4/18/24 – Issue 8.63 – Your weekly news on all things board. 

Multi-faceted topics can lead to healthy introspection and effective balance of oversight; except for when they don’t, and instead result in widening misalignment. Whose opinions matter most will be debated in the boardroom and beyond for a long time to come. To wit, Elon Musk’s pay package is back in the news, once again being put to a Tesla shareholder vote after being struck down by a Delaware court as an “Unfathomable Sum”. Drawing criticism for being excessively generous and lacking in conventional performance metrics, scrutiny is especially heightened with the decline in value of Tesla’s stock. Another point of tension, Harvard faculty demand greater representation as they declare a lack of faith in the storied institution’s governance. And, a revealing PwC study highlights that while directors’ oversight contributions are valued, management teams express a growing lack of confidence around their boards’ adaptability in this rapidly changing operating environment. This week’s news brings a critical reminder to boards to look at all perspectives on almost all topics, especially the controversial ones.

In other news, governance of transformation; AI governance on the corporate radar; differing agendas between the board and management; and a helpful 2024 proxy preview. 

In the Spotlight

Tesla Wants Shareholders to Approve Musk’s Pay Package. Again.

Multibillion-dollar compensation deal was previously struck down in Delaware court

“The fight over Elon Musk’s pay is back. Tesla’s board asked shareholders to again vote in favor of its CEO’s multibillion-dollar pay package. The board approved the pay proposal in 2018, but a Delaware court in January struck it down because it said the approval process was ‘deeply flawed.’ The electric-vehicle maker is also seeking to move its incorporation out of Delaware and to Texas, where the company is based. The moves, released in a filing Wednesday, up the ante over Musk’s pay at a time when Tesla’s shares are sliding and have erased billions of dollars in market value. The automaker’s growth is slowing as the market for electric vehicles cools. And the company is in the midst of cutting 10% of its staff as it recalibrates to lower demand for its cars.” THE WALL STREET JOURNAL

Faculty Demand Greater Say as Confidence in Harvard’s Governance Plummets

The proposal is being circulated just weeks before the FAS is set to host a town hall 

“A group of prominent Harvard professors is seeking to establish a University-wide faculty senate, as skepticism of the University’s governing boards continues to grow among faculty amid a year of turmoil. The professors behind the effort, an 18-member group spanning all nine Harvard faculties, outlined their plans in a nine-page memo obtained by The Crimson. The memo was shared with hundreds of Harvard faculty members, including top administrators. Some of the group’s notable members include University Professor Danielle S. Allen, Council on Academic Freedom at Harvard Co-President Edward J. ‘Ned’ Hall, and Harvard Law School professor Andrew M. Crespo ’05. In the April 9 memo to colleagues, the group argued that Harvard’s existing governance fails to fully leverage faculty perspectives. The document requested that Harvard’s faculties choose delegates for a faculty senate planning body — or determine a process for doing so — by May 15.” THE HARVARD CRIMSON

Board Effectiveness: A Survey of the C-suite

A fragmented picture emerges of the board’s role and its responsibilities

“While C-suite executives acknowledge their board’s proficiency in core oversight areas, they signal a need for upskilling in other areas of board oversight. The survey results suggest an underlying issue: a perceived gap in the board’s ability to pivot and adapt amid the whirlwind of rapidly evolving strategic challenges and business risks. What’s more, only a modest 30% of executives rate their board’s overall performance as excellent or good…Our surveys reveal dissonance between board and management perspectives on board refreshment. Executives are growing dissatisfied, with a record-high 92% advocating for director replacement.” PwC

From Boardspan this Week:

The Economic Case for Soaring CEO Pay

Offering an economic explanation for the rise in CEO compensation over several decades

"Skyrocketing compensation for CEOs of U.S. companies, which has risen disproportionately to compensation for other workers over the past several decades, has provoked no end of public outrage. It has been called unfair, unseemly, unwise, unjustified. But is that the whole story?.. His own research had shown the negative effects of hefty CEO pay packages. First, Srivastava found that when CEOs have a large stake in their company—a median level of $100 million—they start ‘doing funny things,’ like using creative accounting to try to portray the firm in the most positive light, which in turn can keep stock prices high.” KELLOGG INSIGHT via BOARDSPAN LIBRARY

Across the Board

Boards And Management Teams Have Different Agendas—And That’s Okay

There may be a healthy rationale for the divergence

“There’s a lot on board and leadership agendas, with every issue seemingly more urgent than the next. And considering the accelerated pace of business, a generational shift in the labor market, a series of global conflicts, unrelenting supply chain issues and advancements by leaps and bounds in new technological capabilities that can turn just about any business on its head in the blink of an eye, there’s hardly any indication that the laundry list will be getting smaller anytime soon. Wrapping your head around all of the concerns plaguing business these days—from growth and innovation to compliance and regulation to talent and economics, amid ongoing global conflicts and a presidential election in the U.S.—and how each of those matters can affect the business in both the short and long term appears to be an increasingly daunting task for companies and their boards.” CORPORATE BOARD MEMBER

Research Reveals Where CFOs And Boards Align—And Diverge—On Priorities And Risks
Objective reviews of board packets may reveal to CFOs new ways to communicate with directors

“It has never been more important for board members and the C-suite to align on the issues that pose the greatest challenges to their organizations. New research shows that while boards and C-suites align on governance priorities in the boardroom, a handful of ‘perception gaps’—specifically concerning how CFOs and directors address and prioritize talent-related growth impediments, crisis management, and innovation—demand finance leaders’ attention.” FORBES

Transformation Governance Amid an Uncertain Business Climate
Growing number of companies are charting a course using transformation initiatives

“It seems an understatement to characterize the current state of global affairs as ‘volatile.’ If the past few years have shown anything, it’s that boards can be certain of at least one thing: an uncertain governance landscape. Volatility wrought by a pandemic, economic upheavals, and geopolitical conflict—to name just a few challenges of late—have added a suite of new risks for boards to navigate. Finding a way through such turbulent waters isn’t easy.” DELOITTE

AI Governance Appears on Corporate Radar
Board AI oversight can take on many forms in relation to a company’s overall strategy

“Early adopters are implementing AI in a variety of ways, such as sales/marketing, product development, and legal. However, while AI may provide unique opportunities for companies, there are significant risks and challenges surrounding its implementation. Mentions of AI are up by 77%, and many companies are beginning to cite AI as a risk. Given these circumstances, the White House has taken the first step in regulating this technology by issuing a sweeping executive order on AI on October 30. Reflecting the rising importance of AI’s impact on businesses, some companies are recruiting directors with AI expertise and establishing board-level oversight.” HARVARD LAW SCHOOL FORUM ON CORPORATE GOVERNANCE

A Faster Path to Better Boards

Volunteer leaders often start board service poorly oriented on governance

“Becoming a board member is relatively straightforward at most associations. You demonstrate expertise in a profession, volunteer with the association that serves it, then make your way through the association’s particular governance pipeline to get a board seat. Becoming a good, strategy-minded board member is often another matter, though. Boards don’t always come in with a solid grounding of the work they’re being asked to do, or how to do it. That can lead to divisiveness, inaction, and even outright toxicity.” ASSOCIATIONS NOW

Boards Still Have an ESG Expertise Gap — But They’re Improving
Having ESG expertise on boards is becoming increasingly imperative

“Knowing the right questions to ask management on material environmental, social, and governance issues has become an important part of a board’s role. Five years ago, our research at NYU Stern Center for Sustainable Business found U.S. public boards were not fit for this purpose — very few had the background and credentials necessary to provide oversight of  ESG topics such as climate, employee welfare, financial hygiene, and cybersecurity. Today, we find that while boards are still woefully underprepared in certain areas, there has been some important progress.” HARVARD BUSINESS REVIEW

Proxy Preview 2024

Gearing up for the 2024 proxy season, it’s important to temper expectations for surprises

“The trends we’ve seen in recent years are likely to continue, effectively establishing the past couple of years as the new normal. Shareholder proposal support is likely to remain subdued. Activist campaigns for board seats will likely end in settlements. Voting outcomes will remain predictable because guidelines have not changed significantly. On the handful of new mandated disclosures, shareholders will likely be observing and digesting them to figure out what strategic insights they can gain. And, after years of tumult, the market is settling on the new baseline for environmental, social and corporate governance expectations against which boards and management teams can measure themselves…As we approach the 2024 proxy season, it appears that shareholder proposal support may remain depressed compared to the peak we witnessed in 2021. Several factors are contributing to this trend, and understanding them can help guide you as the results come in.” HARVARD LAW SCHOOL FORUM ON CORPORATE GOVERNANCE

Seat at the Table

• Comcast welcomes to its board Wonya Lucas, former CEO of Hallmark Media

• Healthcare firm Solventum names to its board Shirley Edwards, former Partner at EY

• KULR Technology Group elects to its board Donna Grier, former Vice President-General Auditor & Chief Ethics and Compliance Officer with E. I. DuPont de Nemours

• Instacart appoints to its board Victoria Dolan, former CFO of Revlon

• International Seaways welcomes to its board Kristian Johansen, CEO of energy data firm TGS ASA; and Darron Anderson, President and CEO of Stallion Oilfield Holdings

• Ashland announces to its board Scott Tozier, former EVP and CFO of Albemarle Corporation

• Joe & the Juice elects to its board Jeffrey Lawrence, former EVP and CFO of Domino’s Pizza

• Black & Veatch, a large engineering ESOP, appoints to its board its own Chief People Officer, Andrea Bernica

• PeaceHealth elects to its board Dr. Ione Adams, former Medical Director or Sea Mar Community Health Center; and Lorraine Arvin, former VP and Treasurer for Reed College

• BiomX welcomes to its board Susan Blum, CFO of Melinta Therapeutics

• Vir Biotechnology appoints to its board Dr. Norbert Bischofberger, President and CEO of Kronos Bio; and Dr. Ramy Farid, President and CEO of Schrödinger

About Boardspan
Boardspan is the leading provider of digital governance solutions for boards across all sectors. Our cloud-based assessments, benchmarking analytics and governance education programs complement our board search and advisory services to deliver a holistic approach to governance. Boards of all sizes and stages rely on Boardspan to deliver analytics, insights and outcomes that improve their effectiveness and performance. Clients include KKR, The Kellogg Foundation, Ingersoll Rand, Farfetch, McAfee, Beyond Meat, Box, e.l.f. Beauty, Satellite Healthcare and the U.S. Olympic & Paralympic Committee.