Wednesday, March 15, 2017

PLI panelists address hot topics in corporate governance

By Jacquelyn Lumb

Panelists at the Practising Law Institute’s recent conference on corporate governance listed among the current hot topics as board compensation, climate change, the rise of proxy access, board refreshment, and risk management. Alan Beller, a co-chair of the program and former director of the SEC’s Division of Corporation Finance, asked the panelists about directors’ responsibilities in addressing these issues.

Board refreshment. Michael Garland, the assistant comptroller for corporate governance and responsible investment with the New York City Office of the Comptroller, noted that directors do not like to tell other directors when it is time to go, so they tend to rely on tenure and age limits. Assessments of directors are important and boards need to act, he advised. Achieving the “right board” is the responsibility of all directors. Garland added that he likes to see a mix of tenures on the board and is not concerned about one or two long-term directors.

Both Steven Haas of Hunton & Williams and Rachel Gonzalez of Sabre Corporation emphasized the importance of board evaluations. Haas said boards should move away from a check-the-box approach in favor of more substantial engagement with directors. Gonzalez said boards are not well-served by bright lines around tenure.

Meredith Cross, also a co-chair of the program and a former director of the Division of Corporation Finance, agreed with Garland that it is not easy to get boards to decide that someone should not be on the board anymore, so tenure restrictions are not the worst thing. Since the restrictions are automatic, they ensure board turnover will happen, she noted.

Cybersecurity. Beller said that boards need to think more broadly to achieve a company’s objective and must consider whether the board has the skill set to respond to an event at a moment’s notice. Gonzalez gave the example of cybersecurity, where the board may not have the expertise but it may have an expert on speed dial. Beller agreed that most boards do not have a director who is a cyber expert, but cybersecurity is a huge issue. Companies must prioritize what to protect because the costs of covering everything are so prohibitive.

Climate change. With respect to climate change disclosure, Beller said companies must think strategically. Do not call it a material event on your website without a word to that effect in your SEC filings, he warned. Garland said that investors need metrics in order to identify the risks and to benchmark performance over time. The Sustainability Accounting Standards Board’s standards would provide a floor, he suggested, with additional information provided in companies’ sustainability reports. Virtually every company has some climate change risk, he added.

Cross noted that when she was at the SEC, the staff issued a climate change release that resulted in a firestorm. Then-Chair Mary Schapiro explained that it merely provided guidance to help ensure that the disclosure rules were consistently applied. It did not opine on whether the climate is changing, at what pace, or due to what causes, she said. The guidance was issued just after the mid-term elections which resulted in a split government, Cross added. The staff was accused of being a bunch of tree huggers.

Government regulation of climate change disclosure is not going to happen, in Cross’s view, but she supports disclosure policies and procedures around sustainability reporting. Beller called it investors’ rock to push up the hill. Garland pointed out that a lot of institutional investors are focused on climate change, and they are permanent investors.

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