Preparing the Board for Shareholder Activism

In brief: As year-round shareholder activism continues in the American boardroom, directors are called upon to prepare for and respond to any possible activist challenges. To equip directors with the knowledge and tools they need to address this challenge, this updated guide in the Director Essentials series includes information on trends in activist campaigns, types of investors and their methods of influence, and the board’s role in preparing for and responding to an activist challenge.

The focus on the board’s compensation committee has never been sharper. The components of compensation plans and the link between compensation and company performance are under intense scrutiny from shareholders, employees, policymakers, the media, and other stakeholders. The Report of the NACD Blue Ribbon Commission on the Compensation Committee revisits NACD’s 2003 Report of the NACD Blue Ribbon Commission on Executive Compensation to highlight the new environment in which compensation committees—and, more broadly, boards—are now operating. It recommends that the compensation committee and board work together to establish an executive compensation philosophy that supports the company in creating long-term, sustainable value.

The report includes ten specific recommendations for compensation committees to consider when evaluating their compensation philosophies. It also provides practical tools, such as sample compensation committee charters, a compensation committee assessment, and guidance on executive employment contracts.