caribiod
Network

January Newsletter

The Monthly Newsletter of the Caribbean Institute of Directors.
- January Newsletter

This newsletter’s Table of Contents is as follows:

1.   a. Nasdaq Moves to Require Board Diversity 
     b. The Corporation’s Role in Defending Democracy

2. The board’s purpose agenda

3.  On the 2021 compensation committee agenda

4.  Use Board Reviews To Up Your Director Game

1. a. Nasdaq Moves to Require Board Diversity 1. b.The Corporation's Role in Defending Democracy

1.a. Nasdaq Moves to Require Board Diversity 

Nasdaq has made history by asking the SEC to approve a proposal to require companies to demonstrate board diversity in order to be listed on the exchange. The proposal would require most boards to add a woman and a director who self-identifies as LGBTQ+ or as a member of another underrepresented community. (Foreign and smaller reporting companies would be exempt from the underrepresented community requirement but would need to have two women.) The move would also require consistent disclosure of board makeup.
One year after the SEC approves the proposal, companies must disclose their board composition; two years after passage, there must be one diverse director on every board; in five years, boards must have two diverse directors in place. Currently, 75% of the Nasdaq-listed companies do not fulfill the requirements. Corporate governance diversity advocates applaud the proposal.

1.b.The Corporation’s Role in Defending Democracy

2.The board’s purpose agenda

A large spotlight is shining on corporate actions these days, and all stakeholders have growing expectations. A board’s involvement in defining its “purpose” will help meet those expectations. However, the creation of a “purpose statement” – and a supporting narrative – should not be a branding exercise but rather a deeply reflective process. Accordingly, the board’s role in the process is to encourage their top executives to take the time to understand all stakeholders’ perspectives on the company’s strengths, vulnerabilities, and relevant industry trends in identifying their organization’s real purpose. Board members themselves need to actively and proactively engage with stakeholders to listen to concerns, as these can simmer under the radar until they boil over into a public backlash. One board was recently caught off guard when an employee used social media to raise concerns about the company’s contract with a foreign government. Boards, therefore, need to create confidential channels through which employees can raise issues for their consideration in a safe way. They especially need to be aware of what is being said about their organization on social media. They should also proactively monitor internal and external sentiment alongside management. For example, the board of a leading industrial company recently replaced a planned board meeting with a listening tour with employees on the shop floor. Such insights can help the board incorporate stakeholder concerns into the purpose orientation. Other board actions should include:
  • ensuring that purpose and ESG considerations are regular parts of their discussions. Further­more, one of the board committees should include purpose as part of its oversight;
  • use purpose to pressure test decisions and trade-offs in company strategy, investments, risk and performance manage­ment, HR and culture, governance, and external reporting.; and
  • establish organizational accountability around purpose by linking ESG performance metrics to compensation for the management team to ensure these goals are treated as seriously as profit and revenue targets. 
Source: McKinsey

3. On the 2021 compensation committee agenda

The events of 2020 and rising expectations for more engaged board oversight of corporate leadership; employee health, safety, and well-being; and the company’s evolving role in society all suggest a new era ahead for compensation committees. The continuing impact of COVID-19 on people, communities, and the economy as well as the heightened attention to systemic racism and income inequality has put a spotlight on a host of issues in the compensation committee’s wheelhouse.
The following considerations may be useful for compensation committees to keep in mind as they develop and carry out their 2021 agendas:
  • Redouble the focus on getting the compensation right.
  • Clearly align incentives with long-term value creation.
  • Consider expanding committee oversight of Human Capital Management (HCM) to more than executives. 
  • View shareholder proposals related to compensation and HCM as bellwethers.
  • Leverage expanded disclosures requirements with meaningful HCM metrics and ongoing shareholder engagement as an opportunity to tell the company’s’ story.
  • Be aware of the continued scrutiny on director pay.
Source: KPMG
 

4. Use Board Reviews To Up Your Director Game

The purpose of the board assessment is to capture an independent, anonymized summary of key insights that the board feels are important, including business opportunities, concerns, risks, areas for focus/improvement, etc. In addition to the typical numerical questionnaire approach to board assessments, adding some open-ended questions can reveal areas where the board can add real value.
The goal is to hit upon specific themes so that directors can share their insights on what would help the board to work more effectively as a team and be a better resource for the shareholders.
Some examples of questions that will definitely spark productive dialogue are:

  • What are the real opportunities for the business and what should management look at doing differently/better?
  • What are the risks that management needs to spend more time addressing?
  • How can management improve its operations?
  • How can the board/management be more crisis ready and nimble in the event of a crisis or significant event (e.g., cyber breach, financial restatement, #MeToo)?

When done well and used effectively, the board assessment can be one of the most powerful tools in your corporate governance arsenal to ensure the board is doing the best job possible for its constituencies.

 

Source: Corporate Board Member

Register
Share:

More Posts