With the 2018 proxy season in full swing, directors should be prepared to discuss and, as needed, respond to questions about board oversight on topics of importance to the company's major investors.
Several high-level themes related to board operations and board leadership on environmental, social, and governance (ESG) issues are likely to be top-of-mind for investors this year.
In the decade since the financial crisis, investors have become increasingly attentive to why and how directors come to serve on portfolio company boards and whether directors are carrying out their duties effectively and adding value. Investors continue to scrutinize all aspects of board operations, from board skills matrices, diversity, tenure and succession processes to the efficacy of the board evaluation process.
Corporate culture. In light of #MeToo and other events in 2017, corporate culture and "tone at the top" will remain front and center. Investors will want to understand how the board keeps abreast of company culture.
* Does the board understand the culture at all levels of the company?
* What information does the board need to gain adequate insight into human capital issues?
Board diversity. Last year, the world's largest money managers announced plans to focus on board diversity and hold directors--particularly nomination and governance committee chairs--responsible for lack of progress.
Boards should expect this focus to intensify because investors typically provide a de facto one-year grace period after such pronouncements. They will inquire about diversity this year and delve into search and succession processes.
For example, BlackRock's 2018 U.S. proxy-voting guidelines state that it, "would normally expect to see at least two women directors on every board."
The "Boardroom Accountability Project 2.0," an initiative by New York City Comptroller Scott M. Stringer and the New York City Pension Funds, calls on boards to disclose the race and gender (and, optionally, sexual orientation) of their directors,
The "Boardroom Accountability Project 2.0", an initiative by New York City Comptroller Scott M. Stringer (pictured) and the New York City Pension Funds, calls on boards to disclose the race and gender (and, optionally, sexual orientation) of their directors, along with directors' experience and skills, in a matrix format. along with directors' experience and skills, in a matrix format.
* Are we prepared to present a convincing and credible argument...