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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 |
When Bells Are Ringing
What to make of a ‘noisy exit’ by a board member? Buy, sell, do nothing?
An old saying on Wall Street is that they don’t ring a bell at market
tops and bottoms. A pity, unfortunately, for value protection and
creation. But I do believe bells ring that can herald changes in
investor wealth. One such clang is when a director leaves a board in
“noisy exit” fashion.
That happened this past month when a director of XM Satellite Radio
Holdings left the board, citing strategic differences over the
company’s direction.
According to the immediate AP report of the matter, the director -- in
a letter to the chairman -- said he was “troubled” by the company’s
current path and predicted “a significant chance of a crisis on the
horizon....Even absent a crisis, I believe that XM will inevitably
serve its shareholders poorly without major changes now.” The company
countered that it and the other board members dissent from that
particular view.
The director in this case is Pierce Roberts Jr., a former chief telecom
investment banker with Bear Stearns who had served on the board for
five years and who sat on all of the board’s major committees.
That sounds like a credentialed, financially savvy director to me --
one who should know the guts of XM’s business and see the road ahead
with above-average clarity. If I were a shareholder of XM, I might
think I heard a ringing noise -- one sounding an awful lot like “Sell!”
A couple of issues ago in Directors
& Boards we asked a group of board members and governance
experts what would be the “one big change” they would make to the
governance system to improve it. Greg Taxin, co-founder and CEO of
Glass, Lewis & Co., a research firm that advises institutional
investors in their investment and proxy voting decisions, teed up
“Encourage more noisy exits.” This would serve as an alert to
shareholders, he wrote, adding that “It is curious we do not see more
noisy exits by independent directors who come to realize they cannot
change value-destructive behavior.”
Mr. Roberts, now ex-XM, may or may not be sounding the right note. But
a noisy exit, being a rare bell emanating from the markets, is
something worth listening to.
What about you? If you were a shareholder of XM Satellite, how would
you interpret this director resignation -- buy, sell, or hold? Render a
verdict on the power of a noisy exit in our Question of the Month below.
Question
of the Month
Our February Question of the Month hit a hot button. Here are the
results to the query, “Should Companies End the Practice of Giving
Earnings Guidance?”:
Yes 73.9%
No 21.7%
It Doesn’t Make Any Difference 0%
Other 4.3% (includes “conditional” yes’s and no’s.)
The replies poured in. In fact, this topic generated the highest
response rate and additional comments to date in our soundings of
e-Briefing reader opinion. In
the interests of space, we are showcasing reader commentaries on a
separate page (click here). You will enjoy the comments, which are
thoughtful on both sides of the issue. Thank you to all who responded.
This Month's Question
As a shareholder, how might you respond to a director’s ‘noisy exit’ as
in the XM Satellite Radio case?
Click
here to take the survey.
Save the Date
Directors & Boards'
first webcast is tentatively scheduled for May 16, 2006. Held in
conjunction with Denali, the one hour webcast will focus on ERISA
issues, which are becoming increasingly critical for board members to
understand. Look for more details soon.
Jim
Kristie is the editor and
associate publisher of Directors
& Boards.
Why
You Want Retired CEOs on Your BoardTheir experience, wisdom, status, wealth, age, and independence are a powerful combination.
By Donald P. Delves
When former Secretary of the Treasury Paul O’Neill was asked if he
feared any recriminations for being an outspoken critic of the
Bush Administration, he reportedly replied: “I’m old and I’m rich… What
can they do to me?”
Like it or not, this blend of experience, wisdom, and feisty
independence born of age, wealth, and status makes for a good corporate
director. In today’s boardrooms, where high quality governance is at a
premium, companies need more O’Neill-minded directors who have the
courage to speak up and the intelligence and experience to say the
things that are highly relevant.
Based on what I’ve seen in more than 20 years of advising boards as an
executive compensation consultant, there are a number of attributes
that make a board member -- and particularly a compensation committee
member -- effective. I have also observed that retired CEOs best and
most consistently exemplify these qualities.
1. They Know the CEO Job
Retired CEOs know what it’s like to occupy the top spot in the
executive suite. They know first-hand what the CEO’s job is, and they
have the skills, maturity, and finesse to perform it well. Now, as
board members, they understand that their job is to make the CEO
successful. Most are very well qualified to do this, since they’ve
spent most of their careers evaluating, hiring, coaching, and mentoring
executive talent.
[Click
Here to Read
the Entire Article]
In a democracy, with rights come responsibilities. Let’s pay some mind to what should be required of the dissident shareholder class.
Few would deny that most if not all institutions in a democratic society should reflect the tenets of democracy. Therefore we might conclude that a corporate entity in the public domain should be held to those same standards.
Being a representative democracy, when the question is, “Should shareholders have access to their representatives, the board members?” it is obvious what our position should be: Let there be complete access. A simple construct of the issue, and I deduce a simple answer. But as we know, it is not that simple.
My experience in boardrooms is that shareholder requests are taken seriously but, admittedly, some more seriously than others.
Most boards know there are different motives for shareholder requests, depending upon the source of the proposal. Not all motives are obvious. There may be a request to have the company place on the proxy a resolution to annually inspect offshore factories for labor issues. The source of the request is a union pension fund that holds but a few shares of company stock, has little track record of holding the stock for more that a year or so, and has a drive to unionize one of the company’s plants. Is the motive “pure”? Maybe, and maybe not.
[Click Here to Read the Entire Article]
President
Pearl Meyer & 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.
What is your view of the proposed SEC Guidelines on executive compensation disclosure?
It’s hard to fault the SEC’s very democratic notion of giving shareholders more information about how the people responsible for running America’s public companies are paid. Companies give great lip service to “paying-for-performance,” but right now they’re not required – and few have volunteered – to give much detail about how their compensation incentives are aligned with shareholders’ interests. The proposed regulations will certainly help clarify the true cost and the rationale behind highly complex executive pay programs. Among other requirements, the SEC wants companies to provide a standardized valuation of stock and stock option awards and some popular and highly lucrative compensation arrangements that currently fly under shareholders’ radar.
Is more disclosure likely to have a moderating effect on pay levels?
The SEC believes that providing detailed information on compensation in “plain English” will empower shareholders to push for better pay programs, force Boards to react decisively and shame overpaid executives into toning down their demands.
That’s possible, but I think we also need to remember that detailed marketplace information on pay is of keen interest not only to investors, but also to top executives who are eager to compare their paychecks with their peers. Increased disclosure will enable managers and their advisors to more easily compare competitors’ programs on a dollar-for-dollar basis and also create more data points for competitive benchmarking by making data in compensation surveys more readily available. Program comparison generally leads to gap identification. We know from experience that when gaps are discovered in executives’ pay packages, their reaction is to want it filled – and fast. The result would be to further ratchet up pay levels.
[Click Here to Read the Entire Article]
Pay-for-Performance Advances in Asia and Latin America
Global companies are increasing their use of performance-based pay and are also moving to customize incentive pay packages by region, according to the Towers Perrin 2005 2006 Worldwide Total Remuneration study. The study highlights compensation and benefit practices in 26 key locations around the world.
Performance-based (variable) pay as a share of total remuneration for chief executive officers (CEOs) worldwide ranged from 14% in India to 62% in the United States. Variable pay as a share of total remuneration for accountants worldwide had a much smaller variation, ranging from 0% in countries like Sweden, Switzerland and Venezuela to about 10% in Mexico and South Africa.
Performance-based pay consists of bonus payouts and long-term incentives (LTIs), which generally come in the form of stock options or some other type of equity compensation.
However, many U.S.-based multinationals are moving toward the European-based company approach of developing LTIs that customize award size by geography or group of countries, and this will require them to articulate the company’s position on long-term pay and, more broadly, pay for performance. Are executives overseas part of a global cadre and eligible for the same grants worldwide, or are they measured against their local country or regional unit?
Part of the performance pay package, bonuses are being used more widely and to more eligible employees in global companies. For the first time, in countries like Canada, France, Korea, Mexico and the United Kingdom, year-end bonuses for this group are the norm and not the exception.
Furthermore, in Asian countries such as Taiwan, Malaysia, China (Shanghai) and Singapore, annual bonuses are in the range of 10% to 15% of salary at the professional level. This is more than the 5% to 10% of salary that is common practice in North America and Europe for this group.
CEOs in the United States continue to enjoy the largest and most comprehensive pay packages, both in terms of base compensation and total remuneration. CEOs in France, Germany, Italy, Switzerland and the United Kingdom also command higher levels of total compensation than their peers in the rest of the world. Belgium, Brazil, India, Japan, Spain, Taiwan and Venezuela command total compensation packages that are approximately half that of their CEO.
About The Study
The Towers Perrin¹s 2005 2006 Worldwide Total Remuneration study highlights various compensation and benefit practices in 26 representative locations around the world. The data represent Towers Perri’¹s estimates of typical pay for local national employers as of April 1, 2005 in industrial companies with approximately US$500 million in annual sales. For more information, visit http://www.towersperrin.com/hrservices.
February
26-March 1, 2006
"Making Corporate Boards More Effective" is the topic of a Harvard
Business School educational program being held for West Coast
directors. The sessions will concentrate on cutting-edge techniques,
strategies and action plans for improving board design, maximizing
individual contributions to company boards, and enhancing corporate
performance. Prof. Jay Lorsch is faculty chair for the program. The new
West Coast offering will be held at the Estancia La Jolla Hotel &
Spa in La Jolla, CA. For information, call 1-800-HBS-5577, ext. 7226,
or visit
March 8,
2006
"Future of the Securities Markets" will be the topic of an evening
program co-sponsored by the Samuel and Ronnie Heyman Center on
Corporate Governance at the Cardozo School of Law and the Securities
Industry Association. Speakers include Robert Glauber, chairman and CEO
of the NASD; Richard Ketchum, chief regulatory officer of the NYSE; and
Kevin J.P. O'Hara, general counsel of Archipelago Holdings Inc. The
event will be held at the law school from 6-8:30 p.m. and there is no
registration fee. Visit
March 13,
2006
"Governance Ratings System -- Should You Be Using Them?" is the topic
under examination at an evening program presented by the New York
Society of Security Analysts Corporate Governance Committee. Chaired by
Peter Brennan of Palmer Brennan, the meeting's speakers will be Nell
Minow, editor of The Corporate Library, and Howard Sherman, co-founder
and COO of GovernanceMetrics International. Held at the Bloomberg
offices in New York City, the meeting runs from 5:30-8 p.m. Visit
March
15-17, 2006
The Directors' Education Institute at Duke University holds its 5th
annual session. Under the program direction of Stephen Wallenstein,
executive director of the Duke Global Capital Markets Center, the
two-day event will examine topical issues and emerging best practices
in governance. Keynote addresses will be delivered by Kenneth D. Lewis,
chairman, CEO and president of Bank of America Corp., and the Hon. Leo
E. Strine Jr., vice chancellor of the Delaware Court of Chancery.
Breakout sessions will include "Assessing Business Risks," "Protecting
Yourself as a Director," "CEO Selection and Succession Planning," and
"Promoting Effective Communication Among Directors and Management." For
more information, visit
March
22-23, 2006
Fortune Magazine convenes its "2006 Boardroom Forum" in New York,
bringing together board members, regulators, and industry experts for a
top-level view of the most important issues and developments in
governance. The Forum is moderated by Fortune Senior Editor at Large
Geoff Colvin. A second Forum will be held in Chicago on June 22-23.
Visit
March
23-24, 2006
An inaugural "Corporate Governance Summit" will be held at the USC
Marshall School of Business. The program will explore current practices
and emerging trends to help board members and business leaders define
and manage responsibility and risk. Speakers will include Sharon Allen,
chair of the board of Deloitte; Colleen Cunningham, president and CEO
of Financial Executives International, professor Edward Lawler of USC
Marshall School of Business; and Don Nicholaisen, former SEC chief
accountant, who will be a keynoter. To register, visit
March
27-29, 2006
Outstanding Directors Institute, in partnership with Columbia Business
School Executive Education, presents "Outstanding Directors Exchange
ODX 2006: A Dialogue with Today's Most Respected Directors." It will be
held at the Ritz Carlton Battery Park in New York City. Highlights
include presentations by Charles Schwab, Tyco's Edward Breen, and
Richard C. Breeden, corporate monitor for WorldCom. For more
information, visit
March
29-31, 2006
The Council of Institutional Investors will hold its 2006 Spring
Meeting, themed "New Environment, New Faces," in Washington, D.C. SEC
Chairman Christopher Cox will brief the organization on the agency's
priorities for 2006. Among the programming scheduled are sessions on
"Hedge Funds Discuss Activism," "Washington Insiders Forecast the New
Challenges to SOX-Related Regulations," and "How the Private Sector Is
Contributing to the New Environment." For more information, contact the
Council at 202-822-0800, or visit
April
24-26, 2006
The 9th Annual Milken Institute Global Conference will be held in Los
Angeles. Attendance is limited (last year's conference sold out early).
To register, visit
April
25-28, 2006
"Corporate Governance: Effectiveness and Accountability in the
Boardroom" is a J.L. Kellogg School of Management executive education
program designed to energize directors' thinking and empower them with
new tools, concepts and strategies to meet the challenges of their
governance role. It will be led by Kellogg faculty with peer
interaction. Visit
May
31-June 2, 2006
"Marketing for Senior Executives", which is taking place on the Harvard
Business School campus, was developed by Professors Gail McGovern and
John Quelch, and focuses on the importance of elevating certain aspects
of the marketing discipline to the executive level, while bringing the
customer into the boardroom and helping top leaders to reconnect with
this crucial business asset. Participants will return to their
organizations with the innovative insights and hands-on-tools needed to
help sustain and grow their business. For more information and an
application, please call 1-800-HBS-5577, ext. 7226, or visit us at:
June 1-2,
2006
The Yale CEO Leadership Summit will be held on the Yale University
campus. The theme for this semiannual gathering of top executives is
"CEO Intervention: Modeling vs. Accountability; Meddling vs. Actions."
Under the direction of Prof. Jeffrey Sonnenfeld, senior associate dean
of executive programs and CEO of the Yale Chief Executive Leadership
Institute, the program brings together CEOs and other business and
market leaders for peer-driven educational discussions. For more
information, visit
June 13,
2006
The Tenth Annual Wharton Leadership Conference's theme is "Leading with
Resilience: Coming Back from Challenge and Adversity." Under the
direction of Wharton professors Peter Cappelli and Michael Useem,
presenters at the intensive, one-day conference will draw upon their
experiences in leading an organization through uncertain periods.
Speakers include Jim Collins, author of "Built to Last"; David
Pottruck, former CEO of Charles Schwab; Peter Dawkins, vice chair of
Citigroup Private Bank; Sylvia Montero, Pfizer's SVP of human
resources, and Thomas Stewart, editor of the Harvard Business Review.
See
Mercer Human Resource Consulting (http://www.mercerhr.com) has put together a 2006 Executive Compensation Preview -- insights on exec comp issues weighing most heavily on the minds of board members and executives. The two-page briefing offers Mercer’s observations on the current state and future direction of executive compensation. Click here for a copy.
Former IRRC CEO Takes on New Role
Scott Fenn, former president and CEO of the Investor Responsibility Research Center, has been named managing director of policy for Proxy Governance Inc. (http://www.proxygovernance.com). Fenn retired in 2001 after having spent 24 years with IRRC. During that tenure he also founded its Environmental Information Service, which provided benchmarking data and analysis of corporate environmental performance and activities. He is the author of three books on the electric power industry and emerging energy technologies. Proxy Governance is an independent provider of proxy analysis, global voting, and U.S. compliance services. In his new position, he will be a senior member of the firm’s management team, charged with crafting and applying policies to guide the firm's research and voting recommendations.
BoardVantage Moves Written Consents Online
BoardVantage (http://www.boardvantage.com), the leader in secure portals for board work, announced last month an online process for written board consents under Delaware law and Section 16 reports. Geographically dispersed directors frequently struggle to quickly approve board actions in between meetings and act on time sensitive SEC filings, such as Form 4 reports. BoardVantage addresses these issues with an efficient online process in which directors can easily complete board consents in a timely manner, and which is legally effective under Delaware law. A white paper by the Wilson Sonsini Goodrich & Rosati law firm provides guidance on electronic board consents and legal implications. For a copy, visit http://www.boardvantage.com/reg/whitepaper_dec05.html.
Recognition for Administering Compensation Plans
Mullin Consulting Inc. (http://www.mullinconsulting.com), a leader in designing, funding, and administering executive benefit plans, emerged as the highest-ranked privately held firm for the administration of nonqualified deferred compensation plans, according to a survey of the readers of PLANSPONSOR magazine. In the survey of employee benefit executives nationwide, Mullin ranked fourth overall in the category of record keeping for nonqualified benefit plans. Each of the firms that placed above Mullin in the category is a publicly traded and widely diversified financial services conglomerate. The firm’s leaders have written several articles for Directors & Boards, including “The Traps in Designing Benefit Packages” [Summer 2004].
Author Notes
Marshall Goldsmith, one of the top executive coaches in the country, is making available on a special Web site free articles, columns, interviews, audios and videos so that others may benefit from his work. He welcomes Directors & Boards readers “to read, listen to, watch, download, copy or share anything from my site,” and adds, “If you, or someone you know, benefits from any of my work, it will make me feel great.” The Web address is http://www.marshallgoldsmithlibrary.com. Goldsmith is a coach, a speaker and educator, and the author of 18 books on leadership. He authored the article, “The Four Key Beliefs of Successful Leaders,” in the First Quarter 2006 edition of Directors & Boards.
Harriette Weiss-Terbell, managing director of Terbell Partners Ltd. (TPL), has joined the board of Covington Industries Inc., a global manufacturer of textiles for the home furnishings and industrial markets. Weiss-Terbell founded her firm more than a decade ago. TPL, based in Westport, Conn., co-invests in private equity transactions that require operating improvements, strategic repositioning, and interim leadership. She formerly was a partner in The Hay Group and an officer at Fleet Financial. Her review of Paying for Performance: A Guide to Compensation Management, appeared in Directors & Boards Summer 2002.
To test a new business model for the publishing industry, HarperCollins Publishers is doing an innovative initiative involving Bruce Judson’s book Go It Alone! The Secret to Building A Successful Business on Your Own. The complete text of Go It Alone! is available online for free at http://www.BruceJudson.com. The central idea of Go It Alone! is that it is now possible for individuals or small groups, with limited capital, to start and grow substantial businesses on their own. The book has been recognized in a number of arenas for excellence. “It is my hope that this free site will now become one of the central sources of information on the Web for anyone seeking to start or grow a business,” says Judson, who is senior faculty fellow, Yale School of Management. Judson’s review of Keith Ferrazzi’s Never Eat Alone appeared in the Third Quarter 2005 Directors & Boards.
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