PROXY ANALYSIS 1 COGNIZANT PROXY STATEMENT AND CORPORATE GOVERNANCE POLICY Finance 419 Khalid Albarwani Cognizant Technology Solutions Corp Cognizant is an American MNC that provide large scale services including IT and digital technology services, consultancy and business operation outsourcing services, among others. The company headquarter is located in Teaneck New Jersey. It is also a part of the NASDAQ-100 and S&P-500 listing. Proxy Statement Analysis BOD/Management Background Cognizant’s Board of directors selected a new CEO to succeed the former CEO of the company, Frank D’Souza. The decision was announced in February 2019 where Brian Humphries was announced as the new company CEO. Humphries is an experienced technology executive as he has worked in large multinational companies across the globe, taking various roles for the transformation of companies through execution in competitive markets. Also, the board of Directors voted for a new Chairman, Michael Patsalos, who was an independent member of the board (Proxy Statement, 2019). In his capacity, he brings his technology consultancy experience to the company, which is hoped to help in the development of the company. The company board works with the management to ensure that company strategies are developed, approved, and executed by the management. In this case, the board meets with the senior management on an annual basis to discuss and review the strategy as needed. The board also has a strategic focus on ensuring the enterprise risk management process is promoted. The ERM covers critical topics such as cybersecurity, privacy, and security of data and information and update/review of the compliance and regulations Refreshment of the Board Cognizant strives to make sure the members of the board have skills, experience, and characteristics that promote efficiency in the changing company needs. In this case. The company values diversity as it selects candidates with global experience in the management of enterprises in the technology sector among other sectors the industry serves. In this case, an ongoing board refreshment is carried out by the Nomination, Governance, and Public Affairs committee that helps in the identification of potential directors. Compensation Compensation committee determines director compensation amount and form and ensures that the compensation aligns with the set objectives. For instance, some of the objectives include alignment of the compensation program incentives with the corporate strategies and company objectives, competitive compensation package to ensure that best executive talents are attracted and retained, ensure a balanced mix the current and long-term compensation (Proxy Statement, 2019). Alignment of Compensation with Executive and Shareholder Interests PROXY ANALYSIS 2 Every year, the compensation committee and the management development ensures that it reviews and update how executive compensation is carried out to ensure that the right incentives are offered in alignment with the executive and shareholder interests to ensure the achievement of company strategies and objectives. In this case, the executive compensation program utilizes performance and equity-based compensation that relates to the peer-group companies. Performance stock and restricted stock units are also provided, and this helps in aligning executive interests to the shareholder interests. Compensation of Directors Restricted Stock Units (RSU). The cognizant company uses both cash and stock-based compensation incentives to attract and retain the best talents on the board. In this case, the compensation for non-employee directors is set based on the experience level and commitment expected from the directors (Chang, 2019). However, a company employee who is on the board as a serving director does not receive additional compensation incentives. Directors receive stock-based incentives in the form of RSUs that vest 100 percent in a year. They are also given options to defer the settlement of RSU in tow options including 100% settlement on the subsequent year and a third settlement for the next three years. Equity grants. The company board approves the award of RSUs, options, and the PSUs (Proxy Statement, 2019). This decision is made during meetings or through written consent. Also, the compensation committee has authorized an executive committee to provide stock-based equity awards to the valuable and new employees with the exemption of the executive officers and other senior staff. Analysis of Corporate Governance Policies at Cognizant Corp The Board of Directors at Cognizant Company has adopted various policies or guidelines to help in the governance to the best interest of the organization and its shareholders. In this case, the guidelines provide a framework of how the board should conduct its business. Responsibilities of the directors The Directors on the board are responsible for the oversight of the company management to ensure that they act in the interest of the company and its shareholders. Directors are also responsible for making business decisions and judgments, as well as establishing effective systems that can help the company succeed through conducting and attending board meetings frequently. Qualification Standards of the Director position Majority of Cognizant Company directors are required to be highly independent in the sense that they do not have any direct or indirect relationship with the company (Chang, 2019). The serving and nominated directors are also required to provide a total commitment to the company’s board to ensure that they discharge their responsibilities efficiently. In this respect, current or future commitments should not alter their service, and the companies limit the number of boards one can serve. Also, the bylaws provide the number of directors that should be elected on the board, including the tenure of the director. The members of the board are also required to act in relation to the company’s code of ethics which includes adherence to company regulations and policies. In this case, the directors should be mindful of conflict of interest and other factors that can affect their independence. Nominated directors are then elected through a majority vote as provided by the by-laws. A serving director who fails to attain the majority of the votes cast should resign, where the board reviews and accepts/declines the resignation with supporting reasons. PROXY ANALYSIS 3 Board Meetings The board chairman, in consultation with the directors, is required to determine the length and frequency of board meetings. Also, the chairman approves the agenda, and the members can provide agenda suggestions (Cognizant, 2018). The information that is crucial for the understanding of the issues to be discussed in the board meeting should be sent to members in advance for review. The directors are also required to meet bi-annually to discuss the progress and performance of the company CEO. Committees of the Board The cognizant company should always have committees including the Audit Committee, Nominating, Governance, and Public Affairs Committee and a Management Development and Compensation committee. Each of the charters should outline the goals, objectives, and purpose of the respective committee, their membership qualification standards, and appointment procedures for committee members, as well as the procedure for removal. Also, the chairman of each committee is responsible, in consultation with members for the setting of meetings and agenda items. Compensation Program Compensation of the directors should be determined by the board following the relevant procedures. Also, the management development and compensation committee review the compensation to ensure it is attractive and competitive to that of comparable companies (Cognizant, 2018). However, employee directors should not be compensated with additional incentives for their service on the board or committee. Evaluation of the Management and Succession The management development and compensation committee conduct evaluations and oversight of the company’s senior officers. The committee also determines the form and frequency of evaluations and reports to the board, which ensures that the executive officers are offering the best company leadership. The board is responsible for the planning of succession of the company CEO and selects the best candidate that will provide the best leadership in relation to company and shareholder interests. Annual Performance Evaluation of the Board and Review of Corporate Governance Policy The company’s Nominating, Governance, and Public Affairs Committee is responsible for oversight and self-evaluation of the board. This helps determine if the various committees are operating effectively and ensure that the effectiveness of each committee is improved (Cognizant, 2018). The committee also reviews the effectiveness of the company’s corporate governance guidelines and proposes changes were needed through the board. PROXY ANALYSIS 4 References Chang, E. (2019). Corporate Governance: Cognizant, 2019 Proxy Guide. CorpGov. Retrieved from https://www.corpgov.net/2019/05/cognizant-2019-proxy-guide/ Cognizant. (2018). Cognizant Technology Solutions Corporation: Corporate Governance Guidelines. Cognizant. Retrieved from https://www.cognizant.com/about-cognizant-resources/corporategovernance-guidelines.pdf Proxy Statement. (2019). Cognizant Technology Solutions Corporation: Definitive Proxy Statement. Retrieved from https://www.sec.gov/Archives/edgar/data/1058290/000120677419001373/ctsh3484491def14a.htm Analyze your company's Proxy Statement and Corporate Governance Policies General guidelines: An approximate 2pg analysis of the proxy. Please keep in mind that one of the primary reasons for reviewing the proxy is to assess the caliber of management. To that end, shareholder and management incentive alignment is very important so please include: • Management / BOD Backgrounds • Salary • Incentive Comp and what it's linked to • Options, Grants, Restricted Stock Units, Warrants, Sweetheart Deals (Conflicts of Interest) • Analysis of Corporate Governance Policies (consult Thompson One database) One goal of this assignment is to gain an understanding for the incentives that will be driving management behavior inside your company. For some more context you can reference the following Podcast from the Motley Fool. It's a good example of the type of analysis and insight that is expected of you as a Financial Analyst: Motley Fool Industry Focus - Stock Based Comp.mp3
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