La gouvernance des CÉGEPS | Une responsabilité partagée

Nous publions ici un cinquième billet de Danielle Malboeuf* laquelle nous a soumis ses réflexions sur les grands enjeux de la gouvernance des institutions d’enseignement collégial les 23 et 27 novembre 2013, le 24 novembre 2014 et le 4 septembre 2015, à titre d’auteure invitée.

Dans un premier article, publié le 23 novembre 2013 sur ce blogue, on insistait sur l’importance, pour les CA des Cégeps, de se donner des moyens pour assurer la présence d’administrateurs compétents dont le profil correspond à celui qui est recherché. D’où les propositions adressées à la Fédération des cégeps et aux CA pour élaborer un profil de compétences et pour faire appel à la Banque d’administrateurs certifiés du Collège des administrateurs de sociétés (CAS), le cas échéant. Un autre enjeu identifié dans ce billet concernait la remise en question de l’indépendance des administrateurs internes.

Le deuxième article publié le 27 novembre 2013 abordait l’enjeu entourant l’exercice de la démocratie par différentes instances au moment du dépôt d’avis au conseil d’administration.

Le troisième article portait sur l’efficacité du rôle du président du conseil d’administration (PCA).

Le quatrième billet abordait les qualités et les caractéristiques des bons administrateurs dans le contexte du réseau collégial québécois (CÉGEP)

Dans ce cinquième billet, l’auteure réagit aux préoccupations actuelles de la ministre de l’Enseignement supérieur eu égard à la gouvernance des CÉGEPS.

La gouvernance des CÉGEPS | Une responsabilité partagée

par

Danielle Malboeuf*

Dans les suites du rapport de la vérificatrice générale portant sur la gestion administrative des Cégeps, la ministre de l’Enseignement supérieur, madame Hélène David a demandé au ministère un plan d’action pour améliorer la gouvernance dans le réseau collégial. Voici un point de vue qui pourrait enrichir sa réflexion.

Rappelons que pour atteindre de haut standard d’excellence, les collèges doivent compter sur un conseil d’administration (CA) performant dont les membres font preuve d’engagement, de curiosité et de courage tout en possédant les qualifications suivantes : crédibles, compétents, indépendants, informés et outillés.

Considérant l’importance des décisions prises par les administrateurs, il est essentiel que ces personnes possèdent des compétences et une expertise pertinente. Parmi les bonnes pratiques en gouvernance, les CA devraient d’ailleurs élaborer un profil de compétences recherchées pour ses membres et l’utiliser au moment de la sélection des administrateurs. Au moment de solliciter la nomination d’un administrateur externe auprès du gouvernement, ce profil devrait être fortement recommandé. Sachant que chacun des 48 CA des Collèges d’enseignement général et professionnel compte sept personnes nommées par la ministre pour un mandat de trois ans renouvelable, il est important de lui rappeler l’importance d’en tenir compte.

Il est également essentiel qu’elle procède à ces nominations dans les meilleurs délais. À l’heure actuelle, on constate que, dans certains cas, le délai pour nommer et remplacer des administrateurs externes peut être de plusieurs mois. Cette situation est doublement préoccupante quand plusieurs membres quittent le CA en même temps. Sachant qu’il existe une banque de candidats dûment formés par le Collège des administrateurs de sociétés et des membres de plusieurs ordres professionnels qui répondent au profil de compétences recherchées par les collèges, il serait pertinent de recruter des candidats parmi ces personnes.

De plus, pour être en présence d’administrateurs performants, il est essentiel que ces personnes soient au fait de leurs rôles et responsabilités. Des formations devraient donc leur être offertes. Toutefois, cette formation ne doit pas se limiter à leur faire connaître les obligations légales et financières qui s’appliquent au réseau collégial, mais les bonnes pratiques de gouvernance doivent également leur être enseignées. À ce sujet, il faut se réjouir du souhait formulé par madame David afin d’offrir des formations en ce sens.

Signalons aussi que les administrateurs ne devraient pas se retrouver en situation de conflit d’intérêts. Ainsi, il faut s’assurer, entre autres, que les administrateurs internes ne subissent pas de pressions des groupes d’employés dont ils proviennent. Les conseils d’administration des collèges comptent quatre membres du personnel qui enrichissent les échanges par leurs expériences pertinentes. La Loi sur les collèges prévoit que ces administrateurs internes sont élus par leurs pairs. Dans plusieurs collèges, le processus de sélection est confié au syndicat qui procède à l’élection de leur représentant au conseil d’administration lors d’une assemblée syndicale. Ces personnes peuvent subir des pressions surtout quand certains syndicats inscrivent dans leur statut et règlement que ces personnes doivent représenter l’assemblée syndicale et y faire rapport. D’autres collèges ont prévu des modalités qui respectent beaucoup mieux l’esprit de la loi. On confie au secrétaire général, le mandat de recevoir les candidatures et de procéder dans le cadre de processus convenu à la sélection de ces personnes. Cette dernière pratique devrait être encouragée.

Considérant les pouvoirs du CA qui agit tant sur les aspects financiers et légaux que sur les orientations du collège, il est essentiel que la direction fasse preuve de transparence et transmette aux membres toutes les informations pertinentes. Pour permettre aux administrateurs de porter des jugements adéquats et de juger de la pertinence et de l’efficacité de sa gestion, le collège doit aussi leur fournir des indicateurs. Sachant que des indicateurs sont présents dans le plan stratégique, les administrateurs devraient, donc porter une attention toute particulière à ces indicateurs, et ce, sur une base régulière.

Par ailleurs, les administrateurs ne doivent pas hésiter à poser des questions et à demander des informations additionnelles, le cas échéant. Le président du CA peut, dans ce sens, jouer un rôle essentiel. Il doit, entre autres, porter un regard critique sur les documents qui sont transmis avant les rencontres et encourager la création de sous-comités pour enrichir les réflexions. Considérant le rôle qui lui est confié dans la Loi, les présidents de CA pourraient être tentés de se limiter à jouer un rôle d’animateur de réunions, ce qui n’est pas suffisant.

En résumé, la présence de CA performant dans les Cégeps exige une évolution des pratiques et idéalement, des modifications législatives qui mettront à contribution chacun des acteurs du réseau collégial.

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

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

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

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

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

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

Six mesures pour améliorer la gouvernance des organismes publics au Québec | Yvan Allaire

Je suis tout à fait d’accord avec la teneur de l’article de l’IGOPP, publié par Yvan Allaire* intitulé « Six mesures pour améliorer la gouvernance des organismes publics au Québec », lequel dresse un état des lieux qui soulève des défis considérables pour l’amélioration de la gouvernance dans le secteur public et propose des mesures qui pourraient s’avérer utiles. Celui-ci fut a été soumis au journal Le Devoir, pour publication.

L’article soulève plusieurs arguments pour des conseils d’administration responsables, compétents, légitimes et crédibles aux yeux des ministres responsables.

Même si la Loi sur la gouvernance des sociétés d’État a mis en place certaines dispositions qui balisent adéquatement les responsabilités des C.A., celles-ci sont poreuses et n’accordent pas l’autonomie nécessaire au conseil d’administration, et à son président, pour effectuer une véritable veille sur la gestion de ces organismes.

Selon l’auteur, les ministres contournent allègrement les C.A., et ne les consultent pas. La réalité politique amène les ministres responsables à ne prendre principalement avis que du PDG ou du président du conseil : deux postes qui sont sous le contrôle et l’influence du ministère du conseil exécutif ainsi que des ministres responsables des sociétés d’État (qui ont trop souvent des mandats écourtés !).

Rappelons, en toile de fond à l’article, certaines dispositions de la loi :

– Au moins les deux tiers des membres du conseil d’administration, dont le président, doivent, de l’avis du gouvernement, se qualifier comme administrateurs indépendants.

– Le mandat des membres du conseil d’administration peut être renouvelé deux fois

– Le conseil d’administration doit constituer les comités suivants, lesquels ne doivent être composés que de membres indépendants :

1 ° un comité de gouvernance et d’éthique ;

2 ° un comité d’audit ;

3 ° un comité des ressources humaines.

– Les fonctions de président du conseil d’administration et de président-directeur général de la société ne peuvent être cumulées.

– Le ministre peut donner des directives sur l’orientation et les objectifs généraux qu’une société doit poursuivre.

– Les conseils d’administration doivent, pour l’ensemble des sociétés, être constitués à parts égales de femmes et d’hommes.

Yvan a accepté d’agir en tant qu’auteur invité dans mon blogue en gouvernance. Voici donc son article.

Six mesures pour améliorer la gouvernance des organismes publics au Québec

par Yvan Allaire*

La récente controverse à propos de la Société immobilière du Québec a fait constater derechef que, malgré des progrès certains, les espoirs investis dans une meilleure gouvernance des organismes publics se sont dissipés graduellement. Ce n’est pas tellement les crises récurrentes survenant dans des organismes ou sociétés d’État qui font problème. Ces phénomènes sont inévitables même avec une gouvernance exemplaire comme cela fut démontré à maintes reprises dans les sociétés cotées en Bourse. Non, ce qui est remarquable, c’est l’acceptation des limites inhérentes à la gouvernance dans le secteur public selon le modèle actuel.

En fait, propriété de l’État, les organismes publics ne jouissent pas de l’autonomie qui permettrait à leur conseil d’administration d’assumer les responsabilités essentielles qui incombent à un conseil d’administration normal : la nomination du PDG par le conseil (sauf pour la Caisse de dépôt et placement, et même pour celle-ci, la nomination du PDG par le conseil est assujettie au veto du gouvernement), l’établissement de la rémunération des dirigeants par le conseil, l’élection des membres du conseil par les « actionnaires » sur proposition du conseil, le conseil comme interlocuteur auprès des actionnaires.

Ainsi, le C.A. d’un organisme public, dépouillé des responsabilités qui donnent à un conseil sa légitimité auprès de la direction, entouré d’un appareil gouvernemental en communication constante avec le PDG, ne peut que difficilement affirmer son autorité sur la direction et décider vraiment des orientations stratégiques de l’organisme.

Pourtant, l’engouement pour la « bonne » gouvernance, inspirée par les pratiques de gouvernance mises en place dans les sociétés ouvertes cotées en Bourse, s’était vite propagé dans le secteur public. Dans un cas comme dans l’autre, la notion d’indépendance des membres du conseil a pris un caractère mythique, un véritable sine qua non de la « bonne » gouvernance. Or, à l’épreuve, on a vite constaté que l’indépendance qui compte est celle de l’esprit, ce qui ne se mesure pas, et que l’indépendance qui se mesure est sans grand intérêt et peut, en fait, s’accompagner d’une dangereuse ignorance des particularités de l’organisme à gouverner.

Ce constat des limites des conseils d’administration que font les ministres et les ministères devrait les inciter à modifier ce modèle de gouvernance, à procéder à une sélection plus serrée des membres de conseil, à prévoir une formation plus poussée des membres de C.A. sur les aspects substantifs de l’organisme dont ils doivent assumer la gouvernance.

Or, l’État manifeste plutôt une indifférence courtoise, parfois une certaine hostilité, envers les conseils et leurs membres que l’on estime ignorants des vrais enjeux et superflus pour les décisions importantes.

Évidemment, le caractère politique de ces organismes exacerbe ces tendances. Dès qu’un organisme quelconque de l’État met le gouvernement dans l’embarras pour quelque faute ou erreur, les partis d’opposition sautent sur l’occasion, et les médias aidant, le gouvernement est pressé d’agir pour que le « scandale » s’estompe, que la « crise » soit réglée au plus vite. Alors, les ministres concernés deviennent préoccupés surtout de leur contrôle sur ce qui se fait dans tous les organismes sous leur responsabilité, même si cela est au détriment d’une saine gouvernance.

Ce brutal constat fait que le gouvernement, les ministères et ministres responsables contournent les conseils d’administration, les consultent rarement, semblent considérer cette agitation de gouvernance comme une obligation juridique, un mécanisme pro-forma utile qu’en cas de blâme à partager.

Prenant en compte ces réalités qui leur semblent incontournables, les membres des conseils d’organismes publics, bénévoles pour la plupart, se concentrent alors sur les enjeux pour lesquels ils exercent encore une certaine influence, se réjouissent d’avoir cette occasion d’apprentissage et apprécient la notoriété que leur apporte dans leur milieu ce rôle d’administrateur.

Cet état des lieux, s’il est justement décrit, soulève des défis considérables pour l’amélioration de la gouvernance dans le secteur public. Les mesures suivantes pourraient s’avérer utiles :

Relever considérablement la formation donnée aux membres de conseil en ce qui concerne les particularités de fonctionnement de l’organisme, ses enjeux, ses défis et critères de succès. Cette formation doit aller bien au-delà des cours en gouvernance qui sont devenus quasi-obligatoires. Sans une formation sur la substance de l’organisme, un nouveau membre de conseil devient une sorte de touriste pendant un temps assez long avant de comprendre suffisamment le caractère de l’organisation et son fonctionnement.
Accorder aux conseils d’administration un rôle élargi pour la nomination du PDG de l’organisme ; par exemple, le conseil pourrait, après recherche de candidatures et évaluation de celles-ci, recommander au gouvernement deux candidats pour le choix éventuel du gouvernement. Le conseil serait également autorisé à démettre un PDG de ses fonctions, après consultation du gouvernement.
De même, le gouvernement devrait élargir le bassin de candidats et candidates pour les conseils d’administration, recevoir l’avis du conseil sur le profil recherché.
Une rémunération adéquate devrait être versée aux membres de conseil ; le bénévolat en ce domaine prive souvent les organismes de l’État du talent essentiel au succès de la gouvernance.
Rendre publique la grille de compétences pour les membres du conseil dont doivent se doter la plupart des organismes publics ; fournir une information détaillée sur l’expérience des membres du conseil et rapprocher l’expérience/expertise de chacun de la grille de compétences établie. Cette information devrait apparaître sur le site Web de l’organisme.
Au risque de trahir une incorrigible naïveté, je crois que l’on pourrait en arriver à ce que les problèmes qui surgissent inévitablement dans l’un ou l’autre organisme public soient pris en charge par le conseil d’administration et la direction de l’organisme. En d’autres mots, en réponse aux questions des partis d’opposition et des médias, le ministre responsable indique que le président du conseil de l’organisme en cause et son PDG tiendront incessamment une conférence de presse pour expliquer la situation et présenter les mesures prises pour la corriger. Si leur intervention semble insuffisante, alors le ministre prend en main le dossier et en répond devant l’opinion publique.

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*Yvan Allaire, Ph. D. (MIT), MSRC Président exécutif du conseil, IGOPP Professeur émérite de stratégie, UQÀM

Bâtir un conseil d’administration à « valeur ajoutée »

La question que pose l’auteur Robyn Bew, directeur à la National Association of Corporate Directors (NACD), est directe et d’une grande importance : Les Boards sont-ils prêts pour affronter les changements des 20 dernières années ?

En effet, cela fait déjà vingt ans que le rapport du NACD (Blue Ribbon Commission on Director Professionalism) a fait ses recommandations sur les principes de saine gouvernance.

Cet article nous invite à revisiter les règles de gouvernance à la lumière des changements significatifs survenus depuis 20 ans.

Il ne s’agit pas de rafraîchir la composition du CA, mais plutôt de s’assurer que ce dernier constitue un actif stratégique durable.

L’article a été publié aujourd’hui sur le site du Harvard Law School Forum on Corporate Governance.

Bonne lecture !

Building the Strategic-Asset Board

In 1996, the Report of the NACD Blue Ribbon Commission on Director Professionalism made recommendations on issues including establishing mechanisms for appropriate director turnover/tenure limitations, evaluation of the full board and of individual directors, and ongoing director education. [1] It stated, “the primary goal of director selection is to nominate individuals who, as a group, offer a range of specialized knowledge, skills, and expertise that can contribute to the successful operation of the company,” and advocated that boards must “[expand] the pool of potential nominees considered to include a more diverse range of qualified candidates who meet established criteria.”[2]

Twenty years later, the world in which boards operate has been transformed in fundamental ways, including increased complexity in the business environment; rapidly changing technology; volatility in global politics as well as in international economic and trade flows; the proliferation of information; the presence of major threats such as cyberattacks; higher levels of engagement between companies, boards, and investors of all stripes, including activists; new regulatory requirements; and greater levels of scrutiny from the press and the public. The velocity of the changes directors are facing shows no signs of slowing down.

The NACD 2016 Blue Ribbon Commission began its dialogue by asking whether boards are keeping up, and concluded that there is no single answer. It is clear that advancing director ages and tenures, coupled with low boardroom turnover, are external symptoms that are of increasing concern to investors and other stakeholders. But equally—if not more—significant is the question of whether a board’s composition, director skill sets, and core board processes remain fit-for-purpose in a world where the board’s mandate is evolving in fundamental ways, including but not limited to earlier involvement in strategy-setting discussions with management and greater engagement between designated board members and major investors. This new mandate places substantially different demands on directors, and boards need to ask themselves, “Are we ready?”

Many stakeholders are focused on encouraging higher levels of director turnover—often termed “board refreshment”—through the use of tenure-limiting mechanisms. We believe that such mechanisms can help to drive needed change in the boardroom, but alone they are not sufficient to ensure that boards truly remain fit for-purpose over time. We are encouraging directors to think more holistically, and more ambitiously. Business as-usual approaches will not be sufficient.

As a starting point, directors should review the organization’s corporate governance guidelines, including the board’s mission and key operating principles. Are all board members familiar with them? How often are they reviewed and updated? How rigorously have they been implemented? Do they help to foster a culture of continuous improvement and ongoing learning?

Boards are unique entities. While (in the case of public companies) they are elected by and accountable to shareholders, they are self-constituting, self-evaluating, self-compensating, and self-perpetuating: that is, in the normal course of business, they control their own composition and succession planning. This also means that boards are equipped to take action to elevate their performance on an entirely self-directed, voluntary basis—and they should do so. Otherwise, if board leadership appears to be passive or slow to act in the face of a challenging competitive environment and greater scrutiny from all angles, directors should prepare for the possibility of “shock treatments” imposed from the outside, in the form of activist challenges, regulatory mandates, or quotas. Put another way, without sufficient and timely evolution, boards could face revolution.

Beyond “Board Refreshment”: Building a Strategic-Asset Board

Too many companies still view changes in their boardrooms as necessary primarily on an incremental basis and from the standpoint of director replacement—i.e., responding to the loss of directors due to age or other reasons for departure in a fairly reactive, one-off manner. And while (as noted above) the idea of “board refreshment” has attracted increasing attention in the corporate governance community, as well as with regulators and the press, in the words of one Commissioner, “the current definition [of board refreshment] can still be somewhat limiting—it can imply change for the sake of change.”

The Commission advocates a more ambitious approach, centered on proactive measures that help to build a strategic-asset board. Characteristics of this approach include:

A focus on continuous improvement of overall board composition, individual director skills, and boardroom processes—collectively aimed at achieving and maintaining a high-performance board—rather than a primarily reactive or event-driven approach to board change. One indicator of well-established continuous-improvement processes is that they are used in times of good performance, not just when the company is in a down cycle or facing external challenge

Using the company’s current and future needs as the starting point for determining board composition. Such an approach will certainly include considerations about maintaining an appropriate level of continuity and institutional memory in the boardroom—but in the words of Vanguard CEO Bill McNabb, “To be frank, board members cannot be more worried about their own seats than they are about the future of the company they oversee.”[3]

A set of tools and processes that works together as a system for continuous improvement—avoiding what one Commissioner called the “formulaic approach” of overreliance on automatic tenure-limiting mechanism

While outcomes will be specific to individual boards, in general, we expect to see improvements such as the following:

Boards that are composed of directors who collectively have the right skills and insights to support the formulation and execution of the organization’s strategy—in other words, boards where it is clear that the whole is greater than the sum of the parts

Boards that have the ability to adapt and retool themselves over time, so that they are able to maintain a superior level of oversight and guidance and evolve as the organization’s strategy and competitive environment evolve

Boards that are transparent in their communications with investors and other stakeholders about who they are and how they operate

SECTION 1 of the report describes the ways in which the board’s mandate has evolved in response to external factors and strategic imperatives, and outlines the ways in which the Commission believes boards must respond: by moving beyond traditional approaches to “board refreshment” and establishing a system for continuous improvement in the boardroom.

SECTION 2 explores the key dimensions of continuous improvement, focusing on seven areas in particular: board leadership and oversight responsibilities; board composition and succession planning; recruiting and onboarding new directors; processes for board evaluation; continuing education; tenure-limiting mechanisms; and communication with shareholders and stakeholders.

SECTION 3 summarizes the Commission’s recommendations, and the Appendices provide tools and related resources to help boards implement the recommendations.

NACD has characterized the mission of the board as “[becoming] a strategic asset of the company measured by the contributions we make—collectively and individually—to the long-term success of the enterprise.” [4] We believe this report will help directors in organizations of all sizes and in all sectors to do exactly that.

Recommendations of the 2016 NACD Blue Ribbon Commission

Boards should review their governance principles on a regular basis (at least every other year) to ensure they are complete, up-to-date, and fully understood by current members and director candidates. Governance principles should incorporate a definition of director responsibilities, including a commitment to ongoing learning and the belief that service on the board should not be considered to be a permanent appointment.

The nominating and governance committee should oversee the board’s processes for continuous improvement, working in close coordination with the nonexecutive chair or lead director and with the endorsement of the full board.

Director renominations should not be a default decision, but an annual consideration based on a number of factors, including an assessment of current and future skill sets and leadership styles that are needed on the board.

Nominating and governance committees should develop a “clean-sheet” assessment of the board’s needs in terms of director skill sets and experience at least every two to three years, and use it as an input in continuous-improvement efforts (including recruitment and director education).

The director recruitment process should have a time horizon that matches the organization’s long-term strategy, typically three to five years or more. The process should be designed to include candidates from diverse backgrounds.

Recruiting and onboarding processes should familiarize prospective and new directors with the board’s governance principles and set expectations regarding criteria for renomination, ongoing director education, and other aspects of continuous improvement as defined by the board.

Conduct annual evaluations at the full-board level, and evaluations of committees and individual directors at least once every two years. Use a qualified independent third party on a periodic basis, to encourage candor and add a neutral perspective.

Participation in continuing education should be a requirement for all directors, regardless of experience level or length of board tenure.

Tenure is an important aspect of boardroom diversity. Nominating and governance committees should strive for a mix of tenures on the board—for example, maintaining a composition that includes at least one director with <5, 5–10, and >10 years of service.

High-performance boards will not need to rely exclusively on tenure-limiting mechanisms to ensure appropriate board turnover and composition. However, boards that use such policies should consider replacing or combining retirement age with a maximum term of service.

Communications with investors and other key stakeholders should include a detailed explanation of the link between the organization’s strategic needs and the board’s composition and skill sets, as well as information about the board’s continuous-improvement processes.

Tools for Directors

The report’s 12 appendices enable boards to benchmark their current practices and implement the report’s recommendations. Examples of appendix content are below.

Early Engagement: Going Beyond Traditional Board Succession Planning

A reference list of more than 25 questions to help directors evaluate the board’s ability to manage succession planning as a portfolio, instead of as a series of one-off replacements of individual directors; the strength of the board’s search capabilities, including early-engagement activities and the depth of the candidate pipeline; and the role that board and company culture play in succession planning.

Considerations for Upgrading Board Evaluation Processes

The appendix provides guidance to help boards

establish effective, ongoing rhythms for evaluation processes;

avoid “evaluation fatigue”;

inform the use of third-party facilitators;

make evaluations more holistic by incorporating input from management; and

act on evaluation results.

Guidelines for Developing Board and Individual-Director Learning Agendas

The appendix includes frameworks and questions to help inform full-board and individual-director education activities:

Suggested categories and topic areas for education, with sourcing strategies

A personal learning and development checklist for directors

Outline of a “lifecycle approach” to learning and development for the board, with components of a global director leadership profile

Tools, Templates, and Examples

Multiyear board succession planning matrix

Sample board and committee-level evaluation questions

New-director onboarding checklist

Examples of effective disclosures of director skills, board evaluations, and director education

Examples of corporate governance principles and board tenure policies

* * *

The complete publication is available exclusively to NACD members and is available for download here.

Endnotes:

1NACD, Report of the Blue Ribbon Commission on Director Professionalism, 2011 ed. (Washington, DC: NACD, 2011), pp. 12, 5, 15, 10.(go back)

2Ibid., p. 13.(go back)

3F. William McNabb III, Getting to Know You: The Case for Significant Shareholder Engagement, Harvard Law School Forum on Corporate Governance and Financial Regulation, June 24, 2015.(go back)

4NACD, Report of the Blue Ribbon Commission on Board Evaluation: Improving Director Effectiveness, 3rd ed. (Washington, DC: NACD, 2010), p. 2.(go back)

Une culture empreinte de corruption mène habituellement à de sérieux manquements organisationnels !

Si l’on pouvait identifier les variables qui contribuent à créer une culture d’entreprise corrompue, pourrait-on prévoir les comportements corporatifs fautifs ?

C’est essentiellement la question de recherche à laquelle Xiaoding Liu, professeur de finance à University of Oregon’s Lundquist College of Business, a tenté de répondre dans un article utilisant une méthodologie originale et une solide analyse.

L’auteur avance qu’une culture d’entreprise souffrant d’un certain degré de corruption, c’est-à-dire ayant une culture interne plus tolérante envers le manque d’éthique, est plus susceptible de mener à des manquements corporatifs significatifs eu égard aux malversations, aux conflits d’intérêts et aux comportements organisationnels «opportunistes».

In particular, they ask whether a firm’s inherent tendency to behave opportunistically is deeply rooted in its corporate culture, commonly defined as the shared values and beliefs of a firm’s employees.

Cet article montre qu’il y a un lien significatif entre une culture interne basée sur de faibles valeurs éthiques et la probabilité d’inconduite de la direction.

De plus, l’article montre que les comportements des employés basés sur de faibles valeurs éthiques sont transmissibles à d’autres organisations et que ces conclusions s’appliquent tout autant à la direction.

C’est la raison pour laquelle les conseils d’administration doivent se préoccuper de la culture de l’entreprise, s’assurer d’avoir le pouls du climat interne et être vigilants eu égard aux manquements à l’éthique.

Il est également crucial de s’assurer d’avoir une équipe d’auditeurs internes indépendants et bien outillés qui se rapporte au comité d’audit de l’entreprise.

À la suite de ce compte rendu, vous aurez sûrement des questions d’ordre méthodologique. Si vous voulez en savoir davantage sur la démarche de l’auteur, je vous encourage fortement, même si c’est ardu, de lire l’article au complet.

Bonne lecture !

Corruption Culture and Corporate Misconduct

A key question in corporate governance is how to control problems arising from conflicts of interest between agents and principals. The existing literature has extensively investigated traditional ways of dealing with agency problems such as hostile takeovers, the board of directors, and institutional investors, and has found mixed evidence regarding their effectiveness. Acknowledging the difficulty in designing effective governance rules to curb corporate scandals and bank failures, regulators and academics have recently turned their attention inward to the firm’s employees. In particular, they ask whether a firm’s inherent tendency to behave opportunistically is deeply rooted in its corporate culture, commonly defined as the shared values and beliefs of a firm’s employees.

In my article, Corruption Culture and Corporate Misconduct, recently published in the Journal of Financial Economics, I investigate this question by studying the role of corporate culture in influencing corporate misconduct. To do so, I create a measure of corporate corruption culture, which captures a firm’s general attitude toward opportunistic behavior. Specifically, corporate corruption culture is calculated as the average corruption attitudes of insiders (i.e., officers and directors) of a company. To measure corruption attitudes of insiders, I use a recently developed methodology from the economics literature that is generally described as the epidemiological approach (Fernández, 2011). It is based on the key idea that when individuals emigrate from their native country to a new country, their cultural beliefs and values travel with them, but their external environment is left behind. Moreover, these immigrants not only bring their beliefs and values to the new country, they also pass down these beliefs to their descendants. Thus, relevant economic outcomes at the country of ancestry are used as proxies of culture for immigrants and their descendants. Applying this approach, I use corruption in the insiders’ country of ancestry to capture corruption attitudes for insiders in the U.S., where the country of ancestry is identified based on surnames using U.S. Census data.

Using a sample of over 8,000 U.S. companies, I test the main prediction that firms with high corruption culture, which tend to be more tolerant toward corrupt behavior, are more likely to engage in corporate misconduct. Consistent with this prediction, I find that corporate corruption culture has a significant positive effect on various types of corporate misconduct such as earnings management, accounting fraud, option backdating, and opportunistic insider trading. The effects are also economically significant: a one standard deviation increase in a firm’s corruption culture is associated with an increase in the likelihood of corporate misconduct by about 2% to 7%, which are comparable to the effects of other governance measures such as board independence.

I further show that my findings are robust to controlling for time-varying local and industry factors, and traditional measures of corporate governance including the board size, the percentage of insider directors, the presence of institutional investors, and the threat of hostile takeovers. Van den Steen (2010) proposes a model of corporate culture and predicts that the appointment of a new CEO will lead to turnover through both selection and self-sorting. Thus, although corporate culture tends to be persistent over time, it is likely to change in a significant way around new CEO appointments. Motivated by this prediction, I examine corporate misconduct 5 years before and after the appointment of a new CEO while controlling for firm fixed effects. I continue to find a significant positive relation between corruption culture and corporate misconduct, which further alleviates endogeneity concerns.

The theoretical literature has predictions regarding the mechanisms through which corporate culture would affect opportunistic behavior. The first channel predicts that corruption culture acts as a selection mechanism by attracting or selecting individuals with similar corruption attitudes to the firm, where these individuals act according to their internal norms that are then reflected in corporate outcomes (Schneider, 1987). Consistent with this channel, I find that individuals with high corruption attitudes are more likely to join firms with high corruption culture and an insider is more likely to leave the firm if his corruption attitudes are more distant from the corruption attitudes of the other insiders in the firm. The second channel predicts that corruption culture can operate beyond internal norms and have a direct effect on individual behavior through group norms (Hackman, 1992). To test this channel, I examine misconduct at the insider level and focus on the sample of insiders that have moved across firms. Holding the individual constant, results show that when the same individual joins a firm with high corruption culture, his likelihood of engaging in personal misconduct increases compared to when he was at a firm with low corruption culture, consistent with corruption culture working through group norms.

In summary, I show that a firm’s corruption culture is an important determinant of the firm’s likelihood of engaging in corporate misconduct. This finding echoes the growing focus on corporate culture by regulators in an effort to curb corporate wrongdoing. Moreover, I provide evidence on the inner workings of corruption culture, showing that it influences corporate misconduct by both acting as a selection mechanism and having a direct influence on individual behavior. To the best of my knowledge, this is the first paper to construct a novel measure of corporate culture based on the ancestry origins of company insiders. By doing so, I contribute to a growing finance literature examining the influence of corporate culture on corporate behavior, where the main challenge is measurement.

The full article is available for download here.

Les devoirs des administrateurs eu égard à un climat de travail malsain | Un cas pratique

Voici un cas de gouvernance publié sur le site de Julie Garland McLellan* qui illustre les contradictions entre les valeurs énoncées par une école privée et celles qui semblent animer les administrateurs et les parents.

Le cas montre comment un administrateur, nouvellement élu sur un CA d’une école privée, peut se retrouver dans une situation embarrassante impliquant des comportements de harcèlement et de menaces qui affectent la santé mentale et le bien-être des employés.

Cette situation semble se présenter de plus en plus fréquemment dans les institutions d’enseignement qui visent des rendements très (trop !) élevés.

Comment Ignacio peut-il s’y prendre pour bien faire comprendre aux administrateurs de son CA leurs devoirs et leurs obligations légales d’assurer un climat de travail sain, absent d’agression de la part de certains parents ?

Le cas présente, de façon claire, une situation de culture organisationnelle déficiente ; puis, trois experts en gouvernance se prononcent sur le dilemme qui se présente aux administrateurs qui vivent des expériences similaires.

Bonne lecture ! Vos commentaires sont toujours les bienvenus.

Un cas culture organisationnelle déficiente !

Ignacio is an old boy of a private school with a proud sporting tradition. He was invited onto the board last year when a long-serving director retired. The school is well run with a professional principal who has the respect of the staff as well as many of the boys.

The school has worked hard to develop academic excellence and its place in rankings has improved with a greater percentage of boys qualifying for university.

At the last board meeting the CEO was absent. The chairman explained that he had taken stress leave because he couldn’t cope with bullying from some of the parents. Some directors sniggered and the rest looked embarrassed. There were a few comments about ‘needing to grow a backbone’, ‘being a pansy’, and ‘not having the guts to stand up to parents or lead the teams to victory on the field’.

Ignacio was aghast – he asked about the anti-harassment and workplace health and safety policies and was given leave by the chair « to look into ‘covering our backs’ if necessary ».

Ignacio met with the HR manager and discovered the policies were out of date and appeared to have been cut and pasted from the original Department of Education advice without customisation. From his experience running a business Ignacio is aware of the importance of mental health issues in the modern workplace and also of the legal duty of directors to provide a workplace free from bullying and harassment. School staff are all aware of a discrepancy between the stated School values and those of the board and some parents. The HR manager tells him that recent bullying by parents has become more akin to verbal and even physical assault. Staff believe the board will not support them against fee paying parents even though the school is, in theory, a not-for-profit institution.

How can Ignacio help lead his board to an understanding of their duty to provide a safe workplace?

Chris’s Answer …..

Julie’s Answer ….

Leanne’s Answer ….

*Julie Garland McLellan is a practising non-executive director and board consultant based in Sydney, Australia.

Deux livres phares sur la gouvernance d’entreprise

On me demande souvent de proposer un livre qui fait le tour de la question eu égard à ce qui est connu comme statistiquement valide sur les relations entre la gouvernance et le succès des organisations (i.e. la performance financière !)

Le volume publié par David F. Larcker et Brian Tayan, professeurs au Graduate School de l’Université Stanford, en est à sa deuxième édition et il donne l’heure juste sur l’efficacité des principes de gouvernance.

Je vous recommande donc vivement ce volume.

Également, je profite de l’occasion pour vous indiquer que je viens de recevoir la dernière version des Principes de gouvernance d’entreprise du G20 et de l’OCDE en français et j’ai suggéré au Collège des administrateurs de sociétés (CAS) d’inclure cette publication dans la section Nouveauté du site du CAS.

Il s’agit d’une publication très attendue dans le monde de la gouvernance. La documentation des organismes internationaux est toujours d’abord publiée en anglais. Ce document en français de l’OCDE sur les principes de gouvernance est la bienvenue !

Voici une brève présentation du volume de Larcker. Bonne lecture !

Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences (2nd edition)

This is the most comprehensive and up-to-date reference for implementing and sustaining superior corporate governance. Stanford corporate governance experts David Larcker and Bryan Tayan carefully synthesize current academic and professional research, summarizing what is known and unknown, and where the evidence remains inconclusive.

Corporate Governance Matters, Second Edition reviews the field’s newest research on issues including compensation, CEO labor markets, board structure, succession, risk, international governance, reporting, audit, institutional and activist investors, governance ratings, and much more. Larcker and Tayan offer models and frameworks demonstrating how the components of governance fit together, with updated examples and scenarios illustrating key points. Throughout, their balanced approach is focused strictly on two goals: to “get the story straight,” and to provide useful tools for making better, more informed decisions.

This edition presents new or expanded coverage of key issues ranging from risk management and shareholder activism to alternative corporate governance structures. It also adds new examples, scenarios, and classroom elements, making this text even more useful in academic settings. For all directors, business leaders, public policymakers, investors, stakeholders, and MBA faculty and students concerned with effective corporate governance.

Selected Editorial Reviews

An outstanding work of unique breadth and depth providing practical advice supported by detailed research.

Alan Crain, Jr., Senior Vice President and General Counsel, Baker Hughes

Extensively researched, with highly relevant insights, this book serves as an ideal and practical reference for corporate executives and students of business administration.

Narayana N.R. Murthy, Infosys Technologies

Corporate Governance Matters is a comprehensive, objective, and insightful analysis of academic and professional research on corporate governance.

Professor Katherine Schipper, Duke University, and former member of the Financial Accounting Standards Board

Les grandes sociétés sont plus résistantes que l’on est porté à le croire !

Voici un excellent article partagé par Paul Michaud, ASC, et publié dans The Economist.

Il y a plusieurs pratiques du management et de la gouvernance à revoir à l’âge des grandes entreprises internationales qui se démarquent par l’excellence de leur modèle d’acquisiteur, de consolidateur et de synergiste.

Incumbents have always had a tendency to grow fat and complacent. In an era of technological disruption, that can be lethal. New technology allows companies to come from nowhere (as Nokia once did) and turn entire markets upside down. Challengers can achieve scale faster than ever before. According to Bain, a consultancy, successful new companies reach Fortune 500 scale more than twice as fast as they did two decades ago. They can also take on incumbents in completely new ways: Airbnb is competing with the big hotel chains without buying a single hotel.

Vous trouverez, ci-dessous un bref extrait de cet article que je vous encourage à lire.

The new Methuselahs

IN SEPTEMBER 2009 Fast Company magazine published a long article entitled “Nokia rocks the world”. The Finnish company was the world’s biggest mobile-phone maker, accounting for 40% of the global market and serving 1.1 billion users in 150 countries, the article pointed out. It had big plans to expand into other areas such as digital transactions, music and entertainment. “We will quickly become the world’s biggest entertainment media network,” a Nokia vice-president told the magazine.

It did not quite work out that way. Apple was already beginning to eat into Nokia’s market with its smartphones. Nokia’s digital dreams came to nothing. The company has become a shadow of its former self. Having sold its mobile-phone business to Microsoft, it now makes telecoms network Equipment.

There are plenty of examples of corporate heroes becoming zeros: think of BlackBerry, Blockbuster, Borders and Barings, to name just four that begin with a “b”. McKinsey notes that the average company’s tenure on the S&P 500 list has fallen from 61 years in 1958 to just 18 in 2011, and predicts that 75% of current S&P 500 companies will have disappeared by 2027. Ram Charan, a consultant, argues that the balance of power has shifted from defenders to attackers.

Incumbents have always had a tendency to grow fat and complacent. In an era of technological disruption, that can be lethal. New technology allows companies to come from nowhere (as Nokia once did) and turn entire markets upside down. Challengers can achieve scale faster than ever before. According to Bain, a consultancy, successful new companies reach Fortune 500 scale more than twice as fast as they did two decades ago. They can also take on incumbents in completely new ways: Airbnb is competing with the big hotel chains without buying a single hotel.

Next in line for disruption, some say, are financial services and the car industry. Anthony Jenkins, a former chief executive of Barclays, a bank, worries that banking is about to experience an “Uber moment”. Elon Musk, a founder of Tesla Motors, hopes to dismember the car industry (as well as colonise Mars).

It is perfectly possible that the consolidation described so far in this special report will prove temporary. But two things argue against it. First, a high degree of churn is compatible with winner-takes-most markets. Nokia and Motorola have been replaced by even bigger companies, not dozens of small ones. Venture capitalists are betting on continued consolidation, increasingly focusing on a handful of big companies such as Tesla. Sand Hill Road, the home of Silicon Valley’s venture capitalists, echoes with talk of “decacorns” and “hyperscaling”.

Second, today’s tech giants have a good chance of making it into old age. They have built a formidable array of defences against their rivals. Most obviously, they are making products that complement each other. Apple’s customers usually buy an entire suite of its gadgets because they are designed to work together. The tech giants are also continuously buying up smaller companies. In 2012 Facebook acquired Instagram for $1 billion, which works out at $30 for each of the service’s 33m users. In 2014 Facebook bought WhatsApp for $22 billion, or $49 for each of the 450m users. This year Microsoft spent $26.2 billion on LinkedIn, or $60.5 for each of the 433m users. Companies that a decade ago might have gone public, such as Nest, a company that makes remote-control gadgets for the home, and Waze, a mapping service, are now being gobbled up by established giants.

…..

Les CEO adoptent une vision à long terme, mais ils doivent souvent rechercher des objectifs à court terme pour y arriver !

Cet article récemment publié par Richard T. Thakor*, dans le Harvard Law School Forum on Corporate Governance, aborde une problématique très singulière des projets organisationnels de nature stratégique.

L’auteur tente de prouver que même si les CEO ont généralement une vision à long terme de l’organisation, ils doivent adopter des positions qui s’apparentent à des comportements courtermistes pour pouvoir évoluer avec succès dans le monde des affaires. Ainsi, l’auteur insiste sur l’efficacité de certaines actions à court terme lorsque la situation l’exige pour garantir l’avenir à long terme.

Aujourd’hui, le courtermisme a mauvaise presse, mais il faut bien se rendre à l’évidence que c’est très souvent l’approche poursuivie…

L’étude montre qu’il existe deux situations susceptibles d’exister dans toute entreprise :

il y a des circonstances qui amènent les propriétaires à choisir des projets à court terme, même si ceux-ci auraient plus de valeur s’ils étaient effectués avec une vision à long terme. L’auteur insiste pour avancer qu’il y a certaines situations qui retiennent l’attention des propriétaires pour des projets à long terme.
ce sont les gestionnaires détestent les projets à court terme, même si les propriétaires les favorisent. Pour les gestionnaires, ils ne voient pas d’avantages à faire carrière dans un contexte de court terme.

L’auteur donne des exemples de situations qui favorisent l’une ou l’autre approche. Ou les deux !

Bonne lecture. Vos commentaires sont les bienvenus.

A Theory of Efficient Short-Termism

In the area of corporate investment policy and governance, one of the most widely-studied topics is corporate “short-termism” or “investment myopia”, which is the practice of preferring lower-valued short-term projects over higher-valued long-term projects. It is widely asserted that short-termism is responsible for numerous ills, including excessive risk-taking and underinvestment in R&D, and that it may even represent a danger to capital quiism itself. Yet, short-termism continues to be widely practiced, exhibits little correlation with firm performance, and does not appear to be used only by incompetent or unsophisticated managers (e.g. Graham and Harvey (2001)). In A Theory of Efficient Short-termism, I challenge the notion that short-termism is inherently a misguided practice that is pursued only by self-serving managers or is the outcome of a desire to cater to short-horizon investors, and theoretically ask whether there are circumstances in which it is economically efficient.

I highlight two main findings related to this question. First, there are circumstances in which the owners of the firm prefer short-term projects, even though long-term projects may have higher values. There are other circumstances in which the firm’s owners prefer long-term projects. Moreover, this is independent of any stock market inefficiencies or pressures. Second, it is the managers with career concerns who dislike short-term projects, even when the firm’s owners prefer them.

These results are derived in the context of a model of internal governance and project choice, with a CEO who must approve projects that are proposed by a manager. The projects are of variable quality—they can be good (positive NPV) projects or bad (negative NPV) projects. The manager knows project quality, but the CEO does not. Regardless of quality, the project can be (observably) chosen to be short-term or long-term, and a long-term project has higher intrinsic value. The probability of success for any good project depends on managerial ability, which is ex ante unknown to everybody.

In this setting, the manager has an incentive to propose only long-term projects, because shorter projects carry with them a risk of revealing negative information about the manager’s ability in the interim. Put differently, by investing in a short-term project that reveals early information about managerial ability, the manager gives the firm (top management) the option of whether to give him a second-period project with managerial private benefits linked to it, whereas with the long-term project the manager keeps this option for himself. The option has value to the firm and to the manager. Thus, the manager prefers to retain the option rather than surrendering it to the firm.

The CEO recognizes the manager’s incentive, and may thus impose a requirement that any project that is funded in the first period must be a short-term project. This makes investing in a bad project in the first period more costly for the manager because adverse information is more likely to be revealed early about the project and hence about managerial ability. The manager’s response may be to not request first-period funding if he has only a bad project. Such short-termism generates another benefit to the firm in that it speeds up learning about the manager’s a priori unknown ability, permitting the firm to condition its second-period investment on this learning.

There are a number of implications of the analysis. First, not all firms will practice short-termism. For example, firms for which the value of long-term projects is much higher than that of short-term projects—such as some R&D-intensive firms—will prefer long-term projects, so not all firms will display short-termism. Second, since short-termism is intended to prevent lower-level managers from investing in bad projects, its use should be greater for managers who typically propose “routine” projects and less for top managers (like the CEO) who would typically be involved in more strategic projects. Related to this, since it is more difficult to ascertain an individual employee’s impact on a project’s payoffs at lower levels of the hierarchy, this suggests that the firm is more likely to impose a short-termism constraint on lower-level managers. Third, the analysis may be particularly germane for managers who care about how their ability is perceived prior to the realization of project payoffs. As an example of this, it is not uncommon for a manager to enter a job with the intention or expectation of finding a new job within a few years. The analysis then suggests that the manager would rather not jeopardize future employment opportunities by allowing (potentially risky) project outcomes to be revealed in the short-term, instead preferring that those outcomes be revealed at a time when the manager need not be concerned about the result (i.e. in a different job).

Overall, the most robust result from this analysis is that informational frictions may bias the investment horizons of firms, and that the bias towards short-termism may, in fact, be value-maximizing in the presence of such frictions. This means that castigating short-termism as well as the rush to regulate CEO compensation to reduce its emphasis on the short term may be worth re-examining. Indeed, not engaging in short-termism may signal an inability or unwillingness on the CEO’s part to resolve intrafirm agency problems and thus adversely affect the firm’s stock price. This is not to suggest that short-termism is necessarily always a value-maximizing practice, since some of it may be undertaken only to boost the firm’s stock price. The point of this paper is simply that some short-termism reduces agency costs and benefits the shareholders.

For example, the project horizon for a beer brewery is typically 15-20 years. Similarly, R&D investments by drug companies have payoff horizons typically exceeding 10 years.

The paper is available for download here.

References

Graham, John R., and Campbell R. Harvey, 2001, “The Theory and Practice of Corporate Finance: Evidence from the Field”. Journal of Financial Economics, 60 (2-3), 187-243.

This is in line with Roe (2015), who states: “Critics need to acknowledge that short-term thinking often makes sense for U.S. businesses, the economy and long-term employment … it makes no sense for brick-and-mortar retailers, say, to invest in long-term in new stores if their sector is likely to have no future because it will soon become a channel for Internet selling.”

One can think about the long-term and short-term projects concretely through examples. Within each firm, there are typically both short-term and long-term projects. For example, for an appliance manufacturer, investing in modifying some feature of an existing appliance, say the size of the freezer section in a refrigerator, would be a short-term project. By contrast, building a plant to make an entirely new product—say a high-technology blender that does not exist in the company’s existing product portfolio—would be a long-term project. The long-term project will have a longer gestation period, with not only a longer time to recover the initial investment through project cash flows, but also a longer time to resolve the uncertainty about whether the project has positive NPV in an ex post sense. There may also be industry differences that determine project duration. For example, long-distance telecom companies (e.g. AT&T) will typically have long-duration projects, whereas consumer electronics firms will have short-duration projects.

*Richard T. Thakor, Assistant Professor of Finance at the University of Minnesota Carlson School of Management.

Assurer une efficacité supérieure du conseil d’administration

Aujourd’hui, je cède la parole à Johanne Bouchard* qui agit, de nouveau, à titre d’auteure invitée sur mon blogue en gouvernance.

Celle-ci a une solide expérience d’interventions de consultation auprès de conseils d’administration de sociétés américaines ainsi que d’accompagnements auprès de hauts dirigeants de sociétés publiques (cotées), d’organismes à but non lucratif (OBNL) et d’entreprises en démarrage.

Dans cet article publié dans la revue Ethical Boardroom, Achieving higher board effectiveness, elle aborde un sujet qui lui tient particulièrement à cœur : Assurer une efficacité supérieure du conseil d’administration.

L’auteure insiste sur les points suivants :

Le suivi des réunions du CA par le président du conseil
L’intégration des nouveaux membres du conseil
La formation en gouvernance et l’apprentissage des rouages de l’entreprise
Les sessions de planification stratégique
L’évaluation du leadership du CEO, du conseil et du management

L’expérience de Johanne Bouchard auprès d’entreprises cotées en bourse est soutenue ; elle en tire des enseignements utiles pour tous les types de conseils d’administration.

Bonne lecture ! Vos commentaires sont toujours les bienvenus.

Achieving higher board effectiveness

« Achieving higher board effectiveness goes well beyond adhering to rules, regulations, legal and ethical compliance. While there are many experts who address the regulatory requirements, an aspect that requires the utmost attention, and is often underestimated and even ignored, is the human element »

That is the basic and subtle dynamics and the complexities inherent in having individuals with diverse experience, different views and perspective, and varied cultural and personal backgrounds gathering a few times a year to serve an entity to which they are not privy on a day-to-day basis. It’s further complicated by the fact that these individuals often don’t know each other outside of their board service.

How can a board maintain its independence, make critical decisions, provide valuable and timely insights to management and be effective as a group of individuals if they have minimal access to the ins and outs of an organisation? How can they truly assess the leadership potential of the CEO, the board and management and effectively minimise vulnerabilities and risk when they’re outsiders?

There are initiatives that a board should commit to that can heighten the potential of every director within the context of their roles and responsibilities, allowing them collectively to achieve higher effectiveness. It is fundamentally critical to the board’s ability to stay current, effective and focussed in enhancing long-term shareholder value.

These initiatives include: board meeting follow-ups with the chair and the CEO; on-boarding and integration of new directors; educational sessions; strategic planning sessions; and CEO, board and management leadership effectiveness assessments.

Board meeting follow-ups with the chair and CEO

Whenever directors come together to meet to fulfill their roles and responsibilities, the chair and the CEO can’t assume that the directors have felt that they’ve made their optimal contributions; that they didn’t feel intimidated or even shy to share their insights. That they felt at ease with the dynamics of the meeting, were satisfied with the results of the board meeting and were comfortable with the way the chair led the meeting and the CEO interacted as an executive director. It is important for a chair and for the CEO to take the initiative of reaching out to all directors immediately after the meeting to do a simple check-in.

This provides an opportunity to gain input about the meeting’s outcomes as well as following up with each director on a one-on-one basis to seek their views about the meeting. It’s an opportunity to constructively share their expectations about the director for that meeting and his/her level of preparedness for that meeting and any committee duties, rather than not addressing it or postponing it to an annual board effectiveness assessment. The individual directors’ effectiveness (including the CEO) as well as the chair’s, are too important not to be handled after each meeting. These check-ins are significant to ensure that the possible ‘elephants in the boardroom’ are promptly addressed. They also enable each director and the chair, and each director and the CEO to get to know each other better.

In any relationship, it is important to have the ability to readily share what works, what is missing and what could have been done better. It takes time and, from my experiences with boards, it makes a great difference when every director is prepared to allocate time between meetings to evaluate the prior meeting before attending the next one. These frank exchanges benefit the chair in preparing the agenda for the next meeting and in leading the board meeting itself. Furthermore, it is also the chair’s responsibility to poll each director, in person or over the phone, to get a pulse about his/her ability to stay abreast of the strategy.

On-boarding and integration

It is tempting to let a director join a board and attend his/her first meeting without proper on-boarding. A board can’t afford for a new director to join for his/her first board meeting without a formal on-boarding process. A director is a human being who is being asked to participate, not to simply fill in a seat. A formal on-boarding can include a meeting with the chair and the CEO shortly after the director has been voted in by the board to formally welcome him/her, confirm their expectations and his/her expectations in having joined the board; bring the director up to date with any crisis, strategic priorities and networking opportunities where he/she could specifically provide insights; and to update the director about board governance processes the directors need to understand.

It is good business, tactful and sensible to acknowledge the need to create a proper introduction of the board and the organisation for all new directors as well as introducing and integrating the incoming directors within the board integration event can last 30 minutes to an hour and is planned and professionally facilitated, thus ensuring that the board doesn’t create a climate of ‘us and them’ as the board augments and/or is refreshed. Proper on-boarding and integration enables new directors to quickly get to know the rest of the board and enables all board directors to further connect, respect and trust each other. While a brief session, it is very powerful to welcoming an incoming director and to further integrating all existing directors within the board.

Educational sessions

Our business ecosystem is becoming more complex and is being intermittently disrupted. A board can’t afford not to be current on the trends that can affect their organisation, even if, at a glance, the trend might not appear to have any potential impact on their strategic roadmap. It is important for a CEO with his/her chair to be on top of trends and to identify specific topics that need to be addressed internally at a high level to keep the board informed as a group – but not necessarily within the scheduled meeting, due to time constraints.

I have written in the past about ‘the four pillars’ that make a great relationship between a chair and a CEO. One of the pillars is communication. It is crucial for the chair and CEO to take the time to speak in person, or at least on the phone, or remotely via video-conferencing tools to check in about their relationship, their effectiveness in their respective roles and to ensure that together they address how to keep the board current about market and industry dynamics. Topics can include how the digital economy is impacting the organisation; the cybersecurity evolution and its associated threats; new strategic considerations for the organisation, vis-à-vis corporate social responsibility; shifting the organisation’s focus from shareholders to stakeholders; making an organisational commitment to sustainability, etc.

There is a plethora of topics that a board must address and can’t realistically address within their formal meetings. This creates an opportunity for the board to further align on strategic priorities, to further ascertain how vulnerable the composition of its board may or may not be and whether the board composition needs to be refreshed or augmented. Industry and expert speakers can be invited to present and conduct small roundtables at these educational sessions.

Strategic planning sessions

Since the National Association of Corporate Directors (NACD) in the United States stipulates that boards have the responsibility to engage in the development and amendment of strategy, it is imperative for boards to participate in an annual strategic planning session – in addition to each director staying current about the industry trends. Not only are strategic planning sessions important to aligning the board on strategy, but they also contribute to evaluating human behaviour dynamics and assessing the entire leadership potential of the board.

Directors must be and stay fully informed about the organisation they serve. In particular, when directors are independent, they must have knowledge of the industry and about the business they commit to serve, given that they are not connected to the business, meeting only four-to-six times a year. Better aligned boards can be more effective in assessing the accuracy, completeness, relevance and validity of information presented to them.

A board has an opportunity to really see in action the effectiveness of their CEO when participating in the annual strategic planning session. Likewise, a CEO gets the same opportunity to experience first-hand the agility of its board during such sessions.

The chair (and CEO) should commit to an annual strategic planning session. This initiative ensures that:

■ Board effectiveness is not affected by information asymmetry that would impede its ability to adequately provide guidance, make decisions and constructively challenge the executive team. The board must be continually informed about industry dynamics, the competitive landscape, the organisation’s business model, its value proposition and its strategic milestones. It is unrealistic that a board can approve financial projections, detect overly ambitious production targets and ascertain budgets and profitability objectives without a clear understanding of strategy and key strategic performance indicators

■ The board is exposed to organisational dynamics and to the dynamics of the CEO with selected or most key executive members, which will assist with its identifying warning flags about the company’s strategic priorities and help reconsider performance indicators as needed

The adoption of strategic planning enables the CEO to share more openly among themselves, with the CEO and with management. I have often seen as a result of these sessions healthier effectiveness within the entire Pivotal Leadership Trio (Board, CEO and Executive Team).

CEO, board and management leadership effectiveness assessment

The effectiveness of a board is highly dependent on having the right leader for the organisation during major and critical strategic inflection points of the organisation, having the right leader of the board with the optimal board composition, and the right leadership in all functional areas of the organisation.

A board needs to know when the CEO can’t step up to leadership and organisational challenges, as well as when any board director or member of the management team can’t fulfil their role.

CEO leadership effectiveness assessment

For the board to adequately fulfil its duty of addressing CEO succession, it has a responsibility to evaluate the CEO’s leadership effectiveness. A board can’t assume that the CEO has the skill set, experience and leadership maturity to lead the organisation through different stages of growth, crisis and changes.

This initiative should be conducted by an objective third party. The process should include:

■ A custom and comprehensive inquiry, specifically created to evaluate the CEO of the organisation that the board serves

■ A custom inquiry to address the CEO’s role as an executive director on the board

■ In-person meetings conducted between the CEO and a third-party professional, and between each direct report to the CEO and the third-party professional and each director of the board and the third-party professional

■ Presentation of the CEO’s leadership effectiveness results to the CEO and the chair before being presented to the board as a group

Board and management leadership effectiveness assessments

The evaluation of the directors and the management team also needs to be conducted annually to appropriately support overall succession planning. These should ideally be conducted at the same time as the CEO’s to maximise everyone’s time. For the board assessments, the process should include:

■ A custom and comprehensive inquiry, specifically created to evaluate the board thoroughly

■ In-person meetings between directors and the third-party professional

■ Custom inquiries to capture the insights of the CFO, the CHRO and the general counsel

■ In-person individual meetings between the CFO, the CHRO, the general counsel and the third-party professional

■ Presentation of the board leadership assessment results to the chair and the governance chair before they’re presented to the board as a group

A similar process needs to be adopted for the management team.

It is good practice for the board assessment inquiry to include a director self-assessment, a peer review and an examination of the governance practices.

Leadership effectiveness assessments are natural processes and need to be positioned as such and should not be threatening.

Achieving higher board effectiveness has to be intentional by all directors, individually and collectively as a board, beyond check lists and formal systematic processes. Without a conscious intention, a board will not raise the bar of its effectiveness to the level where it can and should operate. While maintaining independence, the board has to be cognisant of the importance of not assuming anything at any time, not overlooking the need to coalesce on priorities, calibrating and stepping back afresh each time it works together, being in alignment on strategic priorities and refreshing leadership as needed.

Directors can’t afford to underestimate the cultural and values tone they are establishing with their CEO. The board has to pause and ask itself every time it gathers if it is as effective as it should be.

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*Johanne Bouchard est consultante auprès de conseils d’administration, de chefs de la direction et de comités de direction. Johanne a développé une expertise au niveau de la dynamique et de la composition de conseils d’administration. Après l’obtention de son diplôme d’ingénieure en informatique, sa carrière l’a menée à œuvrer dans tous les domaines du secteur de la technologie, du marketing et de la stratégie à l’échelle mondiale.

L’efficacité du rôle du président du conseil

Nous publions ici un quatrième billet de Danielle Malboeuf* laquelle nous a soumis ses réflexions sur les grands enjeux de la gouvernance des institutions d’enseignement collégial les 23 et 27 novembre 2013, à titre d’auteure invitée.

Dans un premier billet, publié le 23 novembre 2013 sur ce blogue, on insistait sur l’importance, pour les CA des Cégep, de se donner des moyens pour assurer la présence d’administrateurs compétents dont le profil correspond à celui recherché.

D’où les propositions adressées à la Fédération des cégeps et aux CA pour préciser un profil de compétences et pour faire appel à la Banque d’administrateurs certifiés du Collège des administrateurs de sociétés (CAS), le cas échéant. Un autre enjeu identifié dans ce billet concernait la remise en question de l’indépendance des administrateurs internes.

Le deuxième billet publié le 27 novembre 2013 abordait l’enjeu entourant l’exercice de la démocratie par différentes instances au moment du dépôt d’avis au conseil d’administration.

Le troisième billet portait sur l’efficacité du rôle du président du conseil d’administration (PCA).

Ce quatrième billet est une mise à jour de son dernier article portant sur le rôle du président de conseil.

Voici donc l’article en question, reproduit ici avec la permission de l’auteure.

Vos commentaires sont appréciés. Bonne lecture.

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LE RÔLE DU PRÉSIDENT DU CONSEIL D’ADMINISTRATION | LE CAS DES INSTITUTIONS D’ENSEIGNEMENT COLLÉGIAL

par Danielle Malboeuf*

Il y a deux ans, je publiais un article sur le rôle du président du conseil d’administration (CA) [1]. J’y rappelais le rôle crucial et déterminant du président du CA et j’y précisais, entre autres, les compétences recherchées chez cette personne et l’enrichissement attendu de son rôle.

Depuis, on peut se réjouir de constater qu’un nombre de plus en plus élevé de présidents s’engagent dans de nouvelles pratiques qui améliorent la gouvernance des institutions collégiales. Ils ne se limitent plus à jouer un rôle d’animateurs de réunions, comme on pouvait le constater dans le passé.

Notons, entre autres, que les présidents visent de plus en plus à bien s’entourer, en recherchant des personnes compétentes comme administrateurs. D’ailleurs, à cet égard, les collèges vivent une situation préoccupante. La Loi sur les collèges d’enseignement général et professionnel prévoit que le ministre [2] nomme les administrateurs externes. Ainsi, en plus de connaître des délais importants pour la nomination de nouveaux administrateurs, les collèges ont peu d’influence sur leur choix.

Présentement, les présidents et les directions générales cherchent donc à l’encadrer. Ils peuvent s’inspirer, à cet égard, des démarches initiées par d’autres organisations publiques en établissant, entre autres, un profil de compétences recherchées qu’ils transmettent au ministre. Ils peuvent ainsi tenter d’obtenir une complémentarité d’expertise dans le groupe d’administrateurs.

Une fois les administrateurs nommés, les présidents doivent se préoccuper d’assurer leur formation continue pour développer les compétences recherchées. Ils se donnent ainsi l’assurance que ces personnes comprennent bien leur rôle et leurs responsabilités et qu’elles sont outillées pour remplir le mandat qui leur est confié. De plus, ils doivent s’assurer que les administrateurs connaissent bien l’organisation, qu’ils adhèrent à sa mission et qu’ils partagent les valeurs institutionnelles. En présence d’administrateurs compétents, éclairés, et dont l’expertise est reconnue, il est plus facile d’assurer la légitimité et la crédibilité du CA et de ses décisions.

Un président performant démontrera aussi de grandes qualités de leadership. Il fera connaître à toutes les instances du milieu le mandat confié au CA. Il travaillera à mettre en place un climat de confiance au sein du CA et avec les gestionnaires de l’organisation. Il cherchera à exploiter l’ensemble des compétences et à faire jouer au CA un rôle qui va au-delà de celui de fiduciaire, soit celui de contribuer significativement à la mission première du cégep : donner une formation pertinente et de qualité où l’étudiant et sa réussite éducative sont au cœur des préoccupations.

Plusieurs ont déjà fait le virage… c’est encourageant ! Les approches préconisées par l’Institut sur la gouvernance des organismes publics et privés (IGOPP) et le Collège des administrateurs de sociétés (CAS) puis reprises dans la loi sur la gouvernance des sociétés d’État ne sont sûrement pas étrangères à cette évolution. En fournissant aux présidents de CA le soutien, la formation et les outils appropriés pour améliorer leur gouvernance, le Centre collégial des services regroupés (CCSR) [3] contribue à assurer le développement des institutions collégiales dans un contexte de saine gestion.

Un CA performant est guidé par un président compétent.

[1] https://jacquesgrisegouvernance.com/2014/01/24/le-role-du-president-du-conseil-dadministration-pca-le-cas-des-cegep/

[2] Ministre de l’Enseignement supérieur, de la Recherche, de la Science et de la Technologie

[3] Formation développée en partenariat avec l’Institut sur la gouvernance des organisations privées et publiques (IGOPP)

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

Articles sur la gouvernance des CEGEP

(1) Les grands enjeux de la gouvernance des institutions d’enseignement collégiaux

(2) L’exercice de la démocratie dans la gouvernance des institutions d’enseignement collégiaux

(3) LE RÔLE DU PRÉSIDENT DU CONSEIL D’ADMINISTRATION (PCA) | LE CAS DES CÉGEP

La composition du conseil d’administration | Élément clé d’une saine gouvernance

Les investisseurs et les actionnaires reconnaissent le rôle prioritaire que les administrateurs de sociétés jouent dans la gouvernance et, conséquemment, ils veulent toujours plus d’informations sur le processus de nomination des administrateurs et sur la composition du conseil d’administration.

L’article qui suit, paru sur le Forum du Harvard Law School, a été publié par Paula Loop, directrice du centre de la gouvernance de PricewaterhouseCoopers. Il s’agit essentiellement d’un compte rendu sur l’évolution des facteurs clés de la composition des conseils d’administration. La présentation s’appuie sur une infographie remarquable.

Ainsi, on apprend que 41 % des campagnes menées par les activistes étaient reliées à la composition des CA, et que 20 % des CA ont modifié leur composition en réponse aux activités réelles ou potentielles des activistes.

L’article s’attarde sur la grille de composition des conseils relative aux compétences et habiletés requises. Également, on présente les arguments pour une plus grande diversité des CA et l’on s’interroge sur la situation actuelle.

Enfin, l’article revient sur les questions du nombre de mandats des administrateurs et de l’âge de la retraite de ceux-ci ainsi que sur les préoccupations des investisseurs eu égard au renouvellement et au rajeunissement des CA.

Le travail de renouvellement du conseil ne peut se faire sans la mise en place d’un processus d’évaluation complet du fonctionnement du CA et des administrateurs.

À mon avis, c’est certainement un article à lire pour bien comprendre toutes les problématiques reliées à la composition des conseils d’administration.

Bonne lecture !

Investors and Board Composition

In today’s business environment, companies face numerous challenges that can impact success—from emerging technologies to changing regulatory requirements and cybersecurity concerns. As a result, the expertise, experience, and diversity of perspective in the boardroom play a more critical role than ever in ensuring effective oversight. At the same time, many investors and other stakeholders are seeking influence on board composition. They want more information about a company’s director nominees. They also want to know that boards and their nominating and governance committees are appropriately considering director tenure, board diversity and the results of board self-evaluations when making director nominations. All of this is occurring within an environment of aggressive shareholder activism, in which board composition often becomes a central focus.

Shareholder activism and board composition

At the same time, a growing number of companies are adopting proxy access rules—allowing shareholders that meet certain ownership criteria to submit a limited number of director candidates for inclusion on the company’s annual proxy. It has become a top governance issue over the last two years, with many shareholders viewing it as a step forward for shareholder rights. And it’s another factor causing boards to focus more on their makeup.

So within this context, how should directors and investors be thinking about board composition, and what steps should be taken to ensure boards are adequately refreshing themselves?

Assessing what you have–and what you need

In a rapidly changing business climate, a high-performing board requires agile directors who can grasp concepts quickly. Directors need to be fiercely independent thinkers who consciously avoid groupthink and are able to challenge management—while still contributing to a productive and collegial boardroom environment. A strong board includes directors with different backgrounds, and individuals who understand how the company’s strategy is impacted by emerging economic and technological trends.

Sample board composition grid: What skills and attributes does your board need?

In assessing their composition, boards and their nominating and governance committees need to think critically about what skills and attributes the board currently has, and how they tie to oversight of the company. As companies’ strategies change and their business models evolve, it is imperative that board composition be evaluated regularly to ensure that the right mix of skills are present to meet the company’s current needs. Many boards conduct a gap analysis that compares current director attributes with those that it has identified as critical to effective oversight. They can then choose to fill any gaps by recruiting new directors with such attributes or by consulting external advisors. Some companies use a matrix in their proxy disclosures to graphically display to investors the particular attributes of each director nominee.

Board diversity is a hot-button issue

Diversity is a key element of any discussion of board composition. Diversity includes not only gender, race, and ethnicity, but also diversity of skills, backgrounds, personalities, opinions, and experiences. But the pace of adding more gender and ethnic diversity to public company boards has been only incremental over the past five years. For example, a December 2015 report from the US Government Accountability Office estimates that it could take four decades for the representation of women on US boards to be the same as men. [1] Some countries, including Norway, Belgium, and Italy, have implemented regulatory quotas to increase the percentage of women on boards.

Even if equal proportions of women and men joined boards each year beginning in 2015, GAO estimated that it could take more than four decades for women’s representation on boards to be on par with that of men’s.
—US Government Accountability Office, December 2015

According to PwC’s 2015 Annual Corporate Directors Survey, more than 80% of directors believe board diversity positively impacts board and company performance. But more than 70% of directors say there are impediments to increasing board diversity. [2] One of the main impediments is that many boards look to current or former CEOs as potential director candidates. However, only 4% of S&P 500 CEOs are female, [3] less than 2% of the Fortune 500 CEOs are Hispanic or Asian, and only 1% of the Fortune 500 CEOs are African-American. [4] So in order to get boards to be more diverse, the pool of potential director candidates needs to be expanded.

Is there diversity on US boards?

Source: Spencer Stuart US Board Index 2015, November 2015.

SEC rules require companies to disclose the backgrounds and qualifications of director nominees and whether diversity was a nomination consideration. In January 2016, SEC Chair Mary Jo White included diversity as a priority for the SEC’s 2016 agenda and suggested that the SEC’s disclosure rules pertaining to board diversity may be enhanced.

While those who aspire to become directors must play their part, the drive to make diversity a priority really has to come from board leadership: CEOs, lead directors, board chairs, and nominating and governance committee chairs. These leaders need to be proactive and commit to making diversity part of the company and board culture. In order to find more diverse candidates, boards will have to look in different places. There are often many untapped, highly qualified, and diverse candidates just a few steps below the C-suite, people who drive strategies, run large segments of the business, and function like CEOs.

How long is too long? Director tenure and mandatory retirement

The debate over board tenure centers on whether lengthy board service negatively impacts director independence, objectivity, and performance. Some investors believe that long-serving directors can become complacent over time—making it less likely that they will challenge management. However, others question the virtue of forced board turnover. They argue that with greater tenure comes good working relationships with stakeholders and a deep knowledge of the company. One approach to this issue is to strive for diversity of board tenure—consciously balancing the board’s composition to include new directors, those with medium tenures, and those with long-term service.

This debate has heated up in recent years, due in part to attention from the Council of Institutional Investors (the Council). In 2013, the Council introduced a revised policy statement on board tenure. While the policy “does not endorse a term limit,” [5] the Council noted that directors with extended tenures should no longer be considered independent. More recently, the large pension fund CalPERS has been vocal about tenure, stating that extended board service could impede objectivity. CalPERS updated its 2016 proxy voting guidelines by asking companies to explain why directors serving for over twelve years should still be considered independent.

We believe director independence can be compromised at 12 years of service—in these situations a company should carry out rigorous evaluations to either classify the director as non-independent or provide a detailed annual explanation of why the director can continue to be classified as independent.
— CalPERS Global Governance Principles, second reading, March 14, 2016

Factors in the director tenure and age debate

Source: Spencer Stuart US Board Index 2015, November 2015.

Many boards have a mandatory retirement age for their directors. However, the average mandatory retirement age has increased in recent years. Of the 73% of S&P 500 boards that have a mandatory retirement age in place, 97% set that age at 72 or older—up from 57% that did so ten years ago. Thirty-four percent set it at 75 or older. [6] Others believe that director term limits may be a better way to encourage board refreshment, but only 3% of S&P 500 boards have such policies. [7]

Investor concern

Some institutional investors have expressed concern about board composition and refreshment, and this increased scrutiny could have an impact on proxy voting decisions.

What are investors saying about board composition and refreshment?

Sources: BlackRock, Proxy voting guidelines for U.S. securities, February 2015; California Public Employees’ Retirement System, Statement of Investment Policy for Global Governance, March 16, 2015; State Street Global Advisors’ US Proxy Voting and Engagement Guidelines, March 2015.

Proxy advisors’ views on board composition—recent developments

Proxy advisory firm Institutional Shareholder Services’s (ISS) governance rating system QuickScore 3.0 views tenure of more than nine years as potentially compromising director independence. ISS’s 2016 voting policy updates include a clarification that a “small number” of long-tenured directors (those with more than nine years of board service) does not negatively impact the company’s QuickScore governance rating, though ISS does not provide specifics on the acceptable quantity.

Glass Lewis’ updated 2016 voting policies address nominating committee performance. Glass Lewis may now recommend against the nominating and governance committee chair “where the board’s failure to ensure the board has directors with relevant experience, either through periodic director assessment or board refreshment, has contributed to a company’s poor performance.” Glass Lewis believes that shareholders are best served when boards are diverse on the basis of age, race, gender and ethnicity, as well as on the basis of geographic knowledge, industry experience, board tenure, and culture.

How can directors proactively address board refreshment?

The first step in refreshing your board is deciding whether to add a new board member and determining which director attributes are most important. One way to do this is to conduct a self-assessment. Directors also have a number of mechanisms to address board refreshment. For one, boards can consider new ways of recruiting director candidates. They can take charge of their composition through active and strategic succession planning. And they can also use robust self-assessments to gauge individual director performance—and replace directors who are no longer contributing.

Act on the results of board assessments. Boards should use their annual self-assessment to help spark discussions about board refreshment. Having a robust board assessment process can offer insights into how the board is functioning and how individual directors are performing. The board can use this process to identify directors that may be underperforming or whose skills may no longer match what the company needs. It’s incumbent upon the board chair or lead director and the chair of the nominating and governance committee to address any difficult matters that may arise out of the assessment process, including having challenging conversations with underperforming directors. In addition, some investors are asking about the results of board assessments. CalPERS and CalSTRS have both called on boards to disclose more information about the impact of their self-assessments on board composition decisions. [8]

Take a strategic approach to director succession planning. Director succession planning is essential to promoting board refreshment. But, less than half of directors “very much” believe their board is spending enough time on director succession. [9] In board succession planning, it’s important to think about the current state of the board, the tenure of current members, and the company’s future needs. Boards should identify possible director candidates based upon anticipated turnover and director retirements.

Broaden the pool of candidates. Often, boards recruit directors by soliciting recommendations from other sitting directors, which can be a small pool. Forward-looking boards expand the universe of potential qualified candidates by looking outside of the C-suite, considering investor recommendations, and by looking for candidates outside the corporate world—from the retired military, academia, and large non-profits. This will provide a broader pool of individuals with more diverse backgrounds who can be great board contributors.

In sum, evaluating board composition and refreshing the board may be challenging at times, but it’s increasingly a topic of concern for many investors, and it’s critical to the board’s ability to stay current, effective, and focused on enhancing long-term shareholder value.

The complete publication, including footnotes and appendix, is available here.

Endnotes:

[1] United States Government Accountability Office, “Corporate Boards: Strategies to Address Representation of Women Include Federal Disclosure Requirements,” December 2015.
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[2] PwC, 2015 Annual Corporate Directors Survey, October 2015.
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[3] Catalyst, Women CEOs of the S&P 500, February 3, 2016.
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[4] “McDonald’s CEO to Retire; Black Fortune 500 CEOs Decline by 33% in Past Year,” DiversityInc, January 29, 2015; http://www.diversityinc.com/leadership/mcdonalds-ceo-retire-black-fortune-500-ceos-decline-33-past-year.
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[5] Amy Borrus, “More on CII’s New Policies on Universal Proxies and Board Tenure,” Council of Institutional Investors, October 1, 2013; http://www.cii.org/article_content.asp?article=208.
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[6] Spencer Stuart, 2015 US Board Index, November 2015.
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[7] Spencer Stuart, 2015 US Board Index, November 2015.
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[8] California State Teachers’ Retirement System Corporate Governance Principles, April 3, 2015, http://www.calstrs.com/sites/main/files/file-attachments/corporate_governance_principles_1.pdf; The California Public Employees’ Retirement System Global Governance Principles, Updated March 14, 2016, https://www.calpers.ca.gov/docs/board-agendas/201603/invest/item05a-02.pdf.
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[9] PwC, 2015 Annual Corporate Directors Survey, October 2015. www.pwc.com/us/GovernanceInsightsCenter.

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*Paula Loop is Leader of the Governance Insights Center at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Ms. Loop and Paul DeNicola. The complete publication, including footnotes and appendix, is available here.

Recrudescence de l’activisme des actionnaires en Europe

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

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

Bonne lecture !

Activist Investing in Europe: A Special Report

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

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

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

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

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

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

United Kingdom

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

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

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

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

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

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

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

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

Shareholder Activism—recent developments in the U.K.

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

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

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

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

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

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

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

France

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

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

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

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

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

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

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

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

France is in the process of strengthening its Say on Pay

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

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

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

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

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

Germany

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

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

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

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

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

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

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

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

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

New players rising

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

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

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

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

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

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

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

Italy

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

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

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

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

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

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

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

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

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

Switzerland

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

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

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

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

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

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

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

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

La SEC propose le bulletin de vote « universel »

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

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

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

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

Bonne lecture !

SEC Proposes Universal Proxy Ballots

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

The proposal would—

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

establish notice and filing requirements for both companies and dissidents,

require dissidents to undertake a minimum solicitation effort, and

prescribe form and presentation criteria for the proxy card.

What seems clear to us is that the universal proxy would ultimately move the balance of corporate power further from the board and closer to the shareholders. As the SEC observed in the proposing release, “[i]f the proposed amendments result in additional dissident representation, it is difficult to predict whether such additional dissident representation would enhance or detract from board effectiveness and shareholder value.” The SEC is seeking comment from all affected constituencies, including companies, on this critical question. The deadline for comments on the proposal is expected to fall in late December 2016, 60 days after publication of the proposal in the Federal Register. Given the timing of the proposal and comment period, there is little chance that a universal proxy card would be required for the 2017 proxy season.

Why Is the SEC Acting?

Currently, a shareholder voting by proxy in a contested election is effectively required to choose between the slate of nominees put forward by management and the slate put forward by the dissident. By contrast, a shareholder who attends a meeting in person can pick and choose between directors nominated by management and directors nominated by dissidents. In the SEC’s view this creates a kink in the proxy plumbing, the overarching goal of which is to make proxy voting as close as possible to voting at a shareholder meeting, due to the interplay between two rules—

– “Bona fide nominee” rule—Under the SEC’s rules, one party’s director nominee may not be included on the opposing party’s proxy card unless the nominee gives his or her consent to the opposing party. Since this rarely happens, the bona fide nominee rule usually results in two separate proxy cards, forcing a shareholder voting by proxy to choose one slate or the other.

– “Last in time” rule—Delaware and other state corporate laws generally provide that the latest proxy revokes any earlier proxy executed by a shareholder. The last-in-time rule therefore effectively stymies a shareholder’s attempt to submit multiple proxy cards to vote for a combination of nominees from different slates, even if the aggregate number of nominees selected is the same as the number of seats up for election. In 1992, the SEC introduced a modification to the bona-fide-nominee rule to permit a dissident to propose a “short slate” of nominees—that is, a slate where the dissident nominees would constitute a minority of the board—and then to “round out” the dissident proxy card by identifying management nominees that the dissident would not vote for, resulting in a proxy voter’s remaining votes being cast for the unnamed management nominees. While the short-slate rule allows proxy voters to vote for a combination of dissident and management nominees, albeit in a roundabout way, the shareholder is still unable to mix and match as it sees fit, since the combination of dissident and management nominees is dictated by the dissident.

Key Features of the Proposal

Mandatory use. The proposal would require universal proxy cards for most contested director elections at annual meetings. Each soliciting party would continue to distribute its own proxy materials and its own version of the universal proxy card. The proposal would not require the cards to be identical; rather, each party would be permitted to design its own card so long as the content, format and presentation comply with the proposal’s criteria.

Mandatory use only applies to solicitations that involve a contested election where a dissident is proposing a competing slate of director candidates. However, with the amendment to the bona-fide-nominee rule, a dissident could name all of management’s nominees on a proxy card in order to solicit against their election, or to seek their removal, even without a universal proxy card. A dissident could also solicit for a proposal other than an election of directors but name all of management’s nominees in order to have a proxy card that could be used for all matters to be voted on at the meeting.

Mandatory use also would not apply to “exempt solicitations” under the proxy rules or to registered investment companies or business development companies.

Revision of the bona-fide-nominee rule. The proposal would define a “bona fide nominee” as a person who has consented to being named in any proxy statement relating to the company’s next meeting of shareholders for the election of directors. The proposal would retain the requirement that a nominee intend to serve, if elected. If a nominee intends to serve only if his or her nominating party’s slate is elected, the proxy statement would need to disclose that fact.

Elimination of the short-slate rule. The proposal would eliminate the short-slate rule because universal proxy cards obviate the need for dissidents to round out partial slates with management nominees. Dissidents would however retain the ability to recommend their preferred management nominees in their proxy materials.

Notice and filing. The proposal would require a dissident shareholder to provide the company with notice of its intent to solicit proxies and the names of its nominees at least 60 days before the anniversary of the previous year’s annual meeting, or about two to four weeks prior to the time the company would typically mail its proxy statement. The company would then be required to provide the dissident with the names of management’s nominees at least 50 days before that anniversary. The dissident would need to file its proxy statement by the later of 25 days before the meeting date or five days after management files its proxy statement.

Minimum solicitation effort. Dissidents would be obligated to solicit holders of shares representing at least a majority of the company’s voting power, which would mean a dissident must expend its own resources in order to trigger use of the mandatory universal proxy card. However, because dissidents would not be required to solicit all shareholders, many shareholders (such as retail investors) may not receive proxy statements containing information about the dissident nominees—thereby decreasing the financial burden on the dissident. The SEC is seeking comment on whether dissidents should be required to solicit all shareholders.

Presentation and formatting. The proposal prescribes formatting and presentation criteria intended to ensure that information is presented clearly and fairly.

A universal proxy card would be required to—

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

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

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

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

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

Voting Standards Disclosure and Voting Options

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

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

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

How Is This Different From Proxy Access?

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

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

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

What’s Next?

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

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

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

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

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

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

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

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

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

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

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

par

Nicolle Forget*

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

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

nicolle-forget

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

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

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

Malaise !

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Encore une fois, pour quoi ? Pour qui ?

Pourquoi pas aux activistes de toutes origines ?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Malaise !

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

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

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

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

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

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

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

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

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

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

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

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

Points saillants eu égard aux rémunérations des hauts dirigeants en 2016 | The Conference Board

Quels ont été les développements eu égard aux rémunérations de la haute direction des sociétés publiques américaines en 2016 ?

C’est le sujet de l’article publié par Matteo Tonello, directeur exécutif du Conference Board.

Chaque année, l’organisation publie un état de la situation de la rémunération des grands patrons des sociétés américaines.

L’étude, rendue publique récemment, vient de paraître dans le Harvard Law School Forum ; on y présente les changements majeurs dans les politiques de rémunération et l’on y dresse un portrait complet des pratiques de rémunération supervisées par les conseils d’administration.

C’est un compte rendu incontournable pour tous les membres de comités des ressources humaines.

Bonne lecture !

CEO and Executive Compensation Practices: 2016 Edition

The report has been designed to reflect the changing landscape of executive compensation and its disclosure. In addition to benchmarks on individual elements of compensation packages and the evolving features of short-term and long-term incentive plans (STIs and LTIs), the report provides details on shareholder advisory votes on executive compensation (say-on-pay) and outlines the major practices on board oversight of compensation design.

Compensation data is examined and segmented by business industry and company size (measured in terms of annual revenue). For the purpose of the industry analysis, the report aggregates companies within 10 industry groups, using the applicable Global Industry Classification Standard (GICS) codes. In addition, to highlight differences between small and large companies, findings in the Russell 3000 Index are compared with those from the S&P 500 Index. The S&P 500, or subset of the S&P 500, is also used to further investigate certain compensation practices, such as changes in pension value, perquisites, and incentive plans. Figures and illustrations used throughout the report refer to the Russell 3000 analysis unless otherwise specified.

Key Findings from the study

Several highest paid CEOs have made the top-25 list for years; shareholder return is rarely the performance goal driving their compensation.

In the last few years, companies have been responding to public scrutiny over pay-for-performance and made significant adjustments to their compensation policies—curbing base salaries and annual bonuses, introducing retention requirements on equity awards, and shifting from single metric to blended-metric incentive plans. And yet The Conference Board found that pay and performance alignment, at least where performance is measured in terms of total shareholder return (TSR), continues to elude some industries’ chief executives; their top-level compensation is due to performance metrics other than TSR. For example, at asset management public company GAMCO, Mario Gabelli receives fees related to the total assets that his investment company manages, not only the returns generated by those invested assets. At media companies Viacom and CBS, the performance targets of choice are operating income and free cash flow, both for annual and long-term incentives; moreover, the compensation required to retain a CEO is inevitably distorted by the generous compensation offered by those companies to the artists and other media talent needed to appeal to wide audiences. Therefore, at least for these individuals, an analysis of TSR performance is only going to tell some of the story.

CEOs of smaller companies benefited from the highest total pay growth in 2015, but the compensation gap between them and their colleagues in the S&P 500 remains wide.

Excluding the effects of pensions, the increase in median total compensation for CEOs in the S&P 500 was 2.9 percent, contributing to a six-year rise (from 2010) of 22.25 percent. The equivalent figures for the Russell 3000 were 4.2 percent and 54.7 percent respectively. In fact, in the smallest company bracket by revenue, under US$100 million, the increase in median total pay was 37 percent, just between 2014 and 2015 levels. In contrast, the CEOs of the largest companies (US$50 billion and over) received a rise in median pay of 10.8 percent, while smaller organizations saw their median compensation shrink even when excluding the effects of pensions.

Smaller increases in total CEO compensation documented for some industries (including energy, utilities, and telecommunication services) reflect the lackluster performance caused by the slump in commodity prices, new regulatory restraints, and market saturation.

According to the business sector analysis, and again excluding the effect of pension change, CEOs in telecommunications, utilities, industrials, and energy saw median total compensation fall. For energy firm CEOS, the decrease was as large as 17.7 percent. In contrast, CEOs of companies in the consumer discretionary (such as entertainment and travel), consumer staples, and health care sectors all experienced double digit increases, with the highest going to consumer staples CEOs at 28 percent. On the other hand, no industry reported a negative six-year change, with health care CEOs experiencing median growth in total compensation between 2010 and 2015 of 94 percent, from US$1,817,000 to US$3,525,000.

As companies continue to strive to achieve pay-for-performance, a rise in the value of stock awards drives the bulk of total CEO compensation increases.

Stock awards have taken up the slack of virtually every other component of pay. S&P 500 CEOs receive 47 percent of their total pay in the form of stock awards, up from a third in 2010, while in the Russell 3000 it has risen from less than a quarter of total pay to more than a third. More specifically, in 2015 the value of stock awards grew by over 23 percent at the median for CEOs in the Russell 3000, and by 13.7 percent for CEOs in the S&P 500. Over the last six years, the growth in the value of median stock awards for the Russell 3000 has been impressive at 291.4 percent (and as high as 358.3 percent for small companies with asset values between US$500 and US$999 million). In the first quarter of 2015, when decisions about most stock awards are made, awarded stocks in both the S&P 500 and the Russell 3000 were higher than at the beginning of 2014. It remains to be seen whether the volatility that these equity indices registered in 2015 will curb the rise of stock award value in 2016.

With an inflation rate of less than one percent for both 2014 and 2015, market pressure and the looming application of the new SEC pay ratio rules explain the moderate rises in CEO base salary.

Compared to 2015, base salary rose four and 4.7 percent for CEOs in the S&P 500 and the Russell 3000, respectively. Double-digit total compensation increases for CEOs of consumer staples companies were not caused by any increase in base salary, since median salary fell by two percent in that industry. The base salary of energy CEOs showed no increase at all at the median. But for most others, base salary rose by between two percent (utilities and materials) and 6.8 percent (information technology (IT)). Similar disparities can be found when companies are broken down by revenue and asset size. CEOs at the largest companies saw either no increase in median salary or, in the case of companies with annual revenue between US$25 and US$49.9 billion, a decline in median salary by 8 percent. In contrast, CEOs of companies with annual revenue of less than US$100 million reported median salary increase of 9.4 percent, compared to a 7.5 percent increase for companies with asset values of US$500 million or less.

Stock options have been losing importance as a compensation incentive in large companies, where scrutiny on share value manipulation and other unintended behavioral effects has been felt the most.

However, when smaller organizations are analyzed, the move away from stock options is not as significant as is commonly claimed. Options as a percent of total CEO pay fell from around 18 percent to 15 percent in the S&P 500. In contrast, CEOs in the Russell 3000 have been steadily receiving around 15 percent of their pay in stock options in each of the last six years, with little or no change in the percentage.

Pension value changes and the increase in non-qualified deferred compensation (NQDC) have fallen back to normal levels following the absorption of the major actuarial valuation adjustments that occurred in 2014.

In the S&P 500, for example, the amount went from less than three percent of pay in 2013 to almost eight percent in 2014, before halving to four percent in 2015. Given the lack of involvement of boards and compensation committees in such volatility, it is hardly surprising that most surveys are careful to give figures that both exclude and include this element of pay. Across industries and company size groups, the change in pension value and NQDC was negative, both between 2014 and 2015 and over the entire six-year period.

The gain in strength of the US dollar has slowed the operational performance of many multinational companies, causing a sharp year-on-year decrease in the median annual bonuses granted to CEOs in both the Russell 3000 and the S&P 500.

In fact, in the S&P 500, median 2015 bonuses are lower than they were six years ago (when they stood close to US$2 million), though similar in level to the median bonus awarded in 2012 and 2011 (around US$1,850,000). As with other compensation elements, median bonuses for CEOs of the smallest companies reverse the general trend. Median bonuses for CEOs of companies with annual revenue of less than US$100 million increased by three percent; for companies with asset values of less than US$500 million, this increase was seven percent. In contrast, CEOs of companies with an asset value of more than US$100 billion saw median bonus value fall by almost a fifth.

In 2015, for the first time in years, the annual growth in percentage points of total NEO compensation exceeded that of CEOs—a sign that companies may be concerned about talent retention at the top in a tightening job market.

While growth of compensation for NEOs exceeded that of CEOs between 2014 and 2015, growth for NEO compensation in the long-term lags that of CEOs. NEO pay rose between 2010–2015 (32 percent and 15.8 percent in the Russell 3000 and S&P 500 respectively), but CEO pay rose more over this period (55 percent and 22 percent for each index). The latest year of slower pay growth may also reflect concerns that differentials are widening too far between CEOs and NEOs. In 2015, median total compensation for NEOs (other than the CEO) was US$1,439,000 in the Russell 3000 and US$3,563,000 in the S&P 500.

The increasing attention paid by investors and other stakeholders to sustainability and long-termism is prompting companies to add non-financial targets to their incentive plans, which seldom still rely on a single metric of performance.

The number of performance measures included in an incentive plan has steadily increased over the past five years, expanding to a series of qualitative aspects of firm performance—ranging from customer satisfaction to the implementation of safety standards and from employee turnover rates to environmental impact measures. When non-financial measures are included in the target count, more than a quarter of firms use more than six performance metrics in their STI plans. Excluding them brings that proportion down to one percent. Without non-financial measures, a third of companies have between two and three metrics for their annual plans. The volume of companies using only a single metric continues to shrink quite rapidly; in STIs, it is down from 16 percent to 14 percent from 2014 to 2015, up from almost a third of the examined 2010 sample. For LTIs, companies using a single metric dropped from 41 percent in 2010 to 19 percent in 2015.

Say-on-pay analysis confirms a significant turnover in failed votes, with several companies losing the confidence of their shareholders this year after winning the vote by a wide margin in 2014.

In the Russell 3000, only 27 of the executive compensation plans put to a say-on-pay vote in the first half of 2016 failed to receive the support of a majority of shareholders. This compares with 52 and 51 percent of companies with failed votes during the same period in 2015 and 2014, respectively. Two companies that reported failed votes in 2016 had also missed a majority support level in 2015: Masimo Corp and Tutor Perini Corporation. (There were eight of these cases in 2015.) Tutor Perini Corporation is the only company in the Russell 3000 that has failed all six years of say-on-pay advisory votes. Nabors Industries Ltd. had four consecutive failed votes as of 2014, received 65.3 percent of for votes at its 2015 annual general meeting (AGM), and then failed the advisory vote again in 2016 (with a mere 36 percent of votes cast in favor of the compensation plan proposed by management).

Prélude à un code de gouvernance aux É.U. !

Voici un bref article de Gary Larkin, associé à The Conference Board Governance Center, qui porte sur la perspective de concevoir un code de gouvernance qui s’adresse à l’ensemble des entreprises publiques (cotées) américaines.

Le projet de code est l’initiative de quelques leaders d’entreprises cotées, de gestionnaires d’actif, d’un gestionnaire de fonds de pension et d’un actionnaire activiste.

Cet énoncé des grands principes de gouvernance se veut un exercice devant jeter les bases d’un code de gouvernance comme on en retrouve dans plusieurs pays, notamment au Royaume-Uni.

Voici les points saillants des principes retenus :

Every board should meet regularly without the CEO present, and every board should have active and direct engagement with executives below the CEO level.

Directors should be elected by a majority of either “for” or “against/withhold” votes (with abstentions and non-votes not be counted)

Board refreshment should always be considered in order that the board’s skillset and perspectives remain current.

Every board should have members with complementary and diverse skills, backgrounds and experiences.

If the board decides on a combined CEO/Chair role, it is essential that the board have a strong independent director.

Institutional investors that make decisions on proxy issues important to long-term value creation should have access to the company, its management, and, in some circumstances, the board.

Companies should only provide earnings guidance to the extent they believe it is beneficial to shareholders.

Bonne lecture !

It’s Commonsense to Have a U.S. Corporate Governance Code

Over the summer, one of the most interesting pieces of corporate governance literature was the Commonsense Corporate Governance Principles.

The publication was the result of meetings between a group of leading executives of public companies, asset managers, a public pension fund, and a shareholder activist. The principles themselves may not have broken new ground—they addressed such basic issues as director independence, board refreshment and diversity, the need for earnings guidance, and shareholder engagement. But the fact that such a publication was released at a time when some in Congress to roll back Dodd-Frank corporate-governance-related regulations is impressive.

It’s impressive because of who was in the meetings. It’s impressive because the meetings took place without any government or third-party instigation. It’s impressive because it might be the beginning of a new strategy for overseeing corporate governance in the United States. It shows that sometimes industry can lead by example without rules and regulations to tell them how to govern their own companies and boards.

Maybe these principles could be the start of the first true US corporate governance code, something that our brethren in the UK have had for years. Even smaller markets such as South Africa and Singapore have codes that are used to guide corporate governance.

Granted, those at the meetings, some of who included J. P. Morgan Chase CEO Jamie Dimon, Berkshire Hathaway chief Warren Buffett, General Motors head Mary Barra, BlackRock Chair and CEO Larry Fink, and Canada Pension Plan Investment Board President and CEO Mark Machin might not have envisioned themselves as U.S. corporate governance pioneers. But it’s a first step toward a true principles-based approach to good corporate governance in a country that is used to following rules and hiring attorneys to find the loopholes.

If you look at the main points made in the Commonsense Principles, you can see the foundation for such a code:

Every board should meet regularly without the CEO present, and every board should have active and direct engagement with executives below the CEO level.

Directors should be elected by a majority of either “for” or “against/withhold” votes (with abstentions and non-votes not be counted)

Board refreshment should always be considered in order that the board’s skillset and perspectives remain current.

Every board should have members with complementary and diverse skills, backgrounds and experiences.

If the board decides on a combined CEO/Chair role, it is essential that the board have a strong independent director.

Institutional investors that make decisions on proxy issues important to long-term value creation should have access to the company, its management, and, in some circumstances, the board.

Companies should only provide earnings guidance to the extent they believe it is beneficial to shareholders.

Microsoft, a Governance Center member, is satisfied with the Commonsense Principles because it aligns with what it has in place, according to a blog from Microsoft Corporate Secretary John Seethoff. “For example, we’ve made a concerted effort to assure board refreshment occurs with a focus on diversity in skillsets, backgrounds, and experiences,” he wrote. “The Principles agree with this emphasis, asserting, ‘Diversity along multiple dimensions is critical to a high-functioning board. Director candidates should be drawn from a rigorously diverse pool.’ Board tenure receives similarly thoughtful consideration, with the Principles underscoring the need to temper ‘fresh thinking and new perspectives’ with ‘age and experience.’”

Seethoff concluded: “At Microsoft, we’ve long believed that good corporate governance encourages accountability and transparency, as well as promotes sound decision-making to support our business over time. The ultimate goal is to create a system that provides appropriate structure for the company at present, allows flexibility to change in the future, and has a long-term perspective that matches our business objectives and strategy. As part of this open, constructive mindset, we applaud the leaders for outlining these Principles and look forward to continued dialogue on this important effort.”

If you ask me, the Commonsense Principles can definitely be the US Corporate Governance Code Version 1.0. They could be treated like climate change agreements (i.e. the 2015 Paris Climate Change Agreement) where countries come together and sign on. The original group of executives could hold a follow-up meeting or convention that would allow US companies to promise to follow the principles, similar to The Giving Pledge started by Buffet and Microsoft founder Bill Gates.

Les devoirs des administrateurs eu égard à un climat de travail malsain | Un cas pratique

Cette situation semble se présenter de plus en plus fréquemment dans les institutions d’enseignement qui visent des rendements très (trop !) élevés.

Bonne lecture ! Vos commentaires sont toujours les bienvenus.

Un cas culture organisationnelle déficiente !

Ignacio is an old boy of a private school with a proud sporting tradition. He was invited onto the board last year when a long-serving director retired. The school is well run with a professional principal who has the respect of the staff as well as many of the boys.

The school has worked hard to develop academic excellence and its place in rankings has improved with a greater percentage of boys qualifying for university.

At the last board meeting the CEO was absent. The chairman explained that he had taken stress leave because he couldn’t cope with bullying from some of the parents. Some directors sniggered and the rest looked embarrassed. There were a few comments about ‘needing to grow a backbone’, ‘being a pansy’, and ‘not having the guts to stand up to parents or lead the teams to victory on the field’.

Ignacio was aghast – he asked about the anti-harassment and workplace health and safety policies and was given leave by the chair « to look into ‘covering our backs’ if necessary ».

Ignacio met with the HR manager and discovered the policies were out of date and appeared to have been cut and pasted from the original Department of Education advice without customisation. From his experience running a business Ignacio is aware of the importance of mental health issues in the modern workplace and also of the legal duty of directors to provide a workplace free from bullying and harassment. School staff are all aware of a discrepancy between the stated School values and those of the board and some parents. The HR manager tells him that recent bullying by parents has become more akin to verbal and even physical assault. Staff believe the board will not support them against fee paying parents even though the school is, in theory, a not-for-profit institution.

How can Ignacio help lead his board to an understanding of their duty to provide a safe workplace?

Chris’s Answer …..

Julie’s Answer ….

Leanne’s Answer ….

*Julie Garland McLellan is a practising non-executive director and board consultant based in Sydney, Australia.

Livres phares sur la gouvernance d’entreprise

Voici un article de James McRitchie, publié dans Corporate governance, qui commente succinctement le dernier volume de Richard Leblanc.

Comme je l’ai déjà mentionné dans un autre billet, le livre de Richard Leblanc est certainement l’un des plus importants ouvrages (sinon le plus important) portant sur la gouvernance du conseil d’administration.

Une révision du volume de Richard Leblanc | Handbook of Board Governance

Mentionnons également que le volume publié par David F. Larcker et Brian Tayan, professeurs au Graduate School de l’Université Stanford, en est à sa deuxième édition et il donne l’heure juste sur l’efficacité des principes de gouvernance. Voici une brève présentation du volume de Larcker.

Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences (2nd edition )

Je vous recommande donc vivement de vous procurer ces volumes.

Enfin, je profite de l’occasion pour vous indiquer que je viens de recevoir la dernière version des Principes de gouvernance d’entreprise du G20 et de l’OCDE en français et j’ai suggéré au Collège des administrateurs de sociétés (CAS) d’inclure cette publication dans la section Nouveauté du site du CAS.

Bonne lecture !

Les grandes sociétés sont plus résistantes que l’on est porté à le croire !

Voici un excellent article partagé par Paul Michaud, ASC, et publié dans The Economist.

Incumbents have always had a tendency to grow fat and complacent. In an era of technological disruption, that can be lethal. New technology allows companies to come from nowhere (as Nokia once did) and turn entire markets upside down. Challengers can achieve scale faster than ever before. According to Bain, a consultancy, successful new companies reach Fortune 500 scale more than twice as fast as they did two decades ago. They can also take on incumbents in completely new ways: Airbnb is competing with the big hotel chains without buying a single hotel.

Vous trouverez, ci-dessous un bref extrait de cet article que je vous encourage à lire.

The new Methuselahs

IN SEPTEMBER 2009 Fast Company magazine published a long article entitled “Nokia rocks the world”. The Finnish company was the world’s biggest mobile-phone maker, accounting for 40% of the global market and serving 1.1 billion users in 150 countries, the article pointed out. It had big plans to expand into other areas such as digital transactions, music and entertainment. “We will quickly become the world’s biggest entertainment media network,” a Nokia vice-president told the magazine.

It did not quite work out that way. Apple was already beginning to eat into Nokia’s market with its smartphones. Nokia’s digital dreams came to nothing. The company has become a shadow of its former self. Having sold its mobile-phone business to Microsoft, it now makes telecoms network Equipment.

There are plenty of examples of corporate heroes becoming zeros: think of BlackBerry, Blockbuster, Borders and Barings, to name just four that begin with a “b”. McKinsey notes that the average company’s tenure on the S&P 500 list has fallen from 61 years in 1958 to just 18 in 2011, and predicts that 75% of current S&P 500 companies will have disappeared by 2027. Ram Charan, a consultant, argues that the balance of power has shifted from defenders to attackers.

Incumbents have always had a tendency to grow fat and complacent. In an era of technological disruption, that can be lethal. New technology allows companies to come from nowhere (as Nokia once did) and turn entire markets upside down. Challengers can achieve scale faster than ever before. According to Bain, a consultancy, successful new companies reach Fortune 500 scale more than twice as fast as they did two decades ago. They can also take on incumbents in completely new ways: Airbnb is competing with the big hotel chains without buying a single hotel.

Next in line for disruption, some say, are financial services and the car industry. Anthony Jenkins, a former chief executive of Barclays, a bank, worries that banking is about to experience an “Uber moment”. Elon Musk, a founder of Tesla Motors, hopes to dismember the car industry (as well as colonise Mars).

It is perfectly possible that the consolidation described so far in this special report will prove temporary. But two things argue against it. First, a high degree of churn is compatible with winner-takes-most markets. Nokia and Motorola have been replaced by even bigger companies, not dozens of small ones. Venture capitalists are betting on continued consolidation, increasingly focusing on a handful of big companies such as Tesla. Sand Hill Road, the home of Silicon Valley’s venture capitalists, echoes with talk of “decacorns” and “hyperscaling”.

Second, today’s tech giants have a good chance of making it into old age. They have built a formidable array of defences against their rivals. Most obviously, they are making products that complement each other. Apple’s customers usually buy an entire suite of its gadgets because they are designed to work together. The tech giants are also continuously buying up smaller companies. In 2012 Facebook acquired Instagram for $1 billion, which works out at $30 for each of the service’s 33m users. In 2014 Facebook bought WhatsApp for $22 billion, or $49 for each of the 450m users. This year Microsoft spent $26.2 billion on LinkedIn, or $60.5 for each of the 433m users. Companies that a decade ago might have gone public, such as Nest, a company that makes remote-control gadgets for the home, and Waze, a mapping service, are now being gobbled up by established giants.

…..

Les CEO adoptent une vision à long terme, mais ils doivent souvent rechercher des objectifs à court terme pour y arriver !

Aujourd’hui, le courtermisme a mauvaise presse, mais il faut bien se rendre à l’évidence que c’est très souvent l’approche poursuivie…

L’étude montre qu’il existe deux situations susceptibles d’exister dans toute entreprise :

il y a des circonstances qui amènent les propriétaires à choisir des projets à court terme, même si ceux-ci auraient plus de valeur s’ils étaient effectués avec une vision à long terme. L’auteur insiste pour avancer qu’il y a certaines situations qui retiennent l’attention des propriétaires pour des projets à long terme.
ce sont les gestionnaires détestent les projets à court terme, même si les propriétaires les favorisent. Pour les gestionnaires, ils ne voient pas d’avantages à faire carrière dans un contexte de court terme.

L’auteur donne des exemples de situations qui favorisent l’une ou l’autre approche. Ou les deux !

Bonne lecture. Vos commentaires sont les bienvenus.

A Theory of Efficient Short-Termism

In the area of corporate investment policy and governance, one of the most widely-studied topics is corporate “short-termism” or “investment myopia”, which is the practice of preferring lower-valued short-term projects over higher-valued long-term projects. It is widely asserted that short-termism is responsible for numerous ills, including excessive risk-taking and underinvestment in R&D, and that it may even represent a danger to capital quiism itself. Yet, short-termism continues to be widely practiced, exhibits little correlation with firm performance, and does not appear to be used only by incompetent or unsophisticated managers (e.g. Graham and Harvey (2001)). In A Theory of Efficient Short-termism, I challenge the notion that short-termism is inherently a misguided practice that is pursued only by self-serving managers or is the outcome of a desire to cater to short-horizon investors, and theoretically ask whether there are circumstances in which it is economically efficient.

I highlight two main findings related to this question. First, there are circumstances in which the owners of the firm prefer short-term projects, even though long-term projects may have higher values. There are other circumstances in which the firm’s owners prefer long-term projects. Moreover, this is independent of any stock market inefficiencies or pressures. Second, it is the managers with career concerns who dislike short-term projects, even when the firm’s owners prefer them.

These results are derived in the context of a model of internal governance and project choice, with a CEO who must approve projects that are proposed by a manager. The projects are of variable quality—they can be good (positive NPV) projects or bad (negative NPV) projects. The manager knows project quality, but the CEO does not. Regardless of quality, the project can be (observably) chosen to be short-term or long-term, and a long-term project has higher intrinsic value. The probability of success for any good project depends on managerial ability, which is ex ante unknown to everybody.

In this setting, the manager has an incentive to propose only long-term projects, because shorter projects carry with them a risk of revealing negative information about the manager’s ability in the interim. Put differently, by investing in a short-term project that reveals early information about managerial ability, the manager gives the firm (top management) the option of whether to give him a second-period project with managerial private benefits linked to it, whereas with the long-term project the manager keeps this option for himself. The option has value to the firm and to the manager. Thus, the manager prefers to retain the option rather than surrendering it to the firm.

The CEO recognizes the manager’s incentive, and may thus impose a requirement that any project that is funded in the first period must be a short-term project. This makes investing in a bad project in the first period more costly for the manager because adverse information is more likely to be revealed early about the project and hence about managerial ability. The manager’s response may be to not request first-period funding if he has only a bad project. Such short-termism generates another benefit to the firm in that it speeds up learning about the manager’s a priori unknown ability, permitting the firm to condition its second-period investment on this learning.

There are a number of implications of the analysis. First, not all firms will practice short-termism. For example, firms for which the value of long-term projects is much higher than that of short-term projects—such as some R&D-intensive firms—will prefer long-term projects, so not all firms will display short-termism. Second, since short-termism is intended to prevent lower-level managers from investing in bad projects, its use should be greater for managers who typically propose “routine” projects and less for top managers (like the CEO) who would typically be involved in more strategic projects. Related to this, since it is more difficult to ascertain an individual employee’s impact on a project’s payoffs at lower levels of the hierarchy, this suggests that the firm is more likely to impose a short-termism constraint on lower-level managers. Third, the analysis may be particularly germane for managers who care about how their ability is perceived prior to the realization of project payoffs. As an example of this, it is not uncommon for a manager to enter a job with the intention or expectation of finding a new job within a few years. The analysis then suggests that the manager would rather not jeopardize future employment opportunities by allowing (potentially risky) project outcomes to be revealed in the short-term, instead preferring that those outcomes be revealed at a time when the manager need not be concerned about the result (i.e. in a different job).

Overall, the most robust result from this analysis is that informational frictions may bias the investment horizons of firms, and that the bias towards short-termism may, in fact, be value-maximizing in the presence of such frictions. This means that castigating short-termism as well as the rush to regulate CEO compensation to reduce its emphasis on the short term may be worth re-examining. Indeed, not engaging in short-termism may signal an inability or unwillingness on the CEO’s part to resolve intrafirm agency problems and thus adversely affect the firm’s stock price. This is not to suggest that short-termism is necessarily always a value-maximizing practice, since some of it may be undertaken only to boost the firm’s stock price. The point of this paper is simply that some short-termism reduces agency costs and benefits the shareholders.

For example, the project horizon for a beer brewery is typically 15-20 years. Similarly, R&D investments by drug companies have payoff horizons typically exceeding 10 years.

The paper is available for download here.

References

Graham, John R., and Campbell R. Harvey, 2001, “The Theory and Practice of Corporate Finance: Evidence from the Field”. Journal of Financial Economics, 60 (2-3), 187-243.

This is in line with Roe (2015), who states: “Critics need to acknowledge that short-term thinking often makes sense for U.S. businesses, the economy and long-term employment … it makes no sense for brick-and-mortar retailers, say, to invest in long-term in new stores if their sector is likely to have no future because it will soon become a channel for Internet selling.”

One can think about the long-term and short-term projects concretely through examples. Within each firm, there are typically both short-term and long-term projects. For example, for an appliance manufacturer, investing in modifying some feature of an existing appliance, say the size of the freezer section in a refrigerator, would be a short-term project. By contrast, building a plant to make an entirely new product—say a high-technology blender that does not exist in the company’s existing product portfolio—would be a long-term project. The long-term project will have a longer gestation period, with not only a longer time to recover the initial investment through project cash flows, but also a longer time to resolve the uncertainty about whether the project has positive NPV in an ex post sense. There may also be industry differences that determine project duration. For example, long-distance telecom companies (e.g. AT&T) will typically have long-duration projects, whereas consumer electronics firms will have short-duration projects.

*Richard T. Thakor, Assistant Professor of Finance at the University of Minnesota Carlson School of Management.

La gouvernance des CÉGEPS | Une responsabilité partagée

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

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Six mesures pour améliorer la gouvernance des organismes publics au Québec

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Beyond “Board Refreshment”: Building a Strategic-Asset Board

Recommendations of the 2016 NACD Blue Ribbon Commission

Tools for Directors

Early Engagement: Going Beyond Traditional Board Succession Planning

Considerations for Upgrading Board Evaluation Processes

Guidelines for Developing Board and Individual-Director Learning Agendas

Tools, Templates, and Examples

Endnotes:

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Selected Editorial Reviews

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References

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Shareholder activism and board composition

Assessing what you have–and what you need

Sample board composition grid: What skills and attributes does your board need?

Board diversity is a hot-button issue

Is there diversity on US boards?

How long is too long? Director tenure and mandatory retirement

Factors in the director tenure and age debate

Investor concern

What are investors saying about board composition and refreshment?

Proxy advisors’ views on board composition—recent developments

How can directors proactively address board refreshment?

Endnotes:

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United Kingdom

Shareholder Activism—recent developments in the U.K.

France

France is in the process of strengthening its Say on Pay

Germany

New players rising

Italy

Switzerland

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Why Is the SEC Acting?

Key Features of the Proposal

Voting Standards Disclosure and Voting Options

How Is This Different From Proxy Access?

What’s Next?

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Key Findings from the study

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References

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