The year in governance: and what a year it was. While the S&P 500 index finished the year unchanged, the same cannot be said of the year in corporate governance. A 2011 month-by-month timeline of the key markers in the ever-demanding and continually evolving practice of board leadership.

Author:Kristie, James
Position:YEAR IN REVIEW 2011
 
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JANUARY

The financial crisis has drained the world's capacity for dealing with shocks. That is one of the conclusions of the World Economic Forum's Global Risks 2011 report. Published in cooperation with Marsh & McLennan Companies and others, the report draws on the insights of 580 expert respondents.

The SEC adopts final rules approving the provision in the Dodd-Frank legislation that provides shareholders with the right to advisory say on pay votes. The advisory vote will apply to initial filings made on or after April 25, 2011 (with smaller companies exempt until 2013). Notes shareholder advisory firm GMI, "The new rules are designed to give shareholders greater input over executive compensation after many investors expressed outrage during the financial crisis at lavish pay practices."

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Warren Buffett decides to leave the board of Washington Post Co., a longtime investment of Berkshire Hathaway Inc. "At 80," he says, "it was time to get off the board."

Board shakeup at Hewlett-Packard: H-P appoints five new members--Shumeet Banerji, CEO of Booz & Company; Gary Reiner, former CIO of GE; Patricia Russo, former CEO of Alcatel-Lucent; Dominique Senequier, CEO of Axa Private Equity; and Meg Whitman, former CEO of eBay Inc. They replace four incumbents not standing for re-election--Joel Hyatt, John Joyce, Robert Ryan, and Lucille Salhany. The board now has a majority of directors who were not involved in the controversial ousting of former CEO Mark Hurd in August 2010.

In a conciliatory move, J.C. Penney Co. agreed to give two board seats to activist investor Bill Ackman and Steven Roth, chairman of Vornado Realty Trust, who have been amassing a stake in and collaborating to shake up the retailer.

"How sick is Steve Jobs?" asks the Wall Street Journal (WSJ) when the Apple CEO again announces he will be taking a medical leave for unspecified reasons. His departure raises anew the disclosure dilemma of a board with an ailing leader. Henry Blodgett of the Business Insider news site, writes, "In our opinion, the wording of one sentence of Steve's email to Apple staff in not encouraging: CI love Apple so much and hope to be back as soon as I can: Those are not the words of someone taking a short leave who is confident he will be back at the company soon (or ever)."

Golden parachutes: CEOs who have generous severance deals are more likely to settle for lower acquisition premiums, according to a study co-authored by Ralph Walkling, a finance professor and executive director of the Center for Corporate Governance in the LeBow College of Business at Drexel University. He and his co-authors examined more than 850 acquisitions announced in the U.S. between 1999 and 2007.

ZL Technologies Inc, a leader in archiving and e-discovery software, announces its predictions for e-discovery in 2011. No.1 on its list is New Sources of Data Will Become Routinely Sought in Discovery, explaining: "There once was a time that email was not requested in discovery requests. And there was a time when nobody asked for voicemail, IMs, text messages or social media posts. But now, each of these are routinely sought in all lawsuits. This will not slow down in 2011."

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Pearl Meyer, a pioneer in the field of providing executive compensation consulting advice, dies. "For more than 30 years, Meyer served as trusted advisor to the boards and senior management teams of hundreds of major corporations. She played an integral role in developing many of today's most widely used board and executive compensation programs and arrangements," notes the National Association of Corporate Directors (she was the first woman inducted into the NACD Directorship Corporate Governance Hall of Fame).

Davos imposes a gender quota for its 2011 gathering of honchos. The key group of 100 companies participating as "strategic partners" are told they must bring at least one woman in every group of five senior executives sent to the event--an attempt, reports The Guardian newspaper of the U.K., to "improve the traditionally dismal gender balance" at this high-profile summit.

GE Chairman and CEO Jeff Immelt is appointed by President Obama to chair the President's Economic Recovery Advisory Board--a decision that gets a big dose of second-guessing by critics who note the thousands of jobs GE has cut in the U.S. while shipping jobs offshore. "Is a multinational CEO the best jobs czar?" asks the New York Times (NYT).

Google Inc. names co-founder Larry Page to replace longtime CEO Eric Schmidt in "the biggest management shake-up since the Internet search giant was an obscure California start-up," observes the WSJ. Schmidt will become executive chairman in April.

More boards in the making: The announcements that both Motorola Inc. and ITT Corp. will be splitting up into separate public companies presage a year ahead that will see several other boards deciding, often at the instigation of activist investors, to break up their companies.

M&A is off to a strong start in 2011. Thomson Reuters reports that the volume of M&A surged to $310 billion in January, up 69% from a year ago and the fastest start to dealmaking since 2000.

FEBRUARY

What some are calling the biggest M&A case in 20 years, Delaware Chancery Court Judge William Chandler upholds the poison pill defense put in place by Airgas Inc. to block a hostile bid from Air Products & Chemicals Inc., a battle that dragged out for most of 2010. In his closely watched ruling, Chancellor Chandler affirms that the "power to defeat an inadequate hostile tender offer ultimately lies with the board of directors"--important clarity on the balance of power between the board and share-holders in a takeover situation.

In another headline Delaware ruling, Vice Chancellor J. Travis Laster of the Chancery Court blasts the "manipulation" of the buyout of Del Monte Foods by the company's financial advisor, Barclays. The bank's tactics to protect its own interests in the transaction--"to obtain lucrative buy-side financing fees"--led to a defective sale process, the judge rules in delaying a shareholder vote on the buyout by a consortium of private equity investors led by KKR. (See sidebar on page 18.)

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In "seemingly contradictory votes," as the Financial Times (FT) calls the result, Apple Inc. shareholders at the annual meeting defeat an ISS-backed proposal requiring the company to disclose its CEO succession plan, but approve a CalPERS-introduced measure for majority voting of directors.

More than two dozen companies appeal to the SEC to revise its 'whistleblower' plan requiring that workers report wrongdoings by employers, the WSJ reports. The companies are concerned that workers will be lured by the prospect of a huge payday by going direct to the SEC and bypassing corporate hot lines and other internal reporting mechanisms.

The Manhattan Institute launches ProxyMonitor.org, a new website (www.proxymonitor.org) described as "the first and only free, public database to contain shareholder proposal and proxy ballot information for the top 100 publicly traded American companies over the last three years (2008-2010)."

With the growing influence of long-term sustainability issues on business decisions, businesses will need to change the way they disclose their sustainability efforts in a more consistent and rigorous investment-grade report. That is a major conclusion of a new PwC report, "Creating Value from Corporate Responsibility."

On the activist front: Carl Icahn discloses a 9% stake in Clorox Corp., and also says he wants three seats--and may nominate a full slate--for the Mentor Graphics Corp. board. And Nelson Peltz announces an 8% ownership stake in Family Dollar Stores Inc. and says he is willing to buy the rest of the retailer in a deal that could be valued as high as $7.6 billion.

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A new boost for activism in Japan: Two organizations join together to launch a $1 billion fund to invest in underperforming companies and work with management to raise their value. Tokio Marine Asset Management, Japan's fourth-largest pension asset manager, and Governance for Owners, a U.K.-based shareholder advocacy group, are spearheading the Japan Engagement Fund, the first such move by a big Japanese asset manager, the FT reports.

Youth movement: In a roundup story on trends in CEO succession, Bloom-berg Business Week finds that "New CEOs have fewer gray hairs--recruiters say executives approaching 60 are today often bypassed in favor of younger candidates." Another provocative claim: "Some recruiters see a limited pool of CEO candidates, especially since private equity firms have siphoned off talent from public companies' management."

CFA Institute releases its "Compensation Discussion and Analysis Template," a report that provides "much-needed guidance" for public companies wishing to improve the CD&A portion of their proxy statement.

Harvard Business School announces that it will be revamping its MBA program to give an increased focus to ethics and team-work. The school's chief marketing officer, Brian Kenny, tells the WSJ that the changes are aimed at creating "leaders of competence and character, rather than just connections and credentials."

In Deloitte's annual "Look Before You Leap" survey, nearly two-thirds of respondents (63%)--corporate executives, investment bankers, private equity executives, and hedge fund managers--report that FCPA and anticorruption issues caused their companies to renegotiate or terminate deals over the last three years.

MARCH

Bank board seats in the spotlight: After only a year on the Goldman Sachs board, former Wal-Mart CEO H. Lee Scott decides to leave the board, per a Goldman statement, "as a result of increasing time requirements associated with his other commitments." Over on the Morgan Stanley board, director Sir Howard Davies decides to stick with his board membership even as he steps down...

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