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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
An Irrational Act?
What is it that motivates people to join boards when logic would
dictate otherwise?
June. Start of summer. Vacation time. The beach. Beach reading. I’ll
take a leaf out of Oprah’s promotional playbook and recommend two books
for your reading enjoyment and edification over the coming months.
A lead-in to the recommendations. Why is it that someone would choose
to join a corporate board--when logic would dictate otherwise? It can’t
be, nor should it be, for the money. As my longtime colleague in
governance Nell Minow is fond of saying, “Directors are underpaid for
what they should be doing and overpaid for what they are doing.” (I’m
sure all our Directors & Boards
readers are in the former camp.) And it can’t be because someone likes
to live dangerously--exposing to great risk their finances, their
reputation, and control of their time and calendar.
So what drives this seemingly irrational act? How about a desire to be
of service? To do something that benefits others. To share your
expertise. To extend your network of relationships, such that by the
act of reaching out and helping others, you help yourself.
That is the philosophy behind the first book that you should scoop up
this summer, Never Eat Alone
(subtitled, “And Other Secrets to
Success, One Relationship at a Time”) by Keith Ferrazzi. While this is
not a governance book per se,
Ferrazzi’s advice and methodology for building a network of mutual
benefit-producing relationships goes a long way toward explaining what
motivates individuals to join a board. It also explains why we have
such a robust--if not always perfect--corporate governance system in
this country.
The second must-read this summer is A
Life in Leadership, by John C.
Whitehead. It’s a memoir by this longtime leader in the private and
public sectors who, after a very full life, answered an urgent call for
help and became chairman of the Lower Manhattan Development Corp. His
many autobiographical tales are a testament to the power of
relationship-building and how by helping others you create a rewarding
life for yourself.
Here are links for more information on these two inspiring works: Never Eat
Alone and A
Life in Leadership.
I’d enjoy
hearing from you if you found these works of value.
Jim
Kristie is the editor and
associate publisher of Directors
& Boards.
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How ready are you to respond to the revenge-laced rhetoric promoted by activist organizations and shareholder-revolt leaders?
By Mike McCurry and Randy Tate
Had your fill of politics in 2004? Well, if you’re a corporate officer
or board member, there’s a good chance that you yourself are already
being targeted by a very political opponent. And--most likely--you
don’t even know it.
Over the last few months, activists and their allies have begun setting
their sights on directors and senior managers at a dramatically
accelerating pace. Their goal is simple--stop focusing on traditional
tried (and tired) boycotts for which corporations are well prepared,
and instead focus on weaker flanks.
Ambitious pension fund trustees, family values activists,
enviro-advocates, hostile ex-company officials, and other shareholder
activists are targeting individual board members, senior management,
business partners, and even stock prices to achieve their goals. They
are getting traction and are gaining speed.
[Click
Here to Read
the Entire Article]
When the reasons to resign are compelling, just do it -- walk away.
By Gary Sutton
One of my board terms expires in a year, but I quit last month. If you’ve sat on a dozen boards, chances are you’ve resigned from one or two. And you should have.
My recent departure was from a small outfit with 600 shareholders. I knew the business well from the outside. At our first meeting the board discussed an undisclosed liability. It was news to me.
All the directors had been advised by legal counsel to say nothing until the amount could be reasonably estimated. Litigation was under way, and the lawyer didn’t want wild guesses floating around that might hurt his negotiations. Where’s the logic in that?
The board had disclosed the probable liability, but in calm, vague language that didn’t raise a single question. At my second board meeting, outside experts presented their conclusions. This did not include an estimate of the liability total, since we hadn’t paid them for that. I asked for an informal guess, and the top expert wrinkled his brow, pulled out a calculator, and scratched down some working notes.
“About $10 million,” he said. A collective gasp swept around the table, including the attorney. Nobody had thought the problem to be 10 percent of that size.
[Click Here to Read the Entire Article]
Visiting Fellow
Hoover Institution of Stanford University
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.
Rumblings of despair might lead one to believe a new disease threatens us from foreign shores. Instead, Sarbox Is a set of regulations intended to prevent the next Enron or WorldCom by improving corporate governance. It is now entering its first year of enforcement, and according to many participating in recent SEC roundtable hearings it may be the most costly and counterproductive regulation ever imposed on public companies.
In fact, the Act empowers the federal government in unprecedented ways by dictating areas of corporate governance previously left to states. Complying with Sarbox will levy $35 billion of additional costs on corporate America this year—twenty times more than the SEC originally estimated. Washington bureaucrats can now impose a one-size-fits-all approach to structure corporate boards, determine their duties and those of officers, and set standards and processes for internal controls. In so doing, Sarbox defies common sense and the American tradition of competition to promote innovation and best business practices.
[Click Here to Read the Entire Article]
Accounting and Governance Issues Lead to Major Changes
Companies are significantly altering the eligibility criteria, design parameters, and size of executive long-term incentive awards, as they face increasing regulatory and shareholder pressure to align pay with performance and manage costs, according to global human resources services firm Hewitt Associates.
Hewitt’s survey of more than 115 large U.S. companies reveals that nearly three-fourths (71 percent) are revising or plan to revise their long-term incentive program design in anticipation of mandatory stock option expensing. (All public companies are required to expense options by the start of their 2006 fiscal year.) Many organizations are shifting a portion of their long-term incentive mix from stock options to restricted stock (43 percent) and performance-based shares/units (33 percent). What’s more, 35 percent of companies are limiting the number of employees eligible for long-term incentive plans.
Hewitt’s study also shows that many companies (42 percent) aren’t fully replacing stock option grant values as they move to other forms of equity incentives. In fact, approximately 40 percent of companies are using a 3-to-1 value ratio when converting to restricted stock, and a 4-to-1 ratio when converting to performance-based shares. Only a minority of companies are fully replacing stock option values in shifting to other forms of incentive compensation.
Executive Base Pay and Bonuses
Hewitt’s study reveals that 2005 executive base pay increases are consistent with last year, with more than 70 percent of companies awarding increases of less than 4 percent (median of 3.5 percent).
As for executive bonuses, more companies (68 percent) are awarding at or above target this year (for 2004 performance), compared with last year (46 percent). Specifically, 47 percent of organizations are paying between 100 percent and 149 percent, and 21 percent of companies are paying 150 percent or more of targeted bonus.
Hewitt’s “Hot Topics in Executive Compensation” study is based on 117 companies with a median market cap of more than $11 billion. More than half of these companies are members of the Fortune 500. For more information, please visit www.hewitt.com.
June 1-2,
2005
The NYU Directors' Institute will present "Understanding and Satisfying
the New Expectations of the Board of Directors." Panels will
explore the
critical relationship between the board and the CEO, and the critical
governance role of the general counsel, among other topics. U.S.
Treasury Secretary John Snow and Citicorp CEO Chuck Prince will be
keynote speakers. Organized by the New York University Center for Law
& Business, the seminar is designed for current and newly elected
directors as well as general counsels and corporate secretaries. Visit
June 2-4,
2005
The Vail Leadership Institute's Center for Corporate Change is hosting
its annual "Changing the Game Forum: Reforming American Business."
Participants will examine leading corporate practices in business
ethics and board governance that are making a difference in corporate
America today. They will discuss original research and hear from
companies that share leading governance practices in the areas of
setting the tone and culture of the firm, fostering ethical leadership
development and succession planning, developing executive compensation
programs, and implementing multi-stakeholder performance, valuation and
reporting. Call 303-417-6384 or visit
June 2-4,
2005
The International Policy Governance Association will present "Creating
the Future: Good Governance in Action." Featured at the conference will
be keynote presentations, a wide variety of
interactive, workshops, and multiple networking
opportunities. Keynote speakers include governance expert Dr. John
Carver, best-selling authors Rob Lebow and Randy Spitzer, author and
business consultant Dr. Betty Flowers, and governance author and expert
Miriam Carver. The event will be held in Scottsdale, Arizona. For more
details
visit
June 7,
2005
Boardroom Consultants, a leader in executive and board search and
governance consulting, will conduct its Third Annual Institute on
Board/Committee Effectiveness. For more
information, visit
June 8-9,
2005
The University of Georgia's Terry College of Business and the National
Association of Corporate Directors present the 2005 Directors' College
program, "Fundamentals of Superior Corporate Governance and Board
Service." Key areas of focus include roles and expectations of
directors, finance and accounting, and executive succession.
Georgia-Pacific Chairman and CEO Pete Correll and Equifax Chairman and
CEO Tom Chapman will be keynote speakers. Visit
June 9,
2005
"Leading with Creativity and Conviction" is the theme of the Ninth
Annual Wharton Leadership Conference being held at the Wharton School
at the University of Pennsylvania. This one-day intensive conference
will be devoted to exchanging idea about how senior executives can
engage in creative leadership for innovation and sustainable growth. It
will be led by Peter Capelli, director of the Wharton Center for Human
Resources, and Michael Useem, director of the Wharton Center for
Leadership and Change Management. Conference agenda and information are
available at
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
June
21-22, 2005
The Conference Board's 2005 Executive Compensation Seminar: "Practical
Strategies and Solutions that Pass Scrutiny" will be held at The
InterContinental The Barclay hotel in New York City. The agenda format
emphasizes practical business experience, rather than theory. For more
information, 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 participants from the
corporate and military
worlds to study leadership-development methods 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
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" will be 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
Boardroom
Briefing: Corporate Internal Investigtions
Leaders Added to Editorial Advisory Board
Directors & Boards welcomes the following new members to its editorial advisory board:
• Norman R. Augustine, retired chairman and CEO of Lockheed Martin Corp.
• Julie H. Daum, managing director of North American Board Services, Spencer Stuart
• Robert L. Dilenschneider, chairman, The Dilenschneider Group Inc.
• Charles M. Elson, Edgar S. Woolard Jr. Chair in Corporate Governance and director of the John L. Weinberg Center for Corporate Governance at the University of Delaware
• Susan R. Nowakowski, president and COO, AMN Healthcare Services Inc.
• Jeffrey A. Sonnenfeld, associate dean of executive programs, Yale School of Management
These accomplished individuals will join the existing board members in providing insight and guidance to the journal’s publishing staff on key governance issues and trends.
John C. Wilcox Joins TIAA-CREF
John C. Wilcox has been named senior vice president and head of corporate governance for TIAA-CREF, the financial services organization that provides retirement services in the academic, research, medical, and cultural fields and one of the country’s largest institutional investors. He had been with Georgeson Shareholder Communications for 31 years, most recently as vice chairman. Wilcox has appeared a number of times in the pages of Directors & Boards as an author and roundtable participant. One of his authoritative articles on governance, “A 10-Year Quest for Director Accountability,” which traced the first decade (1987-1997) of institutional activism, appeared in the Fall 1997 edition of Directors & Boards. Click here for a pdf copy of the article.
Bill George Honored for Ethical Leadership
Former Medtronic Chairman and CEO William W. George is being honored for excellence in ethical leadership by the Vail Leadership Institute’s Center for Corporate Change. The award is being presented at the Center’s Changing the Game Forum on June 2-4 (see Events). George, now teaching at the Harvard Business School, was prescient when he sounded an early warning alarm with his article “It’s Time to Improve Corporate Governance” in the Directors & Boards Winter 2001 edition. Nine months later came the collapse of Enron. A copy of the article is available in the D&B Articles Archive.
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Congratulations on the publication of Boardroom Briefing: CEO Succession Planning.
As your survey demonstrated, many boards are still not as prepared as they should be for one of their most important tasks . . . assuring a strong future for their enterprises through a carefully planned and focused CEO succession process.
I hope that your Boardroom Briefing targeting this key governance issue, including the survey and articles on a varied collection of viewpoints, will bring CEO succession planning to the top of every boardroom agenda.
I feel especially privileged to be included in this publication.
John McCreight
Managing Partner
Board Effectiveness Partners
The succession planning survey (from the Boardroom Briefing: CEO Succession Planning) was interesting! 67% of companies really are NOT doing CEO succession planning, something validated by McKinsey's recent survey as well, and the question is why?
Some of my director contacts suggest you need at least a $1 to $2 billion company to really justify succession planning. I'm not sure I buy that.
Mark Van Clieaf
Managing Director
MVC Associates International
Subject to deadlines I read your publications almost as soon as I get them. They are wonderful and right on.
Given my business I work with several investor relations firms. Your publications are absolutely as crucial to them as they are to your traditional audience.
I wonder whether investor relations firms are a target for your material? They are constantly striving to be up to speed and are often have significant board contact.
Bruce J. Strzelczyk
Partner
Eisner LLP
Editor's Note: Look for an upcoming Boardroom Briefing on Investor Relations!
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Directors & Boards e-Briefing is a monthly service of Directors & Boards. All contents copyright 2005, MLR Holdings LLC.