“Now, it’s personal” is an interesting phrase that I’ve heard more than once in recent conversations about director elections. By “personal,” I mean that when it comes to voting their proxies for director slates, shareholders will be focusing on individual directors in upcoming proxy seasons.
In companies with majority voting policies, individual directors deemed unworthy by shareholders won’t get their votes; enough abstentions and they’ll have to resign. And in the future, investors may be using proxy access to replace unwanted directors with their own individual candidates.
One target may be individuals serving on the compensation committee for companies where pay seems unrelated to performance. Shareholders may use “say on pay” to rebuke them collectively, and majority voting and proxy access to move them off boards.
Another target: audit committee members of boards that failed to anticipate and prevent financial crisis.
As for nominating/governance committee members, they may be targeted if there are overall failures in board performance—for example, perceived failures of oversight in company crises. In any case, they are on the front lines of communication to make sure that shareholders understand fully the value of the candidates they are recommending for the board and for service on key committees.
But there is a bigger picture to be seen. NACD’s resources (see page 79 in this issue) drive home a key point: directors should never be seen solely as individuals. Even if shareowners are getting more “personal,” we have to help them see beyond individuals to the group. An undue focus on individual directors is the main risk in majority voting and proxy access because investors may hound out a director who possesses a rare expertise or trait that is a critical piece of the puzzle for a board. Conversely, there might be a “rock star” director who really does not add to the board. Only directors know this—and know exactly how boards function as a “whole.”
Boards and directors, long used to working collectively, can rise to this new challenge. Now, it is personal—but it’s also interpersonal. Directors can do a better job communicating who we are both individually and collectively, starting today.