Sad as your editor was to see a scheduled proxy fight disappear unexpectedly, along with all the excitement such events bring…not to mention the paycheck…he ended up very happy to be able to free up the time to attend the Annual Fall Conference of the Society’s New York, Fair field-Westchester and Hartford Chapter s in Providence, RI. The Ohio, Pittsburgh and OKI-TriState Chapters also buddied up with us for a jam-packed dayand- a half of dialog and discussions on the incredible number of “hot issues” that are suddenly out there. Here are some of the major “takeaways”:
“In case you haven’t realized it yet, Self-Regulation and De-Regulation, which have been the regulatory watchwords for over a decade, are effectively dead.” A major takeaway from the conference, courtesy of the eminent Ben Heineman Jr ., former General Counsel, SVP Law and Corporate Affairs and Corporate Secretary of GE, now a Distinguished Fellow at Harvard and author of a must-read book, High Performance with High Integrity, who gave the keynote speech. Get set for a whole new world of regulatory change…for a raft of new regulations…and for coping with the death of Wall Street as we knew it…Be prepared to be a leader here, and to get your own company’s ethics and compliance acts in better order, Heineman advised, if you want your company to generate “high performance” that will be sustainable.
“Corporate Governance Issues” will loom lar ger than ever as we begin ramping up for the 2009 Annual Meeting Season, due to the truly shocking financial losses we’re witnessing, and experiencing…along with an equally shocking lack of adequate risk-management practices at companies we loved… and trusted, and where we were assured that all was A-OK… and an even more shocking (?) lack of appropriate oversight, both by Boards and by governmental agencies. The many proxy solicitors and advisors who were in attendance were quivering with excitement about the kind of Annual Meetings we’re likely to have in 2009.
Those “check the box” governance issues are largely pass. as a result… (and in smaller part because most companies have capitulated, and checked most if not all the boxes by now - and partly, as one panel discussed, and as we noted in our last issue, the evidence is that corporate governance ratings are pure bunkum). This, however, is probably a bad thing for many companies, given where the focus will shift: Directly to the qualifications, roles and specific actions taken by individual directors. Yes, their ages, attendance records, stock ownership positions and the performance of other companies on whose boards your directors have been sitting of late, and even their “mugshots” will still be important…But count on the questions to get tougher, the expectations to get higher…and count especially on “punitive votes” being cast in large numbers against audit committee and comp-committee members wherever there have been real or perceived “issues”.
The number-one question at companies where there have been performance issues will be “Where WAS the Board?”…and Number-two will be “Who ARE these people anyway?” And the number-one question at companies that have so far stayed out of trouble will be “What, exactly, is THIS Board doing NOW to guard against similar blowups?”
Anyone who thought that “say on pay” was pass., or would go away, given the ability of shareholders to oust all the comp committee member s - at least where there’s majority voting – has another thing, or maybe two things coming: Count on say on pay to be a bigger issue than ever…AND for comp-committee member s to come under attack all the same, and maybe go down to defeat wherever there are “issues” – and, for that matter, wherever severance agreements, claw-back provisions and “golden coffins” haven’t been dealt with proactively by comp committees. As we just saw with the so-called “bailout legislation” ordinary people are really angry about corporate executive performance these days…and even angrier at their pay.
And, in case you failed to notice, both presidential candidates say they are in favor of say on pay! (On a related note, which was not discussed at this conference, but which was predicted in our last issue to be a hot issue…and ‘seconded’ recently in the Compensation Standards Summer newsletter, which included a roadmap of things to do…Be sure you’re up to speed on your top management’s “Total
Wealth Accumulation” before you draft your next CD&A).
No real surprise, Board member s are becoming a lot more active…and asking a lot more questions. Many of the public companies in attendance said they’ve stepped up both the content and the frequency of their board communications programs. Steve Norman, the Corporate Secretary at American Express, noted that they were holding ‘strictly optional’ conference calls every other month, where the CEO can brief board members on ‘interim developments’… and that every board member who can tune in that day does tune in.
Several panelists remarked on how much new emphasis they expect to be placed on the committees of the board…and how overworked many of the key committees are at present.
Every public company will have to rethink the wisdom of continuing to assign “risk management” to the audit committee, we say - as we’ve been saying for several years now. Many, we bet, will move quickly to form, or reconstitute “risk management” and/or “finance committees” (which many companies used to use to manage not just the cost of capital but the operational and reputational risks that, as we are belatedly re-learning, can impact a company’s cost of capital – and the ability to raise capital, or to recapitalize in a crisis).
One panelist opined that the recent trend – cheered on by those “governance gurus” let’s remember – to shrink the size of Boards - probably needs a rethinking in today’s environment.
More emphasis will almost certainly be placed on the number of “financial experts” on the Board…But surprisingly, as one panelist, a top-flight Board Headhunter told us, contrary to the common wisdom, these folks are NOT in short supply, nor are they hard to recruit. “We know exactly who they are, and where they are, and how available they are to serve on a given Board” he told us.
The real “crunch” revolves around the rapidly-shrinking number of active and recently retired CEOs who are available, or whose companies will make them available to serve on other Boards. And guess what? Now that it is crunch time, the cur rent “common wisdom” among governance gurus and regulators alike – that virtually every board member needs to be a “totally independent” and “totally non-related par ty” – which rules out so many outstanding CEOs at so many companies, in favor of academics, subject-matter exper ts, retired politicos, social dogooders and others - doesn’t sound like such a hot idea after all.
Ironically, as several panelists, including Ben Heineman pointed out, it is really NOT the Board, but the CEO whose job it is to manage the company, to be sure the appropriate controls and the appropriate risk-management risk mitigation programs are in place…and, most important of all, to “set the tone at the top”…and make sure the worker s sing in tune. This issue, however, has been solving itself, as CEOs are voluntarily stepping down, or being forced out by Boards…or having to sell their companies overnight… at truly startling rates. A fascinating panel on succession planning underscored how much more important it has become…even while most such plans are being increasingly tossed into a cocked hat, as various ‘emergencies’ continue to emerge that end up with a top-to-bottom reshuffling of the management team and a new CEO being helicoptered in.
All of this, however, turns out to be good news for most of our reader s, who, as Ben Heineman also reminded, need to be “the conscience of the corporation…and of the board”; people who can tell the powers that be what they really need to know, in a way that will cause them to listen up.
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