Equilar | Declassified Boards Are More Diverse

Posted on August 13, 2017 by ValueEdge blog staff

The Equilar Gender Diversity Index (GDI) has reported that, at the current pace of growth in female representation on public company boards of directors, gender parity would not be reached until Q4 2055 for the Russell 3000. However, annually elected boards may already have an edge against their classified counterparts….Over the past five years, corporations have seen a strong migration away from classified boards to annually elected boards with no director classes. Indeed, almost 90% of large-cap companies now have declassified boards, up from about two-thirds in 2011.<P><P>In the Russell 3000, boards are more evenly split….For the Russell 3000, median prevalence of female directors for Q2 2017 in the Gender Diversity Index was 14.3% overall. However, when split into categories according to whether or not the board is classified, median prevalence differs notably—classified boards had 12.5% female directors at the median vs. 16.7% for declassified boards….Size doesn’t mean everything, but when it comes to gender diversity company size clearly correlates to higher female prevalence on boards overall.

Source: Equilar | Declassified Boards Are More Diverse

With ‘Zombie’ Directors, It’s the Board of the Living Dead – Bloomberg

Posted on August 11, 2017 by ValueEdge blog staff

VEA Vice Chair Nell Minow is quoted in this story about directors who continue to serve even though a majority of shareholders have voted against them.

Nell Minow, an expert on corporate governance, calls them the zombie directors. They’re board members who’ve failed to get a majority of shareholder votes in elections but continue to serve. From 2012 to 2016 there were a total of 225 instances where directors of public companies got less than half the votes cast, but only 44 directors, or 20 percent, left within the next election cycle, according to a Bloomberg analysis of data from ISS Corporate Solutions Inc. The directors who stayed included 30 who were snubbed by shareholders more than once.
“You either participate in capitalism or you don’t,” says Minow, vice chair at ValueEdge Advisors, which works with institutional investors on governance issues. She says too many companies “pretend there is this right to replace the board when they don’t represent the interest of the shareholders” but don’t follow through.

Source: With ‘Zombie’ Directors, It’s the Board of the Living Dead – Bloomberg

Benchmark is suing former Uber CEO Travis Kalanick for mismanagement.

Posted on August 10, 2017 by ValueEdge blog staff

Don’t say we didn’t warn you, part 2. If the CEO needs to be replaced, he needs to leave the board and the independent directors need to evaluate themselves to make sure they are not overly beholden to him, especially when he’s the founder.

Barely two months after losing his post amid the sexual-harassment and gender-discrimination scandals engulfing his company, Kalanick is being sued by one of Uber’s largest early investors, Benchmark Capital. The lawsuit accuses Kalanick of conniving to “entrench himself on Uber’s Board of Directors and increase his power over Uber for his own selfish ends.”“Kalanick’s overarching objective is to pack Uber’s Board with loyal allies in an effort to insulate his prior conduct from scrutiny and clear the path for his eventual return as CEO—all to the detriment of Uber’s stockholders, employees, driver-partners, and customers,” the lawsuit continues.

Source: Benchmark is suing former Uber CEO Travis Kalanick for mismanagement.

Study: Compensation for corporate directors is stabilizing | FierceCEO

Posted on July 29, 2017July 29, 2017 by ValueEdge blog staff

Total pay for outside directors at America’s largest corporations increased by a modest 2% in 2016, driven by increases in both cash and stock compensation, according to an analysis released on July 27 by London-based global advisory firm Willis Towers Watson….The Willis Towers Watson study also found that, of all pay elements in a director’s total package, the annual cash retainer for board service experienced the largest increase within the last year, bounding 6% in 2016. Specifically, the study found, median total direct compensation for directors climbed 2% last year, to $260,200—an increase from nearly $255,800 in 2015.

Total direct compensation includes cash pay and annual or recurring stock awards. According to the analysis, the median value of cash compensation increased 4% in 2016, to $105,000, while the median value of annual stock compensation rose 2% to $150,000. The average mix of pay remained relatively constant at 57% in equity and 43% in cash.

The study identified a number of other key findings. Among them:
Caps on director-specific awards. More than half (53%) of companies place a cap on annual stock grants to individual directors—and more than one-quarter (26%) have expanded the pay ceiling to comprise cash and/or total compensation. There has also been a substantial, 10-point shift toward basing limits on a fixed dollar amount (73%), up from 63% last year.

Board leadership pay. Nearly three-quarters (73%) of companies now look to lead directors as an alternative to having a chairman serve as the highest-ranking independent board member. Such lead directors received an extra $30,000 in compensation last year, up from $25,000 in 2015.Stock ownership and retention guidelines. Companies continue to maintain stock ownership guidelines and retention requirements for directors. Fully 93% of Fortune 500 companies now have one or both mandates in place. Most guidelines (82%) are based on a multiple of the annual retainer.

Source: Study: Compensation for corporate directors is stabilizing | FierceCEO

Wall Street investors throw their weight in corporate votes – The Globe and Mail

Posted on July 3, 2017 by ValueEdge blog staff

Big investors are losing patience with unresponsive corporate directors, and they’re showing it with their votes.Shareholders have withheld 20 per cent or more of their votes for 102 directors at S&P 500 companies so far this year, the most in seven years, according to ISS Corporate Solutions, a consulting firm specializing in corporate governance. While largely symbolic, the votes at companies such as Wells Fargo & Co. and Exxon Mobil Corp. are recognized as signals of displeasure and put pressure on boards to engage.
“Institutional investors are becoming more actively involved in communicating displeasure through their votes,” said Peter Kimball, head of advisory and client services at the consulting firm, a unit of Institutional Shareholder Services. “Voting against directors at large-cap S&P 500 companies is a way for an institution to send a signal to other, smaller companies about the actions that they don’t like. That feedback trickles down.”
While the Trump administration moves to reduce regulatory pressure on companies, big institutional investors are moving in the opposite direction. State Street Global Advisors and BlackRock Inc., for example, are increasingly taking an activist approach, calling for changes in diversity and corporate responsibility.
“Part of this is really the shift in investors to focus more on board quality,” said Rakhi Kumar, who leads environmental, social and governance investment strategy at State Street. “Board responsiveness is a key reason why shareholders will hold directors responsible. If engagement isn’t working and boards aren’t being responsive to our feedback, then we take action.”
State Street voted against 731 directors in 2016 and expects a similar number this year, after rejecting 538 in 2015, Ms. Kumar said. No longer are investors just “checking a box” to support directors, she said. State Street is encouraging companies to refresh their boards to get new and more diverse members. (emphasis added)

Source: Wall Street investors throw their weight in corporate votes – The Globe and Mail

A better boardroom can reverse Uber’s cultural woes | TechCrunch

Posted on June 20, 2017June 20, 2017 by ValueEdge blog staff

Board veteran Betsy Atkins has some excellent advice for Uber. The third edition of her book Behind Boardroom Doors was published this month.

Build internal career networks. At Volvo Car AB, where I serve on the board, we’ve launched a regular program where I have the opportunity to meet with senior and mid-level women executives on personal career development. We work with these execs to build on their strengths, clarify their career aspirations, and offer advice on advancement. This is a new program, but it is already proving a success in energizing and motivating the paths of these current and future female leaders.
Make mentoring personal. On the board of Schneider Electric, I make it a point to directly mentor a number of women on the company’s senior executive team. Women in management find it tremendously helpful to have someone in the boardroom take a personal interest in their career strategy and development. At Uber, new board member Ariana Huffington will be in an ideal position to put her mentoring and career savvy to work in helping rising women execs rebuild the company. The key is a regular ongoing program of mentoring and support.
Go beyond mentoring. The tech industry, in particular has too few role models for rising female talents. The mentoring aid above is helpful… but why not go one better? Companies can ask their Male and Female Execs (and Board Members) to either mentor or sponsor their Female Execs. There is a big difference between mentoring which is periodic advising and coaching and sponsoring where you take ownership for introducing and more actively helping sponsor an individual for their next step up in their career. Women who are already senior managers or board members can kick mentoring up a notch by “sponsoring” women hi-pots. Take personal ownership of career coaching for your top talents. Give them advice, introduce them to the people they need to sharpen their skills, and introduce their names at strategic moments.Recognize the women making a difference.
When I served as chair of the board’s compensation committee at tech firm Polycom, we were active in the annual recognition event for sales staff. I noted that women were leaders in sales, making up less than 10 percent of the sales force, but were 34 percent of our “President’s Circle” top sales performers. Making an added effort to celebrate (and promote) this talent is crucial in sending the message that sales is not just a “guy thing” in the company.
While Uber’s woes make the news, they can also serve as a spark for making the support and advancement of women in your company a boardroom mission.

Source: A better boardroom can reverse Uber’s cultural woes | TechCrunch

How Wells Fargo’s Cutthroat Corporate Culture Allegedly Drove Bankers to Fraud| Vanity Fair

Posted on June 19, 2017June 20, 2017 by ValueEdge blog staff

An important analysis of the corrupt corporate culture that led to widespread fraud.

Hambek began to see things that shouldn’t have been happening: bankers persuading customers to take out large loans and then immediately repay part of them so that the banker could get credit for the bigger loan, for instance.

Source: How Wells Fargo’s Cutthroat Corporate Culture Allegedly Drove Bankers | Vanity Fair

Pension Funds Vote “No” on Mylan Directors

Posted on June 12, 2017June 12, 2017 by ValueEdge blog staff

Frank Glassner’s Compensation in Context newsletter reports:

Four large pension funds have asked shareholders of the drug company Mylan NV to vote against six directors, including the company’s chairman, who have been nominated for re-election at the company’s annual meeting June 22.
“We believe the time has come to hold Mylan’s board accountable for its costly record of compensation, risk and compliance failures,” said the letter to shareholders, a copy of which was filed recently with the Securities and Exchange Commission.

The letter was signed by Scott Stringer, the New York City comptroller, on behalf of the $170.6 billion New York City Retirement Systems for which he is fiduciary to the five funds within the system; Thomas DiNapoli, the New York state comptroller and sole trustee of the $192 billion New York State Common Retirement Fund, Albany; Anne Sheehan, director of corporate governance for the $206.5 billion California State Teachers’ Retirement System, West Sacramento; and Margriet Stavast-Groothuis, adviser, responsible investment, for the €205.8 billion ($230 billion) Dutch pension provider PGGM, which manages the assets of the €185 billion Pensioenfonds Zorg en Welzijn, Zeist, Netherlands.

Collectively, the pension funds own approximately 4.3 million shares of Mylan stock, worth about $170 million, said the letter to shareholders.

PwC’s Strategy&: CEOs Increasingly Fired for Ethical Violations

Posted on May 15, 2017May 15, 2017 by ValueEdge blog staff

VEA Vice Chair Nell Minow writes in Huffington Post:

PwC’s Strategy& released its annual CEO Success Study on Sunday, May 14, 2017. This year’s study explores the rise in the number of CEOs at the world’s 2,500 largest companies who were dismissed from their posts due to ethical lapses.

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As companies like FOX, United, Wells Fargo, Yahoo and VW are scrutinized for corporate wrongdoing, the study found that the share of CEOs forced out of their jobs due to a scandal increased globally– with a notably dramatic increase at companies in the U.S. and Canada. Specifically, the report found:

Forced turnovers due to ethical lapses rose from 3.9 percent of all successions in 2007–11 to 5.3 percent in 2012–16 — a 36 percent increase. On a regional basis, the share of all successions attributable to ethical lapses rose sharply in the U.S. and Canada (from 1.6 percent of all successions in 2007–11 to 3.3 percent in 2012–16), in Western Europe (from 4.2 percent to 5.9 percent), and in the BRIC countries (from 3.6 percent to 8.8 percent).
In the U.S. and Canada, forced turnovers for ethical lapses at these companies increased from 1.6 percent of all successions in 2007–11 to 3.3 percent in 2012–16 — a 102 percent increase
The share of incoming women CEOs increased globally to 3.6 percent, rebounding from the previous year’s low point of 2.8 percent

Per-Ola Karlsson, DeAnne Aguirre, Kristin Rivera, and Gary L. Neilson, who prepared the report, identified increased public scrutiny and pressure, the rapidity and influence of digital-era feedback, and post-financial crisis regulatory requirements as primary factors in the increase of CEO departures for ethical concerns. The report does not examine the impact of an ethics-based departure on compensation or the correlation between board or shareholder composition and likelihood of such a termination.

In an interview, the authors explained their definition of “ethical lapse” and discussed the impact of social media and the difference between US/Canada CEOs and those in other countries.

What constitutes an ethical lapse for purposes of this study?

An ethical lapse might include fraud, bribery, insider trading, environmental disasters, inflated resumes, and sexual indiscretions. In the context of dismissals, we define an ethical lapse as a scandal or improper conduct by the CEO or other employees that results in the removal of the CEO.

It should be noted that in many cases, even though the CEO was ultimately held responsible, it was other employees who committed ethical lapses.

Are CEOs replaced for ethical lapses most likely to be insiders or those brought in from outside?

We found that there was no statistical difference in the dismissal rate for ethical lapses between insiders and outsiders. We did find that CEOs forced out of office for ethical lapses had longer median tenures than CEOs forced out for other reasons (6.5 years compared to 4.8). One possible explanation is that companies with long-serving CEOs tend to be those that have been achieving above-average financial results, and thus may attract less shareholder and media scrutiny than companies that have been performing poorly. Another is that when an organization’s leadership is static, employees may begin to see ethical lapses as normal, and allegations of misconduct are less likely to be raised, investigated, or acted on.

How has social media put pressure on boards to replace CEOs?

Today, social media plays a large role in not only disseminating negative or embarrassing information about a company, but also allows customers and other parties to directly voice their displeasure to the company and its executives. Often times, the social media backlash becomes a story in itself beyond the negative or embarrassing information which puts extra pressure on boards who may feel they need to implement change in order to take the company out of the negative spotlight.

How does the US compare to other countries in the rates and reasons for CEO dismissal?

In 2016, The U.S./Canada has a CEO turnover rate of 14.2% compared to 15.3% in Western Europe, 15.5% in Japan, and 14.9% globally. Removing, M&A 29% of turnovers in the U.S./Canada were forced compared to 38% in Western Europe, 13% in Japan, and 29% globally. Historically the U.S./Canada has had a lower CEO turnover rate than other regions which is likely due to the fact that companies in the U.S./Canada have more developed governance and succession practices.

In addition, we note in the study this year that companies in the U.S./Canada have the lowest incidence of ethical lapses. Similar to the point about governance and succession practices, companies in the U.S./Canada tend to have more stringent regulation and internal controls than other regions.

What did your study show about women CEOs?

Globally, companies appointed 12 women CEOs in 2016—3.6 percent of the incoming class. This marks a return of the slow-moving trend towards greater diversity—and a recovery from 2015’s recent low point of 2.8 percent.

The share of incoming women CEOs was highest in the U.S. and Canada—rebounding to 5.7% after falling for the previous three years.

We stand by our belief that as much as a third of incoming CEOs around the world will be female. Some of the trends we cited in the 2014 study that supported this findings were: increasing amounts of women on boards, increasing women undergraduates and MBAs, and changing social norms.

What role does shareholder pressure play in replacement of CEOs?

Boards have become much more independent and very infrequently in a position of deferring to the imperial CEO of yesterday. They listen. They listen to shareholders, regulators, other managers. Shareholders don’t want distractions. Our analysis has shown forced CEO turnovers (for ethical lapses or other reasons) are hugely expensive. We found that, on average, forced turnovers cause a hit of $1.8 billion in shareholder value compared to planned transitions. So, by getting ahead of problems, even when they happen, Boards have the incentive to deal with…. ideally in a “planned” way, even if the change wasn’t part of the individual CEO’s plans!