Preparing for proxy season: The changing face of directors and the challenges they face

A recent discussion focused on key issues of corporate governance as it relates to financial institutions

As many public companies ready themselves for their annual shareholders’ meetings for the upcoming proxy season, boards of directors are evaluating many heavy governance issues of importance to their respective firms.

In the wake of the 2008 financial crisis, corporate governance has taken on a much more powerful meaning, issues which are of particular importance to financial institutions.

Patrick McGurn, special counsel to ISS, recently discussed some of the key issues as they relate to proxy season, including the changing face of director liabilities, avoiding enforcement actions against directors, and directors and officers insurance considerations.

“Prior to 2007 and 2008, governance was merely an after thought. Banks were in a different category when it came to governance practices. Things evolved over time,” McGurn said during a webinar held by Winston & Strawn. “Today, directors are more accountable, elections are more meaningful, and there’s greater independence of board chairs and rising support for pay practices.”

Additionally, there is “greater emphasis on how competent directors are at financial institutions,” McGurn said.

The 90-minute discussion, which was moderated by Christine Edwards and Jerry Loeser, focused on the questions most asked by directors. One of the key issues board face is whether to separate the roles of chairman and CEO.

“Our policy is to make sure there is a counterbalance,” McGurn said.

Also becoming of great important is the lead director position. “A key ingredient is the presence of a very strong lead director position,” McGurn added.

While some shareholders believe that directors should have strict term limits, McGurn believes that decision-making becomes more crystallized over a longer tenure.

“Judgment ages like wine, it gets better with each passing year,” he said.

As many of today’s CEOs and other senior-level executives are aging into their 60s, succession planning is another area boards need to focus on in the New Year.

“It is setting things up for disaster unless boards are preparing for succession planning.... Tenure is going to be a much bigger discussion in the boardroom,” McGurn said.

The session also focused on new compensation committee advisor independence rules, an update on the various forms of litigation being brought in connection with proxy statement disclosure, CEO pay ratio disclosure rules, and the uptick in shareholder proposals on executive compensation.

Winston’s third part of the series, “How Do Directors Prepare for the Worst?” will be held on Jan. 15.

As proxy battles become more commonplace in corporate America, the Securities and Exchange Commission (SEC) recently deliberated whether proxy advisers have grown so powerful in corporate elections that regulators need to impose rules to make their business more transparent.

SEC Commissioner Daniel Gallagher has warned that the SEC had created a regulatory environment that has allowed investment advisers to adopt a mindset in which they “blindly vote” in line with proxy adviser recommendations, Reuters reported.

 

For other corporate governance stories, check out InsideCounsel’s coverage below:

SEC weighs influence of proxy advisers

Regulatory: Why the SEC’s proposed pay-ratio rule will increase compliance costs

Preparing for conflict in the boardroom: Thoughts and strategies for general counsel

More CEOs receiving ‘golden hellos’ upon company arrival

Directors, investors in alignment on executive compensation, board performance

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Erin E. Harrison

Erin E. Harrison is the Editor in Chief of InsideCounsel magazine. Harrison’s professional background includes extensive expertise in both print and online media, highlighted by...

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