On the board's agenda
Top of mind topics for board members
The Center for Board Effectiveness is pleased to present On the board’s agenda, a bi-monthly publication focused on topics that are top of mind for board members.
- August 2017
- July 2017
- June 2017
- March 2017
- February 2017
- January 2017
- November 2016
- October 2016
- September 2016
- August 2016
- May 2016
- March 2016
- January 2016
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- Related topics
Is it time to review your board of director compensation program?
Board compensation is on investors' radar. Unlike compensation for executives, non-employee director compensation is not subject to independent review. While shareholders must approve equity plans in which non-employee directors may participate, and while those plans frequently include limitations on individual equity grants or aggregate pay levels, shareholders are not required to approve the director compensation program as a whole. As a result, non-employee director compensation programs that result in high levels of pay can be a lightning rod for proxy advisory firm criticism, shareholder litigation, negative media attention, and more.
Cyber risk in the boardroom—Accelerating from acceptance to action
Cyber risk is a top-level business risk that boards may find challenging to oversee and difficult to address. By using a maturity mode for board stewardship of cyber risk and understanding the actions available at each level of maturity, boards can accelerate their transition from awareness to meaningful oversight.
The 2018 boardroom agenda—Dealing with challenges old and new
Regardless of size, industry and other characteristics, companies frequently face a constant stream of challenges. These can include perennial challenges that require ongoing or periodic attention, as well as new challenges that seem to arise regularly. Developments in 2017 demonstrate the range and depth of the challenges faced by boards. Perennial challenges include strategy, risk, compensation, shareholder engagement, and regulatory uncertainty; evolving challenges include board composition, social responsibility, technology risk, culture risk, and the combination of innovation and disruption. It is likely that some, if not all, of these items could be on the board’s agenda in 2018.
Board oversight of algorithmic risk
In recent years, the role of the board has grown to encompass a plethora of technology-related risks and challenges. Although directors have long had oversight responsibility for risk, that responsibility now covers a variety of emerging technology risks. One area of technology risk that has not received much attention to date is algorithmic risk. This issue of On the board's agenda is to help board members understand algorithmic risk and provide tools for overseeing and addressing it.
Winning with digital—What boards need to know about digital transformation
Digital technologies and related business innovations are permeating everything around us—introducing new cultures, changing society, reshaping the competitive landscape, raising customer expectations, disrupting established business models, blurring the lines between industries, and creating unprecedented challenges—and opportunities—for companies everywhere. In light of this, digital transformation is now one of the most important strategic issues on the board’s agenda.
Audit committee disclosure in proxy statements—2017 trends
Over the past several years, investors and other governance groups have sought expanded disclosures on how audit committees execute their duties. The SEC has not yet changed audit committee disclosure requirements in response to these efforts, and there is no indication that rule changes are likely any time soon. However, Deloitte’s analysis of the 2017 proxies of S&P 100 companies indicates that over the past several years companies have generally increased voluntary disclosures about the role and activities of audit committees.
Many mergers and acquisitions, even promising ones, can fall short of delivering anticipated results. And shareholders often rarely pause to litigate. The potential consequences of M&A activity loom large to companies and to their boards. It is commonly in the board’s interest to emphasize the importance of, and to oversee, a well-thought out M&A plan, including the often-overlooked post-merger integration.
Managing brand risk in an age of social media
In today’s transparent, always-on world, control of brand messaging has shifted from organizations into the hands of increasingly connected consumers. With the touch of a key, consumers have the power to share information about companies instantly on social channels and significantly shape brand perception.
The role of the board in an age of exponential change
In a time of exponential change, both risk and opportunity abound. To survive and thrive, companies need to recognize the opportunities at hand and take deliberate action. Board members have a unique role to play in guiding transformation, challenging the basic assumptions of an organization, and helping foster a positive culture of exploration and experimentation to keep the business evolving as its environment changes.
Assessing risk in incentive compensation plans
While incentives can be powerful tools to properly align employees with the achievement of the company’s objectives, boards of directors should consider whether there is a process in place to identify and mitigate the potential risks of incentive programs. Risk assessments need to be conducted annually, comprehensively, and holistically.
Current trends in audit committee reporting
For the past several years, various governance groups and investors have encouraged audit committees to disclose more information on how they execute their duties. Deloitte’s latest proxy statement study confirms that voluntary disclosure is increasing at a slow and steady pace. While it is not necessary, or possible, to disclose everything an audit committee does each year in fulfilling its duties, providing additional insight into the structure and key activities of the audit committee can help increase investor confidence in both the audit committee and the company as a whole.
The chief legal officer and the board: Dealing with challenges in a challenging role
Being a CLO can pose challenges, particularly those that arise from the complex relationships among the CLO, the board of directors, and the CEO and other members of the management team. Many of the challenges associated with being a CLO stem from the fact that the CLO has two roles that can conflict with each other—an attorney and a member of management.
Preparing for the new CEO pay ratio disclosure requirement
In 2015, the Securities and Exchange Commission (SEC) issued a final rule requiring disclosure of the ratio of chief executive officer (CEO) pay to that of the median employee under Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The disclosure is required for the first fiscal year beginning on or after January 1, 2017, and as such, calendar-year companies will have to provide the ratio beginning with their 2018 annual proxy statement, based on 2017 compensation data. Despite this timeline, it is advisable that management consider providing the Compensation Committee with a preliminary assessment early in 2017, allowing the Committee sufficient time to understand the ratio and the underlying calculation, giving management time to develop its communication strategy (both internal and external).
Framing strategic risk in the boardroom
Accelerated economic cycles. Exponential technological advances. Increased competition. Changing customer demographics and preferences. Increased shareholder activism. New industry and regulatory requirements. Geopolitical uncertainty. The world is rapidly changing at an accelerating pace and these factors, along with many more, pose challenges to effective strategic risk thinking.
The results are in—A review of the 2016 proxy season
Examine the trends that have emerged from shareholder meetings held in the first half of 2016. While some companies hold their annual meetings during the second half of the year, it is likely that the trends identified from the first half of the year represent what we can expect in the future.
M&A: The intersection of due diligence and governance
Merger and acquisition (M&A) activity can be an important component—even a critical one—for a company’s growth strategy. A successful acquisition can help a company make a quantum leap in terms of market presence, filling in gaps in a company's product or service portfolio, and improving profitability and other performance metrics. On the other hand, transactions that don’t ultimately perform as expected, including not providing positive returns or resulting in large negative surprises, can cause serious damage to companies and their boards of directors, ranging from litigation to the ouster of managements and even board members.
Board effectiveness: A focus on behavior
Shareholders will be voting in many director elections during the 2016 proxy season, doubtlessly including some proxy contests as well as "routine" elections in which the only candidates are those nominated by the companies. Regardless of the nature of these 2016 elections, companies, investors, and regulators collectively recognize the importance of having an effective board of directors, and ever-greater emphasis is being placed on board structure, board composition, and board refreshment by all three groups. Board composition is one of the most critical areas of focus for the board, and if done properly, may be a strategic differentiator. Having the right mix of people who bring diverse perspectives, business and professional experiences, and skills, can provide a foundation for robust dialogue, informed advice, and input in the boardroom.
Board composition: Greater than the sum of its parts
Boards of directors have been around for a long time. So have annual meetings, when shareholders are asked to elect directors, and proxy statements, where information about the candidates’ backgrounds and qualifications is provided. Thus, it might be somewhat surprising that board composition has become a very hot topic with investors, regulators, and others in the governance community—as well as in boardrooms.
On the other hand, ongoing regulatory changes, pressure from shareholders and investors, and business model threats are pressuring many companies to examine their board composition. And board composition is extremely important, arguably one of the most critical
Board composition is made up of many parts. Skills and qualifications, independence, diversity, tenure, and refreshment will be outlined as topics for the 2016 board agenda.