Global Shareholders: The Board Perspective
A Conversation Between Christopher P. Skroupa, Skytop Editor-in-Chief, and David A. Katz, Partner at Wachtell, Lipton, Rosen & Katz / February 8th, 2022
David A. Katz is a partner at Wachtell, Lipton, Rosen & Katz in New York City, an adjunct professor at New York University School of Law, and co-chair of the Board of Advisors of the NYU Law Institute for Corporate Governance and Finance. Mr. Katz is a corporate attorney focusing on mergers and acquisitions, corporate governance, shareholder activism and complex securities transactions, has been involved in many major domestic and international merger, acquisition and buyout transactions, strategic defense assignments and proxy contests, and has been involved in a number of complex public and private offerings and corporate restructurings. He frequently counsels boards of directors and board committees on corporate governance matters and crisis management.
Mr. Katz is a member of the American Bar Association, Section on Business Law, where he founded the Committee on Mergers and Acquisitions Task Force on the Dictionary of M&A Terms and a member of the Committee on Mergers and Acquisitions Subcommittee for Acquisitions of Public Companies. Mr. Katz is also a member of the Federal Securities Laws Committee, the New York State Bar Association and the Association of the Bar of the City of New York. Mr. Katz is a member of the Society for Corporate Governance and the National Association of Corporate Directors. Mr. Katz serves as a member of the Board of Trustees at New York University and at New York University School of Law. He sits on the Board of Directors of The Partnership for Drug-Free Kids and is a member of the Advisory Board at the John L. Weinberg Center for Corporate Governance at the University of Delaware. He writes a bi-monthly column on corporate governance for the New York Law Journal with his colleague Laura McIntosh.
Mr. Katz is a graduate of Brandeis University and New York University School of Law.
Christopher Skroupa: As the influence of shareholders continues to grow, how does this impact expectations for directors of multinational corporations?
David A. Katz: Boards of directors are more accountable to shareholders than ever before. The influence of large institutional shareholders continues to grow as their overall ownership percentages increase. As institutional shareholders push boards to focus on ESG issues, boards that ignore these concerns are likely to be targeted by both activist and institutional shareholders.
Christopher: How are boards different today than at the beginning of the enactment of The Dodd-Frank Act?
David: Directors today are more likely to be independent than was the case prior to Dodd-Frank. In addition, directors serve on less boards as the expectations (and time commitments) for directors are significantly greater. The increased regulatory requirements and growing influence of shareholders have put boards under greater scrutiny than ever. Moreover, boards are increasingly diverse and this has further enhanced the caliber of corporate directors.
Christopher: What are the most common areas of engagement for boards and shareholders?
David: Today, many institutional shareholders want to engage directly with corporate directors on issues such as performance, management compensation and ESG issues. Directors need to be able to discuss the strengths of their management teams, and corporate strategy, including how compensation plans are aligned with shareholder interests. ESG issues such as climate change and human capital also need to be proactively addressed.
Christopher: Is there a set of tips you would share to help boards assess their role and how they relate them to shareholders?
David: Boards need to continue to challenge themselves and their management teams. In order to be effective, directors need to understand the company’s strategy. They must be able to understand the greatest risks the company faces and how their management team intends to mitigate these risks. Boards need to understand investor expectations and how they change over time. A good example of this is the increased attention investors devote to ESG issues. The potential impact of ESG on a company’s various stakeholders is unfolding as companies integrate ESG into their operations.
Christopher: Is there one challenge that is greatest for corporate directors in successfully performing their role?
David: Boards need to set the right tone at the top for their organizations and ensure that the senior management team does the same. To do so, boards need to understand company culture and hold their management teams accountable. Corporate integrity is paramount and it is up to corporate directors to set the right example.