|
 |
|
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
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
Where Governance Starts and Ends
Did Carly Fiorina run afoul of key
principles in H-P’s governing model?
There is still puzzlement in the business community about the
circumstances and rationale driving Carly Fiorina’s ouster as CEO of
Hewlett-Packard Co. In trying to make sense of it myself, I went back
into the Directors & Boards
archive. Answers to almost any governance conundrum can usually be
found in our valuable archive, now closing in on 30 years of published
writings -- likely making it the most comprehensive and premier
reference source in the field.
Much was made in the Fiorina putsch of the vaunted “H-P Way” of doing
things. Not surprising, then, that I titled an article in 1997,
“Governance the H-P Way.” It was authored by Lewis Platt, then the
chairman, CEO and president of H-P and a 30-year veteran of the company
(and who is now, post-H-P retirement, chairman of Boeing Co.). A couple
of his comments leap off the page of this article.
On performance: “You know the old saying about what drives the value of
property--‘location, location, location.’ Other people say, ‘It’s
location, stupid.’ Well, in the business of governance, ‘It’s
performance, stupid.’ That’s where it starts and ends. If you think
about boards that have gotten into trouble, most if not all have been
boards of companies that have been in trouble. The performance of the
company is critical to the functioning of a good board, and vice versa.
Usually when you see good company performance over the long haul, you
see a good board standing behind it.”
On openness -- openness between the CEO and the board, among board
members, and between the board and management: “Generally, when boards
have not functioned well, openness has not existed. One of the signs of
a poorly functioning board is a lack of openness between the company
management and the board. If you look at companies that have stumbled
and the boards that have struggled in dealing with their companies’
poor performance, you can see that in virtually all cases openness did
not exist. For one reason or another the board was kept in the dark
about the real issues in the company.”
Such telling observations may go a long way to clarifying the
leadership developments at H-P -- and also provide a timeless and
universally applicable lesson in what good governance is all about. If
you’d like a copy of this article (which includes H-P’s circa 1997 “28
Guidelines for Board Governance”), e-mail me with your
fax number.
Jim
Kristie is the editor and
associate publisher of Directors & Boards.
*****
Directors & Boards is
pleased to sponsor The Outstanding Directors Exchange (ODX), a unique
conference and awards event that takes place the evening of March 31
through April 1, 2005 at the Ritz-Carlton Battery Park in New York
City. For more information, check
out www.outstandingdirectors.com.
It is more imperative than ever that what happens behind the closed doors of board meetings be preserved to answer any claim of irregularity.
By Roscoe C. Howard Jr., Mark E. Nagle and
Christopher M. Loveland
Hardly a day passes
without news of allegations of corporate mismanagement leveled by a
government agency, an aggressive plaintiff's lawyer, or an internal
watchdog unit within a large company. Directors and officers find
themselves scrutinized, questioned, challenged, and sometimes sued in
their personal capacities for a multitude of alleged sins of commission
and omission.
Amid this maelstrom, the question occasionally arises: What kind of
record should a board of directors maintain of its proceedings?
In this litigious age, when any paper or electronic record can be a
potential weapon in the hands of an adversary, are the directors -- and
perhaps even the company itself -- better off with only the most
abbreviated minutes of proceedings, or perhaps none at all?
Tempting as the notion may be to simply keep no record at all, or
perhaps only the most cursory record needed to attain minimum
compliance with state law, any board following that course of action
will, in the end, create more problems than it solves.
[Click
Here to Read
the Entire Article]
Learning a Thing or Two from Rodney
Dangerfield
Why you should get a
second opinion on your D&O insurance policy.
In the Winter 2004 column for Directors & Boards titled “The Rodney Dangerfield of D&O Policies,” the advice conveyed was that excess D&O insurance policies “don’t get no respect,” borrowing Dangerfield’s signature line. Dangerfield died a few months later at age 82. In reflecting on his comedy routines, we were struck by how another of his famous quips applies to D&O insurance.
Dangerfield often recounted how when his psychiatrist told him he was crazy, he would respond, “Oh yeah? Well, I want another opinion.” The doctor instantly replied, “Okay -- you’re ugly, too.” The lesson is: When negotiating D&O insurance coverage, you can benefit from a second opinion, particularly if the off-the-shelf D&O policy you are offered is “ugly.”
The first opinion, of course, comes from your insurance broker who recommends a particular policy, policy limits, retentions, and certain enhancements. The second opinion should come from an independent source -- a lawyer experienced at negotiating D&O policies and who represents policyholders only.
[Click Here to Read the Entire Article]
Managing Director
Alix Partners
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.
Slaughtering the Sacred Cow: Knowing when and how to do it painlessly
Nearly every business has sacred cows: those pet projects, orphan subsidiaries, or obsolete procedures that are championed or protected by someone in the company with influence, but that lack rational business sense to most people close enough to the details to have an informed opinion. Sacred cows vary in their age, size, and urgency to be slaughtered. The good news is that most are relatively harmless, but some are definitely problematic, costing a company customers, vendors, market share, and eventually money. Recognizing problem sacred cows and knowing how to send them to pasture are critical tools for an effective director.
Where do sacred cows graze in your company?
A sacred cow can take many forms. It may be a corporate orphan whose performance is lacking – starved for attention, capital, and the managerial know-how needed to fix it. Or it may be a pet project of a senior manager, such as a new product, expansion into a new territory, or development of a different distribution channel. Sacred cows may also be policies, products, or processes that have long outlived their usefulness. Whatever they are, sacred cows are characterized by their lack of “good business sense.”
[Click Here to Read the Entire Article]
Mean settlement value up 33%
NERA Economic Consulting’s annual study of securities class action litigation reveals a new era of unprecedented settlements, with some of the nation’s larger corporations making bigger-than-ever payments to shareholders in compensation for losses in the recent bear market. In a new trend, many of these companies are also instituting corporate governance reforms as part of their settlements.
“Shareholder class actions are being used in new ways to improve corporate governance... to obtain specific corporate governance reforms,” according to the NERA Economic Consulting report titled “Recent Trends in Shareholder Class Action Litigation: Bear Market Cases Bring Big Settlements.”
The NERA study of securities class action filings, settlements and investor losses in 2004 found that securities class action filings against WorldCom, Raytheon and Bristol-Myers Squibb produced three of the eight largest class action settlements of all time – with a combined value of over $3.3 billion, more than twice the combined value of the largest settlements of 2003 made by Lucent Technologies, Rite Aid, DaimlerChrysler and Oxford Health Plan.
According to NERA, these top-ranking settlements contributed to a 33% increase in mean settlement value to $27.1 million in 2004, up from $20.3 million in 2003. Of the 119 settlements made last year, nine were valued at $100 million or more; 16 settlements exceeded $50 million.
[Click Here to Read the Entire Survey Summary]
March
1-3, 2005
Harvard Business School Executive Education conducts its Compensation
Committees: Preparing for the Challenges Ahead program. For more
information, visit
March
16-18, 2005
The Directors' Education Institute at Duke University is an intensive
two-day program developed by the Duke Global Capital Markets Center
with the support of the New York Stock Exchange. With participation
from leading executives, corporate directors, policymakers, and experts
from the legal and financial services industries, along with academic
authorities from the Fuqua School of Business and Duke Law School, the
program will teach participants how to develop a framework for making
informed board decisions and exercising sound business judgment. For
additional information, visit
The Outstanding Directors Exchange (ODX) at the Ritz-Carlton Battery Park in New York City. A sample of topics and speakers include: Edward C. Breen, Chairman and CEO, Tyco International will be presenting "The New Tyco: Corporate Governance At Its Best." Robert Nardelli, Chairman, President and CEO, Home Depot, Kenneth Langone, Co-Founder and Lead Director, The Home Depot, and John Clendenin, Director, The Home Depot will discuss the dynamics of an engaged board. The Honorable Richard C. Breeden, former SEC Chairman and President, Richard C. Breeden and Co. will discuss "WorldCom and Hollinger International: Early Warning Signs of Abuse." Charles Schwab, Chairman and CEO, The Charles Schwab Corp. and Frank Herringer, Director, The Charles Schwab Corporation will discuss how the CEO and board worked together to reposition the company. ODX is produced in partnership with the Executive Education division of Columbia University's Business School and is accredited by Institutional Shareholder Services (ISS). For more information on attending ODX, please go to www.outstandingdirectors.com.
April 2-5, 2005
The Association of Governing Boards of Colleges and Universities (AGB) will present its National Conference on Trusteeship. Sessions include "Managing Health Care Costs," "Creating a Reform Agenda for Public Trusteeship," and "Sarbanes-Oxley: How Does It Really Affect Higher Education?" To register, call 1-800-356-6317 or visit the AGB Web site at http://www.agb.org.
April 26-29, 2005
The J.L. Kellogg School of Management at Northwestern University will host a conference on "Corporate Governance: Effectiveness and Accountability in the Boardroom," designed to "energize" a director's thinking and "empower you with new tools, concepts and strategies to meet the new challenges of your critical governance role." Visit http://www.kellogg.northwestern.edu/execed or call 1-847-467-7000 for registration information.
April 28-29, 2005
Loyola University Chicago Family Business Center will present "Developing Leaders: The Keys to Successful Leadership on the Board, in Management, and in the Family." Sessions include "Non-Family CEOs - Leading When You're Not a Family Member" and "Board Leadership in a Family Firm - What's Different?" Brian France, chairman and CEO of Nascar, is a keynote speaker. Call 1-800-424-3981 for registration information, or visit http://www.sba.luc.edu/familybusiness.
May 31-June 3, 2005
Stanford Business School Corporate Governance Program: A three-day session to help board members increase their understanding of the mechanics, strategies, and best practices of board membership. Evaluating corporate strategy, understanding incentive compensation, and optimizing group work to achieve effective oversight are topics on the agenda. For more information, call 1-866-542-2205 or visit http://www.gsb.stanford.edu/exed/cgp.
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 http://www.directorscollege.com.
Boardroom
Briefing: CEO Succession Planning
Bonus Feature!
How Boards Can Give Their CEO More Time to Think about Succession
One straightforward approach involves reducing their number of direct reports.
By Peter Lane and Raj Pherwani
No one would quibble with the notion that chief executives need to spend more time developing the kind of talent that can replace them someday.Hard data shows this task may be among a CEO’s most important: When Bain & Co looked at 23 high-growth companies in 2001, we found that only a small minority – less than 15% – systematically tried to develop leaders by advancing the right people through the right jobs. The leadership of these pioneering few averaged shareholder returns of more than 10% a year above their cost of capital over a 10-year period. But the one in four companies that placed little emphasis on cultivating leaders averaged returns of less than 1% a year. This wake up call raises a question: Where does a harried CEO find the time to set up a school for CEOs?
One straightforward approach involves reducing their number of direct reports. Indeed, simply slashing face time can pay handsome dividends. One think tank, for example, has found an inverse relationship across all management ranks between span of control and revenue growth.[i] Companies that averaged 1 boss to 6.5 direct reports had a 20% rate of revenue growth, while those with 1 to 8 ratios averaged less than 5% revenue growth. [Click Here to Read the Entire Article]
Author News
Congratulations to Ned Regan on being named this year's recipient of the Fund Directions Independent Trustee Lifetime Achievement Award. An independent trustee of the Oppenheimer Funds, Reagan is University Professor of the City University of New York and a former New York State Comptroller, where he became a force for corporate governance and board accountability. He has authored several articles for Directors & Boards and is a past member of the D&B editorial advisory board. Fund Directions is a publication of Institutional Investor News.
And congratulations to Directors & Boards author Pascal Levensohn on the launch of his personal weblog on interfaith issues. "Over the past two years," he wrote to his friends and colleagues in announcing his blog, "I have made a personal effort to understand two difficult questions facing our global community today -- how can we promote interfaith religious tolerance in an increasingly interconnected world and what can we do to foster peaceful Jewish-Arab co-existence in Israel?" Levensohn is a founder and managing director of Levensohn Venture Partners, http://www.levp.com. He has written a number of hard-hitting articles for D&B, including "Tyco's Betrayal of Board Governance" in 2002 and "The Problem of Emotion in the Boardroom" in 1999. His new blog can be visited at http://www.pascalsview.com.
New Directors Roster Additions
We present a preview of five of the directors to be featured in our next Directors Roster, appearing in the First Quarter 2005 edition of Directors & Boards.
Berkshire Hathaway Holdings Inc.
William Gates III, Chairman, Microsoft Corp.
Co-founder
and chairman of Microsoft since the company's incorporation in 1981.
Served as CEO from 1981-2000, when he assumed the position of chief
software architect. Also is a director of ICOS Corp. Age 48.Berkshire is an insurance company. Revenues are $74 billion. Microsoft is a software company. Revenues are $38 billion.
[Click Here to Read More Roster Listings]
Back to the Top
In last month's e-Briefing, Jim Kristie commented on the WorldCom settlements and commented "Let’s be mindful that the corporate governance system in this country is a voluntary system." He asked: How do you feel about the “out of pocket” settlements?
I think it's about time that directors that are nothing more than yes men get what they deserve. If directors are asleep at the switch, then they should be prepared to reach in to their own pocket to make amends for their negligence.
Richard V. Kretz, CPA
Member of the Firm
Kostin, Ruffkess & Company, LLC
Aren't we talking about for-profit boards? If so, then "volunteer" is not the word I would use. There is most often (and should be) compensation for those non-executives that serve on a board. What the right level and mix of share-related and cash compensation should be is subject to debate, but there should be compensation. It is a role with obligations in terms of time commitment and attentiveness, not a hobby or sideline that one pursues when one has "extra" time and the going is good. Planning for the time commitment is something even investor board representatives sometimes find hard to do, as I have discovered in my recent study on boards of private equity-backed companies. So it is not just a question of having a large amount of money invested. Indeed, aligning directors' interests with those of shareholders by putting mostly or only share options/restricted stock into their pockets often leads to less independence and weakened objectivity concerning many of the transaction-related issues that come before a board.
The focus these days should be on the question of "how do I reserve enough of this director's time and attention, in good times and bad, compared to their other time commitments?" Other issues, besides compensation, that play a role are the characteristics and mix that one is bringing together on a company's board. Is one talking to the right kind of director in the first place? Do they have the time? A human being has only so many waking hours. Perhaps we need to have proportionally more professional directors, and less of the "name" CEOs with hyper-full-time jobs in the army of directors that serve. In which case, rather than limit the profession for the super wealthy who can afford to put their time in for an uncertain share-related payout, we might want to broaden the base by paying directors adequately for their time, keeping it above board and not hidden in a vague consulting contract.
Dorothy Adams
President
Capital Value
Redding, CT
Back to the Top
Directors & Boards e-Briefing is a monthly service of Directors & Boards. All contents copyright 2005, MLR Holdings LLC.