Annual Survey Shows Majority Voting Being Increasingly Embraced Even Among Smaller Companies, But Failing Incumbents Are Rarely

  Annual Survey Shows Majority Voting Being Increasingly Embraced Even Among
   Smaller Companies, But Failing Incumbents Are Rarely Expected To Resign

PR Newswire

NEW YORK, Feb. 20, 2013

NEW YORK, Feb. 20, 2013 /PRNewswire/ --According to a report released today
by The Conference Board in collaboration with NASDAQ OMX and NYSE Euronext,
majority voting is increasingly being embraced as the standard for director
elections even among smaller companies. However, when the company is small,
incumbent board members failing to receive the required majority of votes are
seldom expected to offer their resignation. In addition, the study revealed
that almost half of the smallest companies (as measured by annual revenue) do
not review political contribution practices, while formal policies regulating
donations made by senior business leaders are rarely in place.

Director Compensation and Board Practice: 2013 Edition is based on a survey of
334 public companies jointly conducted by the three partnering organizations
among their members. The Harvard Law School Forum on Corporate Governance and
Financial Regulation, Stanford University's Rock Center for Corporate
Governance, the National Investor Relations Institute (NIRI), the Shareholder
Forum, and Compliance Week each endorsed the survey. Participants in the
survey (corporate secretaries, general counsel, and investor relations
officers) were asked to provide information on a wide range of corporate
practices, including: board composition and leadership, director elections,
anti-takeover measures, compensation policies, risk oversight, CEO succession
planning, board-shareholder engagement, and practices on director performance
assessment and retirement. The findings constitute the basis for a
benchmarking tool with more than 150 data points searchable by company size
(measurable by revenue and asset value) and 20 industrial sectors.

"Over the years, we have established an impressive database that documents
evolving trends in corporate governance and board compensation. This data is
quite valuable to our member companies using peer comparisons and industry
benchmarks to make an informed decision on several organizational and
oversight practices," said Matteo Tonello, Managing Director of Corporate
Leadership at The Conference Board and an author of the report. "We are
grateful to our partners on this annual project, NASDAQ OMX and NYSE Euronext,
for their intellectual contribution to the study and their support in
expanding the outreach of the annual survey."

"NASDAQ is committed to providing public companies with the tools to minimize
risk by streamlining governance, risk and compliance activities. With the
complexity of today's corporate governance environment, we are pleased to
support this valuable report to help companies fuel better business
decisions," said Bruce Aust, Executive Vice President, Corporate Client Group,
NASDAQ OMX.

Scott Cutler, Executive Vice President and Head of Global Listings for NYSE
Euronext, stated, "NYSE Euronext is committed to supporting governance
practices that reflect the highest standards of independence, oversight and
transparency. As the governance landscape continues to evolve, with
shareholder engagement increasingly important, access to relevant governance
and compliance-related resources is critical for public companies. We are
pleased to partner with The Conference Board and NASDAQ OMX on this important
annual report and believe it will be a valuable asset for companies, boards
and their advisors."

The following are the major findings discussed in the report.

On director compensation:

  oDirectors are best compensated in the energy industry, but company size
    can make a huge difference. Computer services companies are the most
    generous with full value share awards, but equity-based compensation is
    widely used across industries and irrespective of company size.
  oStock options are not as favored as they used to be, except by the
    smallest companies increasing skepticism on the effectiveness of stock
    options and stock appreciation rights as long-term incentives has led to
    their decline, especially in the last few years.
  oAdditional cash retainers for board chairmen are seldom offered by larger
    companies, which are more likely to reward lead directors.
  oA corporate program financing the matching of personal charitable
    contributions is the most common among the director perquisites reported
    by companies.
  oDirectors of large company boards take corporate aircrafts to board
    meetings, unless it is a financial institution.

On director qualifications and board service policies:

  oWhile many non-executive directors have C-suite experience, the percentage
    of former or current CFOs serving on the board of financial services
    companies is lower than the ones for manufacturing and non-financial
    services.
  oLarger financial services companies often set stricter director
    independence requirements than national securities exchanges.
  oLarger companies continue to combine CEO and board chairman positions,
    while three-quarters of financial institutions have appointed an
    independent lead.
  oLarge financial companies are less inclined to use an over-boarding policy
    as it may impair their ability to attract director talent.
  oAs the workload and challenges facing board committees increase, member
    rotation policies remain infrequent.

On proxy access and director election:

  oMajority voting is being increasingly embraced even among smaller
    companies, but incumbents failing to obtain the required votes are rarely
    expected to resign.
  oAccording to the director nomination policy of large companies, diversity
    matters as much as business skills. Yet, aside from some level of female
    representation, corporate boards remain remarkably uniform.
  oTo limit expenses, most smaller companies avoid retaining search firm fees
    and use personal connections to recruit new director nominees.
  oProxy access rights and reimbursement of solicitation expenses remain
    marginal practices.

On anti-takeover defenses:

  oTraditional takeover defenses (including poison pills and board
    classification) are being dismantled, while large financial companies tend
    to restrict action by written consent and prohibit special meetings called
    by shareholders.

On say-on-pay and executive compensation oversight:

  oWhile an annual say-on-pay vote appears to be the standard for most
    companies, almost one-third of the smallest financial institutions opt for
    a less frequent consultation of shareholders.
  oWhile designing new executive compensation policies, large financial
    companies set equity retention periods and go above and beyond regulatory
    requirements in the formulation of contractual clawback clauses.
  oLarge companies are more likely to enforce anti-gross-up policies.
  oCompensation benchmarking disclosure also tends to be a feature of larger
    companies, with industry and company size the most frequently used
    criteria in the selection of the peer-comparison group.
  oCompensation consultant fees tend to be lower than the amount for which
    disclosure is required.

On strategy and risk oversight:

  oWhile directors of smaller companies collaborate directly with management
    in the business strategy setting process, larger company boards review
    strategy more frequently than others.
  oFrequency of risk reporting to the board and the institution of chief risk
    office reveal the differing state of risk governance practices among
    industry groups.

On sustainability oversight:

  oResponsibility for sustainability oversight depends on company size, with
    larger companies elevating it to the board committee level and smaller
    companies delegating it to the CEO.
  oEnvironmental impact and, for financial services companies, data security
    are among the main sustainability items in board agenda.
  oBoards of directors at almost half of the smallest companies (as measured
    by annual revenue) do not review political contribution practices, while
    formal policies for senior business leader are seldom in place.

On CEO performance review and succession planning:

  oSmall companies do not have a board process for the systematic and
    periodic review of their CEO succession plan.
  oFormal policies on board retention of the departing CEO are uncommon,
    except in large companies where the CEO is formally required to also leave
    the board.

On board-shareholder engagement:

  oFormal board-shareholder engagement policies begin to emerge, and may
    include the requirement for directors to actively participate in annual
    shareholder meetings as well as the adoption of a protocol detailing when
    and how shareholders can reach out to directors and expect a response to a
    material query.

On director education and performance assessment:

  oFinancial services companies of all size are ahead in the use of secure
    online technology for intra-board communication.
  oMore than one-third of companies with less than $100 million in revenue do
    not periodically evaluate their director performance.
  oApproximately two companies out of 10 require their board members to
    attend some type of continuing education programs to remain abreast of
    regulatory and compliance developments.

Source:
Director Compensation and Board Practices: 2013 Edition
Report #1509, February 2013
The Conference Board /NASDAQ OMX/ NYSE Euronext

Access the report online at
http://www.conference-board.org/publications/publicationdetail.cfm?publicationid=2438

About The Conference Board

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