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

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

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.

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

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

Helping Boards Face Climate Change | Ceres

We think of it differently: climate change creates risks and opportunities in supply chain, operations, product development, compliance, and branding that need to be explicitly and transparently assessed as a part of corporate strategy. We’re uncomfortable with the use of terms like “philanthropy” in this context. But we believe this article is worth reading.

Susan MacCormac, partner with Morrison & Foerster and co-chair of the company’s energy and clean technology groups, tells Corporate Secretary she thinks of sustainability issues in three ways.

The first is as an extension of CSR – a kind of philanthropy involving activities that are not part of a company’s core business but that can be of benefit to the environment or the community. Such activities seldom have board involvement, unless they entail significant expenditures.

The second strand involves the law that has developed over the last five years requiring compliance around supply chains, conflict minerals and – increasingly – ‘integrated reporting’, Mac Cormac observes. This strand of sustainability involves issues on which a company is required to report because they are material to operations and therefore are within the purview of the corporate secretary.

The third area involves how the company’s operations are impacted by ESG issues. ‘And that is core to how the company operates, not the extension of philanthropy and not compliance,’ Mac Cormac points out. In this area – which she calls ‘the meat of the matter’ – the role of the corporate secretary is to determine whether management is focused on the issue, because some aspects of it are operational. The corporate secretary should help the board decide whether it has only an oversight role, or if it needs to take a more active role, Mac Cormac points out: ‘And then you reach the question: if the board has oversight, or active involvement, what does that look like?’

Source: Helping Boards Face Climate Change | Ceres

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

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

Uber founder Travis Kalanick resigns as CEO amid a shareholder revolt – The Washington Post

After several tumultuous months that culminated in a shareholder revolt, Travis Kalanick stepped down Tuesday as chief executive of the ride-hailing giant Uber.Kalanick, who helped founded Uber in 2009 and established it as Silicon Valley’s highest flying start-up, will stay on Uber’s board of directors, a company official confirmed. He was asked to resign in a letter from five major shareholders.

Source: Uber founder Travis Kalanick resigns as CEO amid a shareholder revolt – The Washington Post

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

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

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

How Badly Must a C.E.O. Behave Before His Pay Is Clawed Back? – The New York Times

Gretchen Morgenson writes in the New York Times:

[There is] a lawsuit unfolding in Delaware Chancery Court…that involves the former chief executive of United and a prime figure in the Bridgegate scandal that has dogged Gov. Chris Christie of New Jersey. The facts of the case reflect a similar disdain for United’s shareholders by the corporate board members who are supposed to serve them.

At the heart of the lawsuit is the refusal by United’s directors to retrieve any of the $28.6 million received by Jeffery A. Smisek, United’s former chief executive, when he was defenestrated in 2015 amid a federal corruption investigation….In a litigation demand, [The City of Tamarac, Fla., Firefighters Pension Trust Fund] requested that the company’s board claw back the severance pay given to the executives who took part in the bribery scandal. By doing so, United’s board would correct its breach of fiduciary duty and prevent “the unjust enrichment” of company executives.

Seems fair enough. But United’s board has refused. Its justification for not recouping the pay is, well, pretty rich.

In a letter to the pension fund, a lawyer for United explained that it would harm the company to give the board “unfettered discretion to recoup compensation” in cases involving wrongdoing. “Where such discretion is out of step with industry norms,” the letter said, it would “make it difficult for United to recruit and retain top talent, particularly at the senior management level.”

In other words, clawing back severance awarded to executives amid a bribery investigation is not industry practice. And if United pursued such a recovery, the airline would be an outlier and unable to hire good people.