Harvey Weinstein’s contract ‘protected him from sexual harassment allegations’

Reminiscent of the notorious Dennis Kozlowski contract at Tyco that provided that the only reason Mr. Kozlowski could be fired for cause was if he was convicted “of a felony that is materially and demonstrably injurious to the company or any of its subsidiaries or affiliates, monetarily or otherwise,”

Harvey Weinstein had a contract drawn up in 2015, in which the board of his film company could not terminate his employment over sexual harassment claims if he paid off women to silence them – as long as he paid out the money himself, according to reports. 

This is per se malpractice by the board and any director who agreed to it should be barred from ever serving on a board again and liable for damages as an accessory to abuse.

Source: Harvey Weinstein’s contract ‘protected him from sexual harassment allegations’

PWC: Climate Change of More Concern to Investors than to Corporate Directors | HuffPost

VEA Vice Chair Nell Minow interviewed PwC’s Paula Loop for the Huffington Post:

A report released on October 17, 2017 from PwC finds that on some subjects there is a wide disparity between the directors who oversee corporate strategy and the investors to whom they owe the legal duties of care and loyalty. These findings are reflected in the title of the report, issued by PwC’s Governance Insights Center, The governance divide: Boards and investors in a shifting world.

The report concludes that “directors are clearly out of step with investor priorities in some critical areas,” especially with regard to climate change and sustainability and board composition. “I definitely think there is a gap,” said Paula Loop, who leads the Governance Insights Center. “There are some areas where we made some improvements, where we’ve done some bridging of the gaps but there are some areas where the gap has widened as well.”

The report revealed some surprising dissatisfaction by board members with their fellow directors. There is a significant increase with now 46 percent of the more than 800 corporate directors who responded to the survey admitting that at least one of their fellow directors should not be on the board. The reasons for dissatisfaction were evenly divided between five different categories: overstepping boundaries with management, lack of appropriate skills/expertise, ability diminished by age, reluctance to challenge management, and an “interaction style” that “negatively affects board dynamics.” Loop said, “It gets back to having a board assessment process and to really think about refreshment of the boards. We try to do the follow up discussion: How do you provide feedback to board members? Why haven’t you addressed this issue? Why is it that your board can’t do the right thing to make sure you have the right people on the board or provide coaching to the people on the board that you don’t think are doing a good job? It really gets back to board leadership.”

She noted that board quality is also a significant priority for shareholders. “Something that institutional investors have been talking quite a bit about is board composition, making sure you have the right people in the boardroom. Investors want to understand what your skills matrix is, what are the different things these individuals bring to the room and whether or not you are doing some kind of an assessment process.” She pointed to the New York City Comptroller’s Board Accountability 2.0 project, with Scott Stringer and the $192 billion New York City Pension funds asking for better board diversity, independence, and climate expertise.

But while institutional investors like pension funds raise concerns about board diversity, 24 percent of directors said that they didn’t think that racial diversity was a priority in board composition. Loop said, “We asked whether or not they thought that age diversity was important in the boardroom and 37 percent of them told us that they thought that age diversity was very important. Interestingly enough, 52 percent said they already have it. But in the S&P 500 only four percent of the directors are under the age of 50. So you do wonder, what’s their definition of age diversity?” The report’s findings on gender diversity show little progress. “All but six companies in the S&P 500 have at least one woman on their board, and 76 percent of those have at least two women. But only 25 percent have more than two women, and gender parity is rare. Only 23 companies in the Russell 3000 have boards comprised of 50 percent or more women.” Unsurprisingly, the report found that women directors thought efforts for diversity were moving too slowly, while the male directors thought there was too much focus on diversity.

For me, the most surprising finding was the overwhelming majority of directors who said their board did not need sustainability or climate change expertise. The core priority directors should have is sustainable growth, and it is impossible to do that without directors who are familiar with all aspects of sustainability, from the supply chain to the company’s reputation, technology, and product development. But investors and directors in agreement on the importance of cybersecurity expertise as a board priority. Loop said that many directors acknowledged this as an area where they need to spend more time and get more expert guidance. Only 19 percent said they had enough already.

And on the ever-popular topic of CEO pay, the report found that 70 percent of directors believe that executives are generally overpaid, although they are themselves responsible for it. Perhaps that is the most telling finding of all.

Source: PWC: Climate Change of More Concern to Investors than to Corporate Directors | HuffPost

A Buy-Side Perspective on Stock Ownership Guidelines – Nasdaq MarketInsite

The lion’s share of large-cap companies in the United States now require named executive officers (NEOs) and board members to attain a certain level of stock ownership within a defined time period, and then to maintain that ownership during the course of their tenures.

The rationale for stock ownership guidelines (SOGs) is that when officers and directors have actual “skin in the game,” their interests will be more aligned with shareholders, and they will have more incentive to focus on long-term value creation.

It’s not just large-cap companies that are adopting SOGs though. According to the National Association of Corporate Directors, 46 percent of public companies with revenue between $50 million and $500 million now have some form of SOGs for board members (up more than 25 percent from 2012)…Most institutional investors draw a sharp distinction between shareholders and option holders. Since public companies are operated and governed for the benefit of shareholders, there’s an inherent rub from the perspective of many fund managers when those who are doing the operating and governing aren’t, themselves, shareholders.

Source: A Buy-Side Perspective on Stock Ownership Guidelines – Nasdaq MarketInsite

Big Investors Want Directors to Stop Sitting On So Many Boards – WSJ

Here’s some progress. Overboarding used to mean at least seven or eight boards, and we often pointed to Frank Carlucci, who served on 20 and averaged a board meeting a day.


Giant money managers voted against the re-election of Ronald Havner, Jr. in May to the board of a real-estate company. Their reason: He runs a different company and sits on two other boards.After about 56% of voting shares were cast against Mr. Havner remaining an AvalonBay Communities Inc. director, he said he would resign, an offer rejected by the rest of the AvalonBay board. BlackRock Inc. and State Street Corp.’s money-management unit were among the large investors that voted against his re-election.

Mr. Havner, who is chief executive of Public Storage , also decided not to stand for re-election at California Resources Corp.’s 2018 annual meeting “due to concerns raised by investors relating to the time commitment required” for those roles, the company said in a regulatory filing.Mr. Havner “has taken steps to reduce the number of boards upon which he serves,” said a lawyer for Public Storage and PS Business Parks Inc., a related company.

Major institutional investors, governance advisers and boards themselves are cracking down on so-called overboarding, trying to ensure that directors don’t spread themselves too thin. Overstretched directors lack time to adequately monitor management, these critics contend.

Source: Big Investors Want Directors to Stop Sitting On So Many Boards – WSJ

Saving face: How exit in response to negative press and star analyst downgrades reflects reputation maintenance by directors

A new study in the Academy of Management Journal by Joseph S Harrison, Steven Boivie, Nathan Sharp and Richard Gentry documents the link between outside pressure and board member departures.

Using a sample of directors of S&P 1500 firms between 2003 and 2014, we argue and find that negative media coverage and downgrades by star equity analysts are positively related to director exit, even after controlling for firm performance, overall media visibility, and negative events such as lawsuits and financial restatements. We also find that director status intensifies the effect of negative media coverage on exit, serving as the board chair attenuates the effect of star analyst downgrades on exit, and director tenure intensifies the effects of both negative media coverage and star downgrades on exit. In post-hoc testing, we provide further evidence of director reputation maintenance by demonstrating the counterintuitive finding that negative attention from the media and star analysts also increases directors’ likelihood of joining the boards of other S&P 1500 firms.

Source: Saving face: How exit in response to negative press and star analyst downgrades reflects reputation maintenance by directors

The Equifax Hack: More Questions Than Answers About the Board

So what happened? At a time when board composition and disclosure are presented as the board’s best safeguards to a range of corporate crises, what lessons can be gleaned from the Equifax debacle—despite the board’s perceived preparedness in these areas?  <P><P>In each annual proxy, boards disclose their governance practices—from director succession planning to risk management—which serves to reassure investors (large and small) that their assets are in safe hands. Yet, the Equifax breach presents us with a scary prospect: How many companies have failed to do what they say?

Source: The Equifax Hack: More Questions Than Answers About the Board

KB Home to Cut C.E.O.’s Bonus After His Rant Against Kathy Griffin – The New York Times

The New York Times also notes other recent examples of executives whose comments were deemed to hurt the company’s brand or reputation.

Engaging in problematic activity has forced several chief executives from their jobs.

■ Brian J. Dunn of Best Buy had a relationship with an employee (2012)

■ Matt Harrigan of PacketSled ranted on social media on election night about killing President-elect Trump (2016)

■ Scott Thompson of Yahoo was found to have padded his résumé (2012)

■ Kenneth Melani of Highmark got into a fight with the husband of his then-girlfriend, who was also an employee (2012)

■ Brendan Eich of Mozilla donated $1,000 in support of a ballot measure to ban same-sex marriage, causing outrage in Silicon Valley (2014)

■ Klaus Kleinfeld of Arconic wrote to a hedge fund manager without the board’s knowledge (2017).

Impact of Shareholder Activism on Board Composition/Tenure

IRRCi has a new report: The Impact of Shareholder Activism on Board Refreshment Trends at S&P 1500 Firms  

It concludes:

Activism drives down director ages. Dissident nominees and directors appointed via settlements (hereinafter Dissident Directors) were younger, on average, than directors appointed unilaterally by boards (hereinafter Board Appointees) in connection with shareholder activism. Study Directors (the combination of Dissident Directors and Board Appointees), regardless of who recruited them, were generally younger than their counterparts across the broader S&P 1500 index. While Dissident Directors generally reflected a wider range of ages, insurgent investors and incumbent boards both favored individuals in their fifties when picking candidates. This preference for nominees in their fifties aligns with practices in the broader S&P 1500 index over the same period.

Activism does not promote gender diversity. Less than ten percent of Study Directors were women. While the rate at which females were selected as dissident nominees or Board Appointees in contested situations increased over the course of the study, it trailed the rising tide of female board representation in the broader S&P 1500 universe. There were zero female Dissident Directors in 2011, two in 2012, and three in 2013. Similarly, there were two female Board Appointees in 2011, but zero in both 2012 and 2013.

Activism does not promote racial/ethnic diversity. Less than five percent of Study Directors were ethnically or racially diverse. While minority representation across the entire S&P 1500 board universe slowly increased over the course of the study, from 9.3 percent in 2011 to 10.1 percent in 2015, the rate at which individuals with diverse ethnic and racial backgrounds were selected as Dissident Directors and Board Appointees was relatively uniform and trailed that of the broader index by more than five percentage points.

Activism boosts boardroom independence. Study Directors were generally more independent than their counterparts across the broader S&P 1500. Not surprisingly, dissident nominees and directors appointed to boards via settlements were more likely to be “independent” than directors appointed unilaterally by boards in connection with shareholder activism. It is worth pointing out that the measure of “independence” focused on a nominee’s degree of separation from management rather than from the dissident. Indeed, as the examination of prior boardroom experience suggests, there may be questions of independence from activist sponsors for a subset of Study Directors.

Prior boardroom experience is not required. Boardroom experience does not appear to be a prerequisite for contest candidates. More than half of Study Directors held outside board seats. While most of these directors sat on either one or two outside boards, a sizable minority pushed the over-boarded envelope. Six Study Directors served on four outside boards, four on five outside boards, and one on six outside boards. Many of these “busy” directors appear to be “goto” nominees for individual activists. The serial nomination of favorite candidates raises questions about the “independence” of these individuals from their activist sponsors.

Investment professionals and sitting executives dominate the candidate pool for contested elections. Occupational data for the Study Directors demonstrates experience, qualifications, attributes, and skills (EQAS) preferences for nominees in contested situations. “Corporate executives” and “financial services professionals” were in a dead heat at the front of the pack. These favored occupations were not evenly distributed, as activists tended to select investors and incumbents tended to select executives. In fact, Dissident Directors were nearly three times more likely to be “financial services professionals” than Board Appointees, while Board Appointees were nearly twice as likely to be “executives” than Dissident Directors.

How Wells Fargo Bought Millions in Services From an Independent Director’s Firm – TheStreet

VEA Vice Chair Nell Minow is quoted in an expose from The Street about “independent” director, Enrique “Rick” Hernandez Jr., whose board duties include chairing the risk committee at Wells Fargo until he is replaced next month following a serious “no” vote of 47 percent against him at the last annual meeting. His security business is hired by the companies on whose boards he serves, including MacDonald’s and Chevron. The individual payments are low enough as a percentage of revenue that they do not require disclosure, though the cumulative amount is considerable. It is meaningful enough — and pervasive enough — that failure to do so raises serious questions. “I’m stunned to hear about this,” Nell Minow, vice chair of consultant ValueEdge Advisors, which counsels big investors on corporate governance, said in a telephone interview. “That’s the kind of thing that used to go on all the time, but it’s generally frowned on now as invalidating the independence of the director.”

The issue is not limited to publicly traded companies.

Inter-Con also got security business from Children’s Hospital Los Angeles, the non-profit organization where he served as a trustee from 1990 to 2009, including seven years as vice chairman. His wife, Megan, has served on the board since 2010.

The Street says that payments from the charity have amounted to more than $15 million.

Source: How Wells Fargo Bought Millions in Services From an Independent Director’s Firm – TheStreet

Equilar | Declassified Boards Are More Diverse

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