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New Leadership Structure on Goldman Board

April 6th, 2012 | By NACD Staff

This week, Goldman Sachs Group Inc. named James J. Schiro to be independent lead director in response to shareholder calls to split the roles of chairman and CEO. Schiro, who has been a member of the board since 2009 and chaired the audit committee, effectively replaces John H. Bryan. Bryan had served as presiding director and will not seek re-election. The difference between lead and presiding directors can be substantial, as lead directors have greater influence over the governance of the board.

The prevalence of independent lead directors has increased in recent years. According to the 2011 NACD Public Company Governance Survey, 65 percent of public companies have an independent lead director, which is the highest rate since NACD began surveying the director community on this question in 1995. Additionally, 88 percent of companies with lead directors said that the position enhanced the board’s effectiveness.

Increased boardroom independence has been in the spotlight recently—for investors and legislators. In 2011, there were 24 shareholder proposals for establishing an independent board chairman (data collected from Jan. 1, 2011 to Jun. 21, 2011). Additionally, shareholders offered up 39 proposals in both 2010 and 2009. In 2010, the Dodd-Frank Act implemented a mandate requiring companies to disclose the rationale behind their current leadership structure—whether the chairman/CEO positions are combined or separated.

The role of the independent lead director has also grown in importance. In 2011, the Report of the NACD Blue Ribbon Commission on the Effective Lead Director found that “the lead director has the ability to give the board a competitive advantage.” The Blue Ribbon Commission identified several areas enhanced by lead directors, including: identifying emerging issues and ensuring they are addressed; maximizing board effectiveness; fostering complete board discussion; and providing leadership in times of crisis.

Regardless of leadership structure, an independent voice leading the work of the board enhances any company. Goldman Chairman and CEO Lloyd Blankfein echoed this sentiment, stating, “I know our people and our shareholders will benefit greatly from [Schiro’s] deep experience in his new role on our board.”

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The Limits of Shareholder Communication?

February 17th, 2012 | By Kurt Groeninger

Wednesday’s NACD Directors Daily featured an article from the Wall Street Journal examining the recent moves by a large Yahoo shareholder. Daniel Loeb has indicated his intention to launch a proxy fight to “shake up the board,” and with the potential of electing four new directors to Yahoo, Mr. Loeb has certainly, at the very least, agitated the board.

Loeb’s actions come after major changes at the company. Just last month, Jerry Yang, founder of Yahoo, resigned from the board and four other members announced that they would not seek reelection at the 2012 annual shareholder meeting. Despite this extensive overhaul of the boardroom, Loeb still does not trust the board’s judgment to replace the departing members.

Instead, the Yahoo investor paints a grim picture of the board and its future. In his filing with the Securities and Exchange Commission (SEC), Loeb points out that “installing the hand-picked choices of the current Board does nothing to allay investor fears that Yahoo is poised to repeat the errors of its past.” He also contends that the current members lack the “fresh perspective and necessary experience to overhaul the Company’s challenged organizational and operating structure.”

Yahoo’s response to the proxy challenge was one of disappointment. Their press statement indicated that the board “proactively engaged in discussions with many of [their] largest shareholders, including Third Point (Daniel Loeb).” Despite their efforts, Loeb continues on a path the Yahoo board calls “potentially disruptive.”

As stated in our Blue Ribbon Commission Report on Board-Shareholder Communications, “more communication can enhance a board’s credibility and reputation in the eyes of shareholders.” This trustworthiness is precisely what Yahoo needs right now. The board needs to engage in a second round of shareholder outreach and dialogue detailing the company’s strategy, and how the current nominees for directorship enhance their plans.

Resolution to this challenge is still months away. Communications with shareholders will take on new importance for both Yahoo and Loeb as the annual meeting approaches. Regardless of the outcome, big changes are ahead for Yahoo.

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Boardroom Composition Scrutinized

February 10th, 2012 | By Kate Iannelli

It is no secret that shareholders increasingly expect a more vocal role in setting boardroom composition. This week, it was reported that two notable companies had been challenged on their director choices. On Tuesday, the California State Teachers’ Retirement System (CalSTRS) filed a letter of complaint in light of the highly publicized Facebook IPO. In the pension fund’s letter addressed to CEO Mark Zuckerberg, Director of Corporate Governance Anne Sheehan wrote that CalSTRS was “disappointed that the Facebook board will not have any women members.”

Investors are not alone in their disappointment over the current Facebook boardroom composition. Anne Mulcahy, former CEO/Chairman of Xerox Corp. and director at Johnson & Johnson Co., Target Corp., and Washington Post Co., remarked “it’s unfortunate when companies with a large percent of women constituents don’t reflect that in their boardrooms.” Notably, more than half, 58 percent, of Facebook’s users are women. According the 2011 NACD Public Company Governance Survey, 67.4 percent of boards have at least one female director. In the last three years, however, just 22.3 percent of companies have increased the number of female directors serving their board.

Also under shareholder pressure is struggling technology company Yahoo! Inc., which announced this week that it would reshuffle its board. One month after CEO Jerry Yang submitted his resignation, chairman Roy Bostock and three other board directors announced they would not stand for re-election at the upcoming annual meeting. Currently in the midst of a strategic restructuring, Yahoo! has been flogged for failing to stay up-to-speed with the constantly changing technology environment.

With the 2012 proxy season fast approaching, directors should be prepared for increased scrutiny from shareholders. While 2011 was a relatively easy proxy season for the boardroom—according to some governance experts—Facebook and Yahoo provide valuable lessons. Regardless of a company’s success, shareholders want to see a boardroom that not only reflects long-term strategic goals, but also diversity of thought and experience.

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