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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 |
Be a Leader: Count Your Blessings
In attendance for the late Sir
John Templeton’s balm for battered
spirits.
July was a tough one. Fannie. Freddie. Indy. The S&P 500 finally
sinking into official bear territory. And here is a litany of horrors
for you, the Economic
Snapshot for July, courtesy of the Center for American Progress.
Ugly. Can I say it again? Ugly. As an investor, it was the kind of
month that you needed to curl up in a fetal position and hope that the
market got exhausted beating you up before your portfolio got totally
bone-crushed.
Adding to the long list of losses last month was the passing of
renowned investor Sir John Templeton. As the New York Times reported
in its obituary: “In a career that spanned seven decades, Mr.
Templeton dazzled Wall Street, organized some of the most successful
mutual funds of his time, led investors into foreign markets,
established charities that now give away $70 million a year, wrote
books on finance and spirituality and promoted a search for answers to
what he called the ‘Big Questions’ in the realms of science, faith, God
and the purpose of humanity. Along the way, he became one of the
world’s richest men.”
Let me tell you of a time when John Templeton and I were in the same
room together. It may bolster your spirits — and boost your leadership
ability and persona.
The year was 1993. I was on the program committee of the Financial
Analysts Society of Philadelphia (FAP), and we put on a special dinner
celebrating the 50th anniversary of the FAP chapter. Sir John was our
keynote speaker.
I had my FAP hat on at the dinner, but I also, as always, had my Directors & Boards editor hat
on. I taped his talk, thinking there might be some wisdom to come out
of his speech to pass along to the journal’s audience.
There was — 15 years later, that is. For whatever reason, I never ended
up doing anything with the transcript after the dinner. But his death
moved me to dig the transcript out of my archives.
Am I glad I saved it all these years. Listen and take heart to his wise
counsel:
“It is human nature to focus on our shortcomings. And, consistently, to
worry over the problems that exist in our individual lives and our
societies. Such self-reflection is one of the many forces that lead us
to set higher goals and drive us towards greater achievement.
“But if we limit our attention to the problems, we may fail to be
thankful for the blessings that we have. We lose sight of the progress
that has been made and the wonderful potential that lies ahead for all
of us.
“Instead, sit down and, like a security analyst does, look at the
facts. The facts are so favorable and so numerous that you can’t help
but be thankful. Amidst the problems and challenges with which we are
all constantly facing, be grateful for the blessings that abound.
“If you get up every morning and think of five new things to be
grateful for — overwhelmingly grateful for — you will be happier, your
day will go better, people will like you more, people will be drawn to
you. You will be a better leader if you will just recite your blessings
every day.”
What soothing and inspirational words amidst financial markets tumult.
I have about a mile walk to work every morning, which is a perfect time
for me to apply Sir John’s counsel. How about you?
I welcome your comments at jkristie@directorsandboards.com.
Jim
Kristie is the editor and
associate publisher of Directors
& Boards.
The Perils of Entering into
NegotiationsBe very careful and very selective. There are lots of reasons to reject propositions of interest.
By David Wanetick
“There is no harm in entering into a dialogue.” That is a common refrain in the boardroom. So too is, “We have nothing to lose by negotiating. If we don’t like the deal, we can always walk away later.”
Far too often, when it comes to negotiations, nothing could be further from the truth.
Some negotiations are unavoidable. And negotiations are an imperative step in actualizing a company’s business plan. However, negotiations are not cost free. Negotiations are a tax on a company’s resources, represent a diversion of focus, and heighten your company’s vulnerability to competition.
While we advise companies on developing a range of negotiating strategies, the first strategic question that should be addressed is, “Should we entertain the proposition?”
Here are some reasons why you should reject unessential opportunities to negotiate:
[Click
Here to Read
the Entire Article]
Understand the Cash
A board may be comfortable that the company has the resources to withstand a storm. Turnaround pros may come to a different conclusion.
By Deborah Hicks Midanek
In almost 30 years of working with troubled companies, I have never yet seen a company that has a good understanding of its cash.
Executive time is typically spent on important bank and capital market relationships, and on financial reporting. Cash management is typically a clerical function, not part of regular management scrutiny.
The board, not burdened with daily running the business, can assist on this, and through this continuing process help both management and board better understand the company’s business dynamics. Greater understanding of the critical drivers of cash through the business leads to greater confidence when the unexpected inevitably occurs.
How to do this?
[Click Here to Read the Entire Article]
Founder and President
22 Inc.
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.
As a long-time serving board member on NYSE and NASDAQ companies, what do you see as the greatest challenge to directors and board members over the next 3-5 years?
To make certain that the company on whose board you are serving has a reasonable strategy, and the right strategic capabilities, capital structure, and people resources to deal with the future that it faces. This is likely to be unusually challenging given the uncertain economic conditions, a complex set of domestic issues, and potentially explosive geo-political scenarios.
Has board service becomes less attractive and more risky on an individual/personal basis over the last 10 years?
Board service has become more interesting and challenging as the rate of change has accelerated and things have become more complex. The level of expectations regarding boards has risen, which has resulted in increased risk relative to the past. However, if a board member, and the board collectively, are doing their job with the appropriate degree of comprehensiveness, rigor, thoughtfulness, and prudence, the degree of risk is tolerable. Overall, this is the most exciting time to be on boards that I have experienced over the last 30 years.
Are you concerned that “the next generation” of board members is prepared strategically and tactically to assist companies in their growth and expansion?
Research indicates that the longer our students are in school....
[Click Here to Read the Entire Article]
Current Economic Conditions Increase Risks
According to the latest Chubb Private Company Risk Survey, 37% of U.S. companies do not purchase any type of management liability/professional liability insurance. The majority of survey participants do not purchase employment practices liability (63%), crime (66%), directors and officers liability (63%) and cyber liability (91%) insurance. One in three of the companies that do not purchase employment practices liability, crime and directors and officers liability insurance cite “low risk/no exposure” as the reason; one in two companies do not purchase cyber liability insurance for the same reason. Participants also were less concerned in 2007 than in 2005 about the potential financial damage caused by lawsuits filed for wrongful termination, discrimination or sexual harassment (23% vs. 43%), employee/retiree benefit issues (11% vs. 18%) and directors and officers liability issues (5% vs. 9%).
Yet, two out of three (62%) U.S. private companies have experienced some type of event related to management/professional liability in the past five years, including workplace crime (32%), employment practices liability (24%) and directors and officers liability (22%). In 2008, one in three (31%) companies expect to experience a crime-related event, 26% a directors and officers liability incident and 19% an employment practices liability incident.
Private company executives indicated their firms are likely to broaden product offerings (47%), reduce workforce size (28%), outsource functions or operations (25%), reduce or eliminate some employee benefits (20%) and/or make a major acquisition (19%) this year. In 2008, one-third of the survey participants anticipated tighter access to credit.
Employment Practices Liability Risks Surge
Equal Employment Opportunity Commission claims today are at their highest level since 2002, and each charge category—discrimination, harassment, retaliation, etc.—has increased by double digits since 2006.
Survey respondents indicated that in 2008 their organizations would reduce the workforce (28%), outsource functions or operations (25%) and reduce or eliminate some employee benefits (20%).
According to Chubb’s survey, the average total cost, including judgments, settlements, fines and legal fees, of an employment practices liability-related event is $63,114. Only 37% of companies with 50 to 249 employees purchase employment practices liability insurance, compared to 51% of companies with 250 or more employees.
Economic Conditions Spur Employee Crime
According to the 2006 report by the Association of Certified Fraud Examiners, U.S. organizations lose an estimated 5% of annual revenues to fraud, and businesses with fewer than 100 employees suffered a median fraud loss of $190,000. Employee crime cost companies in Chubb’s survey as much as $250,000
D&O Liability Litigation Costs Increase
In 2008, one in four respondents believed it is likely that their company will experience a D&O-related event. According to the recent Chubb survey, the average cost to defend and indemnify a directors and officers liability lawsuit is $393,017, up from $308,475 in 2005.
The survey reported that only 24% of respondents had a published corporate governance program or planned to have one this year, down from 44% in 2005. Only 24% of respondents have or plan to implement Sarbanes Oxley compliance in 2008.
Cyber Liability Remains a Threat
The 2007 CSI Computer Crime and Security Survey notes that 46% of companies had experienced one or more security incidents in the past 12 months; the average reported loss increased to $350,424 from $168,000 the previous year. In the United States, where 35 states currently require notification of a security breach, the Ponemon Institute, a privacy and information management research firm, reports that costs run as high as $197 per record, an increase of 43% from 2005.
About the Survey
Pollara, a public opinion and market research firm in Canada, conducted the Chubb Private Company Risk Survey in late 2007. The firm interviewed specialty insurance decision-makers at 469 U.S. for-profit companies. Chubb also sponsored the survey in 2005 and 2003.
About Chubb
The member insurers of the Chubb Group of Insurance Companies form a multi-billion dollar organization providing property and casualty insurance for personal and commercial customers worldwide through 8,500 independent agents and brokers. Chubb's global network includes branches and affiliates throughout North America, Europe, Latin America, Asia and Australia.
August
13-15, 2008
The Directors' Consortium, a joint offering of the University of
Chicago Graduate School of Business and the Tuck School of Business at
Dartmouth, will conduct a three-day intensive program exploring the
fundamentals of corporate governance and board service. Leading faculty
from the two institutions will present a comprehensive approach to the
complex decisions that board members must make. The program will be
held at the Ritz-Carlton, Battery Park, in New York City. For
information, visit
September
8-10, 2008
Columbia Business School Executive Education presents "Corporate
Directors' Responsibility: Enhancing the Integrity of Financial
Disclosure." Led by professors Nahum Melumad and Stephen Penman, the
three-day program focuses entirely on crucial financial disclosure
issues. Directors will deepen their expertise in analyzing financial
statements and in evaluating the appropriateness of financial reporting
and accounting decisions made by management. For more information, call
212-864-3395 or visit
September
9, 2008
The Forum for Corporate Directors (FCD), a leading Southern California
resource for promoting excellence in corporate governance and boardroom
leadership, will hold its second annual Governance Outlook event at The
Bowers Museum in Santa Ana, Calif. The presentation highlight this year
will be a panel discussion of governance issues moderated by Richard
Koppes, of counsel at Jones Day in San Francisco and former deputy
executive officer and general counsel of the California Public
Employees' Retirement System (CalPERS). The expert panel includes Eric
Baggesen, CalPERS senior investment officer, and Christopher Ailman,
chief investment officer of CalSTRS, the California State Teachers'
Retirement System. For further information, contact Michelle Conry at
929-375-3323 or by email at michelle@fcdoc.org.
September
14-17, 2008
The Society of Corporate Compliance and Ethics (SCCE) holds its 7th
Annual Compliance & Ethics Institute in Chicago. The SCCE champions
ethical practice and compliance standards in all organizations and
provides the necessary resources for compliance professionals and
others who share its principles. Experts from major corporations,
ethics organizations, law firms, academia, and the government will
address the most challenging issues related to designing, implementing
and managing effective compliance and ethics programs. For more
information, visit
September
22, 2008
The Practicing Law Institute holds its Sixth Annual Directors'
Institute on Corporate Governance at the PLI New York Center. The
program is presented in cooperation with the Society of Corporate
Secretaries and Governance Professionals. Daniel Amos, chairman and CEO
of Aflac Inc., will do the kick-off presentation, and Patricia Dunn,
former chairman of Hewlett-Packard Co., will do a luncheon address. For
more information, visit
September
24-26, 2008
The Directors' Education Institute (DEI) at Duke University will
conduct an intensive and innovative two-day program to address the
critical issues facing boards today. This ISS-accredited program is
designed for board chairs, corporate directors, and senior executive
officers of publicly traded companies. Through an examination of
topical issues - such as succession planning, strategy, compensation,
institutional investor activism, financial accounting and reporting,
audit committee practices, ethics, litigation, D&O insurance, and
crisis management - the DEI provides substantive instruction to
participants and the opportunity to engage with peers to develop best
boardroom practices. To register, please visit
The Boardroom Bound® Boardology™ Institute presents their Pipeline Seminar in New York. Register online at http://www.boardroombound.biz.
October
13-15, 2008
The New York Stock Exchange and Corporate Board Member magazine host
the fifth annual Board Committee Peer Exchange on Oct. 13. The event is
designed for board committee chairs, lead directors, and general
counsel to interact and exchange information with their peers who face
similar challenges in performing their chairmanship duties. It will be
held in New York City at the Grand Hyatt. On Oct. 14-15, the two
organizations will co-host the Annual Boardroom Summit. For more
information on these events, call 615-309-3200 or visit
October
19-21, 2008
The National Association of Corporate Directors (NACD) holds its 2008
Annual Corporate Governance Conference. This year's theme is "Building
Balance in the Boardroom: Risk, Reward, and Responsibility." The
program will cover such topics as: Roadmap for Compensation;
Identifying Risk; Effective Chairs and Lead Directors; Oversight of
Corporate Pension Plans; and CEO Succession Planning. The conference,
which also includes the Director of the Year awards banquet, will be
held at the JW Marriott Hotel in Washington, D.C. For registration and
hotel information call 202-775-0509, or visit
October
21-22, 2008
CompensationStandards.com will conduct two consecutive conferences -
"Tackling Your 2009 Compensation Disclosures: The 3rd Annual Proxy
Disclosure Conference" and "5th Annual Executive Compensation
Conference." The programs provide practical guidance on how to
implement responsible executive compensation practices and the latest
developments regarding executive compensation disclosures. The event
will be held in New Orleans and via video webcast. For information,
visit
The majority of senior executives don't agree with enforcing mandatory retirement on CEOs, according to a survey by BlueSteps, the career management services of the Association of Executive Search Consultants. Of the 398 respondents polled 17% indicated CEOs should retire by age 65, with another 10% saying that CEOs should retire by age 70. Perhaps considering their own future, 67% opposed a mandatory retirement age for CEOs.
According to AESC President Peter Felix, ageism will remain a constant issue, especially in light of the current U.S. presidential election. "I think we'll see ageism under the spotlight as the U.S. electorate considers a candidate over 70," Felix notes. “Age is the last slippery slope for CEOs. But can we really draw a clear line and say that a CEO is competent at 64 but not at 65? There are a lot of great CEOs over age 60 and more may be needed as the war for talent increases in intensity.”
An article by Felix, titled “The Superdelegate to the Shareholders,” about the board’s role in picking a new CEO, appears in the Third Quarter issue of Directors & Boards, mailing to subscribers this month.
NACD Selects Director of the Year
The National Association of Corporate Directors will honor Andrew J. McKenna, nonexecutive chairman at McDonald’s Corp. and lead director of Aon Corp., as 2008 NACD Director of the Year.
At McDonald’s, according to a statement by the NACD, “Mr. McKenna has earned great respect as chairman for his strong leadership through very turbulent times. The untimely passing of two CEOs in the early 2000s came as a hard hit to the company’s board. Mr. McKenna demonstrated great compassion during these events and his pragmatic leadership helped keep the board focused on business objectives. Instrumental in the board’s CEO succession plan, it held up through these ultimate tests. He has also taken the lead on several occasions within McDonald’s Corp. to identify executives for outside board positions and recruit talent for McDonald’s own board.”
Another NACD honor, the B. Kenneth West Lifetime Achievement Award, will be presented to John C. Whitehead. Per the NACD: “As a corporate director, business pioneer, and outstanding citizen, Mr. Whitehead has achieved in his lifetime more than most people would likely believe. For over 60 years, he has enjoyed a remarkable career as both a public servant and private industry leader. His contributions to the development of corporate governance are equally exceptional.”
John Whitehead is a former member of the editorial advisory board of Directors & Boards. He was featured in a cover story in the Third Quarter 2005 edition.
The awards will be presented Oct. 20 during an awards banquet that is part of the NACD 2008 Annual Corporate Governance Conference, Oct. 19-21 in Washington, D.C.
Director Resources
Compensation Regulatory Matters: Want a heads up on legislation to watch affecting pay and benefits? Visit the blog of Cara Welch, WorldatWork’s Washington-based director of public policy, responsible for anticipating and addressing regulations and legislation that could affect pay and rewards programs.
Compliance: Oversight Systems has released the results from its 5th annual survey [link to PDF] on SOX compliance. According to the results, companies are no longer seeing incremental benefits from SOX, and they are looking to reduce both costs and the number of key controls. At the same time, they want a better way to fight fraud.
M&A: A KPMG survey of 160 U.S. and European companies, titled “Doing Deals in Tough Times,” identifies five key ways that successful corporate M&A teams are organizing and implementing their deals. The KPMG research also examines organizational characteristics such as team size, reporting structure, skill composition, recruiting practices, tools and training, and compensation.
Fraud Investigations: With four out of five companies suffering from fraud in the past five years, it is no surprise that fraud investigations are a common occurrence in the business world. In the latest issue of the Kroll Global Fraud Report, Kroll investigators pull back the curtain on the investigative process to explore the complexities that can often prevent companies from responding in a timely and efficient manner to these serious incidents.
Governance Fellowships: To support excellence in nonprofit board leadership, the firm BoardWalk Consulting is offering up to six fellowships that will allow a select group of nonprofit trustees to attend a compelling short course at Harvard Business School on "Governing for Nonprofit Excellence." The deadline for preliminary expressions of interest is August 11, 2008. Click here for more information on the course itself and the firm’s process for selecting BoardWalk Governance Fellows.
Class Action Filings: Cornerstone Research and Stanford University Law School Securities Class Action Clearinghouse have released their Securities Class Action Filings: 2008 Mid-Year Assessment. The report indicates the level of litigation remained high. A majority of the filings contain subprime-related allegations. The report clearly offers more evidence for the ongoing fallout from the subprime crisis. The full report can be downloaded at http://securities.stanford.edu or http://www.cornerstone.com.
Disclosure I: The National Investor Relations Institute has released the results of its recent Regulation Fair Disclosure (Reg FD) study. The project involved a series of 30 executive interviews with senior IR professionals, both corporate IROs and counselors, to understand the impact of Reg FD on the practice of investor relations in the eight years since its introduction in 2000.
Disclosure II: Twenty eight percent of large public companies are not fully meeting the disclosure requirements for tax reserve estimates required by the Financial Accounting Standards Board rule known as FIN 48. Seigel & Associates LLC analyzed the annual reports of more than 600 companies whose revenues exceed $2 billion. The complete report can be accessed at http://www.seigel-llc.com.
Author Notes
AlixPartners LLP, the global business advisory firm, has named Managing Director Frederick A. Crawford, 45, as chief executive officer. He joined the firm in 2004, and has led several major client engagements, including serving as chief restructuring officer of a major global retailer where he helped improve operating earnings 70% and add $2.7 billion in shareholder value. He is the co-author of the New York Times best-selling book, "The Myth of Excellence," which details his research on consumer motivation and corporate strategic response.
Alice Korngold, an expert in strengthening nonprofit governance, has updated her firm’s website. Visit http://www.korngoldconsulting.com for briefing materials and other informative resources for leadership development strategies for both corporations and nonprofits.
Randy Thurman has been named executive chairman of CardioNet Inc., a wireless medical technology company. He most recently served as chairman and CEO of VIASYS Healthcare Inc., a medical technology company that was acquired by Cardinal Health in June 2007 for $1.5 billion. Thurman’s article, “The Unique Nature of Small Company Boards,” appeared in the Summer 2000 issue of Directors & Boards and was spotlighted again for special mention in the 30th Anniversary issue of Directors & Boards published in 2006.
Carpenter Moore, a wholly owned subsidiary of The NASDAQ OMX Group Inc., has been ranked the No. 1 directors and officers (D&O) insurance broker for public companies, according to the latest Towers Perrin Directors and Officers Liability Survey. Earlier this year, Carpenter Moore released its first global D&O Benchmarking Report that offers unique data on the true cost of D&O insurance for public companies in different industries. For more information, visit http://www.nasdaq.net/PublicPages/InsuranceAgency.aspx.
Grant Thornton LLP, the U.S. member firm of Grant Thornton International Ltd., one of the six global, accounting, tax and business advisory organizations, took first place in the Public Accounting Report’s second quarter audit rankings. The ranking marks the first time one of the four largest accounting firms has not won PAR’s quarterly audit ranking. To achieve this ranking, Grant Thornton placed second in net gains in SEC clients, net gain revenue audited, net gain assets audited, and third in net gain audit fees for the second quarter.
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