commitments and conflicts of interest Flashcards
We believe that directors should have the necessary time to fulfill their duties to shareholders. In our view, an overcommitted director
can pose a material risk to a company’s shareholders, particularly during periods of
crisis
director who serves as an executive officer of any public company while serving on more than two public company boards and any other director who serves on more than five public company boards
we generally recommend that shareholders vote against a director who serves as an executive officer of any public company while serving on more than two public company boards and any other director who serves on more than five public company boards.
Because we believe that executives will primarily devote their attention to executive duties, we generally will
not recommend that shareholders vote against overcommitted directors at the companies where they serve as an executive.
When determining whether a director’s service on an excessive number of boards may limit the ability of the director to devote sufficient time to board duties, we may consider
relevant factors such as the size and location of the other companies where the director serves on the board, the director’s board roles at the companies in question, whether the director serves on the board of any large privately-held companies, the director’s tenure on the boards in question, and the director’s attendance record at all companies. In the case of directors who serve in executive roles other than CEO (e.g., executive chair), we will evaluate the specific duties and
responsibilities of that role in determining whether an exception is warranted.
We may also refrain from recommending against certain directors if the company provides sufficient rationale for their continued board service. The rationale should
allow shareholders to evaluate the scope of the directors’ other commitments, as well as their contributions to the board including specialized knowledge of the
company’s industry, strategy or key markets, the diversity of skills, perspective and background they provide, and other relevant factors.
We will also generally refrain from recommending to vote against a director who serves on an excessive number of boards within
a consolidated group of companies or a director that represents a firm whose sole purpose is to manage a portfolio of investments which include the company.
In addition to the three key characteristics — independence, performance, experience — that we use to evaluate board members, we consider
conflict-of-interest issues as well as the size of the board of directors when
making voting recommendations.
We believe board members should be wholly free of
identifiable and substantial conflicts of interest, regardless of the overall level of independent directors on the board.
A CFO who is on the board
In our view, the CFO holds a unique position relative to financial report-
ing and disclosure to shareholders. Due to the critical importance of financial disclosure and reporting, we believe the CFO should report to the board and not be a member of it.
We question the need for the company to have consulting relationships with its directors. We view such relationships as
creating conflicts for directors, since they may be forced to weigh their own interests against shareholder interests when making board decisions. In addition, a company’s decisions regarding where to turn for the best professional services may be compromised when doing business with the professional services firm of one of the company’s directors.
A director who provides — or a director who has an immediate family member who provides — material consulting or other material professional services to the company. These services may include
legal, consulting,37 or financial services.
vote against
vote against a director or a director who has an immediate family member, engaging in airplane, real estate, or similar deals, including perquisite-type grants from the company
amounting to more than $50,000. Directors who receive these sorts of payments from the company will have to make unnecessarily complicated decisions that may pit their interests against shareholder interests.
Interlocking directorships:
CEOs or other top executives who serve on each other’s boards create an
interlock that poses conflicts that should be avoided to ensure the promotion of shareholder interests above all else.
poison pill with a term of longer than one year was adopted without shareholder approval within the prior twelve months.
All board members who served at a time; In the event a board is clas-
sified and shareholders are therefore unable to vote against all directors, we will recommend voting
against the remaining directors the next year they are up for a shareholder vote.
If a poison pill with a term of one year or less was adopted without shareholder approval, and without adequate justification
we will consider recommending that shareholders vote against all members of the governance committee.
