Editor: Can you tell our readers something about your background?
Bertsch: I have been involved in corporate governance for 30 years, working most of that time with investing and investor-oriented research organizations. I first spent 14 years with the Investor Responsibility Research Center (IRRC) and then four years at TIAA-CREF, where I reported to Peter Clapman, the chief counsel for investments. My "staff" consisted of two retired CEOs, an unusual staff to say the least. They were the big guns, raising sensitive and difficult issues like executive pay.
From there, I went to Moody's. After the Enron scandal, Moody's decided to train their fundamental analysts on corporate governance and review larger U.S. companies from the ground up. (I emphasize this was the fundamental side of the business, not related to the structured finance side that later got into so much trouble.) During our research on specific companies and governance in general, we explored quantitative approaches to governance but decided that governance as a discipline lent itself more to a qualitative approach. After four years, I went to Morgan Stanley Investment Management and managed corporate governance research and proxy voting, working with the portfolio managers.
Editor: Why did you decide to become the president and CEO of the Society of Corporate Secretaries and Governance Professionals (the Society)?
Bertsch: I have had long and positive experiences both with corporate secretaries and with the Society. I have found both the Society and its leading members to be serious, dedicated to good governance, and reasonable. Moreover, corporate secretaries and governance professionals are problem solvers; I like their pragmatism. My corporate governance background offered the Society a different perspective - an investor's point of view - which may prove helpful, as an increasing part of the corporate secretary's job is engaging with investors.
Editor: What do you plan to emphasize during this coming year?
Bertsch: My first job was to listen and to learn. I have experience in corporate governance but not as a corporate secretary or governance professional working from within a public company. The board has identified five areas that clearly set the Society's mission for me and for the national office staff - enhancing education, communication and advocacy efforts; strengthening chapters; creating stronger ties with other organizations; increasing membership; and enhancing our own processes. That's the agenda.
The field continues to evolve, and the Society needs to evolve with it. The latest challenges include those encompassed within Dodd-Frank, in particular the mandate that public U.S. companies permit non-binding proxy voting on executive compensation. This will trigger a heightened level of interaction with investors by many companies.
Editor: What are the major concerns of the Society's members regarding Dodd-Frank?
Bertsch: The governance aspects of Dodd-Frank have been somewhat over-emphasized, given that the legislation is aimed at our financial system broadly. That said, we have concerns about aspects of Dodd-Frank, both as precedent and as further intervention by the federal government and Congress. Major concerns relate to whistleblower provisions and the extent to which large bounties for those going to the SEC will undermine internal whistleblowing systems set up earlier, partly pursuant to Sarbanes-Oxley; the SEC's proxy access rule (currently in abeyance); new requirements related to executive pay and board process around setting pay that includes unnecessary, unproductive, and/or highly burdensome aspects; and some other tangential rules tacked onto Dodd-Frank, such as those concerning minerals sourced from the war-torn Congo.
The headline governance provision for many is the requirement for a say-on-pay vote (and the related referenda on shareholder preference for frequency of such votes). This ratchets up investor pressures on executive compensation and will be a challenge for many companies that have limited experience with shareholder proposals or similar contentious votes. Corporate concern centers on whether institutional investors are up to the challenge or have sufficient expertise in this area. Uninformed voting may establish a least-common-denominator approach to executive pay that may not serve the best long-term interests of shareholders. That is a reasonable concern. Corporations face enormous challenges in educating investors and establishing effective communications strategies. As it stands, people are accepting reality and dealing with how to make this work, both on the issuer side and on the investor side.
Proxy access has been overblown, in my view. I think it will prove to have a limited impact even if implemented as the SEC has proposed. If it is adopted as the SEC proposed, we surely will see some efforts by big pension and hedge funds to test it, but my guess is that use will be limited, given the difficulties involved and the existence of alternatives.
There are undercurrents of change not required by law. Though not a Dodd-Frank mandate, the majority voting standard in elections of directors is spreading and has become the de facto standard for larger companies. Compounding these challenges is the fact that directors of companies are more vulnerable than ever before.
The provisions for conflict minerals and for required annual pay ratio disclosures present issues that are more difficult than Congress seems to realize. Obviously, the conflict minerals problem in the Congo, particularly its human rights implications, is very disturbing; however, this provision is difficult to implement, and we have not yet seen State Department guidance. On both provisions, there are concrete concerns with any attempt to use disclosure rules to implement specific policy, which constitutes federal intrusion. Also of concern is that Congress is being prescriptive and not giving regulators sufficient latitude to develop rules that work.
Editor: What are the highlights from the Society's January, 2011 "Essentials" seminar?
Bertsch: Having never been a corporate secretary, I was impressed, though not surprised, with the quality of contributions by Society members. Our membership is highly cooperative and committed to mentoring, which plays a critical role not only for public companies but also for private and nonprofit organizations. Smaller companies may not fully understand the role and importance of governance; thus, governance officers need guidance in establishing sound corporate structures. I talked to several people who recently were assigned governance duties but who lacked any real preparation, and they were very happy with the seminar.
Editor: Would you say that the seminar was partially targeted to governance professionals for smaller companies?
Bertsch: We try to serve governance professionals at companies of all sizes and have moved to greater tracking to make sure we are serving those at smaller companies, where the need may indeed be greatest. There were fascinating discussions about minutes and on managing the relationships between directors and senior executives. While these topics are fundamental for seasoned professionals, they are front and center for developing governance initiatives. For example, if directors and/or the CEO have different views on what the minutes should look like, it is the corporate secretary's responsibility to resolve the conflict and establish policy. The Society plays a really important role here, and we need to expand those efforts.
Editor: What is the agenda for the Society's upcoming National Conference?
Bertsch: The theme of the conference is how to deal with change in a period of heightened expectations for governance following the financial crisis, including response to regulatory initiatives like Dodd-Frank. The conference will feature a first-season post-mortem on say-on-pay and discuss forward strategies. We will focus on oversight of risk management, developing challenges for audit committees, including those related to the very real steps being taken toward global convergence of accounting standards, and practical challenges facing the corporate secretary. Another topic of great interest will be Delaware law developments.
Technology will be another key topic. Traditional security issues, such as portal controls, are complicated by newer technologies like video conferencing and mobile devices like iPads, even as such technologies offer the potential for enhanced practices. Social media add another layer to the proliferation of easy access to company information by anyone with Internet access. We also will discuss evolving uses of technology in the corporate secretary's office.
Editor: Please discuss the Society's committees and their role in furthering the exchange of information.
Bertsch: One of the striking aspects of the Society is that it has large and vigorous volunteer committees of dedicated practitioners who are willing to share insights and best practices. Of particular importance are the corporate practices and securities law committees, the latter of which has been extremely busy over the last 18 months. Now, the corporate practices committee will pick up the baton with regard to effective implementation. Legislative activities are far from complete, but the bigger challenge is probably on the corporate practices side. Both of those committees invite our members to join the exchange of information. We also have a vibrant committee focused on small- and mid-cap companies that welcomes members.
The Society is working to build its membership and support the profession, maximizing the relationship between the national office and chapters. In my opinion, face-to-face meetings are really important, though difficult to conduct nationally because of tight travel budgets. We've been doing more with webcasting, but that doesn't resolve the need for personal contact in a professional association like the Society; the chapters, as well as regional conferences, are the most critical places for these interactions.
Editor: Do chapters provide opportunities to talk about small- and mid-cap governance issues and/or those of private companies or nonprofits?
Bertsch: Yes, chapter programs touch many areas and can be highly tailored. Our Los Angeles chapter held a meeting at the end of March, for example, on nonprofit governance. Also, there is increased emphasis on small- and mid-cap companies. While some large corporate concerns translate to the smaller businesses, others don't, and we need programming that addresses what small- and mid-caps are worrying about. With limited staff, they arguably have more challenges in confronting the sea of change we discussed. For example, while they may not have a shareholder proposal, they often have equity compensation proposals; thus, suddenly they've got say-on-pay and are interacting with shareholders in a new way. The Society can help them address these issues.
Editor: What sets the Society apart from other professional member organizations?
Bertsch: Our members are the people charged with making corporate governance work from a practical standpoint. As I mentioned, corporate secretaries tend to be pragmatic, and they appreciate rules and practices that are workable. Our senior vice president for Policy and Advocacy, Darla Stuckey, has been very effective in sharpening the Society's focus in this regard.
The Society also provides focused career development opportunities, particularly through peer-to-peer activities. The chapters are key locations for members to interact without the need for extensive travel, and the Society's core values embrace cooperation and mentoring within the corporate governance field.
What differentiates us from other organizations, including influential groups like the Business Roundtable, Chamber of Commerce or industry associations that may seek to drive policy making, is our focus on corporate governance from an entirely pragmatic viewpoint. Our members talk about disclosures to investors, board operations and the ever-changing legislative, regulatory and judicial landscape. Some of these developments have improved governance; thus, we try to keep a perspective about change and use our collective voice judiciously. The Society seeks to help make positive change work.
Editor: What is the evolving global role of the corporate secretary?
Bertsch: There are substantial complexities in managing subsidiaries globally, both with adherence to local laws and with integrating a coherent governance framework for multinational companies. Cross-border considerations apply to non-U.S. investors who have become more assertive in the United States, and traditional deference to certain markets is receding. Broader cross-border ownership requires dealing with sovereign wealth funds, such as the Norway Oil Reserve Fund. Corporate secretaries, securities lawyers and general counsels have to consider M&A from both perspectives, as the acquirer and as the target of a firm from abroad.
The trend toward globalization of governance standards replaces traditional parochial views and - for better or for worse - embraces measures like say-on-pay. For example, the Australian government indicated that it may significantly up the ante on say-on-pay by creating an extra mechanism for firing directors who received too many negative votes. The globalization of exchanges where securities are traded requires corporate secretaries to stay abreast of international developments on all fronts.
Editor: What are some special challenges for private companies and nonprofits?
Bertsch: Private companies represent a wide variety of institutions. One common set of challenges relates to family-owned companies, including generational transition. Having just one major stockholder, private companies enjoy stability and great flexibility in decision making, without the distractions that a public company has in dealing with equity markets. On the other hand, private companies are not as liquid or dynamic as public companies, and corporate secretaries face real transition challenges relating to generational and other family issues. Private companies are supposed to follow governance provisions of their state's code, yet they often are isolated and may underestimate what is involved.
Similar challenges exist for nonprofits. The typical board of directors for U.S. public companies has well-defined goals and best practice standards in corporate governance. Nonprofits frequently use their board as a critical fundraising mechanism, and their preference for a large assortment of board members doesn't necessarily maximize governance capabilities. A positive aspect of reform, including Sarbanes-Oxley, is that nonprofits are paying closer attention to governance models from public companies.
Editor: Do you have any final comments or Society news to report?
Bertsch: The staff has had some discussion on the Society's tagline, which has been Excellence in Corporate Governance. I am wondering whether a better line might be "Serving Governance Professionals," to reflect the discipline around the Society's primary mission. Providing education, mentoring and meaningful support to governance professionals is our guiding principal, and we need to keep this goal right at the center of all our efforts.
Please email the interviewee at kbertsch@ governanceprofessionals.com with questions about this interview.