From Main Street to the boardroom, 2011 as a whole can be summed up as a year of cautious optimism tempered by frequent fits of doubt, fueled by the slow dissipation of the financial crisis and an unclear view of the future. This sentiment was common among those in Corporate America and on America’s Main Street. Businesses and citizens alike felt some of the recession’s ill effects. As a result, some have altered or sharpened their views on what constitutes remedy and recovery.
America, and more specifically the financial services community, rang in the New Year wondering just how much of a threat a new online menace would prove to be. As the threat fizzled, the nation turned its attention to the 99 percent, as Occupy Wall Street protesters settled in tent cities throughout the country to protest what they view as income and opportunity inequality, focusing some of their rancor on executives at the nation’s largest banks and corporations. All the while, Americans kept a wary eye on the euro zone, where a sovereign debt crisis still threatens the thin ice on which the global economy is attempting to rebuild itself.
Bad luck tends to come in threes and then multiplies. “It’s a combination of three very bad years of everything going wrong in the financial services industry coupled with political class warfare,” said Steve Mader, Korn/Ferry vice chairman and managing director of Board Services.
The year closed amid a contentious battle for the Republican presidential nomination, a battle beginning later than most—no doubt another sign of the careful steps the country as a whole is making moving forward. This marks the first presidential election since the groundbreaking Citizens United ruling, which allows corporations the same rights as individuals to contribute funds to political campaigns as a form of free speech.
As companies began exercising their say on politics, shareholders celebrated the first proxy season where public companies were required to give them their say on pay. While most companies’ inaugural votes passed with minimal drama, a handful of companies did not receive majority support, and some now face derivative lawsuits. The governance community is still watching for the effects of implementing many of the Dodd-Frank Act’s rules, specifically, the whistleblower bounty provisions and the survival of proxy access via private ordering, with an apprehensive eye on expected compensation disclosure rules.
The eight constituencies surveyed in the third annual What Society Thinks Survey—produced by NACD and Deloitte in conjunction with Korn/Ferry International—registered collective agreement on few of the 32 questions, but the most common response in all groups to the statement “Board directors are effective at protecting shareholder interests” was “agree.” “Agree” or “strongly agree” was the majority response to this question in all groups except senior management and policy makers, at 46 and 45.5 percent respectively.
Now in the third year of this survey, the improvement in how directors are perceived by society may reflect the visibility of Dodd-Frank and what some view as improvement in the economy. “There may be a cause and effect here that society thinks boards are more focused on governance in the aftermath of the credit crisis. Capital markets are also getting better and that may add to the improvement in perception,” said Henry Ristuccia, Deloitte & Touche LLP partner and co-leader of Deloitte’s Governance and Risk Management Services.
Main Street’s view of director credibility improved slightly, with a shift to responses of “adequate” or “good” compared with last year’s common “adequate” or “poor” answers. A scant 1.2 percent of Main Street and none of the academic faculty members and financial analysts felt directors were outstandingly credible. Directors were cautiously optimistic; 45.5 percent gave a “good” nod followed by 27.3 percent judging their own peers’ credibility as “adequate.”
“Because of the variety of different challenges they face—from Occupy Wall Street and the Dodd-Frank Act as it continues down the road, to the overall political nature of an election year—boards are taking their roles more seriously than ever. The pressure just from the press taking a critical look puts boards much more in tune,” said Nels Olson, Korn/Ferry International vice chairman and co-leader of Board & CEO Services.