- Board of directors’ diversity has become an issue that companies must address.
- Climate change and ESG have become increasingly important issues to investors and shareholders.
- Directors’ duty to act in good faith includes ensuring the company has adequate reporting systems.
Climate change and diversity are among the topics that have drawn interest from investors in the last few years, which in turn has lead to boards of directors addressing those issues. In-house counsel can help the board by anticipating investor and shareholder interest in certain topics.
This list prepared by the Association of Corporate Counsel stems from the ACC 2021 Annual Meeting session “Land on Board Talk: Topics You Should be Discussing with Your Board,” by Steven Stokdyk, Latham & Watkins, Victoria McKenney, Deputy General Counsel, US Steel, and Ahmed Mousa, Chief Business Officer and General Counsel, Pieris Pharmaceuticals.
Regular topics that in-house counsel can expect to be discussed at board meetings include:
- Compliance issues
- Employee training initiatives
- Employee surveys
- Company hotline calls
- Key investigations
- Risk assessments
- Policy changes
- Legislative changes
- Major litigation
Topics with new or increased focus for board meetings include:
- Board diversity includes director overboarding limits. Companies are realizing that there needs to be limits to the number of boards a director can serve on. Companies and their in-house counsel should focus on what other company boards their directors serve on, and if there is a conflict of interest. Most boards need at least one director who has racial or ethic diversity, and companies should disclose that in their proxy statements.
- Cybersecurity and data privacy are issues that boards must deal with, particularly when questions arise about what a company is doing to mitigate cybersecurity risks because investors will be asking. In-house counsel needs to tell the board about how the company is keeping up with the risks, to mitigate harm. Companies need to step up their efforts to secure their IT due to the pandemic, and make sure there are basic cybersecurity protocols in place for remote working. The board should be updated about the steps being taken, and in-house counsel should have a presentation for the board on cybersecurity efforts at least once a year.
- Environmental, Social, and Corporate Governance (ESG) and climate change have become important issues to companies in the last few years. The US Securities and Exchange Commission (SEC) requires companies to disclose information to investors and shareholders about climate change. Issues related to ESG include reviewing ESG goals to make sure they are up to date; focusing on the fact that institutional investors may rely on ESG ratings to make investment decisions; and adding ESG metrics to incentive compensation planning. Boards should focus on how a company establishes ESG goals and metrics; which employees are assessing company ESG efforts; the adequacy of ESG data; and how the company tracks and reports ESG data.
- In-house counsel at US companies should educate board members as to how their duty to act in good faith relates to the company’s reporting mechanisms. In the 1996 case In re Caremark (698 A.2d 959) the Court of Chancery of Delaware determined that directors are liable if they fail to make a good faith effort to ensure that a company has adequate reporting systems. While describing circumstances in which a director’s liability may be engaged, the Court noted: “[…] [I]t is important that the board exercise a good faith judgment that the corporation's information and reporting system is in concept and design adequate to assure the board that appropriate information will come to its attention in a timely manner as a matter of ordinary operations, so that it may satisfy its responsibility.”
Tips for companies when dealing with their boards:
- Any type of red flags should not go unresolved.
- Expert advisors such as accountants are helpful.
- Companies should be careful about how director records such as texts and e-mails are handled to ensure confidentiality.
- Communications with the board must be carefully coordinated to avoid insider trading issues.
Read “Making the Case for GCs on Boards and How They Can Earn a Seat,” by Irene Liu, 2021.
Read “The Practitioner’s Guide to Building Efficient Board and Committee Processes: What Really Needs to Happen Behind the Scenes,” by Mark Roellig, ACC Docket, July 30, 2020.
Join the ACC Corporate and Securities Law Network (ACC members only)
Not an ACC member yet? Join ACC today and connect with peers