The Public Has an Opinion about Directors

As directors read the landmark survey of Main Street and C-Suite undertaken by Directorship magazine and Deloitte in conjunction with Korn Ferry International, they will see that the public’s opinion of them and their performance is not high.

Directors need to know what people are thinking and saying and why.  The results from the first survey create a baseline drawn from “Main Street” — journalists, policymakers, analysts, members of the C-Suite including CEOs and directors and more importantly teachers, laborers, policymakers, doctors, students and community leaders.

Let’s begin with the credibility of board directors and CEOs.  While less than half, 43 percent, said board and CEO credibility was poor, 39 percent said it was only adequate and only 17 percent said it was good with only 1 percent said credibility of boards is outstanding today.

To the question of how boards performed their role of oversight during the economic crisis, a whopping 57 percent said poor with another 29 percent calling their performance adequate. A mere 1 percent gave boards an outstanding rating and 13 percent said good. 

What can directors do about these low ratings?  The Directorship article suggests that directors communicate.  Directors should be willing to engage in a role that helps shape public opinion says Korn Ferry’s Steve Mader.

An Opportunity for Directors to Communicate More Effectively

TK Kerstetter’s very interesting program  This Week in the Boardroom  took an interesting look  back on the events of 2009 that will impact boards and directors in the years ahead. Both Kerstetter and his guest, Scott Cutler noted that corporate governance has been politicized and  wrongly blamed for the financial crisis but both see opportunity for directors to focus on effective corporate governance and the key role that directors play. 

To Cutler’s concern that “the strongest voices in corporate governance are not being heard,” we offer the suggestion that directors could use their strong voices to communicate with greater clarity, rather than settling for languages that satisfies lawyers.

Both Kerstetter and Cutler lauded SEC Chairman Mary Schapiro who has moved quickly to bolster the SEC’s regulatory and enforcement powers. At the same time, she strives to communicate intent in all the “why” of the SEC’s action. 

Take the recent press release about increased disclosure:  The SEC announced new “rules to enhance the information provided to shareholders so they are better able to evaluate the leadership of public companies.” The rules “will improve corporate disclosure regarding risk, compensation and corporate governance matters when voting decisions are made,”  said Schapiro.

It’s true that shareholders are a diverse group and it is not the job of the board to satisfy everyone, but listening to varied points of view always improves decisionmaking.

Directors Can Bypass the Proxy Advisory Firms

In light of the SEC’s ban on broker voting, there is considerable concern about the conflicted business model of proxy advisory  firms such as RiskMetrics, which provides proxy voting recommendations to institutional investors along with a proprietary governance rating while an arm of RiskMetrics sells advice on how companies can improve governance scores.

Directors shouldn’t spend too much time railing against these firms. Rather, it’s time for boards of directors to bypass these groups and review their own governance policies including charters, bylaws and compensation rules so that they are well versed on the company’s corporate governance policies. At the same time, boards should develop an understanding of its shareholders and their concerns. Continue reading

A Call to Action by a Key Director

Barbara Hackman Franklin has had an impressive career. The former U.S. Secretary of Commerce is a respected advocate and advisor to American companies doing business in international markets, notably China. She has been a director of 14 companies during her 25 years of service on corporate boards.  Currently, she is a director at Aetna and Dow Chemical.  In addition, she serves as the chairman of the National Association of Corporate Directors, the independent, non-profit organization whose 10,000 members represent the boards of companies from the Fortune 50 to smaller public companies, private companies, private companies, and nonprofit organizations. Continue reading

The Importance of Finding Common Ground

In the face of the changes that are coming to corporate governance,  boards would be well advised to begin their examination of  the input they receive from shareholders and stakeholders  by looking for  common ground.

A synonym for input is contribution.  Imagine if boards saw the comments and suggestions that they receive from shareholders as the way that shareholders want to contribute to the improvement and long-term strength of the company. Continue reading

How Should Boards Adapt to the Ban on Broker Voting?

Ralph Ward of Boardroom Insider asked how boards should handle the ban on broker voting.

Naturally, boards will want to analyze the broker element of the proxy voting for their company. Yet any outreach to shareholders by the board should begin with a board-shareholder communication plan. Continue reading

Boards Have a Window of Opportunity

SEC Chairman Mary Schapiro sees proxy access rules as the way to give shareholders a greater say on choosing directors and a credible path for ousting boards.  Directors have reason to be concerned. It’s clear that some form of proxy access will pass.  However, this is not a time for directors to wait and see. Rather, this is a clarion call for boards to respond strategically rather than wait to comply.

Wednesday’s Wall Street Journal describes the campaign by law firms, associations and companies to derail or weaken the current SEC proposal, which makes it easier for shareholders to nominate directors. Continue reading

Practicing What He Preaches

Proving that no good deed goes unpunished, Chairman Emeritus and CEO Emeritus of AT Kearney Fred G. Steingraber became president of his village of Kenilworth last spring.  Little did he know that problems with transformers exacerbated by turbulent summer thunderstorms would wipe out electricity for extended periods in this elite North Shore village. Not only did Steingraber return every irate citizen’s phone call but he used the web in addition to newsletters to communicate what he, the town staff and ComEd were doing about the problem. In setting up a town meeting with ComEd, he scheduled it for October , not only to give ComEd time to resolve some of the issues but to enable all interested citizens to attend without having to readjust their August vacation schedules. Continue reading

Boards Can Combat Voicelessness and Helplessness

What has fueled the activism of shareholders in the past 25 years? We know that periods of flat or negative growth, flat or negative profitability and low stock growth can drive  traditionally passive institutional shareholders to activism.  (In fact, according to Shareholder Activism Insight, the likelihood is 79 percent.)

But long-time participants and observers in the corporate governance community think it’s much more basic: it’s a sense of voicelessness and helplessness felt by major institutional investors. These shareholders believe they suffer from lack of access—to the directors, to information. This  “under-representation” feeds some activists’ demands to be recognized as owners, whether it’s advocating for “say on pay”, majority voting and in even a battle for board seats. Continue reading

Are Directors Ready to Move from Informing to Persuading?

Directors remain reluctant communicators.  For years they have operated from behind the closed doors of the boardroom. Yet, the failure of some of the country’s most iconic companies as well as the devastating losses in stock portfolios have made investors wary: what’s going on in the boardroom?

In an effort to restore trust in the financial system, SEC Chairman Mary Schapiro wants to increase transparency and the quality of disclosure along with shareholder access to proxy voting. Continue reading