shareholder activism

Shareholder Activism: What Board Members Need to Know

Shareholder activism plays a pivotal role in the evolution of corporate America’s public companies. In fact, the listed companies that shareholders targeted in
2013
“had an average market capitalization of $10 billion.”

That’s some serious power when it comes to influencing major corporations in the United States.

But what does shareholder activism really mean? To put it simply, shareholder activism occurs when an individual (or an entity) uses their equity stake in a corporation to put pressure on the company to make specific changes.
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esg standards

Why Board Members Need to Understand ESG Standards

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 standards 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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5 Questions Boards Should Ask After an Audit

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External audits usually provide companies with a fresh perspective on their financial health and reporting practices.

It’s important that your board, or more specifically, that your Audit Committee asks the right questions in order to make the most out of the findings you receive.

Here are some of our suggestions for queries we think you should address with your auditor or auditing firm:

1. Did you have any difficulty interacting with employees or accessing information while collecting data?

It’s important that companies establish a culture of forthcoming reporting. If a member of your internal team was not cooperative with the auditor, or if records were extremely hard to locate, you may have some internal issues to address. Additionally, if auditors are unable to obtain thorough records, it could lead to an incomplete report.
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The Rise of the Chief Audit Executive

The rise of the chief audit executive - compliance

The recent Wells Fargo disaster reminds us that for companies, the best kind of watchdog is the internal kind. For some reason, Wells Fargo’s internal watchdog (or Chief Audit Executive) didn’t suffice in this instance, though.

Whether that means they overlooked unethical sales practices or whether their reports to management went unheard is unknown. What we do know, though, is that Wells Fargo probably wishes they had dealt with these concerns internally before it became the debacle playing out in our daily news headlines.

Chief Audit Executives play a vital role in a large corporation’s system of checks and balances. Simply put, they exist in order to operate as a fully independent audit assessor, who also often supervises other aspects of risk and compliance. These executives, who typically report to the board’s audit committee, are becoming more sought after with each passing day.

In fact, “Chief audit executives hired by large companies now command total pay packages approaching $1 million—about 30% more than a decade ago,’’ said Scott Simmons, a managing director at Crist|Kolder Associates, which recruited nearly 15 current CAEs.
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What Corporate Directors Can Learn From Wells Fargo

Wells Fargo has certainly had better years than 2016. If you’ve somehow missed the flood of news headlines, check out this summary article by The Week writer, Jeff Spross. The title alone—“The Mind-Blowing Stupidity of Wells Fargo”—should be enough to give any board member a shudder.
What Corporate Directors Can Learn From the Wells Fargo Fiasco

No director wants their organization to be the topic of a headline like that. The Wells Fargo PR disaster began with aggressive cross-selling tactics and the creation of hundreds of thousands of fraudulent bank accounts and credit lines.

These practices were implemented when lower level employees were met with impossible sales expectations and quotas.

When scandals like this occur, it’s important that leaders of the affected organization (as well as leaders of other major companies) take note of the failures and analyze ways they can be either confronted or avoided in the future. Here are some examples of learning opportunities for corporate directors who want to glean something from this downward spiraling situation.
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4 Questions About Board Conflicts of Interest

What are conflicts of interest?

For directors, board conflicts of interest are “situations in which a person is in a position to derive personal benefit from actions or decisions made in their official capacity.”
board conflicts interest

Example: Let’s say that a director serves on a board for a rental car company, and he also works as an auto insurance salesman for his primary job.

If the board he served on voted to buy insurance from his company, this would present a conflict of interest because the board member would stand to gain personally from that transaction.

For an incident to qualify as a conflict of interest, it must involve the clash between a director’s official duties and their own self-interest.

Legally speaking, this sort of situation would obviously muddle a director’s ability to make the correct and impartial choice for the shareholders’ benefit.

What dangers do board conflicts of interest present?

Conflicts of interest that have not been addressed can result in legal action taken against both an individual board member as well as the organization they serve. These intermediate sanctions can have an extremely negative affect on the finances of an individual or an organization.
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Board Membership 101: Fiduciary Duties

Board Membership 101: Fiduciary Duties

The foundation of a board member’s service is their fiduciary duty to shareholders. Before we jump into what kinds of duties are involved, let’s look more closely at the word “fiduciary:”

fiduciary
(adjective): involving trust, especially with regard to the relationship between a trustee and a beneficiary.

It’s a word that we hear a lot in the corporate world, but its basic meaning often gets overlooked. Simply put, the word fiduciary is all about trust, and that’s exactly what’s required of directors under corporate governance law.

The Three Types of Fiduciary Duties:

  1. The Duty of Care

According to Investopedia, the duty of care “applies to the way the board makes decisions that affect the future of the business. The board has the duty to fully investigate all possible decisions and how they may impact the business. Because a company’s board of directors is tasked with making very important decisions, it is necessary that each member takes each issue seriously and adequately considers all options.”

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Board Membership 101: The Role of a Board of Directors

Present day corporate directors are faced with increasing responsibilities, expectations, and risks. Over the last twenty years, government standards for board oversight have grown more stringent than ever as the role of a board of directors evolves.

Role of the Board

But why exactly do boards of directors exist, and what is the role of a board of directors? Ultimately, boards exist to provide strategic oversight for a company and to protect shareholders’ financial interests.

In order to accomplish those goals, individuals who wish to serve on a board must be willing to take on the responsibilities expected of a director.

Below, you’ll find eight factors that outline the role of a board of directors.

  1. Provide strategic guidance.

Literally, board members are expected to provide the vision, mission, and goals for an organization. Metaphorically, they’re also responsible for the “big picture” vision for the company: where is it currently headed? Where does the company want to go from here?
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