Microsoft’s Seethoff talks executive pay and director tenure

John Seethoff has been described as ‘a giant in the field of corporate governance’ and ‘a strong, thoughtful leader willing to share his expertise with his fellow corporate secretaries.’ He spoke to Corporate Secretary late last year before his retirement about his career and thoughts on the changing role of the governance professional.

What do see as having been the biggest challenges you have faced during your time at Microsoft?

Following our change in CEO in 2014, the compensation committee took a hard look at the design of our executive pay program and decided it wanted to move toward a pay-for-performance plan. It was something we weren’t familiar with because that wasn’t the way our program worked. We had to learn about what the boundaries are in terms of what mainstream investors are expecting. We had instituted a long-term incentive plan for our new chief executive, and the board thought that was an important step that would be viewed favorably – but it wasn’t. So we had to step back and invest time in understanding the perspective of our investors and why we didn’t get to where they thought we should be. We had to work with management, senior leadership, the compensation committee and the compensation consultant to arrive at an aligned view of what would work for the company, what the board thought was a responsible approach, and what investors would think was satisfactory.

What are the key factors in dealing with the board when tackling a somewhat contentious issue like that? How do you see your role?

I think this is a classic example of where corporate secretaries stand in the middle and have a unique opportunity to provide real value by presenting the external perspective, figuring out which other advisers might be helpful in providing perspective to the board, assembling various points of view and then trying to be an advocate for a path that will strike a balance between the different perspectives. Management is going to have an objective as the subject of the plan, and we may be able to provide a more objective perspective in terms of trying to find the place that will accommodate everyone’s desires. When we were presenting different alternatives to the compensation committee we created a grid representing different stakeholders and identifying which plan best met the interests of each.

How do you try to balance the different interests you represent?

In part we are neutral. It’s about understanding the stakeholders’ different perspectives and sometimes being a devil’s advocate for those, and then recognizing that the objective is to achieve an outcome that meets – to the extent [it’s] possible – the interests of the various stakeholders. Unlike in other roles, it’s not about just representing one point of view. Ultimately, it’s about thinking about the company first.

You were involved in the company being an early adopter in areas such as say on pay and proxy access. How do you make sure a board is aware of – and keen to be on the cutting edge of – corporate governance practices?

I’ve been fortunate to work with chief executives who have been open-minded about what we might do differently from a corporate governance perspective, and who have had an appetite for being a leader in governance. And I’ve worked with sophisticated directors who have a pretty high degree of understanding about governance issues and trends. In some ways, they set an expectation that we would be coming forward with ideas – not that they would agree with every one of them, but that we would continue to test what we might do differently. Those of us in this role recognize that in many cases we are the people recommending a different path or a new policy. It’s important to have a good sense of the temperament of those involved and what the implications might be for the company and the board.

Among the governance changes you have been involved in, which has had the most impact on the company?

Say on pay: it’s something the great majority of us have to deal with every year. It created a vehicle that resulted in a lot more engagement than the previous alternative, which was voting ‘no’ against compensation committee members – something investors, particularly large investors, were pretty loath to do. Say on pay created a safety valve for dissatisfaction with pay programs. The role proxy advisers played had unintended consequences in terms of promoting pay programs and pay design that were overly one-size-fits-all. From a corporate governance perspective, it’s clear that one size doesn’t fit all. It also resulted in us taking our own journey over the course of three or four years to get a vote outcome back over 90 percent.

You have been supportive of the recent board decision to limit average director tenure to 10 years. What do you see as the greatest value of that approach?

We have several directors with tenures of 14 years and there have been vote recommendations against them just because the proxy adviser has a strict time limit of, say, 12 years. And that’s an oversimplified approach that isn’t well grounded in how boards really work. I know from my own experience that these are two very strong directors; they’re very independent-minded and they challenge management. The idea that one would ask them to leave the board just because they have served more than 12 years doesn’t make sense to us. On the other hand, for the last five years our board has been on a path of refreshment and recognizing that it is important to match directors’ skills to where the company is going, as well as bringing in new perspectives and insights. The value of the approach and policy the board has taken is that you can strike a balance between experience and making a commitment that over time the board will be bringing in new members.

The role of the corporate secretary has evolved in recent years, becoming more involved in risk management and strategy. What do you see as the key changes?

Many corporate secretaries are also involved in securities law financial reporting for our companies. It’s become a more organic part of the role as we think about risk management from a financial reporting standpoint. It fits in well with our role working with the board. We’ve repeatedly seen – going back to 2001, pre-Sarbanes-Oxley days – that unintended or unexpected risk can have catastrophic consequences for an organization. So to help support a board and its responsibility for overseeing risk, we’ve had to grow in our understanding of risk management – the process and systems for that – and do our best to ensure the board and its committees have agendas that include risk in an effective way so that it’s being well considered. We as a company have made significant strides over the past decade in how management thinks about risk and how that is discussed with the board.

You’re retiring at the end of the year [2017]. Do you have any advice for people just joining the corporate secretary community?

First and foremost, this is a very collegial community and the most important thing is building a network of people who are happy to help. There are people I speak with who are competitors of our company, but in this world we have shared interests and frequently talk to each other about how to achieve some end, or about what we are hearing from shareholders on a topic. Find a place that works for you in terms of building expertise. Depending on the company and individual, that might be the area of executive compensation, it could be the securities side of what we do, it could be the more general corporate governance topics. Pick one thing and become an expert on that initially.

This article originally appeared in the Winter issue of Corporate Secretary.