Best Practices in Corporate Governance

Exclusive Interview with

Lucy Fato, VP, Deputy General Counsel and Corporate Secretary, Marsh & McLennan Companies Inc.


In this exclusive LegalMinds/NASDAQ Securities & Capital Market Series interview, Marsh & McLennan Companies’ (NYSE:MMC) Deputy General Counsel and Corporate Secretary Lucy Fato discusses “best practices” and key corporate governance issues, including the separation of the Chairman and CEO roles, board declassification, shareholder outreach and the challenges of board diversity and recruitment.

In addition to helping to oversee the firm’s global legal department and working on general legal matters, Ms. Fato also serves as Corporate Secretary to the Board of Directors, where she works closely with their independent Chairman on issues that impact the board.

Read Lucy Fato's Bio (Click to Expand/Collapse)


I'm the Deputy General Council, and the Corporate Secretary at Marsha McLean and Company. So I really have 2 distinct roles in the company. One is in the legal department helping to oversee our global department, and just working on general legal matters. And the other role is as Corporate Secretary to the Board of Directors.

And it really is a separate and distinct job. We have an independent chairman. So, I spend a lot of time working directly with him on board meetings and agendas and other issues that impact our board.

There are a number of key corporate governance issues that have really gotten a lot of attention over the last few years and some of them are high profile than others, some are really legal, technical points that some activists latch on to, and some on bigger issues uh, separating the The chairman position from the CEO has garnered a lot of attention in the last few years.

It's an issue that I think is near and dear at the hearts of CEOs so, therefore it takes up a lot of the time of the corporate secretary as well. But I think it's really evolved as a best practice, and I think a number of companies have moved towards that. At Marsha McLennan, we moved to having an independent chairman several years ago.

It's worked very well for us. I think it takes a certain type of CEO to be able to handle that kind of structure, and fortunately it's been a good experience for us. And I think it works well for the board, it gives the independent directors a sense that they have a voice that's separate and distinct from the CEO, and I think it's good to have that balance, and it's also been received very favorably by our shareholders.

At Marsha McLennan we haven't had a lot of challenges since the separation of the chairman and CEO, but again I think it really depends on the personality of your CEO. Our CEO is very confident, very successful person, very comfortable with the separation, and in fact, it takes a little bit of a burden off of him of not having to manage the board on a day to day basis as much - letting an independent director take that responsibility.

So in some ways I think it can work out well, if you have the right personality at the top of the company. As I said, I think for directors, it gives them great comfort knowing that they have someone at the helm who is the voice for the directors. They can speak privately with him. They can have separate meetings without the CEO present and really feel that they can have an open dialogue.

I think that really what the concept is getting at, to really have a balanced and open discussion, and that's what we've seen at Marsha McLennan. Another key issue that's garnered a lot of attention in the public is the declassification of boards. Historically a number of boards were structured so that only two or three directors would be nominated on an annual basis, so that if you had a shareholder activist, or someone else who was viewed as hostile to the company wanted to put up a slate, at the annual meeting they would only be able to put up two or three seats at a time and not take control of the company within one year.

And that was also an issue like the separation of the chairman and CEO that started to get a lot of attention in the last few years because it was viewed as an anti-takeover device and the number of larger institutional shareholders didn't think it was necessarily appropriate for the board to have that kind of power.

So, you've seen a lot of people move toward declassifying their boards. It's another thing we did at Marsha McLennan few years ago and I definitely think it's also evolved as a best practice, and most companies are now moving towards that model. Another very significant trend which our board has spent a lot of time on and I think just the director community at large is focused on, is the composition of boards and diversity in particular.

Much like our company at Marsha McLellan, we're very focused on diversity and inclusion, and our board feels the same way about its group.

So, we do spend a lot of time with the directors, talking about board composition, who our current directors are, what their background and experience is, what their profile is basically, and what kind of diversity they bring to the table, and we've had director searches ongoing for several years.

We've had a number of retirements over the last few years years and we know we will have directors retiring in the future. So, we are basically almost always searching for really good candidates. It's not easy to find good candidates. It takes time, even if someone is a great individual and a great director, you need to make sure the personality is right, that they will fit in with the rest of the personalities and that they really bring the right skill set.

So the criteria for the searches can change over time depending on what a company's needs are, what a board's needs are, the strategic direction the company might be going in, but there's a very very heavy focus, as well, on diversity, and making sure that we have women, minorities, people from outside the U.S. Diversity comes in very many forms and so we have a number of candidates that may not on their face look diverse, but when you actually look at the bios and backgrounds, and skill sets that they have.

They actually bring some very unique qualities to the board. Over the last few years, since Sarbains Oxley [sp?] back in 2002, the burdens on the board have gone up significantly, and the time commitment that's required particularly if you sit on an audit committee or a compensation committee, Dod Frank is going to continue to put additional pressure on directors as I think everyone is aware.

It's made it very hard. It's very challenging to find good candidates, especially sitting CEOs and CFOs who are so busy with their own companies, it's hard for them to make a commitment to join a board and be able to devote the amount of time that they need to, both to the board itself and to whatever committees they may be sitting on.

There are a number of other issues that corporate secretaries are dealing with right now and helping boards manage And they're not as high profile necessarily or as interesting to people as some of the ones that attract more attention, like separation of chairman and CEO and declassification of the board.

They're more technical points, for example, allowing shareholders to call a special meeting of shareholders, or allowing shareholders to act by written consent.

These are provisions that companies have in their bylaws and a number of shareholder activists have been submitting multiple shareholder proposals to many, many companies every year trying to get them to change their bylaws. These provisions are viewed as more shareholder friendly, because they're giving share holders the ability to call meetings outside of the annual meeting process, or outside of the board itself calling a special meeting or allowing shareholders to act by written consent where you don't have to call a meeting at all.

And with these provisions it's been a bit of a struggle because the devil is in the details and no one really knows exactly how to write them all the time to make sure that there aren't unattended consequences. I would say the right to call special meetings is definitely one that has gotten, gained a lot more traction over the last few years.

People have built in appropriate thresholds so that shareholders have to own a certain amount of stock before they can call a meeting, they have to have held it for a certain period of time.

So I think that corporate secretary community has gotten comfortable that with the right limitations, you can put provisions in that are shareholder friendly, but at the same time protect the company from a number of abuses where people may just submit multiple requests that can take a lot of management's time and a lot of expense.

And it's always a balance, because depending who the share holder is, they may have a different view on these provisions. The written consent provisions has has not gained as much traction. That one has been a little bit more difficult. A lot of share holders don't like the idea of a group being able to band together and take action without calling any kind of meeting, without giving notice to other shareholders.

So, that is viewed as a less shareholder provision by a lot of people. I think historically shareholder proposals were viewed as a nuisance. There were people on the corporate secretary staff whose job it was to try to get them. excluded from proxy statements, trying to get them voted down as much as possible.

And I think the climate has just changed such that boards understand that there needs to be more outreach, there needs to be more a balance and there needs to be more of a general understanding of what really is in the best interest of the company and its shareholders. It's not about a shareholder activist.

You have to take the emotion out of it I think. Take the personalities out of it and really focus on the issue and ultimately what you think is in the shareholders' best interest. Then again, not all shareholders are alike. So it's a little bit, it's a little tricky. It's not so easy all the time when people say something is shareholder friendly, you may talk to some large institutions that don't think it's shareholder friendly at all.

And it may just be that the smaller shareholders think that it's a friwndly provision.

Another practice that I think has developed over the last few years is and something that our directors encouraged me to do when I joined the company, is to engage in shareholder outreach on a sustained and regular basis.

So I do spend a lot of time through the year, particularly before proxy season starts, reaching out to shareholders, trying to understand what the issues are that they're focused on, what they think we could do better. If there are things that they like that we do, if there are things that we don't like, and really trying to get that data and information in so that I can really report back to the board on how we think we're doing in the area of corporate governance.

We are fortunate at Marsh ; McClennan because we have a number of businesses, Marsh in particular, our largest operating company, that focuses on the area of risk. We also have some businesses in Aller-Wyman who consult in specifically in the area of risk. We have a number of clients who hire all of our operating companies to just help with their most complex problems.

And so for our board, it's helpful to be able to have people like that. We often will bring people in to really educate our board, on an area of interest. A year of two ago there was a lot of focus and all the changes in healthcare and what risks did that raise for companies and their employees. And some people from Mercer were able to present on that and say this These are the kinds of products that we're creating.

These are the kinds of services we're providing.

Marsh is doing the same thing. They have conference calls with their clients all the time. Especially when markets are turbulent as they are right now, they will have calls with clients to talk about impact on the insurance industry, and how that might impact the client's ability to get insurance or how much it may cost to get insurance.

And so, we're really able to, you know, take advantage of a lot of these situations to demonstrate the value that we bring to our clients. And so it really does translate to the board, both in terms of helping to educate the board and then also helping the board think through how we manage our own business.

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About Marsh & McLennan Companies

Marsh & McLennan Companies is a global professional services firm providing advice and solutions in the areas of risk, strategy and human capital. It is the parent company of a number of the world’s leading risk experts and specialty consultants, including Marsh, the insurance broker and risk advisor; Guy Carpenter, the risk and reinsurance specialist; Mercer, the provider of HR and related financial advice and services; and Oliver Wyman, the management consultancy. With 52,000 employees worldwide and annual revenue exceeding $10 billion, Marsh & McLennan Companies provides analysis, advice and transactional capabilities to clients in more than 100 countries. Its stock (ticker symbol: MMC) is listed on the New York, Chicago and London stock exchanges. Marsh & McLennan Companies’ website address is

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