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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
Subscriptions
Jerri Smith
Reprints
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From Jim Kristie | Article of the
Month | Columnist
Reader Profile |
Research | News |
The Ethic of Service
A wish for 2007: that H.L. Mencken is more wrong than right.
The year 2006 marked two “big 30” milestones — the 30th anniversary of
publication of Directors & Boards,
celebrated with a
special issue, and my 30th year as an editor of business
publications (25 of those years with Directors
& Boards).
Such an occasion brings to mind the words of a revered newspaper and
magazine editor from early in the 20th century, H.L. Mencken. When
writer William Saroyan asked Mencken how to become a good magazine
editor, Mencken responded: “I notice what you say about your aspiration
to edit a magazine. I am sending you by this mail a six-chambered
revolver. Load it and fire every one into your head. You will thank me
when you get to hell and learn from other editors there how dreadful
their job was on earth.”
In thinking back on governance 2006, we could easily substitute “become
a director” for “edit a magazine,” and “directors” for “editors,” and
Henry Mencken’s sentiment would easily nail the zeitgeist.
But I guess I wouldn’t have stayed in the game as long as I have if all
or most of my days were dreadful, nor would the many good people who
populate the boards of corporate America continue to do so if there
weren’t sufficient satisfactions in being of service to companies both
great and small. My wish for the new year for executives currently
serving on boards and for those who aspire to and do become directors
is that old H.L. is more wrong than right as you embrace the ethic of
service over the next 12 months.
A couple of pieces of unfinished business. In December 2005 we asked
the e-Briefing readers how the stock market would fare in 2006. The
results of that survey:
• Strongly Up (5% or more): 51%
• Modest Gain (3-4%): 32%
• Flat (0-2%): 17%
Well, as I write on Dec. 28, year to date the S&P 500 is up 14.3%,
the Dow is up 16.7%, and the Nasdaq is up 10.2%. Lots could happen on
the last two trading days of the year, but it sure looks like the
strongly bullish called it right and early. Let’s hope you positioned
your portfolios accordingly.
And in September, reacting to a volatile time in the energy markets, we
asked you to speculate on where the price of oil would be at year end.
You responded:
• Over $80 a barrel: 9%
• Between $70 and $80: 11%
• Between $60 and $70: 31%
• Between $50 and $60: 49%
• Below $50: 0%
Again as of Dec. 28 oil was trading at $60.50 a barrel, proving the
e-Briefing readers to have a pretty good fix on the market. We’ll look
forward to further tests of your foresight in newsletters to come, and
thank you for your loyal readership of
Directors & Boards and the e-Briefing this past year.
New
Directors & Boards Webinar
Directors
& Boards is pleased to
announce its second webinar, on the topic of Mergers &
Acquisitions: Best Practices for Directors. The webinar is
scheduled for Wednesday January 24, 2007 at 1 pm EST. Attendance
is absolutely free of charge, and you're welcome to have multiple
colleagues listen in. To register, please click here,
or call Scott Chase at +1 301 879 1613.
Jim
Kristie is the editor and
associate publisher of Directors
& Boards.
Great
ExpectationsDirectors & Boards authors do a pretty good job of predicting the future..
Ed Note: 2006 marked the 30th anniversary of Directors & Boards. A review of the archives turned up the following predictions made by our authors over the past three decades. You will see how these past authors peered into the future of business and governance with remarkable clarity. The citations include the author’s affiliation at the time of publication of the article, along with the article title and issue date.
Those directors who serve on too many boards or whose available time is limited will resign. Outside directors will tend to be more independent of the management than is often the case today. -- Murray Weidenbaum, corporate director and Washington University professor, “Profile of the Coming Board” [Winter 1986]
Over the next decade there will likely be a growing and productive linkage of directors’ compensation to shareholder value through the use of company stock in lieu of further increases in base pay. -- Yale Tauber, compensation expert, “Paying Directors for Performance: How to Do It; Who Should Do It” [Spring 1986]
Where it has hitherto been fashionable for a company to boast how many workers it employs, it will be fashionable henceforth to boast how much work it has contracted out to others around the world. -- Anthony J.F. O’Reilly, president and CEO, H.J. Heinz Co., “Corporate America’s Next 20 Years” [Winter 1983]
Compensation committee members will have to become more knowledgeable of executive compensation’s underlying principles and practices if they are going to meet their responsibilities to the company and shareholders. -- Fred Meuter Jr., compensation consultant, “What to Ask about Compensation” [Winter 1995]
[Click
Here to Read
the Entire Article]
On board collegiality — it’s a different interaction dynamic than it used to be.
The week before Thanksgiving, my wife and I had dinner with the directors and top executives of one of my board companies. Spouses were invited, and most attended this annual holiday event. On January 31, my wife and I will attend a similar dinner for another board. In between, we will dine at gatherings of two other public company boards, as well as holiday celebrations for six charitable/civic boards.
Celebrating “the holidays” can fill up the calendar well beyond the traditional last two weeks of December. The holiday season now extends almost three months. That’s a lot of holiday cheer!
Given the ever-increasing demands placed on boards, the last thing a director wants is another board dinner. Board meetings often start with a meal the night before, which historically had allowed for some unstructured social interaction. But with expanding board agendas, these dinners are now used to begin the formal board meeting. As one director lamented to me, “The opportunity to get to know your fellow directors over dinner is getting crowded out, replaced with a seemingly endless list of board items.”
The holiday board dinner is a good time to catch up on what’s happening in the lives of your fellow directors and their families. In the past, directors, often hand-picked by the chairman, would know one another from connections such as country clubs, school affiliations, and charitable organizations. Board members did not require social events to get to know one another.
Today, nominating committees, often using search firms, select board members who bring specific skills and backgrounds, and these selections no longer come from the “old boys’ network.” Consequently, today’s directors frequently have little or no prior knowledge of one another.
[Click Here to Read the Entire Article]
President, Syrus Global
Director, Hanesbrands 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.
Just how do directors use the powers vested in them to shape a sound anonymous reporting system? What kinds of competitive advantages can their technology programs create? What are the best practices in this arena? What practices should be avoided?
Ah, the good old days, when your hotline service sent case reports by U.S. mail. When most reports got tossed in the trash immediately upon arrival (because they didn’t tell you very much). When those which did survive got sent to bosses who may or may not have followed up. When directors were blissfully unaware of problems. When companies were high-flying one day, and named in a scandalous headline the next.
Those were the days all right, and many of us are not the least bit nostalgic.
Today there’s no excuse for boards not to know what’s really going on in companies. Technology is a key enabler of effective and high-return anonymous reporting solutions, and in 2007, it’s hard to imagine a public company bypassing the enormous benefits of a progressive outsourced solution. It costs a pittance relative to “404” – and uncovers a whole lot more fraud and prevents a lot more reputation damage than accounting controls.
What should directors be doing to shape a sound anonymous reporting program? That’s management’s job, right?
In order to provide the oversight and guidance required of them, directors must understand the culture of the company, and they must assure that ethics and compliance programs are in place and working. Yes, management operates the programs, but the board oversees their efficacy, and the board directs management to change course when the corporation’s long-term economic growth and viability are at stake.
[Click Here to Read the Entire Article]
Nearly half (49%) of U.S.-based multinationals surveyed for the PricewaterhouseCoopers Management Barometer survey have been struck by a major "showstopper" or high-level crisis over the past three years -- that is, a significant event with catastrophic impact to one or more of their major business units or enterprise processes. Still, the majority claim recovery was swift with minimal financial consequences. Only half as many expect a crisis three years out, and concern is low. But those impacted by a recent crisis view their company as less well-prepared for the future.
Almost three-quarters of those experiencing a high-level crisis (71 percent) claim it had only a limited impact on their company's bottom-line profitability. Only 20 percent report a moderate impact, and 6 percent, a major one.
Coping with crisis
Overall, 71 percent were pleased with their company's resilience and performance in dealing with the crisis, including 26 percent describing the response as "outstanding" and 45 percent as "good/gets high marks." Only one-in-four (26 percent) gave their company's performance a mixed rating--"some good, some not."
High level crises experienced by large U.S. multinational companies over past 3 years:
Natural disasters (flooding, hurricane, etc.) 53%
A complete shutdown of a major business unit 31%
Major SEC/Sarbanes-Oxley problems 20%
Management upheaval/major changes 20%
Fire, explosions or toxic leakage 16%
Loss/theft of intellectual property 10%
Challenges to corporate reputation 10%
Major product recalls or problems 8%
Financial systems breakdown/redo of financials 8%
Fraud, corruption or ethics issues 6%
Sharp decrease in market value/sudden losses 6%
Terrorism, civilian unrest or armed conflict 2%
Preparedness is in the eye of the beholder
Looking ahead, only 27 percent of surveyed executives expect their company's major business units or processes will encounter at least one major crisis within the next three years, 39 percent don't expect one and 31 percent are uncertain.
But 66 percent are at least moderately concerned about their company's preparedness for such a crisis; only 33 percent are not. Among those who have already experienced a high-level crisis, 73 percent are at least moderately concerned and only 28 percent are not.
More than 60 percent describe three of their company's business processes as "well prepared" to deal with a future high-level crisis, including legal and insurance services (cited by 65 percent), financial management (63 percent) and accounting and reporting (63 percent). In addition, a majority believes they are well prepared in facilities management, IT systems & technology and risk management.
Comparing those who have experienced a high-level crisis over the past three years and those who have not, there is a considerable gap between the perceptions of preparedness in five important areas: financial management (19 points lower than those without recent experience); accounting and reporting (15 points lower); human resources (12 points lower); investor and public relations (10 points lower); and facilities management (9 points lower).
Other important vulnerabilities also exist. Overall, relatively few believe their company is well prepared in R&D (only 21 percent); marketing and sales (32 percent); brand management (35 percent); and logistics/ distribution (37 percent). Quality assurance, procurement and human resources are also on the low side.
PricewaterhouseCoopers (http://www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 140,000 people in 149 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.
January
16, 2007
Pearl Meyer & Partners presents "Comp 101: How to Read and
Understand the New Proxies." The morning seminar will offer a hands-on,
background tutorial on how to read and analyze the new filings,
including "the top 10 things to look for in the new proxy." Presenters
will include Joseph Rich, president of the firm, and managing directors
David Swinford and Janice Koors. It will be held at The Barclay New
York. For more information, call 1-847-332-2626 x 11, or e-mail sldestaubin@dobbcomm.com.
January
17, 2007
The Practicing Law Institute conducts "Corporate Governance 2007:
Counseling Your Clients for the 2007 Proxy Season," a program that will
review developments affecting directors, the audit committee and
compensation committee, hedge funds and activist shareholders, and
hot-button accounting and internal control issues, among other matters,
and how to respond to these developmnts. To register, visit
January
31 and February 1, 2007
PLUS (Professional Liability Underwriting society) holds its D&O
Symposium in New York. Featured sessions at this major event will
include "Trouble in the Boardroom: The Legal Environment and D&O
Risk," "New Issues in D&O Underwriting," "Global Companies, Global
Risk: Exposure Arising Outside the U.S.," and "Hot Topics: What's New
in D&O Claims." Visit the PLUS website at
February
8, 2007
The New York Society of Security Analysts hosts its 4th Annual
Corporate Governance Conference, themed "Has the Pendulum Swung Back?"
Topics include "The Convergence of Hedge Funds, Private Equity, and
Governance," "Executive Compensation Gone Wild - What Can and Should Be
Done?" and "Shareholder Access and Majority Voting - What's Next?"
Among the long list of speakers will be Wilbur L. Ross, chairman and
CEO of WL Ross & Co. LLC, Cliff Robbins of Blue Harbour Group LLC,
Connecticut Attorney General Richard Blumenthal. Partnering in the
event is the CFA Centre for Financial Market Integrity along with
sponsor Grant & Eisenhofer. For more details, visit
February
14-16, 2007
The University of Chicago Graduate School of Business hosts The
Directors' Consortium, a three-day intensive program exploring the
fundamentals of corporate governance and board service. Leading faculty
members from five world-class institutions designed The Directors'
Consortium to provide the latest thinking in governance and will
present a comprehensive approach to the complex decisions that board
members must make. Visit
February
27-March 2, 2007
Stanford Business School and Stanford Law School present the Stanford
Directors' Forum, a three-day program to learn new management
strategies, leadership skills, and the best practices from the
distinguished faculty of the two schools and key business leaders to
become a more effective board member. Visit
Harvard Business School Executive Education presents a West Coast program on "Making Corporate Boards More Effective," designed to prepare participants for the increasing demands that are being placed on boards of leading-edge companies by their constituents. Faculty chair for the program is Professor Jay Lorsch. It will be held at the prestigious resort Estancia La Jolla Hotel & Spa. For more information, visit
Directors &
Boards' latest Boardroom Briefing, on the topic of Corporate
Social Responsibility, is now in the mail. Featuring exclusive
research on director attitudes toward CSR programs, this Boardroom
Briefing also contains a variety of perspectives on the value of CSr
programs, and how to implement these programs at the board level. To
preview of this Briefing, in pdf format, click here. Good News: More M&A and More Value for Shareholders
With announced merger activity approaching $4 trillion globally in the first 11 months of the year, 2006 has already broken the previous M&A record reached in 2000. But are shareholders benefiting from this merger frenzy? Research by McKinsey & Company indicates that more value is being created for shareholders in the latest M&A boom.
Earlier McKinsey research showed that as many 60 percent of deals destroyed value for the shareholders of the acquiring company. To assess current trends, McKinsey reviewed nearly 1,000 global mergers and acquisitions valued at over $500 million in the 10-year period from 1997 to 2006. The results suggest that, compared with the merger boom of 1997-2000, deals made in the 2003-2006 period are, on average, creating more value. In addition, the shareholders of the acquiring companies are faring better — though there is still plenty of room for improvement. Full details of the research can be found in the accompany paper, “Are Companies Getting Better at M&A?”
For more on M&A. sign up for Directors & Boards' webinar, on the topic of Mergers & Acquisitions: Best Practices for Directors. The webinar is scheduled for Wednesday January 24, 2007 at 1 pm EST. Attendance is absolutely free of charge, and you're welcome to have multiple colleagues listen in. To register, please click here, or call Scott Chase at +1 301 879 1613.
Activity on Shareholder Advisory Front
GovernanceMetrics International (GMI), the corporate governance research and ratings agency (http://www.gmiratings.com), has appointed chief operating officer Howard Sherman as president and chief executive officer. He succeeds co-founder Gavin Anderson, who has been elected chairman of the board.
“Howard is a terrific choice to lead GMI,” says Anderson, who has served as the firm’s CEO since inception. “He is extremely knowledgeable of the full range of corporate governance issues, has served previously as CEO of ISS, the largest company in this field, and has spent the last six years intimately involved in the development of GMI. For my part, I feel that GMI is firmly established and that we have achieved all of our initial objectives; as a result, I can now afford to take a less active role while continuing to stay involved with the company and its continued development.”
Morgan Stanley Investment Management has hired Kenneth Bertsch as an executive director and head of corporate governance. Bertsch was a managing director of corporate governance analysis at Moody's Investors Service. He had previously been director of corporate governance at TIAA-CREF. The appointment is a “sign,” reported the Wall Street Journal, that the firm “may be looking to play a bigger role in how the companies it invests in are governed.”
Glass, Lewis & Co. LLC, a provider of investment research and global proxy advisory and voting services, announced that it would be acquired by Xinhua Finance. The deal “combines Glass Lewis’ expertise on corporate governance and accounting with Xinhua Finance’s geopolitical and macroeconomic research, U.S. public policy analysis, bond market and economic analysis, quantitative equity research, market news and fundamental data,” according to a statement by Glass Lewis, which added that the firm plans to expand its coverage of Chinese and emerging market companies and to bring objective investment research and proxy advisory and voting services to China.
“This transaction puts Glass Lewis on a truly global and well-capitalized platform that will greatly benefit institutional investors,” said Gregory Taxin, chief executive officer of Glass Lewis. Xinhua Finance purchased an initial 19.9% of Glass Lewis in August 2006 and the purchase of the remaining 80.1% is expected to close in early 2007. Glass Lewis will continue to operate as a separate company, with its existing management, client services, and research teams.
Carolyn Brancato has retired as head of the Conference Board’s Global Corporate Governance Research Center. As reported by the Global Proxy Watch newsletter (http://www.davisglobal.com), she will remain as a director emeritus, helping conduct ongoing projects, including one on hedge funds and governance. She also founded the Conference Board’s Directors’ Institute.
Author Notes
Pascal Levensohn, managing director of Levensohn Venture Partners (http://www.levp.com), has launched a new podcast program, which includes a series dedicated to governance. One episode is “Public Company Lessons for VC Directors,” in which Levensohn interviews Pastora San Juan Cafferty, a director of Waste Management, Kimberly Clark, People’s Energy, and Harris Financial. Focusing on the roles of compensation and audit committees, Pastora discusses changes in board leadership and composition post-SOX, her thoughts on the stock options backdating scandal, and the importance of CEO performance evaluations. The podcasts can be accessed at http://www.vc-io.com.
The Mintz Group introduced a new website in December: http://www.mintzgroup.com. The investigative services firm was founded in 1994 by Jim Mintz, a corporate investigator for 30 years. Mintz has authored several articles for Directors & Boards, including “19 Things Executives Don’t Want You to Know” (with co-author and Mintz Group EVP James Rowe) in the Fall 2003 edition.
New additions at AlixPartners, the corporate turnaround and financial advisory firm (http://www.alixpartners.com): Curtis Solsvig joins its New York office and Kevin Prins joins the Los Angeles office. Solsvig, whose expertise includes strategy development and M&A, most recently was engaged as CEO of CornerStone Propane LP, the fifth-largest propane distributor in the U.S. Prins has over 20 years of experience in litigation consulting. “Six M&A Transition Principles for Boards,” an AlixPartners’ article, appeared in the Boardroom Briefing: Mergers & Acquisitions, published in Fall 2006.
George Pilko, chairman of Pilko & Associates, a consulting firm specializing in environmental, health and safety matters (http://www.pilko.com), addressed the 10th Annual Merrill Lynch Chemical Conference on the restructuring activity in the global energy industry and how EH&S issues are “a reliable vehicle to create shareholder value during transactions regardless of whether you are the buyer or seller.” The transcript is available by clicking on the following link: 10th Annual Merrill Lynch Chemical Conference.
Eric Dinallo, general counsel of Willis Group Holdings, was nominated last month by Governor-elect Eliot Spitzer to serve as New York State Insurance Superintendent in the new administration. Willis Group was the subject of a cover story in the Summer 2004 issue of Directors & Boards.
Lake Pointe Partners LLC adds Peter J. Richter as a director. He has held finance and operational management assignments for two decades, and is currently assisting a large international hedge fund to complete various asset dispositions related to a recent acquisition. The firm provides profit enhancement and corporate renewal services (http://lakepointepartners.com).
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Directors & Boards e-Briefing is a monthly service of Directors & Boards. All contents copyright 2007, MLR Holdings LLC.