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10 questions
10 Questions Your Company's Board Should Answer in 2018
Publication Date: January 16, 2018

Betsy Atkins encourages companies to kick off 2018 by proactively addressing the corporate governance hot-button issues of 2018—before their investors do.

Shareholders and institutional investors are holding companies accountable to an increasingly complex slate of stewardship principles.  How can a company prepare for the corporate governance challenges in the year ahead? We asked Betsy Atkins, veteran of 23 public company boards, how companies should begin to answer that question.  Betsy's answer: focus on the answers to these 10 questions.

1. Is our company vulnerable to an activist attack or takeover?

How do you get an impartial, inside-out view of how an activist sees your company? Engage an investment bank that your company does business with to scan for weaknesses that attract activist attention. Large investment banks have practices on activist readiness and a vested interest in ensuring your company is defended.

Read More: The Rise of the Investor-Centric Activism Defense Strategy >>

2. Is the board's committee structure optimized to leverage digital transformation?

All companies are tech companies today. Ensure your company remains contemporary and embraces digital transformation by adding a tech committee to the board. Focus this committee on the future. To ensure business model vibrancy, boards need to stay on top of tech trends and new business models, and actively consider integration of them into their companies' strategies.

If adding a tech committee to your board (as many companies are doing) isn't feasible, assign that focus to an underutilized committee. Your governance committee can review workloads across committees to determine the board's best approach for identifying and monitoring emerging opportunities and risks.

Read More from Betsy Atkins: Five Ways to Digitize Your Board >>

3. Do we have a plan to accelerate board refreshment and diversity?

Costly corporate scandals continue to be linked to passive and/or weak boards with little to no diversity, which means investors and regulators will continue to beat the board refreshment drum loudly in 2018. During the 2017 proxy season, State Street Global Advisors voted against the reelection of directors at 400 companies when those companies failed to take adequate steps to add women to their boards.

From a boardroom perspective, the definition of "diversity" has eclipsed gender to also encompass age, race, global perspective, evolving skillsets, and most importantly diversity of thought.

Companies are wise to get ahead of this issue before it becomes a proxy battle or a regulatory mandate. Investors and regulators alike are pursuing campaigns to increase transparency and accountability around diversity in the boardroom. The Boardroom Accountability Project 2.0 initiative, jointly sponsored by NYC Comptroller Stringer and New York City Pension Funds, is a perfect example.

Read More about the Boardroom Accountability Project 2.0 >>

4. Are we taking ESG issues into account?

ESG issues, historically thought of as a special interest for a minority subset of activist shareholders, are going mainstream. Advocacy for ESG agenda topics began in the EU and has now transitioned to passive investment firms here in the U.S. This is no longer a "gadfly" issue and while ESG reporting will impact some industries more than others, in 2018 companies should expect it to be a standard proxy concern for major shareholder groups.

Read More from the CFA Institute: 2017 ESG Survey Results >>

5. Are we prepared to handle a real-time crisis?

A solid crisis preparedness plan is key to mitigating the impact of internal issues or external events when (or preferably before) they escalate to crisis level, especially in the age of social media where a hiccup can become a firestorm. Yet there are numerous recent examples of companies that did not execute crisis management well, and experienced catastrophic damage to their corporate brands as a result.

Start by analyzing your company's top ten enterprise risks, and ensure there is a detailed action plan in place for each of them. It's also important to set up relationships now with reputable and experienced public relations and social media firms to handle communications in the event of a crisis.

Read More: 8 Crisis Management Mistakes to Avoid >>

6. Do we have a cyber security plan and data breach policy in place?

Adopting cyber security plans and data breach policies continues to be a top priority in 2018. Boards should confirm that corporate oversight of cyber risk and data security is robust, and includes the following:

  • regular external penetration testing as part of ERM and compliance;
  • a plan for dealing with a ransomware attack, including establishing a validated Bitcoin account;
  • anti-phishing training for employees;
  • established relationships with forensic cyber experts, law enforcement, and a third-party cyber mitigation company;
  • an annual review of cyber insurance policies; and
  • a data breach policy with crisis plan in place.

Read More from Betsy Atkins: Ransomware Defense for Boards >>

7. Do we have a robust slate of future leaders?

Given that average CEO tenure in corporate America is below five years, proactive succession planning and a deep leadership bench have never been more important. Long-term CEO succession planning and leadership development should also ensure development, retention, and replacement of senior officers within a company.

Identify future leaders early and create personalized development plans to fill out the gaps in each person on your company's leadership bench. Assess internal succession candidates via regular interaction during board meetings and strategy presentations, individual meetings between directors and potential internal candidates, and internal and external feedback from a variety of sources—including meetings with stockholders.

Read More from Forbes: Succession Planning Needs To Be Your No. 1 Priority >>

8. Are we ready for individual director scorecards?

ISS will begin rating individual board members, and while there will not be a director score, per se, the report will highlight a director's shareholder vote support and the Total Shareholder Return of the company since the director started serving on the board. This information could result in a "negative halo," impacting other boards that a director serves on in a negative way so make sure to have your Investor Relations narrative ready.

9. Have we confirmed the company's culture is free of sexually predatory practices?

2017 was a watershed year for exposing the toxicity of sexual harassment in the workplace. As 2018 begins, there is zero tolerance for toxic corporate cultures that create inhospitable working environments. Nothing less than a company's overall corporate brand is at stake. Investors want to know that companies and boards are taking a proactive approach in addressing this issue, so now is the time to reconfirm there are no sexually predatory practices rooted in your company's culture. Protect your company's brand equity by ensuring that the "tone at the top" does not tolerate sexually predatory practices or gender and racial bias, and that HR conducts proper compliance training.

Read More from NAVEX Global: High-Profile Sexual Harassment Claims Show a Toxic Culture Can be a Product Defect >>

10. Do we know how our CEO's pay compares to that of the company's median employee?

Know your pay ratios heading into proxy season! CEO pay has been reported for a long time, but beginning this year companies will need to comply with the SEC's pay ratio disclosure requirement. If the gap between your company's CEO and median employee pay is extreme, this may become a high visibility issue for investors and/or activists.

Be prepared for the difficult tasks of communicating your CEO pay ratio to both internal and external audiences as well as handling the repercussions that may result from the entire company knowing the median employee's pay.

Read More from Davis Polk: Pay Ratio Disclosure Rule: The SEC's Latest Guidance Should Ease Compliance Costs for Companies >>

Read More from Willis Towers Watson: The Do's and Don'ts of CEO Pay Ratio Communications >>


Betsy Atkins serves as President and Chief Executive Officer at Baja Corp, a venture capital firm, and is currently the Lead Director and Governance Chair at HD Supply. She is also on the board of directors of Schneider Electric, Cognizant, and a private company, Volvo Car Corporation, and served on the board of directors at The Nasdaq Stock Market LLC and as CEO and Board Chairman at Clear Standards.

Enhancing Transparency in Regulation
Publication Date: January 10, 2018 

At Nasdaq, we believe transparency of our Listing Rules, policies and procedures results in fairer and more effective regulation. To this end, in 2012, Nasdaq created the Listing Center's Reference Library, which today houses more than 400 frequently asked questions about listing matters, 100 anonymized versions of appellate listing decisions and 350 written Staff interpretations of the Listing Rules. To reinforce the critical role transparency plays in our regulatory program, we continue to develop and enhance the utility of our Listing Center's Reference Library website and expand the information available through this free web portal.

It is with this in mind that Nasdaq Staff, in conjunction with the Nasdaq Listing Hearing and Review Council, developed the Listing Qualifications Transparency Report. This report includes anonymized information regarding the facts and circumstances that prompted Listing Qualifications Staff and Hearings Panels to exercise the discretion afforded by the Listing Rules to impose additional or more stringent criteria or to shorten time frames otherwise available to companies. It also describes instances when, following Listing Qualifications Staff review of certain share issuances, listed companies made significant changes to their transactions. We believe that sharing this information helps companies better understand how Nasdaq applies its listing rules, which helps companies and their advisors better comply with those rules. It is our expectation that we will prepare this report annually. We look forward to your comments, which can be emailed to us at

View the Transparency Report Here >>

governance news
December's Must Reads
Publication Date: January 9, 2018

Each month, we will scour the web to bring you the news items and thought leadership pieces you need to get the governance advantage.

1. The Last-Minute Holiday Gift Guide for Corporate Boards – Boardroom Resources
This Boardroom Resources article describes what company stakeholders, including institutional investors, proxy advisors, and shareholder activists, would like most in the New Year ahead.

2. How AI Will Invade Every Corner of Wall Street –
This Bloomberg article states that artificial intelligence ("AI") is laying a claim to the future of investing as big and small money managers have adopted it as a cornerstone strategy or research tool and discusses how far AI could potentially go over the next decade or two.

3. The PCAOB's Initiatives to Bolster Investor Trust in the Audit –
James Doty, former PCAOB Chairman, stated in a recent speech that "investors still clamor for better quality assurance, covering a broader set of information." Doty describes the initiatives underway to build trust in the audit profession, including greater transparency and a new audit report.

4. The Auditor's Report: Considerations for Audit Committees – Center for Audit Quality
This publication, by the Center for Audit Quality, aims to assist audit committees in preparing to navigate the new auditor's report. Changes to the auditor's report are a result of the Public Company Accounting Oversight Board's (PCAOB) June 2017 adoption of a new auditing standard, AS 3101, The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion.

5. As Spencer Stuart Releases its Latest S&P 500 Board Index, How Does Your Board Compare? – Davis Polk
Each year Spencer Stuart publishes a report, The Spencer Stuart Board Index, which provides a detailed benchmark on key board practices. Several trends highlighted in the report, including board tenure, diversity, and committee composition, are discussed in this Davis Polk article.
2017 Spencer Stuart U.S. Board Index >>

6. CSR Matters: Leading CSR Practitioners Weigh in on Top Lessons Learned in 2017 –
In this article, some of America's leading Corporate Social Responsibility ("CSR") practitioners provide commentary regarding what they consider to be the biggest CSR lessons learned in 2017.

7. Heads Up for the 2018 10-K and Proxy Season: Spotlight on Corporate Sustainability –
This Weil, Gotshal & Manges LLP article highlights several notable sustainability proposals/disclosures in 2017 and discusses what companies and their boards should do now regarding sustainability given the expectation that a focus on corporate sustainability, specifically environmental, social and governance matters, will continue or even accelerate during the 2018 proxy season.

8. 'Tis the Season for 2018 Proxy Disclosure Preparation –
In preparation for the upcoming proxy season, guidelines and voting policies have been released by various proxy advisory firms and influencers, helping to inform institutional investors and other shareholders on vital corporate governance matters. This article provides a rundown of items relating to executive compensation garnering attention for the upcoming year from the Investor Stewardship Group, Institutional Shareholder Services, and Glass Lewis & Co.

9. Pay Ratio Disclosure Checklist –
Public companies need to consider appropriate disclosures regarding pay ratio calculations in addition to the disclosure of the pay ratio. This checklist, provided by Stinston Leonard Street, specifies the items to consider when drafting pay ratio disclosures.

10. Top Challenges Facing Boards in 2018 – Boardroom Resources
In this Boardroom Resources episode, Paula Loop, Leader of PwC's Governance Insights Center, identifies and discusses the top strategic and governance challenges that boards will face in the coming year.

Ransomware Payment: Legality, Logistics, and Proof of Life
Part Three: Notification, Remediation, and Insurance
Publication Date: January 8, 2018 

This is the third in a three-part series of white papers authored by Cybersecurity expert John Reed Stark. The series offers guidance for boards of directors on the legal issues, logistical considerations and financial implications of responding to ransomware threats.

Government measures to mitigate ransomware crimes are still somewhat theoretical and may be insufficient to stem the dramatic growth of ransomware, leaving companies to manage on their own the increasing risk of the current ransomware crime wave. Even under a best-case scenario, where a victim has maintained archives and can keep the business alive, ransomware victim companies will incur significant remedial costs, business disruptions and exhaustive management drag. However, with the right preparation and response, victim companies can lead recovery efforts with confidence and remediate ransomware attacks effectively.

In Part Three, John Reed Stark outlines basic steps companies should take as preemptive measures to avoid falling prey to ransomware, provides an overview of thresholds for notification requirements to regulators including the SEC and FINRA, and discusses the intricacies of insurance compensation.

Ransomware Payment: Legality, Logistics, and Proof of Life is a three-part series of articles that provides guidance on the legal issues, logistical considerations and financial implications when managing ransomware threats:

Part One of this series, Background and Reality, provided the keys to understanding the impact of recent ransomware strains, including a discussion of the nature and growth of ransomware; the dangerous aspects of some recent ransomware attacks; and the role (or lack thereof) of law enforcement when managing a ransomware attack.

Part Two of this series, Investigation and Response, examines the intricacies involved in ransomware response, including ransomware investigative tactics; ransomware payment logistics; and the legalities of ransomware response.

Part Three covers the remaining range of key ransomware essentials including: notification requirements, ransomware remediation, and ransomware cyber insurance. Part Three also provides some final thoughts on the entire ransomware imbroglio together with some recommendations for the future.

Read Part Three of Ransomware Payment: Legality, Logistics, and Proof of Life >>

Also popular from John Reed Stark on the Governance Clearinghouse:
Top Cybersecurity Concerns for Every Board of Directors >>
Cyber Defense in the Boardroom >>


John Reed Stark is President of John Reed Stark Consulting LLC, a data breach response and digital compliance firm. Formerly, Mr. Stark served for almost 20 years in the Enforcement Division of the U.S. Securities and Exchange Commission, the last 11 of which as Chief of its Office of Internet Enforcement. He also worked for 15 years as an Adjunct Professor of Law at the Georgetown University Law Center, where he taught several courses on the juxtaposition of law, technology and crime, and for five years as managing director of a global data breach response firm, including three years heading its Washington, D.C. office. Mr. Stark is the author of, "The Cybersecurity Due Diligence Handbook," available as an eBook on Amazon, iBooks and other booksellers.

capital markets
U.S. Capital Markets and the Road Ahead
Publication Date: December 14, 2017

We asked Tal Cohen, Senior Vice President of Nasdaq North American Equities, about the road ahead for U.S. capital markets. In this Q&A, Tal also shares his perspective about the current regulatory environment, the future of speed bumped markets, and explains why Nasdaq remains focused on its Revitalize Blueprint.

Q: What is the current regulatory environment under SEC Chairman Clayton?

A: Chairman Clayton has brought a renewed focused to IPOs in the primary market, in particular stemming the decline in the number of small and emerging growth public companies. He's been very consistent every time he's spoken that the SEC is focused on enhancing the attractiveness of the public markets for IPOs, and on ensuring Mr. and Mrs. 401K are not shut out of investments in emerging growth companies. Given that he was previously an IPO and M&A attorney, he's has both the background and the context to influence that debate.

Q: What are some of the initiatives Nasdaq is working to advance with the SEC?

A: Nasdaq is pursuing the proposals outlined in our Revitalize Blueprint, to enhance capital formation opportunities in the primary equity markets. In our blueprint, we are recommending that small and mid-cap companies be permitted to benefit from the choice to consolidate liquidity through the revocation of Unlisted Trading Privileges. We are also advocating for intelligent tick sizes, which we believe is a more tailored and effective approach for resolving sub-optimal tick sizes than the existing pilot.

On the product side, Nasdaq is focused on improving the trading experience on our markets by advocating for more stock splits, developing policies that support the growing ETF market, and rolling out enhancements to our closing cross. We are also filing a proposal with the SEC to introduce a midpoint extended life order (M-ELO) in our market that will help institutional investors buy or sell large orders or orders of significant size, and provide some level of protection when they do that.

Q: Do you think the SEC is rethinking speed bumped markets?

A: We think it's interesting that the commissioner who initially voted against IEX and the initial speedbump is now also clearly showing his views on a derivation of it that was recently proposed. We believe there is an opportunity to reengage the SEC on this issue, to make the case that speed bumps are a slippery slope. It's difficult for the industry to understand the implications of that, both from a public policy perspective and from a trading perspective.

We've asked the SEC to reexamine this topic on a broader basis than just CHX, to question whether the market has really benefitted from the speed bump during the past year. We also want the SEC to consider where this might lead over the next several years if speed bumps are allowed to continue to evolve and become part of the fabric of the market.

Nasdaq looked into the opportunity to take one of our exchange medallions and launch a speedbump market. But after some discussion, we decided there was a more elegant solution that we could put in place—one that didn't have the unintended consequences of a speed bump and that didn't have our customers incur additional costs to connect and take market data from a new, fourth exchange. And the manifestation of that solution is M-ELO.

M-ELO is our "day one" response to the speedbump market, one that provides protection for investors and minimizes the impact of market-moving events that can erode execution quality. We believe we'll be able to enhance and evolve M-ELO to meet a variety of different needs of institutional investors in the marketplace—needs that we don't capitalize on today.

Q: Are there other market structure developments on the horizon that will impact listed companies?

A: The access fee pilot could have some impact on listed companies. An overarching point we make to the SEC, and the industry, is that we need to involve the issuer in secondary market pilots and discussions. We often think about the issuer after the fact. Instead, we need to solicit issuer feedback on these market structure changes upfront, as they could have a material impact on how issuer stocks trade and how investors feel about building positions or unwinding positions in those companies.

The access fee pilot is an excellent example. Lowering the incentive to provide liquidity could do one of two things: lead to wider spreads or more off-exchange activity. Is that in the best interest of the issuer? Is that something at the end of the day the issuer finds of value? An alternative might be to marginally lower the explicit cost of trading for an intermediary, but increase the cost of investing in a company for a buy side institutional investor. This would be more meaningful to the issuer, who's looking at their stock and wondering why on day one it had a one or two cent spread, but post the access fee pilot it's become a three to four cent spread. And they are wondering why their investor base now looks different and feels differently about their company.

As they design these pilot programs, the SEC should be mindful of allowing companies to opt out of a program, if they experience a degradation in stock trade performance or an adverse impact on their stock price. The SEC did not create that outlet when they initially designed the tick size pilot, which was a point of contention for issuers.

Q: Speaking of the Tick Size Pilot…have we seen any benefits from it?

A: Issuers have not seen an increase in liquidity, an increase in research coverage or any indication that this is helping the IPO market. Using those three things as the criteria on which we judge it, we have not identified a benefit for issuers.

From a trading perspective, the results have been mixed, and most of what we projected and forecasted is happening. There are wider spreads and, in some stocks, it's more costly to build a position to trade or execute. On the flipside, we have seen a greater persistency of the quote so the quote is more stable, and there's more size or quantity to be done at the inside. But that has come at a price, because both implicit and explicit costs seemed to have gone up for brokers.

Q: There are currently 13 exchanges and dozens of other trading venues a security can trade on. Is this too many?

A: It's not a question of whether there are too many exchanges—it's a question of whether the market as a whole is working for small and mid-cap issuers the way it does for large cap issuers and large ETFs. Multiple exchanges work for some of the market, but not all of the market.

Nasdaq's Revitalize Blueprint offers more tailored, nuanced solutions to dealing with competition and fragmentation within the public markets.

Q: Has there been feedback on Revitalize from issuers or the trading community that's made Nasdaq reconsider parts of the initial blueprint?

A: Nasdaq included 25 separate proposals within the Revitalize Blueprint, and we knew some of them would be hotly debated on both sides of the fence. The proposals in the blueprint were meant to engage capital markets stakeholders in a robust dialogue and then move discussions forward to solutions. Issuers and investors have come to us and said Revitalize shows thought leadership, and is an aspirational blueprint to help vet what the real issues are and then build consensus—particularly on the issues that are passionately debated by both sides.

Revitalize was structured that way by design, and as a result of the feedback so far, we now have a better sense of the issues we'll be able to get support for—and build consensus on—pretty quickly (like proxy reform) and the issues that will require deeper discussions (like shareholder activism, short-sale disclosure, and dual-class stock issuances).

Q: What is the next step in implementing Revitalize?

A: I think the next step for Nasdaq is to choose a handful of the 25 proposals within that blueprint to put forward, and then work with the industry, the SEC and the government on resolving those issues. We know that these issues are top of mind for the SEC.

This is not just a U.S. issue, or about one exchange versus another exchange in the U.S. The Revitalize Blueprint is about the health and vitality of the U.S. capital markets and their global competitiveness. It's about job creation. It's about wealth creation. It's about making the public markets once again attractive to issuers, and how that will, in turn, benefit Main Street investors at the end of the day.

Read more about Revitalize here >>


Tal Cohen joined Nasdaq in April 2016 as the Senior Vice President of North American Equities. Prior to joining Nasdaq, he was the Chief Executive Officer of Chi‐X Global Holdings, LLC. Tal currently serves as a Director on the Investment Industry Regulatory Organization of Canada (IIROC) Board and as a Director on the Canadian Depository for Securities (CDS) Board.

outside insight
Five Steps to Upgrade Your Board Evaluation by Beverly Behan, Author, "Great Companies Deserve Great Boards"
Publication Date: December 6, 2017

Beverly Behan has worked with more than 100 Boards of Directors on board and director evaluations over the past 20 years.

While board evaluations have been adopted by nearly every Nasdaq-listed company, the standard process has often outlived its usefulness and become a rote routine. The better the board, the more sophisticated the board evaluation should be, as it offers a unique opportunity to engage directors in a vibrant conversation about the board's strengths and elicit good ideas that might make the board even more effective going forward. However, the traditional survey format wastes that opportunity by turning the board evaluation into a perfunctory compliance exercise.

What kind of results are boards achieving when they change things up in their board evaluation? Here are some examples:
  • Three years ago, the board of a midcap REIT conducted a comprehensive board evaluation using all five steps outlined herein. They entered the process with no plans to recruit any new directors, but came away in complete agreement of the need to find three new board members to address gaps identified in the board's composition. Not only did they find them, over the next 18 months, these new directors made a tremendous and positive difference in the board's operation – and gave the board, as a whole, the confidence to make some significant changes in corporate leadership that were previously considered "off the table".
  • The board of an aerospace company had a practice of diving directly into questions the moment any management presentation began. While this was considered far preferable to "death by powerpoint", management described the practice as creating a "paintball dynamic" where questions were firing before they had even given an overview on the topic at hand. It was resulting in redundancies and inefficiencies; presenters were backtracking and dialogue was unfocused. Many board members also expressed frustration. Some wondered if the most important points had even surfaced when the dialogue had finished, as many questions went to "secondary issues". When these concerns surfaced during the board evaluation, changes were immediately agreed upon that led to a far more efficient process.

  • The board of a financial services company had been including their top management in the board evaluation for some time. When they repeated this process two years ago, the board was starting work on CEO succession planning in earnest with a two-year time horizon. In-depth questions on this topic were included in the board evaluation, which yielded extremely helpful insights for the Succession Committee. As a result, the board incorporated steps into the CEO succession process that they had not previously considered and even changed the timeline. Moreover, board members felt that this exercise provided them a far richer understanding of corporate culture issues (including cultural issues around a recent merger integration setback) that became invaluable in assessing potential CEO candidates.

What, then, are the five steps many boards have been adopting to revitalize their board evaluation and achieve the types of useful outcomes described in these examples?

Switch to a Three-Year Cycle
Companies listed on the NYSE are required to conduct an annual board evaluation. However, no such requirement applies to the boards of Nasdaq-listed companies. As such, Nasdaq boards have the freedom to adopt a three-year cycle, which is the current "best practice" in Britain. British boards typically use a more comprehensive board evaluation process than most of their American cousins and conduct their evaluations every three years rather than annually. After all, a well-executed board evaluation should yield an Action Plan that may require 18 to 24 months to implement; repeating the process a year later typically delivers only marginal returns.

Interestingly, some NYSE-listed boards have adopted the three-year cycle as well – using an interim evaluation process for the two interceding years between board evaluations to satisfy the NYSE's requirements. Interim years often involve a short survey or phone calls from the Chair of the Governance Committee to talk about progress on the Action Plan from the prior year's evaluation.

Replace Surveys with Interviews
The traditional approach to a board evaluation involves a survey form where directors are asked to enter a score from 1 to 5 on a series of questions relating to the board's operations, typically with some space for write-in comments. The design nearly always consists of closed-ended questions such as "The pre-reading materials are adequate" – a format that readily lends itself to numeric scoring but rarely yields insightful or truly actionable feedback. The result is a numeric report that lacks the richness of interview commentary.

To use the example noted earlier about the board that explored CEO succession issues in its board evaluation: Asking some closed ended questions about CEO succession might yield a score with a few write-in's like "Culture is a key concern". By contrast, the interview format they did use produced insightful comments, such as: "We have a bifurcated corporate culture at the moment; our traditional, highly conservative culture is sharply at odds with the entrepreneurial somewhat "cowboy" culture of [newly acquired company]. Our next leader needs to understand and bridge these."; "Since the merger, it's as if no one has been making any decisions. I don't know if that's the board's fault or who is responsible, but what we have right now, I would call a stymied culture and people are frustrated by it."

Interviews are also more engaging for participants. Most directors appreciate the opportunity to share their views and offer constructive suggestions to make a great board even better. They are anxious to see what others have said and whether their views are unique or widely shared. And therein lies one of the reasons greater impact is typically achieved: When relative alignment surfaces through a highly engaged process, the board typically moves swiftly forward to incorporate these good ideas.

Include Senior Management Feedback
As most Nasdaq-listed company CEOs serve as members of their governing boards and routinely participate in the board evaluation. Over the past decade, however, it has become increasingly popular to gather feedback from 3-5 top company executives who are not board members, but regularly attend board and committee meetings. While some directors bristle at the thought of management "evaluating" the board, most find it illuminating to include management feedback in the evaluation. Senior executives nearly always provide worthwhile perspectives. Moreover, including management in the evaluation demonstrates the board's openness to feedback, which nearly always earns kudos and respect from the executive team. It sets the right "tone at the top" in terms of accountability.

If management is included in the evaluation, a decision will need to be made as to whether and how the results of the board evaluation will be shared with those executives who participated. Some topics are probably best limited to discussions among the board itself, such as CEO succession. Others, however, such as enhancements to board pre-reading packages and presentations, lend themselves particularly well to joint board/management discussions.

Using a Third Party
The provisions of the 2016 UK Corporate Governance Code require that board evaluations of FTSE 350 companies be externally facilitated every three years. Even UK companies not in the FTSE 350 must indicate if an independent third party was used to facilitate their board evaluation.

This is clearly the direction board evaluations are heading. In a 2015 Wall Street Journal article on the growth of this trend, Joann Lublin quotes a Spencer Stuart partner who predicts that 35% of American boards will have adopted this practice by 2020. The article suggests that this trend may be driven, in part, "as investors ratchet up their expectations for board performance". Notably, the Chairman of Vanguard, in an open letter to public company directors dated August 2017 specifically includes "effective ongoing board evaluation practices" as one of the firm's expectations for investee boards.

Strive for an Action Plan of 3-5 Constructive Suggestions for Board Enhancement
Achieving a high score on a board evaluation is not the hallmark of an effective board but rather a board evaluation process designed to suppress rather than elicit good ideas from experienced and highly capable board members. Interview-based board evaluations typically yield 3-5 worthwhile suggestions for potential board enhancement; boards with highly engaged and thoughtful directors often surface 8-10. Shifting the desired outcome can make all the difference in how the process is designed and used: From a "tick the box" compliance exercise to an ongoing continuous improvement process aimed at making a good board great and keeping a great board vibrant.


Since 1996, Beverly Behan has been conducting board and director evaluations for the Boards of Directors of public companies, having working with more than 100 boards on this issue over the past two decades: She recently authored "Board and Director Evaluations in the 21st Century: A Practical Guide for Governance Committees" which is available to Nasdaq Clearing House readers at no charge by emailing the author:


The views and opinions expressed herein are the views and opinions of the author at the time of publication and may not be updated. They do not necessarily reflect those of Nasdaq, Inc. The content does not attempt to examine all the facts and circumstances which may be relevant to any particular company, industry or security mentioned herein and nothing contained herein should be construed as legal or investment advice.

Digital Transformation Catalyzes Diversity in Nasdaq Company Boardrooms
Publication Date: November 16, 2017 

"Every company is now a technology company, and boards increasingly require a new kind of director," says Coco Brown, founder and CEO of The Athena Alliance, an organization dedicated to preparing executive women for board service and facilitating board matches. A veteran of the Silicon Valley tech industry, Ms. Brown talked to Nasdaq about how digital transformation is disrupting traditional board composition and creating new opportunities for women to make meaningful contributions in the boardroom.

Despite increased pressure from investors, gender diversity on boards is improving at a glacial pace of just 1% per year. Why? Because boards are still accustomed to—and most comfortable with—appointing former and current CEOs and CFOs of large enterprises, and women comprise a very small percentage of those roles.

There is, however, an intriguing exception to the male majority in the boardroom: the gender composition of non-executive digital directors. Russell Reynolds has been tracking statistics on digital directors in the boardroom since 2013. Their most recent survey tracking digital directors appointed to the boards of the Global 300 uncovered encouraging trends:

  • 37% of Global 300 digital directors are women.
  • 58% of digital directors added to Global 300 boards between 2014-2016 were women.
  • Global 300 boards with a digital director have greater gender parity than traditional boards.
The advent of digital directors heralds a larger evolution taking place in the boardroom. Companies today face a wide range of threats and opportunities related to digital transformation, most of which didn't exist 10 years ago. These include cyber risk, technology innovations (including AI and machine learning), business model shifts, digital marketing, and brand management. The rapid pace of change has left traditional boards lacking in two fundamental areas:

Cognitive and relational diversity: Cognitive refers to diversity of thought, while relational diversity is the ability to relate to a company's constituents directly (customers, employees, and communities).

Modern digital competence on a mass scale: Any company that expects to be around 5-10 years from now will need to digitize supply chains, sales engines, business processes, and customer and employee engagement, if it hasn't already.

Savvy boards recognize that to stay competitive, they must address these deficits, and continuing to recruit board members from the ranks of former CEOs and CFOs is not the answer. It is becoming increasingly common for boards to "widen the aperture" beyond traditional executive roles to recruit non-executive directors who have engineering, technology, operations, human resources, and marketing backgrounds. As a result, a whole new generation of thought leaders is beginning to take seats at boardroom tables:

  • Human Resources Officers (CHRO, CPO): These are a company's workforce and culture experts and are under-represented in the boardroom. They also advise on compensation, succession planning, stock programs, and employee and community relations.

  • Digital Technology Officers (CIO, CISO, CTO, Chief Product Officer, Cyber Security): These experts are attuned to some of the biggest technology-related threats, challenges and opportunities of the next 3 - 5 years.

  • Digital Delivery & Operations Officers (Head of Business Strategy, CMO, COO, Chief Customer Officer, Chief Revenue Officer): These roles have a pulse on the industry, shifting business environments, and evolving business models; they also have connections that can make a big difference.
Recent data indicates that recruiting outside of the CEO/CFO realm and into other C-Suite roles in small to mid-cap companies, or even SVP/VP roles of mid to large cap companies may accelerate progress towards gender parity in the boardroom: Russell Reynolds reported that while the total number of female directors of Global 300 companies stands at just 19%, women represented 26% of all digital directors appointed to Global 300 company boards between 2014-2016.

A number of Nasdaq companies have recently "widened the aperture" in board refreshment, appointing women to help lead their digital transformation in the boardroom, including:

Axon Enterprise, Inc. (Nasdaq: AAXN): Julie Cullivan is CIO and Senior Vice President of Business Operations at ForeScout Technologies, Inc. (Nasdaq: FSCT). Axon can leverage Julie's extensive sales operations, IT, and cybersecurity expertise as the company transforms its product line through AI and cloud technologies.

Banner Corporation (Nasdaq: BANR): Merline Saintil is the head of operations of Intuit's (Nasdaq: INTU) product and technology group. Banner recruited Merline to bring information technology expertise to the financial company's board.

Forrester Research, Inc. (Nasdaq: FORR): Yvonne Wassenaar, former CIO of New Relic and current CEO of Airware, is described by Forrester as "a thought leader in cloud, big data analytics, and business digitization." Forrester tapped Yvonne for the board to help guide the company as it undergoes the digital transformation of its business.

MobileIron, Inc. (Nasdaq: MOBL): Jessica Denecour is CIO of Varian Medical Systems. MobileIron believes its shareholders will benefit from Jessica's expertise in using IT to positively influence business outcomes.

Morningstar, Inc. (Nasdaq: MORN): Caroline Tsay is a technology start-up founder and former online channel division vice president at Hewlett Packard Enterprise. Morningstar's investment services have moved from analog to digital technologies, and Caroline has the mix of leadership experience and information technology expertise that Morningstar's board needed.

Telenav, Inc. (Nasdaq: TNAV): Karen Francis DeGolia is on the board of AutoNation, the largest automotive retailer in the U.S., and Executive Chairman of AcademixDirect, a technology marketing company serving the education industry. She joined the board of Telenav last December and was recently named Lead Director, adding her extensive experience in the automotive industry and emerging mobility technologies to Telenav's board.

Another unexpected statistic came from the Russell Reynolds survey mentioned earlier: 78% of the Global 300 still has no digital representation on the board. As companies continue to awaken to the realization that they need digital innovation expertise and diversity of thought on the board, women will find opportunities in greater numbers to demonstrate value and relevancy in the boardroom.


Coco Brown is founder and CEO of the Athena Alliance, an organization dedicated to advancing diversity in the boardroom by preparing executive women for board service and facilitating board matches. Before founding the Athena Alliance, Brown served as the president and chief operating officer of Taos, an information technology consulting and services company based in San Jose, California. She is also the founder and CEO of Executive Kinections, a Silicon Valley consultancy that advises executive teams in strategic planning and organizational design.


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In the News
The long and short of unfair trade rules
Publication Date: January 18, 2018

In this op ed, Edward Knight, Nasdaq's General Counsel and Chief Regulatory Officer, describes why it is important to add transparency into who is shorting a stock and why. Knight states that the current lack of transparency around short positions affects investors by "denying them the necessary information to make informed decisions about the company." Knight describes Nasdaq's proposal for the SEC to adopt short disclosures that would parallel existing long disclosure rules, a regime that has been in place for many years and is familiar to market participants.


Blackrock CEO, Larry Fink, Publishes his Annual Letter to CEOs
Publication Date: January 18, 2018

Each year, Larry Fink, CEO of BlackRock, crafts his annual letter to CEOs. In this year's letter, Fink describes a "new model of shareholder engagement – one that strengthens and deepens communication between shareholders and the companies that they own." Fink states that the effort regarding improving long-term value must be a year-round conversation and describes the importance of the board's engagement in developing a company's long-term strategy and creating value for all stakeholders. Blackrock manages approximately $6.3 trillion in assets, including $1.7 trillion in active funds.


SEC Commissioners Sworn In
Publication Date: January 11, 2018

On January 11, 2018, Robert Jackson and Hester Peirce were sworn in as SEC Commissioners.


The SEC's Office of the Investor Advocate: 2017 Report on Activities
Publication Date: January 5, 2018

The SEC's Office of the Investor Advocate (OIA) recently issued its 2017 annual Report on Activities. The report-required by Congress-describes the OIA's activities in a number of areas, including public company disclosure and the SEC's Disclosure Effectiveness Initiative, financial accounting and auditing standards, the definition of materiality, and corporate governance and the universal proxy.


Proxy Advisory Firm Legislation Advances In The House
Publication Date: December 26, 2017

The House passed the Corporate Governance Reform and Transparency Act of 2017 (H.R. 4015), introduced by Congressman Sean Duffy (R-WI), which requires proxy advisory firms to register with the Securities and Exchange Commission, disclose potential conflicts and operate in a more transparent manner. Proxy reform is a key component of Nasdaq's Revitalize blueprint.

Read more>>

Senate Approves New SEC Commissioners
Publication Date: December 22, 2017

The Senate approved the White House's nominees for the two open commissioner seats at the Securities and Exchange Commission. The two seats will be filled by Hester Peirce, a Republican and senior research fellow at the Mercatus Center at George Mason University and Robert Jackson Jr., a Democrat and professor and the director of the Program on Corporate Law and Policy at Columbia Law School. With the addition of Peirce and Jackson, this increases the number of SEC Commissioners to five along with Commissioners Michael Piwowar, Kara Stein and SEC chair Jay Clayton for the first time in more than two years.

Read more from the Wall Street Journal>>

Update on Proxy Advisory Firm Legislation
Publication Date: December 13, 2017

Last month, Congressman Sean Duffy introduced H.R. 4015, The Corporate Governance Reform and Transparency Act, to enhance accountability, transparency, responsiveness, and competition in the proxy advisory firm industry. That bill, which is supported by the U.S. Chamber of Commerce, BIO, and hundreds of public companies, and is consistent with recommendations previously made by Nasdaq, is now scheduled for a vote on the House floor next week. Interested persons can contact your Congressional Representatives now to express support. To obtain contact information, click on the link here and enter a ZIP code.

H.R. 4015 >>

Replay of webinar with Rep. Duffy >>

Read more about Nasdaq's blueprint for Revitalizing the Capital Markets >>

SEC Appoints New Chairman and Board Members to PCAOB
Publication Date: December 13, 2017

The Securities and Exchange Commission announced the appointment of William D. Duhnke III as Chairman and J. Robert Brown, Kathleen M. Hamm, James G. Kaiser, and Duane M. DesParte as Board members of the Public Company Accounting Oversight Board (PCAOB). "Bill, Jay, Kathleen, Jim, and Duane bring substantial experience to the Board and a shared commitment to serve in the interests of our Main Street investors," said SEC Chairman Jay Clayton. "Their individual and collective talents position the PCAOB to execute its mission effectively in our local, national, and international markets."


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