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Your Board Seat Is At Risk. Here's How To Defend It

Publication Date: 
May 07, 2010
Board Member Magazine
John Greenwald

Dan Siciliano, Faculty Director of the Arthur and Toni Rembe Rock Center for Corporate Governance, is quoted in this article on new laws and regulations for increased transparency in the boardroom:

Let’s face it: Nobody’s board seat is 100% secure. New laws and regulations have put even the best directors squarely in the sights of activists—and for champions of increased accountability and transparency in the boardroom, this is just as it should be. “The new regulatory regime is using disclosure to push boards to think about things that they might not have thought about otherwise,” says Ira M. Millstein, a senior partner at the law firm Weil Gotshal & Manges in New York City and a leading authority on corporate governance. “This is all to the good, since it will make boards think a lot more about some very substantive issues.”

But the same disclosures can also paint a bull’s-eye on the backs of all directors, because they make it so much easier for dissidents to challenge and unseat them. “It’s a real sea change in corporate governance,” says Guhan Subramanian, a professor at Harvard’s law and business schools. “Each of these measures makes a lot of sense on its own. Put them all together and they create a perfect storm that can make director elections a very onerous thing for boards. Directors may find themselves saying, ‘If I don’t do what shareholders want, they might vote me out of there.’” The 2010 Corporate Board Member/ FTI Consulting survey found that more than 25% of the general counsels polled think directors should be concerned about reelection. (See more on the GC survey.)

Board members increasingly fear running afoul of influential proxy advisers, notably RiskMetrics Group, a New York City-based company that many institutional investors turn to for advice on how to vote. F. Daniel Siciliano, faculty director of the Rock Center for Corporate Governance at Stanford University, points out that directors often try to second-guess this proxy outfit. In fact, an increasing number, says Siciliano, approach their companies’ general counsels just to ask, “What do you think RiskMetrics would say about this?” (Directors of MSCI Inc., the investment-services company that is acquiring RiskMetrics, already know what their new family member thought of them just a year ago: not much. See “What’s Next for Caesar’s Wife?”)