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Directors & Boards
Robert H. Rock
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James Kristie
Editor
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Cody
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From Jim Kristie | Article of the
Month | Columnist
Reader Profile |
Research | News |
Optimal Timing
The Blackstone IPO — top of the market, or
‘tragedy’ averted?
I’m penning this on “the day after” — the day after Blackstone started
trading. The conventional wisdom seems to be that the Blackstone IPO
marks a market peak. Staring at me is the Monday, June 25, Barron’s
with a smiling Steve Schwarzman on the cover and the headline “Top of
the Market.” No question mark, either, on that headline.
The whole Blackstone hullabaloo prompted me to dip back into a riveting
piece of reportage, Greed and Glory
on Wall Street: The Fall of the House of Lehman. The book by Ken Auletta was published by
Random House in 1986. It tracked the events and outsized personalities
— including, in their pre-Blackstone days, Lehman Brothers honchos Pete
Peterson and Steve Schwarzman — that were central to the contentious
sale in 1984 of the storied firm, one of the remaining private
partnerships at the time, to Shearson/American Express.
How about this for a key passage from the book that helps illuminate
the Blackstone IPO 20 years later:
“Former partner Herman Kahn, 76, who went to work at Lehman as a
$15-a-week office boy in 1928, became a partner in 1950 and retired as
an active partner in 1970, lives off the memories. He retains a
romanticized view of a business that has produced its share of
scoundrels: ‘To me, investment banking was a noble undertaking, whereby
capital was used for social purposes as well as personal gain. When I
started in this business of investment banking, you had an investment
banker like you had a family doctor.’ To [Kahn], the sale of Lehman was
a sacrilege, ‘a tragedy.’
“The same word — ‘tragedy’ — is invoked by another Lehman partner,
Stephen Schwarzman, who is half [Kahn’s] age and a man of recognized
talent and charm. Asked why it was a tragedy, Schwarzman looked up from
his lounge chair on the brick deck of the pool at his weekend house in
the Hamptons and gave a very different answer. He did not first say
that the sale of Lehman was a tragedy because of broken traditions, or
laid off employees, or empty promises or the end of another private
partnership.
“The first words Schwarzman thought to say were: ‘This is a tragedy
because the business was not sold at the optimal time. Hence, an
optimal price was not realized.’ ”
Optimal timing is the essence of smart investing. Let him who decries
the value of having a keen sense of market appetite cast a disparaging
stone Schwarzman’s way.
The conventional wisdom, as it so often is, is probably wrong on the
Blackstone IPO being a market top. Nonetheless, it should heighten
everyone’s state of readiness to perceive “the deal too far” — the
financial transaction that will enter the realm of notoriety for its
era-ending stupidity or venality.
I’ll
welcome your comments at jkristie@directorsandboards.com.
Jim Kristie is the editor and associate publisher of Directors & Boards.
Crisis Management: Fighting Fire with
FireThanks to robust new technologies, there’s no longer any reason for organizations to claim they had no way of notifying their affected stakeholders of impending or immediate disaster.
By Anne Sceia Klein
By the time you finish reading this sentence, were your company or institution to suddenly experience a major catastrophe, you could have already notified tens of thousands of employees, other stakeholders, and all of the major news media — not only about the event, but also what actions your organization was taking that directly affect them and what they should do.
And if the organization on whose board you sit is not in position to turn that hypothetical into reality, perhaps it is time the directors and senior management sat down together and reviewed your crisis management plans with a view to updating them.
Since the advent of the 24/7 news cycle, organizations no longer have the luxury of spending hours gathering information and preparing statements for their employees and the press. When your organization is in crisis, you need to be able to reach and mobilize your constituents fast. More like immediately! Which means that you can’t rely on yesterday’s technology and tactics. They may well hinder your organization’s ability to reach its audiences as quickly as you may need. Furthermore, counting on the news media to get your message to your key audiences can be slow and unreliable, while your message — if it gets through at all — will probably be incomplete and possibly incorrect.
[Click
Here to Read
the Entire Article]
Where Is HR in the Boardroom?
Too often MIA during board deliberation on succession and leadership development.
By Michael W. Howe
More and more boards are waking up to the reality that ultimate responsibility for the continuity of top-tier leadership rests with them. The charge is a big one, as numerous obstacles stand in the way of integrating practices like talent development and succession into the corporate enterprise. Consider the finding of a recent National Association of Corporate Directors study: Nearly half of large American corporations don’t yet have a meaningful CEO succession plan.
Boards that are “best in class” for talent development and succession understand the need to collaborate with the CEO or other members of top management on frank discussions about the strategic leadership needs of the organization. But even those who have managed to get out front in developing high-caliber leaders often still leave room for improvement in one area: To their detriment, boards often overlook in this collaborative process the company’s human resources leader.
Leadership development expertise has historically been the domain of HR, yet it is interesting that HR leaders are not more fully involved in this task when it comes to governance.
Your HR executive likely does not have a seat on your board. HR executives typically are not sought out to serve on most boards; in fact, they often have no interaction whatsoever within the boardroom. For whatever reason, they are completely left out of the discussion of talent development as it relates to governance.
[Click Here to Read the Entire Article]
Chairman and Chief Executive Officer
DuPont
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 do you identify your stakeholders and balance their interests in today’s rapidly changing environment? How can business leaders best engage stakeholders who may be critics of their firm or industry?
We have traditionally identified four stakeholder groups important to DuPont—shareholders, customers, employees and society. We fully understand the shareholders are the owners. Their best interest is served by the other three. At different times in our history, emphasis has shifted among those stakeholders. But that set provides us with an enduring template for identifying and engaging the people and groups who are vital to the continued success of our enterprise. We balance their various interests by listening and through dialog. We regularly poll our employees to find out how they see the company and how they feel about their ability to contribute to its growth. Our public affairs and issue scans enable us to maintain a good sense of the trends and developments important to stakeholder groups.
I personally participate in conferences and other events where I am able to state our company’s position relative to public issues and to talk with others who approach the same issues from different points of view. So while we rely to a great extent on information that we gather, there is really no substitute for some first-hand interaction with leaders in other sectors, whether friends or critics.
How else does the company embed the Company Stakeholder Responsibility mindset across the enterprise in its overall value proposition?
First, DuPont is a leader in terms of Company Stakeholder Responsibility through safety. For more than 200 years, DuPont has placed a concern for safety above all others. We have the most stringent and effective safety policies in our industry, which our trading partners, suppliers, and even competitors use as a benchmark. In 2000, we created a safety consulting business now worth over $100 million annually to provide training, certification and development around safety issues.
[Click Here to Read the Entire Article]
But awareness of other risks grows, ACI/NACD survey reveals
While audit committees continue to stay squarely focused on the basics of financial reporting oversight, they are developing a heightened awareness and appreciation of other risks that could have significant financial reporting implications, according to the 2006-2007 Public Company Audit Committee Member Survey.
The survey—sponsored by KPMG’s Audit Committee Institute (ACI) and the National Association of Corporate Directors (NACD)—indicates that oversight of accounting judgments and estimates and Sarbanes-Oxley Section 404 compliance are the top two priorities for many audit committees this year. But the oversight of information technology (IT) risk has emerged as a high priority, as well. In fact, only 15 percent of the 282 audit committee members surveyed were “very satisfied” with their oversight of IT and about one in five said their IT risk oversight needed improvement.
“With IT supporting vital information about a company’s finances, operations and competitive position—and with IT investments consuming a substantial portion of corporate budgets—more audit committees are recognizing that information and the technology driving it could pose significant risks to the company’s financial reporting and compliance efforts,” said Ed Smith, ACI’s Executive Director.
Some 90 percent of respondents said the audit committee should devote more agenda time to IT risk oversight. Only 9 percent of audit committee members are "very satisfied" that they devote adequate agenda time to the issue.
Oversight of risk management is also an issue that many audit committee members are still not very comfortable with: Less than a quarter of respondents said they are “very satisfied” with the board’s and/or audit committee’s oversight of risk management, and about the same number said it “needs improvement.”
According to the survey, despite ongoing challenges posed by complex accounting standards and Section 404 compliance, many audit committee members today are confident in their oversight of these fundamental elements of financial reporting. About 80 percent of audit committees are “very satisfied” with their oversight of management’s accounting judgments and estimates (a 10-point increase over last year), and some 60 percent said they are “very satisfied” with the amount of time the audit committee spends discussing this issue.
On the oversight of Section 404 compliance, some 70 percent of respondents indicated they are “very satisfied” with the audit committee’s oversight in this area, up from 64 percent last year.
By and large, audit committee members also say they have grown more satisfied over the past year with the support they receive from management and auditors, which ACI’s Smith points to as a particularly important finding. “As oversight issues become more nuanced and complex, the support the audit committee receives from management and auditors becomes more important than ever to the committee’s efficiency and effectiveness.”
In addition to these priorities, survey respondents cited legal/regulatory compliance, effectiveness of the internal and external auditors, business strategy, taxes, and fraud risk as being important agenda items for the audit committee.
Among other key survey findings:
- While a substantial number of respondents (44 percent) said they are “very satisfied” that the oversight activities of the audit committee and other board committees are appropriately coordinated and communicated, another 46 percent were only “somewhat satisfied.” One in 10 said coordination and communications “needs improvement.”
- Many survey respondents (67 percent) said they are “very satisfied” with the approach used to establish their committee’s agenda/work plan. Yet, in a related finding, there is still concern that compliance activities detract from the audit committee’s overall effectiveness. Some 15 percent said they are “very concerned” about this and 57 percent are “somewhat concerned.”
- As in 2005-2006, many respondents said their pre-meeting materials could be improved by better prioritization of issues, more comparisons to industry statistics for benchmarking purposes, and more succinct information.
- Satisfaction with the audit committee’s self-evaluation process fell slightly, with only 28 percent of respondents indicating they were “very satisfied” that their self-evaluation approach enhances the committee’s effectiveness, compared with 37 percent in 2006.
- Some 45 percent of respondents were “very satisfied” with the effectiveness of the company’s internal audit function, while the same number was only “somewhat satisfied” and 9 percent were “not satisfied.”
Founded in 1999, KPMG’s Audit Committee Institute (ACI) works with audit committee members, directors, and those supporting them to enhance awareness and effectiveness of audit committee oversight practices. ACI facilitates knowledge sharing on emerging issues and practices through its semi-annual Audit Committee Roundtables Series (held in 30-plus cities around the U.S.), the Annual Audit Committee Issues Conference, the Annual Audit Committee Member Survey, and other educational forums and online resources. ACIs are sponsored by KPMG International member firms in 23 countries around the world. For more information, visit http://www.kpmg.com/aci.
KPMG LLP, the audit, tax and advisory firm, is the U.S. member firm of KPMG International. KPMG International’s member firms have 113,000 professionals, including more than 6,800 partners, in 148 countries.
July 4-6,
2007
The International Corporate Governance Network holds its 12th Annual
Conference, themed "Corporate Governance - Seizing the Initiative." The
event, which will be held this year in Cape Town, South Africa, brings
together the world's decision makers: shareowners, companies, policy
makers, advisers, and stakeholders from over 30 countries from every
region. Keynotes include SEC Commissioner Roel Campos and European
Commissioner Charlie McCreevy debating cross-border regulation. For
more information, visit
July
15-18, 2007
Harvard Business School's Corporate Governance Series presents "Making
Corporate Boards More Effective," a program that concentrates on
cutting-edge techniques, strategies and action plans for improving
board design, maximizing indiviual contributions to company boards, and
improving corporate governance. Faculty chair is HBS Professor Jay
Lorsch, and the program will be held on the HBS campus. For further
information, call 1-800-HBS-5577 or visit
July 18,
2007
The Practicing Law Institute presents "Audit Committee Workshop 2007:
What Audit Committee Members and Lawyers Who Advise Them Need to Know."
This program will be held in San Francisco with faculty co-chairs
Gregory Conklin of Gibson Dunn & Crutcher, Kenneth Daly, new CEO of
the National Association of Corporate Directors, and Katherine Martin
of Wilson Sonsini Goodrich & Rosati. For more information, visit
August
22-24, 2007
The Directors' Consortium, a joint offering of the University of
Chicago Graduate School of Business and the Tuck School of Business at
Dartmouth, will host a three-day intensive program exploring the
fundamentals of corporate governance and board service. Leading faculty
from six world-class institutions will present a comprehensive approach
to the complex decisions that board members must make. The program will
be held at the Chicago GSB. For information, visit
September
18-19, 2007
On Board Bootcamp, hosted by Susan Stautberg and Carolyn Chin in New
York City, provides an insiders guide on how to be selected as a
Corporate Director and introduces you to experienced directors and
search executives who will share with you "lessons learned" along the
way. To register, contact Vaiva Razgaitis at partcom@verizon.net or
call 212-987-6070. For more information, visit
Business Roundtable Institute for Corporate Ethics hosts the Senior
Leadership Team Ethics Seminar, a forum for senior executives to share
best practices and best thinking regarding ethics. Held in Washington,
D.C., the half-day session is led by the Institute's instructors who
are faculty at top business schools. This program is for chief ethics
officers, chief financial officers, and other C-level executives, as
well as vice presidents, general counsels, corporate secretaries, and
members of the board of directors. Issues addressed include how to:
build and strengthen an ethical culture; develop a strategic,
enterprise approach to ethics; foster trust among your firm's
stakeholders; and identify issues your firm is likely to face in the
next 5-10 years. More information can be found at:
The Directors' Education Institute at Duke University is an ISS-accredited, intensive, innovative two-day program developed by the Duke Global Capital Markets Center (GCMC) with the support of the New York Stock Exchange Foundation to address the recent developments in corporate governance. This program is designed for board chairs, corporate directors and senior executive officers of publicly traded corporations. For additional information, please call (919) 613-7260. Or click here.
November
27, 2007
The Women Corporate Directors Mini-Conference will be held from
2:00-9:00 pm at KPMG Headquarters in New York City to share
perspectives on corporate governance and discuss the significant issues
being raised today by corporate boards, regulatory agencies and the
courts. For more information, contact Vaiva Razgaitis at partcom@verizon.net.
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A committee of the Stanford Institutional Investors’ Forum at Stanford Law School, in cooperation with the Arthur and Toni Rembe Rock Center for Corporate Governance, announced last month new standards designed to improve fund governance and curb abuse of fund assets. The Clapman Report, a set of best practice principles for managing pension, endowment, and charitable funds, calls for institutional investors—who today are the central repository of capital in the United States—to adopt basic policies aimed at improving how they govern themselves.
The Clapman Report comes in the wake of several high-profile scandals that painfully illustrate the need for tougher governance standards—from New Jersey, where it recently surfaced that the state diverted $3.1 billion from its pension system, to Illinois, where a state teachers’ retirement system trustee pled guilty to “pay to play” schemes involving million-dollar kickbacks, to California, where governance lapses by former City of San Diego retirement board members contributed to a $1.4 billion unfunded liability, to New York State, where the former comptroller, who exercised sole control and discretion over pension fund assets, stepped down in the face of serious allegations that he misused state funds for personal use. Governance issues have plagued charitable funds as well, most notably the Getty Foundation, whose president resigned amid accusations ranging from inappropriate funding of mortgage loans to using museum assets for personal benefit.
“As a committee we were bound by a central belief: Fundamental fund governance standards ought to exist to safeguard beneficiaries’ assets from questionable—and often illegal—practices, and to protect the taxpayers who end up footing the bill when institutional investors fail,” said Peter Clapman, CEO of Governance for Owners USA, former chief investment counsel of TIAA-CREF, and chairman of the Stanford Institutional Investors’ Forum’s Committee on Fund Governance. Click here for a copy of the report.
The Arthur and Toni Rembe Rock Center for Corporate Governance (http://rockcenter.stanford.edu), a joint initiative of Stanford Law School and the Stanford Graduate School of Business, was founded in 2006 to advance the practice and study of corporate governance and become an important voice in the debate over governance policy, both domestically and internationally.
Director Resources
Executive Compensation: The Hay Group, a global organizational and human resources consulting firm (http://www.haygroup.com), has released its third annual Top Executive Compensation Study. Research covered more than 12,000 corporate and business unit executives from over 200 publicly held organizations in the U.S. and Canada with revenues of $1 billion and above and over 1,300 top executives from more than 200 companies with revenues of at least €1 billion in 16 European countries. Among the key findings: stock options continue to be the most prevalent vehicle utilized in terms of U.S. long-term incentives, followed by restricted stock plans; and, across all industries, the study finds that the “size,” or scope and complexity, of an executive job has a greater impact on base pay than either the industry sector or job title. Click here for a copy of the “Top Executive Compensation in North America” report, and here for the “Top Executive Compensation in Europe” report.
A Private Equity Forecast: The Dilenschneider Group Inc. has released a special report, “After Private Equity: Will It End? What Happens Next?” For a copy, call 212-922-0900.
Corporate Credibility: Trust in business is higher than media and government in every region of the globe, and CEOs are important spokespeople but not sufficient in matters of trust. These were two findings of the recently released Edelman Trust Barometer (http://www.edelman.com). For its eighth year of research, the firm surveyed 3,100 opinion leaders in 18 countries to gain insights into the credibility of corporate executives, media and spokespeople, and, equally important, the behaviors that build trust. For information on the Trust Barometer, email Mark Shadle, managing director, U.S. Corporate Practice, for Edelman at mark.shadle@edelman.com.
Author Notes
Compensation and benefits expert Bruce Ellig has revised and expanded The Complete Guide to Executive Compensation, his handbook of winning compensation models and practices relied on by companies nationwide. Published in June by McGraw-Hill (http://www.books.mcgraw-hill.com), the updated second edition explains how to design and administer executive compensation programs that are strategically, economically, and culturally sound.
LRN, a leading provider of ethics and compliance solutions (http://www.lrn.com), announced a five-year partnership with Altria Group Inc. to further Altria’s corporate-wide commitment to responsible business conduct and an ethical company culture. Under the arrangement, LRN will design and implement a customized online ethics and compliance education and communication initiative tailored to meet the needs of Altria’s workforce and its global risks and business objectives.
Beecher Carlson, an insurance brokerage and risk management consulting firm (http://www.beechercarlson.com), has expanded its Executive Liability team. Leaticia Roberts joins as client service manager in Atlanta and Kimberly Fine will serve as senior vice president from Beecher Carlson’s New York office.
Gregory C. Schick has joined the San Francisco office of Sheppard Mullin Richter & Hampton LLP (http://www.sheppardmullin.com) as a partner in the firm's Tax/Employee Benefits/Trusts & Estates practice group. He most recently practiced with Orrick, Herrington & Sutcliffe LLP in San Francisco. His practice focuses primarily in the executive compensation, corporate securities laws, and corporate governance areas, and he advises both public and privately held companies as well as individual clients.
Pearl Meyer & Partners, a national independent compensation consultancy (http://www.pearlmeyer.com), announced that Managing Director Peter Lupo has been named as head of the firm’s New York office, and that Matt Turner has joined the firm’s Chicago office as a managing director.
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Directors & Boards e-Briefing is a monthly service of Directors & Boards. All contents copyright 2007, MLR Holdings LLC.