Category: Agenda

A Tale of Two Scandals: Wells Fargo and Equifax

Wells Fargo and Equifax each suffered embarrassing corporate disasters in the recent past. Yet the companies are at much different points in their recoveries, say legal, governance and management observers. That makes them interesting studies in how boards oversee — or fail to oversee — crises and turnarounds.

The three-year cleanup of Wells Fargo’s management and compliance problems still looks far from complete. CEO Tim Sloan — who was appointed to clean up the mess following Wells’s fake-accounts scandal — suddenly resigned in March, and the interim chief is clearly a placeholder. The company faced angry protestors at its annual meeting last month after years of scandal.

By contrast, the transformation strategy at Equifax appears to be close to a denouement. That began with the almost immediate removal of former CEO Richard Smith, who presided over the credit-reporting company’s widely publicized data breach.

Agenda Research Vault – Director Churn Report

Agenda partnered with SEC filings analyzer MyLogIQ to obtain data points on the directors appointed to Russell 3000 board seats in the first three months of 2019. The following spreadsheets include additional data points beyond those presented in graphics and text for the article, “Boards on Cusp of Major Generational Shift” and can provide some additional context on the disclosed reasons directors left boards and a month-to-month comparison of the comings and goings of Russell 3000 board members.

Boards on Cusp of Major Generational Shift

As companies face continuous pressure to bring on diverse directors with current expertise in technology and cyber security, there are increasing indications that boards’ recruiting in response to that prodding has led to the first blush of a new generational shift on boards.

Several new data points show that there has been a ramping up of directors’ leaving board seats for various reasons. Sources say that much of that exodus has been made up of baby boomer directors who have reached or are approaching mandatory retirement age. Furthermore, as the remaining boomer board members see that a large portion of their peer group has left, more directors are likely to question whether they are still making the best possible contributions to the boards and companies they oversee.

According to exclusive data from SEC filings analyzer MyLogIQ, there were 772 directors from Russell 3000 boards who left board seats in the first three months of 2019 — the time of year when many decisions about board composition take effect — due to retirement, resignation, directors’ opting not to stand for reelection or other reasons such as medical leave. In 2018, the figure was 556, while the 2017 figure was 483. For a more granular breakdown of the data in this article, please visit our research vault.

Uber Drivers React to CEO Pay

In a highly anticipated announcement, Uber this month took the leap to go public. In the ride-hailing company’s registration statement, the company revealed that its top officers raked in between nearly $10 million and $48 million last year.

Directors serving on the boards of the new gig-economy unicorns that either have filed or are expected to file IPOs this year face different compensation challenges from some traditional companies, particularly because their workers are classified as contractors, not employees.

Uber CEO Dara Khosrowshahi was tasked with coming in to replace disgraced co-founder Travis Kalanick and clean up the brand after reports of companywide sexual harassment and discrimination surfaced in 2017. Khosrowshahi has a pay package worth more than $45 million, which is arguably in line with chief executives in his peer group, but given Uber’s non-traditional workforce, its past problems and its veritable online existence, it remains to be seen whether Khosrowshahi’s pay appears appropriate in the eyes of the company’s drivers.

Director Retirements Continue to Rise

Directors report that they are stepping down in order to support their boards’ aims to refresh the board composition. While mandatory retirement age is still a main driver of board turnover, some directors are leaving their board seats because it’s “simply the right time.”

Sandra Beach Lin, chair of the nominating and governance committee on the Wesco International board, informed the board last month that she would retire. Beach Lin has served as a director for 17 years, including 10 as nom-gov chair.

“I joined the board when I was in my forties, and so the mandatory retirement age of 72 wasn’t really a factor for me in this decision,” she writes in an e-mail. “I’m proud of the work that our nominating and governance committee has done to refresh the board and add members (i.e. one earlier this year and two others within the last five years), and we continue recruiting with that in mind.”

Special Fees for CEO Searches?

Given the amount of expertise, judgment and skill required in hiring a new CEO — to say nothing of time — special retainers for leading a CEO search or executive transition used to be de rigueur. But no longer.

A survey conducted by TheCorporateCounsel.net asking if boards had paid a special fee for serving on a CEO search committee received only 14 responses, and among that sample, only 7% reported paying directors a fee. In the same vein, a 2016 study conducted by Equilar found 15 boards that had paid special committee fees, and only one explicitly tasked the committee with CEO search responsibilities.

A look through director compensation disclosures using MyLogIQ’s SEC filings intelligence service shows that CEO search committees with special fees were more common a decade ago than in recent years. Comparative data is difficult to come by given that companies don’t hire new CEOs on a regular basis. However, overall the data appears to paint a picture of special CEO search fees going the way of the dodo.

FedEx Dodges Mandatory Retirement Bullet

Directors are paring down their board seats and opting not to stand for reelection or are alerting companies that they’ll be retiring or resigning, based on a review of recent filings. Directors at companies such as Exelon, Halliburton, Loews and J. Crew Group announced board departures this month, according to SEC filings analyzer MyLogIQ.

Meanwhile, the FedEx board on Jan. 28 announced it had amended its corporate governance guidelines so that its mandatory retirement age guideline would apply to only non-management directors, effective immediately. FedEx founder, CEO and chairman Fred Smith is 74 and would have been required to retire from the board after his 75th birthday. Instead, the board tweaked its guideline, and Smith will remain as board chairman. However, the board also announced that president and COO David Bronczek would join the board, effective immediately.

Are Comp Plans Too Similar?

No two companies are identical. So why should their compensation plans be?

It’s a question that’s frequently being asked by board directors and compensation consultants, especially at this time of year, leading into proxy season, as governance observers are noting an increasing convergence in plan design across the board for companies, such as a heavy reliance on performance-based pay, a movement away from stock options and the use of TSR as an incentive metric.

While sources’ views on the reason for the broad similarities across plans vary, many are questioning whether the homogenization of executive pay plans has gone too far.