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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
1845 Walnut Street
Suite 900
Philadelphia, PA 19103
+1 (215) 567-3200
The Directors & Boards e-Briefing is produced by GRID Media LLC.
From Jim Kristie | Article of the
Month | Columnist
Reader Profile |
Research | News | Forum
The
Risk/Reward Ratio Takes a Whack
As directors are asked to reach into their
pockets to settle a case of fraud, let’s be mindful of what makes our
governance system work.
I’m looking at two New York Times
headlines from early January as I sit down to write this: “10
Ex-Directors from WorldCom to Pay Millions” and “A Big New Worry for
Corporate Directors.” The stories are about the $18 million payment the
directors may need to be making out of their own pockets to settle a
class-action lawsuit.
Fear and gloating in the governance world. Fear from those who see
themselves getting trapped in a similarly treacherous board situation
-- tripped up by fraudsters in their midst. And gloating by those who
think these WorldCom directors -- and many more like them -- had it
coming, as if this pecuniary agreement is the dose that will cure
complacency among all directors.
Let’s be mindful that the corporate governance system in this country
is a voluntary system. Congress, the SEC, the stock exchanges, the
courts, and advisory organizations of all stripes come up with their
directives on how a board should conduct itself -- but they don’t
conscript individuals to carry out these immense accountabilities. It
is up to companies to find people who will volunteer to join their
boards and take on the complex duties of directorship. That’s no
inconsequential bit of volunteerism.
When you think about it, we truly have a remarkable system of
governance that is carried largely on the shoulders of an army of
volunteers. Do we want to start going down a road where the risk/reward
balance is so out of whack that the smart, accomplished people who make
up this army start dropping back? I don’t think so.
How do you feel about the “out of pocket” settlements? If you feel like
venting and you haven’t had a chance or a forum yet, vent by clicking here. If
you want your comments kept private, that’s fine, or let us know if we
can share them with your fellow e-Briefing readers. Let’s hear whether
directors indeed have “a big new worry.”
Jim
Kristie is the editor and
associate publisher of Directors & Boards.
*****
Directors & Boards is
pleased to sponsor The Outstanding Directors Exchange (ODX), a unique
conference and awards event that takes place the evening of March 31
through April 1, 2005 at the Ritz-Carlton Battery Park in New York
City. For more information, see below, or check
out www.outstandingdirectors.com.
Why CEOs FailThere are surprisingly common themes in the tales of corporate meltdowns.
By Stephen F. Cooper
Editor’s Note: Stephen Cooper
became CEO of Krispy Kreme Doughnuts Inc. on January 18, 2005, when the
company announced that Scott Livengood was stepping down as chairman,
president and CEO of the troubled company. A specialist in corporate
turnarounds, Cooper wrote “Why CEOs Fail” for Directors & Boards in 2002, not
long after being named interim chairman of Enron Corp. What follows is
an abbreviated version of the article that includes three of what he
identified as the “six key factors that can lead a company into
troubled waters.”
While the magnitude of the current wave of corporate crises is
unprecedented, companies have been failing for decades. With every
company there can be unique circumstances that catalyze its collapse:
an industry-wide implosion (think telecom), an unrelenting foreign
competitor (Japanese automakers), or even an unscrupulous executive
(pick one). But fundamentally it is a CEO's job to lead a company to
success -- or at least to avoid failure -- and it is the CEO who needs
to be held accountable for performance.
As a restructuring specialist and interim executive, I have had the
opportunity to see troubled companies from the inside. This position
has provided insights into why, where, and in what ways CEOs can fall
down on the job.
In fact it is only by examining and understanding what's not working
that an enterprise can be rehabilitated. And throughout a wide range of
industries -- airlines, telecom, construction services, transportation,
retail, energy -- there are surprisingly common themes contributing to
mistakes made by chief executives.
[Read
the
Full Article]
Good Directors Ignore the Stock Price
It’s too distracting, and
it’s not what really matters anyway.
He’s an icon. The Ultimate Director. You know his name.
In one of those random encounters that should never happen, he and I ended up sitting next to each other at a banquet. We shook hands. Heads turned. He sat and the rest of the room followed suit.
I asked how one of his companies was doing.
“Terrific,” he replied, obviously pleased I knew he was on their board. “The stock’s been above 50 for almost a month.”
I asked what the P/E ratio was.
“You know, I’m not sure,” he said, thrusting out his jaw.
I inquired about the operating cash flow.
“Oh, we don’t watch those details,” he said. “Management manages and directors direct.”
How tragic. One more empty suit.
Of all the trivial distractions directors should ignore, the stock price is number one. Your daily value is mildly interesting yet totally irrelevant, except in one case, which we’ll discuss shortly. But even then, the premise wobbles.
[Read the Full Article]
Director
Aleris International 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.
What are your views on the separation of the chairman and CEO positions? Should corporations seek this model as a matter of good corporate governance and board-level accountability?
Many years ago, the director of a major company characterized the role of an outside director as “nose in, fingers out.” Though perhaps unintentionally, the Sarbanes-Oxley Act (SOX) has induced directors to have both nose and fingers in matters that lie ambiguously near the border between governance and management. The location of that boundary is less clear than ever before, if it ever was clear at all.
On the matter of the combination of the roles of chairman and CEO, I find that no single solution applies equally well to all companies. Very often, governance solutions that make boards more effective are idiosyncratic to the company and its circumstances. So, I don’t hold the view that the separation of these two roles is universally good. While companies in the U.K. and Europe tend to advocate and to follow this practice more than U.S. firms, I’ve not seen the evidence that shows the separation of roles systematically creates greater value than their combination in a single incumbent.
Overall, I usually find it better not to separate the two positions of chairman and CEO. The two questions of separation and good governance, as you pose them, go to the issues of (a) the establishment of a distinct boundary between governance and management as venues for decision making, and (b) the unambiguous separation of powers between directors and managers as makers of critical decisions. On the surface, the application of the boundary and separation principles would seem to reinforce director independence and, therefore, the integrity of governance.
In the SOX era, however, separation could reduce the effectiveness of both governance and management. By observation of board and executive behavior over many years, I find that both the quality and the content of critical information somehow change when that information crosses an organizational boundary. We’ve all seen the obvious examples of a corporate initiative grossly misinterpreted in the operating divisions of a major company. The same potential for misunderstanding and misapplication exists even at the board level and particularly at the high-level border between governance and management.
[Read the Full Article]
Accenture Study: "Finance Masters" Find Driving a Value-Centered Culture Most Critical to Success
There are five common characteristics among companies that master the finance function to achieve enhanced business performance, according to a new study released by Accenture (NYSE:ACN). Of these characteristics, the creation of a value-centered culture is considered by CFOs to be the most critical element for success.
The study, based on in-person interviews with 40 chief financial officers of leading global organizations, was designed to identify distinctive characteristics of leading finance organizations.
The CFOs were asked, among other things, to select from a list of 20 finance competencies that they considered most important in terms of contributing to shareholder value. More than half (56 percent) of the CFOs said that a value-centered culture is one of the top three finance competencies contributing to shareholder value, and one-third (33 percent) rated it as the most important competency. In addition, nearly 40 percent said that a value-centered culture is one of the top three competencies they plan to invest in over the next two years.
"We found that companies with high-performing finance functions make those functions the driver of a value-centered culture—a culture that instills policies and procedures throughout an organization to help employees make decisions that create value for the company as a whole," said Michael Sutcliff, global managing partner of Accenture's Finance & Performance Management service line. "This research shows that high-performing businesses integrate finance executives throughout the company, where they can use their expertise to help employees generate more company value."
The study also found that in addition to possessing a value-centered culture, companies with superior finance functions share four other characteristics. Specifically, they:
Invest in business analytics tools related to enterprise performance management, which are solutions that help executives make better decisions about resource allocation to demonstrate a company's short- and long-term value to shareholders.
Implement technologies such as enterprise resource planning systems that improve basic finance operations, such as the reporting and management of an organization's incoming cash.
Stress the importance of strong capital stewardship, which comprises policies and practices that enable companies to invest cash efficiently and effectively in order to provide investors with maximum possible return on investment.
Take a broad view of enterprise risk management, with policies and procedures that help them identify and manage financial and insurable risks, as well as non-financial risks, across the enterprise.
For more information, visit http://www.accenture.com
February
2, 2005
The Practicing Law Institute will conduct "Corporate Governance 2005:
Dealing with the Governance and Disclosure Challenges Ahead." The event
will be held in New York. It will include sessions on Emerging Best
Practices in Corporate Governance, Lawyer Ethics, Executive
Compensation, and Annual Report Disclosure. For more information, call
1-800-260-4PLI, or visit
March
1-3, 2005
Harvard Business School Executive Education conducts its Compensation
Committees: Preparing for the Challenges Ahead program. For more
information, visit
March
16-18, 2005
The Directors' Education Institute at Duke University is an intensive
two-day program developed by the Duke Global Capital Markets Center
with the support of the New York Stock Exchange. With participation
from leading executives, corporate directors, policymakers, and experts
from the legal and financial services industries, along with academic
authorities from the Fuqua School of Business and Duke Law School, the
program will teach participants how to develop a framework for making
informed board decisions and exercising sound business judgment. For
additional information, visit
The Outstanding Directors Exchange (ODX) at the Ritz-Carlton Battery Park in New York City. A sample of topics and speakers include: Edward C. Breen, Chairman and CEO, Tyco International will be presenting The New Tyco: Corporate Governance At Its Best. Robert Nardelli, Chairman, President and CEO, Home Depot, Kenneth Langone, Co-Founder and Lead Director, The Home Depot, and John Clendenin, Director, The Home Depot will discuss the dynamics of an engaged board. The Honorable Richard C. Breeden, former SEC Chairman and President, Richard C. Breeden and Co. will discuss WorldCom and Hollinger International: Early Warning Signs of Abuse. Charles Schwab, Chairman and CEO, The Charles Schwab Corp. and Frank Herringer, Director, The Charles Schwab Corporation will discuss how the CEO and board worked together to reposition the company. ODX is produced in partnership with the Executive Education division of Columbia University's Business School and is accredited by Institutional Shareholder Services (ISS). For more information on attending ODX, please go to www.outstandingdirectors.com.
April 2-5, 2005
The Association of Governing Boards of Colleges and Universities (AGB) will present its National Conference on Trusteeship. Sessions include "Managing Health Care Costs," "Creating a Reform Agenda for Public Trusteeship," and "Sarbanes-Oxley: How Does It Really Affect Higher Education." To register, call 1-800-356-6317 or visit the AGB Web site at http://www.agb.org.
April 26-29, 2005
The J.L. Kellogg School of Management at Northwestern University will host a conference on "Corporate Governance: Effectiveness and Accountability in the Boardroom," designed to "energize" a director's thinking and "empower you with new tools, concepts and strategies to meet the new challenges of your critical governance role." Visit http://www.kellogg.northwestern.edu/execed or call 1-847-467-7000 for registration information.
June 19-21, 2005
The 11th annual Directors' College at Stanford University. Confirmed speakers include Richard Breeden, former SEC chairman now serving as monitor of WorldCom and Hollinger; Steve Cutler, head of the SEC's enforcement division; Joseph Grundfest, Stanford Law School professor and former SEC commissioner; Charles Munger, vice chairman of Berkshire Hathaway; and Eric Schmidt, CEO of Google. For program details and to register online go to http://www.directorscollege.com.
Boardroom
Briefing: CEO Succession Planning
Of those companies which do have a formal CEO succession plan, more than 60% have had the plan in place for less than two years. Of those companies without a formal plan, only 29% are currently working on a plan. More than 32% of these companies say they have no plans to formalize their succession planning.
Conducted in November 2004, the survey generated 579 responses from directors and senior level executives of publicly held companies, in addition to directors and executives of private and non-profit entities. The companies represented by the respondents average $2.186 billion in annual revenues. The complete results of the survey will be published in a special Boardroom Briefing in March 2005.
Boardroom Briefings are a joint publication of the NACD and Directors & Boards, and focus on single topics of critical interest to board members. They are distributed to approximately 21,000 directors and corporate governance professionals. The first Boardroom Briefing, published in the fourth quarter of 2004, tackled the issue of the relevance of annual meetings.
Sponsorship and advertising opportunities are available. For more information, contact Scott Chase at Chase Media, 301-879-1613, or by email at scottchase@verizon.net.
ODX – A Unique Forum For and By Directors
The Outstanding Directors Exchange (ODX) is a unique conference and awards event that takes place the evening of March 31 through April 1, 2005 at the Ritz-Carlton Battery Park in New York City. Independent board members are invited to work shoulder-to-shoulder and leverage the experience of other successful directors from companies including The Home Depot, Tyco, Charles Schwab, Verizon, Rohm & Haas, ADP and Lexmark International.
A sample of topics and speakers include:
Edward C. Breen, Chairman and CEO, Tyco International will be presenting “The New Tyco: Corporate Governance At Its Best.”
Robert Nardelli, Chairman, President and CEO, Home Depot, Kenneth Langone, Co-Founder and Lead Director, The Home Depot, and John Clendenin, Director, The Home Depot will discuss the dynamics of an engaged board.
The Honorable Richard C. Breeden, former SEC Chairman and President, Richard C. Breeden and Co. will discuss “WorldCom and Hollinger International: Early Warning Signs of Abuse.”
Charles Schwab, Chairman and CEO, The Charles Schwab Corp. and Frank Herringer, Director, The Charles Schwab Corporation will discuss how the CEO and board worked together to reposition the company.
Other sessions include detailed discussions on audit topics, CEO succession planning and compensation, board evaluation and development, and interactive case-studies conducted by David Beim and E. Ralph Biggadike of the Executive Education Division, Columbia University’s Business School.
ODX is also home of the Outstanding Directors Awards Program, March 31st from 6:00 – 10:00 PM. Each year, an independent Advisory Board selects a handful of directors who have made a difference in their board rooms. Many of these award-winners are participants on the ODX panels.
ODX is produced in partnership with the Executive Education division of Columbia University’s Business School and is accredited by Institutional Shareholder Services (ISS).
For more information on attending ODX, click on www.outstandingdirectors.com.
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In your excellent and comprehensive Guide to Corporate Aviation, First Quarter 2005, you mention corporate aviation companies that offer membership cards, but neglected to include CharterAuction and its Titanium Card on that list.
We appreciate your inclusion of a clear definition of CharterAuction's market-driven pricing strategy through our online auction. However, in order to use our online auction, one must be a Titanium Card holder.
Titanium Cards are available in $100K, $250K and $500K denominations. The card guarantees the jet of one's choosing at a set per hour cost. Also, unique to CharterAuction, the Card holder's travel request is also put into our online auction. Here aircraft operators who are part of our exclusive network bid on the flight for the possibility of additional savings. If, through the auction, a lower per hour price can be obtained, that is the price that the Titanium Card holder will pay.
The Titanium Card holder is always guaranteed the jet of his/her choosing from a select pool of only the highest safety rated crews and highest quality aircraft available.
Nathan W. McKelvey
CEO/President/Founder
CharterAuction.com
800-370-7719
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Directors & Boards e-Briefing is a monthly service of Directors & Boards. All contents copyright 2005, MLR Holdings LLC.