Listen to Experts on Governance and Diversity

Patricia Lenkov and Elizabeth Aris are creating a new digital program, Board-Talk: Diversity & Corporate Governance, created in partnership with the National Association of Corporate Directors (NACD),.

The program will be live streamed on digital platform MOSH., as well as recorded as a video, each week from April 19. The format will be a host (Patricia Lenkov, specialist board exec recruiter) in conversation with leading global Corporate Directors, Investors, Governance and Diversity experts, as below.

April 19 Brenda Gaines – Corporate Director – Tenet Healthcare, Southern Company Gas, Former Corporate Director CNA Financial, Fannie Mae, Office Depot, AGL Resources, Nicor, former CEO Diners Club NA

April 26 Rakhi Kumar – Managing Director, Head of Corporate Governance, State Street (TBC)

May 3 Holly Gregory – Partner & Co-Head Global Corporate Governance & Executive Compensation Group – Sidley Austin LLP

May 10 Michelle Edkins – Managing Director Blackrock Global Investment Stewardship Team

May 17 Tim Smith – SVP ESG Engagement, Walden Asset Management

May 24 Rochelle Campbell – NACD Board Recruitment Practice

May 31 Sol Trujillo – Corporate Director – WPP, Western Union, Former Corporate Director Target, PepsiCo, Bank of America, EDS, Orange, Telstra, Gannett, former CEO US West, Orange, Telstra

June 7 Cari Dominguez – Corporate Director Manpower Group Inc, Triple-S Management Corporation, Calvert Funds, Former Chair US Equal Employment Opportunity Commission

June 14 Virginia Gambale – Corporate Director JetBlue Airways, First Derivatives, Dundee Corporation

Big corporations are trying to silence their own shareholders – The Washington Post

David H. Webber, professor at the Boston University School of Law, writes about efforts funded by corporations to reduce the number of shareholder proposals. Note that a very small number of these proposals are filed each year, at a very small percentage of companies, and that even a 100 percent vote in favor is almost never binding on management. And yet, somehow advisory votes by shareholders are so terrifying that the snowflakes in the corporate boardroom get the vapors even thinking about them.

Corporate lobbyists at the Business Roundtable — led by JPMorgan Chase chief executive Jamie Dimon — are heralding an effort to sharply limit the ability of investors to have a say in their companies through shareholder proposals. If successful, it will reduce stockholders’ ability to shape the companies they own and hold corporate managers accountable. As with political voting rights, these corporate voter-suppression efforts demonstrate that even the most basic rights need constant vigilance to protect them.Shareholder proposals — governed by the Securities and Exchange Commission — allow shareholders to suggest ideas to be voted on by their peers at the annual meeting. As with voter-suppression tactics generally, the Business Roundtable would not eliminate shareholder proposal rights. Tactically, that would be too crude. Instead, it would interpose a series of technical requirements that would have the same effect as a ban. Most notably, the Roundtable would drastically raise the ownership threshold needed to file a proposal.But shareholder proposals are effectively tools for significant corporate change, akin to ballot initiatives that have played such an important role in American democracy. In recent years, shareholder proposals have called for better assessment and disclosure of climate change risks and for improved diversity in hiring….A recent SEC study shows that New York City’s efforts [to get companies to adopt proxy access provisions] led to a total increase of $10.6 billion in shareholder value at targeted companies…Even when unsuccessful, shareholder proposals can become important mechanisms for registering discontent and helping companies adjust policy…Shareholder proposals mainstreamed diversity as an investment issue, recently pounced on by State Street — a traditional investment house with $2.5 trillion in assets under management — which adopted a new voting policy favoring women board members, symbolically underscored by the company’s commission of the “Fearless Girl” sculpture on Wall Street….None of this is to say that shareholder proposal rules are perfect. Certain revisions might be worth considering. But nothing justifies the stratospheric threshold that Dimon and the Roundtable are backing. Apparently, they’re not interested in protecting shareholders — only in protecting themselves.

Source: Big corporations are trying to silence their own shareholders – The Washington Post

KPMG scandal highlights problem of auditing’s revolving door

This week Big Four accounting firm KPMG fired six US employees over a scandal that calls into question efforts to ensure that public company accounts are being properly scrutinised.

Here’s what happened: KPMG recruited an employee from the Public Company Accounting Oversight Board, which is charged with overseeing the nearly 2,000 accounting firms that audit US companies. The watchdog inspects the Big Four and other firms annually by taking a random sample of audits and checking them for deficiencies and conflicts of interest.

KPMG says that its new employee received a heads up from someone who still worked at the PCAOB about which audits would be inspected. The new employee then shared the information around. Eventually, five partners, including the head of the US audit practice, “either had improper advance warnings” or were aware that others had received this information and “failed to properly report the situation in a timely manner”, the firm said. All six people have been fired.

Source: KPMG scandal highlights problem of auditing’s revolving door

Brazil: Vale minority shareholders nominate candidate to board | Reuters

Brazil’s mining company Vale SA on Wednesday said Aberdeen Asset Management PLC, on behalf of minority shareholders, nominated Isabella Saboya to join the company’s board.

Vale said in a securities filing that Sandra Guerra was also nominated by the minority shareholders as a substitute board member for Saboya in the election scheduled for April 20, 2017.

Source: Vale minority shareholders nominate candidate to board | Reuters

Wells Fargo Accounts Probe Lets Board Off Easily But Proxy Advisory Firms Disagree – TheStreet

Ron Orol writes in The Street:

A report on Wells Fargo’s (WFC) fake-accounts scandal commissioned by the bank’s independent directors is far less critical of the company’s board than two studies issued last week by influential shareholder advisory firms. Instead, the 113-page analysis released Monday of how employees working to meet the San Francisco-based bank’s ambitious sales targets created more than 2 million unauthorized credit card and savings accounts over a five-year period lays much of the blame with former CEO John Stumpf and former community banking chief Carrie Tolstedt.

According to the report board “members believe they were misinformed” (note use of the passive voice, a telling indicator of a failure to accept responsibility). ISS sees it differently:

A report days earlier from Institutional Shareholder Services, the most influential shareholder advisory firm in the U.S., was less forgiving of the board. The firm recommended that investors vote against 12 of Wells Fargo’s 15 directors, including the four members who oversaw the investigation.

Members of two board subcommittees “failed over a number of years” to provide sufficient risk oversight at the scandal-plagued lender, the ISS report said, and the board overall failed to implement an “effective risk management oversight process in a timely way” that could have spared the bank’s reputation.

In our view, the compensation plan alone, rewarding the number of transactions instead of the quality of transactions, is sufficient reason to replace the entire board.

Source: Wells Fargo Accounts Probe Lets Board Off Much Easier Than Proxy Firms – TheStreet

Trump Wants to Do to the Fiduciary Rule What He’s Doing to the Climate

Donald Trump and the Department of Labor are delaying — and possibly killing — the fiduciary rule, which would have required investment managers to put their clients’ interests first instead of directing them to higher-fee options that benefit the money managers themselves. The White House’s Council of Economic Advisors found that the absence of this rule imposed as much as $17 billion in additional costs to retirees led to the Obama administration’s adoption of the rule over the massive efforts by the financial firms, including political contributions and lobbying. Money writes:

The Labor Department moved to delay the rule for two months, at the direct behest of President Donald Trump. President Trump signed a memorandum earlier this year in which he publicly came out against the rule and directed the Labor Department to review the impact of the regulation.

This setback comes at a time when the rule has a lot of support. Since the Labor Department proposed the delay a month ago and asked the public for comments, more than 178,000 letters poured into the Labor Department in support of the regulation, compared to just 15,000 letters in opposition. It required all financial advisors—including brokers with major firms like Merrill Lynch, Morgan Stanley and Wells Fargo—to act as fiduciaries, or in other words, in their clients’ best interest when advising people on their retirement savings.

While retirement plan beneficiaries say that they want their advisors to be fiduciaries and refrain from self-dealing, they do not want to pay for it, that is probably because they do not realize they are currently paying $17 billion for being sold products without full information about the fees. Whatever the fiduciary rule costs would be, they would be far less — and they would be disclosed.

Proponents of the rule have promised to challenge the delay in court. Stay tuned.

Peter Crow on Corporate Governance Developments in Europe and the UK

New Zealand corporate governance expert Peter Crow writes about corporate governance developments in continental Europe and the UK.

In Europe:

Whereas the focus in the past has been on ensuring management did its job well (an agency-based perspective), the boards and directors I spoke with indicated that they are starting to wrestle with the challenge of understanding the purpose of the company and how the value-creation mandate might be fulfilled. Several folk added that their usage of the term ‘corporate governance’ has changed, returning to the early usage: a descriptor for what boards (should) do when in session (i.e., in board meetings).

Related to the first point, boards in several European countries (well, in Belgium, Netherlands and Finland anyway) are starting to think more carefully about the longer-term implications of their decisions. This is in stark contrast to the short-termism that continues to pervade US and Canada boardroom and shareholder culture.

De Nederlandsche Bank (DNB, the Dutch Central Bank) is increasingly taking a formative view of supervision, expecting financial institutions to not only demonstrate compliance with established statutes and codes, but also to demonstrate how value is being added to the banking community and beyond in the future.Many people (both in public forums and private conversations) volunteered that diversity is important if boards are to make high quality decisions. However, the same people quickly added that their usage of the term meant diversity of thought, not gender or any other observable form of difference between group members. KPMG, IIA and people from several other Finnish agencies were very interested in the implications of the proposal that board involvement in strategy is good for both effective board practice and business performance. It seems that the findings from my doctoral research hit a spot, with both strong support and many questions about the mechanism-based model of corporate governance and the opportunity the model presents to help boards understand how influence can be exerted from the boardroom.

In the UK:

Director recruitment: The criticism levelled by many aspiring directors—that many board appointments are based primarily on prior relationships and not director competency or ‘fit’—remains rife in the UK. Despite a plethora of calls for more a robust process, the dominant question asked by many boards and nomination committees continues to be “Well, who do we know?”

Institutions: Directors’ and governance institutes (including the Institute of Directors and the ICSA: The Governance Institute) continue to promote themselves as champions of board performance and director professionalism, supported by a bevy of training courses, press releases and contributions to emergent practice. However, almost half of the directors that I spoke with (most of whom are members of at least one institution) have concerns over the direction and focus of directors’ institutes. They noted that institutions have become somewhat self-centred, losing sight of their stated purpose of serving the interests of members and promoting the profession. Remedial suggestions included holding directors accountable for performance and any acts of malfeasance (including de-badging miscreant members of their chartered status); moving the discourse away from populist topics to substantive matters; and, weaning boards off the notion that compliance with corporate governance codes is a valid measure of good performance.

Performance: The long-held understanding that the primary responsibility of the board of directors is to recruit the chief executive and to oversee management remains the dominant logic in the UK, especially in the publicly-listed company community. Whereas many commentators and directors (including me) promote a performance-based understanding (whereby the board commits to determining and pursuing a value-creation agenda) most boards remain comfortable limiting their contribution to monitoring and controlling the performance of their chief executive.

Board evaluations: Directors are increasingly aware of the emergent expectations of shareholders and other stakeholders; that a periodic assessment of board performance is appropriate. However, while directors’ institutes have for some time recommended that boards submit themselves to scrutiny, most directors that I spoke with indicated that they remain uncomfortable with formal external evaluations. Privately, they harbour concerns that the results may be used to expose poor practice and, potentially, be used to remove under-performing directors. Sadly, it seems that preservation (of income and status) remains the dominant logic for many directors.

Blueprint for Better Business: After spending a week-and-a-half delivering presentations, meeting with boards and fulfilling advisory engagements my last two days in the UK were spent at Murray Edwards College, Cambridge, at an immersion workshop run by the Blueprint for Better Business organisation. The motivation for attending was straightforward: to understand the organisation’s proposition more fully, especially to determine its applicability in practice. I came away convinced, to the extent that QuarryGroup will become a facilitator of the blueprint to businesses in Australia and New Zealand (at least) from 1 May onwards.

Source: Musings, the blog – Peter Crow

Directors must stand their ground with governance | Netwerk24

Thina Siwendu, Judge of the South African High Court: Gauteng local division was the guest speaker at an Africa Directors Programme (ADP) certificate award ceremony recently held in Johannesburg for the class of 2016. Her comments included:

Good corporate governance offers the ability to generate and create, to produce wealth and products. To solve human problems is one of the greatest human endeavours and is an incredible gift of humanity.“The danger to corporate governance is that it is sometimes still seen as an ‘after the fact process’, unrelated to the day to day being of corporate life. This lack of integration in thinking and behaviour has led to many instances of the slowing down of things, or just the ticking of boxes.“The separation between business, politics and the state has narrowed significantly. The common denominator is the constant distant demand for leadership.“Not just any leadership, but ethical, sound and courageous leadership. This is what we need in boardrooms.“In the context in which we operate, we have noticed a trust deficit and a challenge of a social contract that has collapsed.”

Source: Directors must stand their ground with governance | Netwerk24

Equilar | The Gender Pay Gap for Board Chairs

Companies are increasingly electing women to their boards, but the number still pales in comparison to male representation at public corporations. According to the Equilar Gender Diversity Index, 15.1% of Russell 3000 director seats were held by women at the end of 2016, an increase from 13.9% in 2015. However, in 2016, men accounted for 96.3% of the non-executive board chair positions in the Russell 3000, vs. 3.7% for women. This statistic clearly illustrates the gender disparity among board leadership positions, particularly with board chairs, as Equilar noted in a recent study.

Furthermore, there is pay gap between men and women when it comes to the top positions on these boards. A separate Equilar study looked at the median board fees for non-executive board chair positions for the same group of companies—the Russell 3000—and found a gap in pay between males and females across percentile ranges. At the median, female chairs received $234,934 in total compensation as disclosed in the director compensation table of proxy statements filed for fiscal year 2015, more than $10,000 below the median for men at $245,143. This difference was notably smaller at the middle of the study sample. At the 25th and 75th percentiles, male board chairs earned approximately $30,000 and $46,000 more, respectively.

Source: Equilar | The Gender Pay Gap for Board Chairs

Elizabeth Holmes owes Theranos $25 million – MarketWatch

VEA Vice Chair Nell Minow is quoted in this story about Theranos’s loan to founder Elizabeth Holmes to exercise her stock options.

“It subverts the entire premise of an option grant,” said Nell Minow, vice chair of ValueEdge Advisors, a corporate governance consulting firm, who said such grants are traditionally meant to encourage executives to produce results for their shareholders. The deal between Theranos and Ms. Holmes means “any downside is someone else’s risk,” Minow said.

Source: Elizabeth Holmes owes Theranos $25 million – MarketWatch