Fay Feeney is CEO of Risk for Good, an advisory firm providing board chairs and corporate counsel guidance to monitor, govern and leverage the fast-moving landscape of social media, technology and the Internet.
One of my table mates at the NACD Director Professionalism course I recently attended in Deer Valley, UT was Allan C. Golston, president, United States Program of the Bill & Melinda Gates Foundation. It’s amazing who you sit next to at NACD events. Allan swore his learning wasn’t disrupted by my tweeting during class, and shared with me his takeaways from two days with NACD.
“The course was more than ‘rules of the road’; it was also a dialogue around how to think about the fundamentals of being an effective director in the 21st century in a strategic way. Whether it was rethinking what it really means to have an independent mindset, or rethinking what it means to have courage in the boardroom, or rethinking what it means to represent shareholders—I found these types of fundamentals the most useful.”
Allan Golston with Rob Galford, Compensation Chair, Forrester Research and NACD facilitator
I agree. I invested my time and money to have a refresher on fiduciary responsibilities and to pick up some useful tips on how to contribute most effectively in the boardroom and on key committees, but I came away with so much more: insights that have reshaped my thinking about how to lead in governance and examples of great board behaviors that will galvanize my own priorities and performance.
Mike Lorelli, CEO of Water-Jel Technologies, and another high-flying classmate, agreed. “As much learning in two days, as in two years of an MBA program,” he said.
Mike Lorelli at the NACD resource center
The sessions at Director Professionalism are led by active public company directors. I loved hearing Michele Hooper, who sits on the boards of Astra Zeneca, UnitedHealth Group, PPG Industries and Warner Music Group, encourage newbies by saying: “Everyone has a “first” board seat. Today’s most experienced directors had a first board seat.”
She encourages boards to consider qualified candidates without prior director experience, maintaining that, if your board is looking to expand their recruiting to engage more diverse thinking, they will need to refresh their thinking about board composition.
Although the NACD facilitators were great, the really valuable learning often came from other members of the class. “There really weren’t 10 instructors—more like 70 when you count the learning from the 60 peer-level CEO’s and directors,” said Mike Lorelli. Allan Golston agreed.
“The ‘official’ instructors were really strong, but the interplay and dialogue among the group enriched the content and learning well beyond what the official instructors provided.”
Pamela Packard is a private company director who is active in NACD’s New York chapter. She felt that the snowy setting of the Montage Deer Valley Resort provided lots of opportunities for “off the record” candid conversations among directors from diverse backgrounds and experiences. “These discussions complemented the formal sessions.” She also told me “newcomers to corporate governance had the chance to glean the subtleties of different board cultures and communication styles, learning from those of us with more experience.”
Pam really valued the plethora of publications and extra learning resources provided by NACD. “Great reference materials for future use!” she said.
Director Professionalism has a comprehensive list of learning objectives but really these were just the starting point for our class. In the fast moving world of governance, it’s not only what you know, but who in your network can help you keep your knowledge current. Thanks for a great class. I’ll keep on learning with NACD and look forward to becoming a 2011 NACD Governance Fellow.
To sign up for Director Professionalism in Houston TX, San Francisco CA, or Palm Beach FL, please click here
This week, NACD bridged the gap between corporate directors and the investors they represent. In conjunction with Broadridge Financial Solutions, NACD hosted a Virtual Roundtable at the Newseum in Washington, DC, bringing together leaders from the investment community with directors to discuss the disclosures and communication strategies.
Hosted by NACD President and CEO Ken Daly, the Roundtable featured investment community representatives from T. Rowe Price, CalSTRS, and Vanguard Group, Inc. They engaged in dialogue with board members from Forrester Research, Broadridge Financial Solutions, Kimberly-Clark, Legg Mason, SmartPros Ltd., and Assure Holding Corporation. With the intent to inform directors on what investors are looking for in the proxy in the upcoming year, the Roundtable discussion covered compensation, committee reports, and director qualification disclosures.
The investment managers represented at the Roundtable do not take a “check-the-box” approach based on guidance from proxy advisory firms; instead, they choose to complete their own analysis. Notably, these active shareholders emphasized quality over quantity with respect to disclosures in the proxy statement. Simply an increase in the amount of disclosures from companies only makes it more difficult for investors to uncover the valuable information in the proxy. The participating investors further suggested companies should make an effort to provide quality disclosures regarding how executive compensation matches performance, and how incentives are linked to the business strategy, for example.
The participating investors also stressed the improvements that need to be made regarding the new director qualification disclosures resulting from the SEC Proxy Disclosure Enhancement rules. They felt many companies did not fully explain how each director’s skill sets contributed to the company’s business strategy.
Lastly, the investors offered advice to the boardroom on director succession. After directors have analyzed their board’s composition in light of the company’s strategy, they find a larger challenge in recruiting directors to fill the gaps in skill sets. As a solution, Anne Sheehan of CalSTRS suggested that directors should “think of their shareholders as stakeholders.” Long-term investors have the same interests as directors and might be able to offer potential candidates whose skills complement the company’s business strategy and build its long-term value.
Despite the SEC’s 2008 interpretive admonition that all communications made by or on behalf of a company—even those made by employees on social media, blogs, and shareholder forums—are subject to relevant provisions of federal securities laws, widespread corporate adoption of appropriate compliance procedures in that regard remains elusive at small and large public companies alike. In an eye-opening IR Web Report article published in April 2010, Dominic Jones set forth a litany of issues facing investor relations professionals with respect to social issues, arriving at the austere conclusion that at literally hundreds of public companies studied, investor relations professionals are exposing their companies to material compliance risks by failing to suitably monitor the use of social media. One of the principal impediments to widespread boardroom assessment of these risks is that many directors simply don’t have substantive experience with social media, its use, misuse, and potential legal and regulatory consequences.
To illustrate the potential scope of issues of which directors should be aware in this regard, consider the following hypothetical: XYZ is a public company that manufactures widgets. XYZ has an investor relations manager, and several employees throughout the organization who regularly contribute to XYZ’s website, XYZ’s industry blog, XYZ’s Facebook and Twitter accounts, and occasionally to their own Facebook and Twitter accounts. XYZ is planning on releasing its quarterly earnings press release at
1:00 pm ET (during market hours) on its website; the results are far in excess of consensus estimates. At 12:50 pm, a third-party financial blog that follows XYZ posts a note to the financial blog’s Facebook page stating that its “channel checks weren’t impressive – going to be a tough quarter for XYZ. That said, we love their new ABC 5000 widget which will be a HUGE winner for them.” At 12:52 pm, Sally, from XYZ sales and marketing, replies on the financial blog’s Facebook page that she “like[s] this posting,” and puts a link to that Facebook page on XYZ’s industry blog. At 12:54 pm, Jim, an XYZ engineer, responds to a pejorative Tweet about XYZ by a friend who works for XYZ’s largest competitor, by posting a link on his personal Twitter page to a summary of a third-party analyst note reiterating that XYZ is a “strong buy.” At 12:56 pm, Larry, XYZ’s investor relations manager, updates XYZ’s official Facebook and Twitter pages to remind people that the earnings release is forthcoming, but erroneously instructs people to look for the release on the wire, instead of at XYZ’s website. The earnings release is posted on XYZ’s website precisely at 1:00 pm ET, but isn’t picked up by the wire services until 1:03 pm. During the three-minute gap, the stock rises 10 percent. Later that afternoon, Margaret and some of her overworked, dissatisfied colleagues in XYZ’s factory intentionally and untruthfully “tweet” in their personal Twitter accounts that the ABC 5000 is being shipped with a critical design flaw. The next morning, one of the research analysts covering XYZ elects to downgrade the stock due to the prior day’s price increase, but since it’s not good news, Larry decides not to state anything about that on XYZ’s website, Facebook or Twitter accounts.
As fanciful as it might sound to directors who are less social media savvy, fact patterns like these are playing out routinely, and the panoply of issues created in the process can be vexing. Though Sally mightn’t have been intentionally seeking to mislead investors, what does it mean to an XYZ investor when an XYZ employee says they “like” a financial blog posting which predicts, among other things, doom for XYZ’s impending quarter; what if an XYZ investor reasonably relied on that and sold her stock eight minutes before a 10-percent rally? Similarly, Jim mightn’t have intended to mislead his Twitter followers by directing them to a summary of a positive analyst report, but are there ramifications to XYZ for its employee omitting regulatory disclaimers in connection with what can be construed to be investment advice? Larry didn’t intend to misguide investors by directing them away from XYZ’s website for the earnings release, but, having done so, the three-minute news lapse could well have been costly to certain investors given the stock movement. Lastly, the intentionally false and misleading Tweets by Margaret and her colleagues are, per the SEC’s interpretation referenced above, attributable to XYZ. It’s also plausible that Larry’s purposeful omission of the analyst’s downgrade could garner some regulatory attention if XYZ’s website, Facebook and Twitter accounts are, by design, places where the preponderance of XYZ’s investors are induced to get their information about XYZ.
Whether attuned to social media or not, a practical way for directors to start evaluating these risks is by simply providing this hypothetical to a company’s communications managers in advance of the next board meeting, and asking appropriate personnel to make a presentation about how and to what extent there are procedures in place to effectively manage these and associated risks. One thing’s for certain: these are challenges that are going to multiply, not diminish.
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Adam J. Epstein, an NACD member, is a director of OCZ Technology Group, Inc., and is the founding principal of Third Creek Advisors, LLC (“TCA”), which acts as a special advisor to small-cap boards with respect to corporate finance and capital markets. Prior to founding TCA, Mr. Epstein was co-founder and principal of Enable Capital Management, LLC, an investment firm whose funds have invested directly in hundreds of small-cap companies. Preceding several senior operating roles in retail and technology, Mr. Epstein began his career as an attorney at Brobeck, Phleger & Harrison. Mr. Epstein has been featured on CNN, ABC News, and in The Wall Street Journal. Mr. Epstein can be contacted by email at email@example.com.