|
 |
|
Are you reading a pass along copy? Get
your
own FREE subscription. To unsubscribe, please click HERE
and send a blank email. You will be automatically unsubscribed.
Directors & Boards
Robert H. Rock
Publisher
James Kristie
Editor
Lisa
Cody
Chief Financial Officer
David Shaw
Publishing Director
Scott Chase
Advertising Sales Director
Barbara Wenger
Subscriptions
Jerri Smith
Reprints
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 |
Wisdom from a Late and Great Master
A meeting that didn’t happen, but some sound advice on executive pay
that did result.
In looking back over my tenure as editor of Directors & Boards, I have few
regrets. One big regret, however, is that I never met the legendary
Harold Geneen. Geneen ran ITT Corp. in the 1960s and early ’70s, during
which time he assembled an empire of breathtaking proportions and made
an enduring name for himself in business history.
I could have met him. That’s
the regrettable part.
The year was 1997. At that time Geneen was 87 years old and still
active with a number of business interests. A good colleague of mine,
Barbara Hendra, was eager to arrange a visit. She was working with him
on a book of his leadership principles to be published that year. For
whatever lame (in hindsight) reason, I could not make the meeting
happen. And then, before a second chance presented itself, he
died.
My thoughts turn to Geneen when I see all the executive compensation
guidelines, proposals, legislative and regulatory initiatives, and
random kerfuffle — how about that appointment of an “executive pay
czar” last month? — bursting from all quarters of the private and
public sectors. This whole year, but especially the past couple of
months, has seemed to be an “all pay, all the time” kind of news
period. Who can keep it all straight, and in perspective?
My guess is Geneen could. And did. While I never got my meeting in with
Hal Geneen, I did publish “Geneen on Executive Pay,” drawn from his
book, in the Summer 1997 issue of Directors
& Boards, a few months before he died that November.
We always can learn a lot from the true masters. For the Columnist slot
this month (see below), I’ve selected a few passages from Geneen’s
article. These are keen insights that serve as a powerful counterweight
to all the moral outrage and half-baked cogitating, particularly from
the Capitol Hill environs, now taking place over exec comp.
Switching gears, one little-remarked-upon element of Sen. Charles
Schumer’s “Shareholder Bill of Rights Act of 2009” that he introduced
in May is a proviso that boards would be required to create a standing
risk committee. For the Article of the Month, our risk experts at
Debevoise & Plimpton tee up some sound counsel on issues related to
creating a risk committee of the board.
Executive comp and risk management — are there any two hotter subjects
as we go into the hottest part of the summer? Drop me a line at jkristie@directorsandboards.com
if you’d like a digital copy of the full “Geneen on Executive Pay.”
You’ll thank me — and catch me still lashing myself for a meeting
missed with a towering figure in American capitalism.
Jim
Kristie is the editor and
associate publisher of Directors
& Boards.
The Risky Business of Creating a Risk
CommitteeIt would be among the worst outcomes to create a risk committee only to find it ineffective.
By W. Neil Eggleston and David C. Ware
The benefits of a successful risk committee are obvious: improved board oversight of management and of company operations; an ability to anticipate and react to events and trends that might otherwise be inscrutable; and, not least, the projection of a sober and responsible corporate culture that will impress employees and regulators alike.
But before rushing to establish a risk committee, it is worth noting that the creation of such a committee can itself create risk.
The board, in delegating responsibility of monitoring risk to the new committee, will need to stay focused on the fact that managing risks, especially systemic and existential risks, is one of the core functions of the board itself. Furthermore, to the extent that other committees, especially the audit committee, maintain some role in risk management, a new risk committee could lead to uncertainty about where one committee’s responsibility ends and another’s begins.
The result of such confusion could be overlapping efforts or, in the worst-case scenario, a failure to manage a certain category of risk entirely. To read more, click the link below.
[Click
Here to Read
the Entire Article]
Geneen on Executive Pay
While it would be a mistake to assume that the number of prodigies capable of running a big corporation is so small that boards have no choice but to pay them exorbitantly, it would also be a mistake to shrink from paying whatever it costs to get the best.
By Harold S. Geneen
Ed. Note: This is an excerpt of an article that originally appeared in the Summer 1997 edition of Directors & Boards.
You have to ask, “What are corporations paying those megamillions for?” The solemn answer comes back from the board of directors: “Demonstrated capability.” But if the company is doing well, surely the CEO’s predecessors deserve some credit. I propose breaking up Fortune 500 chief executives’ pay, giving one half to the incumbents and splitting the other half among his demonstrably capable predecessors and their heirs.
Absurd? Of course. That’s the point. At the moment, there is no logic in these things. The size of the pay package is dictated by habit. To be sure, most companies will hire consultants to advise them on an “appropriate level” of compensation, but all they do is tote up what everybody else in the industry is making and recommend that their clients pay roughly the same. They are, after all, eager to please their clients’ bosses. As I said, it’s a matter of habit.
This also leads to a steady escalation in the size of compensation packages. Are CEOs worth their paychecks? If so, by what standards? Who sets the standards? Who enforces them? To what extent does dumb luck decide the total? To read more, click the link below.
[Click Here to Read the Entire Article]
CEO
The Network, 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 sectors are most hard hit by employee fraud and misconduct in economic downturns?
During 25 years in the corporate compliance business, we’ve learned that no industry is immune to acts of fraud and misconduct. It seems to cut across all sectors and organizational demographics. But lately, we’re definitely seeing more evidence that suggests a link between the economic downtown and spikes in fraud.
Research by our company certainly points to an increase in reporting of fraudulent behavior. We publish a bi-annual benchmarking report, and the 2009 version, which was just released, looks at hotline reporting among our client organizations over a five-year period. This report showed the highest year over year increase of fraud-related reports in retail trade and the finance, insurance and real estate industries. This is in line with what one would expect as these industries have been hit particularly hard in this downturn.
In addition to the industries mentioned, the report showed an alarming increase in the number of fraud-related reports (issues like corruption, misuse of corporate assets or information, conflicts of interest, FCPA violations, etc.) across all industries rising from 10.9 percent in the first quarter of 2006 to 21 percent in the first quarter of 2009. We don’t expect improvement in the short term, but we do see a lot of variability across organizations within an industry--the ones that fare the best have an ethical culture where employees are clear about their company’s commitment to an honest workplace. To read more, click the link below.
[Click Here to Read the Entire Article]
Hypothetical Fund Outperforms Benchmark by 279 Annualized Basis Points
Results from a new study published by The Corporate Library, an independent corporate governance research firm, found that enhanced screens for corporate governance risk augmented investment returns in a hypothetical fund. The results of the study set the stage for the development of a commercially-viable governance alpha index.
The study, conducted by a third-party analytics firm, compared the performance of the “Enhanced Governance Alpha Fund” (GAF Plus) with the Russell 1000 benchmark over a five-year period. The GAF Plus was created based on another hypothetical fund, the “Governance Alpha Fund” (GAF), which used an exclusionary screen based on The Corporate Library’s proprietary governance risk ratings. The GAF Plus further excluded companies that had been assigned a D or F Board or Compensation component rating, regardless of a company’s overall rating.
Over the period of five years, the GAF Plus outperformed the benchmark by 279 annualized basis points. The study found the outperformance was largely attributable to the influence of The Corporate Library’s corporate governance ratings on the fund’s investment choices. (In comparison, the GAF was found in a previous study to outperform the Russell 1000 by 102 annualized basis points.)
“The GAF Plus concept maximizes the impact of The Corporate Library’s primary screens for high governance risk,” said Ric Marshall, Chief Analyst for The Corporate Library and author of the study. “The GAF and GAF Plus would be ideally suited to meet the needs of investors looking for a passive, large-scale index-style vehicle with mitigated governance risk.”
The study, titled “Investing In Corporate Governance: Maximizing Governance Alpha” is available as a free download from The Corporate Library’s online store at http://www.thecorporatelibrary.com/info.php?id=76.
|
July
13-15, 2009 July
15-16, 2009 September
8-10, 2009 October
8-9, 2009 October
18-20, 2009 November
18-19, 2009 |
|
The introduction of Sen. Charles Schumer's "Shareholder Bill of Rights Act of 2009" into the U.S. Senate on May 19 brings the possibility of a mandatory annual shareholder advisory vote on executive compensation (dubbed "Say on Pay") closer to reality for all public companies, not just TARP recipients, advises Fred Cook of Frederic W. Cook & Co. Inc.
“If this passes,” he says, “it is likely that companies and their compensation committees will want their programs to receive a strong majority of favorable votes.” In an advisory to compensation committee chairmen in June, he presented four things to do to help achieve this objective:
1. Have a great program to begin with
• Simplicity is better than complexity
2. Avoid red flags
3. Convert the CD&A from a legal document to a "selling" document
4. Expand dialogue with interested shareholders
“Each company and committee will develop its own campaign to fit its style and leadership,” Cook says, but he expects that “all successful campaigns will include the four elements above.”
Director Resources
M&A: Corporate directors should prepare for a rise in unsolicited takeover offers, according to a report released in June from the Conference Board Governance Center. In its report, the Center provides board members with a checklist of issues they should consider when facing an unsolicited takeover offer. To receive a copy of the report, contact Matteo Tonello at matteo.tonello@conference-board.org.
Proxy Disclosure: A new Pearl Meyer & Partners report offers a preview of 2010 proxy disclosures. The firm’s 2009 Early 50 Filers study is based on a cross-industry sample of 50 companies, distributed relatively evenly by revenue size and market capitalization that filed their annual disclosures early in the 2009 proxy season. Click here for the complete analysis, “Trends and Issues Report: The 2009 Early 50 Filers.” Says David Swinford, president and CEO of Pearl Meyer & Partners, “This is the tip of the iceberg in terms of the changes we’ll see in the 2010 proxy season.”
Executive Pay: Pay for Results: Aligning Executive Compensation with Business Performance is a new book authored by 14 Mercer compensation consultants from around the world, which addresses the most important issues now facing HR, compensation, and finance executives and boards of directors. The book provides a practical and comprehensive set of guidelines to consider in developing and implementing executive incentives that help drive superior business results. Copies of the book are available directly from Wiley Publishing . Click here to download the table of contents, a free copy of Chapter 1, and related articles written by Mercer authors.
TARP Rules on Exec Comp: Wondering about the ins and outs of the new TARP rules on executive compensation? Ernst & Young LLP has issued a Tax Alert that offers a briefing on this Treasury Department program. Click here for a copy.
Exec Comp in Privately Held Companies: The intensifying scrutiny into executive compensation is forcing all those with a direct stake in developing effective comp strategies — HR directors, board members, comp consultants, and others — to take a fresh look at those strategies. A new study released in June by Presidio Pay Advisors, a San Francisco-based compensation consulting firm, has findings of special interest for privately held companies preparing compensation programs in anticipation of going public once the market returns. Click here for a copy of the firm’s IPO Pay Reporter.
Proxy Access Rules: As above, are you in need of a briefing on the SEC’s proposed long-awaited proxy access rules that would give shareholders access to company proxy statements to nominate director candidates or make related proposals? Click here for a copy of a Client Alert just issued by the law firm Milbank Tweed Hadley & McCloy LLP.
Private Equity: More than 90% of private equity managers expect the credit crisis to persist in 2010, according to new report from CPA firm Rothstein Kass. Over 40% are expecting capital market improvement during second half of next year. Amid intense competition, there will be uncertain exit strategies: Almost 80% anticipate greater involvement with portfolio companies. Click here for a link to the report.
This report includes the findings of a recent survey of middle-market PE managers on issues ranging from fundraising to regulatory concerns. A survey of high-net worth individuals regarding their views on the sector is also featured.
Crisis Management: As the economic crisis continues to be top-of-mind for corporate board members and management, there is a pressing need for issues such as going concern discussions to happen year round — and not just at companies that are visibly struggling. The first edition of a new quarterly newsletter from PricewaterhouseCoopers, “To the Point: Current Issue for Boards of Directors,” addresses this and other key topics that directors need to be aware of in today’s new credit environment. Click here for a copy.
Author Notes
Norman R. Augustine, retired chairman and CEO of Lockheed Martin Corp., has been chosen by the National Association of Corporate Directors as the 2009 winner of the B. Kenneth West Lifetime Achievement Award. Established in 2006, this award was created in the name of a former NACD chairman who was instrumental in bringing management, boards, and investors together to find common ground on issues of transparency, director independence, and corporate responsibility. The award will be presented at the NACD’s annual meeting in October. Augustine is a member of the editorial advisory board of Directors & Boards.
Stephen Chipman will be the next CEO of Grant Thornton LLP, succeeding Edward Nusbaum on Jan. 1, 2010. Chipman was most recently chief executive officer, Greater China Management Corporation, responsible for leading the development and growth of services for Grant Thornton in China. Under his leadership during the last two years, Grant Thornton’s resources in China have expanded significantly to more than 1,600 people in six offices. Chipman has been a member of Grant Thornton for 28 years.
David W. Whitmore joins Levick Strategic Communications, global leader in high-stakes and litigation communications, as chief operating officer and general counsel. Whitmore comes to Levick with over 25 years of financial and operational experience. He has spent the lion’s share of his career in the communications industry, working with public relations, public affairs, lobbying, and advertising firms.
GovernanceMetrics International, the corporate governance research and ratings firm, has been selected as the highest-ranked independent provider of corporate governance research in the new Thomson Reuters Extel Survey 2009. The original Extel Survey began in 1974 when an independent consultant conceived the idea of collecting views and votes from fund managers on the services and advice they were getting from research analysts.
Debevoise & Plimpton LLP has been awarded a Burton Award for Legal Writing. The firm won the 2009 Distinguished Law Firm Award for the article “The Globalization of SEC Enforcement Activities,” written by partner Paul R. Berger and associate Erin W. Sheehy and originally published in The Review of Securities & Commodities Regulation in October 2008.
Gary Patterson has published a new book, “Stick Out Your Balance Sheet and Cough: Best Practices for Long-Term Business Health." Patterson, who authored the article, “What Is Your Board’s Embarrassment IQ?” in the Fourth Quarter 2007 Directors & Boards, is president and CEO of FiscalDoctor.
The Ethisphere Institute and the Business Roundtable Institute for Corporate Ethics announced an initiative to combine efforts to promote best practices in corporate ethics.
James Kristie, editor of Directors & Boards, moderated a panel discussion on nonprofit governance for a program conducted in June by the Center for Corporate Governance at Drexel University’s LeBow College of Business and The Philadelphia Foundation.
Back to the Top
Directors & Boards e-Briefing is a monthly service of Directors & Boards. All contents copyright 2009, MLR Holdings LLC.