The excerpts from the two blogs below best describe this year-late list of “all known conflict mineral processing facilities worldwide” from the Commerce Department. The list is required by Dodd-Frank’s Section 1502(d)(3)(C) – but it does “not indicate whether a specific facility processes minerals that are used to finance conflict in the Democratic Republic of the Congo or an adjoining country. We do not have the ability to distinguish such facilities.”
But the provision of the Dodd-Frank Act that requires this list is entitled “Report on Private Sector Auditing” and it looks like Commerce hasn’t begun to tackle that responsibility. Annually, beginning 30 months after passage of the Dodd-Frank Act, Commerce is required to submit a report to Congressional subcommittees that includes: “An assessment of the accuracy of the independent private sector audits and other due diligence processes described under the conflict minerals provisions. Recommendations for the processes used to carry out such audits, including ways to (i) improve the accuracy of such audits and (ii) establish standards of best practices.”
I know only one or two or a very few issuers submitted private sector audits with the first round of required conflict minerals filing. Perhaps Commerce has concluded it’s not worth the effort to make the evaluations or maybe the evaluation is underway. Since the standards for the audits have been published, Commerce certainty could provide recommendations as to the processes used to carry out the audits and establish standards of best practices.
The disclosure by Commerce may be helpful for issuers in a couple of ways. The list of smelters and refiners produced by Commerce may actually be useful for issuers in their conflict minerals compliance efforts because it compares and reconciles information about smelters and refiners from a number of sources. Moreover, the admission of the challenges faced by Commerce (with all of its resources) highlights and legitimizes the difficulty that issuers have faced in trying to comply with the conflict minerals rules. We can only hope that the acknowledgement by Commerce of its inability to distinguish which facilities are used to finance conflict in the DRC will encourage the SEC to be a bit indulgent in the conduct of whatever type of review-and-comment process it may undertake for conflict minerals reporting and perhaps lead to some constructive and practical guidance or even revisions of the rules, where necessary.
This blog from FEI Daily provides some cautionary tales about XBRL and software used to find errors…
Last Chance — Our Pair of Popular Executive Pay Conferences
With just two weeks to go, folks are rushing to join their 2000 other colleagues to be part of our “Annual Proxy Disclosure Conference” on September 29th-30th. Registrations for our popular pair of conferences (combined for one price)—in Las Vegas and via video webcast — are strong and for good reason. Act now!
The full agendas for the Conferences are posted — but the panels include:
– Keith Higgins Speaks: The Latest from the SEC
– Top Compensation Consultants: Survivor Edition
– Preparing for Pay Ratio Disclosures: How to Gather the Data
– Pay Ratio: What the Compensation Committee Needs to Do Now
– Case Studies: How to Draft Pay Ratio Disclosures
– Pay Ratio: Pointers from In-House
– Navigating ISS & Glass Lewis
– How to Improve Pay-for-Performance Disclosure
– Peer Group Disclosures: The In-House Perspective
– Creating Effective Clawbacks (and Disclosures)
– Pledging & Hedging Disclosures
– The Executive Summary
– Dealing with the Complexities of Perks
– The Art of Communication
– The Big Kahuna: Your Burning Questions Answered
– The SEC All-Stars
– Hot Topics: 50 Practical Nuggets in 75 Minutes
This recently published Korn Ferry/NACD board leadership survey of the S&P 500 and S&P 400 is particularly noteworthy because it delves into a number of important topics aside from merely identifying leadership structure types and trends.
Survey results include:
Continued trend toward separation of the CEO and board chair roles – which reflects almost equally increases in independent and non-independent chairs
Smaller companies are more likely to separate the CEO/chair roles than larger companies.
Larger companies that separate the roles are more likely to later recombine them.
About 50% of companies changed their leadership structure upon a succession event (i.e., new CEO or chair).
A slight majority of companies experiencing a succession event chose a combined rather than separated structure.
With the exception of founders stepping aside, separating the roles is more likely when an unexpected resignation or crisis (as opposed to a planned succession) triggers the succession event.
Planned successions involving founders are more likely to result in separating rather than combining the roles.
40% of succession events in 2012 included some sort of transition – such as the former CEO/chair remaining as chair for some time period after the new CEO was in place.
Certain industries (some characterized by having more founder-chairs) like IT tend to separate the roles at a much higher rate than other industries.
Based on the findings, the survey reaffirms that there is no “right” board leadership structure; rather, each company needs to determine for itself the most appropriate structure based on its particular facts and circumstances – which evolve over time. See more surveys, memos and other helpful resources in our “Board Leadership” Practice Area.
Enhancing CEO Succession: Directors Mentoring Executives
This recent Heidrick & Struggles article discusses how pairing directors with high-potential internal CEO succession candidates in formal mentoring relationships – well in advance of planned succession events – can reduce risks associated with CEO successsion, and motivate and improve company performance. Mentoring allows directors to gain an in-depth understanding of candidates’ leadership potential – not just past performance, which isn’t sufficient to predict future success.
So-called “soft skills” such as self-awareness and empathy, which are detectable by directors over the course of the mentoring relationship and which most CEO candidates lack, are described as the key differentiators between candidates that can succeed as CEOs vs. those that fail. The article also discusses a form of mentoring program implemented by Frontier Communications (see this 2010 WSJ article), and describes how companies can set up their own program.
This is certainly not the first article to tout the benefits of directors serving as mentors for potential CEO successor candidates. Among others, this report by The Conference Board (discussing the findings of a survey that focused on how well directors know senior executives positioned to succeed to the CEO) recommended that – while CEOs are ultimately responsible for mentoring and developing their direct reports, the board still play an active role by, e.g., serving as informal mentors or advisors, noting:
“It is important for directors to move beyond interacting with executives “when circumstances warrant” (as is commonly reported). Developing true insight into the professional quality and personal character of an executive requires dedicated time and effort.”
Contrary to the recommendation, however, the survey found that only a small percentage (7%) of companies currently assign a director to serve as a mentor for their senior executives.
More on “The Mentor Blog”
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:
– Auditor Engagement Letters: No Company Intervention in Auditor-Directed Work
– PCAOB Roundtable: Mixed Views of Proposed Changes to Auditor’s Report
– Perceived Board Effectiveness Linked to How Board Allocates its Time
– FINRA: Pre-IPO Selling Procedures Need to Be Adequately Supervised
– Board Trends at the S&P 1500
According to this WSJ article, a recent study by GMI Ratings found that – among companies with a market cap of at least $10 billion, those with smaller boards produced substantially better shareholder returns over a 3-year period than companies with the largest boards. According to the reporter, the study isn’t being made publicly available, so it’s difficult to draw conclusions outside the confines of what’s presented there.
However, as noted in a LinkedIn discussion on this topic, other research (for example, see “Higher Market Valuation of Companies with a Small Board of Directors” and “Larger Board Size and Decreasing Firm Value in Small Firms”) has previously identified an association between smaller boards and higher market valuation for companies of all sizes. And those of us who have worked with various boards ranging in size from 7 to 13 or more members can personally speak to the many attributes associated with smaller boards compared to larger ones.
But there are some downsides to smaller boards as well. Here’s an excerpt addressing some of the upsides and downsides of smaller and larger boards from our Board Size checklist posted in our “Board Composition” Practice Area on TheCorporateCounsel.net:
Smaller Board
More opportunities for all directors to actively participate and be engaged in board deliberations
Greater flexibility and ease in scheduling meetings, setting agendas, distributing materials, communicating on impromptu basis
Individual directors more likely to assume responsibility rather than deferring to others – more likely to be a greater sense of ownership & accountability than with a larger board
More likely to accommodate detailed materials & discussions
Easier and less costly for company personnel to manage, coordinate, facilitate
Directors know each other better, increasing likelihood of cohesive board with feeling of common purpose and more productive working relationships
Greater workload burden on individual directors may diminish effectiveness – time commitment required may exceed time available on a per person basis
May have difficulty effectively staffing committees – particularly with continued additional regulatory-imposed responsibilities that increase committee work load & time commitment
More likely lacks diversity of experiences and perspectives characteristic of larger boards
Easier to reach consensus
Meetings tend to be much more informal
Larger Board
Can inhibit effective and equal opportunities for participation by individual directors
Larger boards tend to exhibit less questioning than smaller boards
Can interfere with effective functioning by limiting opportunities for meetings (due to conflicting schedules), necessitating formal procedures for communications, impeding collective input, discussion and consensus, etc.
Can more easily accommodate multiple committees effectively staffed
Conducive to more board work being delegated to committees (thus enabling active participation by individual directors that may be absent at the board level) – as opposed to remaining at full board level
Workload can be better allocated among larger number of directors regardless of committee structure
Can accommodate greater diversity in a traditional – as well as a broader – sense, thus allowing for broader range of viewpoints and ideas, which can lead to more thorough and thoughtful consideration of matters
More likely that few members will consistently dominate discussion while more reserved members fade into the background (consensus more likely achieved via a herd mentality)
At least some individual directors more likely to defer to others – not assume responsibility, accountability
Meetings tend to be much more formal out of necessity
Importantly, as noted in the LinkedIn discussion, even if there is an association between board size and shareholder returns, clearly board size is but one of many factors relevant to company performance – so this new study (and any other study) should be viewed in that context.
Study: Academic Directors Yield Better Corporate Governance & Company Performance
This interesting academic paper, “Professors in the Boardroom and Their Impact on Corporate Governance and Firm Performance,” describes the results of a study about the impact of having academic directors on the board. According to the paper, about 40% of the S&P 1,500 had at least one professor on their boards during 1998 – 2011, and for companies with academics on their boards, over 14% of their outside directors are academics. The findings certainly should make boards take a closer look at the academic director candidate pool as one of many great sources for quality candidates.
Noteworthy findings include:
– Companies more likely to have academic directors:
Larger companies
More research-intensive companies
Those situated more closely geographically to universities
Larger boards
More independent boards
Boards with more female directors
Boards with older directors
Companies where CEO has greater equity stake
High-tech and financial companies
– Presence and percentage of academic directors on the board positively impacts company performance
As measured by Tobin’s Q (market value/book value)
As measured by ROA (net income before extraordinary items & discontinued operations/book value of assets)
– Academic directors score higher than other outside directors on certain governance indicators:
They are more likely to attend board meetings
They hold more committee memberships
They are more likely to sit on monitoring-related committees (e.g., auditing, corporate governance)
– Academic directors strengthen the board’s oversight of management
They are associated with significantly lower cash-based CEO compensation, but not equity-based compensation
They are associated with a closer relationship between CEO forced turnover and company performance
– Academic directors strengthen the board’s advising & monitoring roles
Companies are less likely to manage earnings through discretionary accruals
Companies are less likely to be the subject of SEC investigations
Company stock prices reflect more company-specific information
Presence of academic directors is significantly and positively associated with acquisition performance
Companies are more innovative as reflected by the number of patents & patent citations
More on “The Mentor Blog”
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:
– PSLRA: Ineffective Motions to Dismiss
– Top Ten List of D&O Coverage Questions for Directors
– Bylaws Mandatory Arbitration Clauses Gaining Ground
– Survey: Board Tenure & Governance
– Weighing Pros & Cons of a Dual-Class Share Structure
This recent Corporate Board Member article about ISS’s sought-after ouster of the majority of Target’s directors due to the company’s data breach made several points worth highlighting.
As background, the article notes Target’s praise-worthy corporate governance platform, and informs that while ISS recommended shareholders withhold votes from most of Target’s directors (those who served on the audit and corporate responsibility committees), Glass-Lewis took a different approach – indicating that there wasn’t sufficient evidence available to conclude that the data breach resulted from the board’s negligence. Along those lines, see Donna Dabney’s (The Conference Board) earlier blog where she methodically set forth the then-publicly available information about the board’s cybersecurity oversight practices – concluding that ISS’s recommendation was unfounded. Ultimately, Target’s shareholders elected all of the director nominees.
Among the article’s key points are:
– Should directors, especially those whose performance of fiduciary duties is via adherence to good governance practices, be held responsible for all risks that might occur under their watch?
– What is the proper standard of fairness for holding directors responsible for cyber breaches?
– No organization can ensure absolute data/cyber-security – Target won’t be (now, more appropriately, hasn’t been) the only good company to suffer a large data brach.
– If directors will be automatically presumed negligent in the context of large data breaches – particularly in the context of otherwise good governance practices, what are the implications of that standard on director candidates’ willingness to serve on corporate boards?
– The article concludes that we must find a fairer way to review board performance. If we don’t, the negative consequences will be worse than the proposed remedy (i.e., ousting directors whose tenure includes a big breach)
The article indicates that “ISS is right to investigate what happened on Target’s board and to get a feel for how the board handles its fiduciary duties. If it comes out that a board was negligent and isn’t governance sensitive, then let the chips fall where they may.” The only thing I would add is that – but for circumstances where all of the pertinent facts about the board’s cybersecurity oversight are publicly available, I can’t see how ISS or any other outside third party would ever be positioned to “investigate” and fairly evaluate a board’s conduct to determine whether a data breach was due to board negligence. Fortunately, it appears that the majority of Target’s shareholders held a similiar view.
Board Cybersecurity Oversight Duties Grounded in In Re Caremark
This recent Gibson Dunn article addresses the standards that govern the board’s fiduciary duties to monitor and minimize cybersecurity risk based on In re Caremark and its progeny, and identifies certain steps boards should take to ensure compliance with their risk management oversight responsibilities.
It’s Mailed: 2015 Edition of Romanek’s “Proxy Season Disclosure Treatise”
Broc Romanek has wrapped up the 2015 Edition of the definitive guidance on the proxy season – Romanek’s “Proxy Season Disclosure Treatise & Reporting Guide” – and it’s been mailed to those that pre-ordered. You will want to order now so that you can get your copy as soon as you can. With over 1450 pages – spanning 32 chapters – you will need this practical guidance for the challenges ahead.
A member recently asked “Have companies started their due diligence on conflict minerals for 2014? If so, what kind of due diligence are they doing?” I thought it might be early for this (but this Elm Consulting note indicates otherwise) – but decided to run this poll to find out for sure:
survey solutions
Meanwhile, as noted in this Davis Polk blog, Amnesty International recently filed for a rehearing of the conflicts minerals case in the wake of the ruling in American Meat, the 1st Amendment ruling that Dave blogged about. And this blog by Steve Quinlivan states that NAM has been ordered to respond to the SEC’s petition for an en banc rehearing. Also check out these industry-specific recaps of conflict mineral reporting from Deloitte…
Debate: Safe Harbors v. Principles-Based Determinations
Here’s a guest blog by Stan Keller of Edwards Wildman:
Recently, Professor Jay Brown wrote an article criticizing Corp Fin for expanding and weakening the safe harbor for verifying accredited investor status based on income under Rule 506(c)(2)(ii)(A) when it issued CDI 260.35 in response to the situation where the relevant IRS forms are not yet available at the time of verification. He argues that the guidance dispenses with the need for an IRS form, fails to recognize that filing dates of tax returns can be manipulated, eliminates the need for a document filed under the penalties of perjury and fails to indicate what an examination of IRS documents for earlier years needs to show.
I responded with a comment to Professor Brown’s article but because it was unlikely to be seen I am repeating it here. In a nutshell, Professor Brown is reading the notes but not listening to the music. He is failing to distinguish between the safe harbor and the principles-based approach to verification, which still has to be reasonable based on all the facts and circumstances. Corp Fin in fact preserved the integrity of the safe harbor by requiring strict compliance with its requirements, but at the same time it helpfully recognized that it is appropriate to use the principles-based approach even when all the requirements for the safe harbor are not met. Rather than criticism, Corp Fin should be applauded for providing this guidance.
“Accredited Investor” Definition: One Associate’s View
Just got this note from a member about this article on CNBC:
I’ve always thought it was quite odd that as an associate attorney, I am hired by clients to do private placements for them, draft their offering documents, and keep them in compliance with Reg.D, but the SEC basically says that none of that matters, and that I shouldn’t be able to invest in a private company as easily as someone with a high net worth or annual income unless the company provides me with disclosure at a level that is cost-prohibitive to most companies.
Recently, I’ve blogged about how the SEC Commissioners increasingly seem to be at odds with each other. It doesn’t seem like that trend will turn anytime soon as this NY Times article highlights last week’s unusual dissent from Commissioner Aguilar in an enforcement case. It is rare for a Commissioner to publicly issue a dissenting statement in an enforcement action.
In the dissent, Aguilar described a settlement with the former CFO of Affiliated Computer Services as “a wrist slap at best.” The case against the company was for financial fraud – and compensation was clawed back from the company’s former executives. Interestingly, this is one of the companies charged with options backdating a while back…
Whistleblowers: SEC Gives Internal Auditor $300K Award
Last week, the SEC awarded more than $300k to an internal auditor, the 1st time that the SEC has granted an award for a whistleblower with an audit or compliance function within a company.
Meanwhile, Steve Quinlivan reports about how the SEC is fighting off phony whistleblower submissions…
Spotlight on Vote Counting: Our 10 Question Checklist
Last week, we mailed the August-September Issue of The Corporate Counsel that includes pieces on:
– A Spotlight on Vote Counting: Our 10 Question Checklist
– The Latest on Shareholder Proposal Litigation
– Staff Discusses Shareholder Proposal Trends at 2014 Stakeholder Meeting
– Rule 144 and Shell Companies—Back on Our Wish List
– Rule 506(c) Verification—Recent Guidance from the Staff and from SIFMA
On Friday, the SEC issued its 1st fee advisory for 2015 (along with this methodology). Right now, the filing fee rate for Securities Act registration statements is $128.80 per million (the same rate applies under Sections 13(e) and 14(g)). Under the fee advisory, this rate will dip to $116.20 per million, a 10% drop. Nice to see another reduction after last year’s 6% drop (which combined, almost offset a hefty price hike two years ago).
As noted in the SEC order, the new fees will go into effect on October 1st like the last three years (as mandated by Dodd-Frank) – which is a departure from years before that when the new rate didn’t become effective until five days after the date of enactment of the SEC’s appropriation for the new year – which often was delayed well beyond the October 1st start of the government’s fiscal year as Congress and the President battled over the government’s budget.
Jim Schnurr Tapped as SEC Chief Accountant
Last week, SEC Chair White hired Jim Schnurr as SEC Chief Accountant starting in October. Jim recently retired from Deloitte, where he was Vice Chair and a senior professional practice director. As noted in this Reuters article and FEI Daily, this is an important job as always…
Our September Eminders is Posted!
We have posted the September issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
A few days ago, the SEC adopted new rules for asset-backed issuers governing the disclosure, reporting, and offering process. This is the 1st part of the new rules relating to Regulation AB II. The adopting release is sorta not out yet (it’s out in draft form while pending OMB review). And here are notes from the open meeting from Alston & Bird and MoFo.
In addition, the SEC adopted rules to reform credit rating agencies. The adopting release is posted.
Rebuttal to “Shareholder Proposals: 10 Things About NY Times’ ‘Gadflies’ Column”
After my blog last week that parsed this DealBook column, Professor Bainbridge went through my “10 Things” in this blog and gave his 10 cents on each. He embraces the “gadfly” term for openers…
Something Cool to Talk About at Labor Day BBQs? Cinemagraphs
You gotta check out these animated photos called “cinemagraphs“…
Based on a proposal discussed in a recent issue of the Stanford Law Review, this recent Economist article promotes outsourcing corporate boards as a solution to corporate governance failures of the type we have experienced historically. As proposed, outsourcing would consist of replacing individual directors with a new category of professional firms – identified as BSPs or Board Service Providers – that companies would retain to supply them with a “full complement of board members.”
The article claims that, despite some reforms over the past decade, boards are (still) fundamentally flawed. Specifically, here is how the article characterizes boards:
Boards are almost exactly as they were a hundred years ago: a collection of grey eminences who meet for a few days a year to offer their wisdom. They may now include a few women and minorities. There may be a few outsiders. But the fundamentals remain the same. Board members are part-timers with neither the knowledge nor the incentives to monitor companies effectively. And they are beholden to the people they are supposed to monitor. Boards are thus showcases for capitalism’s most serious problems: they are run by insiders at a time when capitalism needs to be more inclusive and are dominated by part-timers at a time when it needs to be more vigilant about avoiding future crises.
I couldn’t disagree more. And I think a survey of GCs and Corporate Secretaries who interact with their boards on a regular basis would reveal a very different picture that is more comparable to what I myself experienced as GC & Corporate Secretary of two public companies, which is that – among other things – the vast majority of directors are appropriately engaged; hard-working; ethical; knowledgeable; responsive; thoughtful; intelligent; independently-minded while being sufficiently colloborative and respectful of management to forge a mutually beneficial (to the company) relationship; and use their tenure with the company appropriately to inform their current decision-making. And actual survey data (see numerous surveys posted in our “Corporate Governance Surveys” Practice Area) refutes the article’s rhetoric about directors devoting scant time to board matters. In addition, an outsourced board as proposed fails to take into account the importance of the mix of directors and associated ability to function well as a group – which is critical to an effective board.
See also Cydney Posner’s blog, where she raises a number of additional, legitimate concerns that would appear to undermine the proposal, including:
If management has a role in selecting the BSP, why wouldn’t the BSP be just as “beholden” to management as the current crop of “cronies” is to the CEO?
Could the problems inherent in “group think” be exacerbated by this approach, e.g., a BSP that fails to detect a problem besetting an industry would fail to detect it at many companies, not just one or two?
What about the loss of genuine hands-on experience that some directors bring?
What standards would be set and qualifications required for “professional directors” that would distinguish them from current directors?
How would success or failure of a BSP be determined under ordinary circumstances and who would make that determination in the context of dismissal or reengagement of a BSP?
What accountability or duty would BSPs have to shareholders, who are the owners of the company?
What Makes a Great Board?
This recently issued RHR International/NYSE Governance Services report reflecting the results of their poll of 300 directors about what factors make a great board appropriately challenges the often-exclusive focus on the attributes of individual board members and process – as opposed to the quality of boardroom dialogue and debate and other intangibles.
While the attributes of individual directors are – of course – critical to an effective board, it’s possible to have a boardroom full of great directors, but an ineffective board due to their inability to function well as a group. To illustrate the point, the report quotes RHR’s global practice leader as noting that the directors of the boards of many of the top financial services companies that suffered in the 2008 financial crisis were “often composed of a ‘who’s who’ of highly accomplished business leaders. Yet, the whole in many cases was less than the sum of its parts. The way board members operate together, not who they are, is what differentiates a great board from an average one.” Having spent countless hours over the years in boardrooms observing how differently composed boards function while serving as GC & Corporate Secretary, I couldn’t agree more.
Top factors that most contribute to the making of a great board
– Quality of boardroom dialogue and debate – 88%
– Ability to ask the tough questions of management – 77%
– Diversity of thought and experience – 62%
Top factors that undermine the making of a great board
– Lack of candor in the boardroom – 77%
– Lack of mutual respect/collaborative culture – 68%
– Lack of independence from management – 53%
Additional insights to board effectiveness include directors’ perceived importance of diversity of backgrounds & perspectives (as opposed to gender and racial diversity per se) and CEO evaluation/succession processes, and the need for continued focus on improved peer and self-evaluation processes.
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:
– Study: Board Oversight of Sustainability
– Board Committee Structures Logically Circumstances-Driven
– Climate Change Disclosure: Heads I Win, Tails You Lose?
– Hut, Hut, Hike! First Fantex IPO in NFL Player
– Insider Trading: Big “Downstream Tippee” Case Might Change Standard
In this American Banker article, Luse Gorman’s John Gorman discusses his concerns about – and opposition to – suggestions made by academics and others that bank directors’ fiduciary duties be broadened in the risk oversight area. His article was triggered by a recent speech by Federal Reserve Gov. Daniel Tarullo where he appeared to support the notion of expanding bank directors’ fiduciary duties – referencing a recent “provocative” academic paper proposing a simple negligence standard for expanded board oversight responsibility for risk-taking by “systemically important” financial institutions.
In the article, Gorman notes that expanding directors’ duties in this manner would expose boards to liability for good faith judgments as to risk management, increase litigation and expense, require boards to function in a management capacity, and discourage board service by capable candidates.
Kevin LaCroix echoes those concerns in this blog. Like Kevin, I too acknowledge stepping into an already-unfolding debate, but just have to note that I am similarly concerned about the implications of such a proposal. Among other things, it seems almost certain that the pool of aspiring and well-qualified bank board directors would shrink measurably as their potential liabilities increase, which would reduce overall board effectiveness – seemingly totally counter to the objectives of the proposal. Kevin’s blog further discusses his seemingly well-founded concerns that the notion of broadened fiduciary duties would quickly expand beyond just systematically important financial institutions to additional – or potentially all – bank directors.
On The Other Hand: Proposed Increased Protection for Australia’s Directors
While here in the US we are dealing with discourse around expanding the fiduciary duties of bank directors, proposals to limit director exposure to liability are being floated in Australia. This paper outlines the Australian Institute of Company Directors’ proposal for a new director defense to supplement the statutory business judgment rule.
The statutory business judgment rule is limited to a director’s duty of care and diligence – leaving directors exposed to liability for actions/omissions related to other Corporations Act provisions and laws that may impose personal liability. The Institute’s surveys (described in the paper) suggest that directors’ exposure to personal liability under the current regulatory scheme adversely impacts their decision-making and discourages their willingness to accept new board appointments. The proposed Honest & Reasonable Director Defense is designed to provide directors with appropriate protection.
The proposed defense is as follows:
Honest and reasonable director defence
Notwithstanding any other provision of this Act or the ASIC Act, if a director acts (or does not act) and does so honestly, for a proper purpose and with the degree of care and diligence that the director rationally believes to be reasonable in all the circumstances, then the director will not be liable under or in connection with any provision (including any strict liability offence) of the Corporations Act or the ASIC Act (or any equivalent grounds of liability in common law or in equity) applying to the director in his or her capacity as a director.
What is “Proxy Insight?”
In this podcast, Seth Duppstadt discusses how the new service – Proxy Insight – works, including:
– What is Proxy Insight?
– How does it differ from a proxy advisor?
– How does it differ from a governance ratings firm?
– Any surprises since you launched?
