A few months ago, I wrote a post addressing the use of artificial intelligence in the boardroom. While the focus of the post was using AI (or not) to draft minutes, I also asked (with apologies for quoting myself), “whether a robot equipped with AI can serve as a director.” At the time, I
In corporate governance, as in so many other areas, artificial intelligence is all the rage. If you read just about anything relating to corporate boards, you’re almost certain to learn that boards are scratching their collective heads to figure out where and how their companies can use AI, how they can best govern the use of AI, and all sorts of related topics. However, while boards may be talking about AI – and possibly even doing something about it – it appears that few, if any, people are talking about the possible use of AI in the boardroom itself.
Maybe this is understandable; after all, boards are rightly concerned about risks and are not known as hotbeds of innovation. However, it’s still surprising that the last major technological innovation impacting boardrooms was the introduction of board portals, which have been around for roughly 20 years.
I suspect that AI will eventually work its way into the boardroom; I can imagine that in a few years AI may routinely enable directors to tweak assumptions underlying management forecasts, check financial statements for compliance with GAAP and SEC rules, and so on. That will pose a variety of legal and policy questions, such as whether directors can avoid responsibility for bad decisions by claiming reliance upon AI and whether a robot equipped with AI can serve as a director.
For the time being, however, I’d like to focus on a narrower question that is beginning to be asked in the nerdy community of corporate secretaries: Can (and should) AI be relied upon to draft board and committee minutes? Some clients have actually asked me similar questions in the hope that they may be able to lighten their workloads by laying off the tedious task of drafting minutes onto the AI programs with which their phones, tablets, and laptops are now equipped. Continue Reading A ROBOT IN THE BOARDROOM? Using AI to Draft Minutes
Once upon a time, few if any investors seriously challenged executive pay. Executive compensation was, as always, a hot topic, but in the days before say-on-pay votes, it wasn’t easy to effectively object to excessive pay packages. Moreover, as one of the more outspoken members of the investor community once told me, as long as
I’ll start by making a few things clear: I support a clean environment, stopping or slowing climate change, and many other good things. I also believe that corporations should (and many do) consider constituencies other than shareholders and seek to do more than increase shareholder value. There. I’ve gotten that out of my system.
But that doesn’t mean
I recently read an article suggesting that companies need to consider appointing a chief resilience officer. That got me thinking about all the other “chief” positions that pundits may be encouraging companies to create. Here’s a partial list:
| Chief Analytics Officer | Chief Happiness Officer |
| Chief Automation Officer | Chief Inclusion Officer |
| Chief Behavioral Officer | Chief Information Officer |
| Chief |
Spoiler alert – despite the title and the creepy photo, this is not about zombies, vampires, or anything else of a spooky nature. Rather, it’s how we can hopefully make some of the deadwood in our proxy statements meaningful.
I realize that the upcoming
Boards of directors have a lot – maybe too much – to do. Subjects long believed to be the province of management are now viewed as being in the board’s wheelhouse, and when a problem arises with respect to any of those subjects, the first question asked by investors, regulators, the media, and others is often “where was the board?” So it is with a degree of reluctance that I am writing to suggest another subject that I believe boards need to address.
Some background may be in order. A few weeks ago, I attended a meeting of the American Bar Association International Law Section in Madrid. (How a US-centric lawyer ended up at that meeting is a tale for another day.) The trip, the city, and the conference were wonderful; I met some extraordinary people and was beyond grateful that I was able to go. I also learned a lot, mostly on things like international trade and customs law, cross-border discovery, and other topics that I don’t often encounter in my practice.
Another panel that I thought had little to do with my practice turned out to be the most compelling panel of them all, and it definitely is relevant to my practice and to the observation above about the ever-growing responsibilities of the board. The title of the panel was “Recognizing Human Trafficking as a Common Occurrence During Conflict, and Building Protection and Anti-Trafficking Strategies into Global Responses”. I suppose the title of the panel could have been more succinct, but – as the moderator of the panel suggested – a more helpful change might have been to give a trigger warning before the panel got underway.
Continue Reading Yet another thing for boards to consider
Since the 1980s, Section 102(b)(7) of the Delaware General Corporation Law (the “DGCL”) has enabled Delaware corporations to provide exculpation from breaches of the fiduciary duty of care to directors – but not officers – in certain circumstances. Officers can now come in from the cold, as Section 102(b)(7) has now been amended to provide similar protection for certain officers. Specifically, the amendments, which became effective on August 1, 2022, allow Delaware corporations to provide exculpation from breaches of the duty of care to specified officers in certain circumstances. The new provisions allow a qualifying officer to be exculpated from such claims made directly by stockholders but do not provide relief in connection with other fiduciary duties, derivative actions, or actions brought by a corporation’s board against its officers.
We view this amendment as a major forward step. If your company (or any subsidiary) is a Delaware corporation, you should seriously consider amending its certificate of incorporation to provide this protection. And if you are an officer of a Delaware corporation, you should make sure your board of directors is aware that this protection is available and urge your board to take the steps needed to provide the protection..
Hating lawyers may not have started with Shakespeare, but he didn’t help things when he wrote “The first thing we do, let’s kill all the lawyers” in Henry VI. Any lawyer who’s been practicing law for more than a couple of weeks knows that part of the price of bar admission is having to endure lawyer jokes (most of which aren’t very good) and experiences like having a client say to you at the outset of your first meeting, “just so you know, I don’t like lawyers” or words to that effect.
It’s particularly painful, however, when an attack on our profession comes from one of our own, who also happens to be a member of the Securities and Exchange Commission. I refer to a March 4 speech by Commissioner Allison Herren Lee in which she notes her “deep regard for the ideals of public service that our profession represents” and that her “belief in the ideals of the profession – ideals I know you all share – has only grown stronger with time” but then goes on to castigate corporate lawyers for failing to fulfill our “role…as gatekeepers in the capital markets.” She distinguishes corporate lawyers from litigators – a dubious distinction that suggests we should be less zealous in representing our clients than our litigation colleagues – and says that in passing Section 307 of the Sarbanes-Oxley Act (more on that below) “Congress was concerned…that counsel often acted in the interests of the executives who hired them rather than the company and its shareholders to whom their duty and responsibility is [sic] owed.”
Continue Reading Who needs Shakespeare when you’ve got the SEC?
The Nasdaq Stock Market has developed a reputation for being the hip securities exchange, technologically and otherwise. In many ways, it deserves this reputation. For example:
So it is not particularly surprising that, once again, in August 2021, Nasdaq took center stage and became the first major stock exchange to adopt a board diversity rule for its listed companies.
WHY THIS RULE? WHY NOW?
The answer to the first question is clear. Notwithstanding widespread acknowledgement by corporate America that board diversity leads to greater innovation, smarter decision-making, and improvements to the bottom line, actual board diversity remains elusive. As of 2020, only 20.9% of Fortune 500 board seats were held by White women, and a mere 5.7% were held by Black and Latina women; and while 2021 saw gains of 300% in new directors who are Black and 200% gains in Latino directors, 80% of all Fortune 500 board members are White, and 70% are male.[1] So even though the new rule will not create “instant” diversity, it will create measurable board diversity goals, forcing companies that have given lip service to diversity to act – or to disclose that they have failed to act.
Why now? Personally, I ask, “Why not before?” The answers to those questions, however, are beyond the scope of this blog. For this moment, I am cautiously optimistic that Nasdaq’s new diversity rule can be a catalyst for meaningful change that leads to the bona fide board diversity that corporate America has been incapable of accomplishing thus far.
Continue Reading Nasdaq’s Board Diversity Rule: The “Hip” Exchange Does It Again