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18 February 2019
The Research and Education Fund of the Council of Institutional Investors has released a new report regarding disclosure of board evaluation processes in proxy statements. Robust board evaluation processes are considered a key element in strengthening board effectiveness and, as a result, institutional investors have expressed an intense interest in the review process. While companies have been discussing their board evaluation processes in their proxies with increasing frequency, CII suggests that these discussions could be more robust.
CII emphasizes that its focus is disclosure of the evaluation process, not confidential details about the specific board or director evaluations. Based on its review of the proxy statements of 100 prominent companies, CII identifies seven elements of evaluation processes that it views as "indicators" of "strong board evaluation processes." Although CII maintains that these seven indicators are "not intended to be prescriptive recommendations, but rather descriptive observations of companies' disclosure that is particularly effective at building investor confidence that a robust process exists," it nevertheless advocates that boards consider implementing these indicators where appropriate for the companies' particular "strengths and circumstances." The report also provides useful examples of the types of disclosure advocated.
The seven indicators are:
Given that board evaluations and refreshment practices are often viewed as predicates to achieving board diversity, this NACD report, "Director Tip Sheet: Discussing Boardroom Diversity with Major Shareholders," quoting the Report of the NACD Blue Ribbon Commission on the Strategic-Asset Board, recommends that renominations of directors "should not be a default decision, but an annual consideration based on a number of factors, including an assessment of current and future skill sets and leadership styles that are needed on the board." In addition, according to one NACD Blue Ribbon commissioner in 2016, instead of just waiting for directors to notify the nom/gov committee if they plan to leave, "'[w]e need to shift the expectation from 'serve as long as you want' to 'serve as long as you are needed.' This 'shift' includes setting appropriate tenure expectations with any directors new to the board, as well as having what can be difficult conversations with longer-tenured directors if their experiences are no longer additive to the board."
For further information on this topic please contact Cydney Posner at Cooley LLP by telephone (+1 415 693 2000) or email (email@example.com). The Cooley LLP website can be accessed at www.cooley.com.
This article has been reproduced in its original format from Lexology – www.Lexology.com.
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