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Directors & Boards
Robert H. Rock
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James Kristie
Editor
Lisa
Cody
Chief Financial Officer
David Shaw
Publishing Director
Scott Chase
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Barbara Wenger
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From Jim Kristie | Article of the
Month | Columnist
Reader Profile |
Research | News |
The Stock Price Stinks ... Get Off the
Board
Does it make sense to force out directors -- through a majority voting
process -- simply because shareholders are unhappy with the stock price?
Since April kicks off annual meeting season, we bring you as our
article of the month below Norman Augustine’s “modest proposal” for
reforming a corporate event that often borders on what he calls
“theater of the absurd.”
Speaking of proposals, a hot one that will be up for shareholder input
is the majority voting of directors. We haven’t polled the e-Briefing
readership yet on where you stand on majority voting vs. plurality
voting of directors, so we do that in the Question of the Month below.
Lots of commentators have weighed in on the pros and cons, so we’re
giving you the opportunity to render your thumbs up or thumbs down and
to tell us why. We’ll be eager to hear from you in our own town
hall-style meeting on this particular proposal.
The majority vote movement “has certainly gained traction,” reports
Governance Metrics International (GMI), the corporate governance
ratings and research firm. As recently as last summer, GMI tracked only
a handful of U.S. companies that allowed some form of majority voting
for director elections, but as of mid-March reports are that more than
140 companies will be fielding proposals requiring majority voting.
In all that I’ve read (and published in our own pages) about majority
vs. plurality voting, there is one issue that I have not seen
addressed: Shareholders approving majority voting simply because they
are unhappy with the stock price.
Which then raises this issue: If majority voting is voted in, will
stock price become a gauge that drives board elections -- and that ends
up triggering director resignations?
That could be troublesome. The majority vote movement requires close
monitoring. The implications for board representation are quite
profound.
Question Answered
And, speaking of director resignations, in our March Question of the
Month we asked how you would respond to a director resignation –
specifically, the kind of “noisy exit” made by a board member of XM
Satellite Radio. The survey showed that, as a shareholder, you would:
•
Buy More on a Market Drop: 4.8%
• Sell Immediately: 38.1%
• Hold -- Wait and See How Things Play Out: 38.1%
• Other: 19%
(Other responses included “Sell
40% then wait” … “Dig in deep and evaluate what is going on” … “Depends
on the director”)
Extended comments generated by the question are truly worth sharing for
how to react to a director resignation, and can be viewed here. Thank
you for writing. We value your responses to the Question of the Month,
as well as your reactions -- agreements, rebuttals, further analyses --
to anything in the e-Briefings. Feel welcome to get directly in touch
with me or any of the authors on anything we write.
Now, on to this month’s question:
Are you in favor of companies
adopting majority voting of directors?
Click
here to take the survey.
____________________________________________________________________
Director's & Boards ERISA
Webcast/Teleconference
Directors & Boards'
webcast/teleconference on:
ERISA
and Directors: What You Don’t Know Will Hurt You
is scheduled for May 16, 2006 at 1pm EST. I hope you'll join me
and the following fine speakers:
Wayne Miller, President, Denali
Fiduciary Management
Gerald Czarnecki, Director, State Farm Insurance Co.
Owsley Brown II, Chairman of the Board, Brown-Forman & Co.
Jeff Mamorsky, Chair of the ERISA department, Greenberg Traurig LLP
This webcast/teleconference is free
of charge.
Jim
Kristie is the editor and
associate publisher of Directors
& Boards.
The
Annual Meeting: An Exercise in Corporate Democracy or Corporate
Futility?The current emphasis on enhanced corporate governance affords the perfect opportunity to revise nonproductive annual meeting practices.
By Norman R. Augustine
Have annual meetings, born as the embodiment of corporate
democracy, become an anachronism from another era, a Theater of
the Absurd, wherein anyone with $50 or so can be guaranteed a stage, a
captive audience, and a moment in the spotlight ... the corporate
world’s version of karaoke?
Arguments in favor of continuing these events, hopefully in a more
constructive fashion than has too often become the case, include the
observation that the democratic process indeed forms the underpinning
of American business and what could be more democratic than an annual
meeting in which all shareholders are given an equal opportunity to
confront those who in fact are their employees?
Further, it is hard to imagine that there could be a worse time to take
a step away from direct shareholder involvement in corporate governance
than on the heels of Enron, WorldCom, Tyco, et al. This alone is enough
to frighten most prudent CEOs from supporting any proposal to repair
the annual meeting.
Also, some annual meetings actually are productive -- Berkshire
Hathaway’s gatherings being Exhibit One in this regard. But, then, how
many CEOs have the luxury of having tickets to their meetings sold for
nearly $100,000 ... and, for that matter, how many CEOs have as
much wisdom to share with their shareholders as does Warren Buffett?
[Click
Here to Read
the Entire Article]
There are times when the best thing a director can do is stay out of the way ... or take a hike.
Too many directors stay too long.
I’m into a second three-year term on a public board, and will not stand for re-election. While Ernst & Young and the SEC say I’m an outsider, I disagree. After six years, I feel like an insider, regardless of legal definitions, and it’s healthier if somebody with a fresh set of eyeballs and apprehensions steps up.
How’s the business doing? When I joined, this outfit was private, had missed a couple payrolls, and was losing money. Today it’s way beyond a billion-dollar market cap and sits atop hundreds of millions in cash with zero debt. Its share of market is growing. The market itself is growing. Earnings go up 25% every quarter and the cash beats that. Why leave?
Maybe somebody new will spot a potential problem that I can’t see, being so relaxed by quarter after quarter of double-digit growth, year after year. And there’s another reason. It gets boring.
[Click Here to Read the Entire Article]
Jerry Alderman, Vice President
Charter Consulting
Editor's note: Each month, we ask a Directors & Boards
reader to comment on critical issues facing
directors today. If you'd like to participate in this section in
the future, please email Scott
Chase.
What are CEOs focused on?
After years of focus on cost reduction and efficiencies, the corporate agenda has clearly shifted. We recently completed a survey with The University of Chicago Graduate School of Business where 75% of the CEOs surveyed responded that profitable growth is their top priority.
Achieving profitable growth is tricky business; consider the following recent example at Ford Motor Company. On Tuesday, January 24, 2006, Ford announced the closure of 14 factories and elimination of 30,000 jobs. In all, Ford reduced their automotive production capacity by 1.2 million units or 26% of total capacity. Some people might attribute this problem to cost, but other factors played as large or larger roles. Listen to what Bill Ford, Jr., had to say on the day of the announcements: “Selling what you have rather than what customers want doesn’t make sense. It used to be that you’d build it and they’d buy it. But that’s wrong, that’s antiquated. Now it will be that if they will buy it, we will build it.” Bill Ford, Jr., clearly “gets it” and has his work cut out from him in transforming Ford into a customer-centric rather than a supply-centric organization. What is so ironic is that it was Henry Ford, the founder of Ford Motor Company, who so famously said when discussing the Model T in 1908, “Customers can have any color they want as long as it is black.” If you want to know if things change in business, just ask the Ford family.
How can companies deliver on their profitable growth promises to shareholders?
During the past five years we have witnessed time and again three key success factors rise above all others in successful initiatives: 1) quantify customer value, 2) take an “outside-in” approach, and 3) use a rigorous process. Taken together these three key success factors form the backbone of an overall approach called Customer Value Creation. We have recently published a book about this insightful and proven approach entitled, “Beyond Six Sigma, Profitable Growth through Customer Value Creation.”
[Click Here to Read the Entire Article]
Washington, DC – Business Roundtable, an association of CEOs of 160 leading U.S. companies, released its fourth annual survey of corporate governance practices among its members, showing continuing improvements in corporate governance practices, including a continual rise in the percentage of companies that have increased pay-for-performance for senior executives.
The survey’s key findings include:
Pay-for-performance: Almost 6 out of 10 companies (57%) report an increase in the pay-for-performance element of senior executive compensation in the past year, compared to 49% in 2005 and 40% in 2004. Of the companies placing more emphasis on performance, 20% indicate that the performance element includes primarily long-term goals, 73% stress a mix of long- and short-term performance goals, and only 7% stress short-term goals.
Board independence: More than nine out of ten companies (91%) have an independent chairman, lead director or presiding director – up from 83% in 2005 and 71% in 2004. The percentage of companies with an independent chairman has continued to increase, from 4% in 2004 and 9% in 2005, to 11% in this 2006 survey.
Executive session: 69% of companies reported that independent (non-management) directors met in executive session at every board meeting in 2005, and 75% expect the same for 2006. This percentage is up from 68% in 2004 and 55% in 2003.
Shareholder communications: 91% of companies have established procedures for shareholder communications with directors, up from 90% last year and 87% in 2004. And 93% of companies say their Nominating/Governance Committee is willing to consider shareholder recommendations for board nominees, a steady increase from the 85% of companies in 2005.
Costs of Sarbanes-Oxley: Sarbanes-Oxley compliance costs appear to be declining, with 94% expecting costs to either remain the same (42%) or decrease (52%) for 2006, and only 6% projecting that costs will go up this year. The portion of companies reporting estimated costs of more than $10 million dropped to 40% from the 47% reported in 2005.
Director evaluations: 38% of companies performed individual director evaluations in 2005 and 45% are planning to do such evaluations in 2006, up sharply from the 27% in 2004. Of these companies, a growing number rely on peer reviews – 38% in 2005, and 48% planning to do so in 2006.
Director qualifications: 97% of companies say their Nominating/Governance Committee has established qualifications for directors, a significant increase from 87% in 2005.
Committee meetings: Over half (52%) of companies indicate they have seen a “significant” increase in the number or length of meetings of the Audit Committee in the past two years, while 33% indicate a “significant” increase in the number or length of meetings of the Compensation Committee in the same period.
Compensation consultants: 85% of companies report that they have retained a compensation consultant in the last year, and 53% of CEOs report that their Nominating/Governance Committees have retained a search firm in the last year.
Stock ownership requirements: 93% of companies say their compensation committees have stock ownership guidelines or requirements for senior executives and 88% of companies have stock ownership guidelines or requirements for directors, with 32% establishing the director guidelines within the past year.
For more information, visit The Business Roundtable's website.
April 4,
2006
The newly formed Initiative for Corporate Responsibility and Investor
Protection will host three prominent national figures from government,
finance and the law -- Harvy Pitt, Dick Thornburgh, and Stanley Sporkin
-- for the first in a series of high-level forums. The session, held in
conjunction with the Whittemore School of Business and Economics at the
University of New Hampshire, will focus on how to keep the nation's
corporations on an ethical path. The Initiative was created in December
2005 with funds from a $5 million settlement negotiated by New
Hampshire's secretary of state with Tyco Corp. Information is available
at
April 5,
2006
Pearl Meyer & Partners, a Clark Consulting Practice, presents "Good
Governance in the Era of Enhanced Disclosure: Creating Competitive,
Value-Driven Rewards," a half-day program for compensation directors
and committee members, CEOs, CFOs, general counsels, treasurers, and
VPs of human resources. The sessions will be held at the Westin
Waltham-Boston, and the event will be held again later in the month in
Parsippany, NJ (April 25) and in Atlanta (April 26). Phone 508-630-1534
or register on the Web at
April
5-6, 2006
The Conference Board conducts its "Executive Compensation Conference:
Everything Directors and Senior Executives Need to Know about Effective
Pay." Under program director Yale Tauber, the sessions will offer
practical advice and actionable ideas for compensation committee
members and other directors, CEOs, and senior HR and compensation
executives. Call 212-339-0345, or register online at
April
10-11, 2006
The Professional Liability Underwriting Society will present its 2006
Employment Practices and Fiduciary Liability Symposium, a program that
tackles current issues and facilitates provocative discussions, drawing
upon the expertise of top people in the insurance industry. The
commissioner of the U.S. EEOC, Stuart Ishimaru, will be in attendance.
Register at
April 21,
2006
The American Management Association presents "Senior Executive Teams:
Achieving Breakthrough Performance." Organizational development expert
Howard Guttman is the keynote speaker and moderator, and he along with
a panel of senior executive experts and colleagues from diverse
industries will help participants discover the best practices in
decision-making, conflict resolution, and team leadership. The event
will be held in Chicago. Register at
April
24-26, 2006
The 9th Annual Milken Institute Global Conference will be held in Los
Angeles. Attendance is limited (last year's conference sold out early).
To register, visit
April
25-28, 2006
"Corporate Governance: Effectiveness and Accountability in the
Boardroom" is a J.L. Kellogg School of Management executive education
program designed to energize directors' thinking and empower them with
new tools, concepts and strategies to meet the challenges of their
governance role. It will be led by Kellogg faculty with peer
interaction. Visit
April
26-28, 2006
The Association for Corporate Growth (ACG) puts on its InterGrowth 2006
conference in Orlando, Fla. This 35th annual conference -- the world's
largest international gathering for corporate growth and M&A
professionals -- is an opportunity to hear world-class speakers,
interview private equity, investment banking, legal, consulting, and
corporate leaders, and to discuss the latest deal flow news. Visit
May 3-5,
2006
The Club of Amsterdam will host its second annual global "Summit for
the Future on Risk - Corporate Governance." The summit will bring
together international thought leaders to discuss the role of risk in
innovation and global growth,and what the balancing of risks means for
a board of directors. Visit the summit website,
May 16,
2006
Directors & Boards
magazine presents a free Webinar/Teleconference, on the topic of: ERISA
and Directors: What You Don’t Know Will Hurt You, at 1pm EST. Speakers
include: Speakers: Jim Kristie, Editor and Associate Publisher,
Directors & Boards; Wayne Miller, President, Denali Fiduciary
Management; Gerald Czarnecki, Director, State Farm Insurance Co.;
Owsley Brown II, Chairman of the Board, Brown-Forman & Co.; and
Jeff Mamorsky, Chair of the ERISA department, Greenberg Traurig LLP. To
register, visit:
May
16-19, 2006
UCLA's Anderson School of Management presents its "UCLA Director
Training and Certification Program" at the Collins Center for Executive
Education, Los Angeles, CA. The program, under faculty director Dr.
Alfred E. Osborne Jr. brings directors up-to-date on policies and best
practices concerning SEC regulations, FASB considerations, NYSE rules
and other important issues. The curriculum combines world-class experts
with experienced directors and academic thought leaders. For more
information, or to register, call 301-825-2001 or visit
May
18-19, 2006
The U.S. Department of Commerce is organizing a China business
conference, "China: Risk, Reward, and How to Win -- Bringing America's
Finest China Experts to Your Doorstep." The event promises that it will
bring the tools, marketing intelligence, and resources needed to thrive
in China, from Shanghai to Hong Kong, for executives serious about the
potential of developing their market in China. The sessions will be
held at the Reagan Building and International Trade Center in
Washington, D.C. Visit
May
18-19, 2006
The Business Civic Leadership Center will put on its "2006 Partnership
Conference: Strengthening Organizational Values and Stakeholder Trust."
The conference will examine the current state of institutional trust in
America with a forward-looking agenda for stemming public distrust and
negative perceptions, and building a culture that promotes values and
good governance. The event will be held at the U.S. Chamber of Commerce
in Washington, D.C. For information, visit
May
30-June 2, 2006
The Stanford Graduate School of Business Executive Education conducts
its "Corporate Governance Program." Under the direction of program
manager Rita Chandra and faculty director Maureen McNichols, the
intensive event, led by renowned Stanford faculty members, guide a
select group of 55 participants through a comprehensive series of
learning sessions designed for board-level decision makers. Visit
May
31-June 2, 2006
"Marketing for Senior Executives", which is taking place on the Harvard
Business School campus, was developed by Professors Gail McGovern and
John Quelch, and focuses on the importance of elevating certain aspects
of the marketing discipline to the executive level, while bringing the
customer into the boardroom and helping top leaders to reconnect with
this crucial business asset. Participants will return to their
organizations with the innovative insights and hands-on-tools needed to
help sustain and grow their business. For more information and an
application, please call 1-800-HBS-5577, ext. 7226, or visit us at:
June 1-2,
2006
The Yale CEO Leadership Summit will be held on the Yale University
campus. The theme for this semiannual gathering of top executives is
"CEO Intervention: Modeling vs. Accountability; Meddling vs. Actions."
Under the direction of Prof. Jeffrey Sonnenfeld, senior associate dean
of executive programs and CEO of the Yale Chief Executive Leadership
Institute, the program brings together CEOs and other business and
market leaders for peer-driven educational discussions. For more
information, visit
June 13,
2006
The Tenth Annual Wharton Leadership Conference's theme is "Leading with
Resilience: Coming Back from Challenge and Adversity." Under the
direction of Wharton professors Peter Cappelli and Michael Useem,
presenters at the intensive, one-day conference will draw upon their
experiences in leading an organization through uncertain periods.
Speakers include Jim Collins, author of "Built to Last"; David
Pottruck, former CEO of Charles Schwab; Peter Dawkins, vice chair of
Citigroup Private Bank; Sylvia Montero, Pfizer's SVP of human
resources, and Thomas Stewart, editor of the Harvard Business Review.
See
June
20-21, 2006
KPMG's Audit Committee Institute and the National Association of
Corporate Directors present "Audit Committee Fundamentals," an
educational program for audit committee members and directors, both new
and experienced, who want to enhance their understanding of audit
committee responsibilities and activities. Visit
Please fill out your Directors & Boards survey on executive search firms. Your opinions on and attituds toward several major executive search firms will help shape future content in the magazine. If you haven't completed the survey, please click here. The deadline is April 7.
Directors & Boards is also co-sponsoring a study by The BPM Forum on the compliance-enabled enterprise. You can complete that survey by clicking here.
We appreciate your time and answers to both of these surveys.
Boardroom Briefing: Business Continuity and Disaster Recovery
The
latest Boardroom Briefing from Directors
& Boards, on the topic of Business Continuity and Distaster
Recovery, is now in the mail. This Boardroom Briefing features
the results of our last major survey of directors, as well as a variety
of major articles and opinion pieces.You can download and view a pdf copy of the Boardroom Briefing here.
Conference Board CEO Steps Aside
Richard E. Cavanagh has resigned as president and CEO of The Conference Board, the 90-year-old global research and business membership organization (http://conference-board.org). He expects to serve until the end of this year pending the appointment of his successor. He was named head of The Conference Board in 1995. Before joining The Conference Board, he served for nine years as executive dean of Harvard University’s John F. Kennedy School of Government. Earlier, he was a consultant and partner at McKinsey & Co. for 15 years, taking a two-year leave of absence in 1977-79 to serve in major positions in the White House Office of Management and Budget under President Jimmy Carter. Cavanagh, 59, expects to devote more time to nonprofit activities and serving on corporate boards. He will continue as chairman of the board of trustees of the Educational Testing Service (ETS), the world’s leading educational assessment group that administers the SAT’s and other tests, and will continue to serve as an independent director on public company boards, including BlackRock (mutual funds), Arch Chemicals, and the Guardian Life Insurance Co.
World Bank Completes Landmark Corporate Governance Study
Lex Mundi member law firms in more than 90 countries completed participation in a landmark global survey of corporate governance regulation, undertaken in cooperation with the World Bank Group and Harvard University. The Lex Mundi survey posed a series of questions in several case studies, intended to capture data concerning corporate approval requirements for certain types of transactions, disclosure requirements, availability of regulatory oversight and of judicial recourse by minority shareholders, access to corporate information, standards of director conduct and of judicial review of that conduct, and available relief. The data provided by the Lex Mundi participants were compared across countries, coded, indexed, and analyzed by World Bank staff and Harvard academics.
The results of the Lex Mundi Corporate Governance Survey have been published by the World Bank as a standalone publication, “Doing Business: Protecting Investors.” The publication is available free of charge in PDF file format at the World Bank Doing Business website, http://www.doingbusiness.org/main/order_the_report.aspx. A printed copy of the publication may be requested from Lex Mundi by sending an e-mail to mkhuu@lexmundi.com. Lex Mundi is the world’s leading association of independent law firms (http://www.lexmundi.com).
‘Boardroom Exchange’ Highlights Published
PricewaterhouseCoopers and the Weinberg Center for Corporate Governance at the Lerner College of Business & Economics (http://www.lerner.udel.edu/ccg) have issued the highlights of the fall 2005 Directors’ College “Boardroom Exchange.” Keynoting the proceedings were DuPont Chairman and CEO Charles Holliday, Chief Justice Myron Steele of the Delaware Supreme Court, and the SEC’s chief accountant, Donald Nicolaisen. Click here for a link to the publication.
IIA Offers 2 Audit Committee Member Resources
The latest issue of the Institute of Internal Auditors publication Tone at the Top presents an advisory on "Is Your Sense of Security ... FALSE?" It is designed to help audit committee members realize the importance of balancing financial, compliance, and operational auditing. It also will enhance their understanding of internal auditing’s value in providing assurance that controls throughout an organization are adequate to mitigate the risks. It can be downloaded at http://www.theiia.org/download.cfm?file=85272. The IIA is also offering for free downloading "Audit Committee: Purpose, Process, Professionalism," a new best practice tool for audit committee members. It can be downloaded at http://www.theiia.org/download.cfm?file=6676.
Author Notes
Compensation consultant James Reda is a sponsor of the Conference Board’s “Executive Compensation Conference” on April 5-6 (see Events). He is managing director of James F. Reda & Associates LLC (http://www.jfreda.com) and co-author of Compensation Committee Handbook (Second Edition), published last year by John Wiley. His article, “The Shift from Entitlement to Performance,” appears in the Directors & Boards Boardroom Briefing on CEO and Executive Compensation, published earlier this year.
To accommodate its continuing growth, SemlerBrossy Consulting Group LLC (http://www.semlerbrossy.com) has moved its West Coast office to 10940 Wilshire Boulevard, Suite 800, Los Angeles CA 90024. The firm advises managements and boards of major U.S. companies on all aspects of executive pay. Two managing principals of the firm, Seymour Burchman and Blair Jones, authored “A Partnership Approach to Executive Compensation” in the First Quarter 2006 edition of Directors & Boards.
Directors & Boards Editor James Kristie moderated a World Affairs Council of Philadelphia (http://www.wacphila.org) panel discussion last month themed “The Times They Are a-Changing: How CEOs, Boards and Accounting Firms Are Paving the Way Toward a New Future for American Business.” The panel members were David Cohen, executive vice president of Comcast Corp.; Dennis Nally, U.S. Chairman and senior partner of PricewaterhouseCoopers LLP; and Henry Schacht, former chairman and CEO of Lucent Technologies Inc. who is now audit committee chair of Alcoa as well as serving in other roles. Look for excerpts from the discussion in a future e-Briefing.
Kristie also appeared as a guest on “Money Matters Today,” a business affairs program broadcast on CN8, the Comcast network (http://www.cn8.tv). Joining him in the half-hour discussion on “Business Ethics” was Dr. Ralph Walkling, executive director of the Center for Corporate Governance at Drexel University (http://www.lebow.drexel.edu/Centers/CorpGov). The show is moderated by anchor Mary Caraccioli.
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Directors & Boards e-Briefing is a monthly service of Directors & Boards. All contents copyright 2006, MLR Holdings LLC.