As I have reported previously (CorpGov Bites), CalPERS and CalSTRS are cooperating to create a database of prospective director candidates with diverse backgrounds and talents for possible nomination to boards through proxy access. At the Yale forum in June, representatives of the two funds led a workshop aimed at developing a questionnaire to be used to build a Diverse Director Database. (see slideshow)
I received an e-mail from Anne Simpson of CalPERS recently letting me know that individuals who want to be considered for such positions can submit their resumes to DiverseDirectorDatabase@calpers.ca.gov. Once the questionnaire is completed, individuals will then need to enter the information requested into an online candidate questionnaire linked to the database.
Martin B. Robins, who occasionally posts to this blog, recently suggested that candidates from such funds undergo extensive training on the substantive and procedural obligations they will face as directors, with a special focus on skills needed when serving on hybrid boards. (Directors Elected Through Proxy Access) Those interested in making suggestions for such training or any other recommendations related to the pool of candidates should also do so through the same e-mail address: DiverseDirectorDatabase@calpers.ca.gov.
Not unexpectedly, the US Chamber of Commerce sounded an alarm, sending a letter to the SEC expressing concerns with CalPERS’s plans to influence boards of directors should the SEC finalize “proxy access.” The Chamber argues proxy access and the Diverse Director Database would “effectively make boards accountable to special interest rather than to shareholders.”
- Directors, who are implicitly or explicitly beholden to an individual, or to a special interest group, may have a conflict of interest with the fiduciary standards that directors must adhere to.
- It is unclear what if any safeguards are in place under the 3D program to ensure that members in the pool of shadow directors adhere to their fiduciary responsibilities, if elected to the Board, and not act in the interest of a particular individual or a specific group.
The Chamber urges the SEC to review its options for inspecting and regulating the 3D program and other similar programs. Apparently they’re happy with the current system, which at many companies involves nominating committees vetting candidates and seeking approval from the CEO before placing them on the proxy.
During a CEO’s tenure, he or she will make countless decisions that affect the company for decades to come – and influence many more. One of the most important and far-reaching is the selection of board directors.
Thankfully, many companies have moved well beyond typical advice offered in 1996. (Solving the board puzzle: how to select the ‘right’ directors – Governance, by Harry G. Hohn, The Chief Executive, June, 1996. Yet, this much more recent 2004 publication from SpencerStuart includes the following:
The nominating committee reconvenes with the short list and compares these candidates’ suitability against the criteria in the position specification. The CEO almost always is involved in this process, particularly to veto any prospects deemed unsuitable.
See also, The role of the CEO in board selection: too much, or too little, involvement can be problematic. Here is a best-practices process, Directors & Boards, Fall 2007.
Candidates who are vetted by shareowners and then elected, according to the Chamber’s logic, may be “beholden to an individual, or to a special interest group.” Presumably, when nominating committees run candidates past the CEO for approval they’re just doing it to ensures they can “work together.” The CEO has no “special interest”… other than evaluations, pay, tenure, etc.
See also: Calpers Aims Director List at Increasing Board Sway, WSJ, 6/18/10. The Altman Interview – Anne Sheehan, Director of Corporate Governance, California State Teachers’ Retirement System (CalSTRS), Governance & Proxy Review, 5/14/10. Proxy Access Ahead: A Director Database for the Big Three (CalPERS, CalSTRS and CII), theCorporateCounsel.net/blog, 8/3/10. Jeff Jinnett: Directors of Public Companies No Longer “Parsley on the Fish,” 6/29/10. CalPERS and the DDD, California Corporate & Securities Law, 7/14/10.
For somewhat similar earlier initiatives, see the Director Diversity Database, a joint project of the Center for Banking and Finance and the Center for Civil Rights at the University of North Carolina School of Law. A working group of academics and business professionals provides guidance and advice to the Initiative. The objective of the Initiative is to encourage boards of directors of public companies to increase their gender, racial, and ethnic diversity. See also Boardroom Bound®, an alternative pipeline that delivers a new generation of director candidates to companies seeking to fill vacated seats in their boardrooms. My understanding is that the CalPERS/CalSTRS definition of diversity is in the broadest sense, like that of the SEC’s recent disclosure requirements.