NACDNJ Hosts Panel Discussion on Not-for-Profit Boards
On Thursday, May 10, the New Jersey Chapter of the National Association of Corporate Directors (NACDNJ) concluded its spring seminar series with a panel discussion on not-for-profit boards. Panelists included Karen Maloney, senior vice president and general manager - Financial Shared Service Centers at Viacom and board member of Girl Scouts of the USA (GSUSA) where she chairs the Finance Committee; Meme Omogbai, chief operating officer of the Newark Museum where she serves on the Board of Trustees and as the assistant treasurer, and board chair of the American Association of Museum (AAM); and Steven Schwager, executive vice president and CEO of the American Jewish Joint Distribution Committee (JDC). Moderating the panel was Glenn Davis, partner at J.H. Cohn LLP and Corporate Governance Practice leader. The breakfast program was held at the Canoe Brook Country Club in Short Hills.
In his opening remarks, Mr. Davis noted that not-for-profit board directorships are often perceived as stepping-stones along the path to for-profit boards. Yet in practice, he observed, the issues with which not-for-profit boards must contend are often far more challenging than those faced by their for-profit counterparts. These challenges include a scarcity of financial resources; legacy mindsets; enthusastic but often unskilled volunteers; less timely or comprehensive financial and operating information; term limits for board members; and an extraordinarily low tolerance for reputational and financial risk.
Ms. Maloned opened the panel discussion by saying "it was her desire to give back that motived her to join the GSUSA board." She saw it not as a stepping-stone to the for-profit arena but rather as an opportunity to support an organization in which whose mission she strongly believes. Admittedly she had no exposure to the not-for-profit world before joining the GSUSA board, and was surprised by the financial and compliance rigors it requires. She noted that she joined the GSUSA board at a time of realighment and was excited to be able to participate in the transformation from a "colloquial" organization to one more "professional." She's impressed not only by the skill sets of her fellow board members but also its commitment to gender, geographic, and ethnic diversity. She observed that this diversity has enriched the decision-making process by providing a more balanced view of the potential impacts the decisions will have. Ms. Maloney noted that for-profit boards often lag behind their not-for-profit cousins in this regard.
Ms. Omogbai noted that the unifying factor of all boards - be they for-profit or not-for-profit - is concern over money. In describing her experience with both the Newark Museum and the AAM, she observed that there is an obscene amount of money associated with the museum world yet discussions of money have been considered taboo for so long that even today, most museums' balance sheets do not include a valuation of the museum and its collections. Ms. Omogbai noted the irony of a museum having a severe cash floww issue when the sale of just a single artifact could ease the strain considerably. Yet divestiture is still mostly considered sacrilege in the museum world. These cultural nuances lead to unique challenges, she noted. These challenges can be met by identifying board candidates positioned to advance the organization's various objectives, including risk, succession, and strategy. How do you introduce "new blood" (with new skill sets) onto the board without upsetting the establishment? A shared passion for the mission of the organization builds synergy and cooperation among board members, and diversity breeds innovative ideas, Ms. Omogbai observed. Slowly the focus begins to shift from legacy concerns to what can we do to make it better? "Doing it better helps us all get money," she said, which is the ultimate goal of any enterprise.
Mr. Schwager described what it is like to serve on the board of the JDC, a 100-year-old organization with 150 board members. Historically, the board received all of its funding from the federation, and nothing was required of the board members except to attend meetings. But as the world changed over the last century, so did the mission of the JDC. Today the JDC serves more than 165,000 people in 70 countries, and is largely responsibile for its own fundraising. This growth in scope precipitated a cultural shift in the organization's board, one that sets high standards for governance and financial practices. The board underwent a period of great turnover driven by the need for members possessing skills and expertise commensurate with the business needs of the ever-expanding global organization. To address funding issues, Mr. Schwager noted that an annual board campaign was instituted (inspired by funds raised by senior staff), and has proven to be highly successful. Given its long, rich history, the goal was not to change the dynamics of the JDC board, but rather its culture. He noted that today's JDC board members not only commit themselves financially, but also invest a lot of time to attend meetings, which are held three times per year with a one-week commitment to travel overseas. In addition, a number of committees have been formed to address the various needs of the organization more strategically. These committees are made up of people with specific skill sets; a number of these committees meet independently to ensure the JDC mission continuously moves forward.
All three panelists agreed that an ability to be "nimble" and an unwavering focus on mission are critical to an effective not-for-profit board directorship. These characteristics translate to a willingness to find solutions to the distinct challenges not-for-profit boards face.
At the conclusion of the session, panelists fielded questions from attendees on topics such as term limits, board composition, board size, governance, bifurcation of the CEO/chair role, etc.
Submitted by Stacy Stanford
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NACDNJ Hosts "Four Steps to Creating a High Performance Board in Today's Digital World"
On Thursday, April 19, the New Jersey chapter of the National Association of Corporate Directors (NACDNJ) presented a thought-provoking session on the impact of social media on culture in general and business specifically, and the four primary requirements boards should consider in any discussion involving this powerful force. The guest speaker, Barry Libert, is a technology investor, corporate director, and strategic advisor to boards seeking to leverage social, mobile, and cloud technologies to drive value and mitigate risk. The breakfast program was held at the Canoe Brook Country Club in Short Hills.
Social networks such as Twitter, Facebook, and LinkedIn are growing at staggering rates and represent a new dynamic through which humans interact with one another. Mr. Libert pointed out that these communities are growing faster rates than any religion, are larger than some countries, have no geographic boundaries, and can be used as a powerful force for change (think Arab Spring). Some companies, such as those in the consumer products arena, realized the potential of the new medium early on and use to to their advantage - primarily as another stage on which to market their wares, observed Mr. Libert. However, many other businesses are still trying to figure out what their strategy should be with regard to this brave new world and the opportunities and threats that it poses. What's clear is that the old ways of doing business are eroding, and corporate knowledge, data, and customer relationshps are being digitized by hook or by crook.
Studies should that 57 percent of board members report that they don't use social media and 81 percent say they are ill-equipped to deal with the risks they present. Mr. Libert noted that 97 percent of all organizations allocate their capital in the exact same way as they did years ago, yet the landscape is vastly different. Investors, customers, analysts, the media etc. are now digitally interconnected, and an organization can potentially be built up or brought down in an instant.
Clearly, it's imperative for corporate boards to start talking about social media if they aren't already. Mr. Libert discussed four key areas on which boards should focus their social media discussion: 1) Purpose - interpreting the needs of investors in the context of market realities; 2) People - recruiting board members and executives with today's competencies; 3) Practices - helping organizations build the right operational and technology competencies that tap the power of empowered customers and employees; and 4) Potential - monitoring enterprise risks and rewards in a connected world.
Mr. Libert encouraged attendees to assess their business models, their risks, and the overall focus of the boards on which they currently serve. What is being monitored and measured? How do you allocate your capital in relation to your risk profile? What sort of investment is being made in your technology? Are you adaquately addressing the digital age and its challenges via board composition, corporate policies?
NACDNJ Chapter President, Marty Coyne, concluded the session by urging attendees to take what they heard back to their respective boardrooms and begin discussions regarding social media and their approach to both its risks and its benefits.
The next NACDNJ breakfast session, "How to Profit from Not-for-Profit Boards," will be held on Thursday, May 10, 2012
Submitted by Stacy Stanford
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NACDNJ Hosts Program on Climate Change and Sustainability
On Thursday, March 15, the New Jersey chapter of the National Associate of Corporate Directors (NACDNJ) hosted a panel discussion on business issues related to "going green." Panelists included Thomas Kloc, Managing Director-Sustainability Practice, KPMG; Al Matos, Vice President, Renewables & Energy Solutions, Public Service Electric & Gas Company; John Morello, Director, Blackrock; and Elizabeth Wallace, Senior Tax Manager-Credits Practice, KPMG. Christine Kachinsky, Federal Tax Partner, KPMG, moderated the discussion. The breakfast program was held at the Canoe Brook Country Club in Short Hills.
Before the discussion got underway, NACDNJ Chapter President and CEO Marty Coyne took a moment to set the stage for the topic at hand. Noting increased pressure on natural resources, energy security, climate change, population growth and stakeholder demands, it seems as though sustainability is the new business mega-trend, he observed. Indeed, both small and large companies across a wide range of industries are implementing sustainability initiatives as core components of their business plans. He noted that many of the companies that have embraced sustainability have found that not only have they realized reduced energy costs, but also a boost to their reputation, client relationships, and their ability to attract and retain talent.
Ms. Kachinsky started by discussing the business implications of scarce resources, expanding urbanization, and population growth. What can businesses do so protect their bottom line and mitigate the risks associated with these realities? Is "going green" a viable answer?
Mr. Kloc noted the difficulty in gaining consensus regarding the definition of sustainability and the need for a standardized approach to corporate sustainability programs. In his view, a sustainability program is linked directly to corporate social responsiblity (i.e., good citizenship) and should address five key areas:
1. Climate change - what is your company's carbon footprint?
2. Overall environment - what are your land use, water, and public safety considerations?
3. Human capital - how do you treat your employees (e.g., workplace safety)?
4. Community engagement - how do you engage with the community in which you conduct business? What are your acts of good will?
5. Products and services - how do you develop products or offer services with a sustainability mind set?
Boards should consider the risks associated with these five areas and look for ways to mitigate them, he noted.
Ms. Wallace acknowledged that the ROI of sustainability is often not realistic to a lot of companies. She noted that various credits, grants, and incentives exist on the federal, state, and local level that could make the overall costs of "going green" more palatable to businesses.
Mr. Matos discussed the New Jersey energy master plan, which sets aggresive goals for reductions in greenhouse emissions and increased energy independence. He's seeing an increase in the number of sustainability officers in companies of all types, not just the energy sector. The challenge, he noted, is to balance short-term performance goals with long-term sustainability goals.
Mr. Kloc discussed the business drivers for sustainability and the ways in which a sustainability program and the resulting report could be used as a tool to show investors that your company is committed to its future. He noted that better standards for reporting are needed as is a set of standardized criteria to assure the integrity of such reports.
Mr. Morello discussed various subsidies and set ups such as special allocaiton partnerships, noting that U.S. tax policies actually encourage tax incentives to those businesses that invest in these partnerships. He has noticed that some companies are intrigued by the rate of return these partnerships offer that may not be otherwise realized.
The panel also briefly discussed corporate citizenship in a broader sense, including labor standards, conflict minerals, child labor laws, consumer market compliance reports, the California Transparency in Supply Chains Act, etc., noting a parallel to sustainability issues.
Panelists then fielded quesitons from the audience ranging from the political risk attached to initiatives that rely on government support, to risk management and strategic planning.
The session concluded with agreement that sustainability and its impact on business is a complicated issue that is poised to become even more complex in the future. To stay ahead of the curve, boards ought to consider the implications of sustainability and related corporate citizenship issues as part of their overall strategy.
The next breakfast session "Four Steps to Creating a High Performance Board in Today's Digital World" will be held on April 19.
Submitted by Stacy Stanford
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NACDNJ Hosts Program on Emerging Trends in Directors' Liability
On Thursday, February 16, the New Jersey chapter of the National Association of Corporate Directors (NACDNJ) hosted a panel discussion on the emerging trends and concerns that are rising in priority within the corporate boardroom. The panel included four attorneys, each with a unique perspective on the liability concerns and litigation trends for directors. More than 50 people attended the breakfast program, held at the Canoe Brook Country Club in Short Hills.
The panel discussion was led by Robert Yellen, who serves as chief underwriting officer, financial lines North America, at Chartis. Panelists included Joseph Armbrust Jr., a partner in the New York office of Sidley Austin LLP, practicing in the Corporate/Securities group; Reed Kleinle, a senior complex claims director in the Corporate Directors and Officers office of Chartis Financial Lines Claims; and John F. Mullen Sr., who leads Nelson Levine deLuca & Horst's Complex Litigation Practice Group.
Mr. Yellen kicked off the session by sharing some current statistics that illustrate the increase risk exposure today's businesses face. He noted the trends he's seeing in his role as an underwriting officer, particularly in the areas of cyber security risks and the asset security risks associated with cloud computing. As exposure gets worse, risk managers are feeling more pressure for insurance budgets, he observed. The October 2011 SEC Guidance, which highlights the need for companies to increase their focus on cyber risk, underscores the severity cyber risk poses to companies.
Mr. Kleinle, who deals with complex D&O claims for multinational and domestic public companies, noted an uptick in claims related to securities, shareholder derivatives, bankruptcies, and regulatory investigations. While there are currently approximately 5,000 publicly traded companies in the U.S. today - a decline from previous years - securities class action suits related to mergers and acquisitions and issues with U.S. - listed Chinese companies are increasing. The cost of discovery is increasing too, said Mr. Kleinle, particularly e-discovery. Therefore the cost of discovery needs to be weighed against settlements. Mr. Kleinle also discussed the ramifications of the Foreign Corrupt Practices Act (FCPA), U.K. Bribery Act, and other regulatory statues, noting that officers are being pursued aggressively and the DOJ has stepped up investigations.
Mr. Mullen, who specializes on the preparation for the defense of network security and privacy data breach events, noted that during the first decade of the 21st century, states began to pass legislation regarding the reporting of cyber security breaches. The costs associated with such an incident are high, noted Mr. Mullen, and include fees for attorneys, forensic teams, customer communications, etc. Police and authorities such as Health and Human Services (for healthcare related breaches) need to be alerted too, not to mention the media fallout. A cyber breach could spell utter disaster to a business' reputation.
Mr. Armbrust discussed the trends he's seeing related to corporate governance, such as enhanced whistleblower provisions under both Sarbanes-Oxley and Dodd-Frank. He cautioned that a company's tone at the top ought to be such that an environment is created wherein whistleblowing is a last resort. He also discussed the implications of the FCPA, the Federal Travel Act, and U.S. Sentencing Guidelines on corporate governance, noting the importance of having strong preventive measures in place such as up-to-date policies and procedures and training programs. Disclosure of risks factors is a board concern, noted Mr. Armbrust. In exercising its duty of care and duty of loyaty, a board should have an understanding of the risks their organization's faces and make sure there are people within the organization that have these risks under control.
The panel then discussed topics board members should consider when evaluating their risk exposure, the associated mitigation tactics, and their personal liability. Boards should ask: What are our exposures? Do we have D&O insurance? What about Side A coverage? Do our company's bylaws include mandatory indemnification coverage? Do we understand the company's risk management program?
NACDNJ Chapter President & CEO Marty Coyne concluded the session by summarizing some of the key observations made regarding director liability; the rise of certain risks particularly cyber security, FCPA, and whistleblower; and best practices with regard to risk management and the board's role in good governance.
The next breakfast session on "Climate Change and Sustainability: Unlocking the Value of Sustainability" will be held on March 15. For more information, visit www.nacdnj.org.
Submitted by Stacy Stanford
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NACDNJ and Executive Women of NJ Host Program "Adding Women to Boards: Turning Your Board's Best Intentions into Action"
On Thursday, November 17, the New Jersey chapter of the National Association of Corporate Directors (NACDNJ) and the Executive Women of NJ (EWNJ) jointly hosted a panel discussion on the challenges faced by women who wish to find a place in the boardroom and the advantages of having a diverse board. More than 60 people attended the breakfast program, held at the Canoe Brook Country Club in Short Hills.
Guest speakers included Marcella (Marcy) LoCastro, CEO of MLoCastro Consulting LLC, and board member of BioClinica, Inc., Alvarez and Marsal, and several professional organizations; Edward Ludwig, chairman of the Board of BD (Becton, Dickinson and Company; and Francois Nader, MD, president, CEO, and director of NPS.
Approximately 200 corporate board seats become available per year and there is a tremendous amount of competition for this handful of seats. This statistic, coupled with the fact that female participation on corporate boards currently stands at 17 percent, adds up to a daunting proposition for a woman seeking one of these seats. Given these slim prospects, the NACDNJ/EWNJ seminar resonated not only with the women in attendance, but the men too.
Ms. LoCastro kicked off the discussion by sharing the lessons she learned on her quest to join a corporate board. Speaking frankly, she recounted some of her early missteps, including relying almost exclusively on executive recruiters to review her resume and match her with a board seat. Only 14 percent of all board seats are filled in this manner, she learned. Additionallly, recruiters typically zero in on C-suite people at Fortune 500 companies to fill those seats. After many months of trying, she found that selling one's resume cold is not an effective tactic. Recent surveys by the NACD and Catalyst Inc. indicate that 86 percent of these seats are filled via referrals and networking. Given this data, Ms. LoCastro observed, anyone - not just women - desirous of a board seat need to leverage their professional networks, ensure they are doing whatever they can to promote their credentials and establish themselves as industry experts, be active participants in professional organizations, and use a multi-pronged approach to putting the word out that you're interested in participating on a board. Targeting specific companies and doing thorough research on them is also key, she observed.
Ms. LoCastro stated that involvement on not-for-profit boards can often be leveraged as a steppingstone to serving on public and private corporate boards as much of the experience is relevant and transferable. Once a person decides he or she wants to serve on a corporate board, the journey can be long (two-and-half years on average), she noted. Therefore, managing one's expectations is as important as staying focused and determined. Click here to view Marcy's entire presentation outline.
The boards on which Mr. Ludwig serves - Becton, Dickinson, Aetna and Xylem - each have strong female representation. These boards, he said, are committed to diversity not only in terms of gender but also ethnicity. Informal networking was used to fill these positions in all cases but one, where a recruiter was used to fulfill a specialized need. He noted that searchs should be expanded beyond the typical avenues to include academia, government, smaller companies, not-for-profits, etc. as they often yield strong candidates with unique insights and perspecitives that complement existing board composition.
Dr. Nader noted that his experience at NPS differed. Approximately five years ago, NPS sought a candidate to fill a board seat. A recruiter's six-month search yielded no candidates. Three years later, the search was repeated but with more specific criteria. This time, 36 candidates were identified but they were all male. NPS then broadened its search. Executive recruiter databases are enormous, he noted. It is therefore important to use keywords and phrases and be as specific as possible when describing your background in your resume. Additionally, candidates need to demonstrate their willingness to be truly active in the board and understand the time commitment. He also stressed the importance of taking the time to research and become "expert" in the target company. With so much competition, small details can become the tippping point. Dr. Nader noted that there is also a "career progression" when it comes to serving on boards - starting with a seat on a small not-for-profit, progressing to a small private company, and culminating with a large public company. Lastly, he urged selectivity when seeking a seat, because of the professional and personal liability associated with a bad choice.
The panel then shared their observations with regard to the impact women have had on the boards on which they serve, including an increase in civility (which drew a chuckle from attendees) and a more humanistic approach to some issues. Diversity in board composition can be an important element in a highly functional board, stated Dr. Nader, but it is not a guarantee of success. Boards also need intersections of functional expertise to be effective, added Mr. Ludwig.
Martin Coyne, NACDNJ chapter president and CEO, concluded the program by sharing his personal experience, and stating that to put a commitment to diversity into action, boards must hold themselves accountable and widen their searches and deepen their networks to find qualified individuals. It worked for the boards on which he serves with great results.
Submitted by Stacy Stanford
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NACD-NJ Holds Panel Discussion on Shareholder Communications Issues, Challenges and Strategies
On Thursday, October 20, the New Jersey chapter of the National Association of Corporate Directors (NACD) hosted a panel discussion on shareholder communications issues and strategies with a focus on virtual shareholder forums and annual meetings. The panel consisted of Rachel Braverman, vice president, corporate counsel, and corporate secretary at Artio Global Investors; Cathy Conlon, vice president, Strategic Development, Broadridge Financial Solutions, Inc.; and Dana Gilbert, vice president and general counsel – North America of Cognizant Technology Solutions. Jim Diaforli, vice president of Corporate Issuer Sales East Region at Broadridge Financial Solutions, Inc., served as moderator. The session was held at the Canoe Brook Country Club in Short Hills.
Mr. Diaforli kicked off the seminar by discussing the climate and conditions that have given rise to the adoption of technology to facilitate shareholder communication. For the past several years, the Securities and Exchange Commission (SEC) has been promoting the use of technology in an attempt to raise retail participation in annual meetings and promote greater transparency and efficiency in shareholder communications. Acknowledging the merits of social media, the SEC is encouraging companies to implement tools such as online portals where shareholders can communicate with corporations and conduct virtual annual meetings where shareholders can watch the proceedings, post questions, and tender their votes via the Internet.
Ms. Conlon described how online shareholder forums and virtual annual meetings work and shared trends that Broadridge has observed as a technology solution provider in the area of investor communications. She discussed things that companies should consider when deciding whether to conduct a virtual annual meeting, including the pros and cons of the various types of meetings, i.e., virtual, hybrid (in-person and virtual simultaneously), video only, and audio only. Ms. Conlon also discussed issues that this technology poses such as authenticating shareholders as online meeting attendees, providing a mechanism to pose and answer questions, the casting and tabulating of votes instantaneously, and the recording of meetings for posterity. Shareholder feedback regarding virtual annual meetings has been mixed, she observed, with some shareholders saying that the technology increases participation by eliminating geographic constraints and others saying that companies are hiding behind the technology to avoid activist confrontation or screen shareholder comments and questions.
Ms. Braverman shared with the audience several of the reasons why Artio Global Investors Inc. has chosen to conduct its annual meetings virtually, including reduced cost, greater geographic flexibility, and increased participation. Ms. Gilbert presented the other side of the coin, explaining the reasons why Cognizant Technology Solutions has decided to conduct its annual meetings in the traditional manner (i.e.., “in person”) for the time being, including a limited number of meeting attendees and brevity of content.
Clearly, there are pros and cons to adopting shareholder communications technology, and seminar attendees were eager to explore them.
Join the NACD New Jersey chapter for “Adding Women to Boards,” a joint program with the Executive Women of New Jersey, on Thursday, November 17, at the Canoe Brook Country Club in Short Hills.
Submitted by Stacy Stanford
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NACDNJ Holds Panel Discussion on Strategic Compensation Design
On Thursday, September 22nd, the New Jersey chapter of the National Association of Corporate Directors (NACD) began its fall seminar series with a panel discussion on Strategic Compensation design featuring lessons from real life at NCR. Panelists included Linda Fayne Levinson, chair of the NCR Compensation committee, as well as chairing 3 other compensation commitees, Andrea Ledford, Sr. VP of Human Resources at NCR, Patrick Carroll, VP of Total rewards for NCR and Mike Marino, consultant at Frederic W. Cook. The session was held at The Manor Restaurant in West Orange.
Executive compensation today is a topic consuming increasing amounts of board time and attention. This session examined how one company, NCR, designed a long-term executive incentive compensation plan to align the interests of shareholders with management and increase the focus on creating economic profit.
Ms. Levinson began by discussing many of the problems facing boards and compensation committees today. She noted that the trend towards rules-based plans removes discretion from committees. Additionally, in today's economic uncertainty, it is increasingly difficult to set any realistic long-term incentive targets, and set multi-year performance bases stock plans. This results in the high potential to overpay or underpay for senior executive performance.
The panel then reviewed how these issues were addresed at NCR. Company objectives were to attract and retain high-quality talent, create shareholder value, address diverse investor needs and manage in a constantly changing and evolving regulatory environment.
The NCR executive compensation plan was modified in the past year to align management's incentives to economic profit (EP). This requires management to develop strategies and focus operational performance on driving revenue and gross margin at the right cost of capital so that shareholder value is created, rather than destroyed. Simplistically, it forces management to consider P&L performance in the context of balance sheet performance.
Economic profit is one component of total compensation at NCR that also include cash incentives, stock option grants and restricted stock. While this is the first year of implementation, there are preliminary indications that increasing the focus on EP is increasing management attention of better use of all corporate assets.
Reference was made to several other major companies who also use EP as a component of executive compensation including 3M, Target, Coca Cola and Clorox. EP has been used over the past couple of decades to evaluate company performance in many companies and industries. In the current environment of stock price volatility, it is being considered as an effective measurement criterion by an increasing number of companies. Additional information on the NCR Economic Profit Plan can be found in their 2011 Proxy Statement.
After a more detailed review of the plan by the panel, a question-and-answer session ensued. Questions focused on more operational topics including how NCR compensation committee developed the plan, how it was communicated to the executive team and the changes in executive behavior that were being driven.
NACDNJ Holds Panel Discussion on the Dodd-Frank Act
On Thursday, May 19, the New Jersey chapter of the National Association of Corporate Directors (NACD) concluded its spring seminar series with a panel discussion on the Dodd-Frank Wall Street Reform and Consumer Protection Act. Panelists included Rhonda Brauer, senior managing director-Corporate Governance at Georgeson and member of both the Society of Corporate Secretaries and Governance Professionals and the American Bar Association; Barry Barbash, partner and head of the Asset Management Group, Willkie Farr & Gallagher LLP and former director of the Securities and Exchange Commission's Division of Investment Management; and Vincent Manahan, director of Investors Bancorp Inc., chairman of its Compensation and Benefits Committee, and member of the New Jersey Bar Association, the Banking Law Section of the New Jersey Bar Association, and the Essex County Bar Association. The session was held at the Canoe Brook Country Club in Short Hills.
The Dodd-Frank Wall Street Reform and Consumer Protection Act has been called the most signifiant overhaul of the nation's financial system since the Great Depression. While large parts of the 2,000+ page Act focus on regulating financial institutions, many sections address executive compensation and corporate governance provisions that apply to all US publicly traded companies. The panelists discussed some of these provisions and their impact on executive compensation, including say on pay, clawbacks, proxy statements, etc.
Ms. Brauer spoke about how the Dodd-Frank Act underscores the shift in power from management and boards to shareholders and institutional investors. She explained how "say on pay", which allows investors to have an advisory vote on executive compensation, has as its underpinning a "pay for performance" philosophy. This paradigm shirt calls for enhanced shareholder communication. Ms. Brauer explained how proxy statements are being reengineered to include executive summaries that are essentially checklists explaining pay structures, how they relate to a company's strategy, compliance with so-called "best practices" in executive compensation, and company-specific reasons for any deviations from such "best practices".
Mr. Barbash discussed how the scope of Dodd-Frank, which was conceived as a statutory means to correct perceived shortcomings in the regulation of the securities markets, grew to encompass provisions that will influence the operations of public companies. For example, the SEC was the beneficiary of enhancements to its enforcement authority, including offering monetary rewards to whistleblowers. It also gives the SEC greater authority over companies that engage in questionable practices outside the US that have an effect in the US. Dodd-Frank also provides for potentially greater aiding and abetting liabilities, which increases risk to accountants and consultants. Managers of institutional investors such as hedge funds and private equity funds must now register with the SEC, although their external operations will probably not change. Notable too, said Mr. Barbash, is a recent change in SEC policy that allows relatively lower-level employees to cause the SEC to issue subpoenas.
Mr. Manahan underscored the need for greater shareholder communication. Investors and shareholders, he noted, have a virtual "seat" on compensation committees via say on pay. Therefore proxy drafting is not the time to start figuring out how to make the required disclosures. Before compensation season, an action plan should be drawn up listing topics and actions that need to be taken at each meeting. The compensation committee should adhere to governance best practices during executive sessions, paving the way for the proxy statement to be drawn up with the required disclosures explaning compensation decisions and their rationales. Mr. Manahan also discussed the issue of clawbacks, emphasizing the need for establishing clawback policies, including identifying the executive officers who are subject to the rule and structuring some compensation deferrals or delays in vesting. Dodd-Frank's greatest impact so far has been on risk in the organization, say on pay, and the general empowering of shareholders and regulators. While Sarbanes-Oxley empowered the directors versus management, Dodd-Frank empowers the shareholders and regulators versus both, observed Mr. Manahan.
A question-and-answer session followed in which a variety of related issues were discussed including the US Chamber of Commerce's lawsuit against the SEC regarding proxy access and its possible outcome.
Submitted by Stacy Stanford
NACDNJ Holds Panel Discussion on the Role of a Director in Sales, Acquisitions, Divestitures and Joint Ventures
On Thursday, April 21, the New Jersey chapter of the National Association of Corporate Directors (NACD) held a panel discussion on the role of board directors in sales, acquisitions, divestitures and joint ventures. Panelists included Alyce Halchak, a director in the Corporate department of Gibbons P.C. and former board member of the Attorneys' Liability Assurance Society (Bermuda) Ltd. and the Attorneys' Liability Assurance Society, Inc.; Myron Holubiak, president and board member of 1-800-Doctors, Inc., board member of BioScrip, Inc., and former board member of iPhysicianNet, Inc. and Nastech Pharmaceuticals Company, Inc. (now Marina Biotech, Inc.,); and Edward Smith, founder and CEO of Barnegat Bay Capital, board member of ATS Corporation, and former board member of four companies and one private software company. The session was held at the Canoe Brook Country Club in Short Hills.
Speaking from their own experience in the M&A arena, the panelists shared their observations with regard to what the role of the board of directors ought to be in such transactions. They explored such issues as deciding the best time to buy or sell, establishing the value of the company, and determining the role investment bankers and other professionals should have in the process.
There was agreement amongst the panelists that boards play a critical role in M&A, and that having a strategy that considers long-range objectives is key to enabling prudent transactional decisions. They talked about establishing "rules of engagement" with the CEO and senior management to ensure open communication and avoid the possibility of being blindsided.
The panel also discussed the value of establishing a special committee if an M&A is being comtemplated. Potential responsibilities of such a committee range from interviewing financial and other advisors and identifying risks to determining the value such a transaction would have for shareholders and assessing the degree of fit of the two entities.
Other topics explored included use of the term "merger of equals," the implications of M&As on the business judgment rule and the board's fiduciarty responsibilites, material adverse condition clauses, Revlon duties, D&O insurance, and the use of poison pills in M&As.
The discussion concluded with a particularly lively round of Q&A, illustrative of the very topical nature of the subject.
NACDNJ Holds Panel Discussion on the Impact of the Health Care Reform Act
On Thursday, March 17, the New Jersey chapter of the National Association of Corporate Directors (NACD) held a panel discussion on the Health Care Reform Act and the impact it will have on businesses. Panelists included Frank Aiosa, a partner at Chernoff Diamond; Annette Catino, who has served as president and chief executive officer of QualCare, Inc. since she founded it in 1991, board chair of Alterra, Inc. and Pure Inventions, Inc., and board member of Northfield Bank Corp., Caucus NJ Educational Corp., and Sacred Heart University, John F. Welch College of Business, Board of Visitors; and Ilene Wachs, founding president of Horizon Casualty Services, Inc., Horizon Blue Cross Blue Shield of NJ, vice chair of Girl Scouts Heart of NJ from 2008 through 2010, and former board member of the Girl Scout Council of Greater Essex and Hudson Counties. The session was held at the Canoe Brook Country Club in Short Hills.
The objective of the discussion was to help board members understand the short-term requirements and long-term implications of the Patient Protection and Affordable Care Act (commonly referred to as the "Health Care Reform Act") and explore strategies to best position their organizations for the new health care landscape.
Ms. Wachs began the discussion by providing an overview of the Act and the issues it is meant to address, including the rising cost of health care, the vast number of uninsured (currently 15% of Americans), and the rising trend in health care consumerism. She explained that the constitutional soundness of the mandate for all Americans to purchase health care insurance is currently being agrued in the federal court system, and is expected to be brought up in the Supreme Court in 2012. If this mandate is declared unconstitutional, it is predicted that health care reform will continue to move forward because of the importance of creating access to appropriate health care for all Americans, the need to improve our nation's health care quality and the urgency to address the rising cost of health care which now exceeds 17% of the GDP. It is possible that federal incentives may be offered to states to make it mandatory for state residents to purchase health care insurance. She provided the example of Massachusetts, which in 2006, implemented mandatory health care insurance legislation. The percentage of uninsured dropped dramatically, but the cost of health care spiked as health care providers sought to grab a piece of the health care spend. Ms. Wachs explained how standardized health care protocols could be employed to increase the quality of care and lead to better outcomes while at the same time reduce the overall cost of care.
Ms. Catino discussed the impact of the Health Care Reform Act's in five key area - the insurance market, employee benefits, patients, health care delivery, and the government. Businesses will soon be required to indicate the cost of health care on W2 forms, which may signal future tax implications. Employers will also have to provide annual notices to employees regarding their health care coverage options, including their option to purchase insurance through exchanges. Flexible spending accounts may be impacted. She cautioned that there might be costly noncompliance penalties for businesses. Ms. Catino told attendees that Human Resource and Finance departments should be preparing for these changes. She also explained many of the short and long term implications for patients, including the expansion of the definition for Medicaid eligibility. The federal government is now offsetting the cost of Medicaid, but in three years the states will have to fund it without federal aid.
Mr. Aiosa delved further into the impact that the Health Care Reform Act will have on businesses, including new health care plan communications requirements and associated fines for noncompliance. He said that health care costs are expected to increase 8-12% per annum over the next few years, and warned that because of these rising costs, some employers may opt not to offer employee health care benefits at all because paying fines may turn out to be cheaper. Mr. Aiosa also cautioned that some companies may cut back on the hours worked by part-time employees because they won't have to offer health care benefits to any employee working 30 hours or less. He also noted an increase in interest in consumer-driven plans with higher deductibles (which would make employees more aware of the true cost of health care) as well as wellness plans that encourage healthier lifestyles and preventive care.
At the conclusion of the session, the panelists fielded questions from attendees and speculated on what would happen should the Health Care Reform Act be derailed or dismantled.
NACDNJ Holds Panel Discussion on Creating Great Boards
On Thursday, February 17, the New Jersey chapter of the National Association of Corporate Directors (NACD) held a panel discussion on the key characteristics of high-performing boards. Panelists included Lloyd E. Campbell, consultant with Spencer Stuart and board member of Spartech Corporation and Guardian Life Insurance Company of America; Martin M. Coyne, lead director of Akamai Technologies and board member of Rockefeller Consulting Technology Integration, Urovalve and Avecia Group Plc.; and Matthew Spitzer, M.D., board president of Medecins San Frontieres/Doctors Without Borders-USA (MSF). More than 50 people attended the session, which was held at the Canoe Brook Country Club in Short Hills.
The panelists, whose board participation ranges from not for profit to family owned and high tech, shared their views on the characteristics of a high-performing board, the ways in which a board can evolve from its current level to a truly great board, and some of the obstacles encountered along the way to high performance.
Mr. Coyne began the discussion with the observation that all directors want to be associated with a high-performing, successful board but acknowledged that each board is at a different stage on the road to excellence and the methods used to reach and maintain excellence may differ depending on the situation.
Dr. Spitzer described how MSF's board is comprised of volunteer directors with field experience. Their practical experience enables them to make informed decisions about such issues as program funding, delivery of quality care, and the safety of field staff. He explained how the board follows the French model of an "association," and goes through a process of rating itself, which enables it to stay attuned to the strengths of individual members and identify gaps in skills and expertise. For example, the board found itself lacking financial expertise, so it co-opted a person with international financial experience. It's the directors' commitment to MSF's mission, Dr. Spitzer observed, that drives them to seek innovative ways to expand the reaches of the organization in a manner that is responsible to the populations it serves as well as the organization itself.
Mr. Campbell, who has more than 25 years of boardroom experience both as an advisor and board member, described the paradox of having a high-performing company but not necessarily a high-performing board. He discussed the commonalities in the private and public sector with regard to director criteria, including the skills a particular candidate brings and his/her reason for wanting to serve on the board. Mr. Campbell also explored some of the advantages of boardroom diversity, not just in terms of gender and ethnicity, but also background and experience. He acknowledged that there are good boards that aren't diverse, but suggested that all things being equal, having differing points of view is healthy for board discourse.
The panelists shared their experience with board and committee assessments, peer reviews, and the ways in which feedback can be used to move board performance from point A to point B. The panelists agreed that some form of recurring board assessment - be it internal or external - is a valuable tool in identifying weaknesses, exposing gaps in expertise, and sparking constructive dialogue. Term limits, board nominations, and other factors can be used to retain high-performing directors and cull members that aren't performing to expectations.
The discussion concluded with an energetic question-and-answer session covering a diverse range of topics such as board chemistry, women on boards, playing devil's advocate, etc.
For information on upcoming programs, visit www.nacdnj.org.
NACDNJ Holds Panel Discussion on the Role of Technology in the Boardroom
On Thursday, January 20, 2011, the New Jersey chapter of the National Association of Corporate Directors (NACD) held a panel discussion on the role of technology in the boardroom. Panelists included Gerard Gorman, SVP Finance and Business Development/CFO of Immunomedics, Inc. and board member of the Northern Ireland Children's Enterprise and the Mianus River Gorge Preserve; and Lou Lipschitz, former Executive Vice President/CFO of Toys "R" Us and board member of Majesco Entertainment, Inc., New York & Co., Inc., Forward Industries, Inc., and The Children's Place Retail Stores, Inc. The discussion was moderated by Tony Zecca, managing partner of Cohn Consulting Group, a division of J.H. Cohn LLP and board member of the Medhen Orphan Relief Effort. More than 35 people attended the session, which was held at the Short Hills Hilton.
Mr. Zecca began the discussion by describing the way in which today's boards typically receive and process information. It is still largely a manual process, with board members receiving hard copies of board meeting material a week prior to a meeting. Directors must then thumb through the material to identify and flag the information pertinent to the meeting. The information is often dated, showing only historical trends. Mr. Zecca then discussed the types of technology that may be used to facilitate the work of boards. Electronic board books and director's portals offer a means by which to access, analyze, and quickly drill down to the information that needs to be focused on, including real-time data tied to the organization's strategic mission, metrics driving the organization's results, or early warning systems regarding risks and controls. Business intelligence technology (i.e., dashboards) can be built into electronic board books or director's portals, enabling drill down as appropriate to enable board members to ask more informed questions of senior management or make critical decisions.
Mr. Gorman discussed what he believes to be the inevitable use of technology in the boardroom. There has been a natural progression of technology use in business, he remarked, so it is only a matter of time before technology finds its way into the boardroom. He believes that cost is not as much an obstacle as resistance from some board members to embrace technology. Mr. Gorman believes that, if implemented in the right matter, electronic board books and director's portals aren't just cool gadgets for the techno savvy board member, but rather valuable tools for all board members to embrace to enable them to carry out their oversight duties. He cautioned against the danger of providing too much information via these technology tools, and said that their development and implementation should be well thought out.
Mr. Lipschitz, who currently serves on both boards using Web-based tools and boards that have not yet introduced technology tools, noted some of the many benefits of boardroom technology, including greater efficiency in disseminating and accessing information, enhanced ability to analyze data and trends, and improved communication amongst directors in between board meetings. Boardroom technology also offers the obvious "green" benefit of the reduction in paper use. Mr. Lipschitz echoed Mr. Gorman's caution regarding the presentation of information via these tools. Information should be organized and formatted in a manner that allows easy access to pertinent data rather than in a way that obscures information that could serve as an early warning sign of something amiss. Other matters, such as legal issues and maintenance concerns, should also be addressed prior to implementation. Mr. Lipschitz underscored the idea that the means by which information is provided to boards - whether it be electronically or in a paper-based manner - should have no bearing on its content or completeness.
The panel then discussed the potential drawbacks of Web-based board tools, including security concerns, liability issues, and data overload, and fielded questions from the audience.
For information on upcoming programs, visit www.nacdnj.org.
NACDNJ Holds Event with Fred Hassan as their guest speaker on the topic of How Boards Can Nurture Innovation. Click here for Mr. Hassan's entire Powerpoint Presentation
NACDNJ Holds Panel Discussion on Corporate Ethics
On Thursday, November 18, the New Jersey Chapter of the National Association of Corporate Directors (NACDNJ) continued its fall 2010 seminar series with a panel discussion on corporate ethics. Panelists included Keith Darcy, executive director of the Ethics and Compliance Officer Association; Debra Perry, director, Korn/Ferry International, CNO Financial Group, Inc. (formerly Conseco, Inc.) and managing member of Perry Consulting, LLC; and Lee Augsburger, Senior Vice Pres
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Welcome to the New Jersey Chapter of NACD
The mission of NACDNJ is to be the premier organization for New Jersey’s corporate directors for formal and informal networking, sharing of best practices, and education on director effectiveness and corporate governance.
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