In the following guest post, Michael W. Peregrine, a partner at the McDermott, Will, Emery law firm, takes a look at the impact the administration of President-Elect Joe Biden may have on corporate governance. This article is based on a feature Peregrine originally posted on Forbes.com and available here. I would like to thank Michael for allowing me to publish his article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Michael’s article.
A Biden Administration can be expected to have a notable impact on corporate governance, both through specific proposals and by how its policies influence state legislation, “best practices” formulation and board conduct.
During the long presidential campaign, progressive candidates floated several proposals with significant impact on corporate governance, including the Affordable Capitalism Act, the Ending Too Big to Jail Act and the Corporate Executive Accountability Act. But in the absence of a “Blue Wave” remaking the composition of Congress, the legislative appetite for such aggressive legislation would appear quite slim. That does not mean, however that some of the related themes won’t find their way into Administration proposals, especially as it seeks to accommodate the progressives at some level.
For example, it is fair to anticipate proposals that establish basic goals (if not baseline requirements) for diversity, gender equality and worker representation in board composition. (Federal adoption of California-style mandates of under-represented communities on boards is not a likely possibility at this point). In addition, progressive interest in issues such as corporate responsibility; worker support; “just wage” and “dignified retirement”, and executive pay equity may prompt increased engagement of the board’s audit and compliance, workforce culture, human capital and executive compensation committees, respectively.
Along the same lines, a Biden Administration is likely to be supportive of corporate social responsibility concepts, and other manifestations of what it means to be a “values-driven company”. These initiatives could be subtle at first, such as policies that incentivize boards to more meaningfully leverage their company’s brand in support of their corporate values. Over time this could conceivably evolve into more rigorous expectations that companies pursue a purpose of “creating a general public benefit”.
But perhaps the most immediate, if indirect, governance impact will arise by the force of example, not by law—and that is changed expectations of age as it relates to corporate leadership roles; e.g. board membership and CEO service. As is well known, President-Elect Biden will be, at 78, the oldest President ever to take office. Both he, and his 74 year old predecessor, just completed a grueling three month campaign sprint that would have taxed candidates half their age. The voting public was exposed to the vigor, energy and capabilities of two truly senior citizens.
Corporate governance trends over the last ten years have sought to balance legitimate benefits of director experience with needed focus on matters of director turnover, age diversity and retirement requirements. While leading governance principles have declined to offer any related “best practices”, the average age of corporate directors has slowly moved downward towards the low-60s. Data from the National Association of Corporate Directors shows that the average age of new public company directors is 57; of the independent board chair is 65 and of the lead director is 67.
The images of a 78-year-old President-Elect performing on a highly public stage may prompt board governance committees–and sitting directors approaching retirement mandates—to revisit the wisdom of age-based tenure limitations. Yet as fair as this may be, it also presents an equally important governance challenge. To the extent board composition selections become more generous with respect to seniority of age, the existing tenure of older directors may lengthen. This may lead to reduced board turnover levels which, in turn, would limit the membership opportunities for diverse candidates. In other words, the “male, pale and stale” concern could be exacerbated.
Betting on the policy orientation of a new Administration is rarely a safe play, given the many factors that could impact its direction. But planning for the potential of a particular orientation is often the smart play. In this instance, corporate boards have the advantage of clear policy markers from positions offered throughout the campaign as to how the Biden Administration may impact corporate governance, whether directly or indirectly.
No one can predict the future. But these Biden policy markers should not go unnoticed by corporate boards. Potential pressures on the role, responsibility and composition of corporate governance should begin to receive more serious attention from corporate leadership. Contingency planning in this regard will help provide corporate boards with greater flexibility in terms of time and options should the new Administration make, or provide the impetus for, meaningful change in governance law and principles.
Michael W. Peregrine, a partner at the law firm of McDermott Will & Emery who advises corporations, officers, and directors on matters relating to corporate governance, fiduciary duties, and officer and director liability issues. His views do not necessarily reflect those of the firm or its clients.