Given the changing landscape in corporate governance, Winston & Strawn held its fourth eLunch program to help clients understand the 2012 proxy season. (All sessions are available on the law firm’s website.)
Having analyzed 50 proxy statements filed by Large Accelerated Filers from mid-November 2011 until mid-January 2012, the legal team of Chris Edwards, Mike Melbinger, Erik Lundgren, Oscar David and Karen Weber were able to offer real insight into how to best handle some of the most challenging issues boards are facing from ISS recommendations to say-on-pay responsiveness, board risk oversight, proxy access and reporting on the company’s political spending and lobbyist. By providing examples of how companies are handling these issues, they gave other companies insight into how they can better manage the 2012 proxy season.
The themes of the firm’s advice fell broadly into three categories—stand by your principles, communicate clearly and often and don’t procrastinate—know what your issues are and be proactive in addressing them.
Melbinger, whose compensation blog, is widely viewed as the best in the business, noted that he has blogged about the requirement for companies to report on how they addressed the shareholder advisory say-on-pay vote.  There is not a defined response, but the board must address how they considered shareholder input, even if it was to ignore the advice the shareholders were giving.Shareholder interest in compensation doesn’t end with management.  This year, there are several proposals asking for Say on Board pay.
Today, shareholders are clearly part of the governance conversation and companies must respond.

The best board members of non-profits understand that they need to bring their passion for the non-profit’s mission as well as a willingness to contribute and assist in fundraising.
“Fund-raising is a challenging aspect for non-profits in this environment,” observed Francesca  Edwardson, CEO of the American Red Cross of Greater Chicago Region.
“Given the fiscal challenges that our government is facing, it’s even more critical that board members understand how much the organization is depending on them to assist in publicizing the good works of the organization and not being afraid to ask others to help support us.”

The Chicago Red Cross is “Helping people prevent, prepare for and respond to emergencies. Serving Cook, DuPage, Kane, Kendall, Lake, McHenry, Will, Kanakakee, Grundy, Dekalb counties in Illinois and several counties in Northwest Indiana.

If you’ve missed what the Red Cross is doing in your own backyard, sign up to follow the organization on Twitter (@chicagoredcross) where you’ll learn things like:
“Yesterday our responders helped accommodate three dozen people displaced by
home fires. Thanks volunteers!”

Maryann Waryjas of Katten Muchin and Gail Meneley of Shields Meneley Partners convened a group of non-profit board members and supporters to a breakfast panel discussion, “Stepping Up to Leadership: What Nonprofits Need from Board Members” featuring Francesca Edwardson, CEO of the American Red Cross of Greater Chicago, Ricardo Estrada, CEO of Metropolitan Family Services, and Richard Malone CEO of YMCA of Chicago.  David Coolidge, vice-chairman of William Blair and a veteran director of 28 non-profit and public company boards, served as moderator.

Malone spoke of the importance of board members helping with external stakeholder relations, especially in the way the organization should be perceived by the community, bringing important information back to leadership.  Edwardson spoke of her pride in being a servant to the Red Cross and how important it was for directors to bring their passion to a non-profit board. Estrada spoke of the value of director expertise to fill in gaps of knowledge and expanding the network of the non-profit.

Since fundraising is an important element of non-profit board duties, all three leaders spoke about their concern of losing a strong board member, either through term limits or retirement.  Yet these leaders said they’ve learned to have faith in their board’s nomination and governance committees or leading directors in their thoughtful and proactive efforts to identify new talent in renewing the board with new skills that help to contribute to the longevity of the organization.

As strong leaders of their organizations, they spoke of the value in the engagement with their boards, an impressive demonstration of governance.

In addition to Katten and Shields Meneley, the Roundtable was an undertaking of Gloria Castillo of Chicago United, Ted Dysart of Heidrick & Struggles and Brad Wilks of Sard Verbinnen.

Patrick McGurn, Special Counsel, Institutional Shareholder Services, offered his insights into his firm’s just published governance policy for 2012 in a Winston & Strawn LLP  webinar.  He urged companies to tell shareholders about their outreach efforts, what actions the company was taking as a result of last year’s shareholder votes on Say on Pay and other issues and how the board would adjust disclosure as a result.  Most importantly, he advocated a proactive approach, not waiting for the proxy, but to make supplemental filings now that could be re-emphasized in the proxy.
He saw the coming proxy season more like 2009, the depth of the downturn and the “high-water mark” for activists rather than last year’s relatively easy proxy season. He noted the backdrop of a presidential election and the anger that is being expressed in the Occupy Wall Street movement.
McGurn advocated more engagement and reaching out to the second tier of the shareholder base. He noted that opposition has come from these groups in the past.
The goal of such engagement is a dialogue.  Since the Say on Pay votes are advisory, it’s making shareholders part of the governance process.

and what they heard in sessions with He characterized the upcoming proxy season as “uncertain” noting a presidential election on the horizon, anger as expressed by the Occupy Wall Street groups and As he looked broadly at the

In a webinar sponsored by the Harvard Business Review, Baruch Lev, professor of
Accounting and Finance at the Stern School of Business of New York University,
debunked a number of favorite investor myths not with opinions but with quantitative
research.

The webinar is based on Lev’s latest book,  “Winning Investors Over:  Surprising Truths about Honesty, Earnings Guidance, and Other Ways to Boost Your Stock Price.” He points out that capital markets are crucial to companies’ success and those who lead them. But corporate leaders are largely mired in misconceptions that
govern their behavior to the detriment of employees, investors and interested
parties. Perhaps one of the biggest myths is that investors are focused on
short term, quarter-to-quarter results.

Instead, Dr. Lev presents detailed research that charts how investors
are patient and  have strongly supported long-term growth investments from 1947 to 2007.

The bromide to winning this battle is honest, regular communication with investors coupled with conservative accounting. He advises companies to go beyond required
disclosure to enhance investor understanding.  And actions such as corporate leaders increasing their personal investment in a company also goes a long way to convey credibility.  “Share some knowledge.  Let your investors know what’s in the
pipeline of products.”

By challenging conventional wisdom and backing it up with research, Baruch Lev gets it right.

Chicago’s newest hometown CEO,  Jeff Smisek took to the stage at the Executive’s Club of Chicago and offered some simple lessons for creating a new culture for the 86,000 employees of United, the largest airline in the world.  Yes, he addressed the huge challenges facing the enterprise—taxes, regulation, a capital intensive and labor intensive business. But, he noted, if you get the culture right, everyone is focused on doing the right thing and United-Continental will not just be the biggest airline but the best—the world’s leading airline.

Smisek acknowledged that mergers are difficult enough for employees but if you have the same terrible boss after the merger as you had before the merger, it’s not going to help you make the airline better. The new United has a new culture based on dignity and respect.  “It’s simple. It’s what your mommy told you: ‘Treat people the way you want to be treated and never tell a lie.”

That culture will encourage employees to use their best judgment in doing the right thing, the key to being a great company. And, he’s made it the responsibility of the top 700 leaders in the company to help him root out the bad bosses by tying it to their compensation.

His remarks were brief, the answers to questions candid and forthright and the warm welcome conveyed the audiences support that he’s the man to get the job done.

The iBooks will be appearing on iPads (and Kindles) shortly:  how the leadership style of Steven P. Jobs created the most valuable company in the world.

The obituaries reminded us that this was the man who transformed the way we use technology, how we listen to music, watch TV shows and movies. Not only a genius, Steve Jobs will be remembered as the leading figure of our time.
Jobs saw himself as neither a hardware engineer nor a software programmer, but a technology leader who chose the best people possible.  And once they worked for him, he encouraged them, yes but more often he prodded and criticized them. Occasionally, he even humiliated those who dared to bring him anything short of “insanely great.”
Be careful, leadership gurus, how you spin these critical characteristics. In anyone less than Steve Jobs, that is, all of us, such insistence on being better, not settling for less could turn mean, harsh, brutal.

Steve Jobs meddled, demanded that everyone do better. Steve Jobs who suffered his own purgatory at a young age, grew success outside of Apple and returned to create greater triumphs in recreating the company, embodied the gifts and the knowledge to elicit extraordinary loyalty.

“He was the most passionate leader one could hope for, a motivating force without parallel,” wrote Steven Levy, author of the 1994 book “Insanely Great,” which chronicles the creation of the Mac.

In the face of whistleblowers, tone at the top of the company has never been more important. So is the board’s role in both overseeing and monitoring the culture of an organization.

In a webinar, sponsored by Jim Kristie of Directors & Boards magazine and
the law firm Morvillo Abramowitz, Barry A. Bohrer and Richard D. Weinberg
discussed “Internal Investigations 2011: What Directors Need to Know.”

In light of the new SEC rules that reward whistle-blowers with rich bounties,
the renowned attorneys stressed the need for strong compliance programs and a
corporate culture that encourages employees to report problems early.

Weinberg suggested that boards consider “prepared preliminary action plans,”
which could include how the board would handle an internal investigation,
vetting outside attorneys and forensic experts in advance and discussions about
whether they would delegate oversight of the investigation to audit or a
special committee.

How the board handles the investigation is critically important in terms of
disciplinary action. Did the organization self report? Did they handle the
investigation expeditiously and credibly?  Did they engage independent
help in the form of advisors, attorneys and forensic specialists?

Shareholders, employees and the public are watching.

Given the dramatic level of shareholder approval for most compensation programs during the 2011 proxy season, many directors may be inclined to view the historic Shareholder Say on Pay and frequency of Say on Pay votes as over and done. They would be mistaken.

In Winston & Strawn’s excellent eLunch (webinar) program last week, “Preparing for the 2012 Proxy Season: Governance and Executive Compensation Strategies,” Michael Melbinger, Christine Edwards, Oscar David, Erin Stone and Erik Lundgren reviewed the past season and advised that this is no time for complacency. (The presentation is still available online.)  Boards should be reviewing what they learned from their shareholders and preparing for the upcoming season, which will feature more Dodd-Frank requirements in the CD&A and other disclosures that link pay to performance.  “Prepare early.  Think about it now.  Tell your story,” Melbinger told the audience.

The SEC wanted Say on Pay to cause boards to interact with shareholders.  That’s what happened, particularly for companies with contentious issues.  Those that prepared executive summaries, used charts and plain English to explain their compensation plans and even those who filed supplemental materials were largely successful.

The curtain has been lifted. Shareholders have greater expectations for communication with the board, more involvement in governance.  Smart boards will anticipate shareholder issues and minimize contentious issues. Don’t
wait for 2012 proxy season.  Begin now.

Poor financial returns, low stock price, a board that hasn’t changed for over a
decade—these are some of the board characteristics that attract activist
investors. To make the case for board change, the activists will attempt to
draw a correlation between poor financial and operating performance with poor
oversight as a way to blame the board.

In a Blank Rome LLP webinar, partner Keith Gottfried warned participants not to be
that board. Conduct your own evaluation of the board’s vulnerabilities: Has the
board failed to hold management accountable? Is the compensation excessive?
Does the board lack sufficient industry experience? Has the board explained how each director is qualified?  Is the board lacking in diversity? Is the board sufficiently independent?  Is there a perception that the board is not “fully engaged”?

Paul Schulman of MacKenzie Partners and Chris Cernich of ISS also participated in the webinar.

Shareholders are now part of the governance dialogue.  Not only must the board carry out its duty of care to represent all shareholders, but they must convey in
board structure and leadership how the board governs.  The webinar together with the presentation is posted on the Blank Rome website.