Volume 1:Issue #27 Friday, November 20, 2009
Edited by Francis H.Byrd
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As We See It - Commentary from The Altman Group

The Governance & Proxy Review will not be published next Friday, November 27th.  We will be taking a week’s hiatus and resuming publication on Friday, December 4, 2009.  Have a Happy Thanksgiving!

Preparing For The Year Ahead
Francis H. Byrd, Managing Director and Corporate Governance Practice Co-Leader

Earlier this week, I had the privilege of attending the Directorship Boardroom Leaders Forum, in New York, and moderating the “Meet the Experts – The 2010 Forecast” panel.  The panelists, all subject matter experts (in areas ranging from succession planning to crisis communications to product and D&O liability), provided clarity on numerous issues important to the work of corporate directors.

There was among the director attendees a hunger for information on governance best practices, as well as for tools, strategies and tactics they could employ in performing their responsibility of management oversight in a more effective manner.  The directors I spoke with realize that Corporate America and its directors face tremendous scrutiny from shareholders, the media, the government and the public.  In the wake of Sarbanes-Oxley, the director class has undergone a rapid transformation, with board members becoming more independent and empowered vis-a-vis the CEO and the senior management team.

This transformation has, however, some attendant risks.  The two most prominent: 1) blurring, then crossing the line between board and management; and 2) failing to meet the ever-rising expectations being placed on directors as stewards of corporate oversight. The fear is that regulatory overkill, and the expectations that come with it, could force directors out of their oversight role and into the role of supervisory managers of senior executives.  The current populist mood in Congress (and the public anger behind it) could fuel just such a result.

Not Standing Still

Directors aware of this conundrum are taking steps to meet the challenges presented by this more difficult environment. They are seeking to immerse themselves in the business and operation of their companies, and to leverage their knowledge and understanding of the markets they operate in to gain a better sense of the managers who run those businesses. Board members are also seeking to better understand the complex nature of risk, seeking insight on how a once sound strategic plan can have the potential to turn into a threat to the company.  On this key subject, the National Association of Corporate Directors, last month issued a blue ribbon commission report on risk management best practices entitled “Report of the NACD Blue Ribbon Commission on Risk Governance: Balancing Risk and Reward”.

Another topic of concern to directors is the growing power of shareholders.  While the question of proxy access remains unresolved, directors are becoming more aware of the challenges stemming from the SEC’s approval of the amendment to NYSE Rule 452 ending the discretionary broker vote in the election of directors.  The prospect of a sharply reduced vote for directors, in the era of majority vote rules and the increasingly adversarial atmosphere with institutional investors, is not at all appetizing for many board members – especially those whose companies have a large percentage of retail shareholders.  In 2010, the mechanics of proxy voting will occupy much more discussion time, in the nominating and governance committees and at the full board, than in years past.

Concerns about the shape of reforms, the role of directors, and the power of shareholders, will play out more fully in 2010 as Congress and the SEC work out the details – big and small – of what Corporate America will have to deal with going forward.