As the new year begins, we can’t help but look forward and wonder what 2012 has in store for corporate counsel. Many predictions have been made regarding the top trends and issues we will see in corporate governance in 2012.
The following list of trends and issues is culled from various sources and compiled into what I think will be on the top of the list for lawyers, directors, and board members in the year to come.
1. Campaign Finance Disclosure - with a Presidential Election in the United States in 2012, expect to see more pressure on directors to maintain oversight of corporate donations to political campaigns and adherence to proper campaign finance disclosures. According to a post by Francis H. Byrd called Top Ten Issues for Boards in 2012, “Taft-Hartley and public pension funds are looking to increase the number of proposals they filed last year. Their hope is that the filed resolutions will lead to agreements with companies to limit and/or have the board oversee such contributions and corporate political activities.” In-house attorneys will want to keep tabs on the activities in this area and make sure that boards keep within the designated limits.
2. Public Perception of Compliance Effectiveness, Executive Compensation Fairness, and Risk Management - after the financial crisis and adoption of Dodd-Frank, corporations have a public perception hurdle to manage that may be more difficult than the actual compliance hurdles now legally required of them. Look to see boards wanting advice on disclosure, shareholder statements, and perhaps even PR issues.
3. Separation of Powers in Board Leadership – often the CEO will sit on the Board of Directors for corporations in the United States. There is a growing corporate population calling for a clear split between executive leadership and board functions, similar to what is currently common in European companies. In his article, The Separation of Board and Company, Jonathan F. Foster says that a Boards most important function is to set an effective agenda that helps accomplish its primary objectives: “appointment, oversight and compensation of senior management; review of budgets and strategy; and oversight of financial reporting and capital structure.” He goes on to say that an independent Board leader has the flexibility to set an appropriate agenda more easily than senior leadership and CEOs because they must focus on running the company, rather than running the board. Also, a CEO’s immersion in the day-to-day operations may compromise her ability to maintain an objective oversight of senior management. When paired with number 2 above, look to see more Boards opting for a separation in these roles.
4. “Say on Pay Not Going Away” - as Dodd-Frank becomes hits its second birthday be wary of the terrible twos. Due to a “flagging economy that is driving down earnings,” Business Insider writes, “investors are likely to more closely scrutinize rising pay, and may take a more confrontational stance than they did during the financially heady days of the 2011 proxy season, when a rising economic tide seemed set to lift all boats.” They predict more no votes and a tougher time raising executive compensation without push-back. Compensation committees will need to be vigilant in justifying raises, and according to Byrd (see 1 above), pay attention to any pay practices “that both proxy advisory firms and majority shareholders have deemed problematic.”
5. Boba-Frank: Whistleblower Bounty Hunters - Section 922 of the Dodd-Frank Act contains a narrowly approved set of rules (3 to 2 to be precise), which created a $300 million whistleblower program. Employees are now eligible to collect between 10% to 30% when they provide original information leading to a monetary sanction exceeding $1,000,000. According to The New Bounty Hunters: Congress Creates New Incentives to Report Securities and Commodities Fraud an article by Thomas A. Hanusik, Michael W. Lieberman, and Brian Roemer of Crowell & Moring LLP, “the SEC and CFTC have discretion to determine the whistleblower award, taking into account:
- the significance of the information provided;
- the level of assistance the whistleblower provided;
- the government’s interest in deterring securities law violations; and
- other relevant factors”
Expect to see a rise in the number of bounties collected as whistleblowers begin to take advantage of the financial incentives and anti-retaliation provisions of Dodd-Frank.
What corporate governance trends do you predict for the coming year?