Tag Archives | NACD

Culture Impact: Directors Forum 2018

The Culture Impact: Values, Attitudes & Strategic Directions

Culture impact in corporate governance got a big boost with NACD Blue Ribbon Commission report Culture as a Corporate Asset. A brave panel tackled the topic, The Culture Impact: Values, Attitudes & Strategic Directions, at the Corporate Directors Forums I attended in San Diego. Like all Corporate Directors Forums, this one operated under the Chatham House Rule, so you will not find any direct quotes below. These are my notes on The Culture Impact. As such, they include my opinions as well observations made by speakers, panelists and others in attendance at the Forum. This is certainly not a transcript. However, I hope even those who attended the Forum will find the post useful, especially my attempt to provide additional context through links and commentary.

To learn more about the 13th annual Directors Forum: Directors, Management & Shareholders in Dialogue conference, click on the following: @corpdirforum on Twitter, tweets from  that often link to other posts,   website, and Linkedin.

The Culture Impact: Panelists

  • Moderator: Michael Berthelot, Director, Fresh Del Monte Produce Company, CEO, Cito Capital Corp; and Managing Principal, Corporate Governance Advisors, Inc.
  • Stephen L. Brown, Senior Advisor, KPMG Board Leadership Center
  • Joann Lublin, Pulitzer-Prize Winning Journalist & Management News Editor, The Wall Street Journal; Author, Earning It
  • Bryan Cornwall, Founder & Principal, Cornwall Bioengineering & Communications
  • Hanna Grene, Policy Director, Center for Sustainable Energy

The Culture Impact: My Notes

Paper forthcoming on Wells Fargo and Uber by Hanna Grene and Bryan Cornwall to be published on Equilar website. I will be waiting with anticipation. How would we react? What tools do we have available? It seems to me, the problems were an open “secret,” not unlike Harvey Weinstein.  The basics of the Wells Fargo scandal were reported in the LA Times in 2013. Los Angeles sued in 2015. The Board didn’t issue their own internal study until April 2017. Too little, too late with Federal Reserve placing the first firmwide limit on a bank as Chair Janet Yellen stepped down. Wells Fargo announced concurrently that it would replace 4 board members, three by April. Wells Fargo will be included in case studies on culture impact for years to come.

Similarly, Uber’s “hard charging” workplace environment was hardly a secret and had adverse corporate culture. Culture was key. Uber was (is?) aggressive and overbearing. Whereas founder Travis Kalanick’s motto might have been something like, “get it done,” the new CEO Dara Khosrowshahi has adopted ‘We do the right thing. Period.’ Media impact was huge reason for change. We see the influence of media, especially social media, even more after the latest mass shooting. (Mass shootings have made gun stocks toxic assets on Wall Street)

The Culture Impact: Public Opinion Sidebar

Renee Aggarwal, Isil Erel and Laura T. Starks, Influence of Public Opinion on Investor Voting and Proxy Advisors (August 6, 2014, Georgetown McDonough School of Business Research Paper No. 2447012; available at SSRN) found that investors have been “voting less with the recommendations of management or proxy advisors.” In contrast,

public opinion on corporate governance issues, as reflected in media coverage and surveys, is strongly associated with investor voting, particularly mutual fund voting. In addition, even proxy advisor’s recommendations are associated with public opinion… media coverage captures the attention of proxy advisors, institutional investors and individual investors, and is thus reflected in recommendations and votes.

The researchers looked at each proxy proposal for each firm in the Russell 3000 Index for the period January 2004 through November 2010. They looked not only at voting records and ISS recommendations but also media coverage of executive compensation, as well as Gallup surveys of public opinion.

A few highlights from their research are as follows:

  • Mean support for shareholder proposals increased from 23.6% in 2004 to 31.8% in 2010, after peaking at 37% in 2009.
  • Institutions voted with management on shareholder proposals 74% of the time in 2004 but only 54% of the time by 2010.
  • Investor agreement with ISS advice went from 78.4% in 2004 to 57.5% in 2010.
  • In 2004, 60% of investors followed ISS opposition to proposals but only 20% did so by 2010.
  • The proportion of shareholder proposals opposed by ISS declined from 156.4% in 2010 to 30.5% by 2010.
  • Support for shareholder proposals increases by 3.15%-2.69% if there is a one standard deviation increase in media coverage.

They conclude:

Our results suggest that public opinion, as measure through either Gallop Poll survey or media coverage at the aggregate and firm level, influences shareholder voting. The implications of these results are that financial intermediaries, such as mutual funds, pay attention to the shareholders’ preferences regarding corporate governance. These results hold even after controlling for the recommendations of the proxy advisor.

The Culture Impact: Back to Conference Notes

Executives sometimes make it known they did not want negative feedback. How do directors make changes before a negative story appears on the upper fold of a major newspaper?

If you are a high performer, culture impact may be nonexistent for a while; you can do anything you want. But the buck stops at the board, not the CEO. The board needs to be willing to second guess. The board needs to wonder about what you do not know. The board should insure it has independent sources of information. Some argue they have their own independent staff. Activists often do, and they often turn out to be good board members in part because of those additional resources.  Every board member should have a responsibility to visit branches, have many experiences as a customer or user. Uber board members seem to have been blind-sided with rapid growth. They waited to long to go after the CEO. Mandatory unconscious bias training might have helped.

The NACD Blue Ribbon report has many tools. Regulatory or the courts; markets or self-reflection. Unfortunately, too often boards seem to be wearing blinders. We are unlikely to see regulatory reform on culture impact. Pressure seems more likely from major shareholders like BlackRock’ announcement to gunmakers. Shareholders have the ability to push back. They have the right to vote boards off the island. Larry Fink’s letter this year said companies must have “a sense of purpose.” Companies have culture impact.

Furthermore, the board is essential to helping a company articulate and pursue its purpose, as well as respond to the questions that are increasingly important to its investors, its consumers, and the communities in which it operates. In the current environment, these stakeholders are demanding that companies exercise leadership on a broader range of issues. And they are right to: a company’s ability to manage environmental, social, and governance matters demonstrates the leadership and good governance that is so essential to sustainable growth, which is why we are increasingly integrating these issues into our investment process.

Your vote is really important. At Wells Fargo and Uber we saw a failures of courage. Uber had frat boy culture. Culture, character and courage… that is what it takes. Wells Fargo seems to have had a culture of, ‘cheat and you can stay; don’t cheat and you are fired.’ Boards need to be more transparent around reports and actions taken, not just to reduce potential liabilities but also to help your company live up to its purpose.

Investigations must be reported up. HR should number and track complaints so they do not get lost. Boards should get routine reports to assess culture impact — to see trends and outliers. Boards should seek the right answers. Non-financial measures should be to be tied to compensation. In an M&A, which culture will prevail? Which culture to keep.

The role of HR. Is it to protect the company or to protect and develop employees? Heads of HR should address boards more frequently. Directors have to spot the data anomalies. Culture is important and is part of their fiduciary duty.

The Culture Impact: Recent Related Posts

   

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2018 CES: Northern California NACD Insights

The 2018 CES (Consumer Electronics Show) and its impact on boards was the subject of a January 31 meeting of the NACD’s Northern California Chapter. We met at the offices of WilmerHale in Palo Alto. We heard primarily from Maureen Conners, Fashion Incubator San Francisco board director and former director of Deckers Brands (NYSE: DECK); Erin Essenmacher, NACD chief programming officer and founder of the NACD Technology Symposium and the NACD CES® Experience; John Hotta, Kaiser Permanente board advisor and former Microsoft executive; and Sandra Lopez, vice president and general manager of Intel’s Sports Group. Continue Reading →

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General Counsel: Corporate Culture Influencer

Corporate Culture Influencer

On September 11, 2017, the John L. Weinberg Center for Corporate Governance hosted a discussion on the role of the general counsel and how she should be a positive corporate culture influencer. The Center has been working with the Association of Corporate Counsel (ACC) to examine this issue in light of ACC’s recent research and white paper on this topic.  ACC is a global bar association with more than 43,000 in-house counsel members worldwide.  Participating in the discussion were the following; Continue Reading →

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NACD Directorship 100 Released

NACD-DirectorshipThe National Association of Corporate Directors (NACD) announced the 2014 NACD Directorship 100, the annual list that recognizes leading corporate directors, corporate governance experts, policymakers, and influencers who significantly impact boardroom practices and performance. NACD has recognized individual directors who serve as role models in promoting exemplary board leadership, oversight, and courage in the boardroom for more than 37 years. Continue Reading →

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The Coca-Cola Company (KO): How I Voted – Proxy Score 63 – Things Go Better With a Split CEO/Chair

CokeThe Coca-Cola Company $KO, is one of the stocks in my portfolio. Their annual meeting is coming up on 4/23/2014. ProxyDemocracy.org had collected the votes of four funds when I checked and voted on 4/15/2014.  I voted with management 63% of the time.  View Proxy Statement, which by the way is very nice and user friendly. See 18 Cool Things about the proxy.

Warning: Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime) Continue Reading →

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A Big Reason Small-Caps Undertake Bad Financings: Board Composition

Adam Epstein - Web - CroppedGuest Post: Adam J. Epstein is a NACD Board Leadership Fellow, the small-cap contributing editor to Directorship magazine, and advises small-cap boards through his firm, Third Creek Advisors. He is the author of The Perfect Corporate Board: A Handbook for Mastering the Unique Challenges of Small-Cap Companies (McGraw-Hill, 2012). A version of this article first appeared in the Jan/Feb ’14 issue of Directorship magazine. Mr. Epstein can be reached at [email protected]. More from Epstein on CorpGov.net.

Much is said and written about initial public offerings in this country from seemingly every possible angle. Interestingly, though, there is an equally important financing ecosystem in the U.S. capital markets that is similar in size to and sometimes even larger than the IPO market, about which comparatively little is said or written. Continue Reading →

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NACD Focuses on Ombuds Programs

Last year I attended the NACD Directorship 100, proud to be listed again a worthy of being watched. This year, even though so honored, I won’t be able to make this important learning event. Learning event? Aren’t these functions mostly just networking opportunities? They are both. No one should question the value of such functions as networking opportunities. Who better to meet than the Directorship 100 (and even the ones to watch)? But I just noticed the October edition of NACD Directorship provides evidence of learning beyond even what those putting on the event might have expected. Amazingly I may have played a small part in it.   Continue Reading →

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SVNACD Event: M&A Pitfalls for Directors

M&A activity is on the rise, and recent decisions by the Delaware Chancery Court make the stakes for directors higher than ever. The businesspersons and lawyers on this panel offered plenty of insights about the life-cycle of a current M&A transaction from initial market check to consummation and then follow-up litigation, pointing out the all-too-frequent pitfalls for directors. Continue Reading →

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James McRitchie Honored by NACD

Sacramento, CA (Oct. 8, 2012) — James McRitchie download <https://www.corpgov.net/wp-content/uploads/2009/03/resume2012.pdf>, Publisher of Corporate Governance (aka, CorpGov.net) <https://www.corpgov.net>, has been named to the 2012 National Association of Corporate Directors (NACD) Directorship 100’s “People to Watch” in recognition of his exemplary leadership in influencing corporate boards and for promoting the highest standards of corporate governance.  Selected by the NACD Directorship Editorial Advisory Committee and the NACD Board of Directors, the
NACD Directorship 100 recognizes the most influential leaders in the boardroom and corporate governance community. Continue Reading →

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Video Friday: China: Handle With Care — What Boards Need to Know

China presents enormous opportunities for Silicon Valley companies, but it also offers a very different regulatory, cultural, financial and operational paradigm for boards and executives. What should you know when contemplating investments, operations or acquisitions in China? How should you balance the often conflicting requirements of U.S. and Chinese regulators? What do best practices look like? How can you comply with the Foreign Corrupt Practices Act in a culture where acceptable norms can be very different than in the U.S.? Watch this video from a recent SVNACD event.

CHINA: HANDLE WITH CARE — WHAT BOARDS NEED TO KNOW from WMS media Inc. on Vimeo.

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NACD Names McRitchie as One to "Watch"

(Elk Grove, CA, September 20, 2011) — CorpGov.net is pleased to announce that Publisher, James McRitchie has been named for the second year in a row to the National Association of Corporate Directors’ (NACD’s) 2011 Directorship 100 list of “People to Watch,” in recognition of his work promoting the highest standards of corporate governance.

James McRitchie will be among those recognized at a gala dinner on November 8 at Continue Reading →

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When the CEO Really Must Go

It is often said that “the most important function of a board is to hire and fire the CEO.” Yet the experience of many is that boards do a pretty good job on the hiring front and a not-so-good job on the “exit.”

The Silicon Valley Chapter of the National Association of Corporate Directors will hold a session on September 15, 2011 focusing on the pitfalls of CEO changes and how to avoid them. There will be a candid discussion between an experienced CEO and an experienced chairman of a board, facilitated and led by Rich Moran, a member of our board of directors.

Location: Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, CA 94304. This program, like all SVNACD programs, is subject to the Chatham House RuleRegister Now!

7:30-8:00 a.m. Continental Breakfast; 8:00-9:30 a.m. Program

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NACD Wants SEC to Back Off Say-on-Pay Provisions

In response to the SEC request for comment on say-on-pay rules, the National Association of Corporate Directors (NACD) issued formal concerns, cautioning against dependency on regular, yes-or-no votes.

NACD’s opinions are grounded in its more than 30 years of proprietary research across a broad range of board leadership and corporate governance topics, insights expressed through confidential peer exchanges with its membership spanning F100 through mid-cap and small cap companies, and best practices detailed in its Blue Ribbon Commission reports. NACD’s comments were reinforced by a national survey that drew 280 responses from its members.

Representing the voice of its more than 10,000 corporate director members, NACD urges the SEC not to issue universal requirements, but to allow companies to determine the most appropriate means of communicating with and seeking feedback from shareholders as a more effective governance practice. Additionally, NACD provided the SEC with specific views on frequency of say-on-pay votes, say on golden parachutes and other matters pertaining to executive compensation on behalf of the director community.

NACD appreciates the symbolic value of say-on-pay. However, we believe it is a poor substitute for dialogue. It is much more valuable to have shareholder communication well in advance of plans or votes on plans. Say-on-pay is a yes-or-no, backward-looking vote that may have little utility except to express a very general shareholder view of a pay plan already in effect,

the Association wrote in a letter signed by Honorable Barbara H. Franklin, chairman of NACD and former U.S. Secretary of Commerce, and Ken Daly, NACD’s president and CEO.

In addition to the survey, NACD cited recent board research indicating that dialogue between companies and institutional investors is increasing.  Additionally, say-on-pay votes for early adopters has been substantially positive, calling out the potential for say-on-pay voting to become a meaningless and burdensome ritual for companies and shareholders alike. According to the organization’s letter, “NACD would urge caution in the area of rulemaking. Compensation terms can be interpreted in an overly broad manner, regulating areas that are best left alone.”

Issues also under SEC consideration where NACD offered an opinion include:

  • Small company exemption: NACD strongly supports an exemption on say-on-pay for small companies (those with less than $75 million in public float), as the compliance and paperwork requirements are particularly costly for small businesses that can less easily absorb the cost. Notably, 73 percent of respondents in the director survey indicated preference for small business exemption.
  • Superclawbacks in financial institutions: NACD encourages the SEC to work alongside it in serving as a “voice of reason” when identifying standards and process for whether directors and officers of a company are in fact “substantially responsible” for insolvency. NACD has concerns of this rule being misused for “witch hunts.”
  • SEC disclosure rules regarding compensation consultant conflicts: NACD urges caution that a consultant for an independent board committee should not be considered in conflict just because it performs a significant amount of work. The key point is that the same consultant does not also work for management, a position long-held by NACD and first raised in its 2003 Blue Ribbon Commission report.
  • Recovery of executive compensation: NACD has serious concerns that this provision is ripe for abuse, and may unfairly target honest executives whose compensation and bonus was reasonably earned. NACD recommends an exemption for companies that obtain shareholder approval for retention of the originally rewarded compensation.
  • Disclosure of pay for performance and pay ratios of CEO to median pay of all other employees: Pay for performance, as detailed in the Report of the NACD Blue Ribbon Commission on Performance Metrics: Understanding the Board’s Role, is a value that has long been championed by NACD and practiced by its members. Boards of directors should be able to express how they link pay to performance. However, NACD cautions that companies should be provided the flexibility to describe their philosophy in their own terms, and disclosures should be allowed to vary. NACD commends the SEC for its decision to postpone implementation of pay ratio rules until after the next proxy season. The median pay figure can be highly misleading for a number of reasons, particularly for a global company.
  • Exemption for newly public companies from issuing a say-on-pay vote: With 72 percent of directors indicating preference for exemption, directors believe road shows for IPOs already offer investors ample opportunity to evaluate compensation packages. Furthermore, these requirements place a focus on process during a critical growth phase of a newly public company.
  • “Golden parachute” plans during exceptional corporate transactions (e.g., mergers and acquisitions): NACD does not believe it is necessary to require disclosure during M&A periods above and beyond what is required of companies in general. However, NACD strongly supports disclosure requirements for any newly named executive officers of the company following a merger or acquisition, a view supported by 79 percent of directors surveyed. Any senior executive at a target company joining the leadership of an acquiring company is important, and stockholders have the right to know about leadership.
  • Disclosure of previous say-on-pay: Aligned with 79 percent of surveyed directors, NACD recommends that only the most recent say-on-pay vote should be disclosed. In the current proposal, issuers are required to consider “previous” votes on compensation, but the proposal does not offer a specific definition of “previous.”

“NACD represents the collective voice of the director, and we urge the SEC to closely consider these clear messages coming from America’s boardrooms as it continues to implement new regulations,” said Daly.

I was never a big fan of say on pay to begin with but if we’re going to have it, personally I can’t see carving out so many exemptions as NACD recommends. In my experience, small companies are in greater need of corporate governance “guidance” than many large companies. If the paperwork is burdensome, that should be addressed by reducing paperwork requirements, not through exemptions. Sometimes I wonder if NACD represents the needs of the shareowners its members represent or the more parochial interests of its members… operating like a union for directors. Your thoughts?

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Enhancing Shareholder Value: What's Hot in M&A and IP

Wilson, Sonsini, Goodrich & Rosati

It had been months since I’d attended an SVNACD breakfast meetings. Top talent was on hand, both among the panelists and in the audience. The facility at Wilson, Sonsini, Goodrich & Rosati was great. Sorry about photo quality… first time working with a new camera that I may not keep.

As usual, my notes are cryptic, without much of an attempt to thread coherent sentences. I’m tempted to say the following is for entertainment purposes only, but that would be too escapist. Corrections, comments and better photos are welcome.

My purpose is to provide readers with a sense of what was discussed and highlight a few areas. It may help you know what to investigate further and you’ll be that much more incentivised to attend in person to get answers to your concerns.  Continue Reading →

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