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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
Nancy Maynard
Account Executive
Barbara Wenger
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Jerri Smith
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From Jim Kristie | Article of the
Month | Columnist
Reader Profile |
Research | News |
Bad Blood in the System
‘The Godfather’ speaks to the subprime
mortgage massacre ... and to a reason to be optimistic for 2008.
Sometimes in the most surprising places you can find simple
explanations for complex current conditions. That happened to me over
the long Thanksgiving holiday weekend.
With a little extra time on my hands, I popped into the VCR “The
Godfather.” You know those multiple-question personality profile
articles, asking subjects to name such things as their “Favorite book”
“Person I most admire” and “TV show I hate to admit I enjoy”? Well, my
answer to “Movie I’ve watched more than once” would be “The Godfather.”
This latest viewing was probably my fifth or sixth session with Don
Vito Corleone and clan.
The film resonates on so many levels – an epic tale of crime, business
(“It’s not personal, it’s business,” is one of many iconic lines of
dialogue), love, family relations, culture, history, and more.
The business storyline drew me in on this most recent viewing. A snatch
of dialogue provoked an “ah hah” moment — an explanation for today’s
credit market turmoil instigated by the subprime mortgage meltdown.
Listen in.
To set the scene, Michael Corleone (played by Al Pacino), the don’s
war-hero son who was not ordained to enter the family business,
nonetheless finds himself tapped to avenge the attempted assassination
of his father (played by Marlon Brando). His mission is to shoot
Sollozzo, who engineered the gunning down of the don on behalf of a
rival gang. To carry out the deed, Michael is being given firearms
training by Clemenza, the don’s trusted lieutenant. The whacking of
Sollozzo will launch total war among New York’s rival gang
families.
Michael: “How bad do you think it’s gonna be?”
Clemenza: “Pretty...bad. But that’s all right. These things gotta
happen every five years or so, 10 years. Helps to get rid of the bad
blood. Been 10 years since the last one.”
See where I’m going with this? What we’re dealing with now in the
credit markets is a cyclical purging of the bad blood.
If you’re looking for a simple explanation — simple, but admittedly
perhaps not satisfying — this is it. Every five or 10 years, the
financial markets’ institutional memory and credit discipline lapse,
and then it’s time for rival camps of buyers and sellers to go at it
with a vengeance. What gets whacked mostly are portfolios. But bodies
get carried out too, from the sales floors up through the corner
offices of banks and brokerage firms and all the way out to the
hinterlands, where bagholders with toxic mortgages are drawn into the
credit markets’ crossfire.
Writedowns of $50 billion so far this year are pretty bad. So are the
estimates of further damage to come, when $350 billion in
adjustable-rate subprime mortgages reset in 2008. Some sharp-pencil
types are projecting $300-500 billion in total losses before this purge
plays itself out. That’s a shameful lot of bad blood to get rid of.
We’re going into the year-end holiday season, a time to be thankful and
to count our blessings. Maybe we should be thankful that the process,
however painful, is underway to cleanse the system. This time next year
we might look back and be glad that the financial markets, in
'Godfather' spirit, went to the mattresses in 2007 to get rid of the
bad blood.
Jim Kristie is the editor and associate publisher of Directors & Boards.
Modernizing Board Communications:From Portals to Mobile Communications
In ever-growing numbers, progressive boards are leveraging communication technologies extensively to improve communications with and among their directors.
By Joe Ruck
Technology is fundamentally changing the way modern boards communicate.
Less than five years ago, most board communications were paper, fax, and email-based. Companies sent out board books in advance of meetings, and directors met in person to discuss agenda topics.
Fast forward to today, and things have changed considerably. Increased regulatory scrutiny, greater globalization, deeper competitive pressures, and more active shareholders have dramatically increased both the volume and pace of board work.
It’s also no secret that much more board work now takes place in between meetings, rather than during board meetings.
[Click
Here to Read
the Entire Article]
Is 60 the Time to Move On?
An early retirement policy for the CEO can seem like throwing out a scarce resource, but maybe it helps keep a company young in both age and spirit.
By Robert H. Rock
In September I attended a Genesis concert with a friend who is the CEO of a Fortune 100 firm. (For those who don’t remember Genesis, it’s a rock band formed in the mid-’60s featuring Phil Collins.) My friend turned 60 this fall and is set to retire this year after a highly successful seven-year tenure as CEO. Although still very active, both mentally and physically, he is retiring at this relatively young age as is customary for his company and for his industry.
As we sang along with Phil Collins, I wondered whether “early retirement” was good for him or for his company.
As he contemplates what might lie ahead, my friend is being offered opportunities to participate at the highest levels of business, government, civic, and charitable organizations. A recognized world-class business leader, he is weighing these opportunities to determine whether they fit with his interests and talents.
His early retirement will be filled with interesting and important posts, including his pick of the most prestigious boards of directors. He will continue to lead an extraordinary life, making significant contributions while having more time to spend with his equally extraordinary wife and family.
[Click Here to Read the Entire Article]
Managing Director
The Musser Group
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 is your opinion of the importance of boards in emerging growth companies?
Boards of directors can be even more important for emerging growth companies than for their traditional later stage counterparts. In emerging growth companies, the board can work with the entrepreneur to help set the strategic direction for the company and really establish that company’s business DNA. I’m not talking about establishing technology, product or service strategy, but the business growth and exit strategy. A lot of entrepreneurs fail to plan for these factors, and they are ultimately critical to a business’s success.
A proper emerging growth board helps the CEO and entrepreneur set proper milestones: hire executive management; find M&A candidates; land large deals; set the business growth roadmap. Compliance matters are crucial, but less complex at the earlier stages of an enterprise.
How is governing them different from larger more established companies?
Governance of an emerging growth company is less about compliance and more about business, finance and strategy. Governance in many ways means ensuring proper information flow occurs at all levels and creating an environment of openness to enable this growth. Governance in my mind means playing "offense" and helping to challenge the company to meet new heights. Compliance to me means "defense" and following procedure. Emerging growth companies need to play offense to grow.
[Click Here to Read the Entire Article]
78 percent of companies do not include suppliers in their company’s ethics and compliance programs, creating financial and reputation risk
A September 2007 survey of 108 Global 2000 companies by Integrity Interactive Corporation shows corporate ethics and compliance programs and controls do not extend to their global supply chains. The survey found that 78 percent of companies do not include suppliers in their company compliance and ethics programs, and nearly 58 percent were not sure if their company regularly assessed ethics risks in the supply chain, the network of companies that collaborates to deliver a product or service to customers.
In addition to the absence of ethics and compliance programs for the supply chain, the survey also found information that points to other areas of significant risk:
- 88 percent of respondents do not maintain a Web-based portal for suppliers
- 78 percent of respondents do not include suppliers in their company’s Code of Conduct
- 58 percent of respondents don’t regularly assess compliance risk in their supply chain
- 56 percent of respondent companies do not audit supplier compliance with Code standards
December 11-12, 2007
The 8th Annual Directorship Institute will be held in New York City. Leading the in-depth discussions of principal governance concerns will be such featured speakers as Richard Breeden, Jeffrey Sonnenfeld, Frank Zarb, Ralph Whitworth and Ram Charan. For information, visit
January 13-14, 2008
Directors Forum 2008 will be held at the University of San Diego. Bringing together institutional investors, directors, officers, and regulators, the event will feature such speakers as former H-P Chair Patricia Dunn, Alan Murray of the Wall Street Journal, Ralph Whitworth of Relational Investors LLC, and James A. Johnson, director of United Health Group, Goldman Sachs, Target Corp., and other companies. To register, visit
February 20-21, 2008
The Tax Council Policy Institute will hold its 9th Annual Tax Policy and Practice Symposium at The Ritz-Carlton Hotel in Washington, D.C. The program is titled "Future Shock? Impact of U.S. Fiscal Policy on Corporate Taxation in an Increasingly Competitive Global Marketplace." The symposium will bring together leading professionals and policymakers from government, industry, and academia to take an in-depth look at critical tax issues facing U.S. businesses today. Roger LeMaster, executive director of TCPI, warns that "Tax executives will face a variety of challenges bound to make 2009 a potential watershed year for the structure of the U.S. tax system." KPMG LLP, the audit, tax, and advisory firm, will serve as program manager for the 2008 event. For additional information, visit
February 27-29, 2008
The Directors' Consortium, a joint offering of the University of Chicago Graduate School of Business and Tuck at Dartmouth, will conduct a three-day intensive program exploring the fundamentals of corporate governance and board service. Leading faculty from five world-class institutions will present a comprehensive approach to the complex decisions that board members must make. The program will be held at Chicago GSB. For information, visit http://www.directorsconsortium.net
Director compensation has flattened out after a consistent four-year rise in compensation value, in step with increased demands of time and responsibility. The plateau is largely a result of flatter trends in cash compensation and reduced impact of stock price changes on equity compensation levels. Programs continue to be tailored to recognize refined individual roles and to better align directors’ interests with those of shareholders.
Executive compensation consulting firm Frederic W. Cook & Co. Inc. released findings from its fifth annual directors’ compensation report, Director Compensation: Nasdaq 100 vs. NYSE 100, which analyzes the pay practices of nonemployee directors at the 100 largest U.S.-based companies listed on each of the two major U.S. stock exchanges.
Study highlights:
- The median value of directors’ compensation programs remained flat at both Nasdaq and NYSE companies, at $230,000 and $198,827, respectively.
- Continuing the trend in recent years, stock option prevalence decreased for NYSE companies, with only 33 percent continuing to grant stock options as part of the annual equity program, compared to 38 percent last year. Stock options are still the most common award type granted to directors at Nasdaq companies, with 70 percent of the companies awarding stock options, down from 78 percent last year.
- A greater number of companies in both the Nasdaq and NYSE samples are providing higher annual retainers to committee chairmen, than to other committee members. The size of these retainers did not change dramatically from last year.
- The prevalence of stock ownership guidelines or share retention requirements continues to increase, with 54 percent of Nasdaq companies and 85 percent of NYSE companies disclosing such requirements, up from 39 percent and 80 percent last year for Nasdaq and NYSE companies, respectively.
A complimentary copy of the report can be obtained at http://www.fwcook.com.
Director Resources
IPO CEO Survey: An Ernst & Young survey of CEOs who have lead IPOs confirmed what one might expect: When asked what activities they spend more time on now that they are public, they said communications with investors, communications with the board, and operations/compliance and corporate governance. At what cost? Once they came public, the CEOs said they spend less time than they did as a private company on strategy, sales and marketing, and customer service. Click here for more a full briefing on the survey.
Doing Business in China: With China attracting investors of all types, from multinational companies, to financial institutions and private equity funds, foreign parties looking to invest in the People's Republic of China are bound to have all sorts of questions. With this in mind, the Fried Frank law firm has authored Foreign Investment in China, a guide covering a spectrum of issues that potential investors in China need to know, including the regulatory framework, corporate vehicles available for foreign investment, the general legal environment — including issues around real estate, environmental protection, tax and other legal considerations — and the framework for mergers and acquisitions of public and private enterprises. Visit the firm’s web site and order a copy from its online publications request form.
Nonprofit Governance: Nonprofit boards are taking lessons from the corporate side as a result of recent scandals, according to a new report on nonprofit governance released last month by BoardSource. The Nonprofit Governance Index 2007 examines board practices as reported by more than 2,000 nonprofit chief executives and board members. Among the findings: 92 percent of organizations have an external financial audit; oversight of the nonprofit CEO is among the areas of lowest nonprofit board performance; just over a quarter of organizations (26 percent) do not conduct a formal, written evaluation of the CEO by the board; and one-third of nonprofit boards do not review the chief executive's total compensation package as a full board. The report can be found on the BoardSource web site.
Ethics I: What makes a company ethical? A free white paper on this topic is available at http://redhawkethics.com. Redhawk Communications is an expert in business ethics training and communication. Since 1992, it has created effective ethics and compliance training and communication programs for leading corporations, including Merck, Dow Chemical, and the New York Stock Exchange.
Ethics II: The Caux Roundtable, an international network working to promote a better world through principled business leadership, has released the Ethical Leadership Profile or ELP, a product that the organization believes “dramatically advances the state of the art in business ethics, internal compliance programs, and corporate social responsibility.” The ELP is a personal diagnostic online tool that enlightens an employee as to what his or her most comfortable action orientation will be during situations with real or perceived risk. Learn more about the ELP and receive your own ELP results at http://www.myelp.org.
Author Notes
Directors & Boards Chairman and Publisher Robert H. Rock will be honored by Drexel University’s Center for Corporate Governance, in recognition of the journal’s 30th anniversary of leadership in the governance field. The ceremony, to take place on Jan. 29, 2008, will be part of Drexel’s “Inside the Boardroom” series of briefings held several times each year for CEOs and board members. At the event, Bob Rock will join in a panel discussion on “Leadership Lessons: Public vs. Private,” exploring the experiences of CEOs and board members who have experienced both forms of ownership.
Joe Plumeri, chairman and CEO of Willis Group Holdings Ltd., received the 2007 Intrepid Salute Award from former Senator Bill Bradley on Nov. 16 at the Intrepid Sea, Air and Space Museum’s 16th Annual Salute to Freedom Dinner. The event was attended by more than 800 people and raised over $1.5 million to benefit the museum and its educational programs. The Intrepid Salute Award was presented to Plumeri in recognition of his “outstanding business leadership and his many philanthropic activities.” Willis Group is a global insurance broker.
Ben Buettell has been named co-head of Houlihan Lokey’s fairness opinion practice. A managing director in the investment banking firm’s Chicago office, Buettell joined Houlihan Lokey in 1988 and has nearly two decades of experience providing financial opinions and advisory services to public and private clients in connection with mergers and acquisitions, leveraged buyouts, spinoffs, recapitalizations, going private transactions, strategic alternatives assessments, and capital raising activities. He serves alongside Rick Lacher, managing director and co-Head of the fairness opinion practice.
Toni Lynn Chinoy, founder and president of Harlan-Evans Inc., a consulting firm specializing in leadership development, has launched a new blog, Shortcuts to Grace. “Because I believe that we all have a leadership responsibility to ourselves and others, I would like to make the techniques and mental conditioning of powerful personal interactions, discovered through years of coaching senior leaders in corporations, available to anyone who would like to bring more grace into his or her life,” she says. Recent posts on the blog include “Managing the Energy” and “The Clowns Are in Control.”
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