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Directors & Boards
Robert H. Rock
Publisher
James Kristie
Editor
Lisa
Cody
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David Shaw
Publishing Director
Scott Chase
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The Directors & Boards e-Briefing is produced by GRID Media LLC.
From Jim Kristie | Article of the
Month | Columnist
Reader Profile |
Research | News |
What of the Imperial CEO?
Conventional wisdom is that he or she has 'left the building.' Beware
conventional wisdom.
“The Imperial CEO is dead.” That seems to be the conventional wisdom.
Just about everybody is throwing dirt on the body of the Imperial CEO.
Plug in “Imperial
CEO” in Google and over 400,000 entries come up for search. Just
last month in Washington the National Press Club hosted a program on
“The End of the Imperial CEO.” Former SEC Chairman Arthur Levitt Jr.
opined on the editorial page of The
Wall Street Journal in March that,
as his treatise was titled, “The Imperial CEO Is No More.” Jeff
Diermeier, president and CEO of the CFA Institute, cleverly
characterized this demise for his organization’s 70,000 finance
practitioner members: “The Imperial CEO has left the building.”
There is a problem with this notion that the Imperial CEO is dead.
Anyone who has spent time learning how to become a serious investor
knows one thing: the conventional wisdom is usually wrong.
That’s only for starters in analyzing this issue. The more profound
question is: Do we really want to kill off the Imperial CEO? American
businesses need a strong, decisive, and, dare I say, “giant-like”
leader at the helm. This is particularly true for the brutally
competitive global marketplace we’re in, which is going to get even
more Darwinian.
Sure, we can do away with some of the more egregious -- i.e., princely
if not king-like -- trappings that give imperial a bad name. But a dip
into Webster’s dictionary tells us that imperial also means “of
superior or unusual size or excellence.”
I file “The Imperial CEO is dead” under “The danger of conventional
thinking.“ Another file this can go in is “Be careful what you wish
for.”
Current events inspire our selection of the Article and Column of the
Month. The battle for Unocal Corp. offers the opportunity to unearth a
jewel from the Directors & Boards
archive. The blast at the BP refinery in Texas that killed 15 workers
is a backdrop for George Pilko’s column. The U.S. Chemical Safety and
Hazard Investigation Board issued its report on the BP incident the
last week of June. George’s prescient commentary was written before the
tragedy – which The Wall Street
Journal called “one of the worst
industrial accidents in years” – happened in March.
Speaking of the Directors & Boards
article archives, if you are not aware of it as a reference resource,
let me bring it to your attention. Citations to several hundred of our
articles are posted on the D&B
Web site, copies of which you can easily order and have faxed or mailed
to you. A glance at the list of what our readers have been ordering
recently reveals these popular entries:
-- “Courts
and Boards: The Top 10 Cases”
-- “Rediscovering
Advisory Boards”
-- “Crafting
the Pay of a Non-CEO Chairman”
-- “How
Leading a Role for the Lead Director?”
I
encourage you to visit the D&B
Archives to see if this reference library can help meet your needs
for information and insight on governance matters.
Jim
Kristie is the editor and
associate publisher of Directors
& Boards.
The corporate charter, circa 1991: Take the funds provided by shareholders and invest them wisely to increase their value.
By Richard J. Stegemeier
Editor’s Note: Last month Chinese oil
giant Cnooc Ltd. offered $18.5 billion for Unocal Corp. (http://www.transactioninfo.com/cnooc
is a Web site dedicated to continuing coverage of this deal). The
takeover bid has stirred up vociferous pro and con reaction from Wall
Street to Washington and all along Main Street. To add a
dimension to this dramatic transaction, we present the following
article. Originally published in the Summer 1991 edition of Directors & Boards,
it is an adaptation of a speech on the role of the Unocal board of
directors that Richard J. Stegemeier, then the chairman and CEO of
Unocal Corp., delivered to the National Association of Corporate
Directors.
The
article below is an abbreviated version of the original article
published in the Summer 1991 edition of Directors & Boards. A
complimentary copy of the full-length article is available to
e-Briefing subscribers by e-mailing your request
with a fax number to
Editor James Kristie.
At Unocal we think of ourselves as a high-technology earth resources
company. The company’s operations virtually span the globe. We find and
develop crude oil and natural gas. We’re the world’s largest producer
of geothermal energy, and our shale oil project in western Colorado is
the first, and only, commercial-scale oil shale venture in the nation.
We also manufacture and market a wide range of petroleum products,
chemicals, fertilizers, and specialty metals. We just celebrated our
100th year in business -- a record few American companies in any line
of business can claim.
We operate in a business environment that’s increasingly diverse,
complex, and fast changing. A typical board meeting at Unocal these
days might review a joint venture proposal in our chemicals and metals
group, or a natural gas exploration play in Louisiana, or a major
construction project in Thailand, or political events in the Middle
East, or cost implications of the Clean Air Act, or a new gasoline
marketing strategy for California, or the company’s code of ethics.
To be effective, board members cannot be champions of a special
interest or cause. We look for generalists, not specialists;
versatility, not virtuosity. Naturally, we look for broad professional
experience and decision-making responsibility, but most of all we look
for wisdom, independence, and integrity. We do this because the
director’s responsibility is to monitor performance, not manage the
company.
[Click
Here to Read
the Entire Article]
Most European companies are vitally concerned at the board level about environmental health and safety issues. Why aren’t boards of U.S. companies equally as concerned?
The issue of environmental health and safety (EHS) governance is big enough to affect a company’s reputation, its competitive position, its share price, and its future, particularly in the chemicals, energy, power, and metals industries. Yet the response I have seen from the boards of many U.S. companies is inadequate and sometimes pitiful. Many still act as if serious global environmental realities and consequences don’t exist or don’t count.
The contrast with European companies is particularly striking. In Europe, most companies in heavy industry have made EHS governance a vital aspect of their top level corporate direction and management. They don’t see EHS governance as a compliance or legal millstone but as the way to protect shareholder value — and even as a potential source of competitive advantage.
Why the U.S.-European disparity?
[Click Here to Read the Entire Article]
President Emeritus
Babson College
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.
Mao’s China and IBM, cultures with a fondness for company songs and blue suits, both featured “speak-out” programs. China’s – as the factory managers whom I taught there in 1980 admitted – were set up to insure loyalty and encourage informers to help suppress dissident thought. It was a challenge to get across that IBM’s policies and W. Edwards Deming’s lessons to the Japanese about quality control had the opposite goal of countering inevitable temptations for managers to dictate from the top and pressures among employees to “go along.” Watson and Deming believed in opening safe avenues for any employee to suggest, question, and complain, and most important to be listened to and get responses.
Openness does not come easily in business. Hard-driving leaders want loyalty. Even in good times but especially when things begin to go badly, “speak up” can turn to “shut up,” and open doors lead to closed minds. Some corporate train wrecks may be prevented by tougher, more independent boards, better internal control and compliance systems, and deeper probing by auditors, analysts, and the press. But directors remain at risk if the hundreds or thousands of employees with whom they never come in contact do not feel comfortable about making suggestions and do not feel protected, when economic prospects or ethical values are at risk, about pressing questions. Safe opportunities to speak out and to blow the whistle need to be guaranteed.
[Click Here to Read the Entire Article]
Based on data received from Foley & Lardner’s 2004 and 2005 studies, the average cost of being public in FY 2004 for a company with annual revenue under $1 billion has increased $851,000 (33%) over FY 2003. Further, from the enactment of the Sarbanes-Oxley Act through FY 2004, the average costs have increased a total of $2.4 million, representing a 223% increase.
In FY 2004, the average cost of being a public company with annual revenue of $1 billion and over was $14.3 million, an increase of $4.4 million (45%) over FY 2003.
Lost productivity continued to represent a major cost for all companies responding to the Foley & Lardner 2005 survey, particularly for the smaller public companies responding. Average costs associated with lost productivity increased more than 556% to $1 million in FY 2004 for responding companies with annual revenue under $1 billion, compared to an 18% increase to $2.9 million in FY 2004 for responding companies with annual revenue over $1 billion.
[Click Here to Read the Entire Survey]
July
10-13, 2005
The Institute of Internal Auditors (IIA) will present its 2005
International Conference in Chicago. A variety of corporate governance
sessions will be held, including "The New Role of Internal Audit in
Corporate Governance," "Best Practices in Corporate Governance," and
"Good Governance through Continuous Monitoring". To register, visit
July
28-29, 2005
"The 2005 Leadership Excellence Summit" is a program being conducted by
the United States Naval Academy Foundation, the Conference Board, and
the firm Academy Leadership. It will bring corporate and military
thought leaders together to study the methods they employ to develop
leaders and to share thoughts on how best practices from both
leadership sectors can be implemented. It will be held at the U.S.
Naval Academy at Annapolis, Md. For more information, visit
August 8,
2005
Corporate Governance Executive Symposium: "The New DNA of Corporate
Governance." To be held in Toronto, this is a program for directors,
officers, corporate secretaries, chief legal officers, and
institutional investors to discover new ways to increase shareholder
value and decrease director liability and personal risk. The event is
led by a North American faculty of governance experts, and leading-edge
research will address the directors' 'strategic duty' related to
setting CEO accountabilities, pay for performance, and CEO succession
planning. For related research and registration information, visit
August
24-25, 2005
The seventh offering of The Directors' Consortium will be held at the
University of Chicago. This three-day intensive program exploring the
fundamentals of corporate governance is presented by the University of
Chicago Graduate School of Business, Stanford Law School, and the
Wharton School of Business at the University of Pennsylvania. Leading
faculty from the three institutions present a comprehensive approach to
the complex decisions that board members must make. Visit
September
6-9, 2005
"Corporate Governance: Effectiveness and Accountability in the
Boardroom" is the theme of the program presented by the Kellogg School
of Management at Northwestern University. It is designed to improve
your understanding of the responsibilities of board membership and gain
the skills and strategies needed to become a more effective director.
Visit
September
8-9, 2005
The Practising Law Institute will hold Advanced Corporate Compliance
Workshops in New York City and San Francisco (September 26-27, 2005).
The workshops will be highlighted by "New Best Practices Sessions"
covering risk assessment, educating and reporting to the board, and
creating guidelines for investigating misconduct. Register online at
September
12-14, 2005
The 4th Annual Corporate Responsibility Symposium will be presented by
the Society of Corporate Compliance & Ethics in Chicago. For more
information call Renee Molstad at (952) 933-4977 or visit
October
23-25, 2005
The National Association of Corporate Directors (NACD) will present its
2005 Annual Corporate Governance Conference at the Renaissance
Mayflower Hotel in Washington, DC. This year's theme is "Fortifying
Shareholder Relations and the Public Trust." Among other issues,
sessions will address how board members can close the "trust gap" by
establishing proactive shareholder/stakeholder communication practices.
Speakers include corporate directors and CEOs, leading professional
advisers, and key regulators and lawmakers. To register or for more
information, visit
Boardroom
Briefing: Corporate Internal Investigtions
The
latest Directors &
Boards Boardroom Briefing tackles Coporate Internal
Investigations. A full
pdf of the Boardroom Briefing can be found here.For the Directors & Boards e-Briefing, we're pleased to present this bonus feature, by Edith G. Orenstein of the Financial Executives Research Foundation:
CSI
General Ledger: The Directors’ Role in Forensic AccountingThe forensic accountant’s job is to determine what happened or is happening, who is responsible, and how the situation can be prevented in the future.
By Edith G. Orenstein
Forensic accounting is a subspecialty of professional services that integrates aspects of accounting, audit and investigation. Forensic accountants gather the numbers and then look further to determine the fact pattern or reality behind them. The common deliverable is a legally accurate financial analysis that can help reveal the truth, resolve disputes and, if necessary, stand up in court. The attribute that distinguishes forensic accounting from general accounting is the same as the attribute that distinguishes forensic medicine from general medicine: that is, the process it follows and the facts it gathers are designed to withstand a legal or administrative review.
Forensic accountants are routinely involved in business valuations and litigation support, specifically in cases involving insurance claims, damages, intellectual property and disputed matrimonial assets. Their current prominence results from recent high-profile corporate fraud cases as well as new regulations emerging from Sarbanes-Oxley and the effort to prevent future corporate crime by raising the standards for internal and external audits.
[Click Here to Read the Entire Article]
New Books from D&B Authors
Directors & Boards authors have been busy on the book front. Bruce Ellig, who has written a number of articles on compensation and governance for the journal, is out with The Evolution of Employee Pay and Benefits in the United States. He self-published this 178-page book, which is priced at $25.00. Bruce spent a 35-year career with Pfizer Inc., the last 11 of which he headed the worldwide HR function, reporting to the chairman and CEO and also serving as secretary to the executive compensation committee of the Pfizer board of directors. This is his sixth book. For information on his new book or to order a copy, write to Bruce at 10 Gracie Square, Apt. 12G, New York NY 10028.
A Time for Heroes is the title of Robert L. Dilenschneider’s new book. Subtitled “Business Leaders, Politicians, and Other Notables Explore the Nature of Heroism,” the book explores two questions: What does it mean to be a hero? And, who should our heroes be? Look for an excerpt in a future issue of the e-Briefing. Bob is chairman of The Dilenschneider Group Inc. and a member of the Directors & Boards editorial advisory board. This is his eighth book. It is published by Phoenix Books, Beverly Hills, Calif. For more information, contact Ward Morehouse at wmorehouse@dgi-nyc.com.
In what promises to be a highly controversial new book, Robert W. MacDonald is out with Cheat To Win. But don’t jump to conclusions. The subtitle further explains the book’s premise: “The Honest Way to Break All the Dishonest Rules in Business.” Bob spent a 40-year career in the financial services industry, retiring in 2002 as CEO of Allianz Life of North America and as its chairman a year later. He is acknowledged as one of the true visionaries and product innovators in the industry, and his book challenges many of the sacred cows of business. It is published by Paradon Publishing, http://www.paradonpublishing.com. Look for an excerpt in the Fourth Quarter 2005 issue of Directors & Boards.
Directors & Boards Editor James Kristie made a contribution to the book world with a review of Building Trust: Leading CEOs Speak Out -- How They Create It, Strengthen It, and Sustain It. The book, published by the Arthur W. Page Society (http://www.awpagesociety.com) is a collection of essays by 23 major corporate leaders on how they are addressing the ethics crisis gripping the business world. The review will be published in the Fall 2005 issue of the professional journal Public Relations Review. A PDF copy of the review is available here.
Governance Research Center Celebrates Milestone
The Corporate Governance Center at Kennesaw State University celebrated its 10th anniversary. Paul Lapides and Dana Hermanson, who are among the co-founders of one of the early academic research centers devoted to studying corporate governance, have appeared several times in the pages of Directors & Boards. The Atlanta Chapter of the National Association of Corporate Directors commemorated the contributions of the center and its founders, faculty and staff with a special plaque at its chapter meeting on June 22. D&B Editor James Kristie provided the following tribute for the award ceremony: "The Kennesaw Governance Center is a jewel in the realm of director education and research institutes.” The center’s Web site is http://ksumail.kennesaw.edu/~jtompkin/corpgov.htm.
John Whitehead Receives Laureate Award
John C. Whitehead received the first-ever Laureate Award by the newly established Global Center for Leadership and Business Ethics. The award was presented last month at a gala dinner event at the United Nations. The Laureate Award is the most prestigious award bestowed by The Global Center, an independent body established by accounting firm KPMG to recognize individuals and organizations that exhibit extraordinary business ethics and leadership qualities, http://www.theglobalcenter.org. The cover story of the Third Quarter 2005 edition of Directors & Boards will feature an interview with John Whitehead along with an excerpt from his just-published memoirs, A Life in Leadership. It will be mailed to subscribers in mid-July.
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Directors & Boards e-Briefing is a monthly service of Directors & Boards. All contents copyright 2005, MLR Holdings LLC.