Analysis Highlights New Trends in Dow 30 Governance Disclosure

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Aug 23, 2010, 12:52 ET

NEW YORK, Aug. 23 /PRNewswire/ -- The Conference Board, in collaboration with Davis Polk & Wardwell LLP, today released a series of four Director Notes to provide guidance and examples to public companies on emerging practices following the SEC enhanced disclosure reform of December 2009.

The reports, based on an analysis of the 2010 proxy statements of the 30 companies in the Dow Jones Industrial Average plus those of select financial institutions, analyze disclosure on such important corporate governance issues as the role of the board of directors in risk oversight, CEO/chairman separation and other aspects of board leadership, board diversity and director qualifications, and compensation-related risk and the independence of compensation consultants.

Research findings include:

Risk oversight models vary, but boards tend to directly review strategic risk issues.
Non-financial companies typically report having a dedicated Chief Risk Officer.
The CEO/chairman combination remains the prevalent leadership structure in the Dow 30.
Specific industry expertise is cited as critical in director selection, and all companies say they consider diversity when identifying director nominees.
Companies recognize a correlation between top-executive compensation and risk behavior, using an array of measures to mitigate such risk including clawbacks and stock-holding guidelines.
A number of non-financial companies retain compensation consultants through their governance, rather than compensation, committees.
Compensation consulting fees can be small relative to other disclosed fees paid to the same consultants for, e.g., actuarial or HR services.

"The enhanced disclosure rules enacted by the SEC in December 2009 marked the beginning of a new season of regulatory intervention in corporate governance after the one that followed the Sarbanes-Oxley Act of 2002," says Matteo Tonello, director of corporate governance research at The Conference Board. "Passage of the Dodd-Frank Act will further the transformation of U.S. corporate governance from a board-centered to a shareholder-influenced model. Since additional disclosure requirements are the centerpiece of this new model, it is critical for corporations to benchmark their practices against those of their peers and adhere to the highest emerging standards of transparency. With this series, The Conference Board continues to fulfill its promise to help member companies meet these challenges."

"For financial companies, overseeing risk management has long been understood to be a critical board role," says Louis L. Goldberg, partner at Davis Polk and co-author of three of the reports. "Not surprisingly, in the wake of recent corporate crises, the business community is recognizing that risk oversight is a quintessential function for boards of non-financial companies as well."

"Although the disclosure varies widely, these reports identified some early trends in the way companies discharged their new disclosure responsibilities," says Mutya Fonte Harsch, also a lawyer at Davis Polk and a co-author. "In many cases, companies viewed the rules as an opportunity to present, in a thoughtful and non-defensive manner, the thought process reflected in their corporate governance and compensation practices as well as the reasons why the organization's governance structure is in the best interests of shareholders."

The reports include tables comparing companies' disclosure language, sample risk committee and lead independent director charters, and a list of attributes and skills companies consider when selecting directors.

Source:

Enhanced Disclosure in the Dow 30 and Select Financial Companies, Director Notes Series

The Role of the Board in Risk Oversight, DN-010

Board Leadership Structure, DN-011

Board Diversity and Director Qualifications, DN-012

Compensation-Related Risk and Compensation Consultants, DN-013

About Director Notes

Director Notes is a series of publications through which The Conference Board engages experts from several disciplines of corporate leadership in an open dialogue about topical issues of concern to member companies.

About The Conference Board

The Conference Board is a global, independent business membership and research association working in the public interest. Our mission is unique: To provide the world's leading organizations with the practical knowledge they need to improve their performance and better serve society. The Conference Board is a non-advocacy, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. www.conference-board.org

SOURCE The Conference Board