As we start 2013, I thought it would be fun to ask in-house counsel what their New Year’s resolutions were. I wasn’t looking for the usual “go to the gym more/ lose weight/ get organized” type answers, but rather what corporate secretaries/ securities counsel would want to improve upon in 2013 in their professional lives. I heard back from a variety of in-house counsel, some of whom wish to remain anonymous. Many had similar types of goals for this year. I want to thank Bob Lamm, Assistant General Counsel and Assistant Secretary at Pfizer Inc., and Stacey Geer, Senior Vice President and Associate General Counsel at Primerica, Inc., both of whom were especially helpful in coming up with this list. Here are the top resolutions submitted by in-house counsel:
Refresh the board and committee self-evaluation process. Now is a good time to refresh the board and committee self-evaluation process. If your board and committees are like most, they may be “bored” with the process by now. By asking the same questions every year, eventually the process becomes stale and the answers become predictable. Rather than have the directors complete the same survey consider changing the questions, or better yet, having a third party facilitate the evaluation process. Remember to set aside some time to discuss the evaluation because the discussion of the evaluation is the most important part of the process.
Tweak your director orientation program. A good director orientation program allows new board members to get up to speed quickly so that they can begin contributing to board discussions. Depending on the complexity of your business, a director orientation program may need to extend over the course of six months or longer with meetings with different divisions and senior leaders. Your program may want to distinguish between directors who have previously served on other boards and those who have not because the latter may need more coaching in governance principles. Another idea is to consider pairing a new director with a mentor to give the new director the ability to ask questions that the director may not be comfortable asking at a board meeting. For existing directors, based on the self-assessment, consider changing your continuing education program. The most effective programs give the directors a better understanding of the business through site visits and by talking to people other than senior managers.
Start a shareholder outreach program. Shareholder activism has been increasing and we expect it to continue increasing, especially because of the say-on-pay votes. If you don’t already have a formal outreach program in place, consider starting one this year. If a corporate governance issue is identified by ISS after you have mailed your proxy statement and you haven’t previously engaged your shareholders then it will be difficult to tell your side of the story. Georgeson published a good overview on how to implement a formal outreach program. Our advice is to start engaging early and to build that relationship outside of proxy season. Having a pre-existing relationship will make shareholders much more accessible when the shareholders are time crunched during proxy season.
Take a fresh look at your foundational governance documents. Corporate governance best practices are constantly changing so it is imperative to take a fresh look at all of your foundational governance documents, including the articles of incorporation, bylaws, committee charters, and corporate governance guidelines. The review is helpful not only to identify practices that may now be out of step with the consensus best practices on corporate governance, but also to make sure you are actually following your own documents. If you do get a shareholder proposal, the shareholder proponent may be willing to withdraw the proposal if you offer a concession in some area of corporate governance even if it wasn’t related to the original proposal.
Make the proxy statement more appealing to the reader. Proxy statements have become very long and very dense to read over the last several years. Look at the proxy statement in the same way as you would look at your annual report. Rather than look at the proxy statement as some required legal document, you can use this as another opportunity to engage with your shareholders. The current trend is to improve the readability of the proxy statement and make the design more appealing. Last year, Coca-Cola set the bar high on what good proxy design entails. The use of color and graphics are helpful in telling your story. Adding an executive summary to the beginning of a lengthy CD&A aids the reader who just wants to read the highlights of executive compensation, but doesn’t want to wade through 20 pages of explanations.
Review disclosure about cyber risks. As my co-editor, Bob White, has been preaching for over a year now, cybersecurity has become a big issue. Securities lawyers and corporate secretaries need to understand these risks and what has been done to minimize them. Just as your IT department has an emergency plan to deal with a breach, you should have a plan on how you will deal with the disclosure issues if a breach occurs. Figure out what your disclosure obligations will be before the breach happens. Also, take a look at your risk factors to make sure your cyber risks are adequately covered.
If you have any other resolutions that I haven’t included, please add them to the comment section. Otherwise, I wish you a successful and Happy New Year (and an uneventful annual meeting)!