The job of corporate directors will not get easier as this year progresses. The following is a list of the key issues that directors will need to address in 2008. As directors are pulled in many different directions by a number of constituencies, they will need to find balance among these often competing interests and above all, remain true to their own views of what is best for the company.
1. MAINTAIN COLLEGIALITY and the culture of a common enterprise with the CEO and senior management, while you continue to increase monitoring of performance and compliance in response to pressure from shareholders and regulators.
2. ASSURE SHAREHOLDERS and other constituents (including regulators) that the CEO and senior management are being properly evaluated and that there is a continuously reviewed management succession plan.
3. UNDERTAKE A COMPREHENSIVE REVIEW of risk management and overall risk-management procedures in the company.
4. RE-EXAMINE BALANCE SHEET ISSUES, including leverage, debt maturities, share buybacks, and dividend policy, in light of the prediction by Alan Greenspan, and others, that there is a 50 percent chance of a recession.
5. DEAL WITH THE EXECUTIVE COMPENSATION ISSUE by developing specially tailored programs to minimize criticism, properly documenting the discussions and decisions of the compensation committee, and complying fully with the new Securities and Exchange Commission rules. At the same time, directors will need to cut through the media and political gadflies’ criticism of executive compensation in order to enable the company to attract and retain the best available executives, and reward outstanding performance. They will also need to address directors’ compensation, which should be adjusted to reflect the increased time commitments and responsibilities borne by directors.
6. STRIKE THE RIGHT BALANCE in responding to shareholder corporate governance initiatives, accepting those that do not interfere with management of the business and rejecting those that limit the power of the CEO and the board. Majority voting, which has received very significant shareholder support, is an example of a proposal that should be accommodated. Limits on executive compensation, splittingthe role of chairman and CEO, and efforts to impose shareholder referenda on matters that have been the province of the board are examples of proposals that should be resisted.
7. ANTICIPATE ATTACKS by activist hedge funds seeking management, structural, or strategy changes to boost the price of the stock, and develop business, financial, and legal strategies to avoid or counter them.
8. REGULARLY REVIEW that the CEO and senior management are setting “tone at top” that stresses professionalism, integrity, transparency, legal compliance, and high ethical standards.
9. RESIST THE TREND to have the audit committee or a special committee of independent directors investigate almost all whistle-blower complaints, recognizing how disruptive such investigations are, and being judicious in deciding what really warrants investigation. When an investigation is warranted, resort to outside advisers only when there is a real conflict or need for special expertise, and continue to obtain professional advice from the company’s officers and regular advisers.
Martin Lipton, a founding partner of Wachtell, Lipton, Rosen &Katz, specializes in advising corporations on mergers and acquisitionsand matters affecting corporate policy and strategy.