Directors Face a Changed World

Directors Face a Changed WorldAs Ira Millstein told directors on a recent NACD/Weil webinar on the Dodd-Frank Act, they must align with the owners of the company, the shareholders. He advised directors “not to make believe” or “live in a dream world” because governance power has already shifted to shareholders and it’s not going to be the way it was ever again.

The context for this change is the “new normal”, a term coined by economists that characterizes an environment of high unemployment, slow growth, consumer distress, overly careful investors and long-term owners who will seek growth where they can find it. This is a challenging environment in which to serve as a director.

Millstein sees the changes wrought by the Dodd-Frank Act as tectonic, making Sarbanes-Oxley look like child’s play.

But directors shouldn’t wait until the final rules of the Act are written.  Rather, they should engage with their shareholders now.  He cited the fulsome letter that the Prudential board wrote in the proxy, introducing their thoughts on compensation. While Millstein believes directors should know what their shareholders think, he doesn’t believe that they have to agree with them.  “Explain why the board has a different view.  That seems to me perfectly rational.”

He noted that there was a huge amount to do in communication with shareholders and boards should get ready to engage. Now.

How Should Boards Adapt to the Ban on Broker Voting?

Ralph Ward of Boardroom Insider asked how boards should handle the ban on broker voting.

Naturally, boards will want to analyze the broker element of the proxy voting for their company. Yet any outreach to shareholders by the board should begin with a board-shareholder communication plan. Continue reading

Boards Can Combat Voicelessness and Helplessness

What has fueled the activism of shareholders in the past 25 years? We know that periods of flat or negative growth, flat or negative profitability and low stock growth can drive  traditionally passive institutional shareholders to activism.  (In fact, according to Shareholder Activism Insight, the likelihood is 79 percent.)

But long-time participants and observers in the corporate governance community think it’s much more basic: it’s a sense of voicelessness and helplessness felt by major institutional investors. These shareholders believe they suffer from lack of access—to the directors, to information. This  “under-representation” feeds some activists’ demands to be recognized as owners, whether it’s advocating for “say on pay”, majority voting and in even a battle for board seats. Continue reading