The Corporate Library announced a new enhancement to its Board Analyst® product: the ability to visually flag specific areas of potential concern for individual directors. (‘Director Flags’ Zero In On Potential Areas of Concern for Individual Board Members, The Corporate Library Blog, 3/8/10)
With the end of “broker voting” for directors and the adoption by many firms of majority vote requirements, shareowners finally have an opportunity to make a difference. However, doing so is difficult because board activities still go on inside what amounts to a black box. In 2009, only 95 directors out of 30,000 positions covered by Board Analyst® failed to get a majority vote. Reviewing area of possible concern, they found the following:
- 2,712 individuals who are over 70; 283 who are over age 80; and 10 who are over age 90.
- 4,588 directorships whose tenure is greater than 15 years and 1,187 whose tenure is greater than 25 years.
- 1,257 directorships where the individual director is over 70 AND his or her tenure is greater than 15 years.
- 3,468 directorships where a director with more than one year of tenure holds no shares in the company, including 1,108 where a director with more than five years of tenure holds no shares.
- 93 directors who sit on more than four corporate boards, and thus may be over-boarded.
- 187 CEOs who sit on more than two corporate boards, and thus may be over-boarded.
- 3,461 directorships categorized as “Outside Related”, indicating a possible conflict of interest.
- 272 directorships where the individual has previously failed to meet minimum attendance standards.
- 95 directors who did not receive support from a majority of shareholders at 2009 elections.
- 1,070 directors who sit on two or more boards assigned a D or F rating by The Corporate Library.
- 702 directors who have been flagged by The Corporate Library as having been involved in a previous corporate bankruptcy or other failure, including 21 who have been involved in more than one such failure.
No one is saying all these directors should be turned out of office but surely there must be more than 95 out of 30,000 director positions that don’t deserve an A or B and who wants mediocre directors representing shareowners? What excuse can any director have for not holding any shares in their company after five years on the board? Will 2010 be a turning point? The Corporate Library is offering tools that help, if only institutional shareowners would use them. Better yet, they should vote and announce their votes, and the reasons for their votes, two weeks before the annual meeting, so that retail shareowners can copy their brand.
This is an interesting post but the comment about directors not holding is somewhat mis-informed. The Corporate Library uses a very rigid beneficial ownership “analysis” without considering whether there is substantive ownership. They ignore a situation when a director holds equity that does not count for the purposes of the SEC’s beneficial ownership rules – for example deferred stock units that will convert into shares of common stock upon retirement. This runs counter to the hold until retirement concept that many espouse. We have a director that will receive in excess of 15,000 shares when he leaves our board. In fact, he has the largest equity stake of any director because he defers all cash payments into this plan. He gets no preferential treatment in the acquisition of the shares – they are acquired at the market price. He just converts cash into stock.
This should be perfect because it aligns him with stockholders. TCL’s take – he holds no shares. It just doesn’t make any sense. If he takes his cash payment and buys the same shares, which he could sell outside of the short-swing windows, they would say he holds shares. This makes little sense.
If you are going to claim to have done an in-depth analysis of a company, take the step to be intellectually rigorous and look through the SEC’s dogmatic rules which prohibit the disclosure of such DSUs in the table.
@Inside counsel Good points. Have you passed these observations to The Corporate Library?