What steps should companies take now to prepare?
Although the above proposals are still under consideration, and it is unclear which proposals will ultimately be adopted, companies need to remain informed of new developments as they occur and be prepared to respond to new rules or legislation as it is implemented. Among other things, companies should consider what changes would need to be made to their governance practices in the event that the suggested legislation or rules are adopted as proposed.
Companies should also consider whether their corporate governance practices are appropriate from both a business and shareholder perspective in view of the specific issues and risks facing them. In conjunction with this analysis, companies may want to evaluate how their governance practices are perceived by their key shareholders and by proxy advisory groups, such as Risk Metrics. Similarly, as a result of the focus that is being placed on executive compensation in these challenging times, it is critical that companies understand how the compensation of their executive officers is determined and whether such compensation packages align the interests of the executive officers with the shareholders of the company.
With the 2010 proxy season around the corner and in view of enhanced scrutiny that public companies are likely to continue to face in 2010, boards of directors, with the aid of their corporate advisers, should be actively considering governance issues. Even if a board elects not to make policy changes at this time, the consideration of governance issues will enable boards to better respond to legislation or new rules as they are implemented.
Jonathan Friedman is an associate with Stubbs Alderton & Markiles, LLP. Reach him at [email protected] or (818) 444-4500.