Corporate Governance & Directors' Duties

• Governance Indices Are A Poor Predictor Of Performance

• Bulwark Against Increased Shareholder Activism: More Transparency

• How (And Why) Boards At Private And Public Firms Differ

• D&O Premiums Soar For Financial Services Firms

Global Markets

• China's Securities Regulation Does Not Need Private Actions

Securities Regulation & Disclosure

• Changes In Risk Management Must Be Assessed And Disclosed

• Outline For Preparing Annual Disclosures

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A few stitches in time. The current lean economic times are sure to bring a swarm of corporate activists challenging not only management's business performance but also its decisionmaking process (which, the activists will allege, is opaque and self-serving). Corporate attorney Jane Storero advocates greater transparency as an antidote, if not to the performance concerns, then at least to the complaint of opacity. Directors are well-served by publicizing the standards to which managers must adhere, clearly explaining any deviations from what are commonly understood as best practices, and communicating frequently on changes to and implementation of business strategies. Since activist pressure often has as its goal the target's sale or dismemberment, all companies should ensure that their strategic plans emphasize the goal of long-term shareholder value and devise communication strategies to highlight this point.

Business risks and clear thinking. The author stresses the importance of establishing policies and procedures that focus on identification and management of business risk. To demonstrate that company management can evaluate these risks dispassionately, the governance goal of board independence—long a hot-button issue for activists—becomes crucial. While SEC regulations establish criteria for calculating the independence of particular board members and set reporting obligations, the author advises companies to reach beyond the current minimum requirements. Ensure that the board's leadership is in fact independent of the company's management, then have the outside directors review this determination annually.

Say (more) on pay. Under the government's recently enacted Troubled Asset Relief Program (TARP) and Capital Assets Program (CAP), compensation committees must evaluate executive compensation schemes from a risk-management standpoint, including the interaction between compensation and governance. The SEC-required Compensation Discussion & Analysis mandates that companies disclose and evaluate any changes in management's compensation. According to the author, SEC staff believes that issuers should explain any compensation targets in their plans and the accompanying risks, and that this obligation should extend to all public companies, not only TARP and CAP participants. Inasmuch as executive compensation has become a major contentious issue among activist shareholders, and the headlines during the current financial crisis have only exacerbated these concerns among the public, the author strongly recommends that directors take the bull by the horns: Boards should develop (and publicize) compensation plans that balance the need for retaining talent with the use of incentives that reward long-term corporate interests, while still discouraging excessive short-term risk-taking.

Abstracted from Wall Street Lawyer, published by West Legalworks, 195 Broadway, 9th Floor, New York NY 10007. To subscribe, call (800) 308-1700; or visit http://westlegalworks.com/publications/newsletters.aspx.