|
 |
|
Are you reading a pass along copy? Get your own FREE subscription. To unsubscribe, please click HERE and send a blank email. You will be automatically unsubscribed.
Directors & Boards
Robert H. Rock
Publisher
James Kristie
Editor
Lisa
Cody
Chief Financial Officer
David Shaw
Publishing Director
Scott Chase
Advertising Sales Director
Nancy Maynard
Account Executive
Barbara Wenger
Subscriptions
Jerri Smith
Reprints
1845 Walnut Street
Suite 900
Philadelphia, PA 19103
+1 (215) 567-3200
The Directors & Boards e-Briefing is produced by GRID Media LLC.
From Jim Kristie | Article of the
Month | Columnist
Reader Profile |
Research | News |
Notions of the Future
Time for some crystal ball gazing as 2006 winds down and all eyes begin
to focus on the year ahead.
I hope a big percentage of the e-Briefing readers have in hand a copy
of the 30th anniversary issue of Directors
& Boards and that you have been enjoying both the look back
at the past three decades of governance as well as the look ahead to
“the next 30.”
As we come to the end of 2006, all thoughts start to fix on the next 12
months. In that spirit, our columnist this month gamely forecasts what
lies ahead for directors. John Wilcox is a longtime colleague and one
of the most thoughtful and articulate commentators on governance. This
crystal ball gazing of his was included in the 30th anniversary issue
in a feature in which we asked a dozen well-placed governance experts
for their predictions of the future. I am particularly taken with
John’s notion that “Reginald Jones will unseat Jack Welch as the CEO
role model.” I like the sound of that.
No one predicted more — or fewer, for that matter — leaky boardrooms.
You may recall that this time last month the Hewlett-Packard situation
was spinning wildly, and we solicited your opinions on the constant
stream of surprising revelations. Here is one response that makes a
sound point:
“The most surprising thing is that almost all of the attention has been
on the investigation and not on the breach of trust that led to the
investigation.”
I recently returned from the annual conference of the National
Association of Corporate Directors, where the H-P situation was fodder
for many discussions, both in the formal presentations and in sidebar
conversations. As with our reader, it was the board dysfunction at H-P,
not the investigation, that captivated the crowd.
As renowned banker Walter Wriston said to
me 20 years ago, “If the board doesn’t trust the CEO, he or she should
be fired, and if the CEO doesn’t trust board members, you’ve got an
impossible situation.” H-P got itself ensnared in an impossible
situation, but it sure brought the issue of CEO-board trust, and trust
among the directors themselves, to the forefront for meaningful
analysis and affirmation.
Wriston’s
choice quote, by the way, appears in the 30th anniversary edition of
Directors & Boards in the issue’s “Wisdom of the Ages”-themed
sweeping guide on being a successful director. Order
your copy here.
And
view the many fine advertisers and sponsors of this special issue here.
Question of the Month
Back
to the future for this month’s question. In 2007, what oversight area
is likely to be the hottest issue for boards? Click here to
take the survey.
Jim
Kristie is the editor and
associate publisher of Directors
& Boards.
Our results show that having multiple C-suite executives attend board meetings is associated with the most effective board performance.
By David Finegold and Edward E. Lawler III
The presence of C-level executives at corporate board meetings used to
be assured. Several of them were typically on the board and, as a
result, had a chance to participate in board discussions and decision
making.
Thanks to new regulations by the stock exchanges and other corporate
governance changes, senior executives are a vanishing breed on their
corporation’s board. Today, almost half of Fortune 1000 boards have
only one inside director — the CEO.
A recent study we did with Mercer Delta of 200 corporate boards found
that the CIO and head of marketing were not on any of the boards, the
head of HR was on just one board, and the CFO was on seven.
But in most companies non-director executives do attend board meetings.
Our data show that the CFO is almost always at board meetings as is the
chief counsel. The heads of business units, the head of HR, the head of
marketing, and the CIO are at board meetings about half the time.
The Potential Advantages
There are a number of potential advantages to having the non-director
C-level executives attend board meetings.
[Click
Here to Read
the Entire Article]
Up ahead: shifting governance spotlights and CEO role models.
Here is an optimist’s view of 10 trends that will shape boardrooms and the governance landscape in the years ahead:
1. Majority voting and the right of shareholders to vote against directors will become the norm, replacing the plurality vote standard in U.S. director elections.
2. Executive compensation will be brought into line by a combination of factors: enhanced SEC disclosure requirements, an advisory shareholder vote on compensation committee reports, and recognition of the need for internal pay equity.
3. Separating the roles of chairman and CEO will become more common at U.S. companies, encouraging boards to worry less about preserving power and more about developing and incentivizing the best executive talent.
4. The model of the imperial, celebrity CEO will be replaced by the stewardship model, with Reginald Jones unseating Jack Welch as the role model.
[Click Here to Read the Entire Article]
Partner
Corporate, Securities and Commercial Litigation
Skadden, Arps, Slate, Meagher & Flom LLP
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.
We have been hearing a lot lately about investigations in the political, business and board contexts that have backfired due to alleged illegal conduct by the investigators retained. Are there any general lessons to be learned from these situations, or are they so isolated and unique that there is little value in focusing on how to conduct a corporate investigation?
These situations are not isolated or unique. Retained investigators are used often to help gather information for perfectly legitimate reasons in perfectly appropriate corporate investigations. And, there are lessons to be learned -- both to ensure the legal and ethical integrity of corporate conduct, and to avoid the media spotlight which shines so much brighter today than ever before on these issues. I hasten to add a disclaimer, however, that in today's world of journalistic feeding frenzies, we should be extremely careful in attempting to draw lessons from any particular incident no matter how much publicity it has drawn because they all involve critical unproven allegations of illegality, intent or irresponsibility. I am reluctant to contribute to the instinct for prejudgment, which regrettably is all too prevalent today. I do think, however, that is productive, especially in the current environment, to focus on what I will call the maximum protective effort -- without in any way suggesting that a lesser effort would violate any legal or ethical standard.
What types of investigative methods have been used which have raised questions?
According to one pending federal indictment of an investigator, and a lawyer who hired him, the investigator used illegal wiretaps to obtain information about a third person, who was a client of the lawyer. The information obtained by the wiretaps allegedly provided to the lawyer included attorney-client privileged communications.
In another situation, according to public reports, investigators used "pretexting", which involved attempts to obtain telephone records and personal information about a number of persons by the investigators using false pretenses -- or "pretexts" to acquire the information. Unlike the use of secret wiretaps, which are generally illegal, the legality of pretexting is subject to debate.
[Click Here to Read the Entire Article]
Largest Study of U.S. Board Directors Unveils Directors’ Thoughts on CEO Compensation, CEO Succession and Other Hot-Button Issues
U.S. board directors have spoken: an increasing number of directors indicate that CEO pay is “too high in most cases,” and they are not spending nearly as much time on shaping strategy as they are on monitoring, according to a new study that examines the practices of boards of the largest companies in the United States.
The 10th Annual Corporate Board Effectiveness Study was conducted by the Center for Effective Organizations at the University of Southern California's Marshall School of Business and Heidrick & Struggles (Nasdaq: HSII), a leading executive search and leadership consulting firm. This in-depth study covers current issues and is the largest U.S. study of board directors, with a response from 768 directors at approximately 660 of the 2,000 largest publicly-traded companies in the U.S.
Nearly 40 percent of directors surveyed believe that CEO pay is ‘too high in most cases,’ which is a significant increase over prior years’ study results. To remedy this trend, an overwhelming majority (81 percent) favor increasing the link between CEO pay and performance.
There is a significant power shift occurring in the boardroom, with 81 percent of directors reporting that CEOs have “less control over their boards” than before. And the majority of directors (84 percent) say that boards are spending more time on “monitoring activities and less on strategy.” Shaping long-term strategy is an area where 41 percent of directors believe there is room for improvement.
Some additional highlights of the study:
Executive Compensation
• Directors see very few of the proposed reforms having a significant effect on controlling CEO pay. The main exception is mandatory shareholder approval of compensation programs. Nearly 50 percent of directors say mandatory shareholder approval of executive compensation plans would have the greatest impact on lowering CEO compensation packages. Outside directors are more likely to feel this than inside directors.
• Despite the new SEC disclosure regulations and the fact that they expect to be spending more time addressing CEO compensation issues, 64 percent of directors expect to see continued increases in CEO cash compensation. Fifty-eight percent expect an increase in stock-based compensation. And, 85 percent say they expect to see the linkage between compensation and performance increase.
Power Shifts in the Boardroom
• Thirty-eight percent of directors indicate a need for improvement in planning for CEO succession.
• Seventy-five percent of boards now have an independent director who serves as lead or presiding director – a dramatic increase from 49 percent in 2003 and 32 percent in 2001.
• Fifty-seven percent of directors say they are now much more hesitant to serve on other boards. Inside directors are even more hesitant than outside directors to sit on boards. And, 53 percent now have limits on the number of boards on which CEOs can serve, up from 23 percent in 2001.
• Forty percent have limits on the number of boards on which outside directors can serve, a major increase from just three percent in 2001 and a contributing factor in the ongoing difficulty to recruit qualified directors.
About Heidrick & Struggles International, Inc.
Heidrick & Struggles International, Inc. is the world’s premier provider of senior-level executive search and leadership consulting services, including talent management, board building, executive on-boarding and M&A effectiveness. For more than 50 years, we have focused on quality service and built strong leadership teams through our relationships with clients and individuals worldwide. Today, Heidrick & Struggles leadership experts operate from principal business centers in North America, Latin America, Europe and Asia Pacific. For more information about Heidrick & Struggles, please visit http://www.heidrick.com.
About the Center for Effective Organizations at the University of California
Since 1979, the Center for Effective Organizations at the University of Southern California's Marshall School of Business has conducted cutting-edge research on organizational management while also making important contributions to academic research and theory.
October
25-27, 2006
The New America Alliance presents the "6th Annual Wall Street Summit."
Among its objectives, the event focuses on increasing access to markets
and capital for Latino businesses, promoting the participation and
influence of Latinos on our nation's corporate and pension fund boards,
and investing in the higher education of American Latinos in the fields
of business and finance. National leaders and top executives from the
finance industry who will be participating include SEC Commissioner
Roel Campos; New York Governor George Pataki; New York Attorney General
Eliot Spitzer; CalPERS CEO Fred Buenrostro; and Jack Kemp, co-director
of Empower America. the summit will be held at the Waldorf-Astoria
Hotel in New York. For more information, visit
October
29 - November 2, 2006
The Thunderbird Global Family Enterprise Program will present "Are You
Prepared to Operate Your Family Enterprise on a Global Scale?" The
program is designed to prepare family enterprises to effectively manage
growth, establish successful governance strategies, and ensure
continuity across generations of family leaders. It will be held at the
Royal Palms Resort in Phoenix. Visit
November
1-3, 2006
The Center for Corporate Excellence will hold its "Changing the Game"
Forum in Denver. The event is designed to be a thought-provoking
conference covering current issues in corporate accountability and
executive responsibility. Vanguard Group Founder Jack Bogle will be
presented with the Center's Exemplary Leadership Award, which
recognizes those who have demonstrated excellence in corporate
governance and ethical leadership. For more information, visit
November
2, 2006
KPMG's Audit Committee Institute (ACI) launches its Fall 2006 series of
Audit Committee Roundtables with a session in Houston followed over the
next several weeks with sessions in Chicago, Dallas, Denver,
Philadelphia, Los Angeles, Silicon Valley and many other sites. The ACI
has been communicating with audit committee members and senior officers
since its formation in 1999 to enhance their awareness of and ability
to implement effective audit committee processes. For a full schedule
of events and to register, visit
November
2-3, 2006
The University of Wisconsin-Madison presents its Directors' Summit.
This ISS- and NACD-accredited event freatures keynote speakers John
Morgridge, Chairman of Cisco Systems and Tom Stemberg, founder of
Staples, as well as panel discussions on a variety of topics. For more
information and to register, visit
November
5-8, 2006
Harvard Business School's Corporate Governance Series presents "Making
Corporate Boards More Effective," a program that concentrates on
cutting-edge techniques, strategies and action plans for improving
board design, maximizing individual contributions to company boards,
and improving corporate governance. Faculty chair is HBS Professor Jay
Lorsch, and the program will be held on the HBS campus. for further
information, visit
November
8-9, 2006
The National Association of Corporate Directors along with the Council
of Institutional Investors holds a 2006 Executive Compensation Summit
in Washington, D.C. Up for discussion are disclosure rules, linking
compensation plans to pay-for-performance metrics, how investors
evaluate plans, and an examination of director compensation plans--the
major policy issues as well as how the new disclosure rules affect
them. Compensation committee members will gain a deeper understanding
of how your plans are rated and what investors really look at, as well
as leading practices for developing a pay philosophy and financial
metrics linked to performance. For more information, visit
November
9, 2006
The World Affairs Council of Philadelphia hosts John Hofmeister,
president of Shell Oil Co., to address a luncheon program on the theme
of "U.S. Energy Security ... and What It Will Take to Get There." He
will discuss the challenges of increasing America's energy supplies and
other energy security matters. For information, visit
November
9-10, 2006
Bank Director magazine and NASDAQ present the second annual Bank
Executive and Board Compensation conference at the Four Seasons Resort
& Club, Dallas at Los Colinas. This event will focus on CEO and
director compensation challenges and solutions specifically related to
financial institutions, and brings together leading experts and
advisers, as well as experienced bankers, such as Harris H. Simmons,
chairman and CEO of Zions Bancorporation, to provide best practices.
Attendees receive a free, personalized board compensation review from
Clark Consulting (http://www.clarkconsulting.com) and option for a free
private consultation at the conference. For more information, call
800-452-9875 or visit
November
12-14, 2006
Harvard Business School's Corporate Governance Series presents "Audit
Committees in a New Era of Governance," a program that will prepare
audit committee chairs and members, as well as the CFOs working with
them, to operate successfully amid new regulations and emerging
governance trends. Faculty chair is HBS Professor Jay Lorsch, and the
program will be held on the HBS campus. For further information, visit
November
14-16, 2006
Harvard Business School's Corporate Governance Series presents
"Compensation Committees: New Challenges, New Solutions," a program
that will help compensation committee chairs and members determine the
extent to which their own board's compensation plans need rebuilding
and to rethink their respective committee charters. Faculty chair is
HBS Professor Jay Lorsch, and the program will be held on the HBS
campus. For further information, visit
November
15-17, 2006
The 2006 University of Delaware Directors' College will convene at the
university's John M. Clayton Hall Conference Center in Newark, Del.
Topics to be tackled include: How can directors effectively oversee
executive compensation? How do your board activities compare to others?
Where will the regulators focus next? And, what can directors do to
protect themselves legally? The program is hosted by
PricewaterhouseCoopers and the University's Lerner College of Business
and Weinberg Center for Corporate Governance. To
learn more about the program, visit here.
November
16-17, 2006
The Conference Board Directors' Institute in collaboration with the
Society of Corporate Secretaries and Governance Professionals conducts
a Directors' Roundtable Forum that will address such topics as
fiduciary duties of directors, enterprise risk management, compensation
committee challenges, maximizing D&O insurance, and the regulatory
environment. It will be held at the University Club in New York City.
For more information, visit
November
30-December 1, 2006
ODX, the Outstanding Directors Exchange, will hold its next gathering
at the Ritz-Carlton New York, Battery Park. The conference is for
directors to exchange real-life experiences and solutions to the issues
they face in the boardroom. Speakers at this session include George
David, chairman and CEO of United Technologies; Martin Lipton, founding
partner of Wachtell Lipton Rosen & Katz; and Steve Miller, CEO of
Delphi Corp. To register, call 212-542-1224, or visit
December
3-4, 2006
BoardSource, the premier resource for information on nonprofit
governance, will hold its "2006 BoardSource Leadership Forum: Set Your
Sights on Exceptional Governance" in Chicago. More than 600 nonprofit
governance leaders will come together to discuss key governance issues
relating to public charities, associations, foundations, and other
nonprofit organizations. Featured speakers will include Roxanne
Spillett, president, Boys & Girls Clubs of America; Richard P.
Chait, professor, Harvard Graduate School of Education; James E.
Canales, president and CEO, The James Irvine Foundation; David Nygren,
partner, Mercer Delta Consulting; and Michael Chu, senior partner,
Pegasus Capital. Forum sessions will address fundraising, board
leadership, executive transitions, board capacity building, effective
decision making, troublesome board members, and other topics. To
register visit
The American Institute of Certified Public Accountants holds its National Business Valuation Conference, the largest such conference in North America. This year, the AICPA will include a new cutting-edge track called "Fair Value," providing comprehensive exploration and education on the newest concept in business valuations and disigned for all levels from introductory to advanced. Sherron Watkins, former vice president of Enron Corp. who warned of the company's possible financial collapse, is this year's keynote speaker. For more information, visit
The SEC has issued its final executive and director compensation disclosure rules. Companies must comply with the new rules when filing proxy statements and other SEC reports for fiscal years ending on or after Dec. 15, 2006.
"This is going to be a challenging proxy preparation period," says Diane Doubleday, worldwide partner and global leader of Mercer Human Resource Consulting's executive remuneration service segment. "We are finding that there are unresolved issues and confusion over many aspects of the new rules. Thus we have outlined the top 10 actions corporations should take." Those top 10 actions, outlined on a document prepared by the firm, can be accessed by clicking here.
Frederic W. Cook & Co. has developed a discussion paper that suggests to compensation committees that they expand the CCR by including information on CEO pay-for-performance and committee governance of executive compensation to further illustrate and amplify the committee's stewardship of executive compensation. Click here for a copy of the paper.
New One-Stop Federal Compliance Website
For the first time ever, there’s a single Web site that business owners can turn to for all their federal compliance information — http://www.business.gov. The site will search for compliance news, information and federal forms from nearly 100 government websites, and compile government compliance contact information from throughout the federal government.
Business.gov contains keyword, industry and topic specific compliance searches, includes all federal forms from Forms.gov, and lists compliance contacts from government agencies. Originally launched in 2004, the site contained information on starting, managing, growing and exiting a business. A new focus and redesign launched in October is on compliance information. This was driven by the requests of business owners. Business.gov is managed by the U.S. Small Business Administration in a partnership with 21 federal agencies.
Hay Group Launches Board Effectiveness Practice
Global consulting firm Hay Group’s new Board Effectiveness Practice will focus on working with boards of directors and their governance and compensation committees. It will help boards with CEO succession planning, CEO evaluation and other human capital issues within the board’s purview, and also help boards to optimize their own effectiveness in working together and in working with senior management, providing help in areas of board leadership, individual
director evaluations, board evaluations and processes for board engagement in corporate strategy.
The new practice will be led by Beverly Behan. Before joining Hay Group (http://www.haygroup.com), Behan was a partner with Mercer Delta Consulting's Corporate Governance Practice. She served as an expert adviser to the National Association of Corporate Directors’ Blue Ribbon Commission on Board Leadership in 2004, was a founding faculty member of the Conference Board of Canada’s Directors’ College, and is co-author of Building Better Boards: A Blueprint for Effective Governance (Jossey-Bass, 2006). Behan, who will be based in Hay Group’s New York Metro office, will lead the new practice globally, with initial emphasis on working with boards in the United States.
AlixPartners Expands in Litigation Technology Services
AlixPartners, the international corporate turnaround, performance improvement and financial advisory firm (http://www.alixpartners.com), announced the expansion of its Electronic Discovery and Litigation Technology services with the addition of Matthew Cohen, who will lead the firm's electronic discovery practice in New York. AlixPartners also announced that it is opening a data center in Dallas to support its litigation technology consulting services. The firm “continues to be at the forefront of the litigation technology revolution,” states Meade Monger, managing director at AlixPartners.
New Tool for Nonprofit Governance
BoardSource, the premier source for nonprofit governance information, has released The Nonprofit Policy Sampler, Second Edition. The book provides key elements and practical tips for 48 topic areas, such as conflict of interest, board member compensation, and fundraising responsibilities of board members. The book offers 241 sample policies, job descriptions, committee charters, codes of ethics, board member agreements, mission and vision statements, and more.
Collected from more than 50 organizations across the sector, the samples offer a variety in organizational size, scope, mission, location, and tax-exempt status. All samples have been professionally and legally reviewed. Each topic area includes anywhere from two to 13 customizable samples, allowing nonprofit leaders to select an appropriate document from which to start drafting or revising their own policy or statement. The Nonprofit Policy Sampler is available for purchase at http://www.boardsource.org/PS3 or by calling 800-883-6262.
Author Notes
The Institute for International Economics celebrated its 25th anniversary in October by renaming itself in honor of the founding chairman of its board of directors, Peter G. Peterson. It will henceforth be known as the Peter G. Peterson Institute for International Economics, or The Peterson Institute for short (http://www.petersoninstitute.org).
Peterson is senior chairman of The Blackstone Group and a former Secretary of Commerce and Assistant to the President for International Economic Affairs. He has been chairman of the institute since its creation in 1981. The board unanimously decided to rename the institute in his honor “in recognition of his unique mix of intellectual leadership, advice and support throughout its initial quarter century while conducting his own remarkably successful career as businessman, prolific author and advisor to Presidents and many other world leaders.”
Warren Batts was honored as Director of the Year by the National Association of Corporate Directors at the organization’s annual meeting in October. Batts first became a CEO in the mid-1960s with Triangle Corp. From 1986 to 1996 he was CEO of Dart & Kraft, and then, following the company’s restructuring, served until 1997 as chairman of Premark International and CEO of Tupperware Corp. He is adjunct professor of strategic management at the University of Chicago Graduate School of Business, and he has served on the boards of Allstate Corp., Cooper Industries Inc., Sears, Roebuck & Co., and Sprint Corp., among others.
Back to the Top
Directors & Boards e-Briefing is a monthly service of Directors & Boards. All contents copyright 2006, MLR Holdings LLC.