Posts Tagged ‘corporate strategy’

Faced With Fiscal Cliff, Financial Sector Directors Increased Cash Reserves

January 10th, 2013 | By

Companies kicked into gear at the end of 2012, acting to forestall the brunt of the potential fiscal cliff. More than 80 CEOs joined the Fix the Debt coalition. Others chose to accelerate dividend payouts in anticipation of a potential increase in dividend-tax rates from 15 percent to 40 percent. In the financial sector, directors reported their companies were most likely to increase cash reserves, according to results from the Q4 NACD Board Confidence Index (BCI), conducted in early December. Across all sectors, directors responded that their companies were reassessing corporate strategy to prepare for the coming year.

Uncertainty trumped optimism in the fourth quarter of 2012. And not without reason—a close presidential election coupled with the looming fiscal cliff and Congress’ inability to develop a solution left the nation waiting until the last minute. Conducted in the first weeks of December, NACD’s Q4 BCI score dropped nearly three points from 54.5 to 51.8. A score above 50 represents optimism regarding the current state of the economy. Scores near 50 mark uncertainty.

Attitude Shift in Future Outlook 

The 51.8 score represents the second-lowest registered by the BCI—the lowest was 47.5 in Q3 2011. In its two-and-a-half-year history, scores have fluctuated between uncertainty and moderate optimism. These composite scores are generally the result of boardroom pessimism in the short-term state of the economy buoyed by an optimistic long-term view of economic progress—both progress made to date and to come.

In Q4, however, the outlook shifted to optimism in the boardroom’s retrospective view—current economic conditions versus those three months and one year ago—lifting pessimism in both the short- and long-term future states of the economy. Looking ahead to the state of the economy in three months, boardroom confidence dropped eight points—15 percent—to a gloomy 44, the lowest score to date.

Peer indices provided mixed sentiments in the fourth quarter. The Conference Board’s quarterly CEO Confidence Index posted a recovery of 4 points, moving from 42 in Q3 to 46 in Q4. However, a score of 46 still places the index in negative territory. Consumer indices moved in the opposite direction. The Conference Board’s Consumer Confidence Index dropped 6.4 points in December to 65.1. A similar measure, the University of Michigan’s Consumer Sentiment Index fell nearly 10 points in December, from 82.7 to 72.9.

Ken Daly Featured on CEO Talk Radio Discussing “Strategy Role of Boards”

September 9th, 2011 | By

Ken Daly, NACD president and CEO, is featured on CEO Talk Radio discussing the role the board plays in helping to shape and refine a sustainable strategy. Directors play a key role by selecting the right CEO for the company’s future, and by working with the CEO and senior management to revise the strategy as the company’s situation evolves. Monitoring execution of the current strategy is another key role, according to Daly.

Click here to listen to Ken’s interview.

Selecting and monitoring the right company strategy is essential to sustained profitability. In the Report of the NACD Blue Ribbon Commission on the Role of the Board in Corporate Strategy, NACD offers best practices to help CEOs and boards become more engaged in advising, assessing and monitoring strategy together, placing special emphasis on cooperation and collaboration.

As Daly explains in the interview, there is a powerful relationship between exemplary board performance, sustained profitability and job growth. Directors serve as fiduciaries for shareowners, but not merely for the short term; boards serve owners best by focusing long-term on corporate performance and growth.

The board’s strategy role extends to the function of the board and the way board meetings are conducted. The most effective meetings focus on actionable items, with agendas set to allow for dialogue about key issues. Between meetings, directors can complement management information by conducting their own research. Board members also need to listen to shareowners to understand their concerns and, in turn, help them understand what the company is doing. (Note: In face to face meetings, directors need to ensure that they speak with one voice and comply with Regulation Fair Disclosure.)

NACD has a number of resources available, including white papers, blue ribbon commission reports and surveys, to help directors and boards navigate their roles and deliver value for their companies. NACD also hosts a number of conferences and forums around the country where board members can learn best practices from corporate governance experts and leading directors, as well as network with other directors and boards.

To listen to the full interview with Ken Daly and hear more about the board’s role in shaping corporate strategy, visit http://www.robertgbarnwell.com/039-ceo-talk-radio-your-first-board-seat/ or download the podcast on iTunes.

Boards Must Prepare for Surge in Shareholder Activism

March 16th, 2011 | By

After a two-year slumber brought on by the financial crisis, activist investors have suddenly awakened. The resurgence is driven in part by the sudden emergence of U.S. private equity firms as activist investors. This change in the corporate climate means that publicly traded companies must position themselves so that they do not become targets of these investors.

How can this be done? The answer is for directors to proactively engage these investors, thereby maintaining open lines of communications and building good will. This means that boards need to take into account the concerns these activist investors raise over a company’s stock performance, governance practices and perceived weaknesses in the business operation. In so doing, directors are better situated to thwart adversarial actions and “staged” revolts by certain activist investors.

After all, activist investors can have a profound impact on the overall composition and direction of a board. For starters, activist investors bent on driving the agenda of a company can attempt to pick up seats on corporate boards of directors. These investors can also wage public battles that tarnish a company’s image—accusing directors of everything from conflicts of interests to lax governance practices.

And the impact of shareholder activism on board operations only promises to grow with the recent Securities and Exchange Commission ruling regarding the Dodd-Frank Act’s “say-on- pay” provision. The provision allows shareholders of public companies the right to weigh in on executive compensation. This right will likely subject executive compensation packages to greater levels of public scrutiny. The impact of this heightened investor activism may also force compensation committees to reexamine compensation plans and address increased regulatory requirements.

A healthy relationship between directors and activist investors does not mean that directors cede complete control. But proactive engagement does mean that directors consider investor proposals seriously and articulate a clear a strategy for enhancing corporate value. As NACD has learned from its experience in convening investors and directors to discuss expectations and shared goals, it is important for boards to establish processes for shareholder communications. Specifically, boards should implement strategies for engaging large, long-term shareholders in dialogue about issues pertaining to the company’s future and corporate governance.

At NACD’s February 22 Virtual Roundtable, institutional investors and long-term shareowners spoke candidly with corporate directors about various issues, such as executive compensation. When controversial topics like executive compensation arise, independent directors—such as the board chair, lead director, or appropriate committee chair—should be a part of board communications with shareholders. This type of proactive board communication with shareholders can go a long way toward minimizing shareholder resolutions.

Of course, public battles with investors will erupt from time to time. To minimize the bad publicity and other fallout from these battles, boards must prepare themselves for crises ahead of time. A key step is for a board to understand the strengths and perceived weaknesses of its company’s structure and corporate governance policies. That allows the board to develop comprehensive plans that incorporate member responsibilities and provide a clear path for the company to present its direction to shareholders.

Activist investors cannot, and should not, be ignored. By addressing their concerns and making an effort to share common goals, directors can lessen the chance of confrontations with shareholders while promoting good corporate governance.