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Directors & Boards
Robert H. Rock
Publisher
James Kristie
Editor
Lisa
Cody
Chief Financial Officer
David Shaw
Publishing Director
Scott Chase
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Barbara Wenger
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From Jim Kristie | Article of the
Month | Columnist
Reader Profile |
Research | News |
Goose Eggs
In this age of accountability and alignment, what is a director doing
owning zero shares of company stock … and telling the whole world about
it?
Now that we’re coming to the end of the prime time proxy and annual
meeting season, I have a nit to pick.
If there is one thing I hate to see when reading a proxy, it’s that I
own more shares of stock in a company than some of the directors on the
board.
I’m not a big-league investor, by any stretch. I’m talking about owning
a couple hundred shares — and having that be more than the goose egg I
see next to the director’s name on the table disclosing security
ownership.
The guilty party shall remain nameless. But the company is no
speculative pink-sheeter with dicey prospects, which might explain
somewhat a director’s aversion to good-money losses. No, this is a
major industrial products manufacturer. It’s profitable on revenues
last year of over $3 billion. It employs 16,000 people worldwide. It’s
been around since the 1960s. It’s in a business — infrastructure — that
is in the growth sweet spot. The stock has been doing okay in a choppy
trading environment.
The guilty board members — there was more than one — shall remain
nameless, too. But from their bios in the proxy, if I can afford a
couple hundred shares of this stock, they can trump me pretty
decisively.
So why are these individuals showing zero common stock ownership in the
proxy mailed this spring?
That just doesn’t look good. I don’t mean from a business standpoint,
but from a board leadership standpoint.
I won’t even go into the whole alignment thesis, which has its
advocates as well as its attackers. On a baser level, it should be
embarrassing for the company, the board, and the individuals involved
to send out a proxy revealing this pitiful stock ownership data. It
shows a much too casual attitude, in this day and age, toward fiduciary
representation.
Suggestion: Strike some kind of an arrangement to get an appropriate
number of shares into the hands of a zero-holding director before
sending the proxy out. The chairman, the CEO, and the stockholding
peers on the board should demand no less.
Those goose eggs look awfully ugly, and they stink up the proxy.
Jim
Kristie is the editor and
associate publisher of Directors
& Boards.
Follow This Guidance on Earnings
GuidanceThe current debate focuses on the wrong question. Here is the real issue.
By Sam Silvers and Wendy Huang
There is a long-running argument about whether or not companies should provide earnings guidance. The media has produced an endless string of articles and opinion columns. Academics have churned out study after study. And corporate executives have debated the issue until they are blue in the face. In our view, all of these arguments focus on the wrong question.
The real issue is how to get analysts and investors to see your company’s future prospects the same way you do — to believe in your company’s “story.” In this broader context, quarterly earnings projections are little more than a footnote.
Yet companies around the world continue to waste countless man-hours agonizing over their earnings numbers as if they are all that matters. Sure, earnings are important. But they are only part of the story (and not necessarily the most compelling part).
In many cases, companies might be better off with a more balanced approach that doesn’t revolve entirely around earnings per share.
[Click
Here to Read
the Entire Article]
Don’t Even Think About Joining That Board Unless …
You’ve done the right homework. That homework entails preparing for the complex dynamics that exist in the boardroom.
By Toni Lynn Chinoy
You are now a senior executive and you have been shopping for suitable boards to join. Boards are an appropriate and perhaps necessary next step for you career ambitions.
You have asked all the right questions. Am I a good fit? Is the board position prestigious enough? Will the other board members be the right network for me? Do I offer value?
And, am I really ready for this? Will I feel myself to be an equal to the august body of individuals on a board?
If you really want to add your name to the list of notables on a specific board, then be sure to prepare yourself for the levels of complexity that exist in the boardroom.
[Click Here to Read the Entire Article]
SVP and GM, Governance, Risk & Compliance business unit
SAP
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 know you are focused on the right risks?
There is a duality of risk management needed to ensure that companies are operating predictably while optimizing performance. This is the focus on both strategic risk and operational risk. With today’s regulatory environment, many companies have become too centered on managing tactical, compliance related risks, without having appropriate focus on strategic risks. A tactical risk approach is generally not well aligned with the organization’s key strategic objectives around performance, predictability and growth.
Focusing on the right risks to protect and manage your business requires a strategic, enterprise approach to risk management, which gives you the understanding to best manage those risks that impact your ability to perform, with both a strategic and tactical view. Including risk in the strategy planning process provides a great competitive advantage. By seeing a consolidated view of strategic objectives, performance indicators and their related risks, corporate direction and risk mitigation steps can be determined that support optimized performance with predictable operations. Effective identification of operational risks includes alignment with the corporate strategy to more successfully drive the company to its corporate goals. The Board is instrumental in driving this direction from the top down.
[Click Here to Read the Entire Article]
DolmatConnell & Partners, Inc., a leading independent executive compensation consulting firm, released their 2008 Tech100 and LifeScience100 Studies. These studies, now in their fourth and second year respectively, provide some exceptional insight into the evolving world of executive compensation in the 100 largest publicly traded High Technology and Life Science companies in the U.S.
Changes in CEO pay level varied significantly between the two studies and were linked to overall industry performance levels. In the Tech100, CEO base salaries increased 3.8% and actual total cash compensation increased 2.9%, while total direct compensation (base + actual bonus + annual long-term incentive grant values) fell 0.6%. This was in line with a median annual total shareholder return for the industry which was 1.6%. The picture in the LifeScience100 was vastly different, with a median total shareholder return of 14.4% last year. CEO base salaries increased 5.6%, actual total cash compensation increased 10.3%, and total direct compensation rose 11.8%.
Pay-for-performance is dramatically improving, as Boards and Compensation Committees are responding to shareholder concerns with respect to executive pay. DolmatConnell & Partners looked at the Top 20 and Bottom 20 performing companies in each industry and found several encouraging results.
In the Tech100, median target bonuses for the Top 20 performing companies were 120% of base salary and actual bonus payouts were 139% of target ($1.4M), whereas in the Bottom 20 companies, median target bonuses were 150% of base salary, and actual bonus payouts were only 19% of target ($225K). Bonus payouts in the LifeScience100 followed similar trends. Says Jack Dolmat-Connell, CEO of DolmatConnell & Partners, “It is great to see that Boards are finally getting tough relative to the pay of underperforming CEOs. This is what has infuriated investors for years – high pay for mediocre or poor results.”
Most studies of executive compensation look at the aggregate value of base salary, actual bonus and the annual long-term incentive grant values in a given year, also known as “pay opportunity” for a given year.
In addition to this, the DolmatConnell & Partners’ studies looked at the value of compensation “realized” in a given year – what executives actually took home. The results of this new look are stunning – CEOs at Top 20 companies in the Tech100 realized $9.0M in 2007, whereas CEOs at Bottom 20 companies realized only $3.4M, a very significant difference in compensation based on performance. Unrealized compensation (the value of equity still outstanding) differences were even more dramatic – CEOs of Top 20 companies held equity worth $45.0M, while the equity outstanding of the CEOs of the Bottom 20 was worth only $8.1M.
Says Dolmat-Connell, “This is incredibly positive news based on a completely new and better way of looking at executive pay. It is also fascinating to note that the vast majority of the value of the equity held by CEOs in the Top 20 was in the form of stock options, an investor‐friendly long‐term incentive vehicle, whereas the majority of the value of the equity held by the Bottom 20 CEOs was in the form of time-based restricted shares, a very investor-unfriendly vehicle.”
Copies of both studies can be found at http://www.dolmatconnell.com.
June 16,
2008
Women on Boards is hosting a session in Dallas to educate and prepare
women for board service. Topics include: being an effective board
member; how to pisition yourself to get on a board; and how to
transition yourself from serving on a nonprofit board to for-profit
boards. Panelists include Fritzi Woods, CEO and president of
PrimeSource Foodservice Equipment Inc.; Elizabeth Solender, president,
Solender/Hall Inc.; Lisabeth McNabb, CEO of w2wlink.com; Martha Smiley,
Counsel, Winstead PC; and Renee Hornbaker, CFO of Shared Technologies
Inc. For more information, visit
June
16-17, 2008
The Haas School of Business, University of California, Berkeley
presents its Corporate Directors Enterprise 2008: Effective Corporate
Governance. Early Bird registration deadline is May 1, 2008.
Registration discounts apply. For more information, email Bart Decker
at decker@haas.berkeley.edu, call 877-822-2932, or visit here.
June
17-20, 2008
A Governance for Families in Business symposium and retreat, conducted
by the Institute for Family-Owned Business at the University of
Southern Maine, will be held at the Harraseeket Inn in Freeport, Maine.
Faculty chair for the event is Jack Moore, fourth-generation former
board director of Benjamin Moore Paints, who is a frequent and
recognized "passionate speaker" on governance. To register, visit
June 18,
2008
The 12th Annual Wharton Leadership Conference presents "Emerging Trends
in the Search for Leadership." In this intensive one-day program,
presenters draw upon their own and their organizations' experiences in
finding, creating and retaining talent at all levels of the firm.
Speakers will include Colleen Barrett, president of Southwest Airlines;
S.A. Ibrahim, CEO of Radian Group; William Weldon, CEO of Johnson &
Johnson; and Wharton's Peter Cappelli, Habir Singh, and Michael Useem.
The program will be held at the Wharton School. Register at
June
18-20, 2008
The International Corporate Governance Network (ICGN) holds its Annual
Conference in Seoul, Korea themed "Corporate Governance - Seizing the
Initiative." This year's theme is the globalization of capital markets
and the impact this has on traditional corporate governance. Major
global trends will be explored by over 70 leading speakers from around
the world. The ICGN conference regularly attracts over 500 delegates
including investors, directors, policy makers and other stakeholders.
For more information, contact the ICGN Secretariat by email at
secretariat@icgn.org or visit the website at
June
22-24, 2008
Stanford Law School conducts its 14th Annual Directors' College, an
intensive two-day program for directors and senior executives of
publicly traded corporations. Among the sessions will be "The
Politicized Boardroom," "The Best and Worst Ideas in Corporate
Governance," "CEO Succession" and "The New Enforcement Regime." Keynote
speakers include SEC Chairman Christopher Cox, Vice Chancellor Stephen
Lamb of the Delaware Chancery Court, and James Chanos, president and
founder of Kynikos Associates. The program directors are Joseph
Grundfest, Simon Lorne, and Dan Siciliano. Register at
June 24,
2008
Women on Boards, an annual panel discussion focused on providing the
necessary tools and knowledge for serving as a director, holds its next
event in Chicago. The program is designed for women who are interested
in getting on a board or making the transition from nonprofit to
corporate boards, as well as women who are currently on a board and
want to network with other women board members and hear about best
practices. Panelists include Maureen Beal, Michelle Collins, and Pamela
Forbes Lieberman. For more information, visit
June 25,
2008
The Practicing Law Institute presents "Audit Committee Workshop 2008"
in New York City. A distinguished faculty drawn from public company
directors, lawyers, CPAs, government regulators, and public relations
consultants will review important issues and best practices. The
session co-chairs are Margaret Foran of Pfizer Inc.; John Olson of
Gibson, Dunn & Crutcher LLP; and Edward Smith of the KPMG Audit
Committee Institute. Register at
July 6-9,
2008
The Institute of Internal Auditors presents its 2008 International
Conference in San Francisco. Sessions will address: Audit Management,
Fraud Detection and Prevention, Regulatory Issues and Compliance
Information, Technology and Security, Corporate Governance, Enterprise
Risk Management, Emerging Issues, and other subject areas. Speakers
lined up include former U.S. Senator Paul Sarbanes; Sharon Allen,
chairman, board of directors, Deloitte; and Jim Collins, author of
"Good to Great" and "Built to Last," who will talk on "How Internal
Auditors Can Promote Organizational Greatness." Visit the conference
website at
July 30,
2008
The Practicing Law Institute presents "Audit Committee Workshop 2008"
in San Francisco. A distinguished faculty drawn from public company
directors, lawyers, CPAs, government regulators, and public relations
consultants will review important issues and best practices. The
session co-chairs are Katherine Martin of Wilson Sonsini Goodrich &
Rosati; Timothy Roake of Gibson, Dunn & Crutcher LLP; and Edward
Smith of the KPMG Audit Committee Institute. Register at
August
13-15, 2008
The Directors' Consortium, a joint offering of the University of
Chicago Graduate School of Business and the Tuck School of Business at
Dartmouth, will conduct a three-day intensive program exploring the
fundamentals of corporate governance and board service. Leading faculty
from the two institutions will present a comprehensive approach to the
complex decisions that board members must make. The program will be
held at the Ritz-Carlton, Battery Park, in New York City. For
information, visit
September
22, 2008
The Practicing Law Institute holds its Sixth Annual Directors'
Institute on Corporate Governance at the PLI New York Center. The
program is presented in cooperation with the Society of Corporate
Secretaries and Governance Professionals. Daniel Amos, chairman and CEO
of Aflac Inc., will do the kick-off presentation, and Patricia Dunn,
former chairman of Hewlett-Packard Co., will do a luncheon address. For
more information, visit
October
13-15, 2008
The New York Stock Exchange and Corporate Board Member magazine host
the fifth annual Board Committee Peer Exchange on Oct. 13. The event is
designed for board committee chairs, lead directors, and general
counsel to interact and exchange information with their peers who face
similar challenges in performing their chairmanship duties. It will be
held in New York City at the Grand Hyatt. On Oct. 14-15, the two
organizations will co-host the Annual Boardroom Summit. For more
information on these events, call 615-309-3200 or visit
The National Association of Corporate Directors (NACD) holds its 2008 Annual Corporate Governance Conference. This year's theme is "Building Balance in the Boardroom: Risk, Reward, and Responsibility." The program will cover such topics as: Roadmap for Compensation; Identifying Risk; Effective Chairs and Lead Directors; Oversight of Corporate Pension Plans; and CEO Succession Planning. The conference, which also includes the Director of the Year awards banquet, will be held at the JW Marriott Hotel in Washington, D.C. For registration and hotel information call 202-775-0509, or visit
IBM released last month the largest CEO study of its kind — based on face-to-face interviews with more than 1,100 CEOs from 40 countries and 32 industries. Among the prominent findings: CEOs agreed that customer expectations around corporate social responsibility (CSR) are increasing, and that CSR will play an important role in differentiating an enterprise in the future. Customers are coalescing around organizations’ CSR profile and are increasingly demanding socially minded products, services, and even supply chains.
CEOs revealed that CSR reputations are also an important tool to attract and retain employees. They are also recognizing that their organizations are being held mutually accountable, along with the public sector, for the socioeconomic well being of the regions in which they operate.
Overall, the CEOs see opportunities in CSR and are using it for their competitive advantage. They indicated that CSR is critical to maintaining current market share. For more information on additional findings from the study, visit http://www.ibm.com/enterpriseofthefuture.
Director Resources
Family Company Governance: The just-published Family Business Shareholder's Handbook combines advice from internationally recognized family business advisers and real-life examples of how business families resolved common ownership dilemmas. It offers tips and strategies on how to develop governing bodies and shareholder education programs. It is produced by Family Business Magazine. Click here to learn more about the book, see the table of contents, and find ordering information.
SOX Costs: Financial Executives International’s (FEI) seventh Sarbanes-Oxley compliance survey found that Section 404 compliance cost Corporate America less in year four of adoption than in each of the first three years. Total average cost for Section 404 compliance was $1.7 million during fiscal year 2007. The full survey results, including costs by company size, historical cost comparisons, and an executive summary are available for $99.00 at http://www.ferf.org/bookstore.
Compensation Disclosures: According to a study by James F. Reda & Associates of Fortune magazine’s Top 300 publicly traded companies, a majority of 2007 proxy disclosures on annual and long-term incentive plans were inconsistent and incomplete when disclosing incentive performance metrics. For example, only 16% (46) of the companies provided complete metric and payout information for short-term incentive plans (STIP), while 19% did not provide any STIP metric values. While 65% (190) of the companies had long-term incentive plans, only 46% (88) included a reasonably complete set of metric values and corresponding payout percentages. Click here to download a copy of the study.
Rating Fund Managers: For the first time, fund managers in emerging markets will be rated based on their capacity to incorporate environmental, social and governance factors (ESG) into their investment decisions — part of a major new research initiative commissioned by the International Finance Corp. (IFC), the private sector branch of the World Bank Group. Mercer, which has been appointed by the IFC to conduct the study, has commenced interviews with 50 managers based in the emerging markets of China, India, South Korea and Brazil. The research will also include a survey of over 200 managers globally who invest in emerging markets. For more information, visit http://www.ifc.org.
Risks of Going Global: As businesses continue to grow their foreign operations, small to mid-size companies are more likely to experience a loss to corporate assets outside the United States or Canada than larger companies, according to Chubb’s 2008 Multinational Risk Survey. Compared to companies with annual revenues of more than $1 billion, smaller companies experienced at least a 50% higher frequency of foreign losses during 2007 for liability lawsuits, theft of intellectual property/piracy, and theft of goods in transit. For more information on the survey, email jdorman@chubb.com.
Audit Committees: A new KPMG paper, “The Case for Sourcing Internal Audit,” provides guidance in evaluating and implementing an internal audit sourcing relationship. The whitepaper considers the advantages and challenges of IA sourcing, and presents a number of key decision factors and questions that can be considered when an organization evaluates a provider for this vital business function. Click here for a copy of the paper.
Director Liability: All signs point to greater amounts of corporate litigation and liabilities for boards continuing to grow. A new report from Lloyd’s of London focuses on these issues and makes recommendations on how to boards can restructure internal teams to mitigate these risks. The study, done in conjunction with the Economist Intelligence Unit, is entitled “Directors in the Dock — Is Business Facing a Liability Crisis?” Click here to view the full report.
Author Notes
The Navigators Group Inc. appointed H. Clay Bassett Jr. as senior vice president and chief underwriting officer. He will be located in the company's executive office in Rye Brook, N.Y.
Debevoise & Plimpton LLP has been awarded a Burton Award for Legal Writing. The Burton Awards, now in its ninth year, was founded to reward legal authors and promote the refinement of legal writing and plain language. The awards will be presented on June 16, 2008, at a gala reception in the Great Hall of the Library of Congress in Washington D.C.
Gary Guzy has been named to the newly created position of general counsel of APX Inc., a leading infrastructure provider for environmental and energy markets. He had been serving as global practice leader for climate risk and sustainability at Marsh. He co-authored the article, “Climate Crisis Needn’t Mean Corporate Crisis,” with former EPA head Carol Browner that appeared in the Third Quarter 2007 edition of Directors & Boards.
InfoLogix Inc., a provider of enterprise mobility solutions for the healthcare and commercial industries, has acquired Delta Health Systems Inc., a consulting firm specializing in strategic cost management consulting for hospitals. And InfoLogix just reported revenues of $23.8 million for Q1 2008 — the highest quarterly revenues in company history, representing an 81% increase over Q1 2007. A profile of InfoLogix board member Dick Vermeil appears in the forthcoming “Year in Review” special issue of Directors & Boards, mailed to subscribers later this month.
Océ Business Services Inc., a leader in document process management and electronic discovery, has been named for the second straight year to the top-ranked Leaders Category of the International Association of Outsourcing Professionals’ 2008 Global Outsourcing 100 list. This list defines the standard for excellence in outsourcing service delivery. Océ’s official ranking — 41 out of the list of 75 Leaders — represents a significant increase over the company’s 2007 Leader ranking of 57.
Tatum LLC, described as the largest and fastest-growing executive services firm in the United States, has appointed Juliette Jandel as chief marketing officer. Jandel will play a key role as the firm fulfills its strategic initiatives to support the Office of the CFO in generating rapid growth for companies in financial transition.
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