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Directors & Boards
Robert H. Rock
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James Kristie
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From Jim Kristie | Article of the
Month | Columnist
Reader Profile |
Research | News |
Did This New Director Get Good Advice?
‘I’m going to tell you how to
serve on a board.’ Yikes!
Liked the book. Hated the story.
The book is “Basic Black” (Three
River Press) by Cathie Black, president of Hearst Magazines. It’s a
combination memoir of her life in publishing and self-help book for
women in business. Well-written and insightful on both scores. The book
has been out since 2007, but I just caught up with it thanks to my Directors & Boards lead
columnist, Hoffer Kaback, who gave it to me for our holiday book
exchange and dinner at the Harvard Club, which is our yearly tradition.
Now, here’s the story. It’s an anecdote that Black recounts in the
book. I’ll tell you afterward why it doesn’t agree with me, and I
welcome you to tell me your reaction to it.
“The first time I was invited to join the board of a nonprofit
organization,” Black writes, “I was delighted. Being asked to serve on
a board is a sign of respect for your skills and ideas. So I quickly
accepted, and when the day of my first board meeting arrived, I walked
into the meeting room with a big smile and high energy.
“Halfway into the agenda, I lobbed what I thought was a great idea into
the mix. But to my surprise, the faces around the table looked blank. A
short, unenthusiastic discussion ensued, and my idea was quickly voted
down. I wasn’t crushed, but it was certainly disappointing.
“The next morning a fellow board member whom I’d met but didn’t know
well called and invited me to breakfast. After we exchanged
pleasantries, she leaned across the table and asked, ‘Cathie, have you
ever been on a board before?’
“ ‘No,’ I answered brightly. ‘This is my first.’
“ ‘Well,’ she said, ‘I’m going to tell you how to serve on a board.’
“I wasn’t sure what she meant. I knew what was generally expected of
board members: to help guide the organization, provide financial
oversight, maintain accountability, that kind of thing. What more was
there to know?
“ ‘The idea you presented yesterday was great,’ she told me. ‘But you
should have built support for it in advance. You need to call around,
get opinions, and make sure you have a few people on your side before
the meeting starts. That way, when you present your idea, you’ll
already have the seed of collective support.’
“The minute the words were out of her mouth, the idea seemed so
obvious. Yet it had never occurred to me before that seeding a meeting was a necessary
strategy. As I quickly realized, it’s a strategy that applies not just
to board meetings, but to any meeting where you plan to present an idea
or proposal. If you’re trying to win support, why not give yourself a
head start?”
End of story. So, if I read this right, the boardroom is a “no new
ideas” zone. Any ideas are to be pre-vetted by management or other
board members. No impromptu ideas inspired by presentations or
discussions at the meeting … the passions of the moment. To directors:
leave your new ideas at the door when you walk into the board meeting …
and, God forbid you have the temerity to raise any fresh ideas once the
meeting starts.
I can’t help but think that this is how companies, managements, and
boards get in trouble when such “etiquette” rules the culture—in this
case, the free flow of discussion. Are we not in a time that cries out
for new ideas? How dare an enthusiastic new director be told to zip it
in a board meeting!
That’s my reaction. What’s yours? Am I offbase? Is that “veteran” board
member offbase with her advice? Is Cathie Black offbase for buying into
this board acculturation advice?
Do tell, and I’ll share responses with the e-Briefing audience in my June
editor’s note. As always, I look forward to hearing from you at jkristie@directorsandboards.com.
Jim
Kristie is the editor and
associate publisher of Directors
& Boards.
Option Repricing ChallengesDirectors need to weigh many competing considerations when deciding what is in the best interests of the company and its stakeholders.
By Doug Raymond
Boards face new and difficult challenges in their oversight of executive compensation. Rising sentiment against what many see as overpaid and underperforming executives has focused additional attention on this already sensitive topic. And with “say on pay” apparently just around the corner, directors increasingly find their decisions on executive pay subject to new and often hostile scrutiny.
Nowhere is this more evident than in the difficult area of option repricing.
Executives who have lost many of their assets in the stock market rout are often skeptical that the markets will return to their former levels anytime soon. In particular, those holding deeply underwater options may consider them of marginal value, largely eliminating the value of the options to motivate performance and encourage the executive to stay.
In response, boards are struggling to find new ways to restore these incentives. A key strategy for many has been an option exchange or repricing. To read more, click the link below.
[Click
Here to Read
the Entire Article]
Paradigm Lost
The presumption may be that capitalism has failed, but don’t give up just yet or it could be paradise lost forever.
By Robert H. Rock
As a Harvard undergraduate I majored in what at the time was a new concentration, “History and Science,” which had an overarching field of study, the history of science. In the late 1960s the seminal work in this field was a recently published book by Thomas S. Kuhn entitled "The Structure of Scientific Revolutions."
In Kuhn’s structure, there are “puzzle-solvers” who do “normal science” by making incremental advancements within the borders of the prevailing world view; and, there are “paradigm-builders” who question conventional thinking and look beyond these borders, ultimately effecting a “paradigm shift” that replaces one conceptual world view with another.
Kuhn builds his argument around three scientific revolutions, namely the Copernican revolution in 16th and 17th century astronomy, the Darwinian revolution in 19th century biology, and the Einsteinian revolution in 20th century physics. These three scientists thought outside the box and envisioned a fundamentally new, and more powerful, paradigm.
In terms of economics, where are the paradigm-builders of the 21st century?
The Long Shadow of Keynes
As the world struggles with the current economic meltdown, our leaders seem constrained within a paradigm defined 80 years ago by the English economist John Maynard Keynes. Today’s policy makers, like FDR’s New Deal brain trust, believe that massive government spending is the solution. To read more, click the link below.
[Click Here to Read the Entire Article]
Co-head, Americas M&A Practice
Clifford Chance
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.
In this environment, as a director, should I be performing my management oversight role differently?
You should pay particular attention to your duty of management oversight, and to internal control systems. Directors also should pay heightened attention to risk management. Every company’s situation is different, so there is no single, one-size-fits-all approach to managing risk. In the present environment, though, the approach for almost every company should include carefully monitoring and maximizing liquidity, and contingency planning that addresses what to do in case of further business deterioration. In addition to monitoring and controlling operating expenses and capital expenditures, this also requires careful consideration of cash outlays that in normal times frequently are applauded by shareholders – for example dividends and share repurchases.
How should boards discharge their oversight responsibilities?
Board members should receive monthly detailed cash/liquidity position projections covering the next 12 months, together with sensitivity analyses showing the pro forma impact of adverse developments. They also should receive regular risk assessment reports from management, detailing types and scope of risks considered material.. To read more, click the link below.
[Click Here to Read the Entire Article]
Eighteen CEOs who voluntarily served without salary or cash bonus in 2008 have a combined total of almost $6 billion in stock of the companies at which they are employed, according to a new study by The Corporate Library, an independent corporate governance research firm.
“The CEOs’ shareholdings, as well as other forms of compensation, lead us to conclude that the voluntary forfeiture of salary and cash bonus is largely symbolic,” said Research Associate Greg Ruel, author of the study.
The study analyzed the pay data of all the CEOs in The Corporate Library’s coverage universe that received a base salary of either zero or one dollar in 2008. The 41 CEOs in the study also did not receive for the year any non-equity incentive compensation (annual or long-term cash bonuses based on pre-determined metrics).
The report also analyzed whether certain industries were less likely than others to award executives with base salary and cash bonus of less than one dollar.
The study, titled “2007 Proxy Season Foresights #7: The One-Dollar Base Salary,” is available for $35 from The Corporate Library’s online store.
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May
7-8, 2009 May
31-June 3, 2009 June
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If you want to know where the friction is going to be in the comp area, look no further than the list of “10 of the Worst CEO Pay Practices” issued in April by the AFL-CIO’s 2009 Executive PayWatch monitoring website:
• Pay for Failure
• Retention Bonuses
• Moving the Performance Goalposts
• Job Security for the CEO; Insecurity for Workers
• Golden Coffin Death Benefits
• Golden Parachute Severance Benefits
• ‘Super-Sized’ Stock Options (for CEOs whose investors have lost billions)
• Turbo-Charged Pension Plan (for CEOs whose workers’ pension plans have been pummeled)
• Lavish Perquisites
• Executive Physicals (yes, the economy may be driving us all into a state of physical and mental wreck, but if the CEO and top execs are receiving an annual physical paid for by the company, the firm better have a strong commitment to health care coverage of its workers).
The AFL-CIO launched Executive PayWatch in 1997 to draw attention to what it calls “runaway CEO pay packages and the widening gap between the compensation of corporate chieftains and workers.” According to the organization, which represents 11 million workers in 56 unions nationwide, in 1980 CEOs of large U.S. companies made 42 times the wages of the average worker; by 2006 the gap had widened to more than 364 times.
Director Resources
D&O Insurance: National Insurance Partners Inc. has launched X-PROTECT™, a very broad form of D&O insurance coverage available for independent directors. X-PROTECT™ is described as a separate “bridges the gaps” policy created exclusively to provide independent directors with “state-of-the-art” insurance protection—a very broad form of coverage on the market that offers a combination of primary, excess, and difference-in-conditions coverage. For more information, e-mail x-protect@nationalinsurancepartners.com.
Tax Risks: As governments seek additional revenue in the current tight economy, senior business professionals say the increased possibility of an audit by taxing authorities is the most significant tax risk facing their organizations today, according to a survey conducted by the Tax Governance Institute. The TGI currently comprises more than 14,000 members. Launched in early 2007, it provides a forum for board members, corporate management, stakeholders, and government representatives to share knowledge regarding the identification, oversight, management, and appropriate disclosure of tax risk.
Compliance Hotlines: SAI Global Ltd. has acquired the assets of Syrus Global, provider of the Listen Up™ Employee Reporting & Ethics Helpline. The combination will help better meet the provisions for confidential and anonymous employee reporting mandated by the U.S. Sarbanes-Oxley Act and offer the firms’ clients what’s described as a single view into the range of compliance and ethics reporting and analysis that drives business improvement. Operations will be managed by the SAI Global Compliance Division, with North American headquarters in Plainsboro, N.J., and Syrus Global President Alice Peterson will join SAI Global’s worldwide team of advisers, speakers and consultants.
Global Governance: The CFA Institute Centre for Financial Market Integrity, the global policy authority on professional conduct and investment performance standards, financial reporting, and capital markets, has launched “Shareowner Rights across the Markets: A Manual for Investors” to assist investors in understanding their rights in 22 of the largest markets in the world and to reinforce the correlation between strong shareowner rights and lower costs of equity capital. The “Shareowner Rights Manual” is a companion to “The Corporate Governance of Listed Companies: A Manual for Investors”, and is designed to help investment professionals and investors around the world better understand their rights as shareowners in the major developed and developing markets around the world.
Risk Management I: Lloyd’s of London, the world’s leading specialist insurance market, just released a new report, “Climate Change and Security: Risks and Opportunities for Business.” The report, done in conjunction with the International Institute for Strategic Studies (IISS), identifies key climate change risks that will dramatically alter global business and trade and discusses the need for companies to incorporate climate change considerations into their long-term planning, risk assessment practices, and investment strategies. Click here for a copy of the report.
Risk Management II: Joel Kurtzman's Opacity Index measures economic risk across all regions of the world. In an April 2009 update, the index shows the United States falling from 4th place to 13th place, with continued downward momentum. This “unprecedented decline” is accounted for by regulatory and enforcement lapses. But equally important, Kurtzman notes, “the performance of boards of directors in the United States has failed to improve, despite rules stemming from Sarbanes-Oxley legislation which have now been in effect for quite some time. The demise of several major financial institutions is representative of poor board oversight and regulatory and enforcement laxity, among other things.” The index can be accessed on the Kurtzman Group’s website.
Author Notes
Sharon L. Allen, chairman of the board of Deloitte LLP, has been appointed to the board of Catalyst Inc., the leading global nonprofit membership organization dedicated to building inclusive workplaces and expanding opportunities for women and business. Replacing Jim Quigley, CEO, Deloitte Touche Tohmatsu, Allen brings 36 years of professional experience and a commitment to encouraging innovation to advancing women in business to the 42-member Catalyst board.
Steven Hall & Partners has opened an office in San Diego. Joining the compensation consulting firm as managing director based in the new office is Lawrence G. Robinson, who has over 25 years in executive compensation consulting and human resources management.
Debevoise & Plimpton LLP Partner Jeffrey J. Rosen has been named a Dealmaker of the Year by The American Lawyer magazine for his role in advising Verizon Wireless Inc. in its $28 billion acquisition of Alltel Corp. This is the third time Mr. Rosen has been named a Dealmaker—he was recognized in 2004 for his representation of General Electric and NBC in their $14 billion acquisition of Vivendi Universal Entertainment and in 2007 for his role in advising International Paper on the $6.6 billion sale of 5.7 million acres of U.S. timberland. The American Lawyer’s Dealmakers of the Year, featuring the year’s top transactional lawyers, appeared in the April 2009 issue. Mr. Rosen co-chairs the firm’s Mergers & Acquisitions Group and is the deputy presiding partner of the firm.
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Directors & Boards e-Briefing is a monthly service of Directors & Boards. All contents copyright 2009, MLR Holdings LLC.