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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
Barbara Wenger
Subscriptions
Jerri Smith
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From Jim Kristie | Article of the
Month | Columnist
Reader Profile |
Research | News |
‘He Called in Rich’
Boards should be careful not to be the ‘stuckee’ of get-rich pay
packages.
I write this note just as Jeffrey Skilling wrapped up his testimony in
the Enron trial. A lot of quotable copy came out of his testimony. One
that particularly caught my skeptical eye was when the New York Post
(which has a good business section, by the way) blared Skilling’s “I
Wanted to Die” comment as a headline over a story about his reaction to
learning of Enron’s imminent collapse that was about to plunge
thousands of employees into a dark hole of unemployment and
breathtaking financial losses.
The Enron sound bite that most sticks with me, however, came far from
the trial. A couple of years ago I was in a room with Sherron Watkins,
the key whistleblowing figure in the Enron matter, when she was on the
speaking circuit. Asked in the audience Q&A to explain Skilling’s
mysterious before-the-deluge resignation as Enron’s CEO, her answer was
a show-stopper: “He called in rich.” That, I buy.
Watkins’ comment resonates on a larger scale. In four simple words she
very well could be nailing the basis for the disgruntlement over CEO
compensation, both the general unease over it and the specific outrage
when egregious practices are identified.
Boards are seen to be approving pay plans and corporate policies that
allow the CEO to call in rich while the organization’s employees,
investors, and other stakeholders are, proverbially speaking, calling
in sick -- with wages and benefits that are stagnant or declining, jobs
that are disappearing, suppliers that are getting squeezed, and stock
prices and strategic performances that don’t justify the board’s
munificence.
If the CEO can call in rich, board members should be certain that they
along with the employees, shareholders, and other concerned parties are
not the “stuckees” of ill-conceived get-rich arrangements. Or, better
yet, make sure your decisions are giving everybody the rightful
opportunity to call in rich, not just the person at the top of the
organization chart.
Take our Question of the Month below and render your verdict on how Mr.
Skilling and Enron Chairman Kenneth Lay will fare when the jury’s
decision comes down.
And speaking of sudden resignations, a technical glitch in last month’s
e-Briefing prevented many of you from seeing the responses to our
question about how you might react when a director noisily exits a
board. Click
here for those provocative replies.
Last Month's Question
Our April Question of the Month asked, “Are you in favor of companies
adopting majority voting of directors?” Your response:
• Yes: 63.2%
• No: 36.8%
• Still Unsure: 0%
Here are two representative reader comments, one from each camp:
“Yes -- Too many boards have become ‘closed/protected’ clubs (headed by
the CEO) for too long. A mechanism is needed to challenge the ‘false
appearance of independent governance’ when called for by mismanagement
and lack of real board oversight.”
“No -- Majority voting assumes that shareholders share a common
interest. My experience has been just the opposite. One of my boards
got into a proxy contest where it became very obvious that a large
shareholder had nothing in common with the smaller shareholders and in
fact wanted to ‘do them in,’ so to speak. Boards have a responsibility
and duty to represent all shareholders, not just the squeaky wheels.”
We’ve
got a hung jury on this question, but thank you for writing and we’ll
look forward to your verdict in the Enron case.
This Month's Question
How Will the Jury Decide in the Case Against Jeffrey Skilling and
Kenneth Lay? Click here to
take the survey and render your verdict.
____________________________________________________________________
Director's & Boards ERISA
Webcast/Teleconference
Directors & Boards'
webcast/teleconference on:
ERISA
and Directors: What You Don’t Know Will Hurt You
is scheduled for May 16, 2006 at 1pm EST. I hope you'll join me
(as moderator)
and the following fine speakers:
Wayne Miller, President, Denali
Fiduciary Management
Gerald Czarnecki, Director, State Farm Insurance Co.
Jeff Mamorsky, Chair of the ERISA department, Greenberg Traurig LLP
This webcast/teleconference is free
of charge.
Jim
Kristie is the editor and
associate publisher of Directors
& Boards.
Have
You Googled Your CEO Lately?What board members need to know about protecting your CEO, your company, and yourself in the Google universe.
By Greg Miller
(Editor's note: Our next
Boardroom Briefing, on The Wired Board, will be in the mail in
June. Information security--and privacy--is just one element of
the wired world. We'll also look at how technology can enable
boards to better do their jobs from a variety of perspectives).
Remember what life was like before Google?
I do, and it wasn’t that long ago. And at about the same time that the
noun “Google” evolved into the verb “to Google,” the ever-evolving
Internet created a new problem for senior executives and people like
me, who handle their PR – dealing with an explosion of personal
information about CEOs on the Web that threatens their privacy as well
as the potential safety of their families.
And this is not just the usual corporate information – salaries, board
memberships, greatest hits. No, this is personal stuff. Like kids’
names. Home addresses. Private club memberships.
Sure, some of that stuff leaches into media coverage about high-profile
CEOs. And Hollywood celebrities have always been tabloid bait. But gone
are the days when a diplomatic publicist could lean over and say to the
reporter, “Gee, do you think you could keep that out of the story?”
Once it’s out there in the Google universe, it’s staying out there,
where it blends with a surprisingly large amount of other information.
[Click
Here to Read
the Entire Article]
Many board members mistakenly believe that their fiduciary duties come to an end once the plan administration committee is appointed.
Editor's note: Wayne Miller, author of the following column, will lead the Directors & Boards webcast, “ERISA and Directors: What You Don’t Know Will Hurt You,” scheduled for May 16, 2006, at 1 p.m. EST. The webcast/teleconference is free of charge. For more information and to register, click here.
The Employee Retirement Income Security Act of 1974 (ERISA) -- the federal law that governs retirement plan management -- does not articulate specific fiduciary governance processes. The absence of a statutory example of retirement plan governance has resulted in dysfunction in the private retirement plan system in this country.
Over many years, the lack of a fiduciary governance safe harbor allowed service vendors to heavily influence the development of plan sponsor fiduciary behavior. As might be expected, the influence of non-fiduciary service vendors on the evolution of the retirement industry has been counterproductive to the fiduciary intent of serving as a guardian for long-term trust assets.
As a practical matter, dysfunctional fiduciary behavior was irrelevant during much of the 1980s and 1990s. The extended bull market effectively shielded fiduciaries from realizing liability.
[Click Here to Read the Entire Article]
U.S. Chairman and Senior Partner
PricewaterhouseCoopers
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.
You frequently use golf to illustrate business trends and realities. What makes golf such a great metaphor?
One of the biggest problems in the business world today is that too many of us are doing the equivalent of constantly playing the last hole. I believe that we've come to devote so much of our time and attention to dealing with the past that often there aren't enough resources left for the present or future. We've become tied up in rules that are, by design, a reaction to problems of the past.
The irony is that business leaders can follow all the rules and still arrive at the wrong answer.
Think of the Enron situation. That company’s executives and accountants found precise rules to justify what they were doing as technically right, even though their overall judgment was grievously wrong. A rules-based culture allowed Enron’s leaders to ignore the central tenet of a principles-based system: the principle of simply doing the right thing.
History has proven time and time again that rules alone cannot ensure that anyone is doing the right thing.
In a recent survey of top senior executives of U.S-based multinational companies, we came upon an interesting and fundamental issue. Seventy-two percent of the executives indicated that the rules-based accounting standards have enabled companies to design financial engineering techniques around specific accounting objectives, rather than broad economic goals.
In corporate governance, as in my profession, rules can tolerate a shirking of corporate and personal responsibility that principles will not.
[Click Here to Read the Entire Article]
But Survey Finds Only Half Expect U.S. Economy to Improve this Year
Two-thirds (66 percent) of corporate America’s finance leaders are bullish about the future performance of their companies, as their increased confidence in the pricing outlook offsets the threat of myriad higher costs, led by energy prices and employee healthcare.
However, chief financial officers and comptrollers are less confident about the prospects for the overall U.S. economy in 2006. Indeed, just 51 percent predict that the U.S. economy will improve this year while 39 percent expect it to remain the same and 9 percent say it will worsen. At the same time, nearly six in 10 (58 percent) senior financial executives expect inflation to increase in 2006 compared to 37 percent who say it will remain the same. Just 4 percent expect inflation to decrease.
One red flag is the potential for the federal debt to balloon significantly. While more than three-quarters (77 percent) of companies do not expect to cut healthcare benefits to retirees in the next 12 months, a full 17 percent of financial executives do anticipate cutting benefits in the coming year. These cuts are coming despite massive subsidies in the 2003 Medicare Modernization Act to encourage companies to maintain their retiree healthcare benefits, such as those for prescription drugs. As companies drop these plans, retirees turn to Medicare, driving up federal costs.
These are among the key findings from the Grant Thornton LLP Survey of Senior Finance Executives, which polled 122 chief financial officers and comptrollers at companies ranging in size from more than $2 billion in annual revenues to less than $50 million in annual revenues.
One reason so many companies expect to post stronger results in 2006 is their increased pricing power. Two-thirds (66 percent) say their companies will raise prices this year while one-third (33 percent) don’t expect to increase their prices or fees. In June, 2005, just 44 percent anticipated that their companies would raise prices or fees in the coming six months.
Of those CFOs and comptrollers expecting to raise prices in 2006, 59 percent say their company’s price increase will be less than 5 percent while 41 say their prices will rise more than 5 percent.
Despite the improved pricing outlook for many companies, senior finance executives are busy trying to minimize the impact of rising costs. While 60 percent say higher energy prices will not weaken their financial results in 2006, 39 percent of CFOs and comptrollers say they will hurt performance. That compares to 74 percent in June, 2005 who expected higher energy prices to weaken their company’s performance in the second half.
Two out of three (66 percent) finance executives also expect another double-digit increase in employee healthcare costs this year, although 32 percent do not.
As a result, the outlook for workers is mixed. Companies are about evenly split on hiring plans. Fifty-one percent say they will increase the rate of hiring in 2006 while 48 percent say their companies will not.
About the survey
Commissioned by Grant Thornton LLP, the survey was conducted during February and March 2006, with responses from 122 CFOs and senior comptrollers at public and private companies with revenues ranging from less than $50 million to more than $2 billion. Grant Thornton LLP is the U.S. member firm of Grant Thornton International, one of the six global accounting, tax and business advisory organizations. Visit Grant Thornton LLP at http://www.grantthornton.com.
May 3,
2006
The Directors Roundtable presents “Compliance Program Assessments –
What’s Next?” Special attention will be given to the perspective of
directors and senior executives in a discussion of critical issues
facing boards, fund management, and compliance officers of investment
management firms and hedge funds. Topics include results of annual
reviews, how to maintain an effective compliance program, and what to
expect from SEC inspections. To register, call 323-660-0016,
May 3-5,
2006
The Club of Amsterdam will host its second annual global "Summit for
the Future on Risk - Corporate Governance." The summit will bring
together international thought leaders to discuss the role of risk in
innovation and global growth,and what the balancing of risks means for
a board of directors. Visit the summit website,
May 16,
2006
Directors & Boards presents a free Webinar/Teleconference, on the
topic of: ERISA and Directors: What You Don’t Know Will Hurt You, at
1pm EST. Speakers include: Speakers: Jim Kristie, Editor and Associate
Publisher, Directors & Boards; Wayne Miller, President, Denali
Fiduciary Management; Gerald Czarnecki, Director, State Farm Insurance
Co.; Owsley Brown II, Chairman of the Board, Brown-Forman & Co.;
and Jeff Mamorsky, Chair of the ERISA department, Greenberg Traurig
LLP. To register, visit:
May
16-19, 2006
UCLA's Anderson School of Management presents its "UCLA Director
Training and Certification Program" at the Collins Center for Executive
Education, Los Angeles, CA. The program, under faculty director Dr.
Alfred E. Osborne Jr. brings directors up-to-date on policies and best
practices concerning SEC regulations, FASB considerations, NYSE rules
and other important issues. The curriculum combines world-class experts
with experienced directors and academic thought leaders. For more
information, or to register, call 301-825-2001 or visit
May
18-19, 2006
The U.S. Department of Commerce is organizing a China business
conference, "China: Risk, Reward, and How to Win -- Bringing America's
Finest China Experts to Your Doorstep." The event promises that it will
bring the tools, marketing intelligence, and resources needed to thrive
in China, from Shanghai to Hong Kong, for executives serious about the
potential of developing their market in China. The sessions will be
held at the Reagan Building and International Trade Center in
Washington, D.C. Visit
May
18-19, 2006
The Business Civic Leadership Center will put on its "2006 Partnership
Conference: Strengthening Organizational Values and Stakeholder Trust."
The conference will examine the current state of institutional trust in
America with a forward-looking agenda for stemming public distrust and
negative perceptions, and building a culture that promotes values and
good governance. The event will be held at the U.S. Chamber of Commerce
in Washington, D.C. For information, visit
May 25,
2006
The National Association of Corporate Directors is conducting “21st
Century Governance for Early Stage Companies.” It is being hosted by
the IC2 Institute, the University of Texas at Austin, and the
University of Texas School of Law. This conference is designed to
provide critical, nuts and bolts information on corporate governance
for the directors and CEOs of early stage companies -- pre-IPO and
post-IPO companies, as well as privately held companies that plan to go
public, or that simply want better governance. Visit
May
30-June 2, 2006
The Stanford Graduate School of Business Executive Education conducts
its "Corporate Governance Program." Under the direction of program
manager Rita Chandra and faculty director Maureen McNichols, the
intensive event, led by renowned Stanford faculty members, guide a
select group of 55 participants through a comprehensive series of
learning sessions designed for board-level decision makers. 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 1-3,
2006
The International Policy Governance Association will hold its third
annual conference, themed "Responsible Governance: the Power of
Accountable Boards," in San Antonio, Texas. The sessions are oriented
for boards that want maximum value for their beneficiaries or
shareholders, and directors who are accountable along with staff who
are empowered, efficient and effective. Featured will be Dr. John
Carver, creator of the policy governance model, and other top
presenters. To register, visit
June 6,
2006
Boardroom Consultants, Pace Law School, the NACD, TIAA-CREF, and the
Business Roundtable will co-sponsor "The Fourth Annual Institute on
Board/Committee Independence and Effectiveness" in New York City at
TIAA-CREF headquarters, 730 Third Avenue, 17th Floor, from 8 a.m to
4:30 p.m. Taking a "practitioners" approach, the sessions bring
together corporate directors in a forum where they can candidly assess
what is really happening in boardrooms and share ideas and best
practices. Most panelists are CEOs and directors who offer proven
solutions for effectively carrying on the most important work of their
boards. Other perspectives are added by shareholders and a small group
of widely recognized board advisers. Attendees have the opportunity to
discuss issues of their choosing during both breakout and "open mike"
sessions. This year's keynote speaker and honoree is Franklin Thomas,
former president of the Ford Foundation and multiple board director.
For further information, call 212-328-0440.
June 7-8,
2006
The Outstanding Directors Institute will conduct a West Coast session
of its program that recognizes top performers at the board level.
Planned sessions include “Managing the CEO/Board Relationship,” “The
New Basics of the Executive Session,” “Aiming for Seamlessness in CEO
Succession Planning,” and other topics. The event will be held at the
St. Regis Hotel in San Francisco. Call 212-542-1224 to register or
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
June
20-21, 2006
KPMG's Audit Committee Institute and the National Association of
Corporate Directors present "Audit Committee Fundamentals," an
educational program for audit committee members and directors, both new
and experienced, who want to enhance their understanding of audit
committee responsibilities and activities. Visit
On Board Bootcamp puts on “Would you like to become a Corporate Director?” -- an insider’s guide on how to be selected and an introduction to experienced directors and search executives who will share with you “lessons learned” along the way. Susan Stautberg, president of PartnerCom Corp., which creates and manages advisory boards and conducts corporate director searches, has partnered with Carolyn Chin, a board chair and director of five companies, to launch On Board Bootcamp. This seminar is designed to benefit those who: are already on a nonprofit or small company board and would like to be selected by a larger one; are about to become a board member; would like to be selected for a board; would like to establish an action plan for getting on boards in the future. For a brochure and more information contact
The Nasdaq Stock Market Inc. has expanded its portfolio of products, services, and information designed to support Nasdaq-listed companies in the area of governance. Nasdaq has begun to make Institutional Shareholder Services’ Corporate Governance Quotient (CGQ) ratings available to listed companies through its issuer-focused website, Nasdaq Online. Nasdaq-listed companies will be able to view ISS’s CGQ industry and index scores via Nasdaq Online using their proprietary log-in and password. Introduced in 2002, the CGQ is a widely followed rating system, covering more than 8,000 companies worldwide, that assesses governance structures and protocols. For more information on Nasdaq Corporate Services, visit http://www.nasdaq.net.
FAQs on ERM
Protiviti Inc., a provider of risk consulting and internal audit services, has released “Guide to Enterprise Risk Management: Frequently Asked Questions.” The guide offers detailed insights, ideas, and strategies for C-level executives and boards of directors responsible for ERM design and implementation within their
organizations. "Our objective is to bring clarity to the dialogue around ERM,” says Everett Gibbs, managing director of Protiviti. Visit http://www.protiviti.com to download a complimentary PDF of the guide, or call 888-556-7420.
Additional ERM guidance can be gained from the Directors & Boards Boardroom Briefing on “Business Continuity and Disaster Recovery,” published last month. You can download a PDF copy of this special report here.
New Board Leadership for NIRI
The National Investor Relations Institute (NIRI) has elected Maureen Wolff-Reid as the 2006-2007 chairman of the NIRI board of directors. Wolff-Reid, 47, is president of the Boston-based investor relations agency Sharon Merrill Associates Inc. She succeeds Mary Dunbar, senior vice president, investor relations, at Dix & Eaton.
"I look forward to working with the board and NIRI staff to enhance the recognition of investor relations as a critical strategic management responsibility that operates in accordance with the highest legal and ethical standards,” Wolff-Reid states. She joined Sharon Merrill Associates upon its founding in 1985 and was promoted to president in 1997. She spearheads the agency's business development and advises clients on issues including M&A communications, corporate message development, earnings guidance, investor targeting, and crisis management.
NIRI is the professional association of corporate officers and investor relations consultants responsible for communications among corporate management, shareholders, security analysts, and other financial publics, http://www.niri.org. Its 4,200 members represent over 2,100 publicly held companies in the United States.
Author Notes
Donald Delves, founder and principal of The Delves Group (http://www.delvesgroup.com), has composed a checklist designed to provide a basic overview of the new SEC requirements on executive compensation disclosure. He advises that it “should serve as a reference tool throughout the year,” explaining that the proposed changes to executive compensation disclosure rules “matter just as much today as they will when you draft your proxies at the beginning of next year. That’s because under the current SEC proposal, the pay-related decisions made today must be disclosed and explained in your 2007 proxy Compensation Discussion and Analysis (CD&A) section.” Given that the “why” and “how” of compensation decisions are expected to become as important as the “how much,” he adds that board members and executives “should familiarize themselves with the proposed requirements and keep them in mind throughout the year as pay programs are evaluated, amended, and approved.” Delves authored the article, “Why Retired CEOs Can Be a Board’s MVPs” in the First Quarter 2006 edition of Directors & Boards. Click here for a PDF copy of the checklist.
Directors & Boards Editor James Kristie has joined the advisory board of the Center for Leadership in Governance. The center has been formed by America’s Health Insurance Plans (AHIP), the Washington, D.C.-based national association representing nearly 1,300 member companies that provide health benefits to more than 200 million Americans, http://www.ahip.org. The center will provide AHIP members with the tools they need to comply with governance-related regulations and directives and to more fully engage their board members and keep them abreast of industry trends and best practices in the governance area.
Kristie has also been named to the advisory council of Temple University Press, one of the nation’s preeminent university book publishers, http://www.temple.edu/tempress. TU Press was an early publisher of books in urban studies, housing and labor studies, organizational reform, health care, and public religion. Newer fields that it is establishing leadership in include disability studies, animal rights, criminology, gender and sexual identity, and sports and society. It publishes 50-60 books a year. In recognition of its leadership position, three of its books were just named "Outstanding Academic Titles" for 2005 -- a highly selective designation by Choice magazine, an influential publication of the American Library Association. Kristie is an adjunct faculty member of Temple University, teaching in its School of Communications and Theater.
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Directors & Boards e-Briefing is a monthly service of Directors & Boards. All contents copyright 2006, MLR Holdings LLC.