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Directors & Boards
Robert H. Rock
Publisher
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 |
A Blessing of This, and Any, Season
Executives are not conscripted
to board service, so let’s be grateful for the spirit of volunteerism
that undergirds our system of governance.
Capitalism has not been good to capitalism in 2008.
I could fill up the rest of this editor’s note talking about the litany
of horrors in the business and financial markets. But this is December.
A month and season when feelings of goodwill and appreciation for one’s
blessings should reign. So let’s turn away for a moment from the harsh
conditions that surround us and spend a moment cherishing something
good.
One of the major blessings of capitalism that we should be thankful for
is the volunteer spirit that propels people to join boards.
I get my inspiration for my editor’s notes from all manner of sources.
For an appreciation of that volunteer spirit, without which our
corporate governance system could not exist (after all, executives are
not conscripted to board service), I turn to an unusual source — a
newsletter issued by the Marcella
Sembrich Memorial Association.
Madame Sembrich was a famous opera singer at the dawn of the 20th
century — performing in the grand opera houses of Europe and in the
U.S. In fact, February 2009 will mark the 100th anniversary of her
retirement from the Metropolitan Opera, after which she still had a
vital career teaching at such renowned institutions as the Curtis Institute of Music in
Philadelphia, considered one of the finest music conservatories in the
world. I can see the Curtis Institute from my office window. And Directors & Boards Publisher
Robert Rock serves as a trustee of Curtis.
Something else about Madame Sembrich: She was a distant relative in my
family. As such, I happily participate in the fundraising that supports
a museum in her honor in the Lake George area of New York, and thus I
get the association’s quarterly newsletters.
A recent newsletter addressed the subject of volunteering. The thoughts
are sincere and, in their own humble way, offer a distinctive insight
into what drives individuals to take on the responsibility of
organizational oversight:
“People volunteer for many reasons. The main reason is the desire to
serve others, but this does not exclude other motivations as well.
Think of volunteering as an exchange, something for you, something for
the organization. Think about what you receive when you give and
consider why you want to volunteer. Here are possible motivations to
volunteer:
• for fun
• to feel good
• to keep busy
• to share a skill
• for recognition
• to make friends
• to be challenged
• to have an impact
• to keep skills alive
• to be part of a team
• because you were asked
• for the freedom to schedule
• to have an excuse to do what you love
• to get to know people in your community.”
Very clever how the list was composed to flare out as the bullet points
descend. Any of us reading this list will recognize one or more
motivations that have prompted us to say “yes” to a corporate or
advisory board invitation.
It’s never easy being a director. Both Ron Dietz’s and Gary Sutton’s
commentaries below attest to what a high calling it is. They both in
their own way affirm my thesis — i.e., how fortunate we all are to have
executives who want to take on this heavy mantle of service. But it
becomes an especially vital mission to be a director during a deep
business contraction. As I heard a former public company CEO say the
other day to a roomful of young executives, “You don’t need directors
when times are good … you need them when the chips are down.”
Our system of governance is not perfect, and does not always meet
expectations. But let’s be thankful that we have individuals who
willingly step up to the demands of directorship — in good times and in
bad, in troubling times such as we’re in now and in more buoyant times
that are sure to come.
Happy holidays to all. May prosperity make a return engagement to our
e-Briefing readers in 2009. I welcome your comments at jkristie@directorsandboards.com.
And I welcome you to visit my
“Boards at Their Best” blog and comment there as well to my random
musings from diverse inspirational sources!
Jim
Kristie is the editor and
associate publisher of Directors
& Boards.
Welcome to the Audit Committee!Go ahead, curse your fate … and then come to grips with these 10 action steps for addressing the committee’s priorities in the coming year.
By W. Ronald Dietz
So … you’ve just been nominated to serve on the audit committee! After cursing your fate, you want to ensure that the committee is functioning as a forward-looking, strategic complement to the company’s overall governance rather than operating in a narrow, more traditional role. You also want the committee to be guided by the array of best practices that have emerged over the last few years.
Here’s a starting list of initiatives you might want consider to achieve those objectives:
1. Examine the committee’s charter to ensure that it is significantly broad in scope. Does the committee, for example, have oversight for the full array of IT issues (only 49% of boards recognize responsibility for business continuity, only 39% for data security), for mission critical change initiatives (outsource programs, major systems projects, etc.), and for tax management? If not, start a dialogue among your colleagues about where oversight for these important functions should be domiciled. To read more, click the link below.
[Click
Here to Read
the Entire Article]
A Textbook Case of Board Risk
The dangers are unreal … the liabilities are very real.
By Gary Sutton
My wife and I were personally sued in a class action suit for $458 million. This was roughly $459 million more than we were worth back then.
You see, I chaired this college. A student group filed, charging us with false recruitment advertising. If it were not for two things, I’d have been outraged. Those two things were newspaper ads that were, in fact, both false. Oops.
My friend was the chancellor and I had agreed to be his chairman for a single term without pay. We held four board meetings that year. Each lasted four hours.
It was a teeny-tiny little school, with about 100 students when we joined. There were just under a thousand enrolled the day this lawsuit struck. The school taught nursing, court reporting, basic computer, and other vocational skills. Our classes held no glamour and little philosophy but led to jobs. Ivy? Not.
To read more, click the link below.
[Click Here to Read the Entire Article]
Thomas H. Bentz, Jr.Shannon A Graving
Holland & Knight
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.
HOW TO PREPARE YOUR D&O INSURANCE POLICY FOR THE SUBPRIME CREDIT CRISIS
How can directors gauge and perhaps improve the effectiveness of existing D&O policies as the subprime credit crisis plays out?
As companies try to sort out the impact of the subprime credit crisis, many directors and officers are asking whether their D&O insurance will protect their personal assets if their company files for bankruptcy. The short answer is that it depends on how well the D&O policy was negotiated.
Most standard D&O policies do not offer optimal protection to directors and officers for subprime related bankruptcy claims – however, if you know what to ask for, most insurers will offer enhancements to their standard policies to provide additional protection. The following outlines why some D&O policies may not cover subprime related bankruptcy claims and provides some examples of provisions that need to be negotiated in a typical D&O insurance policy. To read more, click the link below.
[Click Here to Read the Entire Article]
Companies expect annual bonus and stock-based awards for executives to decline in response to the troubled economy, according to a new survey of more than 400 board members, executives and human resources professionals.
Nearly 9 out of 10 respondents said market turmoil will affect their decisions about executive compensation during the next six months, with nearly one in five predicting the impact will be “significant,” according to Executive Pay in the New Economy, an online survey conducted by independent compensation consultancy Pearl Meyer & Partners in early November.
Survey participants were asked to comment on their year-end pay decisions – the awards provided for performance in 2008 – and provide insight into their compensation planning for 2009. In addition to the declines in performance-based pay, half of respondents expect salary growth to be lower in 2009, with nearly 18% saying their companies are “strongly considering” a salary freeze.
Some companies question whether performance targets may have been set too low
The survey also found that 36% of respondents said they might consider paying a year-end bonus below formula—in other words, exercising their discretion to provide a payout that is less than what the executive would have “earned” based on the plan’s stated objectives.
Long-term incentives to fall
Slightly over half of respondents anticipate a decline in the value of this year’s long-term incentive awards (the stock option and restricted share grants that comprise the bulk of executive compensation in many industries), with 23% saying values will be “considerably lower.” Noted Swinford, “When companies decide not to increase the size of stock awards to compensate for depressed share values, it means executives do not benefit unless – and until – they succeed in boosting the share price.”
Severance pay likely to decline
About 1 in 5 respondents expect to revise their companies’ severance or change-in-control arrangements during the next 12 months. By a 3:1 ratio, respondents anticipate decreased payouts as compared to higher payouts. “Companies have been working to eliminate unfair or excessive payouts,” said Swinford. “But such arrangements are usually so complex, with payouts dependent on multiple factors such as future share price and years of service, so companies have to very carefully consider the ramifications of any changes.”
Boards sound tougher on pay
Board members were more likely than other respondents to predict lower base salary increases (57% vs. 49%, respectively); to be considering a salary freeze (41% vs. 36%), and to expect changes to their executive severance programs (32% vs. 17%).
About the survey
Pearl Meyer & Partners conducted the Executive Pay in the New Economy survey from late October to early November 2008 to determine what executive pay program modifications were being contemplated by boards, executives, and human resource professionals in light of recent market turmoil. The 410 respondents to the survey represented 371 organizations across a broad range of industries and ownership structures and included 80 “outside directors” and 330 “employees of the firm.”
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December
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December
9-10, 2008
The ICGN Mid-Year Conference will be held in Wilmington, Del. Hosted by
the International Corporate Governance Network, sessions will include
"A View From the Bench" in which members of the Delaware judiciary will
participate in discussions of key governance matters. Other topics to
be discussed include regulatory and market issues such as shareholder
access, say on pay, proxy system reform, director dialogue with
shareholders, transparency of stock ownership by institutions, proxy
contest reimbursement, and more. For more information, go to
December
15, 2008
The Aspen Institute's Corporate Values Strategy Group and Business
Roundtable Institute for Corporate Ethics will hold an off-the-record
meeting of senior financial executives and analysts titled
"Communicating with Strength and Purpose in Times of Uncertainty." This
session will be rooted in the Aspen Principles, which encourage
corporate-investor communications to focus on the long-term. For more
information, visit
Directors Forum 2009 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 SEC Chairman Christopher Cox, Invesco Ltd. Chairman Rex Adams, famed short seller James Chanos, and Bill George, director of Exxon Mobil, Goldman Sachs Group, and Novartis. To register, visit
Ninety-three percent of organizations with formalized executive risk management (ERM) programs in place make better risk-informed decisions — a recognized competitive advantage over those that do not have an ERM program. This was one of the principle findings in what’s been described as a “breakthrough study” done by the Risk and Insurance Management Society (RIMS) on ERM.
The underlying conclusion in “RIMS State of ERM Report 2008” is the verification from businesses that ERM boosts business performance. There is a distinct correlation between companies that score higher on RIMS Risk Maturity assessment and companies that possess higher credit ratings. The same is true of low-scoring companies that, typically, possess lower credit ratings. Hence, better-managed companies in terms of ERM practices benefit from better business performance.
This study is particularly relevant today as rating agencies have recognized the importance of ERM. Standard and Poor’s, for one, has elevated the significance of the ERM process by announcing concrete plans to incorporate ERM into its ratings process for companies operating across all industries.
The study is based on data collected from 564 corporate risk practitioners who assessed their risk management strategies by comparing their organizations’ activities against the 68 guidelines outlined in RIMS Risk Maturity Model for ERM© (RMM). RIMS is a not-for-profit organization dedicated to advancing the practice of risk management, a professional discipline that protects physical, financial, and human resources. More information about the study and getting a copy of it can be found on the RIMS Risk Maturity Model page of its website.
Resources for Directors
Financial Crisis: A document compiled by Shearman & Sterling offers an overview of the unprecedented steps taken by governments around the world to support their own financial sectors. This briefing provides, in tabular form, an overview of the principal measures that have been taken in the major jurisdictions worldwide.
Post-Election Tax Outlook: The legislative landscape for tax policy has shifted. The election of Barack Obama combined with Democratic gains in both the House and Senate will make future tax legislation look very different over the next two years. Grant Thornton LLP has developed “Tax Policy Outlook for 2009 and Beyond” to help taxpayers understand what they could expect to see from our newly elected government officials. Click here to access the document.
Sustainability Reporting: Twice as many top U.S. companies publicly released sustainability data on their environmental, social and governance information in 2008 compared with three years earlier, and ethics outweighed economics for the first time as the primary reason for such disclosures, according to a KPMG International global analysis of corporate reports. Click here for a copy of the report.
Innovation: The DeSai Group has released a new white paper entitled "Mastering Innovation: Roadmap to Sustainable Value Creation Using Strategy Driven Innovation" which is available for download here. Authored by Jatin DeSai, CEO of the DeSai Group, the white paper explains how to build a climate and culture of innovation, agility, and entrepreneurship while maintaining standards and controls necessary for ongoing governance.
‘Crisis’ Compensation: DolmatConnell has released a white paper focusing on the fundamental shifts around executive compensation during troubled economic times. The white paper looks at the impact of the economic crisis on executive compensation plans, corporate-wide bonus plans, and long-term incentive (LTI) plans, as well as detailed recommendations for rethinking current executive compensation plan components such as bonus plans, underwater stock options, annual LTI grants, and performance-based LTI plans. The complete white paper is available here.
Money Laundering: Amid the turmoil in today’s financial markets, money laundering remains a serious global issue that adversely impacts financial institutions and a multitude of other companies. To assist organizations in navigating the myriad and complex regulatory guidelines designed to curtail money laundering activities, Protiviti has updated and issued the third edition of its acclaimed Guide to U.S. Anti-Money Laundering Requirements: Frequently Asked Questions. To obtain a complimentary copy, visit http://www.protiviti.com/go/amlfaq.
Corporate Investigations: The James Mintz Group has begun publishing a newsletter, “Global Fact Gathering.” Each issue will offer some tips and resources for conducting investigations around the world. Briefings in the first issue of the newsletter detail the case history of the failed background check on political fundraiser Norman Hsu — which James Mintz, CEO of the firm, also wrote about for Directors & Boards — and how a cyber sleuth uncovered purged data on the Chinese gymnasts, along with a peek at an executive’s faked Oxford diploma. For more information, get in touch with the firm at contact@mintzgroup.com.
Author Notes
Damon Silvers, associate general counsel of the AFL-CIO, has been named by House Speaker Nancy Pelosi and Majority Leader Harry Reid to a five-member oversight panel that will report to Congress on the state of the financial markets and regulatory system. Mr. Silvers, who has been mentioned in reports speculating on candidates for a new SEC chairman, contributed to a Directors & Boards article exploring “The CEO as ‘Captain of Industry’ — A Dying Breed?” published in the Spring 2001 edition.
John J. Degnan, vice chairman and chief operating officer of Chubb Corp., has been honored by the Professional Liability Underwriting Society (PLUS) with its 2008 PLUS1 Award at the organization’s 21st Annual International Conference in San Francisco last month. The PLUS1 Award is presented to a person whose efforts have contributed substantially to the advancement and image of the professional liability industry. Criteria include reputation and success in the professional liability industry, history of lectures and service on panels addressing topics in the industry, current activity in professional liability, activity and involvement in PLUS, longevity in the insurance industry, and measure of impact on the professional liability industry.
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Directors & Boards e-Briefing is a monthly service of Directors & Boards. All contents copyright 2008, MLR Holdings LLC.