Thought Capital

As boards face increasing scrutiny from investors, regulators and other stakeholders, director priorities and board practices are forced to adapt accordingly. Tracking prevailing views on boardroom issues provides valuable insights going into year-end decision-making. For example, directors recognize that issues like IT risk mitigation and talent management require increased focus. Meanwhile, executive compensation and shareholder engagement continue to play a fundamental role in how companies execute and communicate their strategies. In an effort to keep an ear to the ground in the director community, we created a survey to gauge directors’ opinions on hotbutton issues and their companies’ practices over the past year.

Institutional Shareholders Services (“ISS”) and Glass Lewis (“GL”) recently released updates to their 2017 voting guidelines for Canada and the U.S. The updated guidelines from ISS will apply to shareholder meetings for publicly-traded companies on or after February 1, 2017, while the ones from Glass Lewis will apply to meetings held on or after January 1, 2017. This memo provides a summary of policy updates on compensation-related and board-related topics in each of the two countries.

The significant increase in share buyback activity in the U.S. (US$166 billion in the first quarter of 2016 alone), and well-publicized debates on their utility, has put capital allocation programs and their relationship with compensation program into the spotlight. When buyback programs are contemplated, there are ways to ensure that shareholders understand the board’s process and perspective.

On September 27, 2016, Hugessen Consulting and Steven Hall & Partners hosted a Director-Shareholder Roundtable in Chicago, bringing together experienced corporate directors and representatives from institutional shareholders for a day of unfiltered discussion on a variety of executive compensation and governance topics.

The approach to long-term incentives among small- and mid-cap TSX companies tends to vary, in some cases quite significantly, from those of large-cap issuers.

Establishing performance standards and setting and managing executive pay is never easy. But what happens in a period of structural change? How do boards measure a moving target?

The role and influence of the shareholder community has been steadily evolving in the areas of governance and executive compensation and assessment of corporate performance. To gather some insight on a wide range of compensation and governance-related topics, Steve Chan, Michelle Tan and Sandra Pace turned to two governance leaders at prominent institutional shareholders: Bess Joffe, managing director, head of corporate governance at TIAA-CREF and Drew Hambly, executive director, corporate governance at Morgan Stanley Investment Management, Global Equity Group.

The Council of Institutional Investors, an association of U.S. and global investors representing over US$3 trillion in assets, published a letter responding to proposed regulation of proxy advisors in the U.S.

On June 1, 2016, Hugessen Consulting hosted a Director-Shareholder Roundtable in Calgary, Alberta. This session brought together experienced corporate directors and representatives from large CND and US institutional shareholders for a day of interactive dialogue on board leadership on compensation and related governance. The discussions that took place were open and engaging, with participants freely sharing their views and experiences on a wide range of compensation and governance matters.

While relative TSR is clearly an important measure for shareholders, it is important to assess how well it fits as a performance measure for your company. With an understanding of the measure’s strengths and weaknesses, Boards and management are in a better position to incorporate relative TSR in a thoughtful and effective manner.