Boards told not to try to dodge the ‘two strikes’ rule on executive pay.

BOARDS that try to dodge the ''two strikes'' rule on executive pay will only spark calls for tougher regulation from Canberra, the parliamentary secretary to the Treasurer, David Bradbury, has warned. With relations between investors and boards sinking in recent weeks, Mr Bradbury yesterday also hit back at claims from business veteran Don Argus, who has said investors could simply sell their shares if they objected to executive pay. Under rules introduced in July, shareholders can force a board spill if more than a quarter of votes oppose the remuneration report for two years in a row. Although the rule has yet to produce its first ''strike'', Metcash narrowly avoided this fate last month after it took the unusual but legal step of not displaying the proxy vote count at its annual general meeting. It later emerged that 24.57 per cent of proxy votes were against the remuneration report, and shareholder activists said they could have inflicted a strike had they been aware of this. Without naming Metcash, Mr Bradbury yesterday warned boards against playing ''games'' to avoid the crackdown on executive largesse. ''Holding back information from shareholders to avoid having them express their views on executive pay undermines confidence in boards and feeds shareholder suspicion that remuneration outcomes may not be justified,'' Mr Bradbury said. This kind of game-playing was not in the spirit of the government's reforms and would only alienate shareholders further. While he said most companies were acting in the spirit of the reforms, boards that tried to dodge the rules would only prompt calls for tougher regulation. ''I believe that most companies will approach the new executive remuneration reforms in good faith because doing so has a demonstrably positive impact on the company's reputation and value,'' Mr Bradbury said. ''But those companies who fail to act in this way serve only to increase the calls on government to extend the heavy hand of regulation to areas where it is perceived that deficiencies may exist.'' The ''two strikes'' policy has been bitterly opposed by company directors and former BHP chairman Argus last week stoked more controversy by telling investors to sell their shares if they objected to executive pay. Mr Bradbury said he had been ''astonished'' by such comments, saying they were outdated and ''a poor advertisement for any company seeking to attract capital in equity markets''. Read...

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What to Ask Before Joining a Board

You are considering joining a company’s board. You reviewed the publicly available financial, legal, and business information; spoke with management, internal and external legal counsel, and auditors; and evaluated the D&O policy. You are all set, right? In fact, this is the beginning of your due diligence process: the hardest questions are the least measurable, but equally and sometimes more important than the measurable ones. With many questions, a company might not want to share the details until you have actually joined the board. In those cases, focus on whether the board and management have a process in place that supports a thoughtful discussion. In particular, think about these questions against the backdrop of your board value and effectiveness. Mission, vision, strategy, and related plan. Does a well-thought-out strategic planning process exist, including consideration of risks (e.g., market shift) and the ability to execute the strategy? How often is strategy discussed, and how is it integrated with the yearly planning process? Once a year is not enough. Focus on the board’s value and how the changing external environment (e.g., political, economic, competitive) is integrated into the evolution of strategic priorities. Market, market share, and market dynamics. Delve into the market size, growth rate, and whether market share is or isn’t increasing. Look at the key drivers and the expected demand for existing and new products in development over the next three to five years. Does management correlate market information with the product development process? Are new geographies or sales channels considered? A risk/return evaluation (i.e., the cost of investments in R&D and new products versus expected revenue and profit stream) in both the strategic plan and the one-year plan is important. This information is probably restricted, but you can assess it if this has been thought through by management and discussed by the board. Products. Discuss the internal process for developing new products. Many companies integrate information on market dynamics, competitor information, and customer requirements. Does the company look at the product development pipeline versus market demands? What happens if products are delayed in delivery to the market or if they are not successful? Will the company be financially viable for one to three years, or until this is righted? The key is to determine if a management process exists and is reviewed with the board. Competitors. Find out how they collect competitive intelligence and how they process this insight. Identify information about who (big/small), what (how do they compare), and when (new-product development timeline). Is thought given to “up-and-comers” who could take the company by surprise? Customers. Understand the customers’ viewpoints and whether there is a focus on customer satisfaction. Determine the sources the company uses to understand satisfaction levels, issues, and how they are resolved. How does the company learn about new products desired by both existing and potential customers? What changes are needed to current market channels to grow the business? Finally, does the board meet with customers? How does it get information that has not been “sanitized”? Financials. In addition to reports to the board and audit committee and public information, take a hard look at operating cash flow against ongoing requirements. Understand the financial strength— in case there is a stumble in the operating plan execution—if debt exists or a need to raise capital is required. Evaluate the triggers that might cause the company to take unexpected actions. Legal. Having already reviewed pending or threatened litigation, investigations, and possible violations of the Foreign Corrupt Practices Act, find out how international risk scenarios are evaluated and how they would be approached if a problem occurs. Will the D&O policy pay for legal fees...

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The Review Process & Service

The Review Process Our process involves seeking from Councils a strong sense of what they intend their governance role to be and reviewing their collective performance against their own goals. During the process Board Diversity will seek to prove the attainment level of your Council by reflecting on the actual work that is undertaken by the Council and then partnering with you to address the findings of the review. Our Review offers an independent assessment of current Council capacity based on the diversity of present Council membership. Rather than focusing on individual Council member contributions, we report on the ability of the Council as a whole to engage in areas that are key to success in the independent educational setting. Our review focuses on: Culture and Context: is the School meeting the expectations of stakeholders and parents as well as achieving Board of Studies benchmarks? Governance and Action: does the Council understand its governance role and is it proactive in the development of the School? Is there an 'evidence trail'? Alignment and Relationships: does the Council work as a unified body, or a coalition of disparate groups; does the Council relate to the management team strongly and effectively? Strategy and Policy: does the Council understand the initiatives outlined in the Strategic Plan: are they believable, achievable, worthwhile? Do the policies of the Council underpin the strategic initiatives? Knowledge and Outcomes: is the School held in high regard by its community? Does the Council 'add value'? Does the School 'deliver'? The Service Initial briefing meeting with Chair: refining the brief and understanding your context. Meet the Council session: presenting to the Council the process to be undertaken and answering their questions. Council assessment & diversity profiling: a thorough, personal and considered survey completed online anonymously. Presentation of findings to the Chair (in person): delivery of skills matrix, report and recommendations, followed by a planned response to the Council. Presentation of findings to the Council: present report and recommendations, answer questions and seek agreement on the way forward Quarterly meetings with the Chair: ongoing accountability and support to address the agreed recommendations made in the...

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