September 2011 - MINDA Malaysian Directors Academy ...

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FEATURED ARTICLES _ARTICLE FIVEMALAYSIAN DIRECTORS ACADEMY 18While this situation creates opportunities for activistinvestors like Whitworth and others, it speaks to a lack ofcorporate accountability. While this situation Robert creates Pozen, opportunities chairman for emeritusactivist investorsInvestment like Whitworth Management and others, and it a speaks senior to a lecturer lack of corpo-atof MFSHarvard rate Business accountability. School, Robert says Pozen, the chairman structure emeritus and size of MFS ofcorporate Investment boards has Management kept them and from a senior being lecturer effective. at Harvard Whatsome refer Business to as School, the “collegiality says the structure of the and boardroom,” size of corporate Pozen boardscalls “social has kept loafing,” them from where being effective. procedure What and some large refer to group as thedynamics “collegiality take precedence.of the boardroom,” Pozen calls “social loafing,”Pension where funds, procedure insurance and large group companies dynamics and take investmentprecedence.management Pension firms funds, are major insurance market companies players and around investment theworld and management have taken firms a are largely major passive market players role in around corporate thegovernance. world and Asset have owners taken a and largely asset passive managers role in corporate could exert governance.influence Asset owners on companies. and asset managers Certainly, could they exert would con-considerablehave a differentsiderable influenceview ofonthecompanies.company’sCertainly,issuestheyif theywouldhadhaveaa different view of the company’s issues if they had a seat onseat on its board. A recent issue of the McKinsey Quarterlyits board. A recent issue of the McKinsey Quarterly urged institutionsto “step up as owners” to usher in a new ownershipurged institutions to “step up as owners” to usher in a newownership culture for the benefit of the economy and ofculture for the benefit of the economy and of their clients.their clients.Making Boards Betterby Karen Kaneshareholder activism of the past decade. “Unlike Sarbanes-Oxley, in which boards were seen as the solution to thefailures the past in decade. corporate “Unlike accountability, Sarbanes-Oxley, Dodd-Frank in which boards reflects theview were that seen shareholders as the solution must to the be failures empowered in corporate to accountability,Dodd-Frank Gregory reflects said. the view that shareholders musthold boardsaccountable,”be “Boards empowered require to hold boards a culture accountable,” change,” Gregory said said. Fred G.Steingraber, “Boards require former a culture chairman change,” and said CEO Fred of A.T. G. Steingraber, Kearney, themanagement former chairman consulting and CEO of firm, A.T. Kearney, and a veteran the management of 30 publicand consulting nonprofit firm, boards. and a veteran “Directors of 30 public need and to re-examine nonprofit andeven boards. revise “Directors board need committees to re-examine and and committee even revise board work andhow committees this contributes and committee to the work observance and how this contributes of their ‘duty to ofcare’ the observance responsibility. of their It ‘duty requires of care’ new responsibility. skills and It qualificationsrequiresas new well skills as and more qualifications time and as effort well as to more better time understand effort thecompanies to better understand they serve, the companies to provide they effective serve, to provide oversight inrepresenting effective oversight the interests representing of shareholders, the interests of and shareholders,and in holding management accountable.”in holdingmanagement accountable.”Given the headlines on board inaction and the amountGiven the headlines on board inaction and the amount ofof new regulation, boards appear to be largely insulated bothnew regulation, boards appear to be largely insulated bothfrom shareholders and perhaps even the CEO. Consider thatpozen Believes ThaT Boards would Be More effecTiveif They consisTed of “a sMall group of people wiThenough perTinenT experience and sufficienT TiMe Tohold ManageMenT accounTaBle.”Public battles Public battles for board for board seats seats by by activist activist investors such asas Carl Carl Icahn Icahn and and Bill Bill Ackman draw media media attention, attention, but their buttheir efforts are mostly short-term, short-term, focused focused on a single on issue a single for aissue for year a or year two. or There two. have There been few have long-term been few focused long-term efforts byfocused investors efforts by to improve investors specific to improve companies. specific Private companies.equity firmsPrivate working equity firms quietly working behind the quietly scene say behind they have the had scene more say impacthad as they more get impact board seats as they and help get board the companies seats and change helpthey havethe companies from within. change Whitworth from petitioned within. Whitworth the Securities petitionedand ExchangeCommission and Exchange for changes Commission in rule making for changes in 1990 that inthe Securitiesrule making included 1990 proxy that access. included Most of his proxy suggestions access. were Most adopted of hissuggestions in 1992, were including adopted the in short 1992, slate, including but proxy the access short was slate, not.but proxy accessDodd-Frank,was not.which was signed into law in July 2010, clarifiedthat the S.E.C. has authority to implement proxy access.Dodd-Frank, which was signed into law in July 2010,The next month, the S.E.C. adopted rules that allow some largeclarified that the S.E.C. has authority to implement proxyshareholders to nominate directors to a company’s board, butaccess. The next month, the S.E.C. adopted rules thatthe commission has postponed the effective date of the rulesallow some large shareholders to nominate directors to auntil the Washington, D.C., circuit court rules on a lawsuit bycompany’s board, but the commission has postponed thethe U.S. Chamber of Commerce and the Business Roundtable.effective date Many of the call proxy rules access until the the bell Washington, that has already D.C., been circuitcourt rules rung, on giving a lawsuit investors by a the potent U.S. tool. Chamber According of to Commercethe governanceBusiness expert Roundtable.Holly Gregory, the Dodd-Frank bill accelerates aand theMany change call already proxy set access in motion the by the bell shareholder that has activism already ofbeen rung, giving investors a potent tool. According tothe governance expert Holly Gregory, the Dodd-Frank24Qbill accelerates 3 . 2 0 1 1a change already set in motion by thefrom in a survey shareholders of 768 directors and perhaps at 660 of even the 2,000 the largest CEO. publiclyin traded a survey companies, of 76895 directors percent said at 660 they of were the doing 2,000 an largestConsiderthatpublicly effective traded job. In the companies, same survey, 95 the percent CEOs said that they only were one doingan director effective in five job. was In effective. the same survey, the CEOs said that onlyone director The disconnect in five may was be effective. that CEOs and board memberswant The different disconnect things. may By nature, be that CEOs are and ambitious board Type members Awant personalities. different CEOs things. understand By nature, that CEOs boards are ambitious necessary, but Type Apersonalities. few have the benefit CEOs of understand independent that directors boards who are serve necessary, asbut strategic few have sounding the boards, benefit helping of independent them to make better, directors faster whoserve and wiser as strategic decisions. sounding Such CEOs boards, eschew more helping involvement, them to makebetter, fearing that faster more and engagement wiser decisions. would encourage Such directors CEOs eschew tomore meddle involvement, day-to-day operations. fearing that At the more same engagement time, directors wouldrate themselves as effective at board committee work, overseeingcompliance with legal and regulatory oversight.encourage directors to meddle in day-to-day operations.At the same time, directors rate themselves as effective atOne signal about just how repugnant business leadersboard committee work, overseeing compliance with legalfind the idea that shareholders might nominate directors isand regulatory oversight.the fact the U.S. Chamber of Commerce made the defeat ofOne signal about just how repugnant business leadersproxy access its highest priority. The current legal challengefind can the be seen idea as that a last shareholders gasp effort to stop might it. nominate Whitworth directors sees isthe implementation fact the U.S. as Chamber inevitable, of but Commerce he believes made it will the be used defeat ofproxy sparingly, access given its highest the requirements. priority. “In The the current universe legal of shareholders,be seen there as are a last very gasp few, perhaps effort to 230 stop shareholders it. Whitworth of seeschallengecanimplementation as inevitable, but he believes it will beused sparingly, given the requirements. “In the universe ofshareholders, there are very few, T h e perhaps K o r n / f e230 r r y shareholdersi n s T i T u T e
article fiveof Fortune 500 companies globally, that have the required an important element in keeping them invested. Mostholdingsof 3 percent and have held it over three years. Still, importantly, boards need to demonstrate leadership, whichit’s a very important shareholder tool, reminding boards has been lacking, with a transparent results-orientation inthat shareholders are the ultimate owners of the company.” the conduct of their work.” Compensation remains a hotBoards are likely to see proxy access as a signal for button for most shareholders, especially when the boardselfcorrection by removing the obvious vulnerabilities that chairman and CEO is the same person.might attract activist shareholders, according to Whitworth. “Give me the U.K. model of a separate chairmanBoards are likely to make changes on their own if they and CEO,” Ubben said. He acknowledges that the dualhave a member who has a conflict of interest with related responsibility for management and its oversight isparties, is overboarded, has a poor attendance record or embedded in the current system and may require legislationhas exceeded retirement guidelines.to change it. Currently, the S.E.C. requires a board toThe allegation that single-issue activists would be describe its structure, explaining why it adds value. “I wantdisruptive overlooks the fact that any board candidate has an independent chairman, a second line of defense for myto get majority support and, once elected, has a fiduciary rights as a shareholder,” Ubben said. “I want a chairmanresponsibility to all shareholders. “If I were to one-time try who can talk to shareholders, separate from the CEO.”to advantage my L.P.s [limited partners] at the expense ofFortune 500 companies globally, that have the required holdingsof 3 percent and have held it over three years. Still, it’s a functioning to the conflict. work groups “They whose don’t members see it. How trust could and challenge they? Whojob. Those “Boards who need currently to transform carry themselves both titles into are strong, naturally highly blindthe other shareholders, I would be immediately discreditedin the boardroom and by the mutual fund investors whovery important shareholder tool, reminding boards that shareholdersare the ultimate owners of the company.”role shareholders Whitworth puts play: They it more are the bluntly. owners “Who of the wouldn’t company want toone wouldn’t another,” want he said. to be “Directors his own also boss?” need to recognize thefollow me, and I would lose all good will,” said Jeff Ubben,CEO and founder of ValueAct Capital, a private equityBoards are likely to see proxy access as a signal for selfcorrectionby removing the obvious vulnerabilities that might in their keeping own them pay?” invested. Whitworth Most importantly, asked. boards need toand use board-shareholder other people’s money engagement and set is an their important own agenda element and setpartnership that has made investments in 60 companiesover the past 10 years and has taken board positions in 25attract activist shareholders, according to Whitworth. Boards demonstrate Chairmen leadership, play an which important has been governance lacking, with role transparentsaid results-orientation Piers Diacre, publisher in the conduct of IPE of Magazine, their work.” a Europeanin Britain,of those companies.are likely to make changes on their own if they have a memberwho has a conflict of interest with related parties, is over-“Board directors aren’t bad guys, but they have never publication Compensation for remains institutional a hot button investors, for most and shareholders,of especially corporate when governance the board chairman practices. and “Here, CEO is our the same chairmenan observerwritten a check to participate in the company, and so thereboarded, has a poor attendance record or has exceeded retirementguidelines.person. communicate directly with shareholders. Since the boardis little alignment with shareholders,” Ubben said. “Mostdirectors have stock by virtue of compensation for servingThe allegation that single-issue activistsis responsible for determining the nature and extent ofas directors. It is perhaps too much to expectwould be disruptive overlooks the fact that anythem to do their own digging, to learn about theboard candidate has to get majority support and,company and the industry independent of whatonce elected, has a fiduciary responsibility tothe CEO is telling them. And it is very unusualall shareholders. “If I were to one-time try tothat a director that has direct experience inadvantage my L.P.s [limited partners] at thethe industry will be sought out by the CEO forexpense of the other shareholders, I would beinvitation to the board.”immediately discredited in the boardroom andPozen has proposed a new board modelby the mutual fund investors who follow me,based on his concern that most directors don’tand I would lose all good will,” said Jeff Ubben,have enough relevant experience and don’tCEO and founder of ValueAct Capital, a privatespend enough time on the company’s work. Heequity partnership that has made investmentsbelieves that boards would be more effectivein 60 companies over the past 10 years and hasif they consisted of “a small group of peopletaken board positions in 25 of those companies.with enough pertinent experience and sufficient“Board directors aren’t bad guys, but theytime to hold management accountable.”have never written a check to participate in theTypically, boards meet five or six times a yearcompany, and so there is little alignment withfor a day each time, with conference calls inshareholders,” Ubben said. “Most directors havebetween, hardly enough time for directors tostock by virtue of compensation for serving askeep abreast of the global operations of a largedirectors. It is perhaps too much to expect themcompany. He advocates that this smaller groupto do their own digging, to learn about the companyand the industry independent of what theof directors spend at least two days a month oncompany business between board meetings.CEO is telling them. And it is very unusual that aIf directors are going to make such a time commitment,director that has direct experience in the industry will be the “Give significant me the U.K. risks model the company of a separate is willing chairman to and take, CEO,” it’s nottheir compensation should be doubled to about $450,000.sought out by the CEO for invitation to the board.”Ubben unusual said. for He the acknowledges chairman to that explain the dual the responsibility company’s business forDirectors should also be restricted to serving on just twoPozen has proposed a new board model based on his management model as well and as its the oversight formal is embedded performance in the evaluation current systemboard and may as a require whole.” legislation to change it. Currently, theof theboards.concern that most directors don’t have enough relevantSteingraber agrees that effective board work is a biggerexperience and don’t spend enough time on the company’s S.E.C. It requires might be a board well for to describe directors its to structure, consider explaining that governancejob. “Boards need to transform themselves into strong,work. He believes that boards would be more effective if they why concepts it adds value. originating “I want an outside independent the United chairman, States a second have ahighly functioning work groups whose members trust andconsisted of “a small group of people with enough pertinent line history of defense of moving for my rights into as the a shareholder,” American mainstream Ubben said. “I ratherchallenge one another,” he said. “Directors also need toexperience and sufficient time to hold management accountable.”Typically, boards meet five or six times a year for a day the out CEO.” of a Those 1999 who white currently paper carry by the both British titles are cabinet naturally ministerwant quickly. a chairman Consider who can “shareholder talk to shareholders, say on pay,” separate which from grewrecognize the role shareholders play: They are the ownersof the company and board-shareholder engagement iseach time, with conference calls in between, hardly enough blind Stephen to the conflict. Byers “They suggesting don’t see that it. How shareholders could they? Who have atime for directors to keep abreast of the global operations of a wouldn’t want to be his own boss?”large company. He advocates that this smaller group of directorsspend at least two days a month on company business use other people’s money and set their own agenda and setWhitworth puts it more bluntly. “Who wouldn’t want tobetween board meetings. If directors are going to make such their own pay?” Whitworth asked.19BOARD VIEW_SEPTEMBER 2011
Page 2 and 3: CONTENTSEDITORIAL TEAMMALAYSIAN DIR
Page 4 and 5: FEATURED ARTICLES _ARTICLE ONEMALAY
Page 6 and 7: FEATURED ARTICLES _ARTICLE TWOMALAY
Page 8 and 9: article threeMALAYSIAN DIRECTORS AC
Page 10 and 11: article threeMALAYSIAN DIRECTORS AC
Page 12 and 13: article fourMALAYSIAN DIRECTORS ACA
Page 20 and 21: article fiveMALAYSIAN DIRECTORS ACA
Page 22 and 23: BOOK REVIEWMALAYSIAN DIRECTORS ACAD
Page 24 and 25: PROGRAMME HIGHLIGHTS 2011MALAYSIAN
Page 26 and 27: PROGRAMME HIGHLIGHTS 2011MALAYSIAN
Page 28: AND OUR CLIENTS ARE...AgrobankAmana

September 2011 - MINDA Malaysian Directors Academy ...

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