April 18, 2007

Fewer CEOs as Directors: A Disaster or a Blessing?

This recent Jim Drury study (posted in our “Board Composition” Practice Area) found that there has been a 53% decline in outside board service by Fortune 500 CEOs over the last 16 years – and that these CEOs have reduced the average number of outside boards they sit on from 2.2 boards to 1.4 boards, representing a decline of 36%. True that the study’s time period is a bit long in the tooth, but it reflects a clear recent trend of CEOs cutting back on outside board service. “Overboarding” is not nearly the hot governance issue it was just two years ago.

The study’s results were analyzed in a Chicago Tribune article last month. Although fewer CEOs on boards can justifiably be viewed as a “brain drain” as CEOs often are among the best at formulating strategy (and best at understanding and evaluating a CEO’s job performance), I also think the views expressed by Nell Minow in the article hold some water. Nell believes that these statistics are good news because CEOs often are too busy to provide the oversight and guidance needed (and can be overly deferential to a fellow CEO, particularly when it comes to executive compensation).

I doubt this trend will ever reverse itself in the wake of recent “governance enlightenment.” I simply can’t envision any CEO having sufficent time available to serve on more than one outside board and meet their director obligations adequately, given the hundreds of hours necessary each year to attend and prepare for board meetings, committee meetings, etc.

The Inconvenient Location for an Annual Shareholders’ Meeting

As most proxy season observers know, one of the oldest tricks in the book for defusing angry shareholders is to hold the annual stockholders’ meeting in some far-flung location, as noted in this recent WSJ article. I’ve blogged about this topic once in a blue moon (or left comments on other blogs).

With the growing importance of annual shareholder meetings – due to the majority vote movement and the potential elimination of broker non-votes in director elections – I believe it’s simply too risky from an investor relation’s perspective for any company to hold their meeting at an inconvenient location. It’s only a matter of time before some bright journalist starts an annual “Top Ten Inconvenient Locations” list. Trust me, no one wants to experience the heat that Home Depot did for its various annual meeting snafus last year…

By the way, even though it’s a few years old, this webcast transcript regarding “Conduct of the Annual Meeting” is still a gem, loaded with practical guidance.

TIAA-CREF’s Policy Changes

One of the first institutional investors to draft model governance guidelines, TIAA-CREF, recently released the 5th edition of its closely followed “Policy Statement on Corporate Governance.” This policy statement provides TIAA-CREF’s governance philosophy and strategic priorities, as well as calls for majority voting for directors, expanding the definition for director independence beyond those mandated by the exchange standards, shareholder access and enhanced executive compensation disclosure.

I recently caught up with John Wilcox, Senior Vice President and Head of Corporate Governance of TIAA-CREF, to learn more about the policy changes in this podcast, during which John covers:

– Why did TIAA-CREF revise its governance policies at this time?
– What changes were made in the executive compensation area?
– Where does TIAA-CREF come out on the majority vote and shareholder access issues?
– Where any other significant changes made?