It was a busy 12 months for activists, regulators, and investors--and the boards that had to engage with them. A month-by-month timeline of year 2014 and the people, companies, organizations, and initiatives that generated notable corporate governance developments.
Activists get a fast start to the year
Food company Mondelez International Inc. gives a board seat to Nelson Peltz, and that is just one of many flashpoints in this first month of the year where activist investors and their target corporations go head to head. Carl Icahn hones in on a new target--eBay Inc., where he wants the digital marketer to split off its PayPal unit. Daniel Loeb begins pushing Dow Chemical Co. to separate out its chemical operations. (And both Icahn and Loeb acquire a stake in Hertz Global Holdings Inc.) Responding to investor discontent, McKesson Corp. initiates several governance reforms, including expanding the role of the board's lead independent director. Other companies on the activists' radar include Cliffs Natural Resources, Juniper Networks, and Johnson Controls. Even Ralph Nader jumps into the fray: Angered about John Malone's offer--"ludicrous," Nader calls it--to buy out the shareholders of satellite radio operator Sirius XM, he calls on Carl Icahn to intervene. What this means, as the New York Times (NYT) notes with some irony, is that this self-described "adversary of corporate capitalism" is now fighting for his rights as a shareholder. PwC's Investor Resource Institute reports that "companies are accumulating record levels of cash, which often makes them a magnet for activists." And search firm The Koblentz Group reveals that "For the first time, we were asked to recruit new directors with specific experience of having been on a board with activist investors and/or having been a CEO of a company with activists on their board." The firm adds: "While we are not sure this is a trend per se, with our belief that activism will increase, increasingly we believe experience with institutional investors will be sought."
Deloitte finds that CFOs are optimistic about the prospects ahead for their own organizations but their optimism wavers when it comes to the external economic environment; the firm's survey reveals that CFOs are entering 2014 more focused on risk, business rationalization and cost reduction.
Leo Strine, chancellor of the Delaware Court of Chancery, is confirmed as chief justice of the Delaware Supreme Court. The outspoken head of this important business court "brings to the high court a national reputation as a workaholic judge who regularly displays his mastery of the state's corporate law through his lengthy opinions," Reuters reports.
There was a 9% increase in securities class action filings in 2013, according to the authoritative trackers at Cornerstone Research and Stanford Law School Securities Class Action Clearinghouse. They warn: "The sharp increase in IPOs in 2013 may provide fuel for a new wave of filings in the next few years."
Ken Bertsch, president of the Society of Corporate Secretaries and Governance Professionals since 2010, is named a partner at corporate governance advisory firm CamberView Partners. He brings more than three decades of expertise leading corporate governance efforts at such organizations as Morgan Stanley Investment Management, Moody's Investors Service, and TIAA-CREF.
Holly Gregory joins Sidley Austin LLP as a partner and a global coordinator of the corporate governance practice. She has been a longtime expert and advisor on governance while at Weil Gotshal & Manges and a highly sought-after speaker and writer on governance topics. "Holly is very well-known and respected for her deep experience in helping companies and their boards navigate the complexities that have evolved as a result of changing regulations and an increased scrutiny into corporate governance practices," says John P. Kelsh, partner and a global coordinator of Sidley's Corporate Governance and Executive Compensation practice.
In other people news: Rajeev Vasudeva is appointed CEO of search firm Egon Zehnder; Mark Reid assumes global leadership for the Executive Compensation consulting practice of Towers Watson; Carolyn M. Snow, CPCU, director of risk management for Humana Inc., will lead RIMS, the risk management society, as president for the 2014 term; and Steve Gunby, formerly running the Transformation and Large Scale Change Practice at Boston Consulting Group, joins FTI Consulting as president and CEO.
Bank critic turns bank director: Sheila Bair, chair of the Federal Deposit Insurance Corp. during the financial crisis years of 2006 to 2011, a time when she criticized many of the world's major banks for their capital adequacy and for being too big to manage, joins the board of Banco Santander SA of Spain. "I hope that my service on the Santander board will provide yet another avenue for continuing my commitment to reforming the global financial system," Bair tells the Wall Street Journal. She is pictured with Santander's then Chairman Emilio Botin.
Framework developed for shareholder-investor engagement
A working group of leading public company directors, institutional investors, and the advisory firms Tapestry Networks Inc., Cadwalader, Wickersham & Taft LLP and Teneo Holdings LLC together with Broadridge Financial Solutions Inc., launch SDX--the Shareholder-Director Exchange. SDX is described as the collective best thinking of a broad group of leading corporate governance practitioners on why, how, and when boards and institutional investors should engage directly with each other. Although the SDX Protocol can be used in the context of a corporate crisis, it is intended to be a broader template for discussing and addressing corporate issues in the normal course of business (www.sdxprotocol.com).
On the activist front: PepsiCo rejects Nelson Peltz's Train Fund Management proposal to split up the company by spinning off its beverage business; Daniel Loeb escalates his fight with auction house Sotheby's by nominating himself for a board seat, while on another front Dow Chemical rejects his call to split up the company by separating its petrochemical operations from its specialty chemical businesses; Williams Companies Inc. agrees to add an activist to its board in reaching an agreement with dissident investors; Tribune Co. is pressed to sell assets when an activist takes a stake in the media company; and an activist hedge fund steps up its fight against Abercrombie & Fitch by nominating five director candidates.
ISS launches QuickScore 2.0, the next generation of its global corporate governance scoring solution for institutional investors. QuickScore 2.0 measures a company's level of corporate governance risk both overall and based on four broad pillars: board structure, compensation/remuneration, shareholder rights, and audit (http://issgovernance.com/ quickscore).
Compensation Advisory Partners reports that 2013 was the first year that saw a meaningful number of companies disclosing realized and/or realizable pay and that it expects to see the trend pick up steam in 2014, particularly for companies with below-average total shareholder return (TSR).
Governance alliance: Search firm Spencer Stuart and WomenCorporateDirectors (WCD) forge a new strategic partnership for North America--creating an alliance to serve board members and advance best practices in corporate governance. The partnership encompasses board research, director events, and other thought leadership initiatives around building better boards. WCD--a group of 2,500-plus directors serving on more than 3,500 boards--is rapidly growing worldwide, with 60 chapters to date on six continents.
Ira M. Millstein is awarded the Medal for Excellence by Columbia Law School. The school's most prestigious award is presented annually to alumni and past or present faculty "who exemplify the qualities of character, intellect, and social and professional responsibility that the Law School seeks to instill in its students." Millstein, a longstanding authority and counselor on corporate governance matters, is senior partner of Weil, Gotshal & Manges and co-chair of the Millstein Center for Global Markets and Corporate Ownership, which is based in Columbia Law School.
Tracy R. Wolstencroft is named president and CEO of search firm Heidrick & Struggles. He joins the firm following a 25-year career at Goldman, Sachs & Co., where he was a partner from 1994 to 2010 and served on the firmwide Partnership Committee, the Investment Banking Operating Committee, and the Asia Management Committee.
Global governance: Honda Motor appoints the first woman to its board--"a sign that the automaker wants to change perceptions of a hidebound corporate culture," the Associated Press reports. Hideko Kunii, 66, is a professor at the Shibaura Institute of Technology in Tokyo.
Top 10 Topics for Directors in 2014
Oversee strategic planning amid continuing fiscal uncertainty and game-changing advances in information technology
Set appropriate executive compensation as shareholders increasingly focus on pay for performance and activists target pay disparity
Address the growing demands of compliance oversight
Assess the impact of health care reform on the company's benefit plans and cost structure
Determine whether the CEO and board chair positions should be separated
Ensure appropriate board composition in light of increasing focus on director tenure and diversity
Cultivate shareholder relations and strengthen defenses as activist hedge funds target more companies
Address boardroom confidentiality
Consider whether to adopt a forum selection bylaw
Source: Akin Gump
Needed: Directors who can address cyber risk
One of the key attributes boards will look for in new corporate directors is experience overseeing the growing threat of cybersecurity risks, according to a survey by NYSE Governance Services...