The enhanced disclosures in the 2010 proxy statements of some of the largest U.S. companies, including some financial institutions, reflect the beginning of a new tighter corporate governance regulatory regime that will only grow as the Dodd-Frank Act is enacted.
That is one of the observations made in a four-part series of Director Notes that are based on an analysis of the 2010 proxy statements of the 30 companies in the Dow Jones Industrial Average by The Conference Board Governance Center and Davis Polk & Wardwell LLP.
The four-part series focuses on disclosures in such corporate governance areas as The Role of the Board in Risk Oversight (DN-010), Board Leadership Structure (DN-011), Board Diversity and Director Qualifications (DN-012) and Compensation-Related Risk and Compensation Consultants (DN-013). [Conference Board members can download the reports for free.]
“Passage of the Dodd-Frank Act will further the transformation of U.S. corporate governance from a board-centered to a shareholder-influenced model,” said Matteo Tonello, director of corporate governance research at The Conference Board. “Since additional disclosure requirements are the centerpiece of this new model, it is critical for corporations to benchmark their practices against those of their peers and adhere to the highest emerging standards of transparency. With this series, The Conference Board continues to fulfill its promise to help member companies meet these challenges.” [Read press release.]
Some of the findings from the research include:
• Risk oversight models vary, but boards tend to directly review strategic risk issues.
• Non-financial companies typically report having a dedicated Chief Risk Officer.
• The CEO/chairman combination remains the prevalent leadership structure in the Dow 30.
• Specific industry expertise is cited as critical in director selection, and all companies say they consider diversity when identifying director nominees.
• Companies recognize a correlation between top-executive compensation and risk behavior, using an array of measures to mitigate such risk including clawbacks and stock-holding guidelines.
• A number of non-financial companies retain compensation consultants through their governance, rather than compensation, committees.
• Compensation consulting fees can be small relative to other disclosed fees paid to the same consultants for, e.g., actuarial or HR services.
“For financial companies, overseeing risk management has long been understood to be a critical board role,” says Louis L. Goldberg, partner at Davis Polk and co-author of three of the reports. “Not surprisingly, in the wake of recent corporate crises, the business community is recognizing that risk oversight is a quintessential function for boards of non-financial companies as well.”
Gary Larkin is a research associate in the corporate leadership department at The Conference Board in New York. His research focuses on corporate governance, including succession planning, board compo…