Corporate Governance 2017: In-House Counsel s Critical Role. May 17, 2017

Transcription

1 Corporate Governance 2017: In-House Counsel s Critical Role May 17, 2017

2 What is Corporate Governance? At its most general level, corporate governance is the system by which the business of a corporation is directed and controlled. It includes the formal instruments of governance, such as the composition of the Board and Board committees, committee charters, policies and guidelines, etc. But it also includes a broader set of concepts that touch on all aspects of the business and the relationships among the board, management team, employees and shareholders. 2

3 Corporate Governance Corporate governance involves a set of relationships between a company s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. (G20/OECD Principles of Corporate Governance, 2015) 3

4 Evolving Governance Framework Board Management SOX (2002) Strengthened role of independent directors, primarily the Audit Committee Increased personal accountability of management Oversee management Set strategy and risk appetite Shareholders Ultimate owners Elect directors Responsible for dayto-day operations Vote on fundamental corporate events Dodd-Frank (2010) Strengthened role of compensation committee Empowered shareholders through say-on-pay, proxy access and limitations on discretionary voting Current Environment Institutional shareholders and activists are seeking more direct engagement with directors 4

5 Role of the Lawyer in Corporate Governance The General Counsel s role in governance has expanded over time The General Counsel/Secretary advises the Board on formal governance requirements Counsel is also uniquely situated to act as facilitator between Board of Directors and management team and take on leadership role on a variety of governance-related issues 5

6 Everyday Corporate Governance Independent Directors Committee Roles, Responsibilities and Composition Independent Board Leadership Executive Session Requirements Meeting Frequency, Director Attendance Codes, policies and procedures Minutes Director selection and succession Proxy Access Director Tenure Diversity 6

7 Broader Governance Concepts The General Counsel can and should play a crucial role in the following components of governance: Corporate Strategy/Risk Management Compliance Shareholder Engagement CEO Succession Planning Executive Compensation New Regulatory Developments Dealing with Activist Investors Crisis Management 7

8 Corporate Strategy/Risk Management Corporate Risk Management is a focus of corporate governance and regulatory interest Risk management includes establishing a level of risk tolerance that the company will accept in seeking to achieve business objectives Setting risk tolerances is a major component of the corporate strategy process The Board and management look to the in-house counsel to provide risk analysis where a risk can have legal impact on the company. 8

9 Compliance The compliance function is often part of the legal department or otherwise reports through the GC. Compliance often involves legal advice and oversight. Focus on compliance is not simply a matter of developing a "code of conduct" or conflict of interest policy. Counsel plays a critical role in helping management and the board develop and implement a culture of compliance within a company, from the CEO on down. 9

10 Compliance Counsel is responsible for keeping compliance on the radar, even when (or perhaps especially when) everything seems to be going well. Regular compliance training and education, not only for employees but also for board members, is an important part of a GC's job. 10

11 Shareholder Engagement Historically Engagement consisted of earnings calls, the annual meeting and interactions by the CEO and CFO with portfolio investment managers Other forms of engagement were generally viewed as something companies did reactively and as quietly as possible when they were in trouble Today Engagement has become more proactive and widespread ISS studies show that overall engagement levels are higher and that fewer companies and investors report that they do not engage 11

12 Active Solicitation Counsel has main role in engagement year-round Engage to secure favorable votes, including followup contacts from pre-season meetings as appropriate File all written solicitation materials Monitor proxy advisory firm recommendations Finalize Proxy Statement Pre-Season Annual Meeting 14a-8 Deadline Post-Meeting Review voting results at company, peers and more generally Identify any changes in response to votes Engage to understand vote outcomes, discuss potential changes and obtain general input on hot topics Consider proactive action prior to when 14a-8 proposals start arriving Engage to educate on compensation and governance practices and changes under consideration and to learn what investors view as focus issues for upcoming proxy season Negotiate with proponents of any 14a-8 proposals 12

13 CEO/Executive Succession Ideally, executive succession planning is an ongoing part of the board's and management's long-term strategic planning. As a key senior executive, the GC would naturally play a role in the strategic planning and succession planning process for critical executive roles. Often, however, executive succession is less organic, and may occur as a result of a crisis or other unexpected event. Counsel can help ensure that the board keeps in mind all appropriate criteria when seeking a new CEO or other senior executive - not just specific business skills or performance record (especially true when the change is generated by a specific event), but also integrity and risk management capabilities. 13

14 Executive Compensation Increasing focus of shareholder proposals and public scrutiny Counsel should work with board/comp committee to ensure understanding of potential compensation structures, including deferred compensation and hold-back/clawback provisions Hold-back/clawback provisions in comp arrangements enable boards to tie compensation to long-term consequences of executive decisions another aspect of risk management Counsel can play a critical role in educating board members and facilitating thoughtful decision making regarding executive compensation 14

15 Regulatory Changes Not every new rule or regulatory proposal needs to be raised to the Board/senior management level. For significant proposed regulations, counsel should inform the Board, management, and impacted employees. Quickly. Succinctly. Counsel is in the best position to lead the assessment of the potential impact. Which groups does it impact? How? $$$? Advocate with appropriate agency if needed to modify or stop the regulation proposed. Bring the facts, impact, experts, financial costs to the organization. 15

16 Regulatory Changes Once a New Regulation Has Been Adopted Inform the Board/management/impacted employees of the new regulation. Be brief and fast. Longer memos and analysis can come later. Get in front of other sources/news. Information about a new regulation should come from you; otherwise you may have to correct press/other sources. Also want to provide through the lens of how it impacts your organization Arrange ahead of time how/when are you getting the information out, to what audience. Do you need clearance from a boss or internal group? 16

17 Regulatory Changes Once a New Regulation Has Been Adopted Educate Board/management/impacted employees. What does this mean to which groups and the bottom line? When is the new reg effective? Is it necessary to seek an appeal mechanism? If not, what are the implementation steps/timeline/costs? 17

18 Shareholder Activism Current activism levels are high Typically focus on governance and economics Governance activism: erosion of defensive measures Economic activism: Pressure company to engage in value-maximizing activity Demands can include sale of company, management/board changes, compensation reform, new strategies, new capital structure The Board and management will look to counsel to formulate its response; help the Board assess the long-term and shortterm interests of the company

19 Crisis Management What is a crisis? A crisis can be anything (e.g., challenge to a product/ service or brand) that that poses legal, financial, and sometimes most importantly reputational risk to the company. A nuclear power plant melts down A CEO has an affair A whistleblower complains about financial reporting Millions of customers personal data is leaked A product is dangerously defective A passenger is dragged off an airplane 19

20 Crisis Management A crisis can be short term or long term; a single event or a chain reaction. Crises often start small but snowball (e.g., from an accident, to a congressional investigation, to parallel proceedings before a regulator, to a shareholder or customer lawsuit). The current communications environment (social media, etc.) makes it even more important to get out in front of the crisis with a strong and cohesive narrative. 20

21 Crisis Management Counsel can play a key role in crisis management by preparing the organization to react to crises and by leading the team in responding to a crisis when it arises. Counsel can also be instrumental in preventing crises by identifying the company s vulnerabilities through the Enterprise Risk Management process and otherwise and imagining and preparing for potential risks. 21

22 Preparing for a Crisis: Prepare response infrastructure Crisis response team Clear roles and responsibilities Internal and external support Identify risks and likely scenarios Develop key messages for any event Create response plan Identify key constituencies Respond cross-functionally 22

23 Responding to a Crisis Define the problem and assess the risks Convene the team and decide who is leading Find the facts, independently Frame the issues Agree on a narrative Implement the communications plan In a crisis, it is crucial that the counsel knows the organization and the relevant personalities, and can judge when he/she needs to take a lead role vs knowing when to bring in outside experts. 23

24 Questions? Thank you! 24

25 Presenters

26 Lisa Youngers Lisa R. Youngers is Chief Executive Officer of Nextlink Wireless, LLC, a spectrum management firm which operates primarily in the Upper Microwave bands in both the fixed and mobile space. Ms. Youngers oversees all aspects of the business including financial, operational and technical objectives, engineering planning and implementation, M&A activity, as well as the development of policy positions and the strategic direction of the company with a particular focus on the roll-out of 5G. Prior to Nextlink, Ms. Youngers was Vice President and Assistant General Counsel - Federal Affairs at XO Communications one of the nation s largest competitive carriers serving business and government end users as well as carrier and wholesale service providers. Ms. Youngers was responsible for all federal policy, regulatory, and legislative matters affecting XO s interests before the FCC, Congress, and all levels of executive administration including regulatory and legislative strategy. She also oversaw the company s corporate PR and internal and external messaging. Prior to joining XO, Ms. Youngers was Federal Regulatory Counsel for General Communication, Inc. ( GCI ), in Washington D.C., a telecommunications and cable television provider operating primarily in the state of Alaska, whom she represented before the FCC on wireline, wireless, universal service, telehealth, and school access issues. Ms. Youngers also served as Federal Regulatory Counsel for MCI appearing before the FCC on competition policy, enforcement matters, and consumer issues. Ms. Youngers is a former Assistant Attorney General for the state of Minnesota where she served as legal counsel to the Minnesota Public Utilities Commission. A former television news producer, Ms. Youngers is a frequent presenter at industry events and has been quoted in several publications regarding regulatory and public policy matters. 26

27 Thomas W. White Thomas W. White 1875 Pennsylvania Avenue NW Washington, DC USA (t) Thomas White, a partner in s Corporate Practice Group and General Counsel of the firm, is one of the firm's leading practitioners in the area of corporate governance and disclosure, and has extensive experience representing corporate and institutional clients in complex business transactions. Since passage of the Sarbanes-Oxley Act in 2002, Mr. White has developed a multi-disciplinary corporate governance practice, and he also has particular experience in legal aspects of accounting and auditing. He was recently appointed as one of five new members of the Financial Accounting Standards Advisory Council (FASAC) and is serving a one-year term on the FASAC beginning January 1, He is the host of Focus on Audit Committees, Accounting and the Law, a blog that provides a legal perspective on developments in accounting standards, financial reporting, auditing and regulation of the accounting profession. Mr. White recently completed a three-year term as Chair of the Audit Responses Committee of the Business Law Section of the American Bar Association. He also has served as Co-Chair of the National Conference of Lawyers and Certified Public Accountants and the Law and Accounting Committee of the ABA Business Law Section. As General Counsel of, Mr. White advises internal and external clients on professional responsibility and legal practice issues. 27

28 Jennifer Zepralka Jennifer Zepralka 1875 Pennsylvania Avenue NW Washington, DC USA (t) Jennifer Zepralka, a partner in s Corporate Practice Group, focuses her practice on federal securities law compliance, disclosure and corporate governance issues. She advises both public and private companies on compliance with corporate and federal securities laws and has represented clients in a variety of capital markets transactions. Ms. Zepralka rejoined in 2013 after having served as Senior Special counsel to the Director of Division of Corporation Finance at the Securities and Exchange Commission. While there, she advised the Division Director and others at the SEC on a wide range of policy and technical matters, including rulemaking, legislative proposals, registrant matters and interpretations of federal securities laws and regulations. She participated in the Division s implementation of both the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Jumpstart Our Business Startups (JOBS) Act, and worked closely with the SEC Advisory Committee on Small and Emerging Companies. Ms. Zepralka also prepared testimony and briefing materials for congressional hearings and provided technical advice on legislative matters. 28