A few weeks into the Trump presidency, it is tempting to obsess about the political rhetoric and soundbites coming out of Washington, DC. While the first month of this new administration is certainly unprecedented in style, method, and message, the real cumulative impact on business remains unclear.

The combination of the chaotic start, the many political appointee vacancies across key departments and agencies, conflicting policy views between a Republican White House and Republican-controlled Congress on key issues, and ongoing investigations makes it challenging for businesses to respond and separate signal from noise.

Nevertheless, a recent pulse survey conducted by the National Association of Corporate Directors (NACD) offers some early insight into how companies and their boards are starting to navigate this new political environment.

1. A small majority of respondents (51%) is positive or very positive about the possible impact of the new administration on the growth prospects for their companies in the next 2 years. Almost 29 percent of respondents rated the possible “Trump effect” on business as either negative or very negative.

The differences in outlook are likely influenced by the relative dependence of individual companies on the benefits of international trade, the expected industry benefits of deregulation and infrastructure spending, and perceptions about the impact of a changing US leadership role in the global economy and security architecture.

2. Corporate tax reform, deregulation, and trade protectionism are the most highly ranked “policy” topics that respondents plan to discuss at their next board meeting. That’s not surprising since the (gradual) effect of policy changes in these three areas can significantly alter cost and revenue projections for business. The big question for many boards and executive teams will be whether the potential
fallout from trade protectionism (actions by the United States and possible retaliation by its trading partners) would offset any gains from a reduced tax and regulatory burden.

Trump’s unorthodox approach of injecting himself in the daily business of individual companies and their decisions seems to concern fewer respondents. Only 13 percent plan to discuss reputational exposure and management at their next board meeting.

3. Fifty-one percent of companies are now reassessing core assumptions about the impact of new and proposed policies on their strategic growth plans, which is an important exercise when so many key variables are moving or likely to move in the near future (for example, corporate tax rates, inflation, value of the dollar, interest rates, and import/export barriers).

Also, in response to the speed and ferocity with which consumers in this very polarized environment now react to corporate actions, many business leaders are beginning to proactively communicate the authenticity of their brand and their company’s contributions to society. More than 44 percent of respondents report that their companies are now reaffirming their core values and commitments to key stakeholder groups.

4. Only 25 percent of respondents decided to introduce scenario planning exercises to adapt to changes in the operating environment. Of that group, 85 percent are considering discontinuous scenarios based on major swings in key economic indicators, while 76 percent are scenario planning different outcomes from the planned overhaul of the US corporate tax system. Other macro-issues, for which boards will use scenario-planning in the coming months, include the possible repeal of the Affordable Care Act, the commercial fallout of trade protectionism, and the impact of significant geopolitical crises.

If used effectively, these scenario exercises can help open the minds of decision-makers—corporate directors included—to different signals, and prepare for surprises that directly affect the business strategy. Leading companies actively monitor for such signposts that would trigger course corrections in their strategic pathway.

To help corporate directors sense and respond to changes in this operating environment, NACD continuously assesses and interprets the impact of emerging issues. Every week we post our most recent analyses in our Emerging Issues Resource Center. Stories are accessible to all members.

Regardless of which party is in the White House, the National Association of Corporate Directors’ (NACD) more than 17,000 members will have a significant impact on both our economy and the country’s social fabric. The importance of strong corporate leadership was one of many topics discussed when the NACD Atlanta Chapter hosted a discussion about the Trump administration’s new world order.

Despite different party allegiances, speakers Governor Howard Dean and Republican strategist Ron Kaufman shared their optimism about the country and the global economy. Moderator Eric Tanenblatt led an informative and insightful discussion in which each panelist shared his perspective on topics relevant to business leaders.

President Trump’s Victory

From Left: Eric McCarthey, NACD Atlanta Chapter chair; Governor Howard Dean; Renee Glover, NACD Atlanta Chapter board member and event organizer; Ron Kaufman; and Eric Tanenblatt

Governor Dean, former chairman of the Democratic National Committee and six term-governor, opined that despite some of the unpleasant overtones of the Trump campaign, President Trump’s victory can at a high level be attributed to discontent with the economy, and specifically to the impacts of automation and the Internet. The perception that jobs have been lost to overseas manufacturing is more likely due to workforce reductions resulting from automation. At the same time, the Internet has changed both how people receive information, and the quality of the information they receive.

As a result, many people voted for Trump because he represented change in a time when the “haves” and the “have nots” are at odds. A similar sentiment has been seen in England with the Brexit vote, and in current political tides elsewhere in Europe.

Mr. Kaufman, a senior advisor to US presidents, governors, and members of congress, concurred that the appetite for change was a significant factor in Trump’s election. He shared that during his work on behalf of candidate Jeb Bush and then candidate Trump, many of the voters he met were attempting to decide between Trump and Senator Bernie Sanders.

Trade and Foreign Policy

Despite both political parties having adopted anti-trade rhetoric, both panelists emphasized the ongoing importance of global trade. Dean noted that global trade has lifted billions out of poverty, and Kaufman added that in the new world order, the economy continues to be global. Misunderstanding this fact, he added, could be disastrous.

While both panelists were optimistic in general, Dean cautioned that the Trump administration’s foreign policy ultimately could have a significant impact on the domestic economy.

Healthcare

Given Congress’ intent to make sweeping changes to the Affordable Care Act, our panelists turned to healthcare. Both Dean and Kaufman agreed the issue is extremely complex and that buying insurance across state lines is trickier than it might seem. State insurance regulators would likely take steps to fight a system under which its citizens could buy policies from other states. States, Kaufman said, built programs based on their specific problems, like those Governor Mitt Romney addressed in Massachusetts. Other states have different challenges and concerns, which make a national plan difficult.

Dean suggested that the ACA could be modified, including the fee-for-service model, which is a major driver in the increasing cost of healthcare. He also suggested that the individual mandate should be repealed, given how much Americans dislike government mandates.

Role of Millennials

In speaking about the Democratic Party, Dean emphasized how important millennials are to the future of the party and the future of the country. This demographic doesn’t like institutions, and millennials know that they can take part in changing societal behavior using nothing more than a smart phone. Millennials also tend to be libertarian on fiscal issues and progressive on social issues. Young people are impatient for change and have the energy to make it happen. According to Dean, the Democratic Party should ensure its next leader resonates with this group.

Key Issues

Dean believes key issues the nation must address include:

• Election reform – have an independent commission determine voting districts
• National debt – bring the debt under control
• Income inequality – change the tax code to allow people to get rich by helping others (ex., building affordable housing)

Kaufman added his key issues:

• Term limits – impose de facto term limits by means such as taking away retirement plans for government officials and their staffers
• Education – deploy resources to this, our biggest challenge
• Opiate addiction – declare war on opiates, especially in rural areas
• Defense – reorganize defense and use the savings for education

Education

Both speakers stressed the importance of education in terms of growing tomorrow’s workforce.

Kaufman believes that charter schools and vouchers can play an important role. Dean agreed on charter schools; however, he expressed concern about vouchers creating a more segregated society, where parents send their children to school with those of a similar background. Dean feels that such segregation would be problematic for the country in the long term. He shared that Republican school board members in rural areas are sometimes the biggest opponents to vouchers, as they would allow parents to move their children to larger school systems with more benefits.

Dean warned that student loan debt is a simmering issue that is impacting incentives in the workforce and could provoke a crisis in the years to come. He pointed to the fact that some communities are suffering from a physician shortage because many medical students are choosing specialties more lucrative than primary care in order to repay staggering student loan debt.

Kaufman suggested that, while we must change the education system, the answer may not lie in Washington, DC, and a variety of approaches may need to be deployed. In any case, he suggested that the older generation “should get out of the way and let the kids be in charge.”

This intelligent and respectful discussion of the issues came to an end with both speakers agreeing that America is an exceptionally strong country in which leadership—including the kind provided by American corporations—matters.

Dean and Kaufman are both Senior Advisors in the Public Policy and Regulation practice at Dentons, and Tanenblatt is chair of Dentons’ US Public Policy practice and a leader of the global Government sector team and global Public Policy and Regulation practice, focusing on governmental affairs at the federal, state, and local levels.

Note: The views and opinions expressed in this blog are those of the speakers at this event and do not necessarily reflect the views or opinions of NACD or the NACD Atlanta Chapter.

Kimberly Simpson is NACD’s regional director for the Southeast, providing strategic support to NACD chapters in the Capital Area, Atlanta, Florida, the Carolinas, and the Research Triangle. Simpson, a former general counsel, was a U.S. Marshall Memorial Fellow to Europe in 2005.

As the bar for director performance continues its steady rise, public company boards are expected to ensure that composition, skill sets, and core processes remain fit-for-purpose. The following infographic derived from the 2016–2017 NACD Public Company Governance Survey illustrates the different mechanisms boards are using to keep board composition and director turnover attuned to the organization’s evolving needs.

For more insights, download a complimentary copy of the executive summary of the survey.

Career Partners International, one of the largest career management consultancies in the world, announces that The Career Insight Group, which includes leading brands Audrey Page and Associates and Directioneering, has joined its group of market-leading brands. This exceptional career management firm offers services across all capital cities of Australia.  The Career Insight Group will combine its local expertise and quality services with CPI’s world-renowned career transition and executive coaching programs.

“Career Partners International selects only those firms with the highest quality standards in the industry,” stated Doug Matthews, President and CEO of Career Partners International. “The Career Insight Group not only meets CPI’s stringent standards, it exceeds them. We are honored to have them join Career Partners International.”

Operating as Audrey Page and Associates and Directioneering, The Career Insight Group is the largest Australian firm in the industry. With expertise in Career Transition, Career Management, Executive Coaching, Redeployment, and Change Management, its client base is made up of leading organizations including Australian ASX 500 businesses, state and federal government agencies as well as small to medium sized firms.

“Building our partnership with CPI will support the growing number of Australian firms and executives open to the idea of working overseas,” stated Jannine Fraser, Founder of The Career Insight Group. “Career Partners International will provide local expertise and support to our valued clients in Australia.”

The Career Insight Group will add valued growth to CPI’s strong existing Asia Pacific region and it will support CPI’s mission of providing world-class career management services to excel the success of both its clients and participants.

The post Australian Firm Joins the Career Partners International Group appeared first on CPI World.

HRD Advisory Group announced a significant expansion of its client service offerings as a result of the acquisition of Indianapolis-based AVANCOS. Effective immediately, the employees of AVANCOS will join the team at HRD Advisory Group (HRD).

The addition of AVANCOS expands HRD’s current recruiting and consulting practice significantly. “At the core of HRD’s philosophies is our commitment to provide value-added services with the highest level of integrity to foster a truly meaningful client relationship. As trusted business partners to our clients, this expanded capability will only help to strengthen those relationships,” said Mark McNulty, President of HRD Advisory Group.

The merger brings additional talent to HRD’s experienced team of Human Capital professionals whose deep industry experience and dedication will continue to create strong partnerships that serve long-term needs. The results of the merger are expected to produce growth on all fronts: new service offerings, expanded expertise and increased business growth.

“Joining HRD is an exciting opportunity to provide our clients with a multitude of additional products and services that will significantly enhance our value to them,” Dave Hickman, AVANCOS’ President said.

The post CPI’s Indiana Office Acquires Global Outsourced Recruiting Company appeared first on CPI World.

Anthony Caterino

Robotic process automation (RPA) is among the hottest topics in today’s enterprise. RPA simplifies business processes by mimicking human actions and automating repetitive tasks without altering existing infrastructure and systems. Nearly every day, we hear stories of organizations streamlining operations and optimizing costs with RPA.

Why is this technology gaining such attention? Because it has the potential to make enterprise-wide business transformation a reality.

As directors continue to rethink and address their organization’s strategy, RPA should be considered as one component of an array of emerging technologies that are changing the game. These solutions include artificial intelligence, cognitive computing, and machine learning. Many call this the Fourth Industrial Revolution, and for good reason. Nearly half (47%) of US jobs could be impacted by computerization, according to a 2016 report authored by Oxford University and Citibank.

Sitting on the sidelines is no longer an option. Robotics technology has moved beyond proof of concept, and the business benefits are increasingly clear and attainable. In a recent example, EY worked with the Robotics Center of Excellence for a major U.S. bank to scale robotics on a global level. Results included a significant reduction in full-time employees (FTEs) across back- and middle-office business processes and decreased runtimes for automated processes. Leading organizations will focus on the long game, planning for scale, speed and pace of adoption on the automation journey.

Boards will play an important role in helping organizations seize automation’s full advantages—reduced redundancies, improved accuracy, speed to market, and the ability to free human staff for high-value work. Vigilant corporate governance will help promote the establishment of a robust operating model and provide oversight of controls and risk management. From the highest levels, the enterprise must successfully manage changes in technology, processes, and people to seize opportunity while enhancing risk management.

The Need for Strategic Vision

Boards looking to enhance oversight of corporate strategy in response to these disruptive forces can learn from the industry’s early successes and failures.

Despite industry promises of rapid, low-cost success, automation is not a one-size-fits-all journey. The board must guide leadership to make certain that a robust operating model exists for leveraging the best-fit technologies to meet the organization’s needs.

The operating model must adapt to support a hyper-agile implementation approach. EY recently worked with the C-suite of a leading financial services corporation to design a centralized automation strategy. This strategy established a common framework to support its federated environment. Ensuring that the company has adopted the right operating model is key to accelerating technology adoption and streamlining change management to succeed in an environment that is continually evolving.

The automation journey should also be results-driven, with an emphasis on return on investment. For one global insurer, EY developed a proof-of-value to explore opportunities to automate labor-intensive back-office processes. The results helped management make an informed decision based on tangible outputs. When implemented, robotics cut the cost to deliver high-frequency tasks in half. If properly designed, the automation journey can be self-funding using a laddered process, with the cost savings realized on initial programs used to fund successive initiatives. This contrasts with the enterprise-wide implementation model common with many legacy solutions.

A robust operating model can also help mitigate risk. For example, because many automation solutions are engineered to work with current enterprise software, the operating model must account for changes in an organization’s software layer. If changes are made without considering the automation tools, they can quickly crash important processes.

The Human Equation

Along with planning for the technology changes, boards must foresee the human elements of transformation and embrace the workforce of the future.

It is not uncommon for today’s powerful RPA technology to reduce the number of humans needed on a data-intensive process from 50 people to five. A robot costs approximately one-third the price of an offshore FTE and as little as one-fifth the price of an onshore FTE, according to the Institute for Robotic Process Automation. Boards must think strategically about a company’s entire workforce mix—from where people are located to who (or what) performs specific roles.

Yes, the opportunity for cost optimization exists. But forward-thinking companies will seize the advantages of reallocating and retraining people currently in rote functions to higher-value tasks that generate business insight. The board should set clear expectations for managing human capital beyond layoffs—to leverage people to gain a competitive advantage.

The bottom line is that workforce transformation enabled by automation is coming quickly. In fact, it’s already happening. The boards that realize this soonest and come prepared to lead management on a journey that optimizes both technology and people will position their organizations to win in the long run.

Anthony Caterino is vice chair and regional managing partner of the Financial Services Organization at EY. Steve Klemash is a leader in the EY Center for Board Matters in the Americas.

While technical defenses might help stave off some attempted hacks, sooner or later a company will become a victim of cybercrime, and a contingency plan for communicating about the aftermath of an attack is critical for any organization. RANE recently reached out to several experts for their advice to companies for managing the flow of information and maintaining control of an organization’s reputation in the event of a breach.

The Initial Response

Ann Walker Marchant

“There’s a lot to gain or lose when you approach the equity you’ve built in your brand—and trustworthiness is part of the value of your brand,” says Ann Walker Marchant, CEO of The Walker Marchant Group. After a breach, an organization’s leadership must keep in mind all of the people who have placed trust in the brand. The impacted enterprise must convey that it is “willing to do whatever it takes to ensure you minimize risk to them,” she adds.

“You have to understand that it’s most important you’re communicating with your own people internally,” Christopher Winans, executive vice president and general manager at Hill+Knowlton Strategies, argues. Organizations should not allow internal stakeholders to learn about a crisis from external sources. “When your own people are finding out through press reports, it harms confidence within your [entire organization].”

“With a cybersecurity breach, you often don’t know what’s been compromised, at least at the very beginning,” Walker Marchant explains. Often, the best bet is to expect the worst. “You’ve got to assume they’ve got everything and act accordingly without appearing to create fear and panic with your internal and external audiences,” while simultaneously dealing with pressure from various audiences and stakeholders, Walker Marchant said.

Reaching Out to Regulators

A client update published by Debevoise & Plimpton LLP, titled “How to Disclose a Cybersecurity Event: Recent Fortune 100 Experience,” states that Fortune 100 companies disclosed 20 “incidents of major data breaches or cybersecurity events between January 2013 through the third quarter of 2015.” Most of the affected organizations made initial public announcements via news reports instead of a current report on Form 8-K. Debevoise & Plimpton notes that companies that did go the Form 8-K route “most often did so where the breach involved customer financial information.” Organizations, the report’s authors add, “should also be mindful of selective disclosure issues and their obligations under Regulation FD.”

Debevoise & Plimpton also warns against the risk of disclosing incomplete information regarding a breach, noting that “the ‘known’ facts may represent a small piece of the cybersecurity risk mosaic, which can require significant forensic research to assemble.” Potential inaccuracies in any disclosure represent yet another risk for organizations.

Subsequent reporting of updated cyber risk factors were largely contingent upon how breaches were initially disclosed in periodic corporate reports. In annual reports that come after a material breach, the Debevoise & Plimpton report notes, many corporations “view their annual report as an opportunity to update and tailor risk factors more generally, and the occurrence of an intervening cybersecurity event provides fodder for such fine tuning.”

Differing Perspectives Within an Organization

Caution is important, although any delay in responding in a timely manner also presents a risk for targeted enterprises. At the outset of planning the response, Winans adds, “It is better to tell your constituencies what you don’t know than it is not to tell them anything.”

Steven Bucci

However, there are often conflicting viewpoints of how to act in the immediate aftermath. “The tech guys will weigh in and say the best thing the company can do is get a hold of the FBI and find all the things in the network that are screwed up so they can take action to fix it,” says Steven Bucci, a visiting fellow for special operations and disaster management at The Heritage Foundation. “But you’d be hard pressed to find any lawyers to give their leaders that advice; instead, they’ll say it will hurt the company’s bottom line, it’ll hurt the company’s stock, and it could open up the organization to claims by competitors. While all of that, frankly, is true, that leaves the organization as vulnerable as they were before the breach—and probably also in violation with the Securities and Exchange Commission, as well as open to potential lawsuits from customers or clients.”

Still, it’s understandable that a cautious approach may appeal to many who don’t want to create panic, or those who are simply conflicted over the best course of action, Walker Marchant says. On the other hand, any delay in crafting a measured public response can result in harm to an organization’s brand equity. “Stakeholders will want to know who knew what, when, and why didn’t you tell us?”

Christopher Winans

Winans says that a clear organizational response plan that involves upper management is crucial before a crisis. “The very first thing you need to do is create a team, a coordinating committee, that is made up of all the functional parts of the company—the C-suite, the CEO or COO. Ideally, it’s got to be the leader of the company that takes charge of the situation, and you have to have people from HR, legal, operations, IT and investor relations.” For a company that answers to a variety of regulators, it’s even more important to get people in different roles together.

“That’s a team that needs to meet every day,” Winans adds. And before an actual breach takes place, that same team should be practicing how they will respond to a worst-case scenario. Winans proposes a “flight school.” “We set up people to actually play out an actual scenario,” he says. “The whole thing is designed to feel like an actual crisis.”

Lessons of a Real World Response

The Sony Pictures hack is an instance where the company was a little more forthcoming, at least with law enforcement, because they had no idea who could be penetrating their systems so extensively. Nevertheless, they suffered serious criticism and ridicule for how poorly they guarded their network.

“Exactly what the breach entailed wasn’t clear at the very beginning,” Walker Marchant says. “It was death by a thousand knife wounds because it was that trickle-down approach, because every day was something different.” Lists of salaries, copies of unreleased films, and sensitive e-mail from senior leadership were also part of the data theft. Still, Bucci argues that “while they did get beat up pretty badly,” in the end “they got through it faster and with far more sympathy from the public by saying, ‘We got hammered.’”

As recent examples of flawed responses by organizations following cyber breaches highlight the risks of incomplete or inaccurate information, boards have one clear warning: Doing nothing is not an option. The age of instant communications and 24/7 media coverage ensures that very little in the cybersecurity universe can reliably remain under wraps for long—lessons that others have already learned the hard way.

“I think the biggest mistake is deluding yourself that you can contain this and no one will find out,” Winans says. “The fact is that very often the worst thing that can happen to a company isn’t a crisis situation. It’s how they respond to it.”

About the Experts

Steven Bucci is a Visiting Fellow for Special Operations and Disaster Management, as well as primary instructor in leadership, at The Heritage Foundation.

Debevoise & Plimpton LLP is a premier law firm with market-leading practices, a global perspective and strong New York roots.

Ann Walker Marchant is recognized as a preeminent strategist and counselor with more than 20 years of experience developing and leading wide-ranging initiatives for the White House and Fortune 100 brands.

Christopher Winans, executive vice president and general manager at Hill+Knowlton Strategies in New York, has 22 years of experience in journalism, 10 of those at The Wall Street Journal.

 RANE is an information services and advisory company serving the market for global enterprise risk management. Learn more at www.ranenetwork.com.

This spring, as usual, most pay-related resolutions in proxy statements will be from corporations seeking shareholder approval of pay packages for named executives. But not all the pay votes will implement this now-familiar “say on pay,” where shareholders look back at the past year’s compensation plan to give thumbs up or down. More shareholders will be proposing their own pay concepts for a vote this season—and many of these proposals will reflect shareholder’s growing interest in social issues.

Who Needs Dodd-Frank?

Click to enlarge.

Directors in 2017 may see a new kind of resolution meant to re-assert any Dodd-Frank pay rules that get stalled or repealed this year. As reported in detail in the January/February 2017 issue of NACD Directorship magazine, President Trump may use executive orders to delay or undo Dodd-Frank, and Congress may revive a number of bills to repeal Dodd-Frank, including the parts of the law focused on executive pay. As expected, the president on February 3 issued an executive order outlining core principles that should guide the rollback of Dodd-Frank era regulations. As a result of this potential pullback on pay rule-making, companies may see shareholder resolutions mandating what those rules would have imposed, e.g., mandates for stricter executive pay clawbacks or for pay-versus-performance and pay-ratio disclosures.

Not surprisingly, directors and shareholders have been talking face-to-face about pay in preparation for this season. The 2016–2017 NACD Public Company Governance Survey reveals some interesting trends. In 2016, 48 percent of respondents indicated that a representative of their board had held a meeting with institutional investors over the past 12 months, compared to 41 percent in 2015. The most common discussion topics at those meetings were executive pay and CEO performance metrics and goals. Another common topic was “specific shareholder proposals,” which no doubt included the range of causes noted in our recent post predicting a rise in socially-minded proxy resolutions.

For many companies, measurement of performance includes social goals. In 2016, 80 percent of respondents to the NACD survey indicated that they consider non-financial metrics when evaluating executive perfor­mance to determine executive compensation. The metrics they use include, in descending order from 37 percent to 8 percent, the following:

• Employee engagement/morale;
• Customer satisfaction;
• Workplace safety;
• Maintaining good standing with regulators;
• Product quality;
• Employee turnover;
• Sustainability-related measures, and;
• Workplace diversity.

Many of these performance metrics could be considered “social” aspects of pay.

Executive Pay Proposals at Apple, Walgreens Boots Alliance

The 2017 proxy at Walgreens Boots Alliance (WBA) reveals that Clean Yield Asset Management proposed that WBA issue a report linking sustainability metrics to executive pay. The proposal asks the board compensation committee to prepare a report “assessing the feasibility of integrating sustainability metrics into the performance measures of senior executives,” and defines sustainability as “how environmental and social considerations, and related financial impacts, are integrated into corporate strategy over the long term.” The company recommends a vote against this proposal, highlighting its achievements in the field of sustainability, and concluding that preparing this report would not be a productive use of company resources.

On another note, Apple’s 2017 proxy statement contains two shareholder resolutions on pay—one focusing on increasing the requirements for stock ownership, and one that takes a more social turn. In proposal 8, shareholder activist Jing Zhao brings into the current season an economic concern voiced by a significant number of shareholders across several companies in 2016, when the 250 largest companies saw 38 shareholder-sponsored proposals on pay. While the subjects of these proposals varied, most of the 2016 proposals alluded, in one way or the other, to compensation practice reform.

Zhao’s current resolution proposes the following: “Resolved: Shareholders recommend that Apple Inc. engage multiple outside independent experts or resources from the general public to reform its executive compensation principles and practices.”

In summary, Zhao’s proposal takes aim at the identical nature of the senior executive pay below the CEO, and questions the need of a compensation consultant given such conformity. But the supporting details reveal that the proposal is not really about how many advisors Apple engages. Rather, it is about income inequality. Zhao’s commentary goes on to address the larger picture of societal well-being. He quotes Thomas Piketty, arguing that income inequality “has contributed to the nation’s financial instability,” and tracing this inequality to “the emergence of extremely high remunerations at the summit of the wage hierarchy.” (Capital in the Twenty-First Century, Harvard University Press, 2014, pp. 297-298, reviewed here in NACD Directorship).

The response from Apple management addresses the proposal itself rather than the surrounding complaint. Apple’s executive officers “are expected to operate as a high-performing team; and we believe that generally awarding the same base salary, annual cash incentive, and long-term equity awards to each of our executive officers, other than the CEO, successfully supports this goal.”

The Sleeper Issue: Director Pay

The sleeper issue this year may be director pay. The 2015-2016 Director Compensation Report, authored by Pearl Meyer and published by NACD, showed only a modest rise in director pay, and predicted the same for 2017. Nonetheless, director pay is becoming a hot issue for shareholders.

Consider the new guidelines from the leading proxy advisory firm, Institutional Shareholder Services (ISS), which serves some 60 percent of the proxy advisory market. Proxy voting guidelines of ISS and Glass, Lewis & Co. contain updates to discourage perceived director overboarding—and compensation does not follow far behind. It is notable that ISS amended its proxy voting guidelines, effective February 1, 2017, to include director pay. The ISS voting changes also include changes to ISS policies on equity-based pay and other incentives, as well as amendments to cash and equity plans, such as mandatory shareholder approval for tax deductibility. But the most unexpected development was ISS’ support for “shareholder ratification of director pay programs and equity plans for non-employee directors.”

ISS says that if the equity plan is on the ballot under which non-employee director grants are made, ISS policy would assess the following qualitative factors:

• The relative magnitude of director compensation as compared to similar companies;
• The presence of problematic pay practices relating to director compensation;
• Director stock ownership guidelines and holding requirements;
• Equity award vesting schedule;
• The mix of cash and equity-based compensation;
• Meaningful limits on director compensation;
• The availability of retirement benefits or perquisites, and;
• The quality of disclosure surrounding director compensation.

These values are not new. NACD went on record supporting such concepts in our Report of the NACD Blue Ribbon Commission on Director Compensation, issued in 1995. Every year since then we have issued an annual survey on director compensation with Pearl Meyer (cited above), reinforcing these key points.

In explaining the rationale for its policy update, ISS notes that there have been several recent lawsuits regarding excessive non-employee director (NED) compensation. For a summary of these lawsuits, see the Pearl Meyer/NACD director compensation report cited above.

ISS notes activity behind the scenes re director pay. According to the proxy vote advisor, “some companies have put forth advisory proposals seeking shareholder ratification of their NED pay programs,” and further, “ISS evaluated several director pay proposals during the 2016 proxy season, and we expect to see more submitted to a shareholder vote.”

Say on Pay for Directors?

Given the new interest in director pay, might it become subject to “say on pay” in the U.S.? Such a mandate has already begun overseas. Since 2013, Switzerland has had an “Ordinance against Excessive Compensation with Respect to Listed Companies.” The law mandates annual shareholder votes on the total pay awarded in any form by the company to its directors and, in a separate vote, to its senior executives. The pay period can be retrospective (last year) or prospective (next year). So far, after an initial wildensprung of rebellion against some boards, approval ratings have been very high. The 2017 proxy season may continue this trend—or contain surprises. Given volatility in the global economy, and in shareholder sentiment, it is wise to avoid complacency.

To prepare for proxy season, directors can benefit by visiting the National Association of Corporate Directors’ (NACD) various resource centers, including centers on the compensation committee and on preparation for proxy season.