'THE DAILY CORPORATE GOVERNANCE REPORT’ (for public company boards, the C-suite and GCs)

? ? ?Please see the items below with the related links (NOTE: access to link content may be metered, require a no-charge registration or require a paid digital subscription)

? ? ? ? ? ? ?(i)?report on the compensation committee's?evolving role in human capital management?(HCM)(including sample language from the expanded comp committee charters of Amazon and Hershey,?and a?sample?quarterly comp committee agenda:?On Aug. 21,?executive compensation advisory firm?Semler?Brossy?posted on its website this memorandum, "The Compensation Committee’s Evolving Role in Human Capital Management ", which inter alia usefully includes language from the?expanded charter of?Amazon's, "Leadership Development and Compensation Committee ", and?the expanded charter of?Hershey's, "Compensation and Human Capital Committee ",?as well as a?sample?quarterly comp committee agenda, including HCM agenda topics.?Below is from the introductory paragraphs of the memorandum:

? ? ? ? ? ? ? ? ? ? ??"Boards, and especially compensation committees, represent investors in overseeing management on issues relevant to overall performance. In the past, boards focused on executives, but?the rising importance of nonmanagerial talent has broadened directors’ responsibilities regarding HCM generally.?In a review of fiscal year 2022 proxies, we found that?half of Fortune 100 company boards and 40 percent of S&P 500 boards have altered the title of their compensation committees to include HCM topics?(e.g., compensation and leadership and management development).?Even more have broadened their charters to include HCM issues?(see Figure 1). Many of them now explicitly oversee broad-based pay and total rewards programs. As with most governance trends,?large companies are likely to be first movers here.?Expanding the compensation committee’s charter to include HCM is not a stretch.?Executive hiring, promotions, and terminations, with associated changes to compensation, give the committee a way to promote diversity, build inclusive cultures, encourage engagement, and foster collaboration and creativity....."

? ? ? ? ? ? ? ? ? ? ?The memorandum inter alia includes a 6-step "roadmap"?for Compensation Committees that wish to expand their role,, and below is from steps 4 and 5:

? ? ? ? ? ? ? ? ? ? ?"4.?Determine responsibilities:?The next step for the board, in consultation with management, is to determine responsibilities for overseeing HCM. What are the compensation committee’s decision rights vis-à-vis the executives’??Committees set their responsibilities across a spectrum, from simply monitoring progress to directly approving the key elements of HCM.?There’s no right answer to what level of engagement committees should have on particular topics, but it’s essential that they clarify their involvement?in advance and prepare to follow through. For example, a compensation committee might ask for periodic updates to monitor pay equity while others might want to directly oversee management’s actions for pay equity improvement. When considering adding environmental, social, and governance (ESG) metrics to executive incentives, management may recommend a design, and the committee would have approval rights.

? ? ? ? ? ? ? ? ? ? ? ??Multiple committees can share an HCM challenge; boards should determine whether some facets of HCM belong to committees other than the compensation committee. Some boards assign all compliance matters to the audit committee, including leadership violations of codes of conduct such as sexual harassment and discrimination. The nominating and governance committee will sometimes oversee all DE&I efforts, not just board diversity. Many boards have elected to set up a sustainability committee, which may share DE&I and ESG oversight with the compensation and audit committees.?What matters is the upfront clarity on decision rights. Clear alignment brings greater transparency, along with better communication and oversight. The board’s responsibilities can grow over time, adding value as directors gain experience and connections in this area.

? ? ? ? ? ? ? ? ? ? ? 5.?Update the calendar and expand the charter:?To reinforce the importance of HCM, committee agendas should carve out time for relevant discussions. Each compensation committee meeting could start with an update from the CEO (or the chief human resources officer) on the state of talent, perhaps walking through highlights from the dashboard.

As the committee adds HCM responsibilities, directors will likely have valid concerns about lengthening the meetings. In most cases, committees will need to extend their meetings by 30 minutes to an hour to provide sufficient time for discussion. Committee chairs can also evaluate their standard agendas and use approaches such as consent approvals to review more transactional items on an as-read basis, allowing for questions and clarifications but combining this with approvals, thereby minimizing time spent.

? ? ? ? ? ? ? ? ? ? ? ? ? ? Management and committee chairs often find it helpful to have an annual discussion that provides a high-level overview of HCM and then dive deeper into identified HCM focus areas at subsequent meetings. For deep dives to be meaningful, it is important to ensure that the discussion does not compete with denser agenda items, such as annual approval of executive pay decisions.?Committees new to HCM may prefer a “crawl, walk, run” orientation. Early discussions would involve report-outs and establishing the baseline (crawl). Then, committees would move on to having HR teams update the progress of initiatives underway (walk). Once they grasp the fundamentals, directors could hear from business unit leaders about how they are developing diverse organizations and inclusive cultures (run). At that point, the committee would be ready to ask challenging questions to drive HCM forward.?As for the charter, compensation committees can add HCM discussions to their agendas without added authority, but as seen in the expanded charters above, boards are preferring to be explicit about accountability. Charters are also beginning to incorporate purpose statements with the addition of HCM oversight, as well as specific responsibilities as mentioned in Figure 1......"

? ? ? ? ? ? ? (ii) report on board composition at the 500 largest U.S. public corporations, and the essential attributes of effective board directors: Corporate board advisory and placement firm?JamesDruryPartners?published on Aug 16?the?8th. edition of its?"The Weight of America’s Boards ",?based on an analysis of the?500 largest U.S. public corporations by revenue and market capitalization, and designed "to serve as the principal independent assessment of the 'governance capacity' of America’s leading public corporations. Some highlights from the report are summarized in this Sept. 7 Thecorporatenet.com blog post, "Board Composition: Benchmarking 'Business Acumen' ", which includes some direct excerpts from the report (italicized):

? ? ? ? ? ? ? ? ? ? "1.?The number of board seats filled by active & retired CEOs has been declining:The percentage of CEOs serving on external boards ticked lower, continuing a prolonged decline that began decades ago. Examining the 582 boards common to both this report and our last report, the number of board seats filled by CEOs (active and retired) decreased by 4.9% (from 2,079 to 1,978). Board seats filled by active CEOs decreased by 11.8% (from 536 to 473); those filled by retired CEOs decreased by 2.5% (from 1,543 to 1,505).

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? ? ? ? ? ? ? ? ? ? ? ?2. Only 52% of “financial experts” have CFO or public accounting expertise. The report urges boards to consider CFOs for board seats: We remain concerned that boards undervalue the disciplined financial perspective that CFOs and Public Accountants can bring to boardroom deliberations. When we ask boards about the underrepresentation of CFOs, the most common reply is, “If we were to consider a CFO for our board, they would have to have a broad-gauged, strategic business mindset, not a corporate controller’s perspective – perhaps a CFO who is now, or might become, a CEO.” We certainly agree with the strategic mindset requirement; however, in our experience, other than the CEO, CFOs are very often the second ranking corporate executive most engaged in the company’s total business operations. Therefore, we strongly encourage boards to challenge this outdated thinking.?Directors designated as Financial Experts should truly be independent financial experts, not professionals who qualify simply because they work in the finance industry or are P&L executives who have a finance department reporting to them. One board in our study even designated a director as a Financial Expert based solely upon their service on another board’s Audit Committee.

? ? ? ? ? ? ? ? ? ? ? ?3. Based on the number of mentions in a survey of experienced directors, page 14 of the report identifies the “Top 10 Most Essential Attributes of Effective Board Directors.” Here are the top 3:

? ? ? ? ? ? ? ? ? ? ? ? ? ? – Communication Skills (73%): Thoughtful, logical, and articulate. Doesn’t dominate boardroom conversation. Knows when to speak. Understands the impact of words and tone. Not compelled to contribute to every topic discussed. Does not comment just to get credit. Listens more than speaks. Speaks only when has something valuable to contribute. Able to build on the commentary of others and take it to the next level. Focuses discussion on the right strategic level. Does not rush to conclusions. Objective in their commentary.?

? ? ? ? ? ? ? ? ? ? ? ? ? ? ?– Professional Collegiality (67%): Good social and people skills. Likeable. Proactive in developing relationships. Collaborative. A team player. Contributes to the success of others. Not a “gotcha” type. Discreet, diplomatic, and tactful. Respectful of tradition. Sensitive to the views of others.?

? ? ? ? ? ? ? ? ? ? ? ? ? ? ?– Relevant Experience and Knowledge (63%): Track record of high accomplishment and success, ideally in business. Leads from competency. CEO experience is considered most valuable, ideally in a large, complex organization. Business intelligence is most relevant, compared to intelligence in non-business fields. Best directors tend to be all-around athletes with significant breadth. Can grasp a broad range of business issues. Seasoned, mature, and resilient. Understands risk. Able to deal with the good and the bad. Capable of boardroom leadership impact when necessary and appropriate........"

? ? ? ? ? ? ? (iii)?the continuing case for a chief diversity officer and DEI programs/enhancing DEI training programs:?

? ? ? ? ? ? ? ? ? ? (a) As reported in the Sept. 13?Fortune?CHRO Daily Newsletter, "Companies that rushed to create DEI initiatives in 2020 are likelier to backtrack on their commitments ":?"According to a February report?from Revelio Labs, more than 300 DEI roles were impacted by layoffs at major organizations in the last half of 2022—the highest of any function." (see item (iii)(a) from last Thursday). A nice antidote to that article, and making the case for the continuing value of a chief diversity officer, is this Sept.17?WSJ?article, "Maybe Hold Off on Getting Rid of the DEI Leader ", inter alia quoting?Dawn Jones,?the chief diversity and inclusion officer at?Intel:

? ? ? ? ? ? ? ? ? ? ??? "By all accounts, it has been a rough stretch for corporate-diversity executives.?There have been layoffs by the thousands?for employees whose jobs were to address issues of racial justice and diversity at their?companies.?Others have left diversity, equity and inclusion—or DEI—posts on their own, discouraged that what seemed to be an urgent undertaking in the wake of George Floyd’s murder in 2020 isn’t a priority anymore.?

? ? ? ? ? ? ? ? ? ? ? ? ? ?"But our latest research, based on a measure of corporate effectiveness created by Claremont Graduate University’s Drucker Institute, indicates that companies should think twice about pushing DEI leaders out the door. Firms that have a DEI executive score far better in our assessment than those that don’t.

? ? ? ? ? ? ? ? ? ? ? ??? ?"The institute’s model is built on the teachings of the late management scholar?Peter Drucker?and defines effectiveness as he did:?“doing the right things well.”?..........In all, 34 different metrics were used last year to evaluate 902 large, publicly traded U.S. corporations in five areas: customer satisfaction, employee engagement and development, innovation, social responsibility and financial strength.......The findings were unambiguous. The 512 firms that have someone in an explicit DEI role scored, on average, significantly higher in nearly all of the elements of our rankings than the 190 companies lacking such a position......

? ? ? ? ? ? ? ? ? ? ? ??? ? "(A)s our results make clear, having a DEI executive can provide a powerful boost to much of the business—especially when a company’s diversity champion has a direct line to the CEO.?Indeed, the firms that scored, on average, the highest in every category of our rankings, including financial strength, don’t just have someone carrying a DEI title; they boast a dedicated diversity executive in the C-suite.?“C-suite DEI leaders are navigating difficult conversations throughout all levels of the company,”?says Dawn Jones,?the chief diversity and inclusion officer and vice president of social impact at Intel, which came in at No. 7 in the 2022 rankings.?Having someone who is part of a company’s senior management may also make it easier to participate in bigger, bolder DEI efforts. Jones says.......

? ? ? ? ? ? ? ? ? ? (b) For some advice in enhancing DEI training programs, note this Sept. 17?WSJ?article, "Why DEI Training Doesn’t Work—and How to Fix It. "

? ? ? ? ? ? ? (iv) WSJ survey of board directors on their ESG priorities and approach: As reported in this WSJ Sustainable Business Newsletter last Thursday, "ESG in the Boardroom After the Backlash ",?in July the?WSJ, in collaboration with the National Association of Corporate Directors (NACD), "surveyed board directors to find out more about their ESG priorities and approach." The Newsletter describes the "key takeaways" from the survey as follows:

? ? ? ? ? ? ? ? ? ?"Key takeaways:?Sustainability efforts brought real benefits to most of those adopting them and ESG engagement with investors has been largely positive, but the anti-ESG movement has had an impact on boardroom thinking. Most directors said that while ESG knowledge is critical know-how for them, they don't have "advanced" or "expert" knowledge about the topic, leaving them to rely on external advisers for help.?Another compelling survey result: Nearly a fifth of directors said reducing the impact of climate change is a company priority regardless of financial performance. For almost half it is a priority but not at the cost of financial performance, while for the remaining third it isn’t a priority....."

? ? ? ? ? ? ? ? ? ? More on the survey in this WSJ article last Thursday, "Many Boards Are Playing Catch-Up on ESG and Green Issues ", inter alia quoting?Kristin Campbell, general counsel and chief ESG officer of?Hilton Worldwide Holdings?and board director at?Nasdaq-listed The ODP Corporation?and?the Nasdaq-listed Regency Centers Corporation:

? ? ? ? ? ? ? ? ? ? "Many corporate board directors aren’t confident about their ability—or their board’s—to oversee sustainability and social impact issues, even as companies pursue such goals and regulators want more disclosures on environmental, social and governance impact.?Eighty-three percent of directors surveyed said ESG topics were critical knowledge for directors, but less than half considered themselves to have “advanced” or “expert” level knowledge, according to a survey of board directors conducted in July by WSJ Pro in collaboration with the National Association of Corporate Directors.?Directors of larger firms and listed companies expressed higher confidence......

? ? ? ? ? ? ? ? ? ? "Other findings were that most believed sustainability efforts had brought real benefits and said ESG engagement with investors had been mostly positive. Directors also said the anti-ESG movement had an impact......“As a board member, if you’re hoping that ESG is just a fad that will pass with time, we have enough data now from the last 2? decades to know ESG is here to stay and boards need to be ready,” said Kristin Campbell, general counsel and chief ESG officer?of Hilton Worldwide Holdings and board director at ODP and Regency Centers.

? ? ? ? ? ? ? ? ? ? ? "Campbell said boards must evaluate ESG as part of the company’s long-term strategy, otherwise activists, regulators, customers or someone else might do it for them, perhaps in a way that will be painful operationally or harmful to their reputation. “It’s that classic story of either you’re at the table or you’re on the menu,”?said Campbell.

? ? ? ? ? ? ? ? ? ? ? ?"More than two thirds of directors said their organizations brought in external advisers to complement or build board’s ESG skills, with most advisers providing subject matter expertise (44%), education and training (41%), or research and analysis (37%).?“What we know about ESG will change today and will probably change tomorrow,” Hilton’s Campbell said. “It’s the job of an external adviser to know what’s going to happen next week and next year, which is useful in keeping the board ahead of the game.”........

? ? ? ? ? ? ? ? ? ? ? "To encourage management to hit targets, over one quarter of respondents said their company had linked executive pay to ESG goals, and a further 29% were considering doing so in the next 12 months.?“If we’re going to be more serious about ESG and building it into a company’s long-term strategy then I think it needs to be tied to executive compensation like any other [key performance indicator],” Campbell said.......", and,

? ? ? ? ? ? ? (v) press release of the day: Fox Corporation and News Corporation announced this morning in this joint press release that Robert Murdoch was stepping down as Chairman of each company's board, to become Chairman Emeritus at each company, as follows:

? ? ? ? ? ? ? ? ? ? "Following a career that began nearly 70 years ago in 1954, Fox Corporation?and News Corporation announced today that?Rupert Murdoch?is stepping down as chairman of each board effective as of the upcoming Annual General Meeting of Shareholders of each company in mid-November. Mr. Murdoch will be appointed Chairman Emeritus of each company. ?Following the Annual General Meetings,?Lachlan Murdoch?will become sole Chair of News Corp and continue as Executive Chair and Chief Executive Officer of Fox Corporation......."

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