What Public Company Directors Should Know in 2014
Being a public company director today is exponentially different than it was just a decade ago. Rules and regulation changes and increasing investor activism make navigating corporate governance duties more challenging and time consuming.
As the New Year approaches, law firm Akin Gump provides a list of 10 topics that will be important for directors in 2014. For current directors, or those seeking board positions, and for corporate officers who directly interact with the board, it’s a good summary of what to be prepared for. Below are a few of the more noteworthy topics:
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- Address Cyber Security. Akin Gump cites a recent study by the Ponemon Institute, which found that “in the past year the number of successful cyber attacks on companies surveyed jumped 42 percent compared to the prior year.” According to CFO Magazine, companies need to better understand the risks posed by cyber attacks including potential lawsuits, reputation damage and customer losses, as well as growing regulatory scrutiny over the adequacy of data-security measures. Actions have been brought against more than 40 companies by the FTC for data breaches (saying that “failures to prevent unauthorized access to consumers’ information constitute unfair or deceptive acts.”)
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- Set Appropriate Executive Compensation. While some think say-on-pay will remain a hot button issue, others, like CNBC senior editor, John Carney, believe that say-on-pay failed with 97 percent of U.S. companies receiving shareholder votes supporting their executive pay packages through the first half of 2013, according to Equilar. Even so, it’s apparent that shareholders and proxy advisory firms are continuing to focus on pay-for-performance, while investor activists are targeting disparity between pay for executives and other employees. In fact, the SEC recently proposed a new rule that would require publicly traded companies to disclose the ratio of its CEO’s pay to the median compensation of its employees.
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- Determine Whether the CEO and Board Chair Positions Should be Separated. CFO Magazine reports that during the 2013 proxy season, requests for an independent board chair were the second-most-frequent shareholder proposals submitted to companies. According to the 2013 Spencer Stuart Board Index, 45 percent of S&P 500 companies split the CEO and chairman roles, up from 23 percent 10 years ago.
- Cultivate Shareholder Relations. Activist investors are here to stay. Akin Gump says that proxy fight announcements are now at their highest level in four years. Even large pension funds are getting in the act. By knowing and actively engaging shareholders, directors can develop stronger relationships and management credibility, both of which come in handy when facing a potential proxy battle. Equally important, and the main tenet of any good investor relations program, is keeping your message consistent. Whether speaking with an activist, a friendly long-term investor or a mom and pop shareholder, the message should be the same. It’s also important to determine how involved directors should be in the shareholder communications process. This is a company-by-company decision with current viewpoints varying widely.
The public company director position can be very rewarding by helping shape a business’s future, but it’s definitely not an easy task. Regulatory bodies, proxy advisory firms and the investment community are keeping a sharp eye on what’s happening in the boardroom, so these directors must stay on top of the issues that matter most to shareholders.
— Laurie Berman, lberman@pondel.com
