What are the emerging legal trends for directors as we come to a close of 2010 and a year fraught with new laws and regulations?
The Honorable William B. Chandler, III, Chancellor, Delaware Court of Chancery
In today’s second plenary session, the Honorable William B. Chandler III from the Delaware Court of Chancery “held court” with William M. Lafferty, defense attorney with Morris, Nichols, Arsht & Tunnell LLP; Honorable Norman Veasey, senior partner with Weil, Gotshal & Manges LLP; and Jessica Zeldin, shareholder attorney, with Rosenthal, Monhait & Goddess, PA on “Emerging Legal Trends.”
The Honorable E. Norman Veasey
The general consensus among panelists is that the Delaware Law remains unchanged by the Dodd-Frank Act. Yes, there are now more compliance and disclosure regulations, but the judicial standards will not be affected. That said, directors should expect an increase in derivative litigation.
Lafferty, a practicing defense attorney in Delaware, stressed the importance of Delaware courts, despite the increase of lawsuits in other jurisdictions. Lafferty said that in Delaware, “you will get a fair opportunity to be heard” in a “non-jury trial” and in a “prompt and timely manner.”
William M. Lafferty
Lafferty also pointed out that boards can ensure that shareholder lawsuits be filed in Delaware with the adoption of a charter or bylaw provision. Jessica Zeldin, who jestingly said she was “the enemy in the room” as a shareholders’ attorney, countered that the use of a charter provision for this purpose may have an unintended backlash from shareholders.
Zeldin offered what she labeled the “special sauce” of how plaintiff attorneys go after boards. She highlighted M&A cases and situations where board and management have divergent interests from shareholders.
This led to a discussion about disclosure and ensuring that the proxy statement includes all required metrics. Otherwise, companies will be “on the hook” for the missing metrics thus triggering Revlon and other disclosure violations.
The panelists provided a wealth of information that all directors should hear. For those unable to attend the conference, all plenary sessions are available for viewing in our Conference-to-Go.
This morning’s plenary on “Performance Metrics That Make a Difference,” brought together the two co-chairs of the 2010 NACD Blue Ribbon Commission on Performance Metrics, John Dillon and Bill White, as well as NACD Chairman Barbara Hackman Franklin and Jannice Koors from Pearl Meyer & Partners.
When it comes to financial metrics, NACD Chairman Franklin stressed that the board “sometimes… just takes what management gives us.” The board must “make sure that senior management really buys into [the established] strategy, goals, and performance measures,” agreed Jan Koors. It’s important to “trust, but verify,” and for the board to take a more proactive role in overseeing performance metrics.
The panelists agreed that a conversation on performance metrics easily lends itself to a discussion about compensation. However, what boards should be trying to accomplish is a wholesome, deeper dive into all of the various components of the enterprise. Understanding information about your company provides clarity into what can be improved and ultimately perform better.
A lively Q& A session from the crowd of 750 directors at the 2010 NACD Corporate Governance Conference
John Dillon, who serves on boards including Caterpillar and DuPont, emphasized that, while boards currently address performance metrics in proxy statements, the board needs to think more broadly and engage leadership to get an appropriate number of financial and nonfinancial metrics to understand what is going on in the company.
Jan Koors summed it up best when she said “boards do a good job at telling shareholders what the metrics are, but less good at telling why these metrics were chosen and how they relate to strategy and moving the company forward.”
The panelists for “Just Do It! Board-Shareowner Communications for 2011” were CalSTERS’ Janice Hester Amey, The Corporate Library’s Nell Minow, Computer Associates’ Bill McCracken, and Broadridge’s Marvin Sims. The panel tackled the hot topic issues related to the Dodd-Frank Act such as say-on-pay, majority voting, executive compensation, and separation of the CEO and chairman. While consensus on these topics was elusive, panelists did agree that the next year will be a “bumpy ride” for both boards and shareholders.
The panelists agreed that the Dodd-Frank Act is intended to improve board-shareowner communications; however, the results will likely be mixed. For example, proxy access was a point of disagreement amongst the panelists; some believe it will help foster greater accountability to the shareholders, while others believe it is not well thought-out as presented by the SEC.
Conversation also turned towards executive compensation. Nell Minow believes “nothing is more central than compensation.” Countering Ms. Minow was Bill McCracken, who emphasized that there should not be over-reliance on compensation, as there is more to consider when anticipating the failure or success of the board.
Editor and Co-Founder, The Corporate Library
CEO, CA Technologies; Director, NACD
Portfolio Manager, California State Teachers’ Retirement System (CalSTRS)