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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 |
The Board
As a Black Box
This may not be the right model for demonstrating leadership.
I am writing this just as the government has lodged civil fraud charges
against Goldman Sachs. The term “black box” is being bandied about by
commentators, 
referring to the
utterly mysterious ways that financial institutions like Goldman
conduct their businesses — totally opaque to outsiders’ eyes, reveling
in their secrecy, and resisting transparency that would allay
suspicions of behavior “unfriendly” to markets in general and their
trading partners in particular.
If we take that definition of black box and apply it to the board of
directors of just about every public company, we see that it fits like
a glove.
Boards are as secret as they come. Leon Panetta, then a corporate
director, used the term “sealed chamber” back in 2003 when he wrote a
cover article for Directors &
Boards in which he questioned whether such a mode was
appropriate for demonstrating the board’s leadership. “Can we end the
long tradition of the boardroom as a sealed chamber from which we issue
only unanimous endorsements of management’s actions and results?” he
asked.
His question remains unanswered. There is still precious little light
that emanates from this chamber that would yield understanding to the
outside world of how a board is performing its leadership role.
Sure, one can go to the proxy and see who is sitting on the board and
the roles that they are assigned to. We know how often the board meets,
what the members are paid, and how much ownership they have in the
corporation. So, yes, there are some things we do know.
But there are things we don’t know. Chiefly, we don’t know is what the
board is doing to protect and perpetuate the enterprise.
So the board really is a black box in offering understanding — and
allaying suspicions — about how its members are thinking and acting.
This is especially true when the board is perceived to be acting in an
unfriendly way to its “trading partners” — the company shareowners.
All this may still be the best way to run a board. Then again, it may
not. Governance evolves. “New normal” best practices supplant the old
ways of doing things. It is in this spirit of inquiry that we went out
into the marketplace of ideas to solicit insights and counsel on
whether boards need to become less black box-like.
One way boards could do that is to open up a channel of communications
to the outside world — to find their “voice,” as we posit in the cover
story, titled “Who Speaks for the Board?” in the Second Quarter edition
of Directors & Boards.
It was my great pleasure to tap into a network of colleagues who I knew
could comment with confidence and authority on this issue. The roundup
of expert testimony may not dismantle the black box. But it certainly
should advance the leadership thinking on what boards need to do to
meet the challenge that bedevils the governance system today, the
conundrum that Mr. Panetta shone a bright light on: “Exercising
oversight in the sanctity of the boardroom and proving that you have
done it are two different things. In order to restore trust, boards
have to prove it.”
The Q2 issue of Directors & Boards
will be coming off press shortly. If you would like an electronic copy
of “Who Speaks for the Board?” once it is released, email me at jkristie@directorsandboards.com.
Jim
Kristie is the editor and
associate publisher of Directors
& Boards.
Caveat Director: Don’t
Get Tripped Up by Section 8 The government and private litigants are stepping up enforcement of the Clayton Act’s prohibitions on interlocking directorates.
By Robert B. Bell
Due to the recent heightened scrutiny of interlocking directorates, several major companies have announced director resignations and other actions.
In April 2010, Sears Holdings Corp. announced that, in order to settle a shareholder lawsuit alleging a violation of Section 8 of the Clayton Act, which prohibits corporate directors from sitting on competitors’ boards, one Sears board member would vacate his seat, and another would not participate in any discussions about the company’s women’s clothing business because she also sits on the board of Jones Apparel Group Inc.
In addition, well-known venture capital investor John Doerr, who sits on the board of Google, will not stand for re-election to the board of Amazon.com Inc., reportedly as a result of a Federal Trade Commission investigation into interlocking directorates. That same investigation previously led to resignations of two directors who sat on the boards of both Apple Inc. and Google — Google CEO Eric Schmidt resigned from Apple’s board and Arthur Levinson resigned from Google’s board. In addition, Genzyme Corp. has pointed out that Carl Icahn’s attempt to place four directors on its board raises questions under Section 8 because two of his four nominees currently serve as directors at competitor Biogen Idec Inc.
Now that Section 8 has become the subject of renewed enforcement, it is important to understand how it operates. To read more, click the link below.
[Click
Here to Read
the Entire Article]
IRS Reporting Requirements for Nonprofits Seek Greater Transparency, Accountability
The new IRS Form 990 will provide the public, donors, critics, and government with a wealth of additional information about your nonprofit that they have a right to know. As a director or trustee, are you prepared for this enhanced disclosure?
By John Moscatelli
Public perceptions about nonprofit organizations are about to be challenged as expanded data required by the revised IRS Form 990 enters the public domain. Some nonprofits will find themselves fighting challenges to their tax-exempt status — based in part on the very data they reported.
The IRS now requires more detailed reporting on executive compensation (990J) and governance processes (990, Part VI). Directors are well advised to focus on the governance issues the form addresses or assumes.
Some argue the IRS overreaches, without foundation in the tax code to question governance policies. Nothing in law requires organizations to adhere to many of the policies raised by the form’s questions. So why raise them?. To read more, click the link below.
[Click Here to Read the Entire Article]
Bruce J. Sherman
Principal
Integral Advisors, LLC
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.
Your new research study shows that investors correlate management quality with business valuation and it impacts ratings and investment decisions. Why did you undertake this research? What were you hoping to uncover?
Our research with many of the world’s most prominent and active institutional investors has demonstrated increases in management quality and depth are positively correlated with increases in the valuation of a business. We hoped to arm boards with qualitative and quantitative information to help assess risk exposure and gain a fuller understanding of investor concerns of succession. What we found was a greater level of rigor and interest in this topic than we imagined. We now understand what a number of major investors, analysts, and rating agencies are expecting from boards and management regarding succession. We also have a tool companies can use to assess risk and improve business performance.
The fact is that while boards and CEOs admit that succession planning is important, every study about succession points to how poorly handled succession is by most companies and how few companies actually have appreciable succession plans at all. Most are content to have a successor or interim CEO and that’s the extent of it, so it’s quite challenging to get their attention on succession planning. So we undertook this research because we thought we could get their attention and initiate action oriented conversations if we spoke directly to the stakeholders whose opinion matters most – the investors.To read more, click the link below.
[Click Here to Read the Entire Article]
A new report from The Corporate Library, an independent corporate governance research firm, found that the largest severance packages from fiscal 2008 and 2009 were paid to CEOs whose tenure ranged from a little more than one year to just six years. The report examined severance paid to CEOs of 125 public companies that filed proxy statements between January 30, 2009, and January 29, 2010.
“The primary justification for multiple millions of dollars of severance pay is to attract and retain top talent,” said Research Associate Greg Ruel, author of the report. “But if an executive is being terminated or has tendered his resignation very early on in his tenure, how successful was the board in attracting the best talent for the company?”
The report also examines in detail several of the top ten highest severance packages in each of 2008 and 2009. Companies featured in the report include General Maritime Corporation, ProLogis, MoneyGram International, infoGROUP Inc., American International Group, Jones Apparel Group, E*TRADE Financial, Sprint Nextel Corporation and Qwest Communications.
The report, titled “Proxy Season Foresights #9: Spotlight on Severance Payments,” is available for $15 from The Corporate Library’s online store.
| May
4, 2010 May
11-12, 2010 May
16-19, 2010 May
16-19, 2010 May
26, 2010
|
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Corporate board pay levels are flat or down compared to last year, according to the National Association of Corporate Directors (NACD)’s annual Director Compensation Survey: 2009-2010. Key highlights for median total direct compensation:
- Companies with revenues of $50 million to $500 million — decreased 3% to $75,490
- Companies with revenues of $500 million to $1 billion — decreased 6% to $108,836
- Companies with revenues of $1 billion to $2.5 billion — decreased 2% to $131,054
- Companies with revenues of $2.5 billion to $10 billion — decreased 1% to $164,455
- Companies with revenues over $10 billion plus — increased 1% to $216,186
Cash compensation, consisting of annual retainers and fees for board and committee service, represented a greater proportion of total compensation. The percentage of director pay in the form of equity declined significantly, largely as a result of lower share prices. While stock compensation was generally below the 50% benchmark, there was also a significant shift away from the use of stock options in favor of full-value share grants.
The report was published with the support of NACD Alliance Partners: Heidrick & Struggles, KPMG, Pearl Meyer & Partners, Oliver Wyman, Tatum, and Weil, Gotshal & Manges LLP. The report may be purchased by calling 202-775-0509 or online. NACD member price is $50; nonmember price is $150.
Director Resources
Pension Oversight: Jon Waite of SEI’s International Group has authored “CFO Summary: The Implications of the FASB Pension Guidelines.” It helps financial executives overseeing pension plans in light of the recent changes made to FAS 132 “Employers’ Disclosure about Pension and Other Post-retirement Benefits.” Click here for a summary that gives CFO-level executives an overview of the changes and outlines the potential impact it could have on their plans.
D&O Insurance: Woodruff-Sawyer & Co. has crafted a new personal protection solution for independent board members, which it is calling a “Wealth Security Policy.” The policy is an affordable, personal policy for independent board members, specifically designed to protect an independent director against personal liability when the director’s company and the company’s D&O insurance program cannot or will not. Click here for more information.
Audit Committee: Grant Thornton has released The Audit Committee Handbook, Fifth Edition, co-authored by Grant Thornton audit committee experts R. Trent Gazzaway, national managing partner of audit services, and Robert H. Colson, partner in public policy and external affairs. The new edition contains the latest regulatory guidance impacting audit committees. The book is written in an action-oriented, “hands-on” style, providing in-depth guidance on all audit committee functions, duties, and responsibilities. Published by John Wiley & Sons, the book is available here, at bookstores, and through online booksellers.
Internal Audit I: PricewaterhouseCoopers’ sixth annual Global State of the Internal Audit Profession survey found that to remain relevant and meet stakeholder demands, internal audit must evolve to an enhanced “Internal Audit 2.0” state that provides business leaders with actionable business risk intelligence. Click here to download a full copy of the report.
Internal Audit II: Internal audit executives agree improving tech skills is their top concern, new Protiviti research shows. The firm’s fourth edition of “Internal Audit Capabilities and Needs Survey” reveals key areas for improvement. The tech-related category of “IT governance” was new to the survey this year. Click here for a complimentary copy of the Protiviti survey.
Valuation: A new book, Valuing Early Stage and Venture-Backed Companies, written by Neil Beaton of Grant Thornton, published by John Wiley, provides a step-by-step guide on early stage and venture-backed valuations. Click here to learn more about the book.
Ethics: The Ethisphere Institute released its list of the 2010 World’s Most Ethical Companies. The 100 companies on this year’s list include General Electric, Starbucks, Gap, Ford Motor, Xerox, and L’Oreal. Click here for the full list.
Risk Management: Zurich, a leading property and casualty insurance provider to technology companies in North America — Zurich insures 37 of the 44 technology companies in the 2009 Fortune 500 — has launched the Zurich Enterprise Risk Management (ERM) HealthCheck Tool. This easy-to-use tool helps provide mid-size to large technology companies with a realistic check of their current ERM preparedness. Click here to take the free assessment.
Author Notes
Jefferson Wells, a global provider of risk advisory, tax, and finance and accounting-related services, has established an alliance with Sawyer & Company, a specialist forensic and investigative accounting firm. The highly complex world of forensic and investigative accounting requires deep technical expertise and knowledge. With fraud incidents on the rise, the demand for specialized expertise in areas such as forensic accounting investigations, computer forensics, and litigation support has markedly increased, particularly in industries such as financial services, healthcare, construction, and communications.
NIP-RCG, a professional advisory firm offering consulting services to directors and management of many of America’s public corporations, has merged its executive compensation and executive benefits groups, RCG Executive Compensation Group [RCG│ECG] and RCG Benefits Group to form RCG Compensation and Benefits Group. David Leach is the managing principal of RCG│ECG.
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Directors & Boards e-Briefing is a monthly service of Directors & Boards. All contents copyright 2010, MLR Holdings LLC.