This is a reformatted version of Some “xfc” lists for 2012 Recently Published by Key Law Firms, Big 4 Consultants and Others, compiled by Dan Boxer Jan 20, 2012. The documents from which the lists were extracted range from 1-30 pages and contain varying degrees of insight and commentary. Some is very insightful and thorough. The purpose and thrust of these lists varies greatly and it is important to note that not each purports to be exhaustive of issues. Note also that a number of the lists draw on material from a range of sources and quote from others. In Boxer’s selection of excerpts he has not attempted to list all these other sources nor has he attempted to summarize much. He’s been very selective. All sources can be found in the full document available through the links. Apologies to Boxer… some of his information may have gotten dropped as I reformatted for the Internet but I think his list remains very helpful.
A. Law Firms
- Akin Gump: Top 10 Topics for Directors in 2012 , Dec. 8, 2011 (16 pg.)
- Cleary Gottleib Board Focus 2012: Issues and Developments Jan. 11, 2012 (14 pg)
- Gibson Dunn (10 pg) CONSIDERATIONS FOR PUBLIC COMPANY DIRECTORS IN THE 2012 PROXY SEASON, Jan. 3, 2012
- Wachtell, Lipton, Rosen & Katz (1pg) Key Issues for Directors 2012, Dec. 9, 2011
- WEIL, GOTSHAL & MANGES LLP (4pg) Twelve Key Corporate Governance Issues for 2012, Dec. 2011
- Wilson Sonsini Goodrich & Rosati (2pg) Critical Issues for Boards of Directors: December 6, 2011
- Deloitte Directors’ Alert: 12 issues for 2012, Jan. 2012 (20 pg)
- PWC Current Developments for Directors 2012, Dec. 15, 2011 (31pg)
- The Conference Board Governance Center Governance Challenges and Priorities for 2012, Jan. 18, 2012 (4 pg)
- LexisNexis Corporate Governance Trends and Issues, Jan. 4, 2012 (1 pg)
- Thompson Reuters/Westlaw Proxy season: top issues of 2012, Jan. 18, 2012 (1pg)
- Martindale Hubbell Blog Corporate Governance Trends and Issues in 2012, Jan. 3, 2012 (1pg)
- ISS The Dirty Dozen — Twelve Top Governance Issues for 2012 ,Source: ISS 2011-2012 Policy Survey ; NDI Presentation Patrick McGurn, Special Counsel, Institutional Shareholder Services, Nov. 2012 (12pg)
- Oversee the development of corporate strategy in an increasingly interconnected and volatile world economy.
- Oversee risk management, including the identification and assessment of new and emerging risks as companies expand their global footprint.
- Set appropriate executive compensation now that shareholders have a say-on-pay and income inequality is drawing increasing media attention.
- Monitor corporate political contributions during an election year as pressure mounts on companies to disclose their political spending practices.
- Monitor the 2012 elections.
- Ensure the company’s compliance programs are up-to-date as regulators step up anti-corruption enforcement efforts and whistleblowers can now earn huge bounties.
- Ensure appropriate board composition to best enable the company to meet new challenges.
- Assess impact of looming health care reform on the company’s benefit plans and cost structure.
- Monitor developments in proxy access as shareholders can now submit proposals requiring companies to include shareholder director nominees on company ballots.
- Ensure that an effective succession plan is in place.
Cleary Gottleib: Board Focus 2012: Issues and Developments Jan. 11, 2012 (14 pg.)
M&A in 2012 – Significant Opportunities … and Risks
There is reason to expect growth in deal activity in 2012, despite current market and economic challenges. Prospective acquirers have substantial cash resources and reasonable or even strong stock prices, banks are willing to lend for at least some acquisitions, private equity firms have significant unused investor commitments, and hedge funds are actively seeking positive results. In this environment, directors should be mindful of whether the company’s current condition presents opportunities for it and its stakeholders.
Balance Sheet Management and Vulnerability to Insurgency
…In fact, one recent study concluded that the boards and managements that are most frequently attacked in activist filings on Schedule 13D are those overseeing companies characterized by steady cash flows and healthy balance sheets. Directors should be carefully considering:
- Whether to invest more in the business;
- Whether to engage in more strategic acquisitions or similar transactions;
- Whether to return more value to shareholders through share buybacks and dividends; and
- Whether to incur more leverage to have additional flexibility to do any or all of the above.
Preparing for the Annual Meeting
- One-size-fits-all approaches to governance practices.… In 2011, there was a marked increase in companies that challenged recommendations of proxy advisory firms in additional soliciting materials sent to shareholders or used for investor meetings. These materials were also posted on company websites and filed with the SEC as soliciting material. We expect this practice to grow,
- Private ordering proposals for proxy access.
- Re-slating and succession practices.
- Policies on director nomination and succession.
- Director turnover.
- Executive Compensation Matters
- Correlation between executive pay and operational and financial performance. Directors should examine whether operational performance metrics in short- and long-term incentive plans reflect the right type and mix of criteria.
- Clawback policies. New listing rules, expected in 2012, will force directors to reconsider clawback policies.
- Evolution of say-on-pay.
Audit, Compliance and Control Matters
- Relationship with auditor. The PCAOB has expressed renewed concern about the quality of audits and auditor skepticism. PCAOB officials say that audit inspections have shown a surprising number of cases in which auditors have accepted management representations without verification.
- Status of IFRS adoption
- SEC bounty program.
- Risk Oversight …..Ongoing investor focus on risk oversight is apparent in the voting policy updates that Institutional Shareholder Services (“ISS”) adopted for 2012, which include a policy to issue negative voting recommendations on individual directors, committee members or the entire board due to “material failures” of risk oversight.
- Board Leadership …Many institutional investors appear willing to accept a lead director structure, rather than an independent chair, especially if a board undertakes to review its leadership structure on an annual basis. Moreover, several recent situations illustrate that the independent chair model is not a “cure-all,” demonstrating the importance of an effective working relationship, and clear delineation of roles and responsibilities, between the chair and CEO
- Director Elections …With the growing popularity of majority voting in director elections, and increased shareholder attention to director qualifications and board composition, the re-election of directors is not automatic.
- Executive Compensation …Under new SEC rules, all companies will have to discuss in the Compensation Discussion & Analysis (“CD&A”) whether, and if so how, they considered their results of their most recent say-on-pay vote and how that consideration affected their executive compensation decisions and policies….For 2012, ISS also has announced an updated pay-for-performance test, which is one of several criteria ISS looks at in evaluating say-on-pay proposals. Under this test, ISS will start with a quantitative screening that is based primarily on a comparison of CEO pay and total shareholder return, both on an absolute basis and relative to peers
- Proxy Access …While mandatory proxy access is gone, companion amendments to the SEC’s shareholder proposal rule now permit shareholders to submit proposals seeking to implement proxy access schemes on a “private ordering” basis through company charters or bylaws.
- Board Oversight of Political Activities …Post-Citizens United, shareholder proposals regarding corporate political activity have cast a wider net, and overall support for these proposals has increased. These proposals generally focus on disclosure of different types of contributions, including direct political contributions, and on board oversight of corporate political spending.
- Shareholder Proposals …In 2011, the number of shareholder proposals decreased, and fewer shareholder proposals went to a vote, as compared to 2010. This was due in part to a large decrease in executive compensation-related proposals because of mandatory say-on-pay, as well as an increase in the number of proponents withdrawing proposals after negotiating with companies.
- Regulatory Activity Expected in the Coming Months …a. Executive compensation and related rulemaking under Dodd-Frank. Under its current schedule, by mid-2012, the SEC plans to propose and adopt final rules on “clawbacks” of executive compensation, and disclosures about: (a) the ratio of CEO compensation to median worker pay; (b) the relationship between executive compensation and company financial performance; and (c) hedging policies applicable to directors and employees. The SEC also plans to adopt in the first half of the new year final rules on the independence of compensation committees and consultants, although most of these rules will require further rulemaking by the stock exchanges.
- Conflict minerals rules.
- Accounting and auditing
Wachtell, Lipton, Rosen & Katz Key Issues for Directors 2012, Dec. 9, 2011 (1Pg)
- Working with management to navigate the dramatic changes in the domestic and world-wide economic, social and political conditions, in order to remain competitive and successful.
- Coping with the increase in regulations and changes in the general perception of business that have followed the financial crisis. Once it was said, “The business of America is business.” Today, it could be said, “The business of America is government, and a dysfunctional government at that.”
- Dealing with populist demands, such as criticism of executive compensation and risk management, in a manner that will preempt increased regulation and avoid escalation of activist demands while at the same time furthering the best interests of the corporation.
- Organizing the business and maintaining the collegiality, of the board so that each of the increasingly time-consuming matters that the board is expected to oversee receives the appropriate attention of the directors.
- Working with management to encourage entrepreneurship, appropriate risk taking, and investment to promote the long-term success of the company, despite the pressures for short-term performance.
- Retaining and recruiting directors who meet the requirements for experience, expertise, diversity, independence, leadership ability and character, and providing compensation for directors that fairly reflects the significantly increased time and energy that they must now spend in serving as board members.
- Developing an understanding of shareholder perspectives on the company, as well as coping with the escalating requests of union and public pension funds and other activist shareholders for meetings to discuss governance and business proposals.
- Developing an understanding of how the company and the board will function in the event of a crisis. Most crises are handled less than optimally because management and the board have not been proactive in planning to deal with crises, and because the board cedes control to outside counsel and consultants.
WEIL, GOTSHAL & MANGES LLP Twelve Key Corporate Governance Issues for 2012 (4 pg.)
- LONG-TERM FIDUCIARY FOCUS … carrying out their fiduciary duties in the face of pressures from certain shareholders seeking to influence board decisions. Boards must continue to exercise independent and objective judgment on issues that are reserved by law to the board’s fiduciary judgment. These issues range from strategic direction and corporate social responsibility to executive compensation and dividend policy
- STRATEGY, RISK AND PERFORMANCE Board responsibilities and activities revolve around issues related to: Strategic planning, Risk management, Corporate performance, Management development (and succession).
- SHAREHOLDER INFLUENCE AND ENGAGEMENT Boards and management teams will need to continue to improve their approaches to shareholder communication and engagement.
- DIRECTOR ELECTIONS … adoption of majority voting … along with the likelihood of shareholder proposals seeking proxy access, have the potential to shift the focus of the 2012 proxy season from executive compensation to director elections.
- BOARD COMPOSITION AND DIVERSITY Board composition should relate to the company’s strategic needs, which change as a company and its business environment evolve. .., shareholders and key constituents are interested in the value that diverse perspectives bring, including those related to gender and racial diversity.
- EXECUTIVE COMPENSATION The say on pay vote will still be high on the shareholder agenda in 2012.
- BOARD LEADERSHIP STRUCTURE Shareholder pressure to separate the chairman and CEO roles is likely to grow. .. According to Spencer Stuart, 41% of S&P 500 boards currently split the chairman and CEO roles, compared with 26% a decade ago, and about 21% have independent chairs.
- SUCCESSION PLANNING Shareholders are showing more interest in succession planning. .. shareholder proposals seeking greater disclosure related to succession planning has increased.
- CORPORATE POLITICAL CONTRIBUTIONS Boards should expect the attention on transparency and board oversight of corporate political spending to intensify, especially given the 2012 presidential election and the .. decision invalidating restrictions on certain corporate political expenditures (Citizens United v. Federal Election Commission).
- CORPORATE RESPONSIBILITY Shareholder focus on corporate responsibility will likely magnify in the coming year. … Boards should expect disclosures regarding the corporate impact on natural resources to be an important topic, with an emphasis.
- COMPLIANCE PROGRAM EFFECTIVENESS Boards should work with management to ensure a corporate culture in which employees are encouraged to report compliance and ethical concerns through the company’s internal channels. Boards should assess the quality of the company’s messaging and communicate at every opportunity that internal reporting is expected, valued and critical to the company’s success.
- RULES ON THE HORIZON A number of rules mandated by the Dodd-Frank Act have yet to be finalized. Among others, these include disclosure requirements relating to: Executive pay ratios; Compensation committee and adviser independence; Clawback policies to recover incentive compensation; Conflict minerals, mine safety and resource extraction.
6. Wilson Sonsini Goodrich & Rosati, Critical Issues for Boards of Directors, December 6, 2011 (2pg.)
Three Themes in Corporate Governance:
- Entrance of new actors. Securities and Exchange Commission, stock exchanges, and proxy advisory firms each have become more involved in standard setting.
- Transfer of power from management to boards. Sarbanes-Oxley Act and the Dodd-Frank Act, has mandated a shift in power from management to boards
- Shift in power from boards to stockholders.….developments such as shareholder approval of equity compensation plans..majority voting .. clawbacks..non-binding say-on-pay votes… erosion of anti-takeover measures, and withhold-vote campaigns.
Fundamental Principles in Corporate Law
- Corporate law remains director-centric, rather than stockholder-centric. Stockholders are entitled under state law to elect directors and vote on certain proposed corporate transactions, but they are not entitled to oversee the management of the corporation. That duty is entrusted to the board.
- The business judgment rule is alive and well. ..a board’s rational business judgment will not be second-guessed by the courts so long as directors have exercised their fiduciary duties of loyalty and care,,,,,has not diminished with other changes in corporate governance..
- Boards should focus on the process of making decisions.Directors should:
- be active and engaged;
- obtain access to relevant information;
- obtain input from relevant board committees and board advisors;
- actively deliberate decisions, asking relevant questions and discussing the information provided;
- examine available alternatives; and
- resist the pressure for a quick decision.
- Ensure that the board’s process and decision are documented adequately.
- Director and advisor independence are important. Director independence involves more than just an annual determination regarding stock-exchange independence requirements.
- Exercise special caution in conflict-of-interest or sale-of-control situations.
- Be aware of the discoverability of electronic communications.
Global economy: Keep your seatbelts fastened, continued turbulence ahead
…When creating and reviewing strategic plans, boards must challenge the economic and business assumptions that provide the foundation of those plans to ensure they are both reasonable and take into account different scenarios, including the risks created by changes to market liquidity and financing…
Risk Oversight: Keeping risk and opportunity in balance
Organizations need to develop a risk intelligent culture that fosters “smart” risk-related decision-making, in which the organization would determine how much risk it is willing to take on and how those risks will be managed and mitigated so the organization both preserves and creates value.
Strategy, growth, and performance: How agile is your strategy?
In their oversight of strategy, therefore, boards need to carefully monitor changes in marketplace conditions that could affect the organization’s ability to achieve
its strategic goals. Together with management, boards should identify the high level risk indicators related to the organization’s strategic objectives.
Operational management: A strategic role in operational management
Boards can add significant value by working with management on strategic operational issues, including those related to market, product, and location strategies.
This often involves obtaining an external perspective of the practices of other companies, industries, and countries. Many boards’ role in operational management includes supporting and instigating growth and efficiency initiatives as well as sponsoring innovation to be delivered through operational changes in the organization.
Capital, cash, and liquidity management: Making the best use of cash in hand
The challenge for companies is to determine the best use for the cash they have in hand. If it is to protect that cash, boards should assess the risks to it. These include assessing counterparty risks, the problems that may be unique to operating in specific markets or jurisdictions, or whether it is necessary to modify the capital allocation within a group. On the other hand, boards may query whether or not the cash should be put to better use.
Mergers and acquisitions: When every company is “in play”
In this environment, every company is potentially “in play,” if not as an acquirer than as a target of one. With many sophisticated, well-funded buyers in the market, organizations looking for acquisitions need to approach the market with a solid M&A strategy.
Organizational structure: Global, flexible, flat, and networked
Boards must determine how to apply effective oversight of adverse, multijurisdictional organization. Board membership may need to be adjusted to reflect the diversity in the organization. Boards must also ensure that the “tone at the top” and its supporting values are consistent and relevant when translated across a multicultural environment, particularly for operations in countries where business practices are tainted by corruption.
Talent management : Understanding the talent, strategy, and risk continuum
..boards may want to consider whether their mandates should include:
- Ensuring a corporate culture in which talent management is recognized as a top priority at all times.
- Approving a corporate code of conduct that incorporates the organization’s key values.
- Oversight of talent management processes, including those to identify, retain, motivate, and develop key employees.
- Oversight of and input into the organization’s human resource strategy.
Sustainability and corporate responsibility: An integral component of organizational strategy
In this environment, boards need to ensure that their organization views corporate sustainability as more than just good corporate citizenship – it must be an integral component of its overall business strategy. With their responsibility for the oversight of organizational strategy and the identification and mitigation of risk, boards have a clear responsibility for the oversight of sustainability activities. Many boards choose to go beyond an oversight role. Given that short-term concerns often demand the near total attention of management, it is often up to the board to address the longer-term issues around sustainability, such as by integrating the organization’s sustainability program in the governance structure.
Regulation and compliance: The next wave of regulation
To avoid a return to a compliance-governance mindset, boards may be able to respond to new regulations more efficiently by taking a portfolio approach to them, rather than dealing with each new rule in isolation. Their objective should be to identify the best overall response, rather than finding a solution to each individual challenge.
Transparency in corporate governance: Telling it like it is
To facilitate their interaction with shareholders, some boards have initiated face-to-face meetings with key shareholders while others identify one or more directors as a key board contact for shareholders wishing to communicate. While these approaches may be a feasible interface with a limited number of institutional and other larger investors, the board’s outreach to most stakeholders continues to be through written reports and other disclosure documents.
Board success: The demands and expectations keep growing
Since 2008, many boards have taken on greater, more collaborative roles to work with management on issues such as strategy execution, sustainability, and talent development. Individual directors may have stepped into new roles, such as independent board chairs who become spokespersons for their organizations, not just with shareholders but with all stakeholders, a responsibility they may share with management and the CEO. Yet while the demands and responsibilities of the boardroom have increased, the time available to address them has remained relatively constant. Boards have done what they can to “work smarter” by streamlining processes, improving the focus and quality of the information provided to them, and other steps.
- Governance developments Executive compensation, Proxy access, Whistleblower rules, Conflict minerals, Proxy advisory firm influence, Shareholder proposal focus
- Financial reporting developments: convergence continues. Leases, Revenue recognition, Financial instruments, IFRS road map
- Regulatory developments. SEC update, Revisiting the Sarbanes-Oxley Act, Changes at the PCAOB
- Corporate tax reform outlook
The Conference Center Governance Blog Governance Challenges and Priorities for 2012, Jan. 18, 2012 (4 pages)
- Executive compensation will continue in the spotlight. …In 2011, the expanded availability of say on pay proposals provided investors an alternative avenue to express their views on corporate pay programs and shareholders will most certainly continue to make their views known during 2012.” …. Advisory services have made revisions to their methodologies, and there will likely be a laser-like focus on some of the more granular elements of compensation design (LTIP metrics, stretch goals, etc.), peer group design, and the quality of advice provided by consultants to compensation committees.”… there is a combination of the impact of the “Occupy Wall Street” phenomenon. … investors feel that the average vote for say-on-pay was too high last year,
- Corporate political spending will be highly scrutinized. “Given the 2012 presidential election and the impact of the 2010 Citizens United case removing restrictions on certain corporate political contributions, companies should expect to see an increase in shareholder calls for improved transparency and board oversight of corporate political spending…
- Proxy access will gain steam.
- Global convergence of governance practices has begun and will continue to gain momentum. ….we see a continuation of the trend toward various cross-border actions, comprehensive regulatory benchmarking, and comparative shareowner activism by institutional investors across the globe …
- Fundamental concepts such as annual election of directors and majority voting become even more widespread.
- Companies continue to face the need to find ways to rebuild trust eroded by the scandals of the past decade. “Concerns about the responsible use of corporate power remain high in the wake of the financial crisis. Although these concerns have been focused primarily on the financial sector, there is spillover to corporations in every industry. Tough economic conditions, slow job growth, political dysfunction and general uncertainties about the future continue to undermine investor confidence and fuel public distrust (with Occupy Wall Street an example). This in turn intensifies the scrutiny of corporate actions and board decisions, and may skew the regulatory environment in which companies compete.
- Corporate political spending will be highly scrutinized. … expect to see an increase in shareholder calls for improved transparency and board oversight of corporate political spending,” .. In any case, the general trend is toward more disclosure being posted in easy-to-find ways on company web sites and having thoughtful corporate policies in place on these issues.
- Proxy access will gain steam. … finally seeing institutional and individual shareholders submit both binding and non-binding proxy access proposals… proposals are being submitted to a small number of companies that have significant executive compensation and/or corporate governance issues. While Elson agrees that proxy access will be a popular ballot item, he questions whether it is the ultimate solution to the shareholder election participation conundrum. Elson believes that “proxy reimbursement, which will appear on a number of ballots this year, is the better approach. It is a self-executing separation of serious from non-serious challenges and is popular with both investors and management because of its simple, easy appeal.”
- Global convergence of governance practices has begun and will continue to gain momentum. … continuation of the trend toward various cross-border actions, comprehensive regulatory benchmarking, and comparative shareowner activism by institutional investors across the globe and in wildly different capital markets. .. shareowners are increasingly global in their approach to corporate governance and their pursuit of responsible investing.
- Fundamental concepts such as annual election of directors and majority voting become even more widespread.
- Companies continue to face the need to find ways to rebuild trust eroded by the scandals of the past decade.
- Campaign Finance Disclosure
- Public Perception of Compliance Effectiveness, Executive Compensation Fairness, and Risk Management
- Separation of Powers in Board Leadership
- “Say on Pay Not Going Away”
- Boba-Frank: Whistleblower Bounty Hunters
ThompsonReuters/Westlaw Proxy season: top issues of 2012 January 18, 2012 (1pg.)
A. Executive compensation/say on pay. Responding to your say on pay vote; Problematic pay practices; Say-on-pay engagement.
B. Shareholder rights. Proxy access; Majority vote; Anti-takeover defenses/right to call special meeting and act by written consent.
C. Board leadership. Separate chairman/CEO; Succession planning; Risk and strategy.
D. Environmental and social issues. Citizens United decision fallout continues; Natural resources.
Martindale Hubbell Blog Corporate Governance Trends and Issues in 2012, January 3, 2012 (1pg)
1. Campaign Finance Disclosure … with a Presidential Election in the United States in 2012, expect to see more pressure on directors to maintain oversight of corporate donations to political campaigns and adherence to proper campaign finance disclosures. According to a post by Francis H. Byrd called Top Ten Issues for Boards in 2012, “Taft-Hartley.
2. Public Perception of Compliance Effectiveness, Executive Compensation Fairness, and Risk Management – after the financial crisis and adoption of Dodd-Frank, corporations have a public perception hurdle to manage that may be more difficult than the actual compliance hurdles now legally required of them
3. Separation of Powers in Board Leadership
4. “Say on Pay Not Going Away….investors are likely to more closely scrutinize rising pay, and may take a more confrontational stance than they did during the financially heady days of the 2011 proxy season, when a rising economic tide seemed set to lift all boats
5. Boba-Frank: Whistleblower Bounty Hunters …Expect to see a rise in the number of bounties collected as whistleblowers begin to take advantage of the financial incentives and anti-retaliation provisions of Dodd-Frank.
ISS The Dirty Dozen — Twelve Top Governance Issues for 2012,Source: ISS 2011-2012 Policy Survey; NDI Presentation Patrick McGurn, Special Counsel, Institutional Shareholder Services, Nov. 2012 (12 pg)
Top Issues for Investors
- Board Independence
- Shareholder Rights
- Risk Oversight
- Board Competence
- Takeover Defenses
- M&A/Proxy Fights
- Audit Related
Top Issues for Companies
- Risk Oversight
- Board Competence
- Board Independence
- Shareholder Rights
- Audit Related
- Takeover Defense