As the 2015 proxy season gets underway, are you looking for the latest information on the priorities of major institutional investors? Are you interested in benchmarking your board’s approaches to proxy statement disclosures and other critical shareholder communications?
To help you prepare, we’ve bundled five of our most recent and most relevant publications into the NACD Proxy Season Toolkit, a one-stop shop for public company boards.
For more insights on the issues currently facing public company boards and key committees, visit NACD’s Board Leaders’ Briefing Center. And be on the lookout for our exclusive proxy season preview, written by ISS’ Patrick McGurn, in the next issue of NACD Directorship magazine.
It is no secret that the Securities and Exchange Commission has been slow to fulfill the rules mandated by Dodd-Frank. As of July 1, the agency had missed over half of the deadlines—56 out of 95 required rulemakings—according to the Davis Polk Dodd-Frank Progress Report. Despite this general lack of news, in late June the SEC released final rules on matters related to the compensation committee to little fanfare.
The rules focus on independence for both compensation committees and their advisors. Companies will now be required to disclose the existence of compensation consultant conflicts of interest and how these conflicts are addressed. Additionally, each national listing exchange is now required to propose heightened standards for independence of compensation committee members and the evaluation of compensation advisor independence. While the style of these new listing standards will be similar to those already existing for the audit committee, the SEC has established that the standards must consider the following two factors:
The source of compensation of the director, including any consulting, advisory or other compensatory factors paid by the listed company to the director; and
Whether the director is affiliated with the listed company or any of its subsidiaries or their affiliates.
While these rules affect proxy statement disclosures, compensation committee composition and boardroom procedure, they have received little attention. There are many possible explanations for this, including the fact that both the New York Stock Exchange and NASDAQ already address compensation committee director independence to an extent. However, timing is also a factor. The required disclosures of compensation consultant conflicts of interest will be effective for the 2013 proxy season. With respect to the new standards on independence, NYSE and NASDAQ have until Sept. 25, 2012, to propose new guidelines, which the SEC does not have to approve until June 27, 2013.
At NACD’s Compensation Committee Chair Advisory Council meeting in June, SEC Chief Counsel and Associate Director of the Division of Corporate Finance Thomas Kim spoke to the delegation on the SEC’s current activity. In addition to the rules on compensation committee independence, the agency is currently in the process of drafting proposed rules on the required pay ratio disclosure, as well as the “clawback” of executive compensation provision. Similar to the recently released rules, the clawback rules must be proposed and finalized by the SEC, then adopted by the listing exchanges—therefore placing the rules on the horizon, but not in the near future.
At the Advisory Council meeting, a key theme of the discussion was the necessity for boards to create transparent and comprehensive compensation packages. To this end, it was announced that NACD will produce a guide that will help boards develop pay plans to effectively compensate executives and communication strategies that articulate how these plans create long-term shareholder value.
For more information about the guide and the Advisory Council meeting, click here.
A recent blog by British twitter maven Lucy Marcus got me thinking about where new thinking and fresh strategy comes from. Lucy rightly points out that new beginnings take time and that, in this cost-conscious era, there is a risk that no company has the patience to sew seeds and give them time to grow. We’ll call this impatience, and certainly it is a failing that often besets the super-bright who are restless company executives, and their peripatetic counterparts who become board members.
There are other stumbling blocks in the way of innovation too, and chief amongst them is information overload. At NACD’s recent Investor Insights Roundtable , Denny Beresford revealed that he had seen proxy statements that were longer than the 10-K. Anne Sheehan, director of corporate governance for CalSTRs, concurred. “Don’t send me the charter; I can read that for myself,” she pleaded, making a request for only critical information, presented in a concise and accessible form. As all of us know, too much information can be as bad as too little. Swamp your readers and they’ll find it all too easy to miss your point.
But there is one shortfall that always stands in the way of progress for fresh thinking, and that is lack of imagination. Too few C-suites, committees and other information providers really think about the message they wish to convey, and ways to engage the audience they seek. The best teachers understand that without engagement, there is no education. Information is passed and knowledge is gained through story-telling, entertaining experiences that stick in the mind, and the thoughtful paring down of data and equally thoughtful pumping up of passion, color and context. These are skills and approaches that have value in every area of life, business and governance. They should not be confined to the classroom.
our engagement quotient was high: Richard Levick discussed crisis planning at the board level, using the miserable face of an oil-soaked shag and the equally miserable face of former BP CEO Tony Hayward to make his key points; Rob Galford, compensation chair at Forrester Research, used his physical presence and party tricks (“point your finger in the air. Now, on the count of three, point it at the spokesperson in your group”) to drive home some interesting thoughts on performance metrics; and Charles Elson, a director on the board of HealthSouth corporation, used catch phrases (“Don’t be sleazy; Don’t be sloppy”) to help more than 60 directors grasp the essence of the Duty of Loyalty and the Duty of Care.
All of this leads me to an interesting opportunity for washed-up television producers such as myself: We should position ourselves as Chief Engagement Officers for corporations prone to boring their boards to death. We could be creative conduits, taking the dry, dense and dusty and turning it into presentations worthy of prime-time. Similarly, all boards should look for comedians down on their luck, children’s book illustrators with a gift for detail that captivates, and song and dance acts capable of rhyming “audit” with either “plaudit” or “sod it.” Once identified, this rag-tag group should form an Engagement Oversight Committee with advisory status to the board. This EOC would work alongside the GC and reshape anything terminally turgid into a director’s delight. It would solve an unemployment problem in the entertainment sector, and would greatly enhance not only board meetings, but also board, company and stock performance. It might also offer an interesting second career opportunity for burned out teachers…
If you sleep at night surrounded by spreadsheets and with PowerPoint as your pillow, urge your company to consider this engagement initiative, and soon you’ll look forward to board meetings: We put the “Glee” in governance.