Contemporary boards are facing an evolution in the prevailing corporate governance model to a more shareholder-centric paradigm.
Activist agitation, proxy contests, and precatory proposals continue to be evident with activists seeing significant success.
Activist success is due to a number of factors, with the most important being the support of activist campaigns by traditional long equity investors.
There are signs, however, that the tide of hedge fund activism may have reached its high-water mark. Activism is increasingly being enveloped in a broader debate over corporate “short-termism.”
Passive investment managers, together with traditional institutional investors, have become more vocal in support of corporate strategies creating long-term value creation.
The multi-decade campaign by shareholder advocates and proxy advisers for implementation of a fairly standard set of corporate governance “best practices” at U.S. public companies fundamentally shifted the role and relative influence of shareholders in corporate governance.
Shareholder proponents continue their focus on proxy access, having submitted over 200 proxy access proposals for 2016 annual meetings. Almost 350 public companies — including approximately half of S&P 500 companies — now have a proxy access bylaw, up from approximately a dozen companies at the end of 2014.
Investors, academics and others continue to scrutinize board composition, including director skill sets, diversity and tenure. In response, boards should continue to pursue board refreshment.
Separation of the roles of CEO and board chair continues to engender discussion and a significant number of shareholder proposals.
While most institutional investors are satisfied with a board leadership structure pairing a robust lead independent director with a combined chair/CEO, boards should continue to periodically consider the leadership structure that best suits the company and its particular circumstances.
Boards continue to re-evaluate compensation programs to ensure management’s financial incentives are aligned with long-term strategy. Trends include reassessing base and incentive compensation and adopting incentive compensation clawback policies, among others.
Oversight of M&A opportunities is a core board function, with the exact nature and amount of board focus and attention varied based on the particular transaction.
Shareholders, government enforcement agencies, and courts have continued to scrutinize the performance of boards of directors in overseeing compliance and management of enterprise risk.
Dramatic shifts in the political, economic, and regulatory environments point to boards spending significant time on regulatory and financial compliance matters.