Category Archives: Board Evaluation

Several keys questions for board members and their comittees.

Posted on by

The PwC (refer to Price water house Coopers) has published a report about the keys questions that a board should consider in order to carry out their governance duty.

 

Here you have the questions and a link to read the Pwc answer to this thematic.

 

1/ how is management evaluating and executing its strategic plan and risk management practices to address today’s competitive global marketplace?

 

2/What is the company doing to comply with anti-corruption laws and regulations?

 

3/How is management addressing contemporary accounting hot topics, including asset impairments, income taxes, and segment reporting, and ensuring the transparency and appropriateness of the company’s disclosures?

 

4/Does the audit committee engage in sufficient discussions and interactions with the external auditor in response to the current dialogue relative to audit quality and the reliability of financial reporting?

 

5/Has management considered the financial and business implications of the new tax law, and what is it doing with respect to the impact of potential corporate tax reform?

 

6/is the company effectively addressing the key opportunities and risks of IT?

 

7/Does management have processes in place to address cybersecurity risks?

 

8/what is the board’s approach to communications with shareholders and other stakeholders, and should it be reconsidered?

9/As regulatory bodies and lawmakers continue to discuss, propose, and enact laws and regulations, and shareholders continue to be active, is management analyzing possible effects and considering “no regrets” moves?

 

Here read the all report and answers: Key questions for board and audit committee members

 

The 2013 Director Compensation and Board Practices Report

Posted on by

The Conference Board, NASDAQ OMX and NYSE Euronext jointly released the 2013 edition of Director Compensation and Board Practices, a benchmarking study with more than 150 corporate governance data points searchable by company size (measurable by revenue and asset value) and 20 industrial sectors.

The report is based on a survey of public companies registered with the U.S. Securities and Exchange Commission. The Harvard Law School Forum on Corporate Governance and Financial Regulation, Stanford University’s Rock Center for Corporate Governance, the National Investor Relations Institute (NIRI), the Shareholder Forum and Compliance Week also endorsed the survey by distributing it to their members and readers.

The following are the major findings from the 2013 edition of the study:

  • Directors are best compensated in the energy industry, but company size can make a huge difference. Computer services companies are the most generous with full value share awards, but equity-based compensation is widely used across industries and irrespective of company size.
  • Stock options are not as favored as they used to be, except by the smallest companies Increasing skepticism on the effectiveness of stock options and stock appreciation rights as long-term incentives has led to their decline, especially in the last few years.
  • Additional cash retainer for board chairmen is seldom offered by larger companies, which are more likely to reward lead directors.
  • A corporate program financing the matching of personal charitable contributions is the most common among the director perquisites reported by companies.
  • While many nonexecutive directors have C-suite experience, former or current CFOs are less represented than expected in the board of financial services companies.
  • Larger financial services companies often set stricter director independence requirements than national securities exchanges.
  • While larger companies continue to combine CEO and board chairman positions, three-quarters of financial institutions have appointed an independent lead.
  • Majority voting is being increasingly embraced even among smaller companies, but incumbents failing to obtain the required votes are rarely expected to resign.
  • According to the director nomination policy of large companies, diversity matters as much as business skills. Yet, aside from some level of female representation, corporate boards remain remarkably uniform.
  • Most smaller companies save board search firm fees and use personal connections to recruit new director nominees.
  • Proxy access rights and reimbursement of solicitation expenses remain marginal practices.
  • While traditional takeover defenses (including poison pills and board classification) are being dismantled, large financial companies tend to restrict action by written consent and prohibit special meetings called by shareholders.
  • Directors of large company boards take a corporate aircraft to travel to board meetings, unless it is a financial institution.
  • Financial services companies of all size are ahead in the use of secure online technology for intra-board communication.
  • While an annual say-on-pay vote appears to be the standard for most companies, almost one-third of the smallest financial institutions opt for a less frequent consultation of shareholders.
  • While designing new executive compensation policies, large financial companies set equity retention periods and go above and beyond regulatory requirements in the formulation of contractual clawback clauses.
  • Large companies are more likely to enforce anti-gross-up policies.
  • Compensation benchmarking disclosure also tends to be a feature of larger companies, with industry and company size the most frequently used criteria in the selection of the peer-comparison group.
  • Compensation consultant fees tend to be lower than the amount for which disclosure is required.
  • While directors of smaller companies collaborate directly with management in the business strategy setting process, larger company boards review strategy more frequently than others.
  • Frequency of risk reporting to the board and institution of chief risk office reveal the differing state of risk governance practices among industry groups.
  • Responsibility for sustainability oversight depends on company size, with larger companies elevating it to the board committee level and smaller companies delegating it to the CEO.
  • Environmental impact and, for financial services companies, data security are among the main sustainability items in board agenda.
  • Boards of directors at almost half of the smallest companies (as measured by annual revenue) do not review political contribution practices, while formal policies for senior business leader are seldom in place.
  • Small companies do not have a board process for the systematic and periodic review of their CEO succession plan.
  • Formal policies on board retention of the departing CEO are uncommon, except in large companies where the CEO is formally required to also leave the board.
  • Formal board-shareholder engagement policies begin to emerge, and may include the requirement for director to actively participate in annual shareholder meetings as well as the adoption of a protocol detailing when and how shareholder can reach out to directors and expect a response to a material query.
  • Large financial companies are less inclined to use an over-boarding policy as it may impair their ability to attract director talent.
  • More than one-third of companies with less than $100 million in revenue do not periodically evaluate their director performance.
  • Approximately two companies out of 10 require their board members to attend some type of continuing education programs to remain abreast of regulatory and compliance developments.
  • As the workload and challenges facing board committees increase, member rotation policies remain infrequent.

 

This article is an extract from : The 2013 Director Compensation and Board Practices Report , the harvard blog.

 

10 Ways To Measure The Tone At The Top

Posted on by

By Donna Epps

To complete our series on Governance especially Board evaluation, let me show you an comprehensive article on the corporatecomplianceinsights.com website. Donna Epps, the author write about the  management’s ”tone at the top” and the Dodd-Frank Act’s. 

What is the Dodd-Franck Act’s?
The author explain, “The Dodd-Franck Act’s is offering potentially large rewards for tips about possible securities law violations, this could be an opportune time for compliance executives to consider new ways to evaluate their company’s tone at the top.”

In other words, directors in Boardroom have today many ways and tools in their hands to limit the risks’ management . Donna Epps going further that and lists 10 ways to assess the current state of an organization or a Board of Directors.

 
1- Extent and nature of wrongdoing

2- Anonymous incident reporting

3- Social media reputation assessment

4- Employee surveys

5- Tone of management communications

6- Group discussion

7- Facility visits

8- Exit interviews

9- Interviews and focus groups

10- Customer complaints

 

Read the article on corporatecomplianceinsights.com

To read more: 
Board Evaluation: What areas of operation are evaluated regularly or annually?
In CAMERA Board Session… Why?

In CAMERA Board Session… Why?

Posted on by

One of the most delicate topics in governance is the ability to discuss freely any contentious agenda items. As the Board and committees are intended to oversee the management and the executive team in place, it may be difficult in their presence to address openly certain subjects during a meeting. This may be even more difficult when discussing and evaluating their performance.

The governance practice “in-camera session” is designed to help board to manage these delicate situations.  Note that in-camera session if started should be held at every meeting, otherwise it will stress too much the CEO and the management since they will suspect that a request for a private session is to talk about them.

A definition of what constitutes an in-camera session is  when directors meet on their own, without management or any other non-Board member present.

The legal term is “recused,” which means to disqualify someone from participation in a decision on grounds that they cannot, because of a particular interest or position, objectively discuss the matter.

Currently accepted principles of good governance provide that all boards and committees should regularly hold scheduled in camera sessions for board members only.

We find several references to this practice to hold a session of 15 minutes or less at the end of CA with only directors. It’s providing them with the opportunity to talk about more sensitive elements or simply get together as a team. In Camera session provide:

• an opportunity for the board to discuss particularly sensitive matters within the jurisdiction of the board (such as litigation, work relations, management/CEO’s performance )

• an opportunity for the board to discuss sensitive internal board governance matters, attendance, evaluation, leadership

• an opportunity for the board to review the performance and compensation of the president, discuss the attitude of one director, etc.

In conclusion, in–camera sessions are a very valuable tool allowing full and open debate on different topics strictly between board members and without any possible interference.

 

Board Evaluation: What areas of operation are evaluated regularly or annually?

Posted on by

“74% of Board members are very satisfied with their own understanding of the role of the board, but only 24% were very satisfied with their colleague’s understanding of the role of the board.”
Source: Nonprofit Governance Index 2002

The need for credible high quality independent evaluations has increased, many companies are engaged in evaluating their own performances.

The board of directors should periodically assess its performance as a collegial body as well as the   performance of its individual directors. Many boards undertake this evaluation exercise annually.
If done well, appraisals help boards: become more effective by clarifying the individual and collective responsibilities, improve the working relationship with managers, keep an appropriate balance of power between the board and the CEO and take a developmental perspective.

The six steps of the evaluation process

  1. Determining the Purpose of Environmental Assessment
  2. Establishing an evaluation structure
  3. Preparing the assessment concept
  4. Collecting information
  5. Analyzing information
  6. Actions and Implementation

This allows judging if the board had fulfilled its missions and checked the quality of materials and processes that influence its performance.

Evaluation should focus on 3 goals:

  • Evaluate on the operational procedures of the board
  • Check in the major questions has been properly prepared and negotiated
  • Measure the actual contribution of each director Board’s work through his or her competence and involvement in discussions.

To evaluate boards, the most appropriate tools are the questionnaires.
The questionnaire might be uses daily or annually.

-          Once a year, the Board should dedicate one of the points on its agenda to a debate concerning its operation.

-          Most of time, the meeting questionnaire is more concerned with orders of day.
For example, how Well Has the Board Conducted Itself?

The questionnaire should be anonymous and board members should know what will happen with the information once collected. Therefore, access to individual evaluation reports should be limited to administrator to which they relate, generally  the President.
The advantage of using a Board portal like Leading Boards ensures total anonymity for each director and interprets results automatically.

Example for the annual self-assessment:

 

 

 

 

 

Example for the meeting self-assessment:

Why The FCPA Law Could Affect Your Next Board Meeting

Posted on by

 

After the Wall Mart scandal (thedaylibeast.com), much of my attention focused on the FCPA law and and its potential effects on board of directors.

First, what FCPA means ?
The “Foreign Corrupt Practices Act” in United States established in 1977, prohibits companies from making payments or offering anything of value to a government official for the purpose of influencing that official. The second element of this law is that companies should maintain accurate books and record transactions with government officials.

What does this have to do with Boards ?
As a board member, you should ask yourself the following questions :

  •  Your company works in a developing country ? Do you know its rate of corruption risks ?
  • Your corporate activities involve interaction with government officials ? Directly or use third-party agents or business partners ?

In this cases, you need to identify, evaluate and address your risks. Ask your management team about the controls in place to track, approve, record and summarize transactions with government officials.

You need to know that fines are significant. Additionnally, regulators can require companies to returns profits derived from inappropriate activities.

 

 

Boards of Directors: Doing Just Half the Job

Posted on by

 Writing by David Langstaff

 

On Corporate Compliance Insights’ website, David Langstaff  wrote an interesting article on the role of Board Members. It differentiates two principals functions: one is overseeing operations and a second is executing a growth strategy.

Many Boards abandoned the second point, they are focused on the compliance and don’t look at the future. A company must have clear goals: both a long-term vision and shorter-term operating goals.

The author adds the following idea, that if boards have no concern with the longer terms goals, it will be difficult to propose an operating plan. Board members need to know that and what the company is seeking to accomplish and how it proposes to get there.

It is the very synthesis of these two aspects that determines the efficiency of a Board and its activities.

Read More :
Boards of Directors: Doing Just Half the Job 

 

2011 Board Practices Report – Deloitte

Posted on by

This report by the Deloitte Center for Corporate Governance and the Society of Corporate Secretaries and Governance Professionals provides results from a survey of over 200 corporate secretaries on topical governance questions, including shareholder engagement, board committees, strategy, and sustainability. New to this eighth edition is an analysis of director qualifications, which includes insight on board composition related to gender, age, and ethnicity…

2011 Board Pracices Report by Deloitte


Why boards need to adopt social media

Posted on by

Lucy P. Marcus is a board chair and non-executive director who is challenging conventional wisdom inside and outside the board room. She has emerged as the voice setting the agenda on future proofing boardrooms and companies around the world. The CEO of Marcus Venture Consulting, she is Professor of Leadership & Governance at IE Business School and she speaks and writes about boards and leadership. Lucy has been awarded the Thinkers 50 “Future Thinkers” Award.

 

Boardroom Trends – Is Your Board Prepared?

Posted on by

Say on pay, director indemnification, the structure of risk committees, Bob Bostrom, partner, SNR Denton, talks to Corporate Board Member about the top issues for corporate boards this year, and what directors should do ahead of time to prepare.

To see the video: Boardroom Trends – Is your Board Prepared ?