Advisory Board

  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Peter Clarke
  • Barry Diller
  • IAC/InterActiveCorp
  • Fu Chengyu
  • China National Petrochemical Corporation (Sinopec Group)
  • Richard J. Gnodde
  • Goldman Sachs International
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V.
  • Jiang Jianqing
  • Industrial and Commercial Bank of China, Ltd. (ICBC)
  • Handel Lee
  • King & Wood Mallesons
  • Richard Li
  • PCCW Limited
  • Pacific Century Group
  • Liew Mun Leong
  • Changi Airport Group
  • Martin Lipton
  • New York University
  • Wachtell, Lipton, Rosen & Katz
  • Liu Mingkang
  • China Banking Regulatory Commission (CBRC)
  • Dinesh C. Paliwal
  • Harman International Industries
  • Leon Pasternak
  • BCC Partners
  • Tim Payne
  • Brunswick Group
  • Joseph R. Perella
  • Perella Weinberg Partners
  • Baron David de Rothschild
  • N M Rothschild & Sons Limited
  • Dilhan Pillay Sandrasegara
  • Temasek International Pte. Ltd.
  • Shao Ning
  • State-owned Assets Supervision and Administration Commission of the State Council of China (SASAC)
  • John W. Snow
  • Cerberus Capital Management, L.P.
  • Former U.S. Secretary of Treasury
  • Bharat Vasani
  • Tata Group
  • Wang Junfeng
  • King & Wood Mallesons
  • Wang Kejin
  • China Banking Regulatory Commission (CBRC)
  • Wei Jiafu
  • Kazakhstan Potash Corporation Limited
  • Yang Chao
  • China Life Insurance Co. Ltd.
  • Zhu Min
  • International Monetary Fund

Legal Roundtable

  • Dimitry Afanasiev
  • Egorov Puginsky Afanasiev and Partners (Moscow)
  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Johan Aalto
  • Hannes Snellman Attorneys Ltd (Finland)
  • Nigel P. G. Boardman
  • Slaughter and May (London)
  • Willem J.L. Calkoen
  • NautaDutilh N.V. (Rotterdam)
  • Peter Callens
  • Loyens & Loeff (Brussels)
  • Bertrand Cardi
  • Darrois Villey Maillot & Brochier (Paris)
  • Santiago Carregal
  • Marval, O’Farrell & Mairal (Buenos Aires)
  • Martín Carrizosa
  • Philippi Prietocarrizosa & Uría (Bogotá)
  • Carlos G. Cordero G.
  • Aleman, Cordero, Galindo & Lee (Panama)
  • Ewen Crouch
  • Allens (Sydney)
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Rachel Eng
  • WongPartnership (Singapore)
  • Sergio Erede
  • BonelliErede (Milan)
  • Kenichi Fujinawa
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Manuel Galicia Romero
  • Galicia Abogados (Mexico City)
  • Danny Gilbert
  • Gilbert + Tobin (Sydney)
  • Vladimíra Glatzová
  • Glatzová & Co. (Prague)
  • Juan Miguel Goenechea
  • Uría Menéndez (Madrid)
  • Andrey A. Goltsblat
  • Goltsblat BLP (Moscow)
  • Juan Francisco Gutiérrez I.
  • Philippi Prietocarrizosa & Uría (Santiago)
  • Fang He
  • Jun He Law Offices (Beijing)
  • Christian Herbst
  • Schönherr (Vienna)
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V. (Amsterdam)
  • Hein Hooghoudt
  • NautaDutilh N.V. (Amsterdam)
  • Sameer Huda
  • Hadef & Partners (Dubai)
  • Masakazu Iwakura
  • TMI Associates (Tokyo)
  • Christof Jäckle
  • Hengeler Mueller (Frankfurt)
  • Michael Mervyn Katz
  • Edward Nathan Sonnenbergs (Johannesburg)
  • Handel Lee
  • King & Wood Mallesons (Beijing)
  • Martin Lipton
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Alain Maillot
  • Darrois Villey Maillot Brochier (Paris)
  • Antônio Corrêa Meyer
  • Machado, Meyer, Sendacz e Opice (São Paulo)
  • Sergio Michelsen Jaramillo
  • Brigard & Urrutia (Bogotá)
  • Zia Mody
  • AZB & Partners (Mumbai)
  • Christopher Murray
  • Osler (Toronto)
  • Francisco Antunes Maciel Müssnich
  • Barbosa, Müssnich & Aragão (Rio de Janeiro)
  • I. Berl Nadler
  • Davies Ward Phillips & Vineberg LLP (Toronto)
  • Umberto Nicodano
  • BonelliErede (Milan)
  • Brian O'Gorman
  • Arthur Cox (Dublin)
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Sang-Yeol Park
  • Park & Partners (Seoul)
  • José Antonio Payet Puccio
  • Payet Rey Cauvi (Lima)
  • Kees Peijster
  • COFRA Holding AG (Zug)
  • Juan Martín Perrotto
  • Uría & Menéndez (Madrid/Beijing)
  • Philip Podzebenko
  • Herbert Smith Freehills (Sydney)
  • Geert Potjewijd
  • De Brauw Blackstone Westbroek (Amsterdam/Beijing)
  • Qi Adam Li
  • Jun He Law Offices (Shanghai)
  • Biörn Riese
  • Jurie Advokat AB (Sweden)
  • Mark Rigotti
  • Herbert Smith Freehills (Sydney)
  • Rafael Robles Miaja
  • Robles Miaja (Mexico City)
  • Alberto Saravalle
  • BonelliErede (Milan)
  • Maximilian Schiessl
  • Hengeler Mueller (Düsseldorf)
  • Cyril S. Shroff
  • Cyril Amarchand Mangaldas (Mumbai)
  • Shardul S. Shroff
  • Shardul Amarchand Mangaldas & Co.(New Delhi)
  • Klaus Søgaard
  • Gorrissen Federspiel (Denmark)
  • Ezekiel Solomon
  • Allens (Sydney)
  • Emanuel P. Strehle
  • Hengeler Mueller (Munich)
  • David E. Tadmor
  • Tadmor & Co. (Tel Aviv)
  • Kevin J. Thomson
  • Barrick Gold Corporation (Toronto)
  • Yu Wakae
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Wang Junfeng
  • King & Wood Mallesons (Beijing)
  • Tomasz Wardynski
  • Wardynski & Partners (Warsaw)
  • Xiao Wei
  • Jun He Law Offices (Beijing)
  • Xu Ping
  • King & Wood Mallesons (Beijing)
  • Shuji Yanase
  • OK Corporation (Tokyo)
  • Alvin Yeo
  • WongPartnership LLP (Singapore)

Founding Directors

  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz
  • Nigel P.G. Boardman
  • Slaughter and May
  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz
  • Peter Williamson
  • Cambridge Judge Business School
  • Franny Yao
  • Ernst & Young

Monthly Archives: December 2018

Some Thoughts for Boards of Directors in 2019

Editor’s Note: This article was co-authored by Martin Lipton, Steven A. Rosenblum, Karessa L. Cain, Amanda S. Blackett and Kathleen C. Iannone of Wachtell, Lipton, Rosen & Katz.

Some Thoughts for Boards of Directors in 2019

By Martin Lipton, Steven A. Rosenblum, Karessa L. Cain,
Amanda S. Blackett and Kathleen C. Iannone

December 14, 2018

In recent years, it has become increasingly evident that the activism-driven corporate world is relatively fragile and is proving to be unsustainable, particularly when viewed in the broader context of rapidly changing political and social norms and increasing divisiveness across many planes of the social contract.  The exponential widening of income inequality, the increasing sense of urgency around climate change, and the widespread socioeconomic upheaval resulting from the displacement of human capital by technology have all been filtering into the debate about the role and governance of the corporate ecosystem.  Persuasive academic and empirical evidence has established the causal link between short-termism and widespread harms to GDP, national productivity and competitiveness, innovation, wages and employment.  In addition, the concepts of sustainability, ESG (environment, social and governance) and “corporate purpose” have all been gaining traction in the corporate governance lexicon.

There is now a growing recognition in the investment community that expectations of shareholders and other stakeholders should extend beyond the financial bottom line, and that the sustainability and credibility of a corporation’s long-term strategy cannot be assessed without taking into account the interdependencies between a corporation and its employees, customers, communities, the environment and other stakeholders. This represents a clear pivot away from Milton Friedman’s 1960s ex cathedra doctrinal pronouncement that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

Please click here to read the full article.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

DUTCH UPDATE – Dutch cooling-off period in face of shareholder activism or hostile take-over

Editor’s Note: Leo Groothuis advises clients on public M&A and on a wide variety of other domestic and cross-border transactions, as well as take-over defenses and shareholder activism. Paul van der Bijl focuses on IPOs, follow-on offerings, public M&A, anti-takeover defenses, corporate governance and complex cross-border transactions

Dutch cooling-off period in face of shareholder activism or hostile take-over

On December 7, 2018, the Dutch government published draft legislation aimed at promoting a careful decision-making process in case of shareholder activism or a hostile takeover. If enacted in its current form, the proposal would introduce a statutory cooling-off period of up to 250 days during which the shareholders meeting would not be able to dismiss, suspend or appoint board members of a listed Dutch company under attack.

Scope

The legislation would apply to companies organized under Dutch law whose shares (or depository receipts for shares) are listed on a regulated market or multilateral trading facility operating in the European Economic Area, or on any similar stock exchange operating outside the European Economic Area, including Nasdaq and NYSE.

Conditions to invoke the cooling-off period

The board of a listed Dutch company under attack may invoke a cooling-off period of up to 250 days in case:

  1. shareholders, using either their shareholder proposal right or their right to request an extraordinary shareholders meeting[1], propose an agenda item for the shareholders meeting relating to the dismissal, suspension or appointment of a board member (or an amendment of any provision in the company’s articles dealing with those matters); or
  2. a public offer for the company is made or announced without the company’s support, provided, in each case, that such proposal or offer materially conflicts with the interests of the company and its business, as determined by the board.

The cooling-off period ends at occurrence of the earliest of the following events:

  1. the expiration of 250 days following the date of the relevant shareholder proposal or hostile offer;
  2. the hostile offer being declared unconditional (after the expiration of the initial acceptance period); or
  3. the board (voluntarily) terminating the cooling-off period.

Effects of the cooling-off period

During the cooling-off period, the shareholders meeting cannot validly resolve on the dismissal, suspension or appointment of a board member (or an amendment of any provision in the company’s articles dealing with those matters), unless proposed by the board itself.

Judiciary review

Shareholders representing 3% or more of the issued share capital may request the Enterprise Chamber of the Amsterdam Court of Appeal for early termination of the cooling-off period. The Enterprise Chamber must deny the request if the board, in view of the circumstances at the time the cooling-off period was invoked, could reasonably have come to the conclusion that the relevant shareholder proposal or hostile offer constituted a material conflict with the interests of the company and its business.

Consultation and transparency

During the cooling-off period, the board must gather all relevant information necessary for a careful decision-making process. In this context, the board must also consult with relevant stakeholders, including shareholders representing 3% or more of the issued share capital. Formal statements expressed by these stakeholders during such consultations must be shared with other stakeholders who are consulted by the board. Ultimately at the end of the cooling-off period, the board must publish a report in respect of its policy and conduct of affairs during the cooling-off period. This report should be tabled for discussion at the next shareholders meeting.

Combination with protective measures and/or existing response period

In an explanatory note, the Government indicates that it is opposed to accumulation of the cooling-off period with protective measures and/or the existing response period under the Dutch Corporate Governance Code. However, the draft legislation does not provide any specific restrictions in this respect. The rules in respect of potential combination or successive application of the various measures available to companies organized under Dutch law should be developed in market practice and case law.

There are a number of interesting differences between the existing response period under the Dutch Corporate Governance Code and the new proposed statutory cooling-off period, which are summarized in the table below.

Existing response period

Proposed cooling-off period

Follows from the Dutch Corporate Governance Code and is considered part of the general principles of reasonableness and fairness which should be observed by all stakeholders (including shareholders).

Mandatory Dutch law (once enacted), binding upon all shareholders.
Up to 180 days. Up to 250 days.
Can be invoked if shareholders propose an agenda item which could result in a change to the company’s strategy, including (but not necessarily limited to) the dismissal of board members. Can be invoked if shareholders propose the dismissal, suspension or appointment of a board member (or an amendment of any provision in the company’s articles dealing with those matters), or in case of a hostile offer
Allows the board to postpone a shareholder proposal during the response period (both as a discussion and as a voting item)

Allows the discussion of a shareholder proposal during the cooling-off period, but prevents a valid resolution in respect of the dismissal, suspension or appointment of a board member (or an amendment of any provision in the company’s articles dealing with those matters).

 

A common feature of the existing response period and the proposed cooling-off period is the postponement of a shareholder vote during a standstill period invoked by the board. This distinguishes them from more traditional protective measures under Dutch law, such as the issuance of preference shares or priority shares, which (i) are typically activated by an independent foundation and (ii) are focussed on the outcome of the vote, rather than the timing thereof.

Compliance with European rules

Based on advice from the Dutch Council of State (which has also been published), the Government is of the opinion that the proposed legislation does not violate European rules. Relevant rules include in this respect:

  1. the European Takeover Directive: the proposed legislation does not interfere with the course of any public take-over itself; merely with the adoption of certain shareholders resolutions during the offer period;
  2. the European Shareholders Rights Directive: the Government makes a distinction between the convocation of shareholders meetings and the inclusion of items on the agenda of the meeting, and the valid adoption of shareholders resolutions in respect of such items (only the former, and not the latter being subject to the European Directive);
  3. the European freedoms: the Government acknowledges that the proposed legislation could have a restrictive effect on European freedoms, but is of the opinion that such restrictive effect is justified by the public interest of a careful decision making process and proportionality.

Next steps

The general public is invited to submit comments on the draft legislative proposal before February 7, 2019. Following review of the comments and potential revision of the proposal, the legislative proposal may be submitted to Dutch parliament.

[1] The statutory thresholds for shareholders to make use of those rights are 3% and 10%, respectively, unless the company’s articles provide for a lower threshold.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

CHINA UPDATE – China is Taking Solid Steps to Open its Banking Sector

Editors’ Note: Chen Yun is a partner specializing in banking, finance and foreign exchange law. Wang Rong and Liang Yixuan also contributed to this article.

After the promulgation of the State Council’s Decision on Amending the Regulations of the People’s Republic of China (“PRC”) on the Administration of Foreign Funded  Banks (Consultation Paper) (the “Administrative Regulations Consultation Paper”) in late October 2018, the China Banking and Insurance Regulatory Commission (“CBIRC”) released the Decision on Amending the Implementation Rules of the Regulations of the PRC on the Administration of Foreign Funded Banks (Consultation Paper) (the “Implementation Rules Consultation Paper”, together with the Administrative Regulations Consultation Paper, the “Consultation Papers”) on 28 November 2018 to solicit public opinions.

The main purposes of amending these two legislations, which are of ultimate importance to the supervision of foreign funded banks (“FF Banks”) are to put into practice the country’s opening-up policies in the banking sector, to make law to implement the opening-up measures in the banking sector, which have been repeatedly referred to by senior government officials in various summits and public speeches, and to further liberalize the foreign investment in China’s banking sector.

The amendments made by the Consultation Papers focus on the following aspects:

  • Allowing foreign banks to maintain PRC branches (“FB Branches”) and locally incorporated banks in China (“FB LIBs”) at the same time
  • Lifting the restrictions on the conducting of the RMB business by FB Branches and FB LIBs
  • Broadening the business scope of FB Branches and FB LIBs
  • Relaxing the operating funds requirements for FB Branches

Ⅰ. Institutions Subject to the Regulation of the Consultation Papers

As early as 17 August 2018, CBIRC abolished the Administrative Measures on Equity Investment by Foreign Funded Financial Institutions in Chinese Funded Financial Institutions, and removed the 25% ceiling of foreign shareholding in a Chinese funded commercial bank by amending the Implementation Measures of the Administrative Licensing Items for Chinese Funded Commercial Banks.  It is also stipulated that a commercial bank will be regulated as the category of the bank as the one when and into which the foreign investment is made.

Therefore, foreign banks may set up from scratch joint-venture FB LIBs (“JV Banks”) or wholly foreign owned FB LIBs (“WFOBs”) regulated as FF Banks, or may otherwise become, by way of making investments into Chinese funded commercial banks, the shareholders of joint-venture banks with more than 25% foreign ownership or wholly foreign owned banks, which are converted from and regulated as Chinese funded commercial banks.

Notwithstanding the above, the institutions subject to the regulation of the Consultation Papers remain those regulated as FF Banks, namely WFOBs, JV Banks, FB Branches and PRC representative offices of foreign banks. As far as joint-venture banks or wholly foreign owned banks converted from and regulated as Chinese funded commercial banks as the result of the investment by foreign banks are concerned, the Consultation Papers do not apply.

Ⅱ. Allowing Foreign Banks to Maintain FB Branches and FB LIBs at the Same Time

One of the most appealing changes made by the Consultation Papers is that foreign banks would be allowed to maintain both FB LIBs (i.e. WFOBs and JV Banks regulated as FF Banks) and FB Branches) at the same time. As a result, foreign banks would no longer be forced to make a hard choice between local incorporation and keeping FB Branches.

Back in late 2006, when converting their FB Branches into WFOBs, foreign banks were allowed to retain an FB Branch to carry on their foreign exchange (“FX”) wholesale business for a certain period of time (i.e. a transition period), in order to facilitate the to-be-established WFOBs to meet the relevant regulatory indicators requirements and to facilitate the retained branch to phase out the outstanding FX wholesale business, only that such retained branch shall be closed upon the expiry of the transition period.

However, in the Implementation Rules of the Regulations of the PRC on the Administration of Foreign Funded Banks which was promulgated on 1 July 2015 and took effect on 1September of the same year, the relevant provisions on the retention of an FX wholesale business branch upon local incorporation of foreign banks were deleted, thus made such approach no longer workable.  In practice, CBIRC (then the China Banking Regulatory Commission) also rejected the application from any foreign bank for retaining an FX wholesale business branch when converting its FB Branches into a WFOB.

This policy change directly led to the delay in the local incorporation process of some foreign banks since, without the FX wholesale business branch retained, their to-be-established WFOBs may not meet the specific regulatory indicators requirements.

Now, the change made by the Consultation Papers allowing foreign banks to maintain both FB LIBs and FB Branches (although the Consultation Papers require that in such circumstances, the FB Branches would only be allowed to conduct the wholesale business, with a substantial breakthrough being that such wholesale business covers not only FX business but also RMB business) at the same time would make it easier for foreign banks to enter into the China market.

It is worth mentioning that the Consultation Papers also set out prohibitions or restrictions on the independence and the risk isolation mechanism of the management, personnel, business, information and related party transactions of FB LIBs and FB Branches.

Ⅲ. Lifting the Restrictions on the Conducting of the RMB Business

With regard to the RMB business, the following material changes are made by the Consultation Papers:

  • The “waiting period” (i.e. a period of time for which an FB LIB or an FB Branch shall open business before applying for conducting the RMB business) for the RMB business of FB LIBs and FB Branches is cancelled;
  • The minimum amount required for FB Branches to accept the fixed term deposit from Chinese citizens is lowered from RMB 1 million to RMB 0.5 million;
  • FB LIBs or FB Branches are allowed to conduct the preparatory work for the RMB business simultaneously with that for setting up FB LIBs or FB Branches, and to submit the application for the opening of the RMB business simultaneously with that for the business opening of FB LIBs and FB Branches. Thus, the RMB business may be opened Day One when FB LIBs and FB Branches open their businesses; and
  • In the case of multiple FB Branches, the managing FB Branch may authorize other FB Branches to conduct the RMB business as long as the managing FB Branch itself has obtained the RMB business license.

Ⅳ. Broadening the Business Scope

The Administrative Regulations Consultation Paper includes “acting as the issuance agent, payment agent and/or underwriter of Chinese government bonds” into the business scope of FB LIBs and FB Branches. Thus, the business scope of an FB LIB is substantially the same as that of a Chinese funded commercial bank.

In addition, the Implementation Measures Consultation Paper restates that the following types of business of FB LIBs and FB Branches are subject to the afterwards reporting requirement only, which was provided in the Circular on the Conducting of Certain Businesses by Foreign Funded Banks (the “Circular”) issued by the General Office of CBIRC on March 10, 2017 and now documented into a regulation by CBIRC: (1) acting as the issuance agent, payment agent and underwriter of Chinese government bonds; (2) providing custody, escrow and guardianship services; (3) providing consultancy services such as financial advisory services; (4) providing overseas wealth management services for and on behalf of the clients; and (5) such other businesses as CBIRC may deem to be subject to the afterwards reporting requirement.

Furthermore, the Implementation Measures Consultation Paper restates the regulations of the Circular allowing the intra-group cooperation (namely, allowing FB LIBs and FB Branches to cooperate with their parent bank groups to provide comprehensive financial services to Chinese enterprises in offshore bond issuance, listing, acquisition, financing and the like by taking the advantages of their global service networks.

Ⅴ. Relaxing the Operating Funds Requirements for FB Branches

In respect of the operating funds requirements of FB Branches, the Consultation Papers have made the following adjustments as well:

Ⅵ. Other Changes and Our Observations

Apart from the above significant changes, the Consultation Papers also make certain changes in the areas such as the outsourcing activities conducted by FB LIBs and FB Braches and their termination and liquidation.

Although the Consultation Papers are subject to the solicitation of public opinions before finalization, one can be assured that China is on the track of more opening-ups in its banking sector.

With abundant experience of assisting foreign funded financial institutions in setting up their PRC presences, carrying on their business in compliance with the law, exploring new business boundaries and seeking business cooperation, King & Wood Mallesons is right here standing by to hold your hands crossing the jungle!

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

Spotlight on Boards

Editor’s Note: This article was authored by Martin Lipton of Wachtell, Lipton, Rosen & Katz.

December 3, 2018

Spotlight on Boards

The ever-evolving challenges facing corporate boards prompt an updated snapshot of what is expected from the board of directors of a major public company—not just the legal rules, but also the aspirational “best practices” that have come to have equivalent influence on board and company behavior. Today, boards are expected to:

  • Oversee corporate strategy and the communication of that strategy to investors, keeping in mind that investors want to be assured not just about current risks and problems, but threats to long-term strategy from global, political, social, and technological developments;
  • Determine the board’s response to proposed legislation like Senator Elizabeth Warren’s bill, Accountable Capitalism Act, which would federalize all companies with annual revenues of $1,000,000,000, preempt state corporation law and mandate board fiduciary duty to all stakeholders, not just shareholders, and require not less than 40% of the directors be elected by employees;
  • Be aware that ESG and sustainability have become major, mainstream governance topics that encompass a wide range of issues, such as climate change and other environmental risks, systemic financial stability, labor standards, employee training, and consumer and product safety;
  • Recognize the current focus of investors on “purpose” and an expanded notion of stakeholder interests that includes employees, customers, communities, and the economy and society as a whole and work with management to develop metrics to enable the company to demonstrate their long-term value to shareholders, society and the economy;
  • Set the “tone at the top” to create a corporate culture that gives priority to ethical standards, professionalism, integrity and compliance in setting and implementing both operating and strategic goals;
  • Choose the CEO, monitor the CEO’s and management’s performance and develop and keep current a succession plan;
  • Have a lead independent director or a non-executive chair of the board who can facilitate the functioning of the board and assist management in engaging with investors;
  • Together with the lead independent director or the non-executive chair, determine the agendas for board and committee meetings and work with management to ensure that appropriate information and sufficient time are available for full consideration of all matters;
  • Determine the appropriate level of executive compensation and incentive structures, with awareness of the potential impact of compensation structures on business priorities and risk-taking, as well as investor and proxy advisor views on compensation;
  • Develop a working partnership with the CEO and management and serve as a resource for management in charting the appropriate course for the corporation;
  • Oversee and understand the corporation’s risk management and compliance efforts and how risk is taken into account in the corporation’s business decision-making; respond to red flags if and when they arise;
  • Monitor and participate, as appropriate, in shareholder engagement efforts, evaluate corporate governance proposals, and work with management to anticipate possible takeover attempts and activist attacks in order to be able to address them more effectively, if they should occur;
  • Meet at least annually with the team of company executives and outside advisors that will advise the company in the event of a takeover proposal or an activist attack;
  • Be open to management inviting an activist to meet with the board to present the activist’s opinion of the strategy and management of the company;
  • Evaluate the board’s and committees’ performance on a regular basis and consider the optimal board and committee composition and structure, including board refreshment, expertise and skill sets, independence and diversity, as well as the best way to communicate with investors regarding these issues;
  • Review corporate governance guidelines and committee charters and tailor them to promote effective board and committee functioning;
  • Be prepared to deal with crises; and
  • Be prepared to take an active role in matters where the CEO may have a real or perceived conflict, including takeovers and attacks by activist hedge funds focused on the CEO.

To meet these expectations, major public companies should seek to:

  • Have a sufficient number of directors to staff the requisite standing and special committees and to meet investor expectations for experience, expertise, diversity, and periodic refreshment;
  • Compensate directors commensurate with the time and effort that they are required to devote and the responsibility that they assume;
  • Have directors who have knowledge of, and experience with, the company’s businesses, even if this results in the board having more than one director who is not “independent”;
  • Have directors who are able to devote sufficient time to preparing for and attending board and committee meetings and engaging with investors;
  • Provide the directors with the data that is critical to making sound decisions on strategy, compensation and capital allocation;
  • Provide the directors with regular tutorials by internal and external experts as part of expanded director education and to assure that in complicated, multi-industry and new-technology companies the directors have the information and expertise they need to evaluate strategy; and
  • Maintain a truly collegial relationship among and between the company’s senior executives and the members of the board that facilitates frank and vigorous discussion and enhances the board’s role as strategic partner, evaluator, and monitor.

Martin Lipton

 

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

 

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