During the time between year-end and the annual meeting, public boards are planning director elections, effecting audit review to conclude the annual financials, addressing 10K and proxy matters, evaluating shareholder proxy and other proposals from activists, and conducting intensified committee meetings which inevitably follow fiscal year-end. Key board issues for this period were highlighted at the January 13th breakfast meeting of the New England Chapter of the National Association of Corporate Directors, where a panel of financial, legal and shareholder relations experts summarized the current state of play.
From a shareholder communications standpoint, directors shall be focusing on an evaluation of board members standing for reelection. Broader disclosures should be considered, aside from simply reciting education and work background. Consider proactive disclosure with respect to the reason that each individual has been elected to your board: diversity, different skill sets, domain experience, etc.
Management should be prepared to engage activist or institutional shareholders which are likely to have questions after year-end. Have you reviewed your corporate strategy against performance last year? How do you answer questions about your plans for capital expenditure and, particularly, use of excess cash which many corporations have been collecting? Is a share repurchase program actually the best use of company money, given recent analyses that suggest that shareholder value is not thereby enhanced, or is it simply a sign of lack of imagination as to how else to apply the capital?
This is also a good time to review your crisis plan, including identification of inside and outside teams, coverage of social media, and review of “hidden website” content which has been prepared to meet various crisis scenarios.
From a financial control standpoint, boards sometimes find themselves on a somewhat different wavelength from internal audit, which may be directing its attention to operational efficiency. The board’s role is to assure robust financial reporting. Has your board reached out to the internal audit function to make clear that internal financial control is to be given high priority? Has the board engaged its audit committee, or its risk committee, for a year-end review and projection of risks in context?
Other currently hot board topics include: should your CEO be your board chair or should the board chair position be independent (does your board want to undertake a renegotiation of the CEO contract which likely says that the CEO also is to serve as chair?); what is your board’s approach to term limits or “aging out” of directors (might your board be reviewing the European approach which views “independence” holistically, and suggest that ten years of service by definition renders any board member no longer “independent” in a meaningful way).
There will follow a post on the so-called SDX protocol, an organized effort to improve institutional investor access to independent board members.