Working from home, but learning together online

Aug 06, 2020
Corporate Secretary in May hosted its first ever virtual conference, bringing together governance professionals and directors who were working remotely to share their experiences of how the Covid-19 pandemic has impacted governance and their insight into what its legacy will be

Changing the way the board works

Health and safety issues raised by Covid-19 have led to boards taking up virtual meetings with fellow directors and executives to an unprecedented extent. Many are likely to switch to virtual meetings being the default option, at least until a vaccine is implemented, Dottie Schindlinger, executive director of Diligent Institute, told the audience. In doing so, boards will need to work out how to better conduct deeper, strategic conversations while using the technology – discussions that cannot wait until boards are able to meet in person again, she said.

The move to virtual meetings has been accompanied by more frequent and often shorter sessions as boards tackle fast-changing events and conditions. Catherine Kilbane, retired senior vice president, secretary and general counsel of The SherwinWilliams Company, lead director at The Andersons and a member of the Cleveland Clinic board, told the audience that her boards had started meeting at least weekly.

The SEC requires companies to disclose if a director attends less than 75 percent of meetings during a year so to avoid triggering this, these meetings are referred to as ‘update calls’. Kilbane advised allowing all directors to attend committee meetings, making sure records are kept accurately and checking that the company’s bylaws allow for virtual board meetings.

Fellow panelist Eileen Kamerick, board member at Associated BancCorp, Legg Mason Closed-End Mutual Funds, Hochschild Mining and AIG Funds, noted that it is very difficult to hold a typical nine to 10-hour meeting virtually so the agenda should be shortened and reprioritized. Directors can be sent reading materials ahead of time rather than sitting through presentations, she said, adding that if a committee is working on a specific project or decision, it can break that process up into a few separate calls laying out the issues and a final call to make the decision.

Amid an ‘explosion’ of meeting requests and ‘Zoom fatigue’, directors can be updated without the need for a call by being sent materials and posting comments on shared documents in the board portal, Schindlinger advised. An online board evaluation tool could also be used to ask for directors’ opinions on a topic – and thereby avoid a meeting if everyone is in agreement, she added. Asked whether the shift to more frequent, shorter meetings will continue, Schindlinger said: ‘I sure hope so. We would not be sorry to see the end of sitting passively listening to reports.’ Her fellow panelists nodded.

Kamerick said board members should do better in terms of engaging with management in setting the agenda and determining what is presented to them, asking what risks and opportunities management sees and focusing on the information directors need to have robust discussions.

A renewed ESG focus

The second panel of experts highlighted how ESG issues, far from going away amid market volatility and heightened uncertainty, have cemented their importance – and their role in boards’ thinking – as a result of the pandemic.

One of the most visible signs of this has been the renewed focus on human capital management. Kaley Childs Karaffa, director of board engagement at Nasdaq, noted that traditionally human capital management has focused on compliance with regulations and looking at the quality of the workforce. But the Covid-19 pandemic has presented an opportunity for boards to view ESG issues in a new way as they relate to risk oversight, and has shifted the approach to human capital from one of regular reviews by management to boards considering how human capital is important to strategy, Karaffa said.

Melanie Adams, vice president and head of corporate governance and responsible investment with RBC Global Asset Management, noted that her firm’s investment teams have been engaging with companies extensively throughout the pandemic, although the topics of discussion have shifted.

She said issues on the agenda amid the pandemic have included business continuity planning, the numbers of employees working from home, employee health and safety – including benefits for those still working at facilities – culture and morale (including issues such as how those working from home are coping with childcare), supply chain management, whether companies need government assistance or are facing layoffs, and executive compensation.

Adams said ESG issues had led to increased board involvement in shareholder engagement even before Covid-19, but that the pandemic will likely increase this by highlighting the importance of boards communicating how their company is addressing issues such as employee health and safety.

The timing of deadlines to file shareholder proposals meant Covid-19-related ballot measures have not been a feature of the 2020 proxy season. But Adams said she expects to see requests from investors for disclosures around issues such as employee health and safety and supply chain risk to be top of mind going into 2021. In the meantime, she noted a growing number of questions from clients about supply chain and employee health and safety matters.

This situation highlights the importance for boards of understanding investors’ interests and priorities, Karaffa pointed out. They should work with management and investor relations (IR) teams to make sure they understand how these interests and priorities are shifting, and ensure the company has sufficient liquidity to help it deal with any activist that might try to take advantage of an ESG-related issue such as health and safety, she advised.

Amanda Cimaglia, managing director for ESG at Solebury Trout, noted that the pandemic has brought IR and governance teams together, particularly at small and mid-cap companies, as they have faced the challenge of finding the right balance of tone and content in their disclosures around ESG issues.

This presents an opportunity to bring the heads of in-house teams such as governance and IR together with the board to consider strategic thinking on communications regarding a company’s response to the pandemic, she said. ‘It’s becoming clearer that ESG principles are here to stay and can drive long-term value creation, build brand loyalty and demonstrate resilience during a difficult time,’ Cimaglia told the audience.

Matt Geekie, senior vice president, secretary and general counsel with Graybar Electric Company, noted that the pandemic will give his firm cause to review its controls and disclosures to ‘assure people that on the ESG front we are doing what we say we do.’

Adjusting to virtual meetings

The final panel struck a positive note for the hundreds of companies switching to virtual AGM formats this year in the face of the pandemic. Two of the speakers reported having positive experiences as first-time users of virtual AGM platforms, while Sherry Moreland, president and COO of Mediant, assured the audience that doing so is about ‘planning, preparing and communicating’.

Moreland’s advice for first-timers includes general counsel checking state regulations and their company’s own bylaws to make sure virtual AGMs are possible. Governance teams need to pay close attention to communicating via the proxy statement information, such as how shareholders can join the virtual event, how they can ask questions and what the rules of conduct are, she said. They should also work closely with the board and management to determine what format the AGM should take – and have a dry run, she added.

Paycom is among the companies that have held a virtual AGM for the first time this year. Jericah Cummings, managing attorney for governance and risk at the company, emphasized the importance of clear communications to both shareholders and other stakeholders. In that spirit, Paycom filed an amended notice to its proxy statement, issued a press release about the move online and amended its website materials on the meeting. Ultimately, the company was able to hold the AGM with everyone taking part remotely, and it worked ‘seamlessly,’ Cummings said.

Michael Reilly, executive vice president, general counsel, chief compliance office and secretary at FMC Corporation, which also went virtual for the first time this proxy season, described a similar process to Paycom’s. Part of his preparation involved sitting in on other companies' virtual AGMs to help get comfortable with the technology. On the day, executives took part from the boardroom – while suitably spaced apart – in the interest of being able to share visual cues where necessary. Reilly described it as a great experience – and one that generated higher investor participation.

Both Reilly and Cummings said they were able to take the templates and scripts from their previous in-person AGMs and adapt them to the virtual format without too much work. Both companies allowed shareholders to submit questions ahead of the meeting. The greater challenge was getting to know the technology they would be using, they reported. ‘It was a very reasonable process. It was more a [question of] understanding the unknown as this was the first time we were approaching this task in a virtual way,’ Cummings told the audience.

HP has been holding its AGMs virtually since 2015. ‘The good news is that what seems difficult now will be very familiar by next year,’ said Rory Ross, global head of strategic legal matters and assistant corporate secretary. His team looks at governance issues and discusses with the board each year whether to go with a virtual AGM. HP, facing a proxy contest, had been expecting to hold an in-person event this year but went back to a virtual format after the contest was withdrawn and the pandemic arose, Ross said. The company allows shareholders to pose questions before and during the AGM, commits to answering every question and provides a transcript or audio recording of the event, he added.

Looking ahead to next year, Moreland said she expected to see ‘a huge shift to virtual. Our lesson is that we’re capable of doing this.’ In the future, a virtual AGM is a viable option to be considered each year although no decision has been made on 2021, Cummings said. Again, while no decision has yet been made, Reilly said FMC is ‘very likely’ to stay virtual next year, adding that he too expected to see a big shift at companies in general.

M&A matters

To round out the day’s content, Josh Lawler, partner with Zuber Lawler, shared some insight on corporate governance in the context of M&A. He noted the less-forgiving environment outside of a bull market, with shareholders likely to be more critical if they are not getting the same returns as previously. This is ‘new territory that elevates the stakes,’ he said, urging the audience to guide boards to ‘do the right thing’ in terms of taking a careful approach to compliance and using sound decision-making.

There will also be opportunities to acquire bargains in this environment but, in the context of M&A activity, steps must be taken to help insulate the board, Lawler said, adding that these include:

  • Understanding the motivation for transactions
  • Recognizing – either as a buyer or a seller – that every business has changed
  • Noting that if a company needs to change tack, the board should determine this first and then apply the same analysis to any potential target
  • Being conscious that relying on historical data and making predictions will be more challenging than before.


This article originally appeared in the Summer 2020 issue of Corporate Secretary

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