Editor: Please talk about the
current role of a corporate secretary. What factors have affected its
development in recent years?
Bertsch: Two factors
have changed the corporate secretary’s role: corporate governance has
become a higher profile issue, and regulatory requirements are more
complicated. While these developments enhance the importance of this
role, they also add burdens, with more intense compliance and
governance obligations. In a sense,
corporate secretaries must overcome the compliance piece in their
efforts to establish effective communication with investors on
substantive issues of greatest interest, such as say-on-pay votes.
Historically, the corporate secretary
has interacted broadly across company departments, but the
focus has shifted somewhat toward greater contact with investor
relations (IR), in response to higher investor interaction, and
with human resources (HR), because so much of corporate governance
discussions center around compensation.
Editor: Please provide an
overview of broad developments concerning corporate governance.
(the “Act”) of course has inspired much discussion and work for
governance professionals over the last several years. While most of
its provisions do not pertain to governance issues, those that do are
significant, and the Act has driven major changes in investor
communications and in the way boards operate. For example, it has
placed a premium on being able to articulate to shareholders the
reasons for combining the roles of chair and CEO or to provide the
justification for executive compensation policy.
Irrespective of Dodd-Frank, companies
are dealing with the fact that investors are playing a bigger role,
sometimes despite their not having the commensurate levels of
attention or sophistication to understand and stay on top of company
activities and governance policies. Further, some institutional
investors assess that it is not worth their time and resources to get
fully up to speed; thus, this important contingent may remain
uninformed by choice, clearly complicating the governance
Corporate secretaries need to manage
the company “story” and then communicate it substantively to
outsiders, with whom it is challenging to discuss governance in a
comprehensive way. At the same time, corporate secretaries must
maintain effective governance for the company as an issuer. In recent
years, fulfilling these concurrent responsibilities has become a more
complex and often very difficult job.
Editor: What’s new for this
year’s proxy season? What are the key considerations for corporations
in developing their proxy statements?
Bertsch: Last year,
some of the biggest companies broke new ground in making the proxy
statement an effective communications vehicle, rather than just a
compliance document (though, of course, compliance remains a key
issue). That trend continues and is spreading for the 2012 proxy
We are seeing, for instance, greater
use of executive summaries to present the compensation disclosure and
analysis, which represents a change toward a more succinct
communication style – consciously intended for investors as readers.
Finally some companies are making
better use of the electronic form, in which they can take advantage of
the online format to link subjects within the proxy statements and
create cross references. This format is very useful, especially given
the length and complex nature of the disclosures, and it helps readers
navigate to the most relevant information for their needs.
Editor: Will political
spending be a particularly hot topic this year?
Bertsch: Yes, it is
a big shareholder initiative this year, and there are more than 100
shareholder proposals on the topic. While there have been shareholder
resolutions of this kind going back to the 1980s or even earlier, the
issue became more intense in 2003-2004, when The Center for Political
Accountability – including its president and founder Bruce F. Freed
plus others – started asking for more disclosure addressing political
Specifically, political spending
requests are becoming broader in scope; thus, disclosures now may
include lobbying expenses, and in a few cases, companies are espousing
“say-on-political-contributions” vote (which has a kind of parallel in
the UK), much like the say-on-pay vote. Whether this particular idea
is positive is doubtful, in my view, but broader disclosure has been
embraced by a number of companies, although not always to the
specifications sought by shareholder proponents. This can be a hot
potato for companies.
The 2011 Supreme Court decision in
Citizens United, and the upcoming election, have heightened
anxiety and resulted in greater disclosure of political contributions,
though activist investors may be more worried about potential for
“untraceable” contributions than they need be. A broader concern:
companies are more often being pushed both by regulation and by this
type of shareholder proposal campaign to make disclosures on matters
without “materiality” being the determining factor, diverting
attention from issues of more central importance for determining
Editor: Please discuss recent
case law pertaining to governance issues.
Bertsch: I do not
know that I can be comprehensive at all. I found of particular
interest the Delaware Chancellor Leo Strine’s decision on In re
Southern Peru Copper Corporation Shareholder Derivative Litigation.
In a January talk at the Directors’ Forum in San Diego, Delaware
Vice Chancellor J. Travis Laster suggested that the decision had
lessons for investors and issuers that the Court is willing to reach
large awards where there is genuine merit, as opposed to so-called
“strike suits,” which often benefit law firms more than shareholders.
In this context, by the way, I would say that some observers have made
too much of lawsuits seemingly motivated by negative say-on-pay votes,
which have not been gaining much traction in court.
While there seems to be no change in
kind with respect to governance-related litigation, there has been a
lot of recent attention on compensation-related suits, since
say-on-pay started, as well as an increase in somewhat frivolous suits
resulting in payouts that benefit the firms but not necessarily
A related development is the attempt
by some companies to set up exclusive jurisdiction – usually, though
not always, in Delaware – which investors, and to some extent proxy
advisors, have resisted heavily on the basis that it compromises
shareholder rights. I think this may be unfortunate from a shareholder
perspective, given the cost of strike suits.
Editor: Will the SEC re-issue
Rule 14a-11? If so, how can the SEC address the DC Circuit’s
objections pursuant to its July 2011 decision to vacate the rule in
Business Roundtable v. SEC?
Bertsch: I don’t
anticipate re-issuance any time soon. I was not necessarily of the
opinion that the rule should have been challenged in the first place.
If another economic crisis arises, the SEC may revisit this issue, in
which case issuers face the possibility that a new rule may be worse
than the original from their standpoint.
In broader terms, the SEC seems to
have taken the DC Circuit’s objections to provide stronger
cost-benefit analysis seriously, and Chairman Schapiro has adopted a
non-defensive, constructive approach aimed at improving the SEC’s
economic analysis and generating high-quality cost-benefit reviews.
Such action addresses some vulnerabilities implied by the DC Circuit’s
decision, and it will serve well should the rule be revisited in the
Editor: Please tell us about
the Shareholder Communications Coalition and its recent letter to the
Shareholder Communications Coalition is an issuer-oriented group now
consisting of the Society of Corporate Secretaries and Governance
Professionals (“Society”), the Business Roundtable (“BRT”) and the
National Investor Relations Institute (“NIRI”). The SEC instituted its
original review of the proxy voting system just as Dodd-Frank was
being approved, and “proxy plumbing” was a good concept for a process
aimed at addressing legitimate issues.
In the meantime, however, the SEC’s
attention was distracted by other matters; thus, the Coalition’s
letter dated January 12, 2102 is an attempt to advocate for certain
policies and stimulate renewed focus on previously raised concerns.
Issuers and their advisors continue
to be concerned about the factual accuracy of reports produced by
proxy advisory firms, about the lack of sufficient transparency, about
conflicts of interests and about potential regulatory methods of
addressing these issues. Many Society members have focused on the
large issue of factual accuracy, which is difficult to reach from a
regulatory standpoint. While the actual outcome remains to be seen,
the SEC seems open to the idea of a stronger, more tailored and
mandatory system of registration for the proxy advisory firms.
As things stand, investors may not be
interested to pay for the very best analysis, so proxy advisory
reports often seem to be generated by relatively junior employees who
are not truly steeped in the industry or company within a given case.
In turn, poorly informed shareholders are a difficult audience when a
company needs to discuss critical matters, such as executive
compensation, that really affect the life of a corporation. The
Coalition’s letter seeks to apply pressure to the process of
addressing the reporting integrity issue, though we acknowledge that
there are limits to what the SEC ultimately can do.
Editor: In another letter,
the Society was among many organizations urging the SEC to weigh the
regulatory burdens within Section 953(b) of the Dodd-Frank Act against
a cost-benefit analysis. What is the Society’s view on the right
balance with respect to pay ratio disclosure?
Bertsch: First, we
acknowledge that the SEC has limited options because it is responding
to specific statutory language within Dodd-Frank. Suffice it to say
that pay ratio disclosure, as framed within Dodd-Frank, is potentially
a very expensive compliance process, and the benefits to investors are
questionable. Nevertheless, there is some flexibility with
interpreting the statute, and we want the SEC to exercise appropriate
discretion toward delivering rules and instructions that reduce the
cost of compliance.
Editor: Might this be a
situation in which the courts become involved?
Bertsch: It may, but
it would involve a different sort of judicial treatment than in the
proxy access case. While Dodd-Frank permitted the SEC to take action
on proxy access without actually mandating such action, Congress is
requiring a pay disclosure on pay ratio. While there may be potential
challenges available to critics on whatever the SEC implements, at the
end of the day, the real issue is the congressional mandate.
Editor: What are some recent
developments on the say-on-pay issue? What are the takeaways from the
2011 proxy voting results? Will persistent economic difficulties
affect shareholder perceptions on executive pay for 2012?
Bertsch: The first
takeaway is that the 2011 say-on-pay votes were not as negative as
many feared. A number of big asset managers, in my view, essentially
believe they should defer to the board and the compensation committee
unless they have a conviction that something is wrong. They do not
want to micromanage pay and do not believe that say-on-pay imposes a
burden on them to micromanage. This is a valid approach, it seems to
me, as it is difficult – probably impossible – for outsiders to
second-guess every decision made by the compensation committee.
Indeed, shareholders could do real damage to a company’s health
through policy interventions that are not thought through.
Second, while proxy advisory firms
are clearly influential, the results from last season indicate that
their votes are not necessarily decisive. Many investors do not follow
the proxy advisory firms in lockstep, especially when presented by
companies with compelling contrary arguments (although governance
staffs at institutional investors are under-resourced, and
particularly at peak proxy season, it can be difficult to get
unfiltered attention from investors). So a third and related takeaway
companies are learning that they can get good results by talking to
shareholders directly, rather than relying on secondary communication
via proxy services.
Notwithstanding the low instance of
negative voting in 2011, it is safe to say that economic difficulties
affect perceptions of pay; however, strangely enough, a poor economy
may also serve to diffuse the say-on-pay issue by shifting the focus
to more fundamental issues, such as overall performance. Shareholders
become anxious when they perceive that executive pay is high and
company performance is low.
Editor: Have companies, from
their own perspective, started looking at compensation differently in
light of economic exigencies?
Bertsch: I think
there is increased attention to how investors will view compensation
decisions and, as suggested earlier, increased attention to explaining
compensation clearly. Compensation plays a critical role in how
companies function, and it is constantly evolving. The details matter
– any general assessment becomes industry- and company-specific very
One specific area of change that may
in part relate to compensation practice is M&A. Economic difficulties
tend to inspire both a sharpened focus on the real long-term value
drivers and a certain amount of skepticism about some acquisition
activity. We’ve seen a slow M&A market, particularly for large
acquisitions, and this may reflect more orientation in executive pay
design on long-term shareholder value. Despite available assets and a
favorable market, companies are exercising more caution these days.
Editor: Please talk about
liability risks for senior management or directors. How important is
it to provide detailed minutes that show due diligence on the part of
the director, particularly regarding M&A transactions?
risks have not changed significantly, though there is increased focus
on lawsuits involving executive pay, as discussed above. Beyond that,
strike suits continue, the plaintiffs bar remains active and lawsuits
have always been part of the M&A landscape.
Regarding minutes, there is a
definite trend toward producing long-form minutes that show the
board’s due diligence, though debate continues as to the optimal
strategy for this process. There is an art and craft to producing
minutes, which must be done intelligently and with unerring vision,
regardless of the level of detail. By definition, long-form minutes
represent a more compete record potentially setting more traps along
they way, but they also may create greater confidence overall in the
ability to show that the board did its job, particularly in M&A.
Editor: Please talk about
upcoming Society events, including the National Conference coming up
National Conference is being chaired by Douglas Chia, assistant
general counsel and corporate secretary at Johnson & Johnson. Doug is
an ideas person and something of a futurist, and the theme of the
conference is “the shape of things to come,” focusing on developments
to anticipate over the next five years. The changing landscape that we
will seek to take in ranges from regulation to technology to boardroom
dynamics and relations with shareholders, and it includes
ever-expanding methods of communication.
The conference will feature 25
sessions and breakouts, 75+ speakers and a number of
Washington-oriented topics, such as activity on Capitol Hill and at
the SEC. Pollster Charlie Cook will offer his latest thoughts on the
outlook for the election, and Vogue editor Bethany McLean
will speak on the future of governance from her perspective, both as a
student of the 2008 financial crisis (see her book with Joe Nocera,
All the Devils are Here) and as the Fortune reporter
who was among the first to talk about Enron.
July’s conference will include basic
training for corporate secretaries, and then we expect to offer two
seminars in the fall on Essentials of the Corporate Secretarial
function, as well as our usual three-day seminar in Florida at the end
of January 2013. Education is an important function for the Society,
and our members are very thoughtful and willing to share experiences
and important lessons with others. The Corporate Secretaries
International Association (CSIA) is planning to meet in New York in
October, which is exciting because it is a relatively new organization
and has previously focused its events in Asia.
We also expect to provide more
webinars in general, including working specifically with Corporate
Board Member, a NYSE subsidiary, to offer a webinar scheduled for June
on the topic of board education. Webinars and educational programs are
a true value-add for Society members, and we look forward to expanding