BHJ Partners LLC, a leading independent corporate governance and compensation research firm announced the release of a new non-employee director red-flag compensation assessment to support US corporate boards in meeting their compensation oversight due diligence.


Portland, ME (September 10, 2015):   BHJ Partners LLC, a leading independent corporate governance and compensation research firm announced the release of a new non-employee director compensation red-flag assessment to support US corporate boards in meeting their compensation oversight due diligence.  As recent court decisions have put a spotlight on non-employee director compensation structures and policies, there is increasing potential for related litigation.  In response to this risk, BHJ Partners LLC has applied their expertise to develop an independent, objective risk assessment of non-employee director compensation structures to support corporations in their compensation management efforts. 

“After being out of the spotlight for so long, it seems to be the turn for non-executives’ pay to get center stage attention. If I were a board director, in the curious position of making decisions about how much I was going to pay myself, I’d want the best insurance there is. It’s time for belt and suspenders,” said Paul Hodgson, noted expert in compensation and governance and Founding Principal at BHJ Partners.

Four factors drove our firm to develop this risk screen:
  1. Non-employee director pay litigation is now in the risk spotlight of plaintiff firms and the courts.
  2. Boards of companies of all sizes often assume that their current independent compensation committee advisory is sufficient.
  3. Recent court cases show that even the largest US firms with their current expert benches of advisors, can be faced with this type of litigation.
  4. Litigation or threat of litigation is extremely costly and creates distractions for corporations that are not in the best interest of shareholders. 

Given these factors, having an independent third party provide an expert sounding-board for compensation policies and processes is a sound strategy to help manage these new risks.  The old adage ‘measure twice cut once’ is a standard that might have saved targeted firms millions in expenses for a very minimal cost.  The base service includes:

  • Primary research into each element of peer company total compensation from multiple perspectives – avoiding the pitfalls of data provider error.
  • A confidential, unbiased expert resource for you or your outside counsel.
  • Key findings of strengths and/or potential red flags to use to support your compensation due diligence - which you can choose to cite in your upcoming proxy.
  • And as many key stakeholders value our analysis, citing our research may help ward off speculative litigation.

The service can be completed in as little as two weeks ensuring that firms have the option to cite the findings in their upcoming proxies.  Complimentary consultations to review the service are being offered to US public corporation General Counsels, Corporate Secretaries, Board members or Outside Counsel.

About BHJ Partners LLC

Founded in 2013, BHJ Partners LLC provides single-source corporate governance research services to the corporate, investment, legal, and ESG services markets.  Our firm delivers tailored solutions in the form of expert advisory, custom research and third party service identification/evaluation.

The firm brings to the market a unique value-adding expert resource with our senior team possessing over 25 years each of experience in governance, compensation and risk analysis.  Their individual attributes are aligned through their shared experience in the areas of global corporate governance and sustainability research and practices.    

For Additional Information:

Drew R. Buckley
Principal, BHJ Partners LLC
+1 (207) 776-2711

Fifth & Pacific – Liz Claibourne to those of us old enough to remember – just restructured, changed its name again, and let its CEO go. But the parachute was unnecessary. See why here:

Deciding to write about Time Warner Cable’s rejection of Charter Communications bid I thought I was just going to have a rant about the infamous John Malone, but then I checked out TWC’s board and it was even worse than Liberty Media’s!

While Electronic Arts may have an incentive plan that could inspire executives to artificially boost stock price, that is not the case at two of its rivals – Take-Two Interactive and Activision.

Remember the golden days prior to Dodd-Frank when the investors’ had to concern  themselves about distractions such as imperial CEO’s and their captured boards using firms as personal piggy banks – well no need to be nostalgic as those days are still here…  

Side Note:   As this my first blog on the site, before I am dismissed as someone who is on a ‘fairness’ rant and who does not think that CEO’s and boards should be able to make a lot of money -  I am not that person.  Anyone who knows me knows that I encourage and celebrate people with the initiative to earn as much money as they possibly can.   However, the key condition in my beliefs is that the money is “earned” - which means that rewards are reaped from an individual's efforts which have in turn improved the value to the firm, rather than being derived from ‘creatively’ harvesting the infused wealth of the firm's shareholders. 

Retrospective: When we look back on the last 10 years my partners and I can readily recall examples of the wonderfully ‘creative’ enrichment schemes used to move shareholder value into personal piggy-banks - a couple of high- (or more accurately low-) points come to mind.
  1. The first is ‘Options Backdating’, which thankfully Paul Hodgson in his prior life played a pivotal role in putting to an end, was dramatic in how its creative simplicity too the markets by surprise.  It was a burgeoning practice when it was uncovered with the help of governance research which not only shed the light on the issue but also discovered how effectively the leadership networks were in quickly spreading this money-making practice throughout the system.  It was the system’s perspectives applied on researching the issue coupled with the rapid stakeholder dissemination of the findings, and of course the many legal suits that followed, that helped to effectively put an end to future opportunities for this type of ‘creative’ enrichment. 
  2. And our second example was the Chesapeake Energy case, we agreed that this case easily made the list of our top ten imperial CEO situations.  Chesapeake one of the most memorable cases where, in our past lives, members of our firm undertook first hand research to uncover a highly creative leveraging of power and process. The deeply networked related contracts and incestuous transactions tied to a supportive board were overlooked by those stakeholders who had taken a more complacent and less informed view of governance risks.  Thankfully not all stakeholders were complacent and some were willing to dig deeper and uncover the root of the situation and the cause of the resulting drain of the shareholders' wealth. 

So Problem Solved?:  The shareholder outcry and subsequent lawsuits around cases such as Chesapeake and the Option’s Backdating debacle drove demands for reform and increased vigilance: And the silver-bullet governance-risk solution was again sought and the search gained renewed vigor following the global markets collapse.  And with the noise around Dodd-Frank you might have thought that we have made major strides towards that silver-bullet.  Through this piece of legislative heroics we now have additional regulatory safeguards such as shareholder say-on-pay initiatives and the soon to arrive relative CEO pay ratios (which deserves another posting entirely) and lots of shiny new rules and regulations.  With these new legislative oversights one might think that the likelihood of the recurrence of these ‘creative’ risks is greatly diminished and that the market’s eyes are now wide-open and watchful to prevent similar situations from ever happening again…

Well to be fair, these and other changes have or may in the future tip the scale a bit closer to balance with respect to those firms who want to play by the rules; however, as with any legislation it is only those who care about rules that tend to be affected.  However, despite our best efforts we can always count on is the resilience and creativity of the human spirit to enable a determined soul to find an unguarded end-run to achieve their goal.  So while many are distracted by the feint to the right caused by the 'security' of these new legislative barriers, it is still ever important to scan the field to see the less visible but identifiable left-side end-run opportunities that the very few but very active fringe of creative CEO’s and their boards will find a new way to raid the shareholders’ coffers.

Current State of Creativity:  So in keeping vigilant it may be good to be aware of some of the end-runs that are still employed.  One top of mind activity that is done in plain sight but often overlooked is the ever popular practice of Excessive Optioning with the added plus of their being provided with little or no real performance targets.  Another great opportunity for ‘creativity’ but which may often get overlooked are the excess and unearned rewards that can be reaped from mergers, acquisitions and service contracts.  When the dollar value of transactions are massive it only takes a slight tip of the scale to produce dramatic results for the ‘creative at heart.’   Transaction-tied related party issues, captured boards and the lure of ‘creative’ windfall returns often make the approval of shareholder-value diminishing conditions too attractive to pass up.  Some of these are easy tells for those vigilant investment activists and plaintiff’s firms who remain the strongest advocates of shareholder value - but more often than not these flags are hidden in the firm’s core governance attributes and disclosures that remain hidden until well after the damage is done.

So where does the market now stand with respect to these ‘creative’ activities?  I did a quick review of recently announced plaintiff firm investigations and derivative cases to use as a simplistic measure of perceived creative efforts - that is those that have been caught.  Using generic search catchalls of  “Alleged Wrongdoing” and “Breach of Fiduciary Duty”, found around 40 new cases in the past six months that focused on M&A or CEO relationship related activities as the core issues driving these complaints.  In the majority of the cases we reviewed the key due diligence of the board in crafting an agreement or the CEO’s relationship to a transaction were in question.  Arguably many of these cases might be fueled simply by a shareholder’s 'splitting-hairs' disagreement with the transaction value set by the board: a matter for the finance crowd to deal with.  However, in some cases when we dig deeper into the governance and compensation structures and the leadership and board systems we find that there is real cause for action.  In fact, our current research efforts to support plaintiff firms have identified at least two current cases which on the surface used the same playbook as Chesapeake – and to our concern on the surface appear to be seen as having done so in a perfectly legal way given the existing governance structures: Where were the vigilant stakeholders when these structures were put in place? 

Conclusion:  These situations and others point to the importance investors being of not only vigilant but in undertaking a deeper level of informed vigilance. Whether they are undertaking engagement or litigation, to be effective in these types of situations the shareholder proponents must be willing and able to identify and isolate the underlying ‘creative’ conditions or activities that allowed the real harm to occur. 

So on a positive note we take heart in the fact that our deeper dives into finding the governance based outliers can help identify the causal factors in the ‘creative’ board system which may in turn provide the means to undo these wrongs.  However, without stakeholder involvement in finding these issues before they result in shareholder harm, the situation will continue and ‘creativity’ will thrive.

This is the second in a series of five articles, covering the top five highest paid CEOs in the US. Number two in the list is Richard Kinder, CEO of Kinder Morgan  (NYSE: KMI ) , who made $1.1 billion (and again, as with the number one spot Facebook, that's not a spelling mistake, I did mean billion) in fiscal 2012, the latest year for which figures are available.

The parallels between Mark Zuckerberg and Kinder are remarkable. Like the co-founder of Facebook, Richard Kinder is also the co-founder of his company Kinder Morgan. And pay is not the only issue at Kinder Morgan; in fact, it's not really an issue at all. Again, like Facebook, there are issues with control at Kinder Morgan – though these issues are improving – and, like the billions "earned" by Zuckerberg, this compensation for Mr. Kinder is not really pay at all, it is simply a return on investment.

Read the full analysis by BHJ Partners' Paul Hodgson here.

Three years later and the Deepwater Horizon spill in the Gulf of Mexico is still in the news, probably because the leaks continue – the continuous outflow of cash out of BP to settle claims. This article for Responsible Investor (subscription only but well worth it) takes an in depth look at the current litigation surrounding the worst environmental disaster ever and investigates why sustainability metrics at BP and Transocean’s bonus plans did not seem to affect management behavior. We know why they didn’t at Halliburton – they don’t have any.

Full article behind paywall in Responsible Investor

This is the first in a series of five articles looking at the five highest paid CEOs in the US. Number one is Facebook’s Mark Zuckerberg whose recent $2.3 billion windfall in stock option profits has been making the news.

But as this piece shows it’s never as simple as just a dollar amount and it’s not all about the money since at Facebook the voting control issues and the non-independent board are far worse problems than options granted in 2005.

Read much more of Paul Hodgson's analysis of Facebook at The Motley Fool

Mickey Arison has just stepped down as CEO of Carnival and appointed a new CEO, and former director, to the position. We’ve seen this situation go sour many times before, most recently at Occidental, and don’t see any reason to change our opinion that this is often not a good move for shareholders or governance.

Read Paul's full article in The Motley Fool here

I recently wrote about the five most expensive CEO perks for the 2012 fiscal year, the latest year for which figures are available. The highest of all was for Sheldon Adelson, CEO of Las Vegas Sands. With all other compensation of $3.1, the largest portion of this went to providing security for him and his immediate family. Clearly running casinos has not got any safer. Second was Wesley Bush, CEO of Northrop Grumman, with $1.9 million total perks, again largely security provision. Number three was John Crowley, CEO of Amicus Therapeutics, with $1.8 million on medical expenses. Next came Gregory Brown, CEO of Motorola Solutions, with the first in two charitable donations to Rutgers University made in his name. Another $1.8 million cost to shareholders. Finally came the second casino owner, Stephen Wynn, CEO of Wynn Resorts, who received $1.7 million in perks, largely for personal travel on the corporate jet.

The full text of the article, with substantial additional detail and commentary is published here on Motley Fool.