Are corporate boards awash in faux gatekeepers? This article, Board Gatekeepers, from a law professor at the University of Wisconsin, begins with a catalogue of infamous board failures to act as effective monitors of company conduct—including, in one case, a nascent scandal that continued for 11 years and another the subject of a successful Caremark claim. As framed by the author, the board plays a critical role, serving on behalf of the shareholders—and now perhaps also other stakeholders—to “ensure that the executive team is acting in the company’s best long-term interests,” in particular, “to ‘set up guardrails for the CEO’—that is, protect shareholders (and stakeholders) from corporate malfeasance.” Given the “structural power” that CEOs typically hold in the boardroom—such as through control over information and renominations—courts, regulators and investors often look to independent directors to act as a check on that power. Investors and regulators have also sought to address this power imbalance within the boardroom by introducing two key independent leadership roles—an independent board chair and a lead independent director. One or both of these “board gatekeepers” are now regular fixtures on boards, intended to add a “second layer of protection to the independence of the board” and signal and ensure “the existence of proper monitoring of management by the board.” The proliferation of these board gatekeepers, the author contends, “should have cemented board independence in what one can term its functional form: the ability to serve the crucial gatekeeping role that has been demanded of it.” But the inventory of recent scandals calls that conclusion into question. Are board gatekeepers really just window dressing?
Although an audit firm might not be the first place you’d look for advice on board behavioral psychology, here’s an exception: a really interesting article from PwC about board dynamics and psychological biases that can impede boards from optimal performance and decision-making. The article identifies four common biases—authority bias, groupthink, status quo bias and confirmation bias—and provides clues for recognizing when your board might be afflicted with any of these problems, along with tips to address them. Well worth a read!
Here is the lede from this WSJ article: “A stubborn paradox reigns across U.S. boardrooms: Companies are appointing more women to board seats than ever, yet the overall share of female directors is barely budging.” In comments to the WSJ, the managing director for corporate governance research at the Conference Board indicated that, in “the last two decades, there’s been a sweeping revolution in the field of corporate governance…. Yet if you look at the composition of the board, at its core, it remains the same at many public companies and quite resistant to change.’” Why is that? It’s not, as some have suggested, a lack of qualified women board candidates. Rather, according to the Conference Board, it’s that “average director tenure continues to be quite extensive (at 10 years or longer), board seats rarely become vacant and, when a spot is available, it is often taken by a seasoned director rather than a newcomer with no prior board experience.”
The lede from the WSJ is that “for the first time,” BlackRock (reportedly the largest asset management firm with $6.3 trillion under management) is “stating publicly that companies in which it invests should have at least two female directors.” According to the WSJ, the new disclosure, just one component of BlackRock’s recently posted Proxy Voting Guidelines for U.S. Securities (more on the guidelines to come in a later post), “represents a small but significant shift for one of the largest shareholders of American companies.” Board diversity has been a consistent issue for several large institutional investors in recent years but without much specificity, and reportedly, BlackRock has, in the past, quietly encouraged companies to have a minimum of two women on their boards. Now, BlackRock is trumpeting that standard publicly.
From here on out, I guess you can count on seeing your directors described as “lap dogs” in some shareholder proposals or, more accurately, nascent or possible lap dogs. (That helps, doesn’t it?) That’s because, in three separate shareholder proposals submitted to The Boeing Company by three beneficial owners (all working through John Chevedden), the SEC refused to allow the company to exclude portions of the supporting statements that suggested that some of the company’s directors might be “lap dogs.”
by Cydney Posner With a number of institutional investors and proxy advisory firms advocating that public companies adopt “board refreshment” policies, much energy has been devoted to studying the impact of director tenure in the context of corporate governance. In “Do Directors Have a Use-By Date? Examining the Impact of […]
by Cydney Posner According to this article in the WSJ, a forthcoming survey from accounting and consulting firm EisnerAmper LLP shows that the overwhelming majority of directors favor age and term limits, just not for themselves.