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Directors & Boards
Robert H. Rock
Publisher
James Kristie
Editor
Martin D. Porter
Associate 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 | Forum
Between
Advise and Consent...Comes Dissent
Could
the ‘devil’s advocate’ be the new ‘lead director’?
A New York Post article recently reported that Time Warner board member
Ted Turner “has said publicly his role on the board is to be a voice of
dissent” -- the person who will try to keep smart people from doing
dumb things. That comment struck me, because it came while I was deep
into the editing of the cover story for the Fourth Quarter edition of
Directors & Boards, “Handling Dissent and Dissident Directors.”
Dissent is a forceful concept, and could be a distasteful one for many
boards. But it may have to become an acquired taste. And that’s not
because Ted Turner plans to join a bunch of new boards.
Boards traditionally have not handled dissent well. Advise and consent
has been the longstanding basis for the board/CEO relationship. But
long before the dam broke wide open with Enron, we witnessed many
boards that could have benefitted themselves and their shareholders
from a bit of dissenting between their advising and consenting.
I like Ralph Whitworth’s approach to incorporating dissent within
the body politic of the boardroom. You’ll read his recommendation for
boards to establish a “devil’s advocate” in our Article of the Month
below. Two professors at Yale University, Ian Ayres and Barry Nalebuff,
are also convincingly advancing the case for a devil’s advocate (“A
Role on the Board for the Loyal Opposition,” Directors & Boards,
Fall 2003).
It might be fine in theory to say that all directors should be a
devil’s advocate. But not every board has its Ted Turner. Thinking
beyond theory and looking over the horizon, could the devil’s advocate
be the new lead director? That is, could proactively designating a
devil’s advocate to be the voice of dissent be the next adaptive stage
in the evolution of governance -- giving directors a way to embrace
change without jeopardizing the survival of the species? Let me hear
from you on whether the devil’s advocate concept gets your thumbs up or
thumbs down. Email me here.
*****
Directors & Boards is
pleased to sponsor The Wall Street Transcript's Executive Compensation
Analysis Conference, January 11-12, 2005 at the Harvard Club in New
York City. You can save $350 on
registration fees if you register by December 17 and mention Directors & Boards. Call
Naomi Barazini at 212-952-7454. And see below, or click the
banner ad above, for more information on this conference.
*****
Jim Kristie is the editor and
associate publisher of Directors & Boards.
What if more dissident directors are added to boards if shareholders gain more influence over director nominations?
Editor’s Note: The cover story in the
Fourth Quarter edition of Directors & Boards is titled “Dissidents,
and Dissent, in the Boardroom.” It is a nine-page exploration by a
panel of experts of the implications for board process and interaction
if more dissident directors are elected to boards. Here is an excerpt
that captures five cautionary viewpoints.
Charles Elson
(director of the John L. Weinberg Center for Corporate Governance at
the University of Delaware): When I was asked to go on the Circon Corp.
board [in 1997], I remember being very concerned. Not only was it going
to be a rather 
unpleasant
experience, but also people said to me, “Are you nuts to be running as
a dissident? You will never be asked on a real board again.” The
feeling was that once you are branded as a dissident, that’s it --
you’ve just shot your career. I decided that, under the circumstances,
I would do it anyway.
Up until Circon it was rather rare that someone ended up on a board as
a dissident director. The argument was that it would disrupt board
process and disrupt the proper monitoring by the board of management.
It was just an anathema in corporate America to have a dissenting
director. We’ve been told by some very senior and experienced directors
that to ask a question in a board meeting 20 years ago was considered
uninformed and ill-behaved.
With the
SEC now considering a process for shareholder-nominated directors, the
question in Circon is raised again: Should you place someone on the
board whom management does not recommend? Is this a good idea or not?
Some say it will wake up boards and create a stronger, more effective
monitoring board. Others suggest that destroying the collegiality of
the board will make it less effective.
George Cloutier
(chairman and CEO of American Management Services Inc. and a director
of Circon Corp. when the dissidents were elected): I have lived with
two dissident directors -- Charles Elson and General Victor Krulak.
Known as “Brute” Krulak, he had served in Vietnam as the Marine
commander, and he did not take any prisoners from day one. He opened
each Circon board meeting with a resolution to fire the CEO, which
created a certain amount of emotional turmoil for the first half-hour.
[Read
the
Full Article]
Neither an Auditor nor an Editor Be
How directors should
approach their role in reviewing periodic reports.
It is no surprise that now, more than ever, regulators and investors are more carefully scrutinizing the accuracy and adequacy of the SEC filings made by public companies -- and in particular their annual and quarterly reports. And while many believe that the number of companies restating their financial statements may have peaked last year, there are nonetheless a host of disclosure procedures and requirements that are now mandated for filings. These requirements are intended not just to minimize future misstatements, but also to improve the quality of the information conveyed.
The directors, particularly those on the audit committee, have oversight responsibilities for these reports. Companies must disclose whether or not the audit committee members have reviewed the audited annual financial statements and discussed them with management and the outside auditors.
In the case of NYSE-listed issuers, audit committee members must carry out these reviews and discussions with respect to both the financial statements and Management’s Discussion and Analysis (MD&A) included in each quarterly and annual report. Of course, many companies impose additional obligations on the audit committee members to review the SEC filings before they are finalized.
Against this background, how should the audit committee members -- and, more generally, the directors -- approach these filings?
[Read the Full Article]
Chairman and CEO
Novellus Systems, Inc.
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. This Reader Profile is adapted from a keynote speech
delivered by Rick Hill at the National Association of Corporate
Directors’ annual conference held in mid-October in Washington, D.C.
In your view, have the various reforms directed by regulators at the corporate boardroom been effective?
One only has to look at the recent scandals in Corporate America to know that there was a need for reform, but the issue before us is whether or not these reforms have gone too far and have lasting effects on the industrial competitiveness of the nation. Corporate reform has three major fronts it is trying to attack with three distinctly negative consequences. These three fronts are as follows:
1. Corporate Internal Controls as outlined in the Sarbanes Oxley 404 compliance requirements.
2. Corporate Certification, more affectionately referred to as the criminalization of failure complete with written confession.
3. Option Expensing.
Let’s talk first about Sarbanes Oxley 404. Right now there are hundreds of corporations both big and small scrambling to enable systems that ensure internal controls are in place to make sure reporting to the investing public is as accurate as possible and that instances of fraud and corruption can more easily be rooted out by the auditing community. Unfortunately, these controls are expensive and cumbersome and threaten the competitiveness of small businesses as investment here diverts resources away from development that is the most important thing to the long term growth of our economy. Auditing firms who have been shell shocked since the dissolution of Arthur Anderson interpret SOX 404 mandates in their most stringent application.
Can you really blame them?
[Read the Full Article]
Majority of Executives Say Their Companies
Have No Emergency Procedures in Place in Case of Terrorist Attack
According to research released by Korn/Ferry International, the world¹s leading provider of recruitment solutions, 47% of almost 2,000 executives surveyed say their companies still do not have procedures in place should an act of terrorism or catastrophic event occur. An additional 11% of executives polled stated that they were unsure if their companies had implemented any precautionary measures. Only 42% of respondents said their companies have procedures in place.
Despite this, over half (62%) of currently employed executives said they feel secure from terrorism in their workplace. Just 2% of executives polled said they feel very insecure, reflecting a broad sense of safety in America¹s workplace.
The survey also found that 48% of those surveyed thought that the economy is still impacted by global terrorism. Only 11% feel that the economy has come to terms with terrorism, up only 1 percentage point from last year, when the same question was posed.
Findings from the Korn/Ferry International Executive Quiz:
Does your company have a procedure in place should an act of terrorism or catastrophic event occur? (Number of Executives: 1,951)
Yes 42%
No 47%
I don¹t know 11%
In terms of terrorism, how secure do you feel in your workplace? (Number of Executives: 2,111)
I feel very secure 62%
I feel somewhat secure 21%
I am neither secure nor nervous 12%
I feel somewhat insecure 4%
I feel very insecure 2%
Which best describes the impact of global terrorism on the economy? (Number of Executives: 1,511)
It has come to terms with the reality of terrorism 11%
The impacts of terrorism are still being felt 48%
It has adjusted itself until the next major incident 41%
Which best describes the impact of global terrorism on the economy? (From 8/5/2003 to 8/13/2003) (Number of Executives: 2,061)
It has come to terms with the reality of terrorism 10%
The impacts of terrorism are still being felt 53%
It has adjusted itself until the next major incident 37%
About the Korn/Ferry Executive Quiz
The Korn/Ferry International Executive Quiz is based on a global survey of executives registered with the firm's online Executive Center, www.ekornferry.com. Respondents from 60 countries, representing a wide spectrum of industries and functional areas, participated in the most recent Executive Quiz from August to September, 2004.
BoardSource, formerly the National Center for Nonprofit Boards,
presents its Leadership Forum, themed "Challenge Your Board Practices."
Discussions will include: how effective are boards?; what is the future
of nonprofit leadership?; what does it mean to lead?; and, do your
board committees have "static cling"? Register at
December 9-10, 2004
T2M's Summit 2004: Fourth Annual Directors & Officers Governance
& Compliance Retreat at the Stein Ericksen Lodge, Upper Deer
Valley, Utah. For more information, contact Kevin Jessop at kjessop@diversifiedinsurance.com
or call 801-325-5016
January 11-12, 2005
The Wall Street Transcript's Executive Compensation Analysis
Conference: Designing & Implementing a Rebalanced Executive Pay
Package will be held at the Harvard Club in New York City. Register by
December 17 and save $350 when you mention Directors & Boards!
Contact Naomi Barazini at naomi@twst.com
or call 212-952-7454.
The Directors' Education Institute at Duke University is an intensive two-day program developed by the Duke Global Capital Markets Center with the support of the New York Stock Exchange. With participation from leading executives, corporate directors, policymakers, and experts from the legal and financial services industries, along with academic authorities from the Fuqua School of Business and Duke Law School, the program will teach participants how to develop a framework for making informed board decisions and exercising sound business judgment. For additional information, visit
What's New
at Directors & Boards
If you didn't receive your copy of the Boardroom Briefing: The Future of the Annual
Meeting,
you can download a .pdf of the project from our website HERE.
(Warning! 3.2 Meg file, so use a broadband connection.)Directors & Boards and the National Association of Corporate Directors (NACD) will again collaborate on a Boardroom Briefing in Spring 2005, focused on the critical issue of succession planning. Distributed to nearly 20,000 directors, CEOs, CxOs and top corporate governance professionals, the "Boardroom Briefing: Succession Planning" will look at how boards are planning and preparing for changes in executive leadership in light of shareholder interest in corporate governance, transparency and investment growth.
If you're interested in contributed editorially to this important publication, please contact David Shaw at 301-963-6162, or by email at dshaw@directorsandboards.com.
If you market to directors and corporate governance professionals, there's no better place for your advertising message. For more information, contact Scott Chase at 301-879-1613, or by email at scottchase@verizon.net.
Author Kudos
Directors & Boards columnist Stephen J. Weiss has been selected for inclusion in The Best Lawyers in America 2005-2006, a publication widely regarded as the definitive legal referral guide in the United States. Weiss, who is a partner in the law firm of Holland & Knight, authors the "D&O Insurance Update" column. He has been a columnist for Directors & Boards since 1998.
Directors & Boards columnist Hoffer Kaback and D&B author Carolyn Miller served as moderators for panel discussions during the Federalist Society's Eighth Annual Corporate Governance Conference, held in New York on October 28, 2004. Kaback is president of Gloucester Capital Corp., an investment firm in New York, and is the author of the "Quiddities" column in D&B. Miller is a senior vice president of Fleishman-Hillard, a global communications consultancy. She authored the article, "Managing the Release of Material Information," in the Third Quarter edition of D&B -- click here for a pdf copy of the article.
D&B's Directors Roster
Speaking from the stage before a crowd of about 200 U.S. and foreign pension fund advisers at the International Corporate Governance Network conference in Wilmington, Vice Chancellor Leo Strine, a powerful influence on the Court of Chancery (and a D&B author), told the audience, "One of the things I like to
do is read the back of Directors & Boards to see who's been elected to
boards" -- to affirm his point that there are executives who seem obviously
mismatched for the new demands being made on directors. One of his favorite examples, he told the crowd, was Tommy Lasorda.
D&B Sponsors Executive Compensation Conference
Designing & Implementing a Rebalanced Executive Pay Package
January 11- 12, 2005 * The Harvard Club * New York City
• Navigate competitive data and ascertain how to use peer group information to establish what constitutes appropriate executive pay
• Analyze the current trend of moving away from stock options toward restricted stock
• Identify best practices for implementing performance-based pay and uncover what you must do to make it work
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• Address institutional investor concerns about dilution, governance and excessive executive compensation
• Employ tactics to rebalance annual and long-term incentive compensation
• Assess legal and regulatory developments in executive compensation and the implications for executives, board of directors and compensation committees
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Directors and Boards
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• Explore recent deferred compensation legislation and what requirements must be met by deferred compensation arrangements
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• Implement methods to align compensation committee decisions with shareholder rights
• Analyze best practices for moving from stock options to restricted stock
• Directors of HR
• Vice Presidents of HR
• VPs or Directors of Compensation and Benefits
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• Vice Presidents of HR/Employee Benefits
• VPs or Directors of Global/Worldwide Rewards
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• Learn actionable steps for addressing shareholder concern over executive pay
• Network with industry experts and learn ways to implement performance-based executive compensation
Directors & Boards e-Briefing is a monthly service of Directors & Boards. All contents copyright 2004, MLR Holdings LLC.