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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
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From Jim Kristie | Article of the
Month | Columnist
Reader Profile |
Research | News
IMPORTANT!
If you
haven't completed your D&B survey on corporate internal
investigations, please click here. Deadline for completion is
today, and we appreciate your input.
Something To Be Proud Of
In counterpoint to all the negative
headlines, there is good at work in the realm of the boardroom.
I heard something recently that startled me. It shouldn’t have, but it
did. It was an utterance that we in the governance field -- whether
serving on boards, counseling boards, or involved in some way with the
work of boards -- just do not hear. And it definitely is not something
that we ever read in the massive media coverage devoted to corporate
governance.
“I’m proud to say that I am a director.”
A simple, sincere statement. So forthright and heartfelt it was almost
a shock to hear it uttered from the podium by a board member. But how
so very refreshing it was to hear it.
Who said it? J. Michael Cook, retired chairman and CEO of Deloitte
& Touche. The occasion was the annual dinner and awards ceremony of
the Institute of Outstanding Directors, held this spring in New York.
Mike Cook is the institute’s president, and he and institute chairman
Michael Griffin hosted a rare evening of recognizing the good work that
boards do and the dedicated people who do the hard work of directorship.
As Cook noted, “the headlines go to the people who have failed.” There
have been a lot of those headlines. But I surmise that if we stacked up
the stories of directors who have acted with integrity, conviction, and
expertise to make good things happen for their companies and
shareholders, we’d have a set of headlines that would be far more
representative of the state of governance today. Then it wouldn’t be so
startling to hear a board member get up and say, “I’m proud to be a
director.”
Directors & Boards was
pleased to play a small role in sponsoring the Outstanding Directors
Awards. In the spirit of Mike Cook’s sentiment, we’re certainly proud
of being a director’s journal. Our 30th anniversary of the print
edition comes up next year. This issue of the e-Briefing marks the
first anniversary of our online monthly newsletter.
We welcome any “anniversary cards” you might like to send -- comments
on what you like about the e-Briefing, what you’d like to see in future
issues, and how we can hone it to make it even more useful. E mail me
here, and in the meantime here’s hoping that we see you at a future
Outstanding Directors celebration.
Jim
Kristie is the editor and
associate publisher of Directors & Boards.
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A look at independent director liability insurance and the added protection it offers.
By Stephen J. Weiss and Shannon A.G. Knotts
Did you know that there are liability policies solely for independent
directors?
This insurance product, offered by just a few insurers, is generically
referred to as independent director liability (IDL) insurance and can
be purchased by companies or individual directors themselves. IDL is a
type of D&O policy but, unlike other D&O policies, IDL coverage
is limited to independent directors.
Although IDL insurance offers some benefits to independent directors
not afforded by other types of D&O policies, IDL has not sold well
since it was introduced several years ago. That may change soon. A
leading D&O insurer has recently introduced an improved version of
its IDL policy and is marketing it aggressively with letters to all
public-company directors.
Should you consider adding an IDL policy to supplement the D&O
policy or policies that already cover you?
[Click
Here to Read
the Entire Article]
The Webb Report, that is. Just the facts, ma’am -- to be read with care.
By Hoffer Kaback
In the 1950s TV series “Dragnet,” most episodes contained an early scene in which a crime witness (or victim) tried to explain to the main character, LAPD Det. Sgt. Joe Friday, what had happened. Almost invariably, that citizen rambled in the telling.
And so Friday, played by Jack Webb, would issue a laconic instruction, which quickly became a catchphrase in popular culture. Webb would drily tell the witness (almost always a woman) to report “Just the facts, ma’am.”
Fifty years later, we consider a different Webb report -- this one by Dan Webb to the New York Stock Exchange.
This Webb report pertains to Richard A. Grasso, ex-chairman of the NYSE. In late September 2003, the exchange, a not-for-profit entity, retained Webb’s law firm, Winston & Strawn, to investigate how it came to pass that Grasso had received a payout of some $140 million in deferred compensation and benefits and was to receive an additional $48 million in deferred comp and benefits through 2007.
[Click Here to Read the Entire Article]
Managing Director
Willamette Management Associates
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.
There has been a lot written recently about the reasonableness of executive compensation. Why is this issue so high-profile, and is this issue primarily of concern only to public corporations?
One reason this issue is so high-profile is the publicity surrounding recent corporate scandals, including the perceived abusive compensation practices at many publicly traded companies. Shareholders are understandably concerned. In addition, the Internal Revenue Service (IRS) in recent years has aggressively challenged (1) the deductibility of “excessive” executive compensation for closely held C corporations and (2) the avoidance of payroll-related taxes by S corporations due to unreasonably low executive compensation.
There are many reasons why reasonableness of executive compensation is of concern to both public and privately held corporations. This is also an important topic to the boards of directors of not-for-profit organizations related to private inurement issues.
What are some of those reasons?
For a privately held corporation (either an S corporation or a C corporation), the reasonableness of executive compensation is of interest principally to the IRS. For the closely held S corporation, the IRS is typically concerned with whether shareholder/employees are paid an unreasonably low level of executive compensation. This is because unreasonably low levels of S corporation shareholder/employee compensation are not subject to FICA, Medicare, FUTA, SUTA, and other compensation-related employment taxes. Instead of being paid reasonable levels of compensation, S corporation shareholder/employees often “pay” themselves by taking periodic S corporation income distributions. Since these income distributions do not qualify as wages, they are not subject to the above-mentioned employment taxes.
[Click Here to Read the Entire Article]
According to a study by Paul D. Broude and Richard L. Prebil of Foley & Lardner, LLP, presented at the 2005 National Directors Institute, the Sarbanes-Oxley Act continues to have a significant impact on private organizations as 87% of survey respondents felt that SOX or other corporate governance reform requirements have impacted their organizations compared to 77% in 2004.
The impact of corporate governance reform on non-profit organizations was even
more apparent as 97% of non-profits responding to the survey felt that corporate
governance reform had impacted their organizations compared to 80% of for-profit
organizations.
More than three-quarters (78%) of the private organizations surveyed have self-imposed corporate governance reforms, compared to 60% of respondents in 2004.
When the Sarbanes-Oxley Act was adopted, the Congressional record indicated that it was not intended to apply to any organization other than public companies. At that time, many claimed that regardless of the intent of Congress, these guidelines would eventually permeate all businesses under the guise of best practices. Although an unintended consequence, the verbatim responses we received indicate this is in fact happening.
Many of the aspects of corporate governance reform currently being adopted by private organizations are those that are relatively inexpensive to implement and include CEO/CFO financial statement certification, appointment of independent directors, adopting a corporate ethical code, establishing whistle blower procedures, and approval of non-audit services by the board.
However, it remains to be seen whether Section 404 audits of internal financial
controls are adopted by these organizations as a best practice, as these audits are generally expensive and time-consuming to implement.
Government entities, at both the state and federal level, have not yet had the impact one might anticipate on private organizations, including non-profits. However, based on the verbatim responses received, many survey respondents are implementing corporate governance reforms in anticipation of eventual federal or state requirements.
The private organizations responding to the survey generally believe in the principles guiding corporate governance regulation and in many areas are increasingly adopting corporate governance reforms as best practices. However, the smaller organizations responding to our survey (those with under $300M in revenue or annual budget) are more likely to choose not to adopt the higher-cost elements of corporate governance reform.
A pdf of the study is available here.
May 10,
2005
KPMG's Audit Committee Institute launches its Spring 2005 Roundtable
series, "Enhancing Oversight of Internal Control Over Financial
Reporting: Understanding Challenges, Exploring Value." The firm will
host these interactive forums in 36 cities during May and June.
Roundtable participants will include members of audit committees,
directors who rely on audit committees, and other participants in the
financial reporting process. Visit
May
18-19, 2005
The Goizueta Directors Institute's annual spring conference has the
theme, "Maintaining Public Trust: Corporate Governance as a Value
Driver." Featured speakers include Ram Charan, PCAOB Chairman William
McDonough, and Dr. Louis Sullivan, a director of 3M, Bristol Myers, and
Cigna. Key topics to be addressed are "The Expanding Risk Definition of
Risk Management for Directors," "Globalization's New Governance Demands
on the Boardroom," and "Can Directors Afford to Sit on Boards in Light
of Increased Litigation Risk?" The conference will be held at the
Goizueta Business School at Emory University in Atlanta. Call
1-404-727-3902 or visit
May
19-20, 2005
The Center for Corporate Citizenship will present "Corporate
Citizenship and the Global Economy," a conference on best practices and
strategies for developing successful alliances to meet the challenges
of the global economy. The program will feature speakers from such
organizations as the
U.S. Department of State, Harvard University, ChevronTexaco, Lockheed
Martin, KPMG Foundation, IBM, and Millennium Change Corp. The center is
an affiliate of the U.S. Chamber of Commerce, and the meeting will be
held in Washington D.C. Visit
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
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 thought-provoking keynote presentations, a wide variety of
interactive, stimulating 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. Its past events have attracted top CEOs
and directors for provocative and thought-leading sessions. 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
Boardroom
Briefing: Corporate Internal Investigtions
Author News
Joe Plumeri, chairman and CEO of Willis Group Holdings and the subject of the cover story interview in the Directors & Boards Third Quarter 2004 issue, delivered the keynote address at the annual membership meeting of the Risk and Insurance Management Society on April 18, 2005. From the themes put forward in that speech, Willis has issued “The Leadership Moment,” a white paper detailing a new model for the insurance industry. The paper is available on the global insurance broker’s Web site at http://www.willis.com/Extras/RIMSNews.aspx.
David A. Nadler, chairman of Mercer Delta Consulting, is a 2005 recipient of The Society for Industrial and Organizational Psychology’s (SIOP) Distinguished Professional Contributions Award. The award is given to professionals whose efforts and contributions to the Industrial-Organizational (I-O) psychology field have had a significant and measurable impact on both the people and the development/implementation of practices involved in the I-O setting. Dr. Nadler, who consults at the CEO and board level and specializes in the areas of large-scale organizational change, executive leadership, organization design, and senior team development, is well known for his research and writing in the I-O field. He has has authored and/or edited 14 books, including Organizational Architecture and Champions of Change, and he and his Mercer Delta colleagues have written several articles for Directors & Boards.
Harry Edelson was the keynote speaker for the National Venture Forum’s Private Equity 2005 conference. Described in the conference materials as “one of the world’s most successful venture capital investors,” Edelson is managing partner of Edelson Technology Partners, based in Woodcliff Lake, N.J., http://www.edelsontech.com. He has been a columnist for Directors & Boards and has written several major articles for the journal, including “Problems with Boards of Small Companies” (Fall 1994), which was designated one of D&B’s “20 Classic” articles in the journal’s special 20th anniversary edition published in 1996.
Pam Farr, president and COO of the Cabot Advisory Group, died April 12, 2005, after what was described by Cabot Chairman and CEO Steven Darien as a “valiant effort to surmount complications from transplant surgery.” She helped found Cabot Advisory Group http://www.cabotgrp.com, a firm that provides a range of high-level strategy and human resource services, and was both an author herself as well as a facilitator of several Cabot-contributed articles for Directors & Boards. She will be missed by many in the HR field and governance community because, as Darien notes, she was “extremely generous with her time serving on corporate, university and nonprofit boards.”
New Directors Roster Additions
We present a preview of six of the directors to be featured in our next Directors Roster, appearing in the Third Quarter 2005 edition of Directors & Boards. Edited by Kelly McCarthy.
Saflink Corp
Asa Hutchinson
A
founding member of the U.S. Department of Homeland Security. In 2003
was confirmed by the Senate as the nation’s first Under Secretary of
Border and Transportation Security, responsible for more than 100,000
federal employees. During his tenure he initiated modernized
border
inspections and the development of a biometric entry-exit system for
foreign visitors to the U.S. Previously led the U.S. Drug Enforcement
Agency. From 1995-2001 represented Arkansas in the U.S. House of
Representatives. From 1990-1995 served as chairman of the Arkansas
Republican Party. In 1982, he was appointed by President Reagan as the
U.S. Attorney for Western Arkansas, making him the youngest to hold
that position in the country. Formerly spent a 21-year career as an
attorney in Arkansas. Age 55.Saflink provides software security products. Revenues are $5 million.
[Click Here to Read More Roster Listings]
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Directors & Boards e-Briefing is a monthly service of Directors & Boards. All contents copyright 2005, MLR Holdings LLC.