As “Board Season” is behind us for the majority of public companies, there are three trends that we are observing….sometimes subtle.
TREND ONE: ACTIVIST ENGAGEMENT…HEIGHTENED INTENSITY
Given current market valuations, boards and their leadership are facing increasing pressure for top line growth and bottom line results. At the same time, directors will be faced with new dynamics as “activists” push more frequently for specific unlocking value actions and directorships.
There is no doubt, that boards are fearful. Activists smell fear and are making it work to their benefit.
To an extent, Activists are opportunists and have flexibility to act at a velocity that boards, in their role as corporate governors, cannot. In most cases, the “Activist” mantra is to enhance value vis-a-vis in the short term.
This trend requires boards to become activists themselves, i.e., more diligent…pressing their CEOs for operating execution and results. And, for boards to be more effective at communicating with their shareholders, recognizing that directors of public companies face responsibilities of stewardship that go well beyond taking a short cut to the future.
Accordingly, the best boards are emphasizing a full operating assessment along with impact and expectations as a much heavier part of their committee work and board meeting agendas. Of course, boards, in doing so, are seeking more transparency with their CEO which is defining their relationship, perhaps differently ( i.e., expectations, accountability and compensation), going forward.
TREND TWO: SKIN IN THE GAME
Boards are trending toward executive comp of restricted stock with an increasing emphasis on performance based equity grants. Options are being granted at much lower rate.
And, boards are lengthening vesting periods in order to incentivize a different gearing of strategic investment and short term performance, retention of key talent, and in line with good governance.
Increasingly, the issue we hear often from institutional shareholders is that directors don’t truly have skin in the game, i.e., rarely own shares that they purchase on their own as opposed to those “paid” to them as part of director compensation. Without purchased ownership, shareholders ask the question of how directors can best represent the interest of the shareholders without being one of them.
TREND THREE: BOARDS SEEK NEW ECONOMY GUIDANCE
Director turnover, we sense, is increasing which opens Nominating Committees to consider board refreshment.
