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Directors & Boards
Robert H. Rock
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James Kristie
Editor
Lisa
Cody
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David Shaw
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Scott Chase
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From Jim Kristie | Article of the
Month | Columnist
Reader Profile |
Research | News |
The
Cosmic Banana Peel
A reflection on the role of the board prompted by the Murdochian mess..
I got a call in July from the Financial
Times for some comment on the governance of Rupert Murdoch’s
News Corp. What
I had to say was hardly revelatory. But it got me to do some
serious thinking about the “cosmic banana peel.”
I was exposed to this concept when my lead columnist, Hoffer Kaback,
gave me a book at last year’s holiday season, “Bird
by Bird: Some Instructions on Writing and Life” by bestselling
author Anne Lamott.
Here is a passage that resonated with me:
"Remember that whenever the world throws rose petals at you, which
thrill and seduce the ego, beware. The cosmic banana peel is suddenly
going to appear underfoot to make sure that you don't take it all too
seriously."
The concept came alive a few weeks into 2011 when Warren Buffett’s
judgment and reputation for probity took a shellacking as a result of
his handling of chief lieutenant David Sokol’s front-running purchase
of Lubrizol shares. Think of the mountain of rose petals that have been
strewn in Buffett’s path. Buffett, as well as Sokol, took a mighty slip
on the cosmic banana peel.
We are all familiar with the dynamic in one conceptual form or another:
At a moment of high-impact accomplishment, success, recognition . . .
the cosmic banana peel gets underfoot, resulting in disappointment,
disdain, even disaster. It is true in all fields of endeavor, from
sports to entertainment to, of course, business.
Which brings us back to Mr. Murdoch. This musing about cosmic banana
peels is not to trivialize the wrongs done by his company. Pain is
being dispensed upon News Corp. and its executives, family relations .
. . and, sadly, shareholders. The reputation of the board is taking a
whacking in this Murdochian mess.
In pulling these threads together, here is a conclusion that we might
draw.
The board’s role in risk awareness and oversight is expanding in depth
and breadth. There are many ways to frame the responsibility: a good
board knows where the dangers lie; a good board keeps its management
team on the right path; a good board challenges anything that doesn’t
pass the “smell test”; a good board tries to identify problems that
might be in management’s blind spot; a good board reins in management
when it may be driving the company into a ditch. . . .
How about this: A good board stays a step ahead of management, watching
that the CEO doesn’t slip on his or her own cosmic banana peel.
As always, I welcome your comments at jkristie@directorsandboards.com.
Please join me this Summer for another complimentary webinars from Directors & Boards. On August 18, at 2pm EDT, I'll be hosting Joe Ruck and Junaid Syed of BoardVantage for Technology Disruption Hits the Boardroom: What Directors Need to Know to Harness Opportunities and Avoid Pitfalls. Register for this webinar here.
Jim
Kristie is the editor and
associate publisher of Directors
& Boards.
What To Ask Before Joining a BoardThere is a lot more to this than just finding out if the company has D&O insurance.
By Frances Hesselbein
Ed Note: The following advice appeared in the book “My Life in Leadership” by Frances Hesselbein, copyright 2011 by the author. Published by Jossey-Bass, a Wiley imprint. Reprinted with permission.
In serving as chairman of the Volunteers of America for six years; as chairman and founding president of the Drucker Foundation (now the Leader to Leader Institute) for 10 years; as the CEO of Girl Scouts of the USA for 13 years; and as a member of the boards of Mutual of America Life Insurance Co., Pennsylvania Power and Light, and other organizations, I have learned that there are serious questions every potential director should ask before accepting an invitation to join a board:
• What is the mission of the organization?
The response should tell you why they do what they do — the organization’s reason for being. If there is no mission statement or if the response focuses on the what (“Let me tell you what we do”) and not the why they do what they do, say good-bye.
• What is the board’s vision of the future?
This question should bring an illuminating response. No vision — you don’t sign on.To read more, click the link below
[Click
Here to Read
the Entire Article]
A Director’s Year in Review
Call it generally exciting, frequently challenging, and often rewarding.
By Robert H. Rock
The “Year in Governance” special issue of Directors & Boards delivered to subscribers this past month gives me the opportunity to look back on my own experiences over the past year as a director of three corporate and four charitable/civic boards.
For 16 years I served on the board of Alberto-Culver Co., which in May 2011 completed its sale to Unilever. Under the strong and focused leadership of the Lavin/Bernick family, Culver grew into a world-class consumer products company. Since its founding in the mid-1950s, Culver has not only developed powerful brands but also a powerful culture, which reflected “the lengthened shadow” of its two very creative, competent and caring chairs, Leonard Lavin and his daughter Carol.
For 15 years I have served on the board of Quaker Chemical Corp. We effectively transitioned the leadership to Michael Barry, who took on the top job just as the 2008-2009 recession slammed the world economy. To read more, click the link below.
[Click Here to Read the Entire Article]
Michael J. Inserra Managing Director
Ernst & Young Financial Services Office Assurance Practice
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.
What are some of the themes and trends in corporate governance that have emerged in the U.S. over the last few years? What have been the primary reasons, or catalysts, for this evolution?
Several measures, including most significantly the Dodd-Frank Wall Street Reform and Consumer Protection Act, enhanced shareholder rights in the governance space over the past several years. During this same time period, investors also have enhanced their expectations for how companies should address major issues such as executive compensation, board declassification, majority voting in director elections, board leadership, and the elimination of barriers for shareholders to push change.
The recent regulatory reforms and enhanced disclosure rules spurred by the financial crisis encourage boards to further strengthen governance practices and oversight of corporate strategy and risk in order to build long-term shareholder value.
As a result, we are seeing companies undertake efforts to enhance outreach and engagement not only with key shareholders but also with other stakeholders, such as regulators and legislators. Corporate action in response to shareholder resolutions has also increased measurably – both at the initial submission stage as well as on those receiving high levels of voting support. To read more, click the link below.
[Click Here to Read the Entire Article]
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Shareholder activists have had a great deal of success in pushing companies to stop using certain takeover defenses that undermine shareholder rights, according to a new report from GovernanceMetrics International (GMI), the independent leader in global corporate governance and ESG. The report provides an overview of trends in shareholder proposals related to takeover defenses over the last three years.
“The changes in takeover defense proposals appearing on proxy statements seem to be driven by several factors,” said Senior Research Associate Beth Young, author of the report. “In addition to successful shareholder activism, companies may be more willing to settle takeover defense proposals rather than allow them to appear on the proxy statement.”
Key findings from the report include:
- Board declassification continues to spread in the S&P 500, with approximately 33 percent of firms having a classified board – the lowest proportion since GMI began tracking this data.
- Half of S&P 500 firms now allow shareholders the right to call a special meeting.
- The prevalence of poison pills among S&P 500 companies declined sharply from more than half in 2002 to only 16.2 percent in 2011.
- The number of shareholder proposals requesting shareholder action by written consent in lieu of a meeting increased from zero in 2009 to 32 in 2011, indicating an emerging target issue for shareholder activism.
The report, titled “Proxy Season Wrap-Up: Successful Activism Dismantles Takeover Defenses,” is available as a free download from the GMI website.
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September
12-14, 2011 October
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4, 2011 November
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Lessons from Say on Pay Successes and Failures
U.S. public companies should take the lessons learned from this season’s say on pay votes and begin preparing now for the 2012 proxy season, according to a report released in July by The Conference Board, the global business research and membership organization.The study—entitled “Say on Pay in the 2011 Proxy Season: Lessons Learned and Coming Attractions for U.S. Public Companies”—reviews the results of the inaugural season of shareholder advisory votes under the Dodd-Frank Act through June 23, 2011. It also examines the impact of proxy advisory firm recommendations on shareholder votes and company responses, and offers recommendations for companies in making their compensation and governance decisions to help position them for future say-on-pay votes.
Among the report’s recommendations:
• In light of the large volume of say on pay votes and the difficulties companies encountered in 2011 in engaging with shareholders during the brief period between the release of voting recommendations by proxy advisers and shareholder meetings, companies should identify and reach out to their major shareholders much earlier in the year.
• Given that 2011 bonus, equity, and other compensation grants were determined by many companies prior to their 2011 say on pay votes, it may not be easy for companies to react to failed or close votes or negative voting recommendations in a way that can be meaningfully reflected in 2012 proxies. Some companies may find it too late to avoid negative proxy adviser recommendations for 2012, especially if their 2011 total shareholder returns are below those of their peer groups.
• Even companies that won their say on pay vote with more than 70% shareholder approval cannot rest easy going into future proxy seasons, given the crucial role played by negative proxy advisory firm recommendations based on alleged pay-for-performance disconnects. One or two years of poor TSR performance may jeopardize positive recommendations.
• Pay-for-performance issues will be even more important in the next proxy season, especially if the SEC adopts rules to require U.S. public companies to disclose annually in their proxies the relationship between the executive compensation paid and the company’s financial performance, as it is scheduled to do later this year under Section 953(a) of the Dodd Frank Act.
For complete details on the 2011 say-on-pay vote results, companies’ responses to negative vote recommendations by proxy advisory firms, and the actions companies should take to prepare for future say-on-pay votes, click here.
Director Resources
Risk Management: Deloitte has released a white paper about risk management programs for CFOs. “The Risk Intelligent CFO: Converting Risk into Opportunity” offers CFOs actionable steps and approaches to achieving effective and sustainable risk management programs, and also provides guidance and recommendations on how to become a Risk Intelligent Enterprise™. Click here to access a copy of the paper.
Global Risk: KPMG has issued a summary of the Australian Climate Change Plan, including a discussion of a carbon price mechanism and how it will work. This plan is a development that happened last month and is one that will require all multinationals doing business there to comply with. Click here for KPMG’s summary analysis.
Finance and Banking: The blog of the New York Society of Security Analysts (NYSSA) educates readers in the finance and banking sectors on the forces that shape their business. Launched in April 2010, the blog is called the Finance Professionals’ Post. The NYSSA has just been recognized by CFA Institute, the global association of investment professionals, as the 2011 recipient of the Most Innovative Initiative award for this blog.
Leadership: Thomas J. Saporito, chairman and CEO of RHR International LLP, has started up a new blog series titled “Moments of Truth” that can be found on the firm’s blog site. His blog postings will address key leadership concepts discovered by CEOs that helped guide them to success.
Director Professionalism: For the one-year anniversary of the Dodd-Frank Act, the National Association of Corporate Directors (NACD) issued an updated version of its most widely read publication — the “Report of the NACD Blue Ribbon Commission on Director Professionalism.” A copy can be accessed here.
Nonprofit Governance: For the eighth year, executive search firm BoardWalk is underwriting attendance of up to six board members at Harvard Business School's three-day course, "Governing for Nonprofit Excellence: Critical Issues for Board Leadership." To date, the firm has sponsored 39 board members for this exceptional course. Click here to learn more about the HBS course on nonprofit governance, and click here to apply for one of BoardWalk's Governance Fellowships.
Author Notes
Peter Kiernan, CEO of Kiernan Ventures, has been named chairman of the Darden School Foundation of the University of Virginia Darden School of Business. Kiernan, who earlier in his career was a senior partner of Goldman Sachs, wrote “10 Things Every Director Should Know About Risk” in the First Quarter 2010 issue of Directors & Boards. Click here for a copy of the article.
Dennis Beran, CIA, CCSA, senior vice president and director of audit at J.C. Penney Inc., headquartered in Dallas, was elected chairman of the board of the Institute of Internal Auditors for 2011-2012. Beran has spent his 40-year career at J.C. Penney, joining the company in 1971 directly after graduating cum laude from Point Park University in Pittsburgh with a B.S. degree in accounting. As chairman, he will serve as a key spokesperson for the IIA.
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Directors & Boards e-Briefing is a monthly service of Directors & Boards. All contents copyright 2011, MLR Holdings LLC.