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Directors & Boards
Robert H. Rock
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James Kristie
Editor
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From Jim Kristie | Article of the
Month | Columnist
Reader Profile |
Research | News |
He
Brought Steve Back
Former Apple board member Ed Woolard told the story to Directors & Boards.
Since his passing on Oct. 5, you have read a lot of tributes to Steve
Jobs. Here is ours, with a huge lesson for boards and management . . .
and, distinctively, it comes right from the Apple boardroom.
Our expert source is Edgar Woolard, retired DuPont Co. chairman and
former Apple board member. Directors
& Boards Publisher Robert Rock and I visited with Ed Woolard
in the summer of 2000 to discuss the creation of the Edgar S. Woolard
Jr. Chair of Corporate Governance at the University of Delaware, a seat
being created for a top authority in corporate governance. (Chosen for
the post was Charles Elson, a close colleague of Directors & Boards and one of
our editorial advisory board members).
Among the topics we discussed with Ed that day in his DuPont office was
his Apple directorship, which he called “the most exciting business
experience of my life.” He had just resigned from the board a few
months before our visit. He was on the Apple board for four years, from
1996-2000 — the bad days for the company.
The following passages — a combination of my text narrative and
Woolard’s comments — are pulled from our Fall 2000 article [“Ed
Woolard: A Life in Governance”], showing yet again what made Steve Jobs
special. But this is also a unique insight into the workings of a board
under duress and the kind of director who helps pull a company back
from the abyss. (I
welcome you to email me for a copy of the full article.)
“I was in London because my wife and I always go to the Wimbledon tennis tournament every summer since I’ve retired. It was the Fourth of July, a Sunday, when I called Gil and told him that we just had to make a change. I told him that he was a great guy and that he had done a good job at other companies but that he just wasn’t a fit for Apple.
“Then I called Steve, and Steve played hard to get. He would only agree to come back as an adviser, not as chairman or CEO. I said, ‘Okay, we’ll start with that.’ And he told me he would only do it if the board would agree to resign. I told him I couldn’t ask the board to do that, but he insisted. Well, we all knew we were in trouble. I didn’t think the company could have survived another year — software developers had quit writing for it, employees were leaving, and revenues were going down every quarter.”
Woolard met Jobs for the first time at the board meeting several weeks later. An agreement was reached in which Woolard and Gareth Chang, then-senior vice president of Hughes Electronics Corp., would be the only ones to stay on the Apple board. (New additions that year would include William Campbell, then-CEO of Intuit Corp., Lawrence Ellison, CEO of Oracle Corp., and Jerome York.) During the ensuing months in trying to pull Apple out of what Woolard calls “a total death dive,” he and Jobs formed a close working relationship:
“When he first took over he would call me a couple of times a week, maybe more. My wife Peggy would say, ‘Your son is on the phone.’ [Laughter] And time meant nothing to Steve. Eleven o’clock at night in California is two in the morning here. He would never say, ‘Were you asleep?’ [Laughter] He’d say, ‘Hey, I’ve got this idea. What do you think?’ And we’d talk.
“I give Steve fantastic credit for what has been accomplished there. I honestly believe that this is one of the greatest success stories in the history of American business. With his presence and his credibility, people quit leaving and within months he was able to hire good people. Once we saw how much he was falling in love with turning the company around, we worked on him to agree to become interim CEO.
“The thing that people don’t know about Jobs is that not only is he creative in marketing but he understands the mechanics of operations. I have to tell you that a lot of CEOs don’t. When they get to be CEO they don’t want to get their hands ‘dirty,’ you know, by keeping on top of what is going on in the guts of the business. But it is what you have to do nowadays.
“Jack Welch is the best at that. I learned a lot from Jack. We are very good friends. He told me two things: One was to get your team in place, people you can trust and who can do the job, and do it fast, and the second was to keep up with the important parameters and metrics of the company. It sounds simple, but I guarantee you that if you look at the CEOs who have failed, and I know many of them well, they didn’t do that. They didn’t know what was going on in the company at the time.”
This
is my tribute to Steve Jobs. I am happy to share with you this special
entry from the Directors & Boards
archives. And if you like this, you will like the full article.
As always, I welcome your comments at jkristie@directorsandboards.com.
Jim
Kristie is the editor and
associate publisher of Directors
& Boards.
‘Your Head Has To Be Up, Not Down’Good advice for chairmen on being more effective in leading their boards.
By Beverly Behan
Some CEOs like to conduct a run-through of the entire board meeting with their executives a day or two in advance. This can be an extremely useful practice, particularly when you are trying to create improvements.
Right away you will see where the discussion is likely to become bogged down in details, or where a particular presentation may lull the board to sleep. This enables you to make changes that will lead to far more effective meetings. It may not be necessary to follow this practice every time, but when you are focused on heightening the effectiveness of your board and its meetings, this can be a useful exercise.
It’s important to factor your executive team into the boardroom equation. Most executives — and most CEOs for that matter — are not trained on how to be effective in working with a board. They learn from watching their bosses, picking up good and bad habits in the process.
Make sure to give your executives feedback on how they are coming across in board meetings, reinforcing what they are doing well and making suggestions for improvement. Consider asking the board for their comments on the management presentations in an executive session of only the board and CEO at the end of board meetings, and passing these comments on to your executives. To read more, click the link below.
[Click
Here to Read
the Entire Article]
Truth in Labeling?
Re Rupert Murdoch and the News Corp. board: The ‘independent director’ tag doesn’t tell us much.
By Hoffer Kaback
Much ink has been consumed by commentary on the “non-independence” of the directors of News Corp., Rupert Murdoch’s company.
I have several times in my Directors & Boards columns written about directors’ independence. In “Pals on the Board” (Winter 1997), I emphasized that litmus-paper tests like whether a director was a past or current employee were not useful or meaningful. I particularly emphasized the mislabeling in the other direction: Just because a director “passes” checklist tests for independence does not — at all — mean that he is independent in fact.
In “More Ties Than Brooks Brothers’’ (Fall 2003), I discussed how Delaware Vice Chancellor Leo Strine’s opinion in the Oracle case laid heavy emphasis on the psychological aspects of “mutual affiliations.” I now add: Labels like “independent director” don’t tell us about the presence or absence of important “mutual affiliations”; these may indeed be undisclosed or hidden, notwithstanding the adornment of the label.
In “What’s Underneath?” (First Quarter 2007), I maintained that superficial definitions of independence are faulty because a director can, for example, be the CEO’s former college roommate but still pass muster under those definitions, while someone unable to tick all the checklist boxes may indeed be “scrupulously fair, balanced, unbiased, and unafraid in the boardroom.”
The key point is that, like all other “checklist” items, the label “independent” does not get us very far or tell us very much. To read more, click the link below.
[Click Here to Read the Entire Article]
Keith J. Slattery, Debevoise & Plimpton LLP
Claire Sales, Debevoise & Plimpton LLP
Richard A. Maloy, Jr., Maloy Risk Services
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.
When it comes to directors and their D&O policies, what’s changing?
The world of director and officer liability is changing. Following numerous high profile corporate collapses, talk of systemic risk underpinning the financial services industry and increasing disgruntlement of customers and investors, plaintiffs’ attorneys are having a field day devising ever more creative theories of liability arising out of corporate insolvencies, seeking to expand both the scope of defendants and the causes of action that may be brought against them.
What liabilities do directors face at the time of insolvency?
In ordinary circumstances, directors and officers owe fiduciary duties exclusively to the corporation and its shareholders. In some states, these duties are broadly extended in an insolvency situation to the preservation of corporate assets for the benefit of the corporation’s creditors. Upon insolvency, the focus of directors’ duties shifts from long-term profitability to the preservation of assets for the benefit of all constituencies, including creditors. Any director who breaches these duties may be personally liable for corporate conversion. Examples of a failure to preserve assets can best be seen where the actions of the board have caused the corporation’s insolvency to deepen. Actions that deepen insolvency may be evidence of a breach of fiduciary duties and may also be taken into consideration when determining the appropriate measure of damages. To read more, click the link below.
[Click Here to Read the Entire Article]
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Although regulators around the globe contemplated changes to tax policy and rates to stabilize their revenue base in the face of continued economic uncertainty, only 11 percent of 96 countries recorded any change in top personal income tax rates -- and not a single G-20 country reported a change to its top personal income tax rate for the 2011 tax year, according to the most recent KPMG International Individual Income Tax and Social Security Rate Report.
The KPMG report notes that Spain was the only country within the world’s top 20 economies (defined by GDP) that changed its top personal income tax rate in 2011, with a 2 percent rise for top earners. In contrast, KPMG’s report in 2010 revealed nearly twice as many rate changes – 21 overall including changes in four G-20 countries -- versus this year’s 11.
Most Changes in European Region
The vast majority of rate movement in 2011 came from the European region, according to the KPMG report. Spain created new tax brackets for higher income earners, raising rates at the top end by 2 percent so that income over EUR 175,000 is now subject to a 45 percent rate. Ireland, which initiated the upward rate movement trend back in 2009, raised rates for the third consecutive year (a 1 percent increase in 2011), as it continues to seek additional tax revenues.
Under pressure to reduce its budgetary deficit, Luxembourg increased its top personal income tax rate by raising the unemployment surcharge for high income earners and introducing a crisis contribution tax. When combined, these measures have effectively increased Luxembourg’s top personal tax rates by approximately 3 percent.
The small Caribbean island of Aruba had the highest personal income tax rate at 59 percent. Other countries with high top personal income tax rates included Sweden (57 percent rate), Denmark (55 percent rate), Netherlands (52 percent), Austria (50 percent), Belgium (50 percent rate) the United Kingdom (50 percent), and Japan (50 percent).
Report’s Broader Findings
The KPMG report’s broader analysis also compared both effective income tax and social security rates on USD 100,000 and USD 300,000 of gross income. Effective rates are derived by taking total taxes over gross income prior to any deductions (which may include social security) to allow for a better comparison, as deductions can vary greatly across countries.
Some of these findings include:
• Belgium had the highest combined effective personal income tax and employee social security rate on USD 100,000 (48 percent) and US 300,000 (55 percent) of gross income.
• France continued to have the highest combined employee and employer social security rate at over 50 percent of earnings, with Belgium the next highest at 48 percent.
• Over one-third of the countries in the KPMG study had combined employer and employee social security-based effective tax rates of above 20 percent on USD 100,000 of gross income.
KPMG’s 2011 Individual Income Tax and Social Security Rate Report is a cross-border study of personal tax and social security rates with historical data from 2003-2011. The report covers 96 countries, concentrating on the highest level of personal tax payable to the central government. For ease of comparison, the study has excluded, where possible, other taxes such as state and municipal taxes.
The study was commissioned by KPMG’s global International Executive Services practice, comprising professionals from several KPMG International member firms.
A copy of the report is available here.
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Compensation
for Corporate Directors Increased Moderately in 2010
The Towers Watson annual analysis of director compensation at Fortune 500 companies found that total compensation for directors climbed 6% in 2010 over 2009 levels. That is significantly larger than the 1% median increase directors received in 2009, but still below the nearly 10% annual increases directors had been receiving prior to the economic crisis. Specifically, the analysis showed the following changes to outside director pay packages:
- Total compensation increased in 2010 to a median value of $212,512, up 6% from $200,698 in 2009. Total compensation includes cash, annual or recurring stock, and factors in the annualized value of one-time equity grants some directors receive when joining the board.
- Cash compensation increased by 5%, from $85,000 in 2009 to $89,000 last year.
- Equity award values jumped 9% in 2010 to $114,728, from $104,939 in 2009. The 9% increase is the largest jump in equity award value since 2006
- Pay mix: More than half (54%) of director pay came from equity in 2010, while 46% was from cash. That compares with 52% from equity and 48% from cash in 2009.
Among other survey findings: Although a majority of companies combine the roles of CEO and board chair, nearly four in 10 companies (39%) operate with a separate chair and CEO. At the median, nonexecutive board chairs received an additional $150,000 in incremental pay above and beyond that provided for regular board service.
Towers Watson analyzed the compensation for outside directors at 464 publicly owned Fortune 500 companies that filed their fiscal year 2010 proxy by June 30, 2011. Data for these companies were then compared against the results obtained from an analysis of 464 Fortune 500 companies in 2010. Click here for more findings on the director comp survey.
Director Resources
Risk Management: Deloitte has released a report entitled “Risk Intelligent Proxy Disclosures 2011: Have Risk-Oversight Practices Improved?” The study is a follow-up to a similar 2010 report that identified reported risk oversight practices in response to the new SEC requirements regarding risk disclosures in proxy statements. With two years of data to compare for the 154 companies listed in the S&P 200 and included in both surveys, Deloitte’s data shows evidence of a steady and encouraging evolution in how large public companies report their board’s role in risk oversight. For a report summary, click here.
Corporate Fraud: Fraud remains predominantly an inside job, according to the Kroll Annual Global Fraud Report released in October. This year’s study shows that 60% of frauds are committed by insiders, up from 55% last year. Overall, fraud concerns among executives around the globe rose approximately 15 percent, led by information theft and corruption and bribery. The findings are contained in a study commissioned by Kroll with the Economist Intelligence Unit of more than 1,200 senior executives worldwide. For an executive summary of the report, click here.
Resource on Legal Matters: Kelley Drye & Warren LLP has launched its Securities and Financial Sector Legal blog, which summarizes significant legal decisions and events affecting the financial services industry, investors and their advisors. Click here to access.
Information Technology: New and complex information technology (IT) risks and changing business priorities challenge today’s IT leaders, according to a new survey from Protiviti http://www.protiviti.com, a global consulting firm. The results of the study reveal six areas of priority for CIOs and their organizations: information security and privacy; virtualization and cloud computing; social media integration; data classification and management; regulatory compliance; and vendor management. To learn more or obtain a complimentary copy of the 2011 IT Capabilities and Needs Survey, click here.
D&O Insurance: Advisen's European D&O Report has been released. As European directors and officers are placed increasingly under the microscope of transparency, and as litigation remedies become more readily available for shareholders, the number of suits against corporate boards and managers is expected to expand. Sponsored by Zurich, this 36-page paper, called "European D&O Insurance Market: Reforms Causing a Shifting Landscape," overviews this evolving situation. The D&O climate in specific countries (e.g. UK, Germany, France, Italy, The Netherlands, Spain, etc.) is also detailed. Click here for a copy.
Board Briefing Materials: Technology continues to change how businesses operate, but corporate boards have still largely not embraced technology and continue to rely on traditional methods to communicate with their members using hard copies of board books and documents, according to a recent survey conducted by Thomson Reuters Governance, Risk & Compliance. The survey was conducted of UK and global companies polling general counsel and corporate and company secretaries across a wide variety of industries. Click here for a detailed report of the survey's findings involving board-level information.
Executive Compensation: Compensation Advisory Partners has conducted a study of current senior executive (named executive officers) change-in-control (CIC) and severance practices among both large and mid-sized companies. It is finding that many companies have revised their severance and CIC policies to provide less generous payments upon CIC and/or termination, and others have eliminated these programs or scaled back eligibility. The full report can be accessed here.
Board Diversity: The increased emphasis on diversity, driven by globalization and an increase in purchasing power of women and minorities, has many boards assessing their composition. The directors polled in the just-released Annual Corporate Director's Survey done by PwC indicated that racial and gender diversity are the most difficult to add. Nearly two-thirds (65%) found it difficult to increase racial diversity on the board, and 55% found it difficult to add gender diversity. PwC polled 834 corporate directors of U.S. corporations on executive compensation, risk management, succession planning, and other matters. For more in-depth look at this year’s survey, click here to access the full report.
Audit Committee: Audit committee members are not happy with the quality of the information they receive regarding IT risk — fewer than half (41%) expressed satisfaction. according to a study released by the Audit Committee Institute (ACI) of KPMG LLP, the audit, tax and advisory firm. Survey respondents also indicated that they want to hear more frequently from the chief information officer (CIO), mid-level management, and the chief risk officer (CRO). The survey revealed that the speed and impact of IT developments — from the influence of the Cloud to social media and mobile technologies — are causing directors to probe more deeply into “defensive” IT risks, including data privacy and security, cyber risk, and regulatory compliance. For more on the survey, click here.
Author Notes
Directors & Boards Publisher Robert Rock has accepted an invitation to serve on the University of Delaware’s Weinberg Center for Corporate Governance advisory board. The board is a group of executives who advise the leadership of the Center in its quest to establish and maintain the Center’s national and international prominence in the discovery and dissemination of knowledge in fields related to corporate governance.
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