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Three Ways to Turn Evaluations into Action

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In past blog posts, I’ve discussed the need to take an honest assessment of your board and the key questions boards must ask themselves.  Regardless of your company’s industry or size, evaluations provide critical insights into how the board can become stronger and support the organization’s strategic objectives.

That said, such assessments are merely superficial if they are not acted upon, if the strengths revealed are not leveraged, or if the weaknesses identified are not remediated. In our experience with boards that range from family-run firms to companies ranked in the Fortune 10, we find that boards are looking to evaluations for useful feedback, which can be used to develop specific action plans. Below are the three actions a board should follow to ensure it does not just “check the box” in an evaluation, but instead uses the resulting data for improvement.

1. Sanitize and Summarize

Sanitizing the results of the evaluation is critical to ensuring comments cannot be attributed back to specific directors, which can create mistrust and reluctance to be candid in future evaluations. The goal of an evaluation is to be constructive, not destructive. Directors must feel they can provide honest feedback, without retribution.

The amount of data that results from an evaluation can be overwhelming even to experienced directors. While the nominating/governance committee should review the report, for the full board, results should be synthesized into the key themes emerging from the evaluation. Highlighting the critical areas allows the board to focus on identifying specific actions to build on its strengths, address its weaknesses and define the next steps.

2. Take the Sting Out

Let’s be honest. No one likes to hear about their weaknesses. However, we’ve found that weaving the results of an evaluation into an interactive full-board learning session can be very successful in taking some of the sting out of the results. The directors hear the findings in a way that enables them to connect to the issues without pointing fingers. This approach also allows the board to benchmark against other boards of their size and in their industry.

3. Delegate and Follow Through

Even the most thorough evaluation will flop without an agreed-upon roadmap for improvement. Members of the board and senior management should be assigned tasks that address each gap identified in the evaluation. These initiatives should be included in the agendas for future board meetings to track progress, ensure accountability and ultimately optimize the board’s role as a strategic asset to the company.

Recruiting for the Future

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As highlighted in this week’s NACD Directors Daily, boards are responsible for the oversight of an expanding set of risks. This is especially true in the realm of information technology. This week it was reported the Apple board of directors was asked by its shareholders to provide a report specifically on its process for overseeing privacy and data security risks. On the other side of the IT spectrum, the Wall Street Journal recently highlighted the use of social media by those in the senior ranks.

While leadership experience is still the most sought after skill in recruiting new directors, according to data from the upcoming 2012-2013 NACD Public Company Governance Survey, boards are increasingly searching for directors with skill sets beyond “financial expertise.” In recent years, however, boards recruiting new directors have cited a stronger need for risk and technology experience.

Board composition was a key topic of discussion at the recent meeting of NACD’s Nominating/Governance Committee Chair Advisory Council. Last week, Fortune 500 nominating and governance committee chairs met with representatives of key regulators, institutional investors, and proxy advisory firms. At these meetings, co-hosted with executive search firm Heidrick & Struggles and law firm Sidley Austin, committee chairs are able to discuss expectations with these key regulators, as well as share how their boards are handling the current and future boardroom practices. Council delegates spent a substantial portion of the meeting discussing how to design board composition to meet future strategic imperatives, including the increasingly diverse marketplace, and to address cybersecurity and social media risks.

Following an update on regulatory activity and an analysis of the 2012 proxy season, the conversation shifted to the importance of communications between the board and shareholders. In light of rules such as say on pay and the ability for proxy access via shareholder resolutions under Rule 14a-8, it is critical that the board make greater use of public disclosures to communicate the company’s story. If necessary, directors should also consider supplemental disclosures if they feel that additional information needs to be communicated to investors.

NACD will issue a formal summary of the meeting, reviewing the data and insights gleaned from those present.

Proxy Proposals Regarding Disclosure of Political Activity

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As reported in The Dallas Morning News and featured in Monday’s NACD Directors Daily, more than 80 percent of Americans believe there should be limits on the amount of money corporations can contribute to groups trying to influence political campaigns. More than two years after the U.S. Supreme Court’s Citizens United ruling, corporate political spending remains under scrutiny, and shareholder resolutions regarding the disclosure of political activity make up the largest portion of environmental and social policy proposals. While the number of political proposals has doubled since 2008, they have leveled off since 2011, with 116 proposals filed in 2012 to date. The average level of shareholder support for these proposals, depending on company size, sits at low to mid 20 percent, higher than the average of 18 percent support for environmental or social policy proposals.

Most shareholder proposals request disclosure of political or lobbying spending, while a small number of proposals seek to actively limit these corporate expenditures. The latter group either seeks advisory votes on political spending (averaging 7 percent support) or calls for a stop to all political spending (averaging 3 percent support).

Research studies are inconclusive regarding the effects of corporate political expenditures on shareholder value. A number of studies have found positive correlations between political contributions or lobbying activity and benefits to economic and shareholder value. Within the last few years; however, three new studies have found negative correlations, claiming that corporations involved in political spending suffer from decreased shareholder value or under perform their peers.

This proxy season, the Center for Political Accountability (CPA) submitted 51 political disclosure proposals, making it the most active shareholder activist group in this regard. It has also released its model resolution template for 2013, which may be, if this year’s trends continue, the most frequently employed political disclosure proxy proposal. On last week’s episode of BoardVision, NACD spoke with Ken Gross, head of the Political Law practice at Skadden Arps, who provided directors with insights on these shareholder proposals.

Interested directors may wish to view CPA’s 2013 Model Resolution Template.