Annual Corporate Governance & Executive Compensation Survey

2019 Corporate Governance & Executive Compensation Survey

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Page 30 of 105

Shearman & Sterling LLP Turning up the Volume of Board Diversity | 29 Private ordering will likely be the real accelerant for change in board composition. These private ordering activities include the following: Specific and concrete expectations from institutional shareholders, with targets and deadlines Grassroots activism by employees and customers demanding a more representative board from the companies at which they work or from the companies with which they engage Shareholder proposals that require companies to adopt policies and state goals related to board diversity WHERE IS THE BOARD DIVERSITY DEBATE GOING? As with many governance issues that have arisen in the last decade, legislative and regulatory responses will not be the only force moving the needle on board diversity. While there will continue to be calls for the SEC to require more enhanced disclosure related to board diversity and board practices related to the identification and selection of directors, it is unlikely that the SEC will respond with rulemaking. Frankly, most would agree that the securities laws are not the place for mandating who should be in the boardroom. WHAT SHOULD BOARDS DO NOW? Know your numbers. Benchmark your board diversity metrics against your peer group, your broader industry and public trends more generally. Engage with your significant investors. Increasingly, institutional investors want to hear from companies on board diversity, and some will condition support for directors on a meaningful dialogue on diversity. These conversations do not have to be led by the chair of the nominating committee, as long as the company's representative can credibly address the key issues. The input received from these discussions should be shared with the board and be taken into consideration as the board refines and further develops its own policy. Talk about your policy regarding board diversity. Directors should have a discussion on what its perspective is or should be regarding board diversity. The board should talk about how it defines diversity, how diversity impacts director selection attributes and how director recruitment practices may need to be changed. As part of this discussion, the board should consider expectations from all stakeholders and what the board wants to say publicly about diversity. The board should also be prepared to have the difficult conversation of board refreshment and how the composition and tenure of the current board will enhance or impede diversity efforts. Finally, the board should consider setting goals and targets for itself. 1 5 3 7 2 6 4 Clarify your director nomination criteria. Ensure that the company's specific experience, qualifications, attributes and skills reflect the board's policy and definition of diversity. This may include making specific reference to race, gender, ethnicity, nationality, sexual orientation or cultural background as factors that the board considers in its selection process. Review and refresh your director candidate recruitment procedures. Implement director candidate recruitment practices that are in line with the board's policy. This could mean using additional or new search firms that will assist in identifying diverse candidates, seeking recommendations for possible candidates from outside the existing board and even requiring the consideration of at least one diverse candidate for each vacancy. Tell your story. Use the proxy statement to describe the company's policy and perspective on board diversity. Ensure that it is plainly and clearly presented. Process matters, too — if the company has a good story to tell regarding its policies on candidate identification, include it as part of the discussion. Tie it together. Make sure the company's corporate governance guidelines and committee charters reflect the board's thinking on diversity.

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