Category Archives: Risks Management

10 important topics for board of directors in 2013

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The havard law school forum gave ten good topics that board of directors should consider for the next years 2013.

“A fog of uncertainty hangs over U.S. public companies as 2013 approaches. The looming fiscal cliff, increased regulatory burdens, the ongoing European debt crisis, growing Middle East unrest and slowing global growth are just a few of the uncertainties companies will have to navigate as they chart a course for the coming year. Here is our list of hot topics for the boardroom in 2013:

1.Oversee strategic planning amid fiscal and economic uncertainty as America approaches the fiscal cliff

2. Assess the impact of mobile technology and social media on the company’s business plans

3. Address cybersecurity

4. Oversee the management of reputational risk

5. Set appropriate executive compensation as shareholders increasingly voice dissatisfaction with pay practices

6. Assess the impact of health care reform on the company’s benefit plans and cost structure

7. Ensure appropriate board composition in light of changing marketplace dynamics and increasing calls for diversity

8. Monitor the company’s need for, and ability to retain, key talent

9. Prepare for more government regulation

10. Manage information overload “

 

Read more: Top 10 Topics for Directors in 2013

Several keys questions for board members and their comittees.

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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

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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.

 

Major Differences Between Roles of Direction and Management

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In this article, we will remind the principal differences between the boards of directors and the management of the company.

Source: Guide Pratique de Médiatisation du Gouvernement D’Entreprise

DIRECTORS

MANAGERS
Decision-Making Required to determine the future of the organization and protect its assets and reputation. They also need to consider how their decisions relate to stakeholders and the regulatory framework. More concerned with implementing board decisions and policies.
Duties,Responsibilities They have the ultimate responsibility for the company’s long-term prosperity. Directors are normally required by law to apply skill and care in exercising their duty to the company and are subject to fiduciary duties. They can be personally liable if they are in breach of their duties or act improperly. They can be held responsible sometimes for the company’s acts. Not usually bound by directional responsibilities.
Relationship withShareholders Shareholders can remove them from office. In addition, a company’s directors are accountable to the shareholders. Appointed and dismissed usually by directors or management; they seldom have any legal requirement to be held to account.
Leadership Provide the intrinsic leadership and direction at the top of the organization. Day-to-day leadership is in the hands of the CEO; managers act on the director’s behalf.
Ethics, Values Play a key role in determing the company’s values and ethical positions. Must carry out the ethos, taking direction from the board.
CompanyAdministration Responsible for the company’s administration. Related duties associated with the company’s administration can be delegated to management, but this does not relieve the directors of their ultimate responsibility.
Statutory Provisions In many countries, there are numerous statutory provisions that can create offenses of strict liability under which directors may face penalties if the company fails to comply. These statutory provisions do not usually affect managers.

Five principles for getting the most out of a board assessment

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Corporate boards today are expected to be more engaged, more knowledgeable and more effective than in the past. One tool that a growing number of boards are using to examine and improve their effectiveness is the board evaluation.

How can boards make sure that they get the most out of the assessments, so that they really improve board effectiveness?

 

1. The board agrees on clear objectives for the assessment.

One of the most common mistakes boards can make when embarking on an assessment is failing to agree at the outset on the purpose and objectives of the process. While it may seem obvious, coming to a shared agreement about what directors collectively want to accomplish through the assessment encourages board members to commit time to the process and to provide the candid feedback that is essential to identifying and addressing potential roadblocks to board effectiveness. Without the commitment from the board as a whole and directors individually, an assessment is unlikely to yield the desired results. Clarifying objectives and defining the scope of the assessment also helps to avoid a situation in which the board is using the process as a way to put off dealing more directly with non-performing directors.

 

Among the questions boards should consider at the outset:

What is the scope of the assessment?

What’s the most appropriate assessment approach for the board?

Should board leaders be assessed?

What areas does the board want to delve into more deeply?

What gaps exist in the current assessment process?

 

2. A board leader is responsible for driving the process.

 

Essential to a successful evaluation is having an independent board leader champion the assessment process. The independent board chair, chair of the governance committee or the lead independent director is in a position to drive the process — involve the right people, ask for directors’ time, schedule time on the agenda to discuss the results and ensure that the board follows up on the issues that emerge. And while the CEO should be an integral part of the process, he or she should not be leading it.

 

3. The process incorporates perspectives beyond the board directors themselves, including those from senior management and best practices from outside the company¸

 

Another way the board can limit the value of a board assessment is to look only inwardly at its own effectiveness. An emerging best practice among U.S. boards, although still less common in European boards, is to seek input about the board’s effectiveness from the key senior management team members who interface with the board.

 

4. The assessment process should go beyond compliance issues to examine board effectiveness.

 

Many boards have relied on director questionnaires to conduct their assessments. This paper-and-pencil approach can provide a sense of how directors are feeling about compliance issues — whether or not the board is involved in strategy discussions or CEO evaluations, for example — but they are less valuable in revealing issues or concerns that are affecting the board’s effectiveness.

 

5.  Directors commit to reviewing the results of the assessment and prepare an action plan for addressing issues that emerged.

 

Another way assessments can fall short is when boards do not commit the time to review the results and address the issues that are raised. Some boards, for compliance reasons, begin an assessment process, but then spend little or no time on discussing the findings.

 

Conclusion

 

Done properly, a board assessment is not a report card for the board as a whole or for individual directors. Furthermore, a board portal should help administrators to set up assessment with some tools as pool or debates…  Instead, it should be viewed as a tool for continuous improvement and learning. Successful assessment processes:

Þ     Reflect the culture of the organization and its board

Þ     Are championed by a chairman or other board leader who participates actively in the process

Þ     Have shared support among all directors

Þ     Begin with clearly stated objectives for the board assessment process

Þ     Include adequate time on the board’s agenda to discuss the results and establish a clear approach for acting on the findings, including developing an action plan with a timeline and milestones

Þ     Are characterized by confidentiality throughout the process

 

This article is an extract from: Improving board effectiveness: Five principles for getting the most out of a board assessment

9 keys issues for board of administrators in 2013

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Here you have a list of the key issues that are newly emerging or will be especially important in the coming year. Each year, the legal rules and aspirational best practices for corporate governance, as well as the demands of activist shareholders seeking to influence boards of directors, have increased. So too have the demands of the public with respect to health, safety, environmental and other socio-political issues.
Looking forward to 2013, it is clear that in addition to satisfying these expectations, the key issues that boards will need to address include:

1. Working with management to encourage entrepreneurship, appropriate risk taking, and investment to promote the long-term success of the company, despite the constant pressures for short-term performance, and to navigate the dramatic changes in domestic and world-wide economic, social and political conditions.

2. Working with management and advisors to review the company’s business and strategy, with a view toward minimizing vulnerability to attacks by activist hedge funds.

3. Resisting the escalating demands of corporate governance activists, which this year will continue the efforts to increase shareholder power and dismantle takeover protections and include proposals to separate the positions of Chairman and CEO and to lower the percentage of outstanding shares necessary for shareholders to call a shareholder meeting.

4. Organizing the business, and maintaining the collegiality, of the board and its committees so that each of the increasingly time-consuming matters that the board and board committees are expected to oversee receives the appropriate attention of the directors.

5. Developing an understanding of shareholder perspectives on the company and fostering long-term relationships with shareholders, as well as coping with the escalating requests of union and public pension funds and other activist shareholders for meetings to discuss governance and business proposals.

6. Developing an understanding of how the company and the board will function in the event of a crisis. Many crises are handled less than optimally because management and the board have not been proactive in planning to deal with crises, and because the board cedes control to outside counsel and consultants.

7. Retaining and recruiting directors who meet the requirements for experience, expertise, diversity, independence, leadership ability and character, and providing compensation for directors that fairly reflects the significantly increased time and energy that they must now spend in serving as board and board committee members.

8. Working with management to cope with the proliferation of new regulations and changes in the general perception of business that have followed the financial crisis.

9. Dealing with populist demands, such as criticism of executive compensation and risk management, in a manner that will pre-empt increased regulation and avoid escalation of activist’s demands while at the same time furthering the best interests of the company.

This article is extract from:  Key Issues for Directors in 2013

Smaller boards for better governance

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How small boards can be more efficient than bigger? What is the impact on the daily governance?

Robert Pozen, a Harvard Business School lecturer and former general counsel for Fidelity Mutual Funds, try to give an answer.

 

 

Mr. Pozen says « its high-functioning boards, not legislation, which leads to better governance. He went on to note there do too many “social loafers” on boards who are investing too little time understand the issues of the company they are supposed to be serving. »

 

« The problem with 14 or 18 directors is social loafing. If you’re part of that big of a board the thinking of many is, ‘well, someone else will take care of it.’ If you don’t feel that responsibility it is a very bad dynamic, » says Mr. Pozen.

Some board portal accessories as pool and debates can allows you to create a better dynamic on your board.

 

He thinks they should be no more than six directors on a board, along with the CEO, and that they should meet more than six times a year spending two to three days a month on board business. They should also be paid more for the extra work.

 

They should also be no mandatory retirement age for board directors as many are retired executives who still have a lot to contribute after they leave their companies.

 

“When you have executive sessions, people actually talk about what the problems of the company are. I think it’s a good idea to have executive sessions before every meeting. On a larger scale it suggests what is really important in governance is not so much all of these rules, but what you have as the culture of the board and how the peers view themselves,” says Mr. Pozen.

 

The average for financial services boards around the world is 14 members of which only three have financial experience.

 

This article is extract from: Why good governance can come from smaller boards

5 elements which can disturb the progression of boards

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The definition of board effectiveness has shifted dramatically over the past decade. In the aftermath of the global financial crisis and numerous corporate scandals, a director now confronts not only complex oversight accountability, but also personal risk and liability.

To be truly effective, a board needs directors who can work as a group to clearly define their role and mission, and in specialized individual roles, such as succession planning, acquisitions and capital allocation.

 

Here, we will see five elements that tend to hinder the progression of boards toward self-actualization and high performance.

If your board present some disrupters, see on the list if you recognize some symptom enumerate.

 

 

  • Lack of clarity on the roles of individual directors and the board as a whole. Role ambiguity slows decision-making and causes unnecessary director conflicts.

 

  • Poor process management hinders effective board preparation, meeting management, and communications. This results in indecisiveness and a lack of urgency on critical challenges facing the organization.

 

  • Lack of alignment and agreement on company strategy causes disinterest among board members, who then simply default to tackling regulatory and compliance issues. Poor strategic alignment also hampers a board’s ability to prioritize issues and set their near-term agendas. This often causes board disruption and sends damaging signals to financial markets.

 

  • Poor team dynamics fracture boards and lead to power struggles. Like any effective working group, a board should be comprised of professional peers who respect and work well with each other.

 

  • Board composition is a serious impediment, if not done right. Today’s challenges require new perspectives and skills. But boards often lack the ability to objectively evaluate their makeup to determine if they have the right people and skills at the table.

 

You must be careful with this element, because they can affect your board if you don’t take them in account and if you don’t take the good measure.

 

This article is extract from A More Effective Board of Directors

Say On Pay = New tool of Social Responsibility?

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“If it makes good sense to tie compensation of top executives to the financial performance of their firms, it is also wise to gauge that compensation in relation to other corporate performance factors,” says Peter Madsen.

But, what is «Say on pay»? Is it an answer to the compensation issue? Or just another practice to pay more the CEO?

 

As an example, in 1991, President Clinton wanted to permit companies to write off executive compensation amounts of more than $1 million only if executives hit specified performance goals.

In a 2011 paper titled Killing Conscience: The Unintended Behavioral Consequences of ‘Pay for Performance,’ Stout offers three reasons to explain why the Clinton administration’s revisions to the Internal Revenue Code (I.R.C. Section 162(m)) didn’t work.

First, incentive schemes frame social context in a fashion that encourages people to conclude purely selfish behaviour is both appropriate and expected. As a result, pay-for-performance rules “crowd out” concern for others’ welfare and for ethical rules, making the assumption of selfish opportunism a self-fulfilling prophecy.

Second, the possibility of reaping large personal rewards from incentive schemes tempts people to cut ethical and legal corners, and for a variety of reasons, once an individual succumbs to temptation, future lapses become more likely.  The result can be a downward spiral into opportunistic and unlawful behaviour.

Third, industries and firms that emphasize incentive pay tend to attract individuals who, even if they are not « psychopathic », nevertheless are more inclined to selfish behaviour than the average.

It isn’t easy, however, to find companies that specifically state that the compensation of their executives is tied to more than financial performance. PepsiCo, for example, has established Performance with Purpose, a global initiative that makes an effort to deliver sustainable growth by investing in a healthier future for people and our planet. However, the company is cautious about linking executive compensation to the results of this program.

Aron Cramer, President and CEO of BSR, a CSR consulting firm that works with a global network of nearly 300 member companies, believes that financial performance is inevitably linked to social and environmental performance.

Cramer’s emphasis on rewards rather than incentives is consistent with Professor Stout’s point of view. “We should set financial compensation ex post, on the basis of the employers’ subjective satisfaction with the employees’ performance,” writes Stout.

 

Ironically, the new imperative for corporations to be socially responsible could be jeopardized by attempts to tie executive compensation more closely to corporate responsibility through pay for performance incentives. »

 

This article is an extract from: Can Say On Pay Increase Social Responsibility?

Read more: Executive compensation: Shareholders have their say

Is executive compensation fair or flawed?

Say-on-pay voting process ‘highly successful tool’, according to survey of institutional investors

Why not set up board’s police?

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Imagine a new law enforcement bureau is formed to investigate and bring to justice the perpetrators of crimes on Nonprofits’ Boards?

 This elite force, known as The Board Police, works mostly undercover, passing themselves off as ordinary citizens serving on unsuspecting boards looking to identify boards or individual board members guilty of governance crimes or misdemeanours.

Here are the top crimes we want you to be on the lookout for!

Loitering - You know what it means to loiter, it’s to stand idly about or linger aimlessly. It is reported that a high percentage of nonprofits’ board members are accused of this crime!

Impersonating a board officer - In many meetings, you may have difficulty spotting the board officers.

Dereliction of Duty - This one may require some detective work as the most flagrant violators rarely show up at meetings.

Þ    Be careful: However, exercise care here, as taking too much interest may certainly out you as an undercover operative!

Harassment – includes any kind of behaviour that is intended to annoy, disturb, alarm, torment, upset, or terrorize another.

Disorderly conduct - Reports exist of instances where a few board members get so worked up that they become verbally abusive and begin shouting at others in the room.

Misappropriation of focus – We know you’re familiar with misappropriation of funds — which itself is a serious crime. However, misappropriation of focus is also serious, but often undetected.

Conspiracy - You may not witness this at first as it takes time to earn the trust of the conspirators and be taken into their confidence. Conspiracy occurs when two or more people get together to plot and plan a course of action.

Þ    You’ll know you’re in when you get invited to the “special meeting” of the select board members.

Obstruction of governance – any act or action that distracts the board from having substantive discussions or decisions about important issues or policies to move the organization forward in a strategic manner.

Þ    They are all ploys to prevent real governance from occurring.

 

We need you to be diligent in your work!

This article is an extract from: Crimes and Misdemeanours of Nonprofits Boards