Tag Archives: board book

CEO turnover and succession planning

Posted on by

HandShake

Selecting a new CEO is one of the board’s most important responsibilities and represents a critical moment in a company’s history. A smooth transition is necessary to maintain the confidence of stakeholders. This is why a well defined succession plan is needed.

The annual study, by Booz & Company, on CEO turnover among the largest 2 500 public companies revealed that in 2012, 15% of CEOs left office. This is the second-highest rate of CEO turnover since 2000. With this rate rising, companies are becoming more proactive about the CEO succession process. The amount of planned successions reached 72% in 2012, the highest in the 13 years history of the study and forced turnovers represented 19%, their second-lowest share ever. This indicates that companies take a more thoughtful approach to transitions and to ensure they put in place new leaders who will best serve the company for years to come. These new CEOs are for the most part familiar faces. Indeed, 71% were people already working in the company when they became CEO. This represents a significant decrease from previous years with an average share of insiders of 80%.

Interestingly, in planned successions, the share of insiders has dropped from an average of 82% between 2009 and 2011 to 70% in 2012. With careful and thoughtful plans, it seems that companies feel stable enough to take a bit of a risk on an unknown leader. Moreover, these risks were reduced since 56% of the outsiders came from the same industry as their new company.

Also, 81% of the new CEOs were from the same country as the company’s headquarters and 95% were men. The proportion of women reaching a CEO position has risen from an average of 3 % over the last 3 years to 5% in 2012, but still remains a tiny share.

Regarding the apprenticeship model, (the outgoing CEO remains or becomes chairman of the board and can “apprentice” the incoming CEO), this happened in 29% of turnovers in 2012. In this case, the share of an insider named CEO reached 92%. Companies in Brazil, Russia, and India had the highest increase in turnover rates between 2007 and 2012 (15.4% to 23.9%) and the highest increase in share of planned turnovers (8.8% to 15.5%). The telecom and utilities industries had the highest turnover rates in 2012 (both at 24%), closely followed by energy (21%). The lowest turnover rate was in the consumer discretionary industry with 9%.

> Read the full study by Booz & Company

Everyday Governance: “in-camera sessions”

When a board decides to discuss private matters like management, employee negotiations, law enforcement matters, reviewing the functioning of the Board… They have an “in-camera session”, this refers to a closed meeting of the board where only board members and possibly specifically chosen others may attend. All non board members and management such as the CEO, are “recused”, this means removed from participation in a decision on a matter because of a conflict of interest or a position.

This allows the board to discuss freely about some topics which could be difficult if the people concerned were present, especially when it concerns their performance. This provides an opportunity for the board to share their views, discuss results and develop recommendations for the future of the company. Except for the absence of some individuals, the session unfolds like an open session. There is an agenda and the same decision making process.

Note that in-camera sessions should be held regularly, for instance 15 minutes at the end of each board meeting; otherwise it may put a lot of stress on the management since they will suspect that a special request for a private session is to talk about them.

10 important topics for board of directors in 2013

Posted on by

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.

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.

 

What should Frank do?

Posted on by

Here, this is a good study case about a current problematic on a boardroom… a Powerful CEO and useless board. Published by Julie Garland McLellan in www.mclellan.com.au

The case studies are based upon real life; they focus on complex and challenging boardroom issues which can be resolved in a variety of ways. There is often no single ‘correct’ answer; just an answer that is more likely to work given the circumstances and personalities of the case.

 

Although these are real cases the names and some circumstances have been altered to ensure anonymity. Each potential solution to the case study has different pros and cons for the individuals and companies concerned. Every month this newsletter presents an issue and several responses.

 

Consider: Which response would you choose and why?

 

Frank has been recently elected to a board position with a NFP, which is quite large with 500 employees and $70m in assets. The board has a strong CEO, who seems to do what she wants. In the past the board was relatively weak and the CEO needed to use her expertise without relying on theirs. The board could have been described as ‘light weight’ in regard to governance and corporate knowledge. One board member, for example, is a microbiologist with great critical thinking but no understanding of how to run a company. This led to a culture where the CEO would respond to board queries by asserting that the matter of interest was “an operational issue” and for board members to rationalise her response by accepting that the CEO “has it under control”.

 

The board recognised its weakness and sought out some new company directors with governance training and corporate understanding; hence Frank’s invitation to stand for election. Frank is encountering opposition in asking critical questions of the CEO and trying to probe for information, because the board says the business is under the CEO’s control.

 

He is concerned the board has a weak Chairman who does not support the board in taking effective control or oversight. He is seriously considering if he should stay and try to improve matters slowly or if he should leave as he truly feels the board is dangerously negligent. However, he likes a challenge, believes in the objectives of the NFP, and feels that his fellow directors are honest and well intentioned.

 

What should Frank do?

 

Here, you have three different expert answers: click here

What is the purpose of a board?

Posted on by

Board_table

“The purpose of the board is to do governance, the process carried out by a group of people to ensure the health and effectiveness of the corporation.

 

It doesn’t matter what type or size of organization. It doesn’t matter if you’re young or emerging or highly sophisticated. The board does governance at its meetings. In fact, the only time that governance happens is when the board convenes at its meetings.

 

What are the elements of governance, the processes of ensuring the health and effectiveness of the corporation? These are things like defining values, mission, vision, and overall direction – and adhering to same. These are things like defining the rules of governance, e.g., bylaws, policies, recruitment and election of board members. Defining the performance expectations of board members. Hiring, appraising, and setting compensation for the executive director. So what do you talk about at your board meetings? (…)

 

The board may talk about information provided by staff. And it’s up to the staff to put together the right information, to explain trends and their potential implications. (…)

 

Board meetings require intentional design and good facilitation. Board meetings should be a gathering of wise and experienced people who talk about important things. Sometimes the board makes decisions. Sometimes the board learns and explores through conversation, preparing to make decisions in the future. Definitely, board members ask strategic questions, even cage-rattling questions. Board members probe to ensure that they are drawing on information that is accurate, insightful, and useful. (…)

 

How about these questions for periodic board meeting agendas?

1.            How is our adaptive capacity?

2.            How are we foreseeing the unforeseeable?

3.            How effectively do we recognize, anticipate, prepare for and respond to different       situations?

4.            How effectively do we anticipate unintended consequences?

5.            What might have once been inconceivable – but now seems as if it might become       inevitable?

6.            What is of concern that, if we don’t address it, can become alarming?”

 

This article is extract from: What Do You Talk about at Your Board Meetings?

E-Governance: Boards of directors now turn to board portal to work smarter, safer and… greener !

Posted on by 

Published in 20/20, the Canadian Manufacturers and Exporters (CME) magazine.

A recent Deloitte study indicates technology is getting more and more popular in boardrooms. For a long time, directors were resistant to changes

If, nowadays, laptops and tablets are commonly used by directors in many companies, the major change is really the emergence of board portals. It’s more than a “tech trend’’ — it’s about governance.

Among the tough new regulations that have appeared in recent years, the Sarbanes-Oxley regulation started a new era for companies (public or private), governmental agencies, and even non-profit organizations. Their directors now all face the same challenge and have to perform their duties in a productive and safe environment. Forget time and distance, they have to be available and up-to-date with the organization’s documentation to make accurate decisions when needed, and sometimes — most of the time — fast. They are advisors and also decision-makers.

To address this new paradigm, board portals have ­recently appeared in the boardrooms of companies among the Fortune 500. A few American competitors actually share their same “sweet-pot’’ — the international financial centers like New York, London and Singapore — but ignore the balance of the market.

Leading Boards, a Canadian company based in Montreal, provides a powerful, easy-to-use and secure board portal to meet the needs of an untapped market in Canada and abroad, especially in emerging countries. Leading Boards realized that not only the Fortune 500 but also medium-sized companies and junior public companies were in need of tools like board portals to better equip their boards and committees.

Leading Boards designed a priced multi-language unique board portal to address that market. And the demand is growing with companies always looking to be one step ahead.

“It’s more an investment than a cost,” says CEO Jean-Marc Felio. “With the introduction of the iPad version, directors are browsing in archives with the keyword search tool. They are a lot more efficient for the benefit of all.”

Argex Titanium has recently decided to have their audit committee and board of directors work with a board portal, and chose Leading Boards.

“At Argex, we have directors and committee members in different cities and even different countries,” explains Robert Guilbault, chairman of Argex Titanium. “Leading Boards helps them work, collaborate, and prepare their meetings wherever they are, anytime they want. It’s easy-to-use, available on iPad, and bilingual. Leading Boards was a natural answer to our needs, and comes with great training and support service.’’

The board portal also makes life easier to newly ­appointed directors who can, at their leisure, have access to the “memory” of the company and become familiar with past issues, decisions, and documents, and be well prepared to take decisions on current situations.

Last but not least, Leading Boards brings a “paperless’’ solution to boards and committees which helps control their financial impact as well as their ecological impact. A green ­solution turns out to be an investment that will carry its own returns.

After a year of commercialization and several hundred users later, Leading Boards entered into a partnership with Canadian Manufacturers & Exporters (CME) and now equips the CME board of directors and its audit committee as well.

“This partnership enables CME to provide our members ­preferred prices with Canada’s best software for the ­management of boards and committees,” says CME President & CEO, Jayson Myers.

To learn more about Leading Boards or to ask for a live demo, call 1-855-404 5377
or visit its website: www.leadingboards.com

Source: 2020magazine

How Build Your Advisory Board

Posted on by

In every business, there are some areas where they could use some strategic guidance and assembling an advisory board is a great way to fill in some of those holes.

Stephanie Burns is the founder and co-owner of Chic CEO wrote an article about elements you should consider when you choose your Advisory Board and try to answer to the question: How Build Your Advisory Board?

Here, you are a summary of the 5 elements that you should consider when you choose your Advisory Board.

 

1. Compensation

The most common way to get an advisor on board is to offer a percentage of equity. That percentage can be anywhere from .5% – 2% typically, but it’s entirely up to you. If you have an advisor that is extremely involved in your business, consider giving more – it’s worth it.

 

2. Credibility

Bringing on a well-respected advisor can establish credibility much faster and easier than you building it on your own. Getting this instant clout helps you attract key talent, investors, partners and customers.

 

3. Connection

Obviously, you want them to be synergistic to your mission and purpose, but their sole role could be to introduce you to top investors, key clients, new markets and customers. CEOs, celebrities and well-respected founders can help you spread the word, make introductions and share experience.

 

4. Establish Your Needs

Get crystal clear on your short and long term goals and then be honest with a potential advisor about what you need to get there. Before you bring on an advisor, be honest with them about where your strengths and weaknesses lie and how they can help. Advisors know that your business isn’t perfect, so be as honest as you can so they can be effective.

5. Involvement

Before approaching an advisor, establish levels of involvement and assign an equity percentage. The more they want to be involved, the more equity you exchange. Some advisors are too busy to really dig in, but one connection can be worth thousands even millions to you.  Create a tiered involvement schedule and assign an appropriate equity percentage for each tier. Give them some options of how much they can be involved and let them choose which tier they can handle.

 

This article is extract from: Build Your Advisory Board by Stephanie Burns

Five principles for getting the most out of a board assessment

Posted on by

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

Ten things for boards of directors to avoid

Posted on by

Here we will see ten things that a boards of directors can avoid to improve their performance.

 

 1. Avoid presentation overload

Presentations should not dominate board meetings. If your board meetings consist of a scripted agenda packed with one presentation after another, there may not be sufficient time for substantive discussions. The majority of board meetings should be focused on candid dialogue about the critical strategic issues facing the company. Management should feel confident that the board will read these pre-meeting materials, and the board must commit an adequate amount of time in advance of the meeting to do so. Board portal can help administrators to be prepared before the meeting.

2. Avoid understating the importance of compliance

There is no room for a culture of complacency when it comes to compliance with laws and regulations.

3. Avoid postponing the CEO succession discussion

CEO succession planning is one of the primary roles of the board. During this time of rebuilding and prior to the implementation of new regulations, boards should assess where time is being spent and perhaps redirect focus on succession.

It is important to note that the succession planning process is continual and doesn’t end when a new CEO is selected.

4. Avoid the trap of homogeneity

The topic of board composition and having the “right” people on the board continues to receive much attention. The board needs to assess whether this new mix translates into a positive and productive board dynamic. Boards should take a closer look at the expertise, experience and other qualities of each member to ensure the board that can provide the right expertise. Diversity of thought provides the perspectives needed to effectively address critical topics, which can contribute to greater productivity and ultimately a stronger board.

5. Avoid excessive short-term focus

Recent history offers many examples of modern corporate entities managing to reach short-term results at the expense of long-term prosperity. The board can demonstrate its leadership by being the voice of reason and openly discussing the sustainability of strategic initiatives. This can result in a well-governed company with a greater chance of achieving long-term, sustainable success.

6. Avoid approvals if you don’t understand the issue

Complex issues can have significant implications for the survival of an organization. It is up to directors to make sure that they understand issues that can alter the future of an enterprise before a vote is taken. If you don’t adequately understand the issue, ask for more education from management or external experts. True consensus results from a thorough debate and airing of the issues before the board, resulting in a more informed vote by directors.

7. Avoid discounting the value of experience

As a director, it is important to recognize the value that your experience can bring to the issues at hand. It is bringing together the diverse skills and experiences of each director to lead the company through challenges. Directors can provide greater insight by being ‘situationally aware’ when evaluating events and courses of action to take.

8. Avoid stepping over the line into management’s role

A board that makes management decisions will find it difficult to hold the CEO accountable for the outcome. A director’s role is to oversee the efforts of management rather than stepping into management’s shoes. Directors must make a concentrated effort to ensure that they have clarity on management’s role, which is to operate the company.

9. Avoid ignoring shareholders

A company’s shareholders are among the most important and potentially vocal constituents of the enterprise. Concerns can sometimes be addressed by providing shareholders an audience with the board to air their concerns.

10. Avoid a bias to risk aversion

With the recent focus on excessive risk-taking and its impact on the credit crisis, there is concern that companies and boards may become risk-averse.

 

This article is extract from: Ten things for boards of directors to avoid by Deloitte