The year in governance: it was a busy 12 months for activists, regulators, and watchdogs--and the boards who had to engage with them. a month-by-month timeline of year 2013 and the people, companies, organizations, and initiatives that generated notable corporate governance developments.

Author:Kristie, James
Position:2013 YEAR IN REVIEW
 
FREE EXCERPT

JANUARY

From a Cleary Gottlieb Alert Memo addressing "Selected Issues for Boards of Directors in 2013": "We expect that shareholders will be increasingly focused on the issue of board composition, and as a result, in 2013 many boards will need to consider whether the current array of directors is appropriate in light of the evolving business and regulatory environments and the challenges they pose for the corporation."

The National Association of Corporate Directors announces the formation of the Global Network of Director Institutes (www.gndi.org), an international partnership of nine membership organizations for corporate directors in Australia, Brazil, Canada, Europe, Malaysia, New Zealand, South Africa, the U.K. and the U.S. The GNDI will "sharpen leading practices for boardroom leaders on relevant governance matters that cut across national boundaries," says NACD President and CEO Ken Daly.

Each national securities exchange adopts new listing standards to comply with the SEC's Dodd-Frank instigated Rule 10C-1 pertaining to ensuring the independence of compensation committee members.

President Obama nominates Mary Jo White as chair of the Securities and Exchange Commission. A veteran prosecutor and litigator, she has been an attorney at the Debevoise & Plimpton law firm for the past decade. Citing her extensive experience prosecuting fraud in the financial markets, former SEC Commissioner Joseph Grundfest notes that "It's hard to imagine a better chair for the SEC than Mary Jo White . . . [she] knows how Wall Street works and has the intelligence, integrity and character that the SEC needs at its helm during this challenging period in its history."

Also at the SEC: Robert Kbuzami resigns as the agency's enforcement chief. He is credited with revamping and reinvigorating the enforcement unit during his four-year tenure. The New York Times (NYT) reports that during his tenure "the enforcement unit leveled more charges than in any comparable four-year period, including a record number of cases in 2011."

Pension fund investments in gun manufacturers come under fire as a consequence of the killing of 20 children in a December 2012 shooting at an elementary school in Newtown, Conn. CalSTRS, the California State Teachers' Retirement System, is one that announces that it is determining its exposure to gun makers for its board members.

"Understand Proxy Advisors' Pay-for-Performance Tests" is Tip 1 on Mercer's "Ten Tips for a Trouble-Free Proxy Season" advisory--highlighting that ISS is updating its proxy voting policies effective for annual meetings held on or after Feb. 1,2013.

Chesapeake Energy Corp. CEO Aubrey McClendon announces he is quitting the company. His leadership and the board's governance of the energy firm were continually questioned by shareholders during the previous year.

In a court filing, Goldman Sachs says it will seek nearly $7 million from its former board member, Rajat Gupta, to cover its costs in investigating the allegations that Gupta shared inside information with a hedge fund friend.

The J.P. Morgan Chase & Co. board decides to slash CEO Jamie Dimon's pay for 2012 by half, a consequence of the banks' multibillion-dollar "London Whale" trading loss. Citing sources "with knowledge of the matter," the NYT reports that the pay cut "was actually a message from the board to regulators and worried investors that it was a strong watchdog over the nation's largest bank .... After facing criticism for its lax oversight, the board wanted to assert its position as a check on top management."

On the activist front: Elliott Management, a hedge fund run by Paul Singer, launches a campaign for a board shakeup at Hess Corp. The fund discloses a 4% stake in the oil company and puts forward five candidates for the board. Among the proffered candidates are Rodney Chase, former deputy chief executive of BP, and Harvey Golub, former CEO of American Express. Adding even more controversy to its move for a board overhaul is that Elliot proposes to pay its candidates bonuses on how well Hess shares perform.

FEBRUARY

Voters in Switzerland get ready to vote on a referendum that would introduce strict curbs on executive pay. Inflaming the debate is the widespread ire with Novartis AG for agreeing to pay outgoing chairman Daniel Valsella a $78 million noncompete" payment upon his retirement. (Swiss voters will overwhelming approve the legislation in March giving shareholders sweeping authority over executive pay.) In the U.S., Citigroup tries to quell its own shareholder revolt over executive pay by "scrapping an old bonus scheme and setting tougher targets" for new CEO Mike Corbat, the Financial Times (FT) reports.

As the annual meeting of shareholders approaches, several big public pension plans call for splitting the chairman and CEO roles at both J.P. Morgan Chase and Walt Disney Co.

Michael Dell unveils a plan to take Dell Inc. private. Fireworks ensue for months to come as unhappy shareholders like Southeastern Asset Management (the company's largest holder) and activists like Carl Icahn push back on the going private transaction. (The deal finally closes in September.)

On the activists' front: Carl Icahn gets two board seats at Herbalife; Ralph Whitworth, who is engaged in a campaign to split up Timken Co. into two publicly traded firms, joins investor Nelson Peltz in taking a position in Ingersoil Rand; a group of investors wants to shake up the board at Hewlett-Packard; and Greenlight Capital's David Einhorn puts forward an aggressive financial engineering proposal for Apple Inc. to distribute a big chunk of its $140 billion cash reserves to shareholders.

Russell Reynolds Associates launches what it calls the industry's first fully integrated Digital Transformation Practice. "In every sector, digital innovation is rewriting the rules of business," says Clarke Murphy, CEO of the firm. "Creating a practice devoted to the specific challenge of digital transformation was a natural step." He notes that in the prior 18 months Russell Reynolds identified more than 500 digital leaders for its clients.

Director education: Drexel University's LeBow College of Business launches an educational program to award a Certificate in Corporate Governance aimed at corporate executives who want to prepare themselves to serve on a board of directors. And George Washington University School of Business partners with the International Women's Forum to launch a program called "On the Board," a training and placement program for what it calls "the world's top female executives."

Kayla J. Gillan, who joined PwC in 2011 after serving as deputy chief of staff at the Securities and Exchange Commission, takes on a new role as leader of PwC's Investors' Resource Institute, whose mission is to better help investors understand companies' reporting and governance.

Best CEO exit line: That's what Andrew Mason's departing note was called when he was ousted from Groupon. His opening line in a memo to employees: "After four and a half intense and wonderful years as CEO of Groupon, I've decided that I'd like to spend more time with my family. Just kidding--I was fired today...."

The SEC is reported to be expanding its investigation into trading by corporate executives in their own companies' shares. Following a series of articles in the Wall Street Journal (WSJ) on suspiciously well-timed trades by executives, the Council of Institutional Investors is among the investor organizations petitioning the SEC to revamp its rules and provide better disclosure about such stock selling plans.

The U.S. Supreme Court hands down a decision that experts say will make it easier for shareholders to bring securities class actions suits against corporate defendants. In Amgen v. Connecticut Retirement Plans and Trust Funds, the court rules that Amgen shareholders may bring a securities fraud class action against the company without first showing that misinformation had materially and fraudulently inflated the company's stock price.

MARCH

A battleground opens up at Hewlett-Packard, with the two leading proxy advisory firms, ISS and Glass-Lewis, calling for shareholders to oust several directors for the board's role in H-P's disastrous $11 billion acquisition of British software company Autonomy PLC--with ISS issuing what Reuters terms "a rare call" to eject Chairman Ray Lane.

Prices are firming in the D&O insurance market, reports Towers Watson in its annual trends survey on insurance purchasing. Perhaps due to concern over the litigious environment, the report notes, directors and officers "are more likely to ask about the amount and scope of their D&O coverage."

Should audit committees bear the major brunt for risk oversight? Not according to the New York City Bar Association, which petitions the New York Stock Exchange to reconsider its rule placing risk management oversight within the audit committee's purview and formally designating it a full-board responsibility.

The NYT reports that Morgan Stanley's wealth management division is starting a new portfolio that seeks to invest in companies that have demonstrated a commitment to including women on their boards.

Mary Schapiro, who stepped down as SEC chairman in December 2012, is nominated as a director of Gen - eral Electric Co.

Prior to joining the SEC in 2009 she had been a director of Duke Energy, where she was chair of the audit committee, and the lead director at Kraft Foods.

Facebook, which faced withering criticism over not having any women on its board before electing its COO, Sheryl Sandberg, as a director, adds a second woman director, Susan Desmond-Hellman, chancellor of the University of California, San Francisco. The organization 2020 Women on Boards, for one, approves, crediting the social media firm's board for no longer being "an all white, male club." Meanwhile, Sandberg publishes her book, Lean In, which prompts a robust debate on women in the workforce and in leadership...

To continue reading

FREE SIGN UP