Delaware Corporate Governance Blog

Weinberg Center Announces New John L. Weinberg Distinguished Speaker: John White

The Weinberg Center for Corporate Governance will host John W. White as part of the John L. Weinberg Distinguished Speakers Series. John White is a partner in the corporate department of Cravath, Swaine, & Moore LLP, where he is Co-Chair of the Corporate Governance and Board Advisory practice. From March 2006 through December 2008, he served as Director of the Division of Corporate Finance at the U.S. Securities and Exchange Commission, the division responsible for overseeing disclosure and reporting by public companies within the United States. Mr. White will present his views on the current SEC proposals regarding corporate governance, as well as financial reporting reform and other current issues.

The event will be held at 12:30 p.m. on March 16, 2010 at the Wilmington Club, located on 1103 North Market Street, Wilmington, DE, 19801.    

For information regarding this event, please contact rcoffin@lerner.udel.edu. 

   

Weinberg Center Announces Directors’ Education Course for Board Members

The Weinberg Center for Corporate Governance, together with the Conference Board, announced a new course designed for director's of public corporations with an emphasis on the compensation committee.  The course is a one and a half day "boot camp" designed to impart practical, real-world executive education on the issues facing directors sitting on public company boards and compensation committees or boards.

Set on the campus of the University of Delaware, the program will be held on June 21-22, 2010.  Board members interested in compensation issues, compensation committee members and their advisers are invited to learn both the basics and advanced theory and practice in executive compensation.

In announcing the course, Weinberg Center Associate Director Roger Coffin said: 

"This course will provide board members and their advisers an in-depth and substantive curriculum in compensation program design and execution.  We are going to teach the elements of compensation, how boards and top advisers structure programs, and impart our directors with a template for how compensation, and a committee, should work.  Many director's colleges offer opportunities for networking, and we will too, but we will focus on the nuts and bolts of committee work." 

Faculty include:

• The Honorable Troy A. Paredes, SEC Commissioner
• Chief Justice Myron T. Steele, Delaware Supreme Court
• John W. White, Partner, Cravath, Swain and Moore, former Director, Division of Corporation Finance, SEC
• Pearl Meyer, Fred Cook and James Reda;
• Charles Elson; and many board members and peers.

Co-sponsored by The Conference Board and the Weinberg Center, this program will:

• Give you the perspective from Washington, DC
• Teach you the fundamentals of Committee work– step by step
• Educate you on the latest recommendations from The Conference Board’s Task Force on Executive Compensation
• Show you how top compensation consultants do their jobs
• Provide the viewpoint of the institutional investor community
• Update you on the new legal, regulatory and legislative requirements.

Fee: Conference Board Non-Members – $2,500 Conference Board Members – $2,000

To Register, please contact:

Call Brandi Mathis at +1 212 339 0241
Email brandi.mathis@conference-board.org

www.conference-board.org/governance www.lerner.udel.edu/centers/ccg

The Caremark Compliance Approach to the Prevention of Corporate Fraud and Other Forms of Illegal Conduct- Success or Failure

On March 25, 2010, the University of Delaware’s Weinberg Center for Corporate Governance will host a roundtable entitled, “The Caremark Compliance Approach to the Prevention of Corporate Fraud and Other Forms of Illegal Conduct- Success or Failure?” In 1996, the Delaware Court of Chancery in In re Caremark International Derivative Litigation established a board’s duty to create and oversee a corporate compliance program. Failure to establish an effective compliance program could render a director liable for corporate fraud or misconduct. Nearly fifteen years after the opinion, the Weinberg Center has assembled a panel to assess the effects of Caremark. Has a board’s expanded oversight responsibility produced positive or negative effects?  The panel, moderated by Weinberg Center Director Charles Elson, includes:

• Christine Bachrach, Senior Vice President and Chief Compliance Officer, HealthSouth, Inc.
• Christopher Bruner, Associate Professor of Law, Washington & Lee School of Law
• Odell Guyton, Compliance Director, Microsoft
• The Honorable Jack Jacobs, Justice, Supreme Court of Delaware
• Brady Long, Vice President, General Counsel and Secretary, Pride International
• John Maupin, President, Morehouse School of Medicine (HealthSouth Board of Directors)
• Mark Mendelsohn, Deputy Chief, Fraud Section, Criminal Division, US Department of Justice

For more information on the roundtable, contact Weinberg Center Associate Director Roger Coffin at rcoffin@lerner.udel.edu.

Weinberg Center Comments on SEC Proxy Access Proposal

The Weinberg Center for Corporate Governance recently submitted a comment letter on the SEC’s proxy access proposal. The letter, signed by Weinberg Center Director Charles Elson and Associate Director Roger Coffin, acknowledges the SEC’s goal of enhancing shareholder rights, but suggests investor protection may be served through other means.

Some excerpts include:

On Guiding Principles:

    "[T]he ability of shareholders to nominate and select directors is a fundamental right, one which lies at the heart of the U.S. system of corporate governance.  We have long believed and advocated the position that open, fair, regular board elections are one of the basic pillars of sound governance and modern corporate accountability.  The exercise of shareholder voting rights, together with an independent board properly incentivized by stock ownership in the corporation, forms the basis of a powerful and effective system of governance and economic incentive.  This model has served the U.S. capital markets well, and has led to innovation, prosperity and growth.

    We believe that these principles provide the theoretical pole stars around which the current proposed legal reforms should be evaluated.  For our economic system to continue to attract and retain investment in the global economy, governance mechanisms should be linked to, and enhance the goal of, investor protection.  We believe investors are served when they have a readily accessible right, together with a fair and open process, to select or reject the directors who would serve as their fiduciaries and corporate stewards. This franchise right should be free of any artificial or overly restrictive economic or other barriers to entry."

On Proxy Access and the HealthSouth Corporation:

"[P]roxy access, without a corresponding right to expense reimbursement, is half a right. We note that the HealthSouth Corporation, in October of 2009, became the first large U.S. public company to adopt a bylaw implementing sections 112 and 113 of the DGCL. We believe that corporations should not only be responsive to shareholder concerns, but also take leadership positions in good governance principles." 

Recommendations to the SEC:

"Overall we believe that any legal framework benefits from a process of continual re-evaluation and reform.  In that sense, the current debates over executive compensation, shareholder rights, and proxy access and reimbursement are healthy.  We maintain that, as long as the SEC, the states, and the shareholder and board constituencies maintain a focus on the protection of investors, the end result will most likely be beneficial from a governance perspective. 

Investor protection is best served by companies being led by independent directors, incentivized by stock ownership, subject to open, fair elections.  The system currently in effect in the state of Delaware, by permitting shareholders to be reimbursed for the real and material expenses it takes to win a public proxy contest, is such a system.  More companies should be urged to align themselves with the position recently taken by HealthSouth; more states should adopt statutes similar to DGCL 112 and 113. 

We recommend the SEC adopt the amendments in the Proposal pertaining to Rule 14a-8 as soon as reasonably practical, and for the SEC to study proxy reimbursement.  Shareholders benefit from having as many tools in the kit as possible—we recognize this truism.  We believe however, that the SEC should reconsider Rule 14a-11 in light of this important state law development.  If the practice at HealthSouth becomes a trend, the SEC may find proposed Rule 14a-11 unnecessary to accomplish the objective of investor protection.”

Download Proxy Access Comment Letter

Recent public statements by SEC Chairman Schapiro indicate a vote on proposed Rule 14a-11 will occur in 2010. It may prove to be one of the more watched votes in recent SEC history.

 

Charles Elson on the Novartis-Alcon Merger

Charles Elson, Director of the Weinberg Center, was interviewed by CNBC on January 4th. The interview focused on the effects of the Novatis-Alcon merger on minority shareholders. Novartis bought a 25% stake in Alcon in 2008, and on Monday it decided to purchase Nestle's 52% in Alcon. Novartis has plans to purchase the remaining 23% of Alcon for $153/share (substantially less than the $180/share it paid Nestle). Clearly the merger is disadvantageous for minority shareholders, a result partially attributable to Switzerland's two-tier shareholder system. Charles Elson argued that investors in minority positions overseas are generally subjected to less favorable treatment than minority investors in the United States. The segment transitioned into a discussion of the effects of regulation and taxation on incorporation in the US. The video is available here.

John L. Weinberg Distinguished Speakers Series: Giovanni Prezioso

On December 1, 2009, the Weinberg Center for Corporate Governance hosted Giovanni Prezioso in it's John L. Weinberg Distinguished Speakers Series. Giovanni Prezioso served as General Counsel of the Securities and Exchange Commission from 2002 to 2006. Mr. Prezioso, a partner based in Cleary Gottlieb’s Washington, D.C. office, is a leading voice on securities law and corporate governance.

            Mr. Prezioso’s speech focused on the SEC’s role in a developing regulatory environment. The prominent issues were executive compensation, proxy access, and securities fraud. With respect to compensation, Mr. Prezioso discussed SEC enforcement of Sarbanes-Oxley’s “clawback” provision (Section 304). He also addressed recent SEC developments on proxy access. Federal reforms are likely,  despite recent Delaware action on proxy access and new proxy reimbursement bylaw amendments at Health South (see Delaware Corporate Governance Blog - Proxy Reimbursement). Lastly, Mr. Prezioso commented on securities fraud and the Madoff Scandal. He stated that inherent managerial structures in the SEC may impose limitations on the Commission's efficacy. 

            The next John L. Weinberg Distinguished Speakers Series will continue with an event in February/March.  Please visit this site for updates. 

Federal and State Corporate Governance Standards

On November 19th, 2009, the University of Delaware’s Weinberg Center for Corporate Governance hosted a seminar entitled “Federal and State Corporate Governance Standards.”  The program was designed to address the proposed legislative changes on governance and to further the dialogue surrounding the various governance models being considered. 

The panel addressed which of the two provided the most appropriate arena for responding to the evolving needs of corporations and their shareholders.  Specifically, the panelists examined the long-term implications of recent reform legislation which will federalize many elements of both corporate governance and executive compensation, which had typically fallen under state law regimes. 

The panel was moderated by Weinberg Center Director and Professor Charles Elson. Present were:

    •    The Honorable J. Travis Laster, Vice Chancellor, Delaware Court of Chancery
    •    John Castellani, President, Business Roundtable
    •    David Becker, General Counsel, Securities and Exchange Commission
    •    A. Gilchrist Sparks, Partner, Morris, Nichols, Arsht & Tunnell LLP
    •    William Clark, Senior Partner, Drinker Biddle & Reath LLP
    •    Harvey Goldschmidt, Dwight Professor of Law, Columbia Law School
    •    Ann Yerger, Executive Director, Council of Institutional Investors
    •    Norman Monhait, Member, Rosenthal, Monhait & Goddess, P.A.
    •    John Keenan, AFSCME
 
Interestingly, much of the debate centered on why the proposals changes were initiated, not what changes were included.   Senator Schumer’s “Shareholder Bill of Rights”, Congressman Peters’ “Shareholder Empowerment Act”, and Senator Dodd’s “Restoring American Financial Stability Act of 2009” include the following; (1) majority voting, (2) independent compensation committees and consultants, (3) annual advisory vote on executive compensation, clawback provisions, elimination of golden parachutes, enhanced compensation disclosure requirements (4) split chairperson and CEO, and (5) elimination of staggered boards through annual elections.  

Whether there remains a role for private ordering under state law under a federalized/SEC approach remains to be seen.  What may be most evident, however, is that if the provisions on governance in the Dodd Bill become law, an already strapped for resources SEC will have a lot more on its plate.  Given its current resourcing, and track record in the financial crisis, it is no surprise that critics challenge whether the agency will be up to the new tasks of governance cop for the nation’s public corporations. 

Pros and Cons of Separating the Chairman and CEO Positions

On November 3, 2009, the Weinberg Center for Corporate Governance at the University of Delaware hosted a Round Table entitled the “Pros and Cons of Separating the Chairman and CEO Positions.”   Designed to review the state of play in leadership duality and to see what consensus, if any, could be achieved around this issue, the Round Table examined the issue from both a US and global perspective, and considered the theoretical and practical implications of one the bigger shifts in contemporary US corporate governance.

The panel featured some of the leading experts and with broad experience in governance issues.  Present were:

·        The Honorable William Chandler, Chancellor, Delaware Court of Chancery

·        James D. Robinson, III, General partner, RRE Ventures; Retired Charman, Bristol Myers Squibb; Director, Coca-Cola, and Novell; Former Chair and CEO, American Express

·        Robert Monks, advisor Trucost, founder of Lens Governance Advisors, founder of Institutional Shareholder Services, Inc. et. al.

·        Jon Hanson, Founder & Chairman, The Hampshire Companies; Non-Executive Chairman, HealthSouth Corporation; Lead Director, Prudential Insurance

·        Ira Millstein, Senior Partner, Weil, Gotshal & Manges

·        Harry Kraemer, Executive Partner, Madison Dearborn Partners, Former Chair and CEO, Baxter International Inc.;

·        Bess Joffe, Associate Director, Hermes Investment Management Limited

·        Stuart Grant, Grant  &  Eisenhofer, Wilmington, DE 

The panel was chaired and moderated by Weinberg Center Director and Professor Charles Elson, and was co-organized with Jim Christie of Director and Boards Magazine.  Also present were Travis Laster, Vice Chancellor, Delaware Court of Chancery and Peggy Foran, of Prudential Insurance.   

The discussion gravitated towards the idea that the evolution of governance to date, which the panel members experienced firsthand, pointed towards the inevitable separation of the chairman and CEO positions.  Broad discussion was held about the differences between a non-executive chairman and a lead director, and the various models that lead to an enhancement of shareholder value. 

Significantly, despite the differences in backgrounds and experiences of the panel, broad consensus was achieved around the following:

·        Universal consensus was reached on the idea that should shareholders desire the roles be split, there should be no impediment to that structure.  However, while many on the panel were in agreement that a “default position” could be a Chair and CEO split (and ability for shareholder override) all agreed that a legislative or judicial mandate is a mistake and a bad idea.

·        The evolutionary trend toward a split in the US appears inevitable, certainly among larger corporations. 

·        The discussion was then directed towards guidance in selecting an effective independent chairman and how they should function.  The panel agreed that additional work on the roles and responsibilities of an independent Chair would be a meaningful next step.  It is clear what the role of a combined Chairman/CEO is, it is less clear where the duties of an independent chair begin and end. 

Perhaps it is a sign of the times when a previously hot button issue has reached a level of acceptance and a resulting focus on implementation rather than on threshold issues of utility.  A major take-away for policy makers is that a mandate by fiat is problematic, and would deprive companies and their owners with the necessary flexibility to create and run their business in the most effective manner.  Sometime it’s best to allow private ordering under state regimes (proxy access?) before the federal government writes rules that may be difficult to administer and may actually hurt rather than help.   

Podcast No. 4: NACD Blue Ribbon Commission Panel

Weinberg Center Podcast No. 4 is a recording of the NACD's Blue Ribbon Commission Panel's discussion of their report, "Risk Governance: Balancing Risk and Reward." The panel convened for the "Corporate Governance and Managing Firm Risk Conference" at the Weinberg Center for Corporate Governance at the University of Delaware.

Two main topics are considered: "How did boards respond to the financial crisis?" and "How should they have responded?"

Podcast No. 4: "Risk Governance: Balancing Risk and Reward"- NACD Blue Ribbon Commission

HealthSouth Uses New Delaware Corporate Law to Enable Proxy Reimbursement

HealthSouth has become the first major US corporation to take advantage of a recent change in Delaware law which allows companies, by by-law, to reimburse shareholders for expenses incurred in board elections.  Many shareholder activists have noted that access to a ballot, without reimbursement, is a barrier to entry for shareholders wishing to influence board composition.  The Delaware law enables reimbursement, something that the SEC's proxy access proposals currently do not.

Weinberg Center Director Professor Charles Elson, who as Chairman of the HealthSouth governance and nominating committee spearheaded the amendments, noted "I am pleased to see the playing field being leveled for all shareholders.  Today's action is a significant one for HealthSouth.  More generally, I expect this to be the first in a series of corporate actions to take advantage of this pro-shareholder Delaware law.  I have maintained that access, without reasonable reimbursement, provides shareholders with an empty right--the cost of proxy contests can be the real issue in shareholder empowerment."  

Please see this story for more details.  While the SEC has officially stated it has postponed its vote on its proxy access proposals until after this proxy season, public remarks from the Chairman and other Commissioners indicate a Commission vote will be held.  To some observers, it appears that the SEC believes it has a mandate from Congress to adopt proxy access reform on a federal level.  A very real question may become will federal action be necessary if the HealthSouth vote is the first domino to fall?