October/November 2024

Chris Clark conducts interviews with leading corporate directors and subject matter experts for Stuart Levine & Associates, a global consulting and leadership development company. The Planet Governance™ interview series features the views of corporate directors, chief executives, and governance experts on timely issues from succession planning to board dynamics to stakeholder activism.

This governance leader believes that assigning too much responsibility to a single director is an inefficient use of a board seat…

Donna F. Anderson is Vice President and Head of Corporate Governance for T. Rowe Price Associates. In this role, Ms. Anderson co-chairs the firm’s ESG Committee and leads the firm’s engagement efforts with portfolio companies. She is also a Director on the T. Rowe Price Trust Company board.

Before joining T. Rowe Price in 2007, Ms. Anderson was Director of Equity Research for Invesco Funds in Houston.

Ms. Anderson is a CFA Charter holder and a member of the CFA Institute and the Baltimore CFA Society. She serves on the Advisory Board of the Institute for Corporate Governance and Finance at NYU, and she chairs the board of the Investor Stewardship Group.

Donna F. Anderson

Chris: Regarding shareholder proposals, how far has the pendulum swung back to traditional governance topics?

Donna: I’m not ready to call it a swing of the pendulum yet. One of the many sub-optimal aspects of shareholder proposals in the U.S. market, in my opinion, is how random they are. This is because this mechanism is used extensively by individual investors and advocacy groups, and rarely used by large, institutional investors who publish transparent, predictable engagement priority lists. This year, pundits have pointed to the large number of proposals on supermajority provisions that received majority support as some kind of indicator that resolutions have shifted back into the Governance lane. I disagree. It just so happens that one individual investor who is a prolific filer of resolutions decided to lean in on that issue this year. Next year he could just as easily shift into a less widely supported governance topic – or go back to a mix of environmental and governance resolutions. If he did, the voting outcomes would be quite different. For this reason, let’s not read too much into a sample set of a few dozen votes.

Chris: When it comes to creating director specifications, how would ESG expertise (from supply chain sustainability to data privacy) enter your criteria?

Donna: There are exceedingly few occasions where we would expect a director profile as specific as this. If you believe that relevant ESG considerations should be incorporated into the operating business, not treated as a separate function, then you would expect skills such as the ones you mentioned to be acquired over the course of a career through a director’s leadership experience: running a company, a major division, or a high-level corporate function such as human resources. Some investors indeed advocate for a designated “climate expert” or similar specialty role on the board, but most institutions express a preference for a board of well-rounded, experienced leaders with skills and qualifications that are complementary to each other and relevant to the business. Assigning too much responsibility to a single director because she is the designated subject-matter expert is both an inefficient use of a board seat and a risky approach. For any ESG risks that are truly economically material to the company’s performance, we would expect multiple members (or the full board) to have the appropriate knowledge and experience to oversee them.

Chris: Board member skills are vetted during the interview process. To what degree should reputation and dedication to ethical systems permeate those conversations?

Donna: I’m intrigued by this question, but I don’t know if I have a good answer for it. In my governance practice at T. Rowe Price, we receive feedback at times that our expectations in this area are not reasonable. Specifically, there are cases where an individual director, a committee, or an entire board has made a decision that we conclude represents a serious misread of their fiduciary duties to investors or a decision that resulted in an outrageous amount of value destruction that was preventable, in our assessment. To be clear, I’m not talking about corporate governance foot faults. These are episodes we’d label as exhibiting egregiously bad judgment or questionable integrity.

These episodes are rare, but when they occur we tend to track the directors involved, and we consider them to carry higher risk as they move on to additional boards. When we decline to support their elections or express concerns to the new company whose board they’ve joined, we are frequently told it’s not fair to judge board members based on their “extracurricular” activities at other companies. To us, it seems like a pretty basic exercise in pattern recognition, but to the companies that have just vetted their brand new director, they often think our practice is out of bounds.

I think “reputation” would be an impossible and unfair litmus test to apply. That is not at all what we’re trying to do. However, is it crazy to expect a company to be aware of financial blowups, ethical lapses, and low shareholder support levels at the other companies affiliated with their new board member? I don’t think that’s too much of a burden. But I remain open to the debate.

Chris: What is on your governance bucket list?

Donna: The bucket list phrase makes me think of travel, so on that front, I’d like to go to Omaha one of these days for the Berkshire Hathaway shareholder meeting. For as long as I’ve been a governance specialist, it’s kind of embarrassing that I’ve never gone to Buffett-palooza.

If you mean what change would I bring to the market if I were in charge, then I’d have to say respect for the will of the majority. There are so few times per year when a majority of votes are cast against a board’s recommendation. It happens on maybe 2-3% of Say on Pay votes, a few dozen directors, and a double-digit number of shareholder proposals across 3,000+ issuers in the U.S. When it happens, I believe it should be taken seriously. I believe the board should implement whatever the majority-supported notion was, if at all possible.

The pay vote is of course a foggier message, but a director vote is cut and dried. It still shocks me every year how many directors continue to serve even after 50%, 60% or 70% of us opposed them. I understand these companies believe the proxy advisors drove the outcome, or they say the plurality voting standard is common within their peer group. However, my view is 50% support by investors should be seen as a minimum standard for a continuing director.

On the other side of that coin, I agree with issuers who are irritated by the fact that proxy advisors apply arbitrary standards to Say on Pay outcomes. They consider a 70% or 80% level of support to be a “soft” loss for the company. A supermajority of investors elects to support a company’s compensation, and the proxy advisor gives you a yellow card. My view is the 50% majority should be the only meaningful standard that’s applied, both in situations of shareholder dissent and shareholder approval.

That’s what I’d change if I were “Queen of Governance” for a day. Thank you for the conversation, Chris.

Chris: You are most welcome.

Chris Clark joined Stuart Levine & Associates as a senior consultant after distinguished tenures at Texas Monthly – The National Magazine of Texas, Capital Cities/ABC, Forbes, and the National Association of Corporate Directors (“NACD”).

He is known for his prominent role in the creation of NACD’s “The Power of Difference”, “The Leading Minds of Compensation” and “The Leading Minds of Governance” conference series, “The Directorship 100”, and NACD Private Company Directorship.

Chris’ expertise includes corporate governance with board assessments, committee charter reviews, and strategic communications as cornerstones.