It is possible to find companies which view governance as a learning journey—and they are not necessarily listed. Certain mainland asset managers have begun investigating how to integrate governance and ESG factors into their investment process. And there are a growing number of foreign investors, both boutique and mainstream, that have developed a deep understanding of the diversity among SOEs and POEs and which have achieved excellent investment returns from SOEs as well.

Not surprisingly, however, our research has found that significant gaps in communication and understanding do exist between foreign institutional investors and China listed companies. According to an original survey undertaken by ACGA for this report, a majority of foreign investor respondents (59%) admitted that they did not understand corporate governance in China. Only 10% answered in the affirmative, while another 31% felt they “somewhat” understood the system. Conversely, it appears that most China listed companies do not appreciate the challenges that foreign institutional investors face in navigating “corporate governance with Chinese characteristics”.

This report is written for both a domestic and international audience. Our aim is to describe in as fair and factual a manner as possible the system of corporate governance in China, highlighting what is unique, what looks the same but is different, and areas of genuine similarity with other major securities markets. The main part of the report focuses on “Chinese characteristics” and looks at the role of Party organisations/committees, the board of directors, supervisory boards, independent directors, SOEs vs POEs, and audit committees/auditing. Each chapter explains the current legal and regulatory basis for the governance institution described, the particular challenges that companies and investors face, and concludes with suggestions for next steps. Our intention has been to craft recommendations that are practical and anchored firmly in the current CG system in China—in other words, that are implementable by companies and institutional investors. We hope the suggestions, and indeed this report, will be viewed as a constructive contribution to the development of China’s capital market.

The remainder of this Introduction provides an overview of key macro results from our two surveys. We start with the good news—that a large proportion of foreign institutional investors and local companies are optimistic about China—then highlight the challenges both sides face in addressing governance issues. The following chapters draw upon additional material from the two surveys.

ACGA survey—The big picture

Are you optimistic?

 

The good news from our survey is that a sizeable proportion of both foreign investors (38% of respondents) and China listed companies (52%) are optimistic about the investment potential of the A share market over the next five to 10 years, as Figure 1.1 below shows. Only 21% of foreign investors are negative, while the remainder are neutral. Not surprisingly, only 15% of China respondents were negative, while almost one-third were neutral.

 

Do you agree with MSCI?

 

The picture diverges on the issue of whether MSCI was right to include A shares in its Emerging Markets Index in 2018: only 27% of foreign respondents agreed compared to 65% of Chinese respondents, as Figure 1.2, below, shows. Almost half the foreign respondents did not agree compared to a mere 12% for Chinese respondents. A similar proportion was neutral in both surveys.

 

Challenges—Foreign institutional investors

The investment process

 

Foreign investors face a range of challenges investing in China, the first of which is understanding the companies in which they invest. As Figure 1.3 below indicates, foreign investors do not rely solely on information provided by companies when making investment decisions, but utilise a range of additional sources. It appears that listed companies are not aware of this issue.

 

Company engagement

 

Globally, institutional investors seek to enter into dialogue with their investee companies. It is no different in China, as shown in Figure 1.4.

 

 

But the process is not easy.

 

 

And successful outcomes are fairly thin on the ground to date.

 

Common threads

 

Respondents gave a range of answers as to why the process of engagement was difficult and successful outcomes limited, but some common threads were discernible:

Language and communication: In addition to straightforward linguistic difficulties (ie, companies not speaking English, investors not speaking Chinese), the communication problem is sometimes cultural. As one person said, “Even though I am from China, it is hard to interpret hidden messages.”

Access: Getting access to companies can be difficult. Getting to meet the right senior-level person, such as a director or executive, can be even more challenging.

Investor relations (IR): While some IR teams are professional, many are not. As one respondent commented: “IR (managers) are not very well trained and some of them lack basic understanding or knowledge of corporate governance or even financial information.”

CG as compliance: A common complaint is that companies view CG as merely a compliance exercise. Some refuse to give “detailed answers beyond the party line”.

Non-alignment: There is a recurring feeling that the interests of controlling shareholders in SOEs are not aligned with minority shareholders. One investor commented on the “lack of responsiveness” to outside shareholder suggestions, adding that SOEs “wait for government to give the direction, not investors”.

Lack of understanding: There can be a significant gap in the awareness of CG and ESG principles.

 

Empathy for companies

 

Conversely, a few respondents expressed empathy for the position of companies. As one wrote: “There also appears to be an under appreciation by international investors of the differences in culture, political context, and the path and stage of economic development between China and the rest of the world. Any attempt at influencing changes without a reasonable understanding of these differences is likely to be ineffective and (may) at times lead to unintended consequences.”

Another explained some of the regulatory challenges facing listed companies: “With a few exceptions, both SOEs and POEs have to deal with stringent and ever-changing industry regulations and government policies.”

A third said that some engagement had been positive: “Generally, where I have had access to the right people, engagement has been constructive. I suspect this is a result of the companies already appreciating the value of good governance in attracting non-domestic investors.”

And perhaps the most positive comment of all: “A number of the Chinese companies we speak to, especially the industry leaders, already address ESG risks in their businesses. Most of them publish ESG reports annually, which help to set the benchmark for their industry and also to garner positive feedback from society and hence, end-customers. Some of such companies end up enjoying a pricing premium on their products once this positive brand equity has been established. This creates a virtuous cycle, where ESG becomes part of their corporate culture. They understand that for the long-term sustainability of their business, and for the benefits of all their stakeholders, such investment can only enhance their competitiveness.”

 

Brave new world of stewardship

 

Yet most investors still find engaging with companies a challenge. A further reason may be that China is one of only three major markets in Asia-Pacific that has not yet issued an “investor stewardship code”. Such codes push institutional investors to take CG and ESG more seriously, incorporate these concepts into their investment process, and help to encourage greater dialogue between listed companies and their shareholders (see Table 1.1, below). In recent years, the bar has been quickly raised on this issue in Asia and expectations have risen commensurately.

Without an explicit policy driving investor stewardship, it is unlikely that the average listed company will give proper weight to a dialogue with shareholders. As one foreign investor said: “Generally speaking, it is relatively easier to engage with bigger listed companies. SOEs and larger companies tend to be more responsive. SOEs have more incentive to do so following government guidelines and trends.”

A key question to ask is who within a company should be responsible for engaging with shareholders? The short answer is the board, as a group representing and accountable to shareholders. Indeed, on a positive note, our survey found that most Chinese listed companies do admit that the responsibility for talking to shareholders should not be placed solely on the investor relations (IR) team (see Figure 1.7 below). But given that delegating this task to IR remains a common practice, it would appear that there is an inconsistency between words and actions here.

 

 

 

Challenges—China listed companies

 

Some additional factors clearly play on the willingness of companies to take CG and ESG seriously, as Figures 1.8 and 1.9 below show.

Does the market reward good CG?

 

Only 27% of the respondents to our China listed company survey believe there is a close correlation between good corporate governance and company performance. Another 46% think they are “somewhat related”, while a quarter see no relationship. These results broadly align with the view common in most markets, including China, that only a minority of companies (usually the large caps) feel incentivised to improve their governance practices and that they will be rewarded by investors if they do so.

 

Even more concerning is the largely negative view on whether better governance helps a company to list.

 

 

As an aside, this might also help to explain why listed POEs in China are generally not seen as being a better investment proposition or as having better governance than SOEs—an issue we explore in Chapter 3.5.

Only 23% of foreign respondents said they preferred investing in POEs over SOEs, while two-thirds said they did not. Meanwhile, only 10% of China listed companies thought POEs were better governed than SOEs. Around one-third thought they were about the same, while 54% thought POEs were worse.

Even so, in a fast-growing market such as China, there is a risk in taking a static or one-dimensional view.

‘Companies will have to become more ESG aware’

 

We conclude this section with a wide-ranging comment from a China-based institutional investor on the need to see governance and ESG as a process:

Chinese companies are generally financial weaker than their more established peers in developed markets. This is a symptom of markets being at different stages of development. For Chinese companies, survival is the top priority. Once they have gained enough market share and accumulated a certain level of capital reserves, they will start to consider ESG issues. This will help them cement their market position and grow more healthily in the long term.

At the moment, we recognise that the cost of not practicing ESG is not high in China. But things are changing, especially on the environmental front. We can see that the government is very serious about closing down small players who are not compliant with emission standards. The quality of air, earth and water concerns the livelihood of every citizen, and we believe that there will be heightened enforcement of pollution laws.

Corporate governance is also improving as public shareholders get more actively involved in major corporate actions. Having said that, shareholder structures remain highly concentrated, especially for SOEs in China, and external forces may not be strong enough to ensure a proper division of power.

We see increasing numbers of entrepreneurs and companies more willing to give back to society and the challenge here is simply that philanthropy is quite new in China.

As society becomes more civilised and consumers become more aware of issues such as child labour and environmental pollution, Chinese companies will have to become more ESG aware and responsible.

 

Interview: ‘Character and quality of management is critical’

 

David Smith CFA, Head of Corporate Governance, Aberdeen Standard Investments Asia, Singapore

 

What is your view on investing in A shares?

 

We have an A share fund, so naturally, we have spent substantial time and effort getting comfortable with both the market and the companies. There are well-documented risks surrounding investing in China, but the market has obvious attractions China is leading the world in some of the sectors, like e-commerce, for example. As investors, we always have to balance return with macroeconomic risk, political risk, regulatory risk, and so on, and this is certainly the case for China.

 

What is your view on stock suspensions in China?

 

The situation is getting better but companies too often still choose to suspend given a pending “restructuring”, which protects potential investors at the expense of existing investors, something that can be incredibly frustrating given how long we can be locked up for. There is a general misunderstanding in China as to what suspension means: companies should only suspend when there is information asymmetry, not when there is uncertainty. We are paid to analyse and deal with uncertainty, and the market will find a price for it. If companies have to suspend whenever there is uncertainty, we won’t have a stock market in place.

In general, there are too many suspensions in China. If a company has a restructuring plan or a regulatory investigation is going on, it should just disclose this through an announcement; as long as everyone in the market knows the same information, the stock should keep trading.

The issue of price-sensitive information has already been taken care of by regulations around continuous disclosure, so a suspension is often not protecting anyone, it just removes liquidity for existing investors. This issue is exacerbated by the bizarre and unusual situation of dual-listed A/H share companies suspending on one exchange and not the other.

In developed markets, in contrast, suspensions of issuers lasting more than a month for whatever reason are very rare. Part of the issue is also that promoter shares might sometimes have been pledged, so promoters want to avoid a share price fall triggering a margin call.

 

What are the top CG issues you have observed in Chinese companies?

 

Entrepreneur risk (people risk) is the most obvious one, including related-party transaction risks, along with operational and execution risks. For Aberdeen, we never invest if we feel uncomfortable with the founder or management. Both the character and quality of the people inside the company is something we value a lot in our investment decision-making process.

Regulatory risk is another issue. Changes in regulations can affect not just SOEs but also POEs to different extents. For example, the recent regulatory change on the reinforcement of Party committees inside Chinese companies is not what foreign investors expected to see as the direction of corporate governance development in China.

Another issue is that given more and more onus put on independent directors, maybe we need to think about another way to elect them. The current situation involves voting for independent directors on their independence, rather than competence. However, “independence” can be easily gamed in Asia. Many independent directors are structurally independent but rely on the company for their living (pension), so investors are increasingly asking if/how they add value to board discussions.

 

What is your view on voting trends among China listed firms? Does voting lead to engagement

 

Not much has changed. Any voting against has tended to focus on resolutions like related-party transactions, or other corporate actions, rather than issues across the board.

Engagement is getting a little bit better in China. We have seen more and more companies listening to us, and dialogue is getting much better. Companies increasingly understand that we are not in China for the short-term and that our interests are aligned. That certainly helps.

 

Methodology

A tale of two surveys

 

The two surveys in this report, the “ACGA Foreign Institutional Investor Perceptions Survey 2017” and the “ACGA China Listed Company Perceptions Survey 2017”, were developed internally in the first half of 2017 and carried out over 21 July to 1 September of that year. They were distributed through ACGA’s global network of members and contacts, and by a number of supporting organisations both inside and outside China (see the Acknowledgements page for details).

Purpose

We decided to conduct a survey at the preliminary stage of this project for two main reasons. The first was to add a broader range of perspectives to the report and to complement the extensive research carried out by ACGA and our contributing authors.

The second was to develop new data on corporate governance in China. When we began researching this report, we found that much of the information on board structures and governance practices in China was out of date, incomplete or non-existent. We developed the survey to partially fill this gap. To complement this information, we turned to data providers such as Wind and Valueonline to provide raw data on which we could do original analysis—and we carried out our own reviews of specific governance practices among large listed companies.

Foreign Institutional Investor Perceptions Survey

The Foreign Institutional Investor Perceptions Survey contained 22 questions and focused on areas that we believe are relevant to China’s investment potential and governance. They can be divided into the following categories:

Macro questions, such as capital market development, MSCI inclusion, SOEs vs POEs, and mainland-listed vs overseas-listed firms.

Shareholder rights, including investor protection in China vs overseas.

Company governance, including corporate reporting, role of chairman, independent directors, supervisory boards.

Role of government, including appointment of chairmen, intervention in SOEs and POEs, the role of the Party organisation/committee.

Investor engagement with companies.

Several of the questions provided options for respondents to give detailed answers and, where relevant, these comments are incorporated into our text.

The survey was developed by ACGA in Q2 2017 and first tested with a select group of ACGA global investor members in June of that year. It was refined based on feedback received before being sent out electronically in July. The recipients were primarily drawn from among ACGA’s list of institutional investor members based in Asia and around the world. This was complemented by recipients from our supporting organisation membership networks.

In total, we received 155 complete and comparable responses. Partial responses were not counted. Based on information gathered about respondents’ titles, they fell into three broad groups: CEOs, directors, managing directors or partners; portfolio managers and analysts; and managers or specialists in CG, ESG or stewardship. A large proportion held senior roles in their organisations.

The total assets under management (AUM) of all respondents amounted to around US$40 trillion, with the range from US$20m to US$6 trillion. In other words, a mix of both boutique investment managers and large mainstream institutions.

China Listed Company Perceptions Survey

The China Listed Company Perceptions Survey contained 12 questions and likewise focused on areas that we believe are relevant to such companies, their directors and managers. While there were fewer questions in this survey, they covered similar categories as in our foreign survey, namely macro issues, company governance, role of government, and investor engagement.

We designed some questions to be identical to the Foreign Institutional Investor Survey, in order to allow direct comparisons between corporate and investor perspectives on the same issue.

We also asked some unique questions of companies, such as whether or not they see a close correlation between corporate governance and performance, and whether better governance helps a firm list its shares.

The survey recipients were drawn from among ACGA’s corporate membership base, as well as clients and contacts of supporting organisations.

In total, we received 182 complete responses from which we extracted the survey results. Most respondents held senior positions in their companies such as directors, executives, board secretaries and senior managers. Most of the companies represented have been listed in China for more than five years and have a market cap of more than Rmb5 billion (US$800m approx). Further demographic data on the two groups of respondents follows:

 

Foreign respondents

The foreign institutional investors who responded are mostly from the US, UK, Asia and the European Union, as shown in Figure 1.10 below. The response is consistent with the distribution of ACGA members by region. Investors from Australia, New Zealand, the Middle East and Canada also responded to the survey.

 

 

In terms of their global AUM, the vast majority of respondents have less than 1% invested in China A shares, while a significant minority have between 1% and 10%. Very few have more than 10% of their funds invested in China domestic listings, although interestingly a few have more than 50%. The latter would be smaller investment managers with a dedicated China focus, as shown in Figure 1.11.

The picture changes markedly when overseas-listed Chinese firms are taken into account: the majority of foreign respondents allocate between 1% to 10% of their global AUM to such companies and a sizeable proportion, about one-fifth, invest more than 10%.

 

 

How do foreign investors invest in China? As Figure 1.12 below shows, around a quarter go only through the Qualified Foreign Institutional Investor (QFII) scheme, 15% only through Stock Connect, and almost half through both channels. Interestingly, a significant minority invest directly through wholly owned foreign enterprises (WFOEs) or other foreign direct investment (FDI) channels.

 

China respondents

Most respondents to our China Listed Company Perceptions Survey work for a company that has been listed for more than five years. Around 40% of the companies have been listed for more than 10 years, which is a relatively long period given that the Chinese stock market is still less than 30 years old (see Figure 1.13).

The market cap of 54% of respondents’ companies was more than Rmb5 billion, as highlighted in Figure 1.14, and 19% have a market cap of more than Rmb10 billion. Generally, the larger firms are likely to be SOEs.

 

In terms of ownership, the distribution of respondents falls evenly between SOEs and POEs, with 13% being of a “mixed-ownership” type (see Figure 1.15, above). This gives us confidence that the survey results incorporate a range of views from different participants in the Chinese market.

As for where respondents’ companies are listed, Figures 1.16 and 1.17, below, highlight that almost 60% are listed in a single jurisdiction. Mainland China comes first, not surprisingly, followed by a reasonable number in Hong Kong. Only a few respondents work for Chinese companies listed in Singapore, the US and the UK. Regarding the remaining companies listed in more than one jurisdiction, again the most popular venue is a dual-listing in China and Hong Kong, followed by a listing in China and the US. Some companies have a listing in China, Hong Kong and the US.

 

 

 

The complete report, in both English and Chinese, is available here.

___________________________________________________________

*Jamie Allen is Secretary General and Li Rui (Nana Li) is Senior Research Analyst at the Asian Corporate Governance Association (ACGA). This post is based on the introduction to their ACGA report.

L’objectif visé par les fonds d’investissement activistes afin de profiter au maximum de leurs interventions : la vente de l’entreprise au plus offrant !


Vous trouverez, ci-dessous, un article de Roger L. Martin, ex-doyen de la Rotman School of Management de l’Université de Toronto, paru dans Harvard Business Review le 20 août 2018, qui remet en question la valeur des interventions des fonds activistes au cours des dernières années.

L’auteur pourfend les prétendus bénéfices des campagnes orchestrées par les fonds activistes en s’appuyant notamment sur une étude d’Allaire qui procure des données statistiques probantes sur les rendements des fonds activistes.

Ainsi, l’étude publiée par Allaire montre que les fonds d’investissement activistes réalisent des rendements moyens de 12,4 %, comparés à 13,5 % pour le S&P 500. Le rendement était de 13,9 % pour des firmes de tailles similaires dans les mêmes secteurs industriels.

Je vous invite à prendre connaissance d’une présentation PPT du professeur Allaire qui présente des résultats empiriques très convaincants : Hedge Fund Activism : Some empirical evidence.

Le résultat qui importe, et qui est très payant, pour les investisseurs activistes est la réalisation de la vente de l’entreprise ciblée afin de toucher la prime de contrôle qui est de l’ordre de 30 %.

The reason investors keep giving their money to these hedge funds is simple. There is gold for activist hedge funds if they can accomplish one thing. If they can get their target sold, the compound annual TSR jumps from a lackluster 12,4 % to a stupendous 94,3 %.  That is why they so frequently agitate for the sale of their victim.

Bonne lecture. Vos commentaires sont les bienvenus.

 

Activist Hedge Funds Aren’t Good for Companies or Investors, So Why Do They Exist?

 

 

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Activist hedge funds have become capital market and financial media darlings. The Economist famously called them“capitalism’s unlikely heroes” in a cover story, and the FT published an article saying we “should welcome” them.

But they are utterly reviled by CEOs. And at best, their performance is ambiguous.

The most comprehensive study of activist hedge fund performance that I have read is by Yvan Allaire at the Institute for Governance of Private and Public Organizations in Montreal, which studies hedge fund campaigns against U.S. companies for an eight-year period (2005–2013).

Total shareholder return is what the activist hedge funds claim to enhance. But for the universe of U.S. activist hedge fund investments Allaire studied, the mean compound annual TSR for the activists was 12.4% while for the S&P500 it was 13.5% and for a random sample of firms of similar size in like industries, it was 13.9%. That is to say, if you decided to invest money in a random sample of activist hedge funds, you would have earned 12.4% before paying the hedge fund 2% per year plus 20% of that 12.4% upside. If instead you would have invested in a Vanguard S&P500 index fund, you would have kept all but a tiny fraction of 13.5%.

Since the returns that they produce underwhelm, why do activist hedge funds exist? Why do investors keep giving them money? It is an important question because the Allaire data shows the truly sad and unfortunate outcomes for the companies after the hedge funds ride off into the sunset, after a median holding period of only 423 unpleasant days. Over this span, employee headcount gets reduced by an average of 12%, while R&D gets cut by more than half, and returns don’t change.

The reason investors keep giving their money to these hedge funds is simple. There is gold for activist hedge funds if they can accomplish one thing. If they can get their target sold, the compound annual TSR jumps from a lackluster 12.4% to a stupendous 94.3%.  That is why they so frequently agitate for the sale of their victim.

But why is this such a lucrative avenue? It is because of the control premium. When a S&P500-sized company gets sold, the average premium over the prevailing stock price that is paid for the right to take over that company is in excess of 30%. This is ironic, of course, because studies show the majority of acquisitions don’t earn the cost of capital for the buyer. It is a case of the triumph of hope over reality – which is not unusual. It is not dissimilar to what happens in the National Football League where the trade price for a future draft pick is typically higher than the trade price for an accomplished successful player. That is because the acquiring team dreams that the player it will pick in the draft will be more awesome than that player is likely to turn out to be. But hope springs eternal!

The activist hedge funds have their eyes focused laser-like on the control premium — which for the S&P 500, which has a market capitalization of $23 trillion, is conservatively a $7 trillion pie assuming a 30% control premium. To get a piece of that scrumptious pie, all they need to do is pressure their victim to put itself up for sale and they will have “created shareholder value.” Of course, on average, they will have destroyed shareholder value for the acquiring firm, but they couldn’t care less. They are long gone by that time; off to the next victim.

And they have lots of friends to help them access the control premium pie. Investment bankers want to help them do the deal whether it is a good deal or not and that $7 trillion pie for hedge funds translates into a multibillion dollar annual slice for investment bankers. And for the M&A lawyers that need to opine on the deal. And the accounting firms that need to audit the deal. And for the proxy voting firms that collect the votes for and against the deal. And the consultants who get hired to do post-merger integration. And the financial press that gets to write stories about an exciting deal.

It is an entire ecosystem that sees the $7 trillion pie and wants a piece of it. It doesn’t matter a whit whether a hedge-fund inspired change of control is a good thing for customers, employees or the combined shareholders involved (selling plus acquiring). It is too lucrative a pie to pass up.

What will stop this lunacy? When shareholders come to their senses and realize that when an activist hedge fund has pressured a company intensively enough to put it up for sale, they are simply feeding the hedge fund beast and the vast majority of the time it will be at their own expense. When activist hedge funds’ access to the $7 trillion pie is shut off, they will have to rely on their ability to actually make their victims perform better. And their track record on that front is mediocre at best.

______________________________________________________________

Roger L. Martin is the director of the Martin Prosperity Institute and a former . He is a coauthor of Creating Great Choices: A Leader’s Guide to Integrative Thinking.

La place des femmes sur les CA et dans la haute direction des entreprises


Voici un rapport qui fait le point sur la place des femmes dans les CA et dans des postes de haute direction des entreprises publiques (cotées) américaines et internationales.

Cet article, publié par Subodh Mishra* directeur de Institutional Shareholder Services (ISS), est paru sur le forum du Harvad Law School on Corporate Governance, le 13 août 2018.

On note des progrès dans tous les domaines, mais l’évolution est encore trop lente. Eu égard à la présence des femmes sur les CA des grandes entreprises cotées, c’est la France qui remporte la palme avec 43 % de femmes sur les CA.

Les entreprises se dotent de plus en plus de politique de divulgation de la diversité sur les postes de haute direction. Le Danemark (96 %), l’Australie (91 %) et le R.U. (84 %) sont en tête de liste en ce qui concerne la présence de politique à cet égard. Les É.U. (32 %) et la Russie (22 %) ferment la marche. Le Canada est en milieu de peloton avec 63 %.

L’infographie présentée ici montre clairement les tendances dans ce domaine.

L’auteur identifie les cinq pratiques émergentes les plus significatives pour mettre en œuvre une politique de diversité exemplaire.

(1) Address subtle or unconscious bias.

Cultivating a strong culture free of subtle or unconscious bias is a fundamental step towards an inclusive work environment. A meta-analysis by the Harvard Business Review finds that subtle discrimination has as negative effects, if not more negative, than overt discrimination, as it can drain emotional and cognitive resources, it can accumulate quickly, and is difficult to address through legal recourse. The researchers suggest that structured processes and procedures around hiring, assignments, and business decisions limit the opportunity for unconscious bias to creep in. In addition, they suggest training programs and practicing techniques, such as mindfulness, to reduce bias.

(2) Establish clear diversity targets and measure progress towards goals.

Most companies with gender diversity strategies set clear, measurable targets. BP has set a goal of women representing at least 25 percent of its group leaders by 2020, while Symantecaims at having 30 percent of leadership roles occupied by women by the same year. This approach allows firms to focus on concrete performance results, while also creating a framework of accountability in the company’s gender diversity and inclusion program.

(3) Focus on key roles and redefine the path to leadership.

True meritocracy should determine the criteria for leadership roles. However, companies should recognize that there may be multiple paths to the CEO position, and should focus on their efforts on roles that lead to those paths. Women CEOs Speak, A Korn Ferry Institute study supported by the Rockefeller Foundation, identifies four different career approaches for women to prepare for the CEO role. However, the study identifies early assumption of profit-and-loss responsibilities in all four paths as a crucial experience leading to top positions.

(4) Establish mentorship and sponsorship programs.

Training and development programs within the organization can help facilitate mentorships and sponsorships, which are crucial in career development. GM’s Diversity and Inclusion Report explains how its Executive Leadership Program aims at creating a support network of female leaders, as well as training and development sessions hosted by female executives. Mentors can support employees earlier in their career with coaching and advice, while sponsors take a more active role later in one’s career to promote the individual. Gender should obviously not constitute a barrier for such mentorships and sponsorships, and organizations should take active steps to encourage such relationships across genders and remove any hesitations or biases.

(5) Provide flexibility and support towards work-life balance.

Top executive assignments often involve significant time commitments and travel that can impact an executive’s family life. In a New York Times news analysis, former McDonald’s executive Janice Fields, identified her choice not to work overseas as a handicap to becoming the CEO. Making accommodations in relation family, including both children and spouses, can remove some significant hurdles for women.

 

 

Women in the C-Suite: The Next Frontier in Gender Diversity

 

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Despite recent advances in female board participation globally, gender diversity among top executives remains disappointingly low across all markets, with some improvement discerned in the past few years. Moreover, there does not appear a correlation between board gender diversity and gender diversity in the C-Suite at the market level. Some of the markets that have implemented gender quotas on boards and have achieved the highest rates of female board participation, such as France, Sweden, and Germany, appear to have embarrassingly low rates of female top executives. In fact, many of the markets with progressive board diversity policies have lower gender diversity levels in executive positions compared to several emerging markets like South Africa, Singapore, and Thailand. Thus, achieving higher rates of gender diversity in the C-Suite will require deeper cultural shifts within organizations in order to overcome potential biases and hurdles to gender equality.

The number of female top executives remains low

 

In the past decade, gender quotas, policy initiatives, and—more recently—investor pressure have led to boards improving female board participation in Europe and North America significantly. The percentage of female directors in the Russell 3000 increased from 10 percent in 2008 to 18 percent in 2018, with most of the increase taking place since 2013. Similarly, the percentage of female directors in ISS’s core universe of widely-held European firms more than tripled from 8 percent in 2008 to 27 percent in 2018. While the recent push by policymakers, investors, and advocacy groups for greater gender diversity has primarily focused on board positions, the discussion is beginning to evolve to encompass diversity in all leadership roles, including top management. In the United States, we have observed small but significant changes in the gender composition of the C-Suite over the past five years. Since 2012, the Russell 3000 has seen a 70-percent increase in the number of female CEOs. Despite the relative increase, the number of top female executives remains disappointingly low, with only 5 percent of Russell 3000 companies having a female CEO in 2018.

 

Companies need to develop the pipeline of female executive leaders

 

The scarcity of female CEOs does not appear surprising, especially after taking a closer look at the rest of the members of the C-Suite, who often comprise the primary candidates in line for succession for the top job. These roles include the Chief Operating Officer, the Chief Financial Officer, and the Head of Sales, among others. Only 9 percent of top executive positions in the Russell 3000 are filled by women, which means that companies have a long way to go towards building gender equity within the top ranks where the next generation of CEOs are cultivated. Certain sectors lag considerably more than others, with Real Estate, Telecommunications and Energy exhibiting the lowest rates of female named executive officers.

 

Within the C-Suite, gender differentiation persists in terms of executive roles

 

The picture seems even bleaker for the future of gender parity at the CEO level when examining the types of roles that female top executives currently occupy within their organizations. Female executives appear scarcer at roles with profit-and-loss responsibilities that often serve as stepping stones to the CEO role, such as COO, Head of Sales, or CEOs of business units and subsidiary groups. Meanwhile, women are more highly concentrated in positions that rarely see a promotion to the top job, such as Human Resources Officer, General Counsel, and Chief Administrative Officer.

 

 

Not surprisingly, and in conjunction with the disparity in functions described above, women who belong to the group of the five highest paid executive officers in their organization, are far more likely to rank fourth or fifth in pay rank compared to their male counterparts. Approximately 46 percent of women in the top five positions rank either fourth or fifth in pay, compared to 33 percent of male top five executives in these pay rankings.

 

Breaking down barriers to gender diversity in the C-Suite

 

Companies can take a number steps to foster gender diversity in their executive leadership, and to remove biases or potential obstacles to an inclusive management environment. Many companies have identified gender diversity in leadership positions as a key priority, and have established gender diversity strategies to achieve specific goals. While workforce diversity policies appear to become the standard across most markets, gender diversity policies at the senior management level are common only in some markets. According to ISS Environmental & Social QualityScore data, the majority of companies in developed European markets and Canada disclose gender diversity policies for senior managers. The practice has not been widely established United States, where 32 percent of the S&P 500 and only 4 percent of the remaining Russell 3000 disclose such policies.

 

 

Several companies and advocacy groups identify gender diversity and inclusion as a major driver for talent acquisition and performance. The recognition of the absence of women in top executive roles has sparked several initiatives that seek to promote inclusivity in the workplace. The Rockefeller Foundation’s 100×25 advocacy initiative aims at bringing more women to the C-Suite, with the explicit goal of having 100 Fortune 500 female CEOs by 2025. Meanwhile, Paradigm for Parity was formed by a coalition of business leaders (CEOs, founders, and board members), and set the goal of achieving full gender parity by 2030. The group has created a 5-point action plan to help companies accelerate their progress.

Based on the work of these initiatives and actual programs disclosed by companies, we identify five of the emerging best practices that companies adopt to address gender diversity in leadership roles.

Address subtle or unconscious bias. Cultivating a strong culture free of subtle or unconscious bias is a fundamental step towards an inclusive work environment. A meta-analysis by the Harvard Business Review finds that subtle discrimination has as negative effects, if not more negative, than overt discrimination, as it can drain emotional and cognitive resources, it can accumulate quickly, and is difficult to address through legal recourse. The researchers suggest that structured processes and procedures around hiring, assignments, and business decisions limit the opportunity for unconscious bias to creep in. In addition, they suggest training programs and practicing techniques, such as mindfulness, to reduce bias.

Establish clear diversity targets and measure progress towards goals. Most companies with gender diversity strategies set clear, measurable targets. BP has set a goal of women representing at least 25 percent of its group leaders by 2020, while Symantecaims at having 30 percent of leadership roles occupied by women by the same year. This approach allows firms to focus on concrete performance results, while also creating a framework of accountability in the company’s gender diversity and inclusion program.

Focus on key roles and redefine the path to leadership. True meritocracy should determine the criteria for leadership roles. However, companies should recognize that there may be multiple paths to the CEO position, and should focus on their efforts on roles that lead to those paths. Women CEOs Speak, A Korn Ferry Institute study supported by the Rockefeller Foundation, identifies four different career approaches for women to prepare for the CEO role. However, the study identifies early assumption of profit-and-loss responsibilities in all four paths as a crucial experience leading to top positions.

Establish mentorship and sponsorship programs. Training and development programs within the organization can help facilitate mentorships and sponsorships, which are crucial in career development. GM’s Diversity and Inclusion Report explains how its Executive Leadership Program aims at creating a support network of female leaders, as well as training and development sessions hosted by female executives. Mentors can support employees earlier in their career with coaching and advice, while sponsors take a more active role later in one’s career to promote the individual. Gender should obviously not constitute a barrier for such mentorships and sponsorships, and organizations should take active steps to encourage such relationships across genders and remove any hesitations or biases.

Provide flexibility and support towards work-life balance. Top executive assignments often involve significant time commitments and travel that can impact an executive’s family life. In a New York Times news analysis, former McDonald’s executive Janice Fields, identified her choice not to work overseas as a handicap to becoming the CEO. Making accommodations in relation family, including both children and spouses, can remove some significant hurdles for women.

_________________________________________________________________

*Subodh Mishra is Executive Director at Institutional Shareholder Services, Inc. This post is based on an ISS Analytics publication by Kosmas Papadopoulos, Managing Editor at ISS Analytics.

Le futur code de gouvernance du Royaume-Uni


Je vous invite à prendre connaissance du futur code de gouvernance du Royaume-Uni (R.-U.).

À cet effet, voici un billet de Martin Lipton*, paru sur le site de Harvard Law School Forum on Corporate Governance, qui présente un aperçu des points saillants.

Bonne lecture !

 

The Financial Reporting Council today [July 16, 2018] issued a revised corporate governance code and announced that a revised investor stewardship code will be issued before year-end. The code and related materials are available at www.frc.org.uk.

The revised code contains two provisions that will be of great interest. They will undoubtedly be relied upon in efforts to update the various U.S. corporate governance codes. They will also be used to further the efforts to expand the sustainability and stakeholder concerns of U.S. boards.

First, the introduction to the code makes note that shareholder primacy needs to be moderated and that the concept of the “purpose” of the corporation, as long put forth in the U.K. by Colin Mayer and recently popularized in the U.S. by Larry Fink in his 2018 letter to CEO’s, is the guiding principle for the revised code:

Companies do not exist in isolation. Successful and sustainable businesses underpin our economy and society by providing employment and creating prosperity. To succeed in the long-term, directors and the companies they lead need to build and maintain successful relationships with a wide range of stakeholders. These relationships will be successful and enduring if they are based on respect, trust and mutual benefit. Accordingly, a company’s culture should promote integrity and openness, value diversity and be responsive to the views of shareholders and wider stakeholders.

Second, the code provides that the board is responsible for policies and practices which reinforce a healthy culture and that the board should engage:

with the workforce through one, or a combination, of a director appointed from the workforce, a formal workforce advisory panel and a designated non-executive director, or other arrangements which meet the circumstances of the company and the workforce.

It will be interesting to see how this provision will be implemented and whether it gains any traction in the U.S.

 

 

The UK Corporate Governance Code

 

Résultats de recherche d'images pour « UK Corporate Governance Code 2018 »

Martin Lipton* is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton.

Les administrateurs de la nouvelle génération


Vous trouverez, ci-dessous, le résultat d’une enquête réalisée par SpencerStuart portant sur le renouvellement des conseils d’administration et les attentes des administrateurs de ladite nouvelle génération.

Le texte a été publié en anglais. Vous pouvez le lire dans cette langue en cliquant sur le titre ci-dessous. Je vous invite à le faire puisque le texte original contient des tableaux et des statistiques que l’on ne retrouve pas dans ma version.

Afin de faciliter la compréhension, j’ai révisé la traduction électronique produite. Je crois que cette traduction est très acceptable.

Bonne lecture ! Vos commentaires sont les bienvenus.

 

 

How Next‑Generation Board Directors Are Having an Impact

 

 

Guide du Secrétariat à la jeunesse
GUIDE POUR FAVORISER LE RECRUTEMENT ET L’INTÉGRATION DES ADMINISTRATEURS DE LA RELÈVE AU SEIN DES CONSEILS D’ADMINISTRATION D’OBNL

 Consultez le guide du SAJ

 

Les conseils font l’objet des pressions croissantes pour démontrer leur pertinence à un moment où de multiples forces perturbatrices menacent les modèles d’affaires établis et créent de nouvelles possibilités d’innovation et de croissance. De plus en plus, les investisseurs s’attendent à ce que les conseils aient des processus significatifs en place pour renouveler leur adhésion et maximiser leur efficacité.

En conséquence, un nombre croissant « d’administrateurs de prochaine génération » sont nommés aux conseils d’administration à travers le monde. Beaucoup apportent des connaissances dans des domaines tels que la cybersécurité, l’IA (intelligence artificielle), l’apprentissage automatique et les technologies de l’industrie 4.0 ; d’autres ont une expérience directe de la transformation numérique, de la conception organisationnelle, de la connaissance du client ou de la communication sociale. Inévitablement, les experts de ces disciplines ont tendance à provenir d’une génération différente de celle de la majorité des membres du conseil d’administration.

Les jeunes administrateurs ont un impact sur le contenu et la dynamique du débat en salle de réunion. Ils incitent d’autres administrateurs à s’engager sur des sujets qui ne leur sont pas familiers et à apporter une approche et une perspective différentes au rôle. Tout comme les entreprises élargissent leur réflexion sur la valeur de la diversité et reconnaissent les avantages de la main-d’œuvre intergénérationnelle, les conseils bénéficient de recrutements d’administrateurs qui apportent non seulement une expertise foncièrement nécessaire, mais aussi une vision contemporaine de la façon dont les décisions affectent les parties prenantes — des employés et des fournisseurs aux clients et à la communauté. Ces administrateurs font face à un ensemble différent de défis en milieu de travail dans leurs rôles exécutifs ; en tant qu’administrateurs, ils peuvent rarement exprimer leurs préoccupations et leurs points de vue, autour de la table du conseil d’administration.

Les conseils qui choisissent sagement leurs jeunes administrateurs peuvent bénéficier grandement de leur présence. Cependant, il ne suffit pas d’amener de nouveaux administrateurs compétents dans la salle du conseil ; il est vital que les conseils les préparent au succès en combinant une intégration complète, une intégration réfléchie et une attitude ouverte, réceptive et respectueuse envers leurs contributions.

Nous avons interrogé un groupe de présidents de conseil d’administration et d’administrateurs de la prochaine génération sur plusieurs continents à propos de leur expérience de cette dernière phase de l’évolution des conseils d’administration.

 

Qu’y a-t-il pour la prochaine génération?

 

Avant de rejoindre le conseil d’administration d’une entreprise publique, il est important d’être clair sur la motivation. Pourquoi maintenant ; et pourquoi cette entreprise ? Être un administrateur non exécutif est un engagement important, et vous devez vous assurer que vous et le conseil d’administration considérez que c’est un investissement qui en vaut la peine. Nous constatons que la plupart des administrateurs next-gén sont motivés par trois choses : (1) le développement personnel. (2) la possibilité d’enrichir leur rôle exécutif avec de nouvelles idées et de nouvelles expériences acquises en tant qu’administrateur et (3) le désir de faire une contribution.

Un cadre qui commençait à se familiariser avec son propre conseil estimait qu’il était temps de se joindre à un conseil externe : « Je voulais élargir mon point de vue, acquérir des expériences différentes et voir une entreprise sous un autre angle. Je sentais que cela finirait par faire de moi un leader meilleur et plus efficace ». Une autre gestionnaire d’entreprise a souligné l’occasion unique d’apprendre d’autres personnes plus expérimentées qu’elle-même : « Je pourrais voir que je serais parmi les gens inspirants et que je serais exposé à un secteur différent, mais aussi, à une culture différente et à de nouvelles façons de faire des affaires. “Un troisième a décrit la décision de rejoindre un conseil comme” l’une des choses les plus utiles que j’ai fait dans ma vie ».

Les nouveaux administrateurs citent un certain nombre d’expériences et de compétences qu’ils espèrent acquérir en siégeant à un conseil, allant d’un style de leadership différent et travaillant avec une culture organisationnelle différente à l’apprentissage d’un nouveau secteur ou marché géographique.

Bien sûr, rejoindre un conseil d’administration doit être un exercice mutuellement bénéfique. « C’est utile pour moi parce que j’apprends sur la gouvernance, et sur le fonctionnement interne du conseil ». Je peux appliquer ce que j’apprends dans mon autre travail. Le conseil, quant à lui, obtient quelqu’un avec un ensemble différent de spécialités et une perspective légèrement plus fraîche ; ils ont quelqu’un qui veut être plus ouvert et plus direct, un peu plus non-conformiste par rapport aux autres membres du conseil.

Les présidents de conseil d’administration sont de plus en plus ouverts au recrutement de talents de prochaine génération, citant plusieurs raisons allant du besoin de compétences et de compétences spécifiques à des voix plus diverses à la table. Un président recherchait spécifiquement quelqu’un pour déplacer le centre du débat : « Un nouvel administrateur plus jeune peut voir un dilemme d’un point de vue différent, nous faisant réfléchir à deux fois. Je cherche une personne intègre qui est prête à parler ouvertement et à défier la gestion. Ce que je ne peux pas nécessairement attendre de ces personnes, bien sûr, c’est l’expérience d’avoir vu beaucoup de situations similaires sur 30-40 ans dans les affaires. C’est un compromis, et c’est l’une des raisons pour lesquelles la diversité des âges au sein du conseil est si importante. L’expertise des spécialistes doit être équilibrée avec l’expérience, et avec l’expérience vient un bon jugement ».

 

Préparation au rôle

 

Si vous êtes un dirigeant actif qui rejoint le conseil d’administration d’une entreprise publique, beaucoup de temps est en jeu (ainsi que votre réputation), vous devez donc être sûr que vous prenez la bonne décision. Un processus de vérification préalable approfondi offre non seulement cette sécurité, mais contribue également à accélérer votre préparation au rôle. « Au cours de mes entrevues, j’ai lu énormément de choses sur l’entreprise », a déclaré un administrateur récemment nommé. « J’ai regardé les appels des analystes, j’ai lu les documents de la SEC et j’ai posé beaucoup de questions, en particulier sur la dynamique du conseil. Ils m’ont fait rencontrer tous les membres du conseil d’administration et j’ai pu voir comment ils se parlaient entre eux ».

Il est important d’avoir une compréhension claire de ce que le conseil recherche et de la façon dont vos antécédents et votre expérience ajouteront de la valeur dans le contexte de l’entreprise. Par exemple, bien que les membres du conseil les plus séniors puissent avoir un aperçu raisonnable de la perturbation de l’entreprise, ils n’auront pas d’expérience pratique d’une initiative de transformation numérique. Vous êtes peut-être parfaitement placé pour fournir ces connaissances de première main, mais il se peut que le président du conseil d’administration veuille bien faire face à certaines difficultés, ait appris à relever le défi technologique d’un point de vue commercial et sache quel type de questions poser. Seule une due diligence approfondie révélera si vos attentes sont alignées avec celles du conseil et vous permettront de procéder en toute confiance.

 

Embarquement (Onboarding)

 

L’une des choses les plus courantes que nous entendons des administrateurs de prochaine génération est qu’ils auraient aimé un processus d’intégration plus approfondi avant leur première réunion — c’est quelque chose que les conseils d’administration doivent clairement aborder. Il revient souvent aux nouveaux administrateurs de prendre l’initiative et de concevoir un programme qui les aidera à s’intégrer dans l’entreprise. « Une grande partie de l’immersion dont j’ai eu besoin est venue des étapes que j’ai suivies moi-même », a déclaré un administrateur qui estimait que rencontrer quelques dirigeants et présidents de comité du conseil ainsi qu’une lecture du matériel fourni par le secrétaire de la société constituait une préparation insuffisante.

Un bon programme d’initiation comprendra des présentations de la direction sur le modèle d’affaires, la rentabilité et la performance ; visites de site ; et des réunions avec des conseillers externes tels que des comptables, des banquiers et des courtiers. Assister avec le responsable des relations avec les investisseurs pour revoir les perspectives des investisseurs et des analystes peut aussi être utile.

Les administrateurs de la prochaine génération ont demandé à rencontrer les chefs d’entreprise pour un examen plus détaillé d’une filiale ou d’une activité particulière où leur propre expérience est particulièrement pertinente. Dans une entreprise de vente au détail, par exemple, il serait logique de rencontrer le responsable du merchandising d’un magasin phare pour se familiariser avec le positionnement des produits et l’expérience client.

Le temps passé avec le PDG pour en apprendre davantage sur l’entreprise est essentiel. La plupart des chefs d’entreprise seront ravis de faire en sorte que le nouvel administrateur puisse voir directement les principaux projets et rencontrer les personnes qui les dirigent, ainsi que passer du temps avec d’autres membres de l’équipe de la haute direction. « Ils étaient complètement ouverts à la possibilité de rencontrer d’autres personnes, mais cela ne faisait pas partie du programme d’initiation formel. J’ai trouvé ces conversations les plus éclairantes parce que je me suis simplement rapproché de l’entreprise et du travail. »

Un président d’une société de produits de consommation a ajouté une touche intéressante à l’intégration d’un nouvel administrateur nommé pour son expérience de leadership en matière de commerce électronique. Il a invité la nouvelle recrue à faire une présentation à toute l’équipe de direction au sujet de son propre cheminement. « Le genre de perturbation et la vitesse à laquelle fonctionne sa société en ligne étaient stupéfiants, et cet exercice s’est avéré une source d’apprentissage pour le conseil d’administration et l’équipe de direction », a déclaré le président. « Cela a également renforcé sa crédibilité auprès du reste du conseil ».

 

Faire la transition à un rôle d’administrateur non exécutif

 

La plupart des administrateurs de la prochaine génération comprennent qu’ils devront aborder les responsabilités de leur conseil d’une manière différente d’un rôle exécutif, mais la plupart sous-estiment les difficultés à faire cette transition dans la pratique.

Il est important d’être en mesure de faire la distinction entre les questions sur lesquelles seul le conseil peut se prononcer (par exemple, la relève du chef de la direction) et les sujets que le conseil doit laisser à la direction (questions opérationnelles). La stratégie est un domaine où, dans la plupart des marchés, le conseil d’administration et la direction ont tendance à collaborer étroitement, mais il y a beaucoup d’autres moyens où les administrateurs de la prochaine génération peuvent apporter leur expertise particulière.

Cependant, il faut du temps pour apprendre comment ajouter de la valeur aux discussions du conseil sans pour autant saper l’autorité de la direction. L’écoute et l’apprentissage sont un aspect crucial pour gagner le respect et la crédibilité auprès du reste du conseil. « Il faut être très conscient du moment où il faut intervenir, quand il est nécessaire d’insister sur un sujet difficile, et quand il faut prendre du recul », explique un administrateur. « La compétence consiste à poser la bonne question de la bonne façon — à ne pas affaiblir ou à décourager la direction, mais à les encourager à voir les choses un peu différemment ».

En tant qu’administrateur non exécutif, vous devez vous engager à un niveau supérieur et de manière plus détachée que dans votre rôle exécutif. Avec des réunions mensuelles ou bimestrielles, il peut être difficile de déterminer si vous ajoutez de la valeur, ou même à quoi ressemble la valeur, surtout lorsque votre travail régulier implique de prendre la responsabilité d’une exécution de haute qualité. En tant qu’administrateur non exécutif, vous pouvez voir des choses qui doivent être prises en compte et vouloir vous impliquer plus activement, mais vous devez faire confiance en la capacité de l’équipe de direction à le faire. « J’avais l’impression que le conseil d’administration pourrait être un peu plus engagé. Nous avons des zones très précises dans lesquelles nous sommes censés contribuer à orienter les décisions et les actions, et il y en a d’autres où nous sommes plus consultatifs ; c’est une question de trouver le bon équilibre ».

Cependant, le travail des administrateurs de prochaine génération ne commence pas et ne se termine pas avec les réunions du conseil d’administration. Beaucoup interagiront avec la direction en dehors des réunions. Un directeur britannique nommé pour son expertise numérique prend le temps de se mettre à jour avec l’équipe numérique de l’entreprise lorsqu’elle est à New York « pour savoir à quoi ils travaillent, comprendre ce qui les motive et quelles sont leurs préoccupations ». Un nouvel administrateur indépendant a été invité par le PDG (CEO) à passer une journée avec l’équipe de management du développement de l’entreprise, après quoi il a passé en revue l’expérience client. « J’ai reçu des commentaires très clairs, mais je me suis contenté de l’envoyer au chef de la direction, pas à l’équipe que j’ai rencontrée ou à un autre membre du conseil ». Offrir de l’aide à l’équipe de direction de façon informelle.

Votre rôle n’est pas nécessairement de comprendre les problèmes, mais de proposer des idées et de poser des questions à l’équipe de direction.

 

Obtenir de la rétroaction

 

Les administrateurs de prochaine génération qui sont habitués à recevoir des commentaires dans leur capacité de direction peuvent avoir du mal à s’adapter à un rôle où il est moins facilement disponible. « La rétroaction est la chose la plus difficile à laquelle je me suis attaqué », explique un administrateur. « Avec votre propre entreprise, c’est un succès ou pas. Si vous êtes un employé, on vous dit si vous faites du bon travail. Ce n’est pas le cas sur un conseil ».

Les nouveaux administrateurs doivent identifier une personne avec laquelle ils se sentent à l’aise et qui peut leur offrir un aperçu de certaines des règles non écrites du conseil. Certains préfèrent une relation de mentorat plus formelle avec un membre du conseil d’administration, mais cette idée ne plaît pas à tout le monde. Des vérifications régulières auprès du président du conseil (et du chef de la direction) les aideront à évaluer leur rendement et à apprendre comment ils peuvent offrir une contribution plus utile.

Au-delà de la rétroaction individuelle informelle, le conseil peut avoir un processus pour fournir une rétroaction à chaque administrateur dans le cadre de l’auto-évaluation annuelle du conseil. Sur les conseils où cette pratique est en place, les administrateurs de la prochaine génération ont tendance à être très à l’aise avec elle et à accueillir les commentaires. S’il n’y a pas de processus de rétroaction individuelle des administrateurs en place, l’administrateur de la prochaine génération peut servir de catalyseur pour établir cette saine pratique en s’enquérant directement à ce sujet.

 

Le rôle du président du conseil

 

Les présidents de conseil ont une influence significative sur le succès des administrateurs de prochaine génération dans le rôle. Il peut être difficile d’arriver à un conseil qui compte beaucoup d’administrateurs plus âgés et plus expérimentés, en particulier s’il existe une dynamique « collégiale » établie de longue date. Le président a la double tâche de guider le nouvel administrateur, tout en s’assurant que les autres membres du conseil restent ouverts aux nouvelles idées et perspectives que celui-ci apporte au conseil. Cela peut impliquer de travailler dur pour encourager les relations à se développer à un niveau personnel, ce qui permettra ensuite d’émettre des points de vue divergents, et même dissidents sur le plan professionnel.

Un président peut faire un certain nombre de choses pour soutenir l’administrateur de la prochaine génération, par exemple : s’intéresser de près au processus d’intégration ; fournir un encadrement sur la meilleure façon de représenter les intérêts des investisseurs ; offrir des commentaires constructifs après les réunions ; et encourager le nouvel administrateur à se tenir à l’écart plutôt que de jouer la carte de la sécurité et à simplement s’aligner sur la culture existante du conseil d’administration. Comme l’a dit un président : « Certains conseils se méfient d’un nouvel administrateur qui pense différemment et qui menace, bien que respectueusement, de faire bouger les choses. Mais parfois, vous avez besoin que le nouvel administrateur perturbe le conseil avec des idées nouvelles, acceptant que cela puisse entraîner un changement culturel. C’est mon travail de laisser cela se produire ». Cela dit, si un nouvel administrateur est en désaccord avec certains éléments contenus dans la documentation du conseil d’administration ou s’il ne comprend pas, il serait sage d’en discuter avec le président du conseil en premier lieu.

Pour le nouvel administrateur, l’adaptation à la structure et à la formalité des réunions du conseil d’administration signifie adopter une approche mesurée et s’inspirer de la décision du président, en particulier à contre-courant. « Bien que je n’aie assisté qu’à trois réunions, je teste les barrières qui font que je peux être ouvert et direct, tout en en apprenant davantage sur l’entreprise », rapporte un administrateur. Un autre a défendu une position non partagée par la majorité du conseil d’administration, convaincu que le président est heureux de donner une tribune à ses opinions. Vous devez être respectueux et faire valoir votre point de vue et vos arguments, mais si ceux-ci ne prévalent pas, c’est bien aussi. Bien sûr, si cela devient une question de principe, vous êtes toujours libre de démissionner, n’est-ce pas ?

 

Vers un nouveau genre de conseil

 

Au fur et à mesure que les entreprises relèvent de nouveaux défis et qu’une jeune génération de cadres issus de milieux très différents accède à des postes d’administrateurs indépendants, les conseils d’administration devront trouver le bon équilibre entre expérience et pertinence. Ils devront également devenir plus dynamiques en matière de composition, de diversité, de discussion et d’occupation. Les administrateurs de longue date qui s’intéressent à la gouvernance et à la gestion des risques côtoieront des représentants de la prochaine génération nommés pour leur excellente connaissance du domaine ou leur expérience en temps réel des environnements transformationnels, mais le mandat de ces administrateurs sera probablement plus court que la moyenne actuelle.

Les conseils doivent être réalistes quant à la durée du mandat d’un candidat de la prochaine génération. Ils doivent également réfléchir soigneusement à la question de savoir si cet administrateur se sentirait moins isolé et plus efficace s’il était accompagné par un autre administrateur d’un âge et d’un passé similaires. « En tant que femme, j’ai été une minorité tout au long de ma carrière, donc c’est étrange d’être une minorité à cause de mon expertise numérique », a déclaré une administratrice. Tout comme la présence d’autres femmes au sein du conseil d’administration réduit le fardeau d’une femme administratrice, il y a lieu de nommer deux ou plusieurs administrateurs de la nouvelle génération.

Les conseils d’administration résolus à rester au fait des problèmes critiques affectant leurs entreprises devraient considérer les avantages potentiels de nommer au moins un administrateur de la prochaine génération, non seulement pour leur expertise, mais aussi pour leur capacité à apporter une pensée alternative et des perspectives multipartites dans la salle du conseil. Soutenus par un président du conseil attentif et par des administrateurs ouverts d’esprit, les administrateurs de la prochaine génération peuvent avoir un impact positif et durable sur l’efficacité du conseil en cette période de changement sans précédent.

La gouvernance des grandes institutions bancaires européennes au cours des dix années qui ont suivi la crise financière des 2008


Voici un article publié par Lisa Andersson*, directrice de la recherche à Aktis et Stilpon Nestor, paru sur le site du Forum de Harvard Law School, qui brosse un portrait de l’évolution de la gouvernance des grandes institutions bancaires européennes au cours des dix années qui ont suivi la crise financière des 2008.

Je vous invite à prendre connaissance de ce document illustré d’infographies très éclairantes. J’ai reproduit, ci-dessous, l’introduction à l’article.

Si vous avez un intérêt pour la gouvernance dans le milieu bancaire, cet article est pour vous.

Bonne lecture ! Vos commentaires sont les bienvenus.

 

Governance of the 25 Largest European Banks a Decade After the Crisis

 

 

Résultats de recherche d'images pour « gouvernance bancaire européenne »

 

 

This summer marked the 10-year anniversary of the start of the global financial crisis. Over the 18 months following August 2007, several bank collapses in the United States, Germany and Britain, culminating with the demise of Lehman Brothers in September 2008 shook the financial system to its core. The interconnectivity of the world’s financial system meant that the repercussions would be felt globally, and on a monumental scale. The US Department of the Treasury has estimated that total household wealth would lose some $19.2 trillion following a publicly-funded government bailout program. Over the last decade governments, regulators, banks and their investors have revamped the financial system and its supervision in order to recover the public subsidy and prevent a similar crash from happening again.

In Europe, politicians and regulators at both the national and European level abandoned the path of deregulation and dramatically increased regulatory requirements and the scope of prudential supervision with an unparalleled focus on governance. The Capital Requirements Directive IV (CRD IV) and the ensuing European Banking Authority (EBA) and European Central Bank (ECB) guidance implied stricter suitability reviews for board members and senior management, along with individual responsibility and in some cases criminal liability of non-executive directors (“NEDs”), as well as strict limits on variable remuneration. Higher regulatory requirements were compounded by the creation of a single supervisor for all systemic Eurozone banks. In many countries, especially the smaller ones, familiarity with supervisors usually allow a larger margin of forbearance and greater tolerance in assuming local sovereign risk. This has since disappeared. New rules and stricter oversight practices in the financial industry have translated into higher governance requirements and expectations for European banks’ boards of directors and senior management. So how do the boards and management committees of the top European banks measure up to their former selves? Data from the 25 largest listed banks [1] in Europe shows that boards today are smaller, work harder, and have a higher level of expertise than a decade ago.

While board sizes are getting smaller, the number of committees supporting the board has consistently grown over the years. This is in part driven by the mandatory separation of the audit and risk committee into two separate committees, but also by a general trend towards establishing more and more committees focusing on regulatory and compliance issues, as well as bank culture, conduct and reputation.

On average, 86% of board membership has been refreshed post-crisis. New board members brought with them greater independence, banking experience and general financial expertise among NEDs, as well as an improved gender balance on the board. In fact, women now comprise on average 34% of top European banks’ board membership, a development largely driven by national initiatives. Another significant change since 2007 is the fact that all the bank boards in the group now conduct regular assessments of the effectiveness of the board, a Capital Requirements Directive IV (CRD IV) requirement. The disclosure of this process has also improved significantly, with 48% of banks now disclosing specific challenges identified and actions taken to address these.

The role of a bank NED has evolved post-crisis. With increased scrutiny, boards of financial institutions are now required to adopt a more hands-on approach, requiring a greater time-commitment by their non-executive directors. On average, the workload per director has increased by over 30% compared to pre-crisis levels.

In contrast to the board, the size of management committees has grown in recent years. The top management committee now tend to include more heads of functions, reflected by the increased presence of the Chief Risk Officer, Head of Compliance and Head of Legal. Despite the positive development of a better gender balance on the board of directors, the number of women on the highest management committee has not increased significantly over the last ten years. This may suggest that the “top-down” approach of board quotas adopted in many European countries might be less than effective in promoting gender equality.

*Lisa Andersson is Head of Research of Aktis and Stilpon Nestor is Managing Director and Senior Advisor at Nestor Advisors. This post is based on their recent Nestor Advisors/Aktis publication.