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Weinberg Center for Corporate Governance Hosted April 25, 2013 Panel on Non-Profit Governance Best Practices
Weinberg Center’s Charles Elson interviewed on Bloomberg regarding J.P. Morgan shareholder vote
J. P. Morgan shareholders rejected the proposal to separate the roles of Chairman and CEO at the annual meeting held on May 21, 2013. Charles Elson, Director of the Weinberg Center for Corporate Governance, was interviewed on Bloomberg. Please click here to view the video.
Professor Charles Elson on CNBC’s Power Lunch Segment to Discuss CEO Transition at JC Penney
Shareholders lost 51 percent during former JC Penney CEO Ron Johnson’s stewardship, reports CNBC’s Courtney Reagan. A look at what it cost Johnson himself. George Bradt, PrimeGenesis, and Charles Elson, University of Delaware professor, weigh in. Please click here to view the video.
Weinberg Center’s Professor Charles Elson and Craig Ferrere co-author a Director Notes report for The Conference Board, “Peer Groups – Understanding CEO Compensation and a Proposal for a New Approach.”
Craig Ferrere and Charles Elson from the Weinberg Center for Corporate Governance wrote a piece on peer groups for The Conference Board’s Director Notes, ”Peer Groups – Understanding CEO Compensation and a Proposal for a New Approach.” This report discusses the comparative peer benchmarking approach that most large companies rely on to design their executive compensation packages and suggests that boards consider an internally focused approach instead. Click here to view the article.
UDaily: Governance Panel on “Deemphasizing Peer Groups: What’s Next?”
11:45 a.m., March 22, 2013–The John L. Weinberg Center for Corporate Governance at the University of Delaware will host a panel titled “Deemphasizing Peer Groups: What’s Next?” from 9:30 a.m.-11:30 a.m., Thursday, April 11, in Clayton Hall on UD’s Laird Campus.
The program will review the utility of using peer group benchmarking in setting executive compensation with a specific focus on what other factors should be considered by a compensation committee if peer group benchmarking is deemphasized.
To engage a lively debate around these governance issues, panelists include:
- Vineeta Anand, chief research analyst, Office of Investment, AFL-CIO;
- James D. C. Barrall, partner, Latham and Watkins;
- J. Roderick Clark, director, Ensco plc;
- Frederic W. Cook, chairman, Frederic W. Cook and Company;
- Michelle Edkins, global head of corporate governance, BlackRock;
- Craig K. Ferrere, Edgar S. Woolard Jr. Fellow in Corporate Governance, John L. Weinberg Center for Corporate Governance, UD;
- Randy J. Holland, justice, Delaware Supreme Court;
- Blair Jones, managing principal, Semler Brossy Consulting Group LLC;
- James A. Lawrence, chairman, Rothchild North America;
- Brady K. Long, vice president and general counsel, Ensco plc; and
- Paul E. Rowsey III, director, Ensco plc.
Charles M. Elson, Edgar S. Woolard Jr. Chair in Corporate Governance and director of the Weinberg Center, will moderate the panel.
A complementary buffet lunch will follow the program.
There is no charge for the program but as space is limited, anyone who plans to attend should RSVP to Louisa Cresson at lcresson@udel.edu no later than Wednesday, April 3.
Materials and additional information will be forwarded in advance of the panel. Where applicable, DE CLE credits will be provided.
http://www.udel.edu/udaily/2013/mar/weinberg-panel-032213.html
“The single best discussion” on Executive Compensation and the Utility of Peer Groups
By James D.C. Barrall, Latham & Watkins.
This post originally appeared on The Conference Board Governance Center Blog.
It was my special privilege and pleasure to serve as the moderator of The Conference Board Governance Center-sponsored debate between Charles Elson and Craig Ferrere of the John L. Weinberg Center for Corporate Governance at the University of Delaware, in one corner, and Ira Kay of Pay Governance LLC, in the other corner, on the subject of executive pay in the USA, held on January 18, 2013.
Simply put, this 90 minute exchange is the single best discussion on the subject of the causes and effects of peer group benchmarking, and on the subject of CEO pay in general, that I have ever heard in my many years of working in the executive pay and governance arena.
The catalyst for this friendly but intense debate was Charles and Craig’s paper, “Executive Superstars, Peer Groups and Overcompensation: Cause, Effect and Solution,” which argues that:
·Peer group benchmarking of CEO pay is not justified by market forces based on data which shows that over many years relatively few CEOs quit to take other CEO jobs
·There is little CEO mobility because CEO skills generally are not transferable
·Benchmarking CEO pay ratchets it up and has been the prime cause of its inexorable rise since World War II (punctuated only occasionally when stock market bubbles burst)
·Companies and investors would be better served by benchmarking CEO pay internally to that of other officers and
·Internal executive pay benchmarking is attracting support from investors and will become more influential.
In response, Ira argued that:
·Charles and Craig were misinterpreting the data on CEO turnover
·CEOs do not move much between companies because companies have done a good job of handcuffing them with unvested equity and pension benefits
·The movement of CEO pay should not be evaluated based on pay opportunities (as Charles and Craig have done) but rather on realizable pay
·Benchmarking CEO pay at the median of the peer group is appropriate and good
·For most companies peer group benchmarks are only one factor in, and not the main determinant of, CEO pay and
·Investors support evaluating CEO pay against that of market peers, and investors have endorsed the use of peer groups and supported company executive pay plans and policies as indicated by the 98% pass rate for say-on-pay votes in 2011 and 2012.
Ira’s arguments are set forth in full in his recently published book, Executive Pay at a Turning Point.
Over the course of 90 fast-paced minutes these very able thought leaders provided valuable data and insights on CEO and executive pay practices and influences historically, argued strenuously as to where we are today in the age of say-on-pay, and made well-considered suggestions and predictions as to how pay practices should and will continue to evolve over the next ten years.
Anyone who is in any way involved in designing or evaluating executive pay plans and practices should watch the video debate, take notes and then reflect on what Charles, Craig, and Ira have said. If I chaired a Compensation Committee, I would make it mandatory viewing for the committee, and would ask the company to note it as a best 2013 practice in the next CD&A.
The video or the debate is here:http://www.conferenceboard.org/directorroundtables/peergroups.
Weinberg Center for Corporate Governance Announces Advisory Board
The John L. Weinberg Center for Corporate Governance
Lerner College of Business & Economics
University of Delaware
Announces Advisory Board
The John L. Weinberg Center for Corporate Governance at the Lerner College of Business & Economics at the University of Delaware is pleased to announce a new Advisory Board for the Center. Charles Elson, Director of the Center and Edgar S. Woolard, Jr., Chair of Corporate Governance, said “The Center has been fortunate to have a strong Advisory Board since its founding and we thank our former Advisory Board members for their support and many contributions. As the Center enters the second decade of its existence, it is focused on maintaining the momentum it has already attained in the corporate governance field and increasing that impact over time. Our Board is reflective of the many constituencies that are involved in the governance area. We are delighted that we will be working with an Advisory Board comprised of some of the preeminent experts and leaders in the corporate governance field. We are especially pleased that Bill Chandler, the former Chancellor of the Delaware Court of Chancery, and who is currently a partner with Wilson, Sonsini Goodrich & Rosati has agreed to chair our Board.” Ann Mulé, Associate Director of the Center, said “We are working on an exciting Strategic Plan for the Center to accomplish its mission and goals and look forward to the advice and ongoing engagement of our Advisory Board.” The members of the Advisory Board and their affiliations follow:
| William Chandler, III, Chair PartnerWilson Sonsini Goodrich & Rosati (Former Chancellor, DE Court of Chancery) |
Edward Labaton Partner Labaton Sucharow LLP |
| Ashley Altschuler Securities Litigation Partner Weil, Gotshal & Manges LLP |
William Lafferty Partner Morris, Nichols, Arsht & Tunnell LLP |
| Maryellen Andersen Vice President of Corporate & Institutional Relations and Corporate Governance Officer Broadridge Financial Solutions, Inc. |
Peter Langerman Chairman, President and Chief Executive Officer Franklin Mutual Advisors, LLC |
| Donna Anderson Vice President and Global Corporate Governance Analyst T. Rowe Price |
William Lauder Executive Chairman The Estee Lauder Companies Inc. |
| Lydia Beebe Corporate Secretary and Chief Governance Officer Chevron Corporation |
David Martin Partner Covington & Burling LLP |
| Richard Bennett Chairman GMI Ratings |
Robert McCormick Chief Policy Officer Glass Lewis |
| Kenneth Bertsch CEO and President Society of Corporate Secretaries and Governance Professionals |
Patrick McGurn Executive Director and Special Counsel Institutional Shareholder Services Inc. |
| Rolin Bissell Partner Young Conaway Stargatt & Taylor, LLP |
Indra Nooyi Chairman and CEO PepsiCo |
| Catherine Bromilow Partner PwC |
Morris W. Offit Chairman Offit Capital |
| David E. Brown, Jr. Partner Alston & Bird LLP |
John Olson Partner Gibson Dunn & Crutcher LLP |
| Peter Clapman Chairman Governance for Owners USA Inc. |
Robert Rock Chairman and Publisher Directors & Boards |
| Kenneth Daly President and CEO National Association of Corporate Directors |
Allie Monaco Rutherford Associate Director, Corporate Governance Group Ernst & Young, LLP |
| Julie Daum Partner and Co-Practice Leader, North American Board & CEO Practice Spencer Stuart |
Thomas Sager Senior Vice President and General Counsel DuPont |
| Jay Eisenhofer Managing Director Grant & Eisenhofer P.A. |
Nicole Sandford Partner Deloitte LLP |
| Richard Ferlauto Advisory Board Member |
Anne Sheehan Director of Corporate Governance CalSTRS |
| Margaret Foran Chief Governance Officer, Vice President and Corporate SecretaryPrudential Financial, Inc. |
The Honorable Myron Steele Chief Justice Delaware Supreme Court |
| Anne Foster Director Richards, Layton & Finger |
The Honorable Leo Strine, Jr. Chancellor Court of Chancery |
| Scott Goebel Senior Vice President and General Counsel Fidelity Management & Research Company |
Andrea Tinianow Vice President Business Development and Assistant General Counsel Corporation Service Company |
| Stuart Grant Managing Director Grant & Eisenhofer P.A. |
Karen Valihura Partner Skadden, Arps, Slate, Meagher & Flom LLP |
| John Grossbauer Partner Potter Anderson & Corroon LLP |
Carol Ward Vice President & Corporate Secretary Mondelēz International, Inc. |
| Anthony Horan Corporate Secretary JPMorgan Chase & Co. |
Paul Washington Senior Vice President, Deputy General Counsel & Corporate Secretary Time Warner Inc. |
| Bess Joffe Vice President, Investor Relations Goldman Sachs |
John White Partner, Corporate Department & Co-Chair of Corporate Governance & Board Advisory Cravath, Swaine & Moore LLP |
| Cynthia Kane Special Assistant to the Secretary of State State of Delaware |
Ralph Whitworth Founder, Principal and Investment Committee Member Relational Investors LLC |
| David Katz Partner Wachtell, Lipton, Rosen & Katz |
Ann Yerger Executive Director Council of Institutional Investors |
Weinberg Center and the Finance Department, Lerner College of Business & Economics, University of Delaware, hosted the 2012 Corporate Governance Symposium
The focus of the 2012 Corporate Governance Symposium, which was held on November 9, 2012, was “Governance Issues of Critical Importance to Institutional Investors.” The Symposium began with a panel of institutional investors comprised of large money managers, pension funds, private equity and hedge fund investors, and proxy advisory firms, during which each panelist shared what mattered most to them. In addition, The Honorable Jack Jacobs, Justice from the Supreme Court of Delaware, provided his views. (The names and affiliations of the entire panel are listed below.) The Symposium then continued with the presentation of four academic papers on topics that are of critical importance to institutional investors today. Three of the papers focused on various aspects of effective board composition and one focused on proxy advisory firm performance in the recent “Say on Pay” votes. (A short description of each of the papers and their respective authors follows.)
The Symposium provided attendees with cutting edge governance discussion and debate.
The Institutional Investor Panel was comprised of the following members:
- Janice Hester-Amey, Portfolio Manager, CalSTRS
- Glenn Booream, Principal, Vanguard Group
- Martha Carter, Managing Director, Global Research, ISS
- Scott Goebel, Senior Vice President and General Counsel, Fidelity Management & Research Company
- The Honorable Jack Jacobs, Justice, Supreme Court of Delaware
- Andrew Letts, VP Compliance & Governance, State Street Global Advisors
- Robert McCormick, Chief Policy Officer, Glass Lewis & Co.
- Eric Rosenfeld, Chief Executive Officer, Crescendo Partners
- Josh Targoff, Chief Operating Officer and General Counsel, Third Point, LLC
- Lopa Zielinski, Senior Counsel & director, TIAA-CREF
Moderator: Charles Elson, Director of the Weinberg Center and Edgar S. Woolard, Jr., Chair of Corporate Governance
The academic papers that were presented:
- “Do Independent Expert Directors Matter?”
Ronald W. Masulis, Australian Business School, University of New South Wales
Christian Ruzzier, Departamento de Economía, Universidad de San Andrés
Sheng Xiao, Social Sciences Division, University of Minnesota (Presenter)
Shan Zhao, Grenoble École de Management
The generally weak correlation between board independence and firm performance is a major empirical puzzle. One possible explanation is: director independence alone is not enough. To explore this possibility, the paper examines the full employment histories of independent directors at S&P 1500 companies. The paper defines an independent expert director (IED) as an independent director who has worked in the same 2-digit SIC industry as the company where he/she serves as an independent director. The paper shows the proportion of IEDs on a board is positively and significantly correlated with firm performance. The paper finds the higher the proportion of IEDs, the less earnings restatements and the more cash holdings. Firms with IEDs have higher CEO pay-performance sensitivity, higher CEO turnover-performance sensitivity, and more patents with more citations. Stock market investors react positively to IED appointments. The paper also finds the higher the CEO power, the less likely IEDs will be on board.
The discussant for this paper was Sanjai Bhagat, University of Colorado at Boulder.
- “Matching Directors with Firms: Evidence from Board Structure Following Corporate Spinoffs”
David J. Denis, University of Pittsburgh
Diane K. Denis, University of Pittsburgh (Presenter)
Mark D. Walker, North Carolina State University
The paper analyzes board structure surrounding corporate spinoffs. The paper’s findings indicate that there are substantial differences in the composition of the boards of spun off units and post-spinoff corporate parents. There is little overlap in the two boards and the majority of the unit directors have no prior connection to the parent company. Placement on either the parent or unit board is strongly associated with a director having expertise that is unique to that firm’s industry. These findings are consistent with the spinoff allowing the parent and unit firms to tailor their boards to the specific assets and operating needs of their firms. The paper also finds that prior ties between individual directors and the CEO have a meaningful impact on the composition of both the parent and the unit board.
The discussant for this paper was Fred Bereskin, University of Delaware.
- “Who Chooses Board Members?”
Ali Akyol, University of Melbourne
Lauren Cohen, Harvard Business School and NBER (Presenter)
The paper exploits a recent regulation passed by the US Securities and Exchange Commission (SEC) to explore the nomination of board members to US publicly traded firms. In particular, the paper focuses on firms’ use of executive search firms versus simply giving choice rights to internal members (oftentimes simply the CEO), in nominating the new directors to serve on the board of directors. The paper shows that companies that use search firms to find their board members pay their CEOs significantly higher salaries and significantly higher total compensations. Further, companies with search firm directors are significantly less likely to fire their CEOs following negative performance. In addition, the paper finds that companies with search firm directors are significantly more likely to engage in mergers and acquisitions, and see abnormally low returns from this M&A activity (CEO compensation and monitoring along with acquisition strategy being perhaps the most attributable to board decision-making).
The discussant for this paper was Ken Davis, University of Wisconsin Law School.
- “Shareholder Votes and Proxy Advisors: Evidence from Say on Pay”
Yonca Ertimur, University of Colorado at Boulder
Fabrizio Ferri, Columbia University (Presenter)
David Oesch, University of St. Gallen
The paper investigates the effect of proxy advisors’ recommendations on shareholder votes, stock prices and firm behavior in the context of mandatory “say on pay” votes, a novel and complex item requiring significant firm-specific analysis. Proxy advisors are more likely to issue an Against recommendation at firms with poor performance and higher levels of CEO pay, but rather than following a “one-size-fits-all” approach, they take into account firm-specific circumstances. Proxy advisors’ recommendations are the key determinant of voting outcome but the sensitivity of shareholder votes to these recommendations varies with the institutional ownership structure, the rationale behind the recommendation and certain firm characteristics. The paper documents a small but significantly negative market reaction to the release of negative recommendations. More than one third of the firms receiving a negative recommendation publicly question the proxy advisors’ methodologies, but this protest has no effect on the recommendation and the voting outcome.
The discussant for this paper was Robert Thompson, Georgetown University Law Center.