To prepare corporate boards for a year in which major governance issues are likely to arrive at an unprecedented pace, the corporate governance practice group of international law firm Akin Gump Strauss Hauer & Feld has compiled its “Top 10 Topics for Directors in 2008.” The guide outlines the key issues that gathered steam in 2007, and offers insight on how regulatory changes, as well as economic, financial and political developments, will impact boardroom strategy and procedure.
In short, Akin Gump’s Top Ten issues are:
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1) Rising Shareholder Activism – 2007 saw a record number of shareholder proposals, activist campaigns and proxy fights. As these actions tend to increase when the economy and the stock market falter, boards should plan in advance for a busy calendar.
- 2) Hedge Funds at the Gate – During 2007 hedge funds were involved in more than half of the record 501 activist campaigns and two thirds of the record 110 proxy fights. Boards must be proactive in their strategies to engage with this growing bread of corporate player.
- 3) Where Have all the Mergers Gone? - The freezing of the credit market in the second half of 2007 has brought corporate M&A activity to a halt. As a result, directors will need to reassess acquisition and divestiture plans. At the same time new SEC rules may catalyze the market for private capital. Of major concern however will be the outcome of litigation that will define the limits that deal participants can exit transactions as a result of “Material Adverse Change (MAC)” clauses, and the potential for a Democratic administration to impose a more restrictive antitrust environment in 2009.
- 4) A Better Way to Proxy? – New SEC “E-Proxy” rules in 2007 have altered the proxy voting landscape by allowing proxy materials to be posted online instead of sent through the mail. The results of the program have been mixed and clear lessons are not yet discernible.
- 5) Meet the New Boss – In a challenging economic environment, CEO changes can be expected to increase. Boards should have succession plans in place to meet unexpected challenges.
- 6) Pay Practices Under the Microscope – SEC policies adopted in 2007 will place additional burdens on boards to justify executive pay packages. Already 350 corporations have been asked for greater clarity as to how compensation was determined. In such an environment, compensation committees can leave nothing to chance and must act proactively to diffuse potential problems.
- 7) Say on Pay – Proposals that would give shareholders a more direct influence on executive pay packages gathered significant support in 2007. Although passed in only a handful of occasions, boards should prepare for a continuing groundswell of support for these initiatives.
- 8) Recession Planning – History shows that when the economy goes down, corporate shareholder lawsuits go up. Boards should plan accordingly. Of particular concern to financial firms will be lawsuits related to losses on subprime mortgage investments.
- 9) Environmental and Corporate Responsibility Initiatives – Popular campaigns for corporations to alter policies on energy use and social issues have greatly increased their support in recent years. Surprisingly, these initiatives have not been restricted to energy and large manufacturing companies, but to retailers and homebuilders as well. As a result, corporate boards will be dealing with issues such as carbon emissions for years to come.
- 10) Insider Trading – After a December 2006 study revealed that Rule 10b5-1 trading plans may fail to insulate selling from insider knowledge, the SEC began devoting much more attention to how these plans are constructed and executed. In addition, boards should be aware of how an energized SEC with better technological tools is detecting insider trading activities in areas that have been previously impenetrable.
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Kathleen Friday is partner and Tracy Crum is senior counsel in the Dallas office of Akin Gump Strauss Hauer & Feld LLP.
