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The Board Place
Corporate Governance Provisions of
Dodd-Frank
Board of Directors
XYZ, Inc.
August 25, 2010
01492662-2.ppt
burnslev.com
(c) 2010 Russ Hansen
theboardplace.com
Dodd-Frank
• Short Title: “Dodd-Frank Wall Street Reform
and Consumer Protection Act”
• 2300 pages, 16 titles change regulation of
financial services industry, banks, financial
institutions, credit rating agencies, Fed, SEC,
Consumer Affairs and
• Two subtitles on Corporate Governance with
other provisions sprinkled throughout.
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Agenda
• Corporate Governance Provisions
• Shake and Bake Compliance Provisions
• Paradigm Shift Compliance Provisions
• No Change in Fiduciary Duties
• How to Respond
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Compliance
Back to Basics
Corporate Governance Review and Update
Increased Need for Investor Relations
Be Prepared for Trickle Down of Shareholder Activism
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“Shake & Bake” Compliance & Control
Provisions
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Board Leadership Disclosure
Broker Discretionary Voting
Swap Committee
Compensation Committee Composition, Consultants, Budget
and Authority
Clawback Policy
Hedging Policy
Whistleblowers
Reg. FD Disclosures re credit rating agencies
Credit rating agency consents
Accelerated filing deadlines for Forms 3 and 13D
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Compliance & Paradigm Shift Provisions
• Proxy Access (3% - 3 years; > 1 nominee or
25% of board)
• No Majority Voting
• Say on Pay & Parachutes (only 3 out of 250 companies lost in 2010)
• Pay for Performance Disclosure
• Internal Pay Ratio Disclosure
• Broker Voting
• Institutional Investment Mgr Vote Disclosure
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Basics: Shareholder Objectives
• For Retail and Institutional Investors: Total
Shareholder Return (“TSR”)
• For Special Interest Shareholders: A Seat at the
Table (Power)
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Special Interest Shareholder Issues
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Sustained poor performance
“Excessive” executive compensation
“Over boarding”
Board Meeting Truancy
Board Diversity
Majority Voting (31@57%)
Separate Chair (35@28%)
Declassify Board (43@62%)
Shareholder Right to Call Special Meetings (43@43%)
Succession Planning
• Risk Management
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Basics: Board Objectives (from XYZ
Board Corporate Governance Principles)
• “….represents the stockholders’ interest in
perpetuating a successful business and
optimizing long-term financial returns…”
(TSR)
• “…in a manner consistent with …legal
requirements and ethical considerations.”
(Compliance)
• “….the best interests of the Company and the
stockholders.” (All Shareholders as a Group)
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Three Key Divisions to Maximize TSR
and Shareholder Best Interests
Operating Results, including M&A
To maximize TSR and to protect
and enhance the interests of all
shareholders requires good
operating results, successful
investor relations and effective
corporate governance – in
difference proportions.
Corporate Governance
The Board Place
Investor Relations
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Corporate Governance Initiatives
• Check By-Laws re advance notice, shareholder
qualifications, descriptions, nominee info, voting
requirements for say-on-pay & other votes;
• Monitor SEC “proxy plumbing;” incorporate in ByLaws/other Corporate Governance docs;
• Check Poison Pill status;
• Evaluate Staggered Board Structure after SEC release
on proxy access;
• Review (and Amend) Guidelines & Charters;
• Evaluate 1, 2 or 3 year say on pay votes
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Investor Relations Initiatives
• Personal 1 on 1 relationship and
communication with enough vote decision
makers, investment decision makers &
influencers if possible, otherwise mass
communication techniques.
• Board Awareness & Support
• Level of Engagement will increase
• Need to carry all management proposals. (Losing
any vote or having any major business problem in a proxy season opens Pandora’s Box in the next one).
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Occidental Petroleum: Consequences of
losing say-on-pay vote
• TSR is outstanding.
• Still lost say-on-pay vote.
• Now CalSTRS (2d largest) and Relational
Investors (hedge fund) sent letter seeking 4
board seats.
• Nominally complaining about executive
compensation and succession planning.
• Hold only 1% together.
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Massey Energy example
• Heavy Shareholder campaign in 2010
• Will hold Oct 6 special meeting
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Declassify board
Remove supermajority voting
Eliminate cumulative voting
Eliminate prohibition on shareholder called special meetings.
• Other changes
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CEO board members cannot serve on more than 2 other boards
No director may serve on more than 5 other boards
Tax gross-ups to be eliminated
Safety & Environment committee to consist only of outside directors
Public Policy Committee must have majority of outside directors
• Already has Majority Voting Policy
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What is the Shareholder Profile?
• No. shares and percent owned: current, hi & lo; first
ownership date
• Compliance/Corporate Governance Contact
• Investment Contact
• Proxy Advisers
• Proxy Voter
• Type: Mutual, GovPnsn, Union, Social, Hedge
• Values
• Shareholder’s Voting Policy & “Hot” Buttons
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1 on 1 Determinants of Scale of
Diplomatic Effort
• Size of Company
• Number, Complexity & Activism of Key
Investors and Proxy Voting Advisers
• Company’s Personnel and Organizational
Structure
• Personal Styles and Philosophies of
Participants
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Scaleable Investor Relations
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IR Group
External Advisers
IR Multi Group Task Force
C-Suite Involvement (including Division
heads)
• Board Involvement
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Examples of Investor Relations at
Different Market Caps
• See Investor Relations Examples
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Board and Management Timeline
• Ongoing Developments Throughout the next 2 years.
See Timeline.
• Compliance Aspects Easy But Time Consuming.
• Board Basics: TSR, Best Interests of Company and
Shareholders.
• Key to Success: Genuine, Personal, 2-Way
Communication With Critical Number of Key
Constituents by Whatever Method Mutually Works.
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