Why Board Members Need to Understand ESG

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On Tuesday morning, January 16, Laurence Fink—founder and CEO of the investment firm BlackRock—sent an important letter to the CEOs of the world’s largest companies. In that letter, he explained, “Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.” BlackRock is the largest investor in the world—thereby giving Fink’s voice a great deal of power and influence. But what exactly do his statements mean?

Put simply, Fink’s letter advocates for Environmental, Social and Governance criteria, which is commonly referred to as ESG. Investopedia defines ESG as “a set of standards for a company’s operations that socially conscious investors use to screen investments.” The environmental element examines how a company is handling their impact on the natural environment. The social portion of the criteria scrutinizes how the company handles its relationships—with employees, partners, customers, its local communities, and more. The governance component analyzes exactly what you’d expect: executive leadership as well as pay, auditing processes, shareholders rights, etc.
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A Blockchain Explainer for Board Members

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You’ve probably read or heard the word ‘Bitcoin’ more times than you can count over the past year. This ‘cryptocurrency’ is making waves and dominating the headlines because of its use of blockchain technology and its recent boom in value.

But what is a blockchain exactly? According to the authors of Blockchain Revolution, “The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.” In other words, every time a ‘block’ or transaction is added to the ledger, it immediately becomes a part of the permanent, universal database. Investopedia explains, “The blockchain was designed so these transactions are immutable, meaning they cannot be deleted. The blocks are added through cryptography, ensuring that they remain meddle-proof: The data can be distributed, but not copied.”

The technology was originally invented to handle accounting needs for Bitcoin, but it is already spawning new uses. Banks and major stock exchanges were some of the first entities to recognize the potential of blockchain technology, which is also sometimes referred to as distributed ledger technology (DLT). Nasdaq has been experimenting with DLT since 2015. A writer for the Nasdaq website explains that utilization of blockchain has “the potential to enable stock exchanges to significantly reduce the cost, complexity, and increase the speed of trading and settlement processes in a secure manner.”

So what does this mean for board members all over the globe? It means that the blockchain could revolutionize some industries and completely change the face of others. Inevitably, it will also produce new risks for companies. David Yermack, Professor of Finance at the NYU Stern School of Business, predicts several ways that blockchain could affect the landscape of corporate governance:

  1. “Using blockchains to record stock ownership could solve many longstanding problems related to companies’ inability to keep accurate and timely records of who owns their shares.”
  1. Blockchain could make stock buying/trading much more affordable as well as more transparent. For activists, this could mean lower-cost acquisitions of shares and less secrecy around the process in general.
  1. “Corporate voting could become more accurate, and strategies such as ‘empty voting’ that are designed to separate voting rights from other aspects of share ownership could become more difficult to execute secretly.”
  1. Basic corporate accounting could be completely transformed.
  1. And finally, “Any and all of these changes could dramatically affect the balance of power between directors, managers, and shareholders.”

Want to learn more about emerging blockchain technology? Check out this in-depth article. Want to learn more about how Directorpoint can transform the way your board of directors makes decisions? Schedule a demo with us today!

New Year’s Resolutions for the Boardroom

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You might have already made a personal resolution for the new year, but have you thought about how your board can change for the better in 2018? There’s no time like the start of a new calendar year for goal setting—in fact, it’s a practice that’s existed for more than 4,000 years! Not sure how your board can push for even better decision-making in the coming months? Don’t worry, we’ve got some suggestions:

  1. Consider forming an ethics committee.

The last year brought news of a considerable amount of corporate scandal and misbehavior. From the Volkswagen sentencing to the Wells Fargo debacle, board members have been held under a microscope when things go terribly wrong. In response, several writers at Harvard Business Review insist that it’s time for boards to get serious about ethics and form a committee “with responsibility for the firm’s culture of integrity and for creating a robust program of controls and processes to promote ethical conduct and compliance.” The group would work closely with c-suite leaders to ensure that ethical strategies are employed at all levels of the company.
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Is Your Board Ready to Handle a Crisis?

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According to corporate governance expert, Paula Loop, “Companies experience at least one crisis every four or five years.” That means every board should be prepared to step in and make important decisions in the event of an unforeseen issue. Additionally, the public’s perception of corporate director responsibility has grown substantially. Whether it’s a public relations, technological, or financial crisis, shareholders and the public expect boards to not only be held accountable, but also to successfully navigate the company out of the crisis. Is your board ready to fulfill that tall order? Here are some suggestions for being prepared.
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Why the Fortune 500 Loves Delaware

Corporate Governance

When you think of the business epicenter of America, what place springs to mind? New York City, San Francisco, or maybe Los Angeles? Those would be good suggestions but oddly enough, a potentially bigger case could be made for the state of Delaware. As Alana Semuels writes for The Atlantic, “Two-thirds of Fortune 500 companies—including Coca-Cola, Apple, and American Airlines—are incorporated there…Their workforces, headquarters, and operations—truly the corporations themselves in anything but a legal sense—are elsewhere.”

So why are big business leaders rushing to file their paperwork in one of the nation’s tiniest states? The short answer is Delaware’s Court of Chancery. This style of court system, which developed in colonial times, is now largely non-existent in the rest of the United States. However, Delaware’s Court of Chancery has been continuously functioning since 1792. One of five judges presides over all cases that make it to the court, and verdicts are reached without the use of a jury.
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Recent Trends in CEO Succession

CEO succession

Recent Trends in CEO Succession

CEO succession data provides a unique glimpse into the evolving landscape of corporate leadership. By tracking the measurable trends, corporate governance leaders can better examine the effects of succession timing, industry-specific risks, diversity initiatives, and why certain companies are outperforming others. Each year, The Conference Board releases a report that “analyzes all CEO succession events at S&P 500 companies over the last 16 years.” Here are some highlights from their latest findings.

High turnover rates in retail and consumer product industries indicate that there is a major shift occurring.

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Boardroom Questions About Information Security

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More than ever before, boards are faced with the daunting task to ensure their company is protected in the event of an online attack. Just a decade or so ago, questions of digital risk rarely made it to the boardroom; instead, companies charged c-suite leaders with the duty cybersecurity. As larger data breaches have wreaked havoc on major organizations, however, board members have begun to recognize their important role in risk management for information security. In order to maintain a proactive approach, we recommend that directors ask a lot of questions—these included:
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Exploring Types of Corporate Governance Training

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Becoming a board member is a great achievement in and of itself, but becoming a successful board member poses a unique challenge—one that can be made easier through the utilization of top-notch training. The types of corporate governance training range in both price and in duration. In this blog, we’ll highlight some of those options.

Online Courses

Luckily, the digital age we’re living in presents many convenient ways for board members to grow their knowledge and expertise. You can watch a quick 5-minute video about cyber security concerns, or you can jump in a weeks-long online education track. In fact, numerous corporate governance organizations offer extensive educational tools for directors. For instance, the National Association for Corporate Directors offers a course for board members called “Education Framework,” and clearly outlines its purpose: “The establishment of a standard in director education creates much-needed clarity about the knowledge and competencies directors should develop to become high-performing board leaders.” A large number of sites offer similar online programs that are low-cost but highly respected.
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Strengthening Board Collaboration

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collaboration (noun): the action of working with someone to produce or create something.

 

Boardrooms are built on the foundation of collaboration; it is the ultimate purpose of their existence—bringing two or more leaders together to produce the best decisions possible. Unfortunately, boards don’t always focus enough time on strengthening their collaborative practices, but fear not! We’re here with some helpful tips on how to cultivate a collaborative energy in your boardroom.
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Board Member Onboarding Done Right

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When boards welcome a new director, the focus should be on setting that individual up for success. Whether the person is a first-time board member or a veteran of corporate governance, offering them a purposeful orientation process can go a long way toward building a strong leadership team. While slight variations will exist, the basic principles of productive onboarding are universal whether your company is public, private, or not-for-profit. Consider these suggestions and how they can take your board to a higher level of effectiveness.
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