Top 10 Topics for Directors
- Strategic Planning Challenges: For the fourth year in a row, strategic planning tops the list. Overseeing the company’s direction is a core board responsibility, often requiring directors to step back and look at the company’s business from the “20,000 foot level.” In addition to economic and geopolitical uncertainties, management and boards face a host of other challenges as they plot their company’s long-term strategic direction.
- Cybersecurity: The SEC and other government agencies have made clear that they expect boards to actively manage cyber risk at an enterprise level. In the wake of prominent breaches, the CEO and CIO of Target resigned, boards of directors of Target and Wyndham Hotels were sued for breach of fiduciary duty, and Institutional Shareholder Services Inc. (ISS) openly campaigned against members of Target’s audit and corporate responsibility committees. These tangible consequences for boards and management are a response to growing awareness of critical risk.
- Assess the Impact of Advances in Technology and Big Data: Directors are becoming much more attuned to the important role that information technology will play in their company’s future. As the pace of technological change continues to accelerate, it becomes ever more difficult to stay abreast of changes, much less grasp their implications. This poses significant challenges to boards and management, notably relating to the information domain, mobile technologies, social media, and the ubiquitous interconnectivity of today’s world.
- Shareholder Activism: Shareholder activism is on the rise, and activists are becoming more creative in building alliances. With the success that activists are experiencing and the billions of dollars that they are raising, there is no doubt that activism will continue in 2015. With the threat of activism in the air, boards need to be prepared. Directors need to understand how activists think and what tactics and tools activists employ. The newsletter outlines steps to help companies and boards be prepared.
- The Return of M&A: M&A activity picked up steam during 2014. Over $2.5 trillion in deals were announced in the first nine months of 2014, with U.S. deal volume leading the way and Europe and the Asia-Pacific region also experiencing increased deal volume. An improving economy, large cash balances and cheap debt are the primary drivers fueling this uptick in M&A activity. The newsletter covers a waterfront of deal trends and their impact on the activities and general thinking of directors.
- Risk Management: Risk management goes hand in hand with strategic planning. An increasingly interconnected world economy continues to spawn newer and more complex risks that challenge even the best-managed companies. How boards respond to these risks is critical, particularly with the increased scrutiny being placed on boards by regulators, shareholders and the media. The newsletter offers practical tips for boards in evaluating the adequacy of their risk management oversight procedures.
- Ensure Appropriate Board Composition: Finding the right mix of people to serve on a company’s board of directors is undoubtedly a difficult task. With increasing globalization, changing marketplace dynamics and shareholder expectations, it is essential that boards have the right mix of experience and expertise to oversee the opportunities and challenges that their companies face. To achieve optimal board composition, further consideration should also be given to the diversity of the board, director tenure and board size. As companies focus on board composition, it would be wise for boards to keep an eye on developments in proxy access and establish a plan for responding to a proxy access proposal if one comes their way.
- Explore New Trends in Reducing Corporate Healthcare Costs: The increasing cost of healthcare is a significant concern for companies that provide healthcare benefits to their employees. With certain key provisions of the Patient Protection and Affordable Care Act still looming and with healthcare costs expected to grow 6.8 percent in 2015, boards need to understand how healthcare costs will impact their company’s cost structure and strategy going forward. The newsletter sets forth several actions that boards should be considering.
- Executive Compensation: Executive compensation remains a hot topic for yet another year, particularly with pay disparity and pay for performance regulations still looming. The newsletter highlights some of the matters directors should be considering as they craft executive compensation for 2015, including say-on-pay, proxy advisory firm recommendations, shareholder outreach and pending Dodd-Frank regulations.
- Maintain Robust Compliance Programs: Directors should make sure that their companies maintain robust compliance programs and disclosure controls and procedures. The SEC has stepped up its enforcement efforts, and Chair Mary Jo White has made good on her vow to pursue even the smallest infractions. In 2014, the SEC filed a record 755 enforcement actions spanning the securities industry and including several first-ever cases. It is critical for companies to have comprehensive and effective compliance programs in place, including a transparent process for internal investigations. Companies should also review and update as necessary their anti-retaliation policies and procedures and make sure employees and executives at every level are sufficiently trained in this area.
Published January 27, 2015.