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Let the Revolution Begin
Boards must stop being enablers of egregious compensation practices.

As I write this, I have just returned from the annual conference of the National Association of Corporate Directors (NACD) in Washington, D.C (http://www.nacdonline.org). Attendance set a record this year: 630 registrants, up 50% from last year’s gathering. The top subject on the table was excessive executive compensation -- in particular, the damage that it is doing to the reputation of top management and to public trust in the integrity of the American corporation.

In my 25 years as editor of Directors & Boards, CEO compensation has been a hot topic. One of our early critiques was a 1982 piece titled “Is Any CEO Worth $1 Million a Year?” If we dusted off that article today we’d have to add at least one if not two zeros to that dollar amount. What’s different now, if anything?

The tenor of the outrage feels different. The environment is turning more poisonous. As the rank-and-file get chipped away on their pay, benefits, and opportunities for gainful employment, the potentates at the top grant themselves riches unhinged from any explainable system of reward. I include the board in this category of pooh-bahs for their role as enablers of such inequity. At some point, revulsion turns to revolt. That’s what feels different -- the loud complaining of years past seems to be transforming into talk of revolt.

How do we suppress that before it turns into a true revolt? Let the revolution begin -- right in the boardroom. Start the reforms at the top rather than wait for an upheaval that hits from the bottom (or, worse yet, from Washington). Boards: Strap on the heavy armor and artillery. You will need it. But better that you wield the weaponry than have it used against you.

Where to start? Plenty of good ideas are in circulation, and have been for years. That’s a subject for another day. But how about this one for starters? It comes courtesy of Ed Woolard, former chairman and CEO of DuPont Co., who keynoted the NACD conference. In speaking of a CEO who walks away from a wreckage with a golden goodbye (thanks to the board) worth millions, Woolard told the crowd that such an undeserving executive “ought not to get more severance than a plant manager.” Imagine the impact of an action like that in helping quell the simmerings of revolt.

The Directors & Boards Articles Archive is a repository of smart thinking on crafting executive compensation systems that are rationale and value-creating for all stakeholders. A few recommendations:

• “Rethinking Today’s CEO Pay Practices”
• “Have Stock Options Run Their Course?”
• “Compensation Committees That Work”
• “How Compensation Gets Manhandled”

Also, keep an eye out for our next Boardroom Briefing, which tackles the topic of executive and CEO compensation.  This Briefing will mail in December.

Question of the Month

Last month we asked the e-Briefing readership, “Is Our Governance System Demanding Too Much from Corporate Board Members?” Your response would indicate that we haven’t yet reached a tipping point:

--Yes:   31%
--No:     69%

Selected comments:

“The demands are really on corporate management. This is a concern, as too much time is being allocated to governance issues (SOX). Boards, however, need to look at their membership to confirm that they have the breadth of skills and attitudes to assure a higher, but appropriate, level of governance capabilities/standards. A better skill balance will minimize the demands on the board.”

“If one is taking on the responsibility of being a corporate director, governance is a high priority. If you think it demands too much, perhaps you shouldn't be a director.”
 
“It is unreasonable to think that directors who meet six to 12 times a year with management can really know what is going on if management wants to deceive them.”

“It comes with the turf. Don't sign on if you can't meet the expectations.” 

“With recent new regulations, I have a concern that boards may be tempted to usurp management, and that can be even dangerous for the shareholders.”

For this month’s question, let’s take your temperature on the issue of executive compensation:

“How Seriously Do You Regard the Public’s Perception of Excessive CEO Compensation?”

Click here to take the survey.


Jim Kristie is the editor and associate publisher of  Directors & Boards.

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On Getting on a Board

By Ann McLaughlin Korologos

The initial reaction to the question of “How do I get on a corporate board?” might be “Why would you want to?”

Why on earth would anyone of sound mind be interested in serving on a corporate board in today’s anti-business, regulation-infested, over-taxed, anti-globalization, protectionist-minded, constantly investigated, negative-headline-filled governance environment?

Stop and think. Regulators are telling us how much cream to put in ice cream, how to mow our grass, how to place baby seats in cars, how many raw eggs to put in a Caesar salad, how to drink our beer, and how many girls have to play on basketball teams. And corporate boards, beholden to moody large and small shareholders, must answer the question “Why are my dividends down?” at hugely public annual meetings where analysts scrutinize every utterance.

Yet people are still clamoring to get on corporate boards.

In starting your pursuit of a directorship, bear in mind some important factors that need to be put aside at the outset:
  
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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. 

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