GMI Ratings’ 2013 Women on Boards survey includes data on 5,977 companies in 45 countries around the world. The results show that progress on most measures of female representation continues to be slow. Women now hold 11% of board seats at the world’s largest and best-known companies, up 0.5 percentage points from a year ago and a total of only 1.7 percentage points since 2009. Among these companies, 63% have at least one female director, and 13% have at least three women—a level that some research suggests may constitute a critical mass and allow women’s leadership styles to come to the fore. As we noted last year, women make up a higher percentage of directors in developed markets (11.8%, up from 11.2% last year) than they do in emerging markets (7.4%, both this year and last).

Underlying the incremental pace of global change are very heterogeneous trends in female board representation in different countries and regions. Leading the globe on gender-diverse boards is Europe, where legal requirements for women’s representation exist or are being considered at both the EU level and in various countries. Norway, Sweden and Finland continue to lead the developed world in their percentage of female directors, with 36.1%, 27.0%, and 26.8%, respectively. Significant increases in women’s representation are also happening in Italy and France, following the passage of recent laws on board diversity. France now ranks 4th in the world, with 18.3% female directors. (In Spain, however, where a law exists but enforcement mechanisms are weak, much less change has occurred.) In addition to raising their percentages of female directors over the last year, Italy, France, Germany, and the Netherlands have all seen sharp increases (of between 8-18 percentage points) in the proportion of companies with at least three women. Over half of French boards, and a third of those in Germany, now have at least three female directors.

…continue reading: 2013 Women on Boards Survey

As discussed in our previous memo, in January 2013, the SEC approved amendments to the NYSE and Nasdaq listing standards relating to compensation committees and their advisers. Unless they have already done so, companies should begin implementing the new requirements with respect to compensation committees and their advisers that take effect on July 1, 2013. Compensation committee action is required in order to comply with these requirements.

Companies should note that, while the new rules require compensation committees to consider the independence of their advisers, the rules do not require that such advisers be independent, nor is any aspect of the mandated independence review required to be disclosed publicly (other than proxy disclosure concerning compensation consultants to a company or its compensation committee).

Companies should also note that this independent assessment applies only to advisers; there will be a separate independence assessment of directors required later, as noted below.

…continue reading: Compensation Committee and Adviser Implementation Begins July 1, 2013

One of the dumbest corporate governance issues is whether to split the roles of Board Chair and CEO. That debate is now playing out on the front pages of business sections (print and online) as shareholders will decide next week in a nonbinding vote whether to take the chairman of the board title away from JP Morgan CEO Jamie Dimon.

This is a reprise, for the zillionth time, of the pointless push by governance types to call the senior director “chairman of the board” rather than “lead” or “presiding” director and to deny the CEO the chairman of the board title. (Dimon, of course, is today Chairman of the Board and CEO of JP Morgan; Lee Raymond is JPM’s “lead” director.)

What is lost in virtually all stories and commentary hyping the Dimon election is an answer to the basic question: what is the function of the lead director? It is this issue of function, not form (i.e., what title that senior director carries), which is crucial.

It has been a governance verity, if not always a reality, that a strong board should provide oversight and constructive criticism to the CEO and other company leaders.

Since Enron, this basic principle has been implemented in most companies by designating one director to be first among equals, whatever her title. That director performs at least the following core roles (as I have discussed in detail elsewhere):

…continue reading: For Dimon and Board Leaders: Function Matters, Not Form

In our paper, Audit Committee Elections, which was recently made publicly available on SSRN, we examine whether and in what ways shareholder votes in the elections of directors who sit on the audit committee (AC) are associated with the effectiveness of the audit committee. Within the board, the audit committee is responsible for monitoring the financial reporting process. This process involves oversight over the external auditor, internal controls and overall quality of the financial reports. Aside from voting in director elections, shareholders can do very little to influence or signal their satisfaction to the AC. Yet, research examining director elections does not generally focus on the AC. In this study we aim to fill this void.

…continue reading: Audit Committee Elections

In our study, CEO Succession Practices (2013 Edition), which The Conference Board recently released, we document and analyze 2012 cases of CEO turnover at S&P 500 companies. The study is organized in four parts.

Part I: CEO Succession Trends (2000-2012) illustrates year-by-year succession rates and examines specific aspects of the succession phenomenon, including the influence on firm performance on succession and the characteristics of the departing and incoming CEOs.

Part II: CEO Succession Practices (2012) details where boards assign responsibilities on leadership development, the role performed within the board by the retired CEO, and the extent of the disclosure to shareholders on these matters.

Part III: Notable Cases of CEO Succession (2012) includes summaries of 11 episodes of CEO succession that made headlines in the past two years and that were carefully chosen to highlight key circumstances of the process.

Part IV: Shareholder Activism on CEO Succession Planning (2012) reviews examples of companies that have recently faced shareholder pressure in this area.

The following are some of the major findings discussed in the study:

…continue reading: Statistics on CEO Succession in the S&P 500

Almost half a decade after the onset of the financial crisis, populist sentiment and the resulting political environment continue to fuel stricter regulation of executive and director compensation, with the latest wave in Europe including substantive restrictions on compensation in the financial services industry and “say-on-pay” initiatives (i.e., initiatives providing for shareholder approval of compensation). This post describes these recent European compensation developments, namely:

• The so-called “banker bonus cap” – substantive limits on the amount of variable compensation that can be paid to certain employees at financial institutions; and
• Say-on-pay developments in the E.U. and Switzerland.

…continue reading: European Compensation Developments: Financial Institutions and Beyond

This year, the practice of activist hedge funds engaged in proxy contests offering special compensation schemes to their dissident director nominees has increased and become even more egregious. While the terms of these schemes vary, the general thrust is that, if elected, the dissident directors would receive large payments, in some cases in the millions of dollars, if the activist’s desired goals are met within the specified near-term deadlines.

These special compensation arrangements pose a number of threats, including:

…continue reading: Bylaw Protection against Dissident Director Conflict/Enrichment Schemes

Today’s column focuses on new rules of the New York Stock Exchange (NYSE) and the NASDAQ Stock Market (NASDAQ) concerning independence requirements for directors who are members of compensation committees. The new rules must be complied with by listed companies by the earlier of the first annual meeting of shareholders after Jan. 15, 2014, or Oct. 31, 2014. [1]

NYSE Section

NYSE Listed Company Manual Section 303A.02(a)(ii) contains the following requirements regarding compensation committee member independence (references to an NYSE Listed Company Manual Section hereinafter will be referred to as NYSE Section):

[I]n affirmatively determining the independence of any director who will serve on the compensation committee of the listed company’s board of directors, the board of directors must consider all factors specifically relevant to determining whether a director has a relationship to the listed company which is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to:

…continue reading: Exchange Rules on Independence of Compensation Committee Members

PwC U.S. recently released two reports on corporate governance considerations relating to public offerings. The first, titled “Going Public? Five Governance Factors to Focus on,” outlines key governance considerations companies should address when pursuing a public offering. Its companion document, “Governance for Companies Going Public: What Works Best™,” guides directors and executives of companies planning an IPO through the many governance decisions necessary; offers insights from interviews with directors, executives, investors and board advisors; reports results of PwC’s proprietary research on pre-and post-IPO governance structures; and assists those involved understand the governance landscape.

The five key governance considerations detailed in the report titled “Going Public? Five Governance Factors to Focus on” include:

…continue reading: Corporate Governance Planning for Companies Going Public

Last month I posted to SRRN Corporate Short-Termism – In the Boardroom and in the Courtroom, which the Business Lawyer will publish this August.

In this paper, I examine a long-held view in corporate circles has been that furious rapid trading in stock markets has been increasing in recent decades, justifying more judicial measures that shield managers and boards from shareholder influence, so that boards and managers are freer to pursue sensible long-term strategies in their investment and management policies.

However, when I evaluate the evidence in favor of that view, the evidence turns out to be insufficient to justify insulating boards from markets further. While there is evidence of short-term distortions, the view is countered by several under-analyzed aspects of the American economy, each of which alone could trump the board isolation prescription. Together they make the case for further judicial isolation of boards from markets untenable.

…continue reading: Corporate Short-Termism – In the Boardroom and in the Courtroom