Funds Learn to Say No as Boardrooms Challenged: Corporate India

by Santanu Chakraborty and Bhuma Shrivastava for Bloomberg

Money managers in India’s $1.7 trillion stock market are no longer giving rubber-stamp approval to the nation’s corporate boards.

Local mutual funds voted to reject 6.6 percent of the proposals presented to shareholders in the nine months ended December, up more than fourfold from the year to March 2013, India’s securities regulator said in an e-mailed response to questions from Bloomberg News. Their participation rate in shareholder votes jumped to 83 percent from 49 percent, spurred by new disclosure rules that require fund managers to provide a rationale for their decisions to investors.

The more assertive stance from minority shareholders prompted United Spirits Ltd. to modify plans to loan money to companies run by its former chairman and led Maruti Suzuki India Ltd. to put on hold a proposal to transfer a new factory to its parent. While India still lacks the type of activist investing personified by U.S. billionaire Carl Icahn, funds’ growing willingness to challenge management may help improve governance in a nation ranked 94th out of 144 countries for the efficacy of its corporate boards by the World Economic Forum. Read more here.

Meet the Corporate Board’s ‘Kitchen Junk Drawer’

by Michael Rapoport and Joann S. Lublin for The Wall Street Journal

As new risks multiply, the audit committee has become the “kitchen junk drawer” for many corporate boards.

The workload of the powerful committees has expanded sharply beyond their core role of overseeing a company’s financial reporting. They are grappling with new regulations, whistleblower claims and issues like cybersecurity and foreign corruption. In addition, the Securities and Exchange Commission is expected to suggest new rules by the end of next month requiring them to disclose more about their activities.

“It’s not the favorite committee,’’ says Fredric Reynolds, a retired CBS Corp. chief financial officer and audit committee chairman at Mondelez International Inc. To attract committee members, he sometimes promises relatively short stints: “You’ll be released for time served and good behavior,’’ he tells directors.

Mr. Reynolds estimates he spends 100-plus hours a year on Mondelez’s audit committee. One key part of that is the audit committees’ oversight of whistleblower complaints, which is required by the 2002 Sarbanes-Oxley Act. The vast majority are from people frustrated with their work colleagues, he adds. But when there’s smoke, “you don’t know if it’s fire.” Read more here.

McDonald’s CEO ouster: A sign of tougher, less patient boards

by Eleanor Bloxham for Fortune

Don Thompson’s resignation comes amid a string of CEO departures that puts on full display the growing power of corporate boards.

On Wednesday, the McDonald’s MCD 5.00% board announced the retirement of its chief executive Don Thompson and the elevation to CEO of chief brand officer Steve Easterbrook, who had led the fast-food giant’s UK and European units.

The news is simply one example in a string of CEO departures since the third quarter of last year that puts on full display the growing power of corporate boards today—and their newfound willingness to exercise that power. Read more here.

 

MoF Hosts Corporate Governance Meeting for of Federal Government Representatives on Corporate Boards

by Zawya, March 22, 2010.

 Abu Dhabi, 22 March 2010: Ministry of Finance today hosted the first in a series of meetings on corporate governance for Federal Government representatives nominated on the boards of UAE joint companies and other UAE authorities. The meeting was attended by HE Younis Haji Al Khoori, Director General of MoF, HE Khalid Al Bustani, Executive Director of International Financial Relations Sector, HE Musabah Al Suwaidi, Executive Director of Support Services Sector, Mr. Ali Hamdan Ahmed, Director of International Financial Organizations Department, and a number of MoF department managers.

The Ministry of Finance is committed to improve corporate governance standards and to revitalize the role played by the government in regional and international companies in which it participates. It also aims to strengthen international financial relations with Arab and other foreign countries in light of increasing investments to grow UAE’s future revenues.

In his opening address, HE Younis Haji Al Khoori, Director General of MoF said: “The importance of corporate governance has increased as it plays a vital role in improving economic, financial and investment performance globally.It is necessary to enforce and follow-up a governance code of conduct to guarantee the rights of shareholders and investors. Advances in corporate governance are designed for greater protection of companies’ assets and property, helps achieve sustainable economic progress and increases effectiveness of capital flows.”…(continue reading)

Women on corporate boards: Push is on to train more female lawyers to fill spots on corporate boards

by Patti Ahern, for The Chicago Tribune, September 25, 2009.

Corporate boardrooms, long a bastion of male leadership, are under the watchful eye of DirectWomen, an organization designed to promote female lawyers to serve on corporate boards.

Although most corporations recognize the value of female board members and that diverse backgrounds and experience add quality, there is one huge barrier, said Mary Ann Jorgenson, an attorney and head of DirectWomen.

“We simply don’t have a cadre of women as large as the cadre of men,” Jorgenson said.

DirectWomen, an initiative of the American Bar Association’s Business Law Section and the nonprofit women’s business group Catalyst, recently announced that 21 female lawyers were selected into the 2009 DirectWomen Board Institute…(continue reading)

Working Paper: Perspectives from the Boardroom—2009 (Harvard Business School)

by Jay W. Lorsch, Joseph L. Bower, Clayton S. Rose, and Suraj Srinivasan for Working Knowledge at Harvard Business School, September 9, 2009.

Executive Summary:

Chief executives and regulators have been blamed for the current economic crisis, but in some ways what is surprising is that boards have generally escaped notice. Clearly the experience of corporate boards in the downturn has not been explored. To understand what transpired in the boardrooms of complex companies, and to offer a prescription to improve board effectiveness, eight senior faculty members of the HBS Corporate Governance Initiative talked with 45 prominent directors about what has happened to their companies and why. These directors, who serve on the boards of financial institutions and other complex companies, were asked two broad questions: How well did their boards function before the recession? And, what do they believe should be improved as they look to the future?

This white paper first explains how the interviewees characterize the strengths of their boards, then examines in depth six areas in which they identified shortcomings or needs for improvement: 1) clarifying the board’s role; 2) acquiring better information and deeper knowledge of the company; 3) maintaining a sound relationship with management; 4) providing oversight of company strategy; 5) assuring management development and succession; 6) improving risk management. Finally, the paper discusses two issues that appeared not to trouble the interviewees but that the public feels are important: executive compensation and the relationship between the board and shareholders. This paper was written by Jay Lorsch with the assistance of Joseph Bower, Clayton Rose, and Suraj Srinivasan. The interviews were conducted by Joseph Bower, Srikant Datar, Raymond Gilmartin, Stephen Kaufman, Rakesh Khurana, Jay Lorsch, and Clayton Rose. Key concepts include:

• Regulations and laws offer little guidance about what specifically boards should do, and, given this lack of specificity, most boards have gradually developed an implicit understanding of what their job should be.
• Directors expressed strong consensus that the key to improving boards’ performance is not government action but action on the part of each board.
• To improve board effectiveness, each board should achieve clarity about its role in relation to that of management: the extent and nature of the board’s involvement in strategy, management succession, risk oversight, and compliance…

To download the complete paper click here.

Will Democracy Invade the Boardroom?

by Philip Mattera for Dirt Diggers Digest, September 3, 2009.

Life has been tough for the Securities and Exchange Commission, what with the power grab at its expense by the Federal Reserve and new revelations that its investigators acted like Keystone Kops when looking into tips about the suspicious behavior of Bernie Madoff. Now the SEC has the opportunity to do some good. The question is whether it has the nerve to stand up to powerful corporate interests.

In May the SEC voted to propose rule changes that would enable shareholders to nominate directors for corporate boards. The Commission issued a 250-page description of the proposed changes in June and asked for public comments. A decision is expected this fall.

The process of selecting board candidates makes a mockery of the idea of corporate democracy. Except in those rare instances when a takeover effort leads to a proxy fight, potential directors are chosen by management and run unopposed. This helps ensure that the ranks of outside (non-executive) directors, who are supposed to function as watchdogs, are filled with agreeable souls…(contine reading)