It’s official: Proxy access is the darling of the 2015 season. Shareholder-sponsored proxy access proposals are on the ballots of more than 100 U.S. public companies this spring. These precatory proposals seek a shareholder vote on a binding bylaw that would enable shareholders who meet certain ownership requirements to nominate board candidates and have them included in the company’s own proxy materials. Powerful institutional investors have given the proxy access movement enormous momentum this spring, and blue chip firms such as GE, Bank of America, and Prudential have voluntarily adopted versions of proxy access in advance of their annual meetings. Companies such as Citigroup have agreed to support proxy access shareholder proposals in their definitive proxy materials. In the absence of regulatory guidance, proxy advisors such as ISS have stepped into the breach to define the terms and conditions of proxy access. As proxy access proposals proliferate—after years of controversy—the primary debate now seems to be whether a 3 percent or 5 percent ownership threshold is more appropriate.
Posts Tagged ‘Board composition’
Despite the value of bringing more women onto corporate boards being increasingly recognized, US companies continue a slow march toward gender diversity. While progress is being made, it is not at the pace needed to compete with public sector approaches being taken in other markets.
This post looks at diversity in US boardrooms at the time of their 2014 annual meetings and, unless otherwise noted, reflects S&P 1500 companies. It is based on the EY Center for Board Matters’ proprietary corporate governance database. It is also part of the Center’s ongoing board diversity series and follows Diversity drives diversity: From the boardroom to the C-suite (2013) and Getting on board: Women join boards at higher rates, though progress comes slowly (2012). For EY’s global perspective, see Women on boards: global approaches to advancing diversity (2014) and Women. Fast forward (2015).
The debate over board renewal is moving into sharper focus in Canada. New public company disclosure requirements demand greater transparency on such things as term limits and other renewal mechanisms, and some large investors are sending the implicit message that companies must renew the board or they will seek to do it instead. The ICD agrees that the composition and renewal of the board are vital processes that demand rigour and analysis and are best undertaken by the board pro-actively.
In the paper Beyond Term Limits: Using Performance Management to Guide Board Renewal we seek to provide a framework for boards to build a renewal process that increases accountability and achieves the right mix of skills and experience to create long-term effectiveness.
Fenwick & West has released its annual study about gender diversity on boards and executive management teams of companies in the technology and life science companies included in the Silicon Valley 150 Index and very large public companies included in the Standard & Poor’s 100 Index.  The Fenwick Gender Diversity Survey uses almost twenty years of data to provide a better picture of how women are participating at the most senior levels of public companies in Silicon Valley.
This year’s survey also introduces the Fenwick Gender Diversity Score™, a metric for assessing gender diversity overall within each of the indices. This composite score is based on data at the board and executive management level in the SV 150, top 15 companies of the SV 150 by revenue, and the S&P 100 over the nineteen years surveyed and in a set of categories selected as representative of the overall gender diversity picture.
Director tenure continues to gain attention in corporate governance as term limits become a cause célèbre. Proponents argue directors should no longer qualify as independent after 10 years of service, even though no law, rule or regulation prescribes a maximum term for directors.
We believe director term limits would be misguided and counterproductive. Institutional Shareholder Services (ISS) has increased its focus on the issue. ISS’ governance rating system, QuickScore, views tenure of more than nine years as an “excessive” length that potentially compromises director independence. ISS’ more moderate proxy voting guidelines, while opposing proposals for director term limits and mandatory retirement ages, indicates that ISS will “scrutinize” boards whose average tenure exceeds 15 years.
In recent years, increasing attention has focused on the influence of gender and racial diversity on boards of directors. More than a dozen countries now require some form of quotas to increase women’s representation on boards, and many more have voluntary quotas in corporate governance codes. In the United States, support for diversity has grown in principle, but progress has lagged in practice, and controversy has centered on whether and why diversity matters.
In our article, Diversity on Corporate Boards: How Much Difference Does “Difference” Make?, which was recently published in Delaware Journal of Corporate Law, 39, no. 2, Fall 2014, we evaluate the case for diversity on corporate boards of directors in light of competing research findings. An overview of recent studies reveals that the relationship between diversity and financial performance has not been convincingly established. There is, however, some theoretical and empirical basis for believing that when diversity is well managed, it can improve decision-making and enhance a corporation’s public image by conveying commitments to equal opportunity and inclusion. We believe increasing diversity should be a social priority, but not for the reasons often assumed. The “business case for diversity” is less compelling than other reasons rooted in social justice, equal opportunity, and corporate reputation. Our article explores the rationale for diversity and strategies designed to address it.
Since 2003, Fenwick has collected a unique body of information on the corporate governance practices of publicly traded companies that is useful for Silicon Valley companies and publicly-traded technology and life science companies across the U.S. as well as public companies and their advisors generally. Fenwick’s annual survey covers a variety of corporate governance practices and data for the companies included in the Standard & Poor’s 100 Index (S&P 100) and the high technology and life science companies included in the Silicon Valley 150 Index (SV 150). 
U.S. public companies face a host of challenges as they enter 2015. Here is our list of hot topics for the boardroom in the coming year:
- 1. Oversee strategic planning in the face of uneven economic growth and rising geopolitical tensions
- 2. Oversee cybersecurity as hackers seek to infiltrate even the most sophisticated information security systems
- 3. Assess the impact of advances in technology and big data on the company’s business plans
- 4. Cultivate shareholder relations and assess company vulnerabilities as activist investors target more companies
- 5. Consider the impact of M&A opportunities
- 6. Oversee risk management as newer and more complex risks emerge
- 7. Ensure appropriate board composition in light of increasing focus on diversity, director tenure and board size
- 8. Explore new trends in reducing corporate health care costs
- 9. Set appropriate executive compensation
- 10. Ensure the company has a robust compliance program as the SEC steps up its enforcement efforts and whistleblowers earn huge bounties.
The challenges that directors of public companies face in carrying out their duties continue to grow. The end goal remains the same, to oversee the successful, profitable and sustainable operations of their companies. But the pressures that confront directors, from activism and short-termism, to ongoing shifts in governance, to global risks and competition, are many. A few weeks ago we issued an updated list of key issues that boards will be expected to deal with in the coming year (accessible at this link: The Spotlight on Boards, and discussed on the Forum here). Highlighted below are a few of the more significant issues and trends that we believe directors should bear in mind as they consider their companies’ priorities and objectives and seek to meet their companies’ goals.
Over the last several years, we’ve observed certain trends that are shaping corporate governance and which we believe will impact the board of the future. We structured our 2014 Annual Corporate Directors Survey to get directors’ views on these trends and other topics including: