Author: Carol Ward

Kathy Graham, CEO, The HQ Companies, Inc. — human capital consulting firm — recently shared her thoughts about the need for and approaches to board rebalancing. While boards are rebalancing membership, she encourages boards to also review the use of and adopt an appropriate board portal to further enhance board effectiveness. thehqsinc.com/RebalanceBoard

Here are some of our thoughts about board portals. Boards and corporate governance teams at both public and private companies have experienced increased workloads and demands in recent years: Sarbanes-Oxley. More demanding exchange listing standards and disclosure. Increased investor and NGO interest in company ESG initiatives. DE&I. Executive compensation. Enhanced disclosure – required and voluntary. Employee concerns. Changes in strategy. Disruption is the new normal.

Many companies have turned to board portals to manage those increased demands and workloads.

There are portals. And then there is Foresight^®BoardOps.

It is so much more than a portal. It is a fully-integrated BoardOps Toolbox, putting everything in one place. That means everyone and everything is on one platform – improving collaboration and communication before, during and after board meetings, reducing chance of errors.

Foresight^®BoardOps enables boards, C-Suites and corporate governance teams to:

1. Systematize Agenda planning. Meeting Analytics foster continuous improvement in board processes and board effectiveness using monitoring and measurement. Using these analytics in annual board and committee self-assessments to evaluate and elevate board performance. Increase board focus on Strategy and Leadership agenda topics.
2. Improve meeting and decision preparation and documentation.
3. Consolidate governance compliance resources, compare to agenda, then advise and act with confidence
4. Access investor policies.
5. Distribute agenda and meeting materials electronically using document- and participant-specific access controls.
6. Electronic distribution of D&O questionnaires.
7. Use board composition analytics to better understand board composition. Track information needed to comply with Nasdaq disclosure requirements. Better inform recruitment planning. Also, export Foresight^®BoardOps graphs and charts for use in board materials and investor communications
8. Assess board oversight of ESG topics important to strategy and investors

Foresight^®BoardOps transforms how boards and corporate governance professionals work – using advanced technology to speed and elevate their impact. Result: Agile Board. Agile Organization.

To learn more about improving your governance processes, increasing your productivity, and reducing your stress, go to: https://foresight.board-ops.com/

Two recent California state court decisions and litigation over Nasdaq’s Rule 5606(f) have increased scrutiny on efforts by states and regulators to increase diversity on public company boards.  But investors continue to value board diversity.

First, a bit about those two California cases…

SB 826: On May 16, a California state court judge ruled unconstitutional California’s SB 826 requiring publicly held companies headquartered there to include 1 director who identifies as a woman by year-end 2019 and boards with 5 directors to include 2 women and boards with 6 or more members to include 3 women by January 2022.

AB 979: On April 1, a California state court judge struck down AB 979, California’s more recent effort to mandate inclusion of underrepresented groups on boards. Adopted in 2020, AB 979 required a publicly held domestic or foreign corporation with principal executive offices located in California. The law defined an individual from an underrepresented community as “an individual who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifies as gay, lesbian, bisexual, or transgender.”

Notably, legislative efforts to increase board diversity don’t stop at California’s borders…

Other states have adopted varied approaches to encouraging more diverse corporate boards. For example, Illinois requires publicly traded companies headquartered there to report board composition.

Second, Nasdaq Rule 5606(f)…

In August 2021, the SEC approved Nasdaq Rule 5606(f). Nasdaq sees the Rule as setting forth “aspirational diversity objectives.” 5606(f) requires Nasdaq-listed company boards to:

• Include at least 2 self-identified “diverse” board members (a woman and underrepresented minority and/or LGBTQ+ individual) or explain in writing why they are not doing so.
• Starting in 2022, disclose board-level diversity stats using a standardized matrix template. Those stats include the number of directors who self-identify with specified categories: Gender, Race/ethnicity, and LGBTQ+ status.

Plaintiffs have challenged Rule 5606 in federal court.

While the legal challenges continue, the “influencers” are pressing for greater board diversity

Legal challenges to state and regulators’ efforts to increase public company board diversity are likely to go on (and on). In the meantime, the “influencers” are ramping up expectations regarding board diversity and related disclosure. Among key influencers: investors.

Investors are stepping up efforts to influence (and increase) board diversity    

Many investors recognize that board diversity contributes to diversity of thought and that contributes to better board decision-making – which can improve company performance. So, investors are paying increased attention and attempting to influence board diversity. Governance policies and voting practices reflect this growing focus. These examples are illustrative (policies abbreviated).

BlackRock urges boards to aspire to 30% diversity, at least 2 female directors, and at least 1director from an “underrepresented group”  (which includes individuals who identify as racial or ethnic minorities, LGBTQ+, underrepresented based on national, Indigenous, religious or cultural identity, individuals with disabilities and veterans.). And it wants issuers to disclose:

• How the board’s diversity characteristics, in aggregate, are aligned with a company’s long-term strategy and business model, and
• Whether a diverse slate of nominees is considered for all available board seats.

Vanguard is looking for information about current board  composition and related strategy:

• Statements about the board’s intended composition strategy, including expectations for year-over-year progress.
• Policies for promoting progress toward greater board diversity; and
• Current attributes of the board’s composition.

Vanguards looks for diversity disclosure to cover, at a minimum, director gender, race, ethnicity, tenure, skills, and experience.

State Street expects companies to provide board disclosures by gender, race, and ethnicity (at a minimum) at an aggregate or individual level; and also to address efforts to achieve diversity at the board level, including how the governance committee considers ensures diverse candidates are considered during the recruitment process. State Street also encourages companies to consider providing disclosures about other dimensions of diversity (LGBTQ+, disabilities, etc.).

Influencers are having some impact on board diversity and diversity disclosure

Corporate Board Practices in the Russell 3000, S&P 500, and S&P MidCap 400: 2021 Edition (a collaboration amongst Debevoise & Plimpton, KPMG Board Leadership Center, Russell Reynolds Associates, and John L. Weinberg Center for Corporate Governance) includes a comprehensive review of board composition and diversity disclosure. The study notes:  

• Women’s representation on Russell 3000 boards increased from 21.9% in 2020 to 24.4% in 2021. Women represented about 38% of 2021’s newly elected directors in both the Russell 3000 and S&P 500.
• However, racial and ethnic diversity among new directors continued to lag.
  • African Americans were 11.3% of new directors elected in 2020, 11.5% in 2021.
  • Latinx/Hispanics were 6% of the 2020 class, 6.5% in 2021.
  • Asian, Hawaiian, or Pacific Islanders were 2.9% of the 2020 class, 3.1% in 2021.
  • 78.3% of the 2021 class of new directors were white.

The study also found that more companies are disclosing more board diversity data. Only 24% of the S&P 500 disclosed the racial composition of their boards in 2020; 59% did in 2021. 7.7% of the Russell 3000 disclosed in 2020; 26.9% did in 2021.

Boards should not take much comfort from the two recent California decisions or wait for resolution of the challenge to Nasdaq Rule 5606(f)

The rather slow progress in board diversity is disappointing to many. Companies realize value from diverse boards – as they compete for capital as well as  customers. Investors see value in diverse boards and seek to invest in companies with diverse boards and boards willing to share meaningful board diversity data with investors. Companies do well to devote attention to building those boards or risk disappointing investors — and facing the consequences.

More another time about ways to accelerate recruitment of diverse directors.

Foresight BoardOps is lucky to have an Advisory Board that includes governance luminaries like Doug Chia of Soundboard Governance. Here, Doug shares his best advice on making your board materials reflect well on you. Here is Doug’s great advice on preparing your advance materials and yourself for board and committee meetings.

Directors must fulfill fiduciary duties to the company, and a critical part that is receiving the information they need to be adequately informed and conduct effective board meetings.  Directors who serve or have served on multiple boards can tell a lot about the company’s management based on the materials they receive to prepare for board meetings and how those materials are used in meetings.  Here are several things to keep in mind for your board and committee meeting materials. 

Manage the Volume of Advance Materials

Generally, you should provide your directors enough information to enable them to:

1. fulfill their oversight duties,
2. have well-informed discussions, and
3. make informed decisions,

but not so much that the volume obscures the most relevant information.  Avoid getting “into the weeds” with operational detail that would be useful to a high-level staff member at your company, but not necessarily to an outside board member. 

To this end, set standards for presentation decks to make presenters succinctly lay out their key points, action items, and recommendations.  Discuss with your board the ideal standards for presentation decks.  Here is a starting point for those discussions:

• 10 slides per presentation deck,
• 8 to 10 lines of text per slide,
• 2 charts, graphs, tables or other visuals per slide.

Specify the Purpose of Advance Materials

Oftentimes, directors are not clear why you are providing certain materials to them.  Your advance materials should always identify:

• why you are providing the materials to the board, and
• what board action or feedback (if any) you are seeking. 

Indicate on the cover of each cover memo and slide presentation deck: “For Information,” “For Discussion,” “For Action,” etc.  This will tell your directors how they should be thinking about each item before diving into the advance materials.

Provide Cover Memos for Advance Materials

Provide a 1 or 2-page cover memo for each topic on the meeting agenda.  This memo will set the stage for each presentation deck and meeting discussion with a narrative explanation of the context, key take-aways and decision points.  The memo should:

1. Briefly summarize the topic.
2. Say why this topic is on the agenda for this particular meeting.
3. Include relevant background or context not covered in your presentation deck (particularly helpful to the newer directors). 
4. Summarize your conclusions and/or recommendations.
5. Tell your directors what (if anything) you need from them.

These memos will focus your directors’ attention on the most critical points in the presentation decks.  

You can also use brief memos to update your board regarding ongoing oversight matters that do not require review at meetings and to address any follow-up items from prior meetings that do not require further discussion.

Use a Consistent Format for Presentation Decks

Develop a standard template for slide presentation decks for board meetings.  A consistent layout, format and style will help your directors better navigate the materials.

Consistent format is especially important in reporting key performance metrics, which should be part of the advance materials for every board meeting, so directors can easily see trends.  You can also develop standard “dashboards” of key performance metrics for this purpose that regular presenters update for every meeting.

Your directors are likely accessing your advance materials via an electronic board portal, such as Foresight^®, and reviewing them on a laptop or tablet.  Make sure to use a format conducive to reading and navigation on a small electronic device.  Make sure fonts are large enough and your charts are not too busy.  You can build required fonts and font sizes into your standard template.

Write to Be Easily Understood

Make your materials crisp.  Write in active voice and in “plain English.”  Use short sentences and bullet points.  Avoid using shorthand, acronyms and industry or company jargon.  Ifyou use do use certain acronyms, shorthand, or technical terms in your board materials on a regular basis, consider providing a glossary that spells out acronyms and defines technical terms.  This will be especially helpful for newer board members.

Promote Discussion

One common complaint from boards in general is that presenters spend too much time “walking through” the advance materials, taking away precious time for directors to ask questions and give feedback.  Assume your directors will carefully read the materials you send and arrive at meetings prepared to engage in robust discussion and make necessary decisions.

Resist the urge to go through each slide in your advance materials at the meeting.  Do not read your slides aloud word-for-word.  You may not even need to reference every slide during your presentation.  A consistent message from boards is that showing fewer slides results in more efficient meetings and allows more time for engage discussion. 

Manage Your Time

Assume you will have less than the budgeted time to cover your agenda topic.  With many substantive items to cover at each meeting, there is a good chance that at the meeting, presenters will be asked to move quickly through their presentations “for the sake of time” (especially topics scheduled for the later part of meeting).  Even if you do have a large chunk of time budgeted for a topic, anticipate that directors will ask questions that take the discussion deeper into some elements or off on tangents.  A good “rule of thumb” for presenters is planning to devote only one-third of the budgeted time to presenting.  That will leave plenty of time for questions and discussion without running over.

Make a Good Impression

Consistently providing your directors with high-quality materials and conducting effective meetings are critical components of your obligation to them and will leave direct impressions of your levels of commitment and preparedness.