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Directors & Boards
Robert H. Rock
Publisher
James Kristie
Editor
Lisa
Cody
Chief Financial Officer
David Shaw
Publishing Director
Scott Chase
Advertising Sales Director
Barbara Wenger
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From Jim Kristie | Article of the
Month | Columnist
Reader Profile |
Research | News |
Are
Boards Too Old?
The last taboo in discussing board diversity is age diversity.
I often get asked by people who are curious about how editors work,
"Where do you get your ideas?" It's a fair question, considering the
decades that I have been filling the pages of Directors & Boards.
Some ideas have a very long germination. Let me share the seedling of
the idea that resulted in the cover story of the upcoming Q2 2011
edition of Directors & Boards
— "Are Boards Too Old?"
It goes back to the early 1990s. These were tough years for American
corporations. One great company that hit a particularly rough patch was
IBM Corp. In fact, things got so dicey for Big Blue and investors got
so restive that the board did the unthinkable — it eased out the CEO,
John Akers, in 1993.
At the 1993 annual meeting, one especially vociferous shareholder got
on his feet to charge the board with being "too old." This gent, no
spring chicken himself (!), further denounced the directors: "Most of
them come from an era of manual typewriters and carbon paper." Ouch!
That made a big impression on me at the time. I wondered: Does this
fellow have a point? Could the computer giant have missed a crucial
beat or two in its business by not having some younger talent on the
board? A study of the average age of the IBM board at that time showed
it to be slightly over 61.
The seed was thus embedded. Now fast forward to the Director of the
Year dinner at last October's National Association of Corporate
Directors conference in Washington, D.C. I am seated next to a director
of an NYSE-traded Fortune 1000 company who is telling me how pleased
she is to have a top executive of a major Internet company joining the
board — "He lowered the average board age by probably 10 years," she
said, with a hearty laugh.
Bingo! As the business world hurtles into a new global order that is
skewing ever younger and driven in so many important ways by social
media and advanced digital competencies, it was now the moment for this
seed of a story idea to burst forth.
As I recruited some top talent to address this topic, I told them that
the last taboo in discussing board diversity is age diversity. No more.
We may be a bit out in front on this topic — doing some “seeing around
corners” where others profess not to see any fuss. But our spotlight
adds an important chapter to the governance literature on effective
board composition. At least we won’t be charged with missing a beat on
this board matter.
For all our paid-up subscribers to Directors
& Boards, you will enjoy this “Age” issue of the journal
that will begin arriving in your in-boxes later this month. And as
always, I welcome your comments at jkristie@directorsandboards.com.
Jim
Kristie is the editor and
associate publisher of Directors
& Boards.
Dodd-Frank Will Require a Thicker-Skinned
BoardOpposition can’t be avoided, so stop being so sensitive to voting outcomes and make sure you are not lowering the bar to curry shareholder favor.
By Joseph Mills
Early in my 26 years as a proxy consultant I learned that it was important to have a sense of each issuer’s tolerance for opposition votes on proxy issues.
In the early years of the governance reform movement (which followed on the heels of an intense hostile takeover period) many companies could be quite resolute and were willing to resist shareholder activists, oftentimes for years. Of course there were also some companies that never wanted to be seen as the “bad guy” and generally gave in to activists.
But at the time of the corporate accounting scandals (i.e. Enron, Tyco etc.) some 10 years ago the balance shifted, and I now find that the majority of issuers are much more sensitive to shareholder pressure and much more willing to accede to shareholder demands.
Thus over the last decade or so most companies have given up their takeover defenses and agreed to various governance and compensation reforms. To read more, click the link below.
[Click
Here to Read
the Entire Article]
A Provocative Proposition
Believe it: Reinvigorate the labor movement . . . then watch the economy recover.
By Leo Hindery Jr.
If the U.S. economy is going to regain long-term strength, then first and foremost we need to restore the vibrancy of our middle class.
The historic strength of our economy has always been a robust middle class, growing from the bottom up, that provides the vast purchasing power upon which corporations thrive. But today, our middle class is eroding every day as real wages stagnate and ever more of the nation’s wealth is concentrated in the top 10% of society.
Let me make a provocative statement here. If we want to improve the economy and strengthen U.S. industry, then we need organized labor to be a lot stronger than it is presently and a truer partner in the conduct of our nation’s business. One profound result of such a strengthened partnership would be more equitable compensation and a whole lot less income inequality.
Ninety percent of America’s workers have had stagnant wages for the past 20 years. To read more, click the link below
[Click Here to Read the Entire Article]
William Keiper
Managing Partner
FirstGlobal Partners LLC
Editor's note: Each month, we ask a Directors & Boards reader to comment on critical issues facing directors today. This past month we asked for ideas on improving the effectiveness of the annual meeting of shareholders. Here is a selection of responses. If you'd like to participate in this section in the future, please email Scott Chase.
Is there a difference between shareholder engagement, challenge, and activism?
Shareholder objectives for interaction with board members are based upon investment philosophy, long-term versus short-term investment horizon, and many other variables. The degree of engagement for communication between board members and shareholders can be viewed along a continuum representing the relative importance of the issue at hand and the depth of shareholder interest as evidenced by a willingness to spend time, effort, and money on the process. On one end of the spectrum is traditional ‘vanilla’ investor relations and on the other a committed proxy fight with the objective of changing the make-up of the board.
Simple board member ‘engagement’ with an investor is often characterized by an informal one-on-one dialogue. This type of communication typically will involve issues of interest to most investors and not an agenda specific to the shareholder involved. Committed shareholder ‘challenge’ or ‘activism’ is more often initiated with the objective of generating a board response that is compliant with the shareholder’s specific demand. A shareholder activist may in fact insist that specific, timely action be taken by the board, failing which, escalation may include concerted public opposition to director reelection. An activist agenda (especially that of a noisy “short” or a short-term holder) may not represent the interests of most, or even some, of the other shareholders. To read more, click the link below.
[Click Here to Read the Entire Article]
Back to the Top
U.S. Business Leaders Also Split Over Inflation Prospects
In the latest KPMG Global Business Outlook survey by KPMG International, 41 percent of U.S. manufacturing executives expect employment to increase, up from 28 percent in October, although service industry executives are somewhat less optimistic, with only 28 percent seeing an increase, compared with 25 percent from the October results.
Overall, the survey finds an across-the-board rebound in sentiment and expectations for higher revenues, profits and business activity.
There’s a clear shift from cost-cutting to growth in a post-recession environment.
- Two-thirds of U.S. service-industry respondents say they expect to see improved business activity over the next twelve months, up significantly from 52 percent in October.
- More than half expect increases in revenues and profits.
- Sentiment among manufacturing executives also rebounded, with 68 percent expecting improved business activity, compared with 57 percent in October.
- Close to two-thirds also expected increases in revenues and profits.
- Forty-one percent of U.S. manufacturing executives expect employment to increase – a significant jump from the 28 percent in October.
- Service industry executives are somewhat less optimistic, with only 28 percent seeing an increase, relatively flat compared with 25 percent from the October results.
There is continued emphasis on increased productivity throughout the marketplace, as businesses work to leverage new operations and IT models that improve efficiencies within their organizations..
- Fundamental shift in services sector to meet new market demand.
- Companies we work with are increasingly moving to Cloud-based solutions and new strategic sourcing and delivery models to drive these business. improvements. These changes are adding new layers of complexity for senior executives to manage, though are quickly becoming the norm as competition intensifies.
- Transformation -- These changes are adding new layers of complexity for senior executives to manage, though are quickly becoming the norm as competition intensifies.
- With stronger optimism around business activity and with many businesses still sitting on cash reserves, there may be positive momentum. But increasing payroll continues to be a significant hurdle as companies look for ways to improve their operations with existing headcount.
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Board Pay
Is Rising with Improved Market Performance
In contrast, the cash portion of 2010 director pay packages — annual retainers and board meeting fees— was relatively unchanged.
The compensation report, compiled by the National Association of Corporate Directors in collaboration with compensation consultancy Pearl Meyer & Partners, examined programs at 1,400 companies with revenues from $50 million to more than $10 billion based on a review of public proxy filings and financial statements.
The report found that 2010 board pay levels generally tracked corporate performance, with the sizeable portion of director pay that is provided in equity rising in response to the market recovery. Total growth in board compensation ranged from a 5% increase at the very largest U.S. companies to a 20% jump at the smallest firms studied. The latter revenue group generally uses more fixed-share equity grants, which tend to result in bigger increases in value during strong market performance than fixed-value grants.
“The increase in 2010 director compensation echoes trends during previous economic rebounds and follows several years of flat or modest pay levels,” noted Pearl Meyer CEO David Swinford. “Coupled with increased demands in the current regulatory and governance environment, more companies will be prompted to review their director pay programs over the next year. As a result, similar levels of growth in board pay are very possible over the short term.”
A copy of the report is available for purchase by clicking here.
Also, the Fourth Quarter 2010 edition of Directors & Boards devoted a major focus to the topic, “Are Directors Underpaid?”
To purchase a copy, click here.
Director Resources
Annual Meetings: With this being prime season for many company annual meetings, one useful resource is an "Issue Brief" produced by the Council of Institutional Investors that identifies some best practices for shareholder meetings. Click here for a copy. The First Quarter 2011 edition of Directors & Boards, with its major theme of “Fixing the Annual Meeting,” is also chock full of enlightened thinking and best practices for shareholder engagement and proxy voting around the annual meeting. Click here to order a copy.
Finance Function: Accenture has released a study that reveals that the CFO’s responsibilities are increasing at companies as the function takes on greater responsibility in other areas like IT, HR, strategy, customer service, and marketing and sales. Additionally, CFOs are driving significant change and playing a more strategic management role in the C-suite. Click here for more information on the study.
Women on Boards I: A new report from GovernanceMetrics International found that more than 40 percent of the world’s largest publicly listed companies have not appointed even one woman to their boards. Even in major markets like Japan, Italy, the United Kingdom, and the United States, women continue to be “grossly underrepresented” on corporate boards. A free copy of the report can be downloaded here.
Women on Boards II: For 2010, the Fortune 500 companies represented less than 1 in 5 of all of corporate board nominations of women as tracked by NewsOnWomen.com. For additional data and news on board appointments of women, see Elizabeth Ghaffari’s website Champion Boards.
Ethics: The Ethisphere Institute last month announced its fifth annual selection of the World’s Most Ethical Companies, highlighting 110 organizations that lead the way in promoting ethical business standards. “These companies go beyond legal minimums, introduce innovative ideas benefiting the public and force their competitors to follow suit,” the institute notes. Click here for the full list.
Author Notes
Call for Entries: Nominations close May 31 for nominations for the National Association of Corporate Directors Director of the Year. Click here to submit your nomination.
Founders' Forum is a new blog authored exclusively by the founders of GovernanceMetrics International: Gavin Anderson, Rick Bennett, Jim Kaplan, Nell Minow, and Bob Monks. To subscribe to Founders' Forum by email click here and fill out the "Subscribe by email" form on the right.
Herbert “Pug” Winokur Jr., a former director of Enron Corp., has donated his Enron papers to the Hagley Museum & Library, which will make these paper documents available for online public viewing access. Click here for more information about the donation. Winokur, managing general partner of Capricorn Holdings, a private equity investment firm, has been a key participant in a series of Director Roundtables co-moderated by Directors & Boards and Debevoise & Plimpton.
Stanley Silverman, a trustee of Drexel University’s College of Medicine, has been named chairman of the institution. The College is home to one of the nation’s leading centers in spinal cord research and, among other innovative programs, has one of the foremost centers for malaria study and HIV/AIDS research. Silverman is the former president and CEO of PQ Corp. and is now president of investment firm Horizon Venture Group LLC and serves on several boards. He is another key participant in the Directors & Boards-Debevoise roundtable series.
John Reed, who has authored several important articles for Directors & Boards, has joined DLA Piper LLP as a partner and founder of the firm’s newly established Delaware office.
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Directors & Boards e-Briefing is a monthly service of Directors & Boards. All contents copyright 2011, MLR Holdings LLC.