This newsletter’s Table of Contents is as follows:
- Canadian Directors share their top-of-mind governance issues
- Does Your Company’s Purpose Resonate With Everyone, Or Just Senior Leaders?
- Current trends in audit committee disclosures
- Board survey reveals some gaps in director quality
- Finding the right director
- Proxy Advisory firm, ISS, slams current governance practices
- BEWARE: Expansion of shareholder activism
- Non-GAAP measures under scrutiny
1. Canadian Directors share their top-of-mind governance issues
Hugessen Consulting in November 2016 asked Canadian directors of publicly-traded and privately-held organizations for their views on a range of general boardroom, executive compensation and related performance and governance issues. Respondents cover a wide array of geographies, industries and company sizes, offering valuable insights into how boards are tackling key topics as they go into year-end decision-making.
Key findings include:
- Almost 75% of directors view corporate strategic planning as the most important topic for their boards, ahead of executive talent management (17%) and capital structure optimization (5%)
- Information technology / cybersecurity requires the largest increase in attention from boards
- One-time awards were granted at 40% of respondents’ companies, with performance-based (56%) and sign-on (46%) being the most popular types
- Directors were generally satisfied with their company’s pay-for-performance alignment (as measured by long-term shareholder value creation); only 7% indicated dissatisfaction
- Modifying performance metrics and / or target calibration was viewed as the most effective method to improve pay-for-performance alignment
- 63% of respondents’ companies currently engage with shareholders or plan to in the coming year.
Source: John Skinner, Associate, Hugessen Consulting
2. Does Your Company's Purpose Resonate With Everyone, Or Just Senior Leaders?
“In order to be successful, your entire organization—from your newest hire to your oldest associate—needs to live and breathe your mission. If a talented, capable employee finds that purpose to be just another boring corporate initiative, it’s time to press pause and reevaluate. “
Without clarity of purpose, it is difficult, if not impossible, for associations and non-profit organizations to create meaningful value for stakeholders. For boards of directors, however, the question raised by Barry Saltzman in this item is of even greater significance. It is one thing for senior decision-makers to believe in purpose. It is another thing entirely to build genuine commitment to purpose among staff and voluntary contributors. Boards must strive to close the gap.
1. What is your board’s level of commitment to purpose?
2. What steps can your board take to build greater commitment to purpose throughout your organization?
Source: CSAE BoardReady
3. Current trends in audit committee disclosures
For the past several years, various governance groups and investors have encouraged audit committees to disclose more information on how they execute their duties. Deloitte’s latest proxy statement study confirms that voluntary disclosure is increasing at a slow and steady pace. While it is not necessary, or possible, to disclose everything an audit committee does each year in fulfilling its duties, providing additional insight into the structure and key activities of the audit committee can help increase investor confidence in both the audit committee and the company as a whole.
Source: Deloitte
4. Board survey reveals some gaps in director quality
Directors may be gradually improving board practices, but there remains much work to be done. More than half of the boards recently surveyed by the Rock Center for Corporate Governance at Stanford University said they conduct individual board member evaluations. However, less than one-quarter of those boards reported having a mechanism for communicating the feedback collected. In addition, only half of those surveyed felt that their boards were effectively recruiting the needed talent, and only one-third felt they were preparing properly for board succession.
Source: Rock Center for Corporate Governance, The Wall Street Journal
5. Finding the right director!
What are the most important characteristics of an effective director? According to a recent study, they include the courage to do the right thing, the ability to confront management, good business judgment, the ability to ask the right questions and having an independent perspective. Based on a global survey of public company directors, these traits are considered the most important across all the regions surveyed.
Source: Dow Jones Institutional News
Source: Director Journal (January/February 2017)
6. Proxy Advisory firm, ISS, slams current governance practices
The results of ISS’s policy survey for the 2017 proxy season were released in August. This year’s survey focused on: director tenure and board refreshment; overboarding for executive chairs; IPO companies with dual-class capital structures; metrics used in executive compensation; cross-border executive pay; and the frequency of say-on-pay votes. The survey results indicated, among other things, that: two-thirds of institutional investors support holding annual say-on-pay at all companies (note that in 2017 most companies will have their second say-on-frequency vote); nearly 70% of investors think that having a high proportion of long-tenured directors is a cause for concern; and most institutional investors recommend taking action against the directors of IPO companies with multiple classes of stock.
Source : ISS and Sullivan and Cromwell LLP
7. BEWARE: Expansion of shareholder activism
Shareholder activism in the US remains strong. Preparedness for activist strategies will remain a key focus and we expect to see activism grow in Europe. Activism can be seen as a subset of shareholder engagement and there is a broadening consensus that knowing and engaging proactively with shareholders – in a year-round program – is vitally important. The UK Stewardship Code has been influential in improving engagement, but compliance remains mixed. On a practical level, shareholder engagement has been at the executive level, but there is now a growing trend from investors to meet with non-executives. This will pose new challenges for the corporate secretary and the investor relations teams as they provide directors with professional support and insight. We expect to see firms develop clear shareholder engagement protocols or committees to ensure engagement and communication is co-ordinated and effective with the board.
Source: IR Magazine
8. Non-GAAP measures under scrutiny
The SEC is taking a hard look at non-GAAP measures due to concerns about their increased use and prominence. As a result, companies and audit committees should consider reexamining their use of non-GAAP measures and related controls and procedures for disclosure of such measures. Consider reviewing Deloitte’s roadmap to non-GAAP financial measures, which combines the SEC’s guidance with Deloitte’s interpretations and examples, and includes questions for companies to consider when disclosing these measures. Also refer to Deloitte’s Heads Up for questions audit committee members can consider related to non-GAAP measures.
Source: Deloitte
