Board issues dominate Essentials Seminar
Feb 01, 2010
Director election and shareholder outreach are top of mind for corporate secretaries
In a clear reflection of the current board environment, director election and nomination was, perhaps, the most dominant theme at last week’s Society of Corporate Secretaries and Governance Professionals' annual Essentials Seminar. A considerable amount of time was spent discussing who should be on boards, what the directors need to know to be effective and, with proxy season just around the corner, how to ensure all director nominees secure the votes they need.
‘The role of the corporate secretary has evolved, and it is pretty darn intimidating. The essence of the job is to ensure directors fulfill their increasing responsibilities,’ David Drake, president of Georgeson, told attendees during the session ‘New challenges in shareholder voting’.
Marueen Errity, director at Deloitte, believes, ‘the [board] committee of focus in 2010 is the nominating committee.’ With director elections looming in the not-so-distant future and the change to NYSE Rule 452, panelists agreed it was important for companies to begin reaching out to both retail and institutional shareholders now.
A great deal of discussion has been dedicated to the retail sector but it is not the only constituency that needs attention. Companies should take steps to educate brokers and company employees holding shares about the importance of voting. This is especially important as both groups traditionally support management nominees and also take management’s side for shareholder proposals. Current and former employees can hold a surprising number of shares.
Companies worried about reaching a quorum should ensure a routine item, such as the ratification of auditors, is included on the proxy statement. In addition to reaching out to shareholders and employees Drake advised companies to study the voting policies of their institutional investors. ‘With research, withhold votes can often be avoided,’ he said.
Institutional investors remain the most important voting constituency for most companies and on this front, Drake counsels companies to engage with RiskMetrics Group (RMG) and the other major proxy voting advisory firms. Many institutional investors vote proxies in line with the recommendation of the advisory firms, rather than making their own decisions. Conference calls with both RMG’s corporate advisory team and the research analysts can help prevent misunderstandings resulting in a ‘withhold’ recommendation, which can lead to problems securing the institutional vote.
For companies that do not receive the RMG recommendation they are hoping for, Drake provided some reassurance that a growing number of institutions, such as T Rowe Price, are conducting their own research and are beginning to change their voting practices, no longer always voting according to RMG.
Adding to the concern over director nominations and elections are the SEC’s enhanced disclosure policies regarding director qualifications. Darla Stuckey, senior vice president of policy and advocacy at the Society of Corporate Secretaries and Governance Professionals and former senior assistant secretary at American Express, has a lot of people asking her: ‘Where [in the proxy statement] is the new director qualifications section going to be put?’
It appeared most companies were taking a wait-and-see-approach. One idea, suggested by Dannette Smith, secretary to the board at UnitedHealth, and a panelist at the conference, would be to first discuss the nomination process and skills necessary, then insert director biographies and conclude with something along the lines of ‘as a result of the director’s experience, he/she has met these skills matrices’.
In addition to dealing with current governance challenges, corporate secretaries are also casting an eye to the future. Significant regulatory change is expected during the course of 2010, although it is not yet clear exactly what tone new legislation will take.
According to Errity, ‘Senator Dodd’s [Restoring American Financial Stability Act of 2009] has the most traction.’ Muri Osheroff, SEC associate director of regulatory policy, said the commission was currently reviewing the unprecedented number of comment letters on proxy access and to expect a ruling relatively soon. This process is extremely important and companies have been urged to continue to submit comments to the commission.
In many cases the five commissioners remain undecided or at odds and the direction of regulation can still be influenced, as referenced by Lisa Beth Lentini, senior corporate counsel of Best Buy, who cautioned attendees: ‘Never in my career have I seen so many 3-2 votes.’
By Katie Feuer