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Corporate Governance: What Corporate Counsel Need to Know Best Practices in 2008’s Complex Business Environment Presented to the Association of Corporate Counsel – Washington Chapter. James Defebaugh, TrueBlue, Inc. Scott Greenburg, K&L Gates John Leness, Flow International
Corporate Governance: What Corporate Counsel Need to Know Best Practices in 2008’s Complex Business EnvironmentPresented to the Association of Corporate Counsel – Washington Chapter
James Defebaugh, TrueBlue, Inc.
Scott Greenburg, K&L Gates
John Leness, Flow International
John Seethoff, Microsoft
Chris Visser, K&L Gates
Recent focus has been changes caused or influenced by Sarbanes-Oxley
New standards of director independence, independent board committees
Federally mandated responsibilities for Audit Committees
Expanded corporate governance standards for listed companies
Should all be part of a baseline level of legal and regulatory corporate compliance
New Focus: Accountability to the shareholders for the performance of the company
Responsiveness—to shareholders, regulators, and to the public—a hallmark of an effectively governed company
SEC Staff Observations in the Review of Executive Compensation Disclosure (October 9, 2007)
Compensation Discussion & Analysis
“Where’s the analysis?” Focus on how and why (e.g., use of tally sheets)
Climate—regulatory and shareholder interest in executive compensation
“say on pay” proposals
“pay for performance” proposals
Option backdating cases
Are public disclosures about executive compensation painting an accurate picture of how executives are being compensated and the reasoning/analysis behind executive compensation decisions?
Dynamics of counsel interactions with Compensation Committees
Current SEC Rule 14a-8.
Historically could exclude proposals that relate to an election for membership on company’s board
SEC Failed 2003 Shareholder Access Proposal (proposed Rule 14a-11)
AFSCME v. AIG case
SEC competing shareholder access proposals
The winner . . . for now . . .
December 2007—the short proposal (excludable if it relates to a nomination or election . . . or a procedure for such nomination or election)
Plurality Vote Default Standard
In uncontested elections—director is always reelected
How can shareholders find ways to make their views more meaningful?
Contact with Nominating Committee and/or provide direct nominations
“Withhold Vote” campaigns (pros and cons)
Shareholder proposals (Rule 14a-8 proposals)
Board “policies” for majority voting (2005 Pfizer policy)
True Majority Voting standard is gaining traction
New Washington corporate law changes effective as of July 2007
Voting standard can be in a bylaw (or articles)
Either board or shareholder can adopt but if shareholders adopt then only they can amend
If there is failure to obtain specified level or percentage:
New candidates are not elected
Incumbent directors serve until earlier of successor appointment or 90 days
Board appoints director to fill vacancy
Default rule doesn’t apply in contested elections (return to plurality standard)
Advance resignations can be irrevocable and can be conditioned on future events (i.e., failure to get specified vote)—addresses holdover problem
Balance between Board authority and shareholder rights
Increased shareholder communications
Regulation FD and PR considerations
Pfizer Board of Directors meeting with largest institutional shareholders
Distinguished from Compliance:
What to do?
“On matters of style, swim with the current, on matters of principle, stand like a rock.” -- Thomas Jefferson
“Live so that when your children think of fairness and integrity, they think of you.” -- H. Jackson Brown, Jr.
“Relativity applies to physics, not ethics.” -- Albert Einstein
“So live that you wouldn’t be ashamed to sell the family parrot to the town gossip.” -- Will Rogers
Easier said than done . . .
“The truth of the matter is that you always know the right thing to do. The hard part is doing it.” -- General Norman H. Schwarzkopf
“The ultimate measure of a man is not where he stands in moments of comfort, but where he stands at times of challenge and controversy.” -- Martin Luther King, Jr.
“Necessity may well be called the mother of invention – but calamity is the test of integrity.” -- Samuel Richardson
Make a choice: think and act outside of the “lawyer box”
Help create, reinforce a company culture rich in ethics
An ethics-based code of conduct
Employee helpline / hotline
Over communicate; robust training
Hire for values and include them in performance evaluations
Tone from the top
Fewer lawsuits, lower legal expense
Enhanced company reputation
Better relationships with key stakeholders
Improved employee morale
Increased profits and growth
Side benefits . . .
“It takes less time to do the right thing than to explain why you didn’t.” -- Henry Wadsworth Longfellow
“If you tell the truth you don’t have to remember anything.” -- Mark Twain