Diversity in the boardroom
Photo by Jessica Eastburn March 23, 2018
Experts discuss diversity, other critical governance issues
When the University of Delaware’s John L. Weinberg Center for Corporate Governance was launched 18 years ago, most boards of directors were “completely different” from their counterparts today, Charles M. Elson told the audience at the center’s 2018 Corporate Governance Symposium in early March.
Elson, who is Edgar S. Woolard Jr. Chair of Corporate Governance, director of the Weinberg Center and professor of finance at UD, said today’s investors expect much more from corporate boards. At the same time, he said, board members take their responsibilities to those shareholders much more seriously.
Over the course of the daylong symposium, featured speakers and panelists gave examples of those changes, as they highlighted some of the issues with which directors are grappling in 2018.
The discussion involved such concerns as how boards can better work to keep investors informed, how directors can best understand the operations and culture of their particular corporation, what a board can do to foster diversity among the company’s management team and on the board itself, and whether directors should respond to topics—from climate change to sexual harassment to gun violence—that often dominate a day’s headlines.
Panelist Margaret M. “Peggy” Foran, chief governance officer, senior vice president and corporate secretary for Prudential Financial Inc., said she’s seen the quality of boards improve dramatically in the past 30 years, and particularly in the past five years. Directors today take their role seriously and increasingly understand that, while respecting the views of others, they are obligated to bring up sometimes difficult issues for discussion.
“It’s not a popularity contest,” she said of serving on a board. “You have to hold management accountable. You have to hold yourself accountable. You have to hold your fellow board members accountable. You have to point things out.”
Carol J. Ward, vice president and corporate secretary of Mondelēz International Inc., told the audience that directors are committed to making the best use of their time, not only in the boardroom but also out of the boardroom so they can interact with the company and its employees. Management can facilitate that, she said.
At Mondelēz International, Ward said, members of the board have benefited from first-hand views of the multinational snacking company. Directors have ridden in delivery trucks to see how Oreo cookies get to the store shelves and have visited factories and talked with employees to understand business operations and gain insight into the corporate culture, she said.
Panelist Michael Garland, assistant comptroller for corporate governance and responsible investment in the Office of the New York City Comptroller, spoke about the focus his office has placed on board diversity.
As investors, “We are asking boards for much more disclosure” and are emphasizing diversity of skills and experience among board members as well as, most importantly, diversity of gender and race, he said.
Garland noted that the percentage of women serving on corporate boards has only “inched up” in recent years, while the percentage of African American and Hispanic directors is nearly unchanged in the past decade. Many new board members are women, he said, but the rate of turnover is too small to make a significant percentage difference.
Change may be slow, but it is happening, said Lydia I. Beebe, a director with Kansas City Southern and Aemetis Inc., retired corporate secretary and chief governance officer of Chevron Corp., and principal with LIBB Advisors.
“I do think that diversity has taken hold in a way it never did before” as boards become increasingly responsive to what’s going on in the world and to what investors want to see from a company, Beebe said.
The symposium opened with a conversation between Elson and Ed Garden, this year’s John L. Weinberg Distinguished Speaker, who is chief investment officer and a founding partner of Trian Fund Management LP. Trian invests in public companies and looks to work constructively with the management and board of directors to create lasting shareholder value.
Garden described his partners in Trian as “turn-around experts” who work to fix companies with an eye to long-term improvements that will ultimately make those businesses best in class. Trian works to bring a “private-equity ownership mentality to the public boardroom,” he said.
“We invest in fundamentally great companies … where management has gotten off track,” he said. Trian often has a seat on the board and uses the “power of the argument” to respectfully challenge directors and management teams to make necessary operational and strategic changes to improve long-term value, he said.
In general, Garden said, too many directors have no reason to rock the boat on their boards, even in a company with serious problems, and “That’s not a good dynamic” for improvement. Trian also takes a long-term approach, he said.
“You can’t fix businesses overnight; it’s not flipping a switch,” Garden said, using Trian’s work with Wendy’s and Heinz as examples of long-term success stories. “It takes time.”
The symposium’s lunchtime program featured a conversation with Karen L. Valihura, justice of the Delaware Supreme Court, who was interviewed by Peggy Foran.
Valihura, who joined the five-member Delaware Supreme Court in 2014, is the only woman justice and only the second ever to serve on the state’s highest court. She spoke about the value of diversity in the justice system and encouraged other women lawyers and prospective lawyers to persevere.
“Delaware had a slow start,” she acknowledged, as the last state in the union to admit women (in 1923) to the bar. The state didn’t have its first female judge until 1971 (Roxana Cannon Arsht, appointed to the Family Court bench), or a vice chancellor on the nationally acclaimed Court of Chancery until 1984 (Carolyn Berger, who would also be the first woman appointed to the state Supreme Court, in 1994).
But progress in being made, Valihura said. She urged women to find mentors and to pursue their interest in making partner at a law firm or in serving as a judge, even if they don’t initially succeed.
It’s a worthwhile goal, she said: “Having a court system that’s representative of the population we serve is a desirable thing.”
More about the symposium
The symposium, “Governance Issues of Critical Importance to Boards and Investors,” was designed to provide attendees with cutting-edge governance discussion and debate.
It was co-sponsored by the Weinberg Center in the College of Arts and Sciences and the Department of Finance in the Lerner College of Business and Economics.
The panel discussion focused on the most critical governance issues for boards and investors in 2018. In addition to Foran, Ward, Garland and Beebe, the panelists were:
Donna F. Anderson, vice president and head of global corporate governance, T. Rowe Price;
Glenn Booraem, investment stewardship officer, Vanguard;
David A. Katz, partner, Wachtell, Lipton, Rosen & Katz;
Patrick S. McGurn, managing director, special counsel and head of strategic research and analysis, Institutional Shareholder Services Inc.;
Eric Shostal, vice president, investment stewardship team, BlackRock; and
Myron T. Steele, partner, Potter Anderson and Corroon LLP, and former chief justice, Delaware Supreme Court. Steele also is chair of the Weinberg Center’s advisory board.
Presentation of academic papers
The symposium concluded with the presentation of two academic papers on topics that are of critical importance to boards and institutional investors today.
This year’s winning paper was “Beyond the Numbers: Substantive Gender Diversity in Boardrooms,” by Yaron Nili, assistant professor of law, University of Wisconsin Law School.
Nili presented his paper at the symposium, with discussant Laura Field, Donald J. Puglisi Professor of Finance and chairperson of the Department of Finance in UD’s Alfred Lerner College of Business and Economics.
Also presented was “The Importance of Inferior Voting Rights in Dual-Class Firms,” by Dov Solomon, associate professor of corporate law, the College of Law and Business, Ramat Gan Law School. The discussant of Solomon’s paper was Albert Choi, Albert C. BeVier Research Professor of Law, University of Virginia School of Law.
More about the Weinberg Center
The Weinberg Center for Corporate Governance was established at UD in 2000 and is part of the College of Arts and Sciences (CAS). It is one of the longest-standing corporate governance centers in academia, and the first and only corporate governance center in the state of Delaware, the legal home for a majority of the nation’s public corporations.
The center is recognized as a thought leader in the corporate governance field.
In welcoming the audience to this year’s symposium, CAS Dean George Watson noted that he focuses on initiatives that show a commitment to public and community engagement. “The Weinberg Center and its symposia serve as a remarkable example of this commitment,” he said.
Watson also told the audience that the center’s reputation for excellence in the field of governance led to its recent selection as the partner and home for the Investor Stewardship Group (ISG).
“This important relationship with ISG offers even greater opportunities for the Weinberg Center to lead the way in identifying opportunities for the greatest impact on research, education, engagement and collaboration,” he said.