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Directors & Boards
Robert H. Rock
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James Kristie
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Cody
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Scott Chase
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From Jim Kristie | Article of the
Month | Columnist
Reader Profile |
Research | News |
‘Surprise!’--Not
As much as boards hate to be blindsided, the reality is that ‘a
surprise foreseen is an oxymoron.’
It was a shock to the system last month when energy giant BP discovered
problems with its Alaska pipeline and announced it would curtail
production from its Prudhoe Bay field. World energy markets were
roiled.
“Never surprise your board” is an evergreen piece of advice that our Directors & Boards authors
uniformly offer. Boards loathe surprises. It’s generally taken as a
failure of management to surprise the board. Being blindsided has to be
one of the greatest fears of serving as a director.
But, in the memorable words of a former corporate leader--of BP, no
less--“A surprise foreseen is an oxymoron.” As we did in the August
e-Briefing, current events prompt another dip into the D&B archives for enduring
wisdom.
In the Article of the Month, former BP Chairman Sir Robert Horton,
writing almost 15 years ago of a business environment very much
resembling today’s turbulent one, reflects on how leaders come to grips
with guiding their companies when subject to unrelenting, often
virulent, surprises. Worth a fresh reading, it’s titled “ ‘Surprise’
Governance.”
And in the spirit of September being back to school month, we turn the
Columnist slot over to a couple of good colleagues at Harvard Business
School. Professors Gail McGovern and John Quelch share with you some
smart thinking on the value that directors from academia bring to the
board.
Speaking of value, our August Question of the Month was this: “On balance, mergers and acquisitions
destroy more value than they create. Do you agree or disagree?”
Your
response:
• Strongly agree: 23.1%
• Agree somewhat: 38.5%
• Disagree somewhat: 30.8%
• Strongly disagree: 7.7%
Almost two-thirds of the e-Briefing readership, then, is skeptical of
M&A as a pathway to prosperity. Your add-on comments to the survey
are compelling, and I want to share with you many of them. Click
here to read these battle-hardened views from the M&A trenches.
And keep your eye on your in-box for a copy of the next Boardroom
Briefing, which addresses M&A from a board member’s perspective. It
arrives later this month. If our survey is any indication, it sounds
like there is ample opportunity to revisit the tactics for making deals
deliver value.
For this month’s question, let’s return to the subject that is in the
news every day, often in a “surprise” sort of way: the price of oil. As
I write this, the closing price of a barrel of crude on August 23 was
$71.76. Click
here and let’s hear: What will be the price of a barrel of oil on
December 31, 2006?
Jim
Kristie is the editor and
associate publisher of Directors
& Boards.
‘Surprise’
GovernanceWhen you never know how your company is going to be surprised from day to day, the great need is to meet each surprise with more knowledge and creativity.
By Sir Robert Horton
Ed. Note: This is an abridged
version of an article that originally appeared in Directors & Boards in 1992. At the time, the author was
chairman and chief executive officer of British Petroleum Co. PLC (now
BP PLC).
For perhaps a decade now, business has been talking about global
marketing, global finance, global operations, global strategies, and
even global managers in a changing world. I have no quarrel with the
word “global.” My argument is with the word “changing.” We are in a
world of surprise.
Faced with the unpredictability of almost every aspect of business in
today’s chaotic world, the average corporate leader might be forgiven
an erosion of will, if not a failure of nerve. But there is no
substitute for success. Whatever happens, however buffeted by surprise,
a company must respond effectively to every event. It is up to the
company’s leaders to see that it does.
Currency fluctuations, trade statistics, combined inflation and
recession (not to mention wars and rumors of wars) all provide object
lessons about the interconnections among the great business regions of
the world.
Here we are today, in a world where business forecasts are likely to be
obsolete before the ink it took to print them has dried. Where a basic
aspect of every company’s strategies must be to take part in
environmental improvement. Where your most damaging new competitor
rarely comes from your own industry at all--but instead is the inventor
of a substitute for your entire industry’s range of products. Where
information technology expands your mental reach so widely that you’ll
never get your brain to grasp all the important facts--and only
them--amidst a welter of data.
What is happening, right now, in global business is both worrisome and
exhilarating.
[Click
Here to Read
the Entire Article]
Directors from Academia Can Fill Gaps in
TalentThere are three types of candidates, and each can make a distinctive contribution to a board’s deliberations.
Increasingly, U.S. public companies are turning to academics as nonexecutive directors. An industry survey reports that 10 percent of new independent directors appointed in 2005 came from academic or nonprofit backgrounds, compared with 2 percent in 2000.
This shift is attributable in part to availability. In a tougher corporate governance environment, with greater time commitments required of independent directors, it is not feasible for senior line managers--CEOs and CFOs--to serve on more than one public company board other than their own. The experience gained must also be offset against the financial and reputation risk, both personal and corporate, in a post-Enron world. Additional criteria for qualifying as an independent director, including restrictions on interlocking directorships, further limit the availability of CEOs and others in the business community for board appointments.
Academics can help to address the resulting gap in the talent pool. There are three types of academics serving on company boards: the specialist, the ex-practitioner, and the administrator.
[Click Here to Read the Entire Article]
Managing Director
Pearl Meyer & Partners
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.
What kind of time pressures do companies face in complying with the SEC’s new rules for proxy disclosure?
Things will be toughest for calendar-year companies, which must report under the new rules in their Spring proxies, leaving just a few months to implement major upgrades to internal data collection processes. Non-calendar year organizations generally have a cushion of several additional months to bring their systems into line with the new rules before having to report under the new rules later in 2007. That also gives them the added advantage of learning from the experience of companies making the initial disclosures. Along with examples of the new tabular and narrative disclosures required, the later filers will get a preview of how the SEC, investors and the media react to specific aspects of the expanded reporting – in other words, the proverbial “Holy Cow” disclosures most likely to raise public hackles.
Another big challenge is the fact that disclosure isn’t about just numbers anymore. The SEC’s new rules include a large qualitative element. At numerous places throughout the compensation disclosure, most notably the central Compensation Disclosure and Analysis (CD&A), companies must provide a narrative explanation for shareholders – without boilerplate and in “plain English” – of the strategy and rationale behind the pay plans in place. Further, the reasons for utilizing one particular element as opposed to another (e.g.,, cash vs. equity) must be outlined. This will be a major challenge at many companies where there has not been a specific pay strategy in the past or where decision-making processes have not been well documented.
[Click Here to Read the Entire Article]
Growth in board of director compensation appears to have slowed, according to a new study from Mercer Human Resource Consulting. The study, based on an analysis of proxy statements of 350 mainly large publicly traded U.S. organizations, found that director pay increased modestly in 2005 compared to rece nt years. The study also found that the use of stock options to compensate directors continued to decline in favor of other equity vehicles.
Median total direct compensation (pay for board and committee service, and equity grants) for board members at large U.S. companies increased 6.1% in 2005 to $164,637. That increase contrasts sharply with the much higher 17.8% jump in overall director pay between 2003 and 2004. For more Mercer study findings, along with a table of median total direct compensation by revenue, click here.
Another study by Steven Hall & Partners, independent executive compensation consultants (http://www.shallpartners.com), shows median total remuneration for directors of the 200 largest U.S companies in 2005/2006 ranged from $195,000 to $210,833, an increase of between 8.1 percent and 12.4 percent, depending on committee memberships and roles. The research also showed that full-value stock awards to directors are eclipsing stock option grants with the median value of full-value stock awards up 25 percent.
The firm also has a study of 2005/2006 director compensation trends for 1,000 large companies underway. Contact Nora McCord at Steven Hall & Partners (212-488-5400, nmccord@shallpartners.com) to request a copy of the full study on its completion.
September
14, 2006
The Sanders Morris Harris investment banking firm is organizing a
program on "The Battle of the Exchanges: Listing Strategies for Growth
Companies." To be held in New York City, the event will offer leading
international experts discussing the pros and cons of listing on the
various domestic and alternative electronic exchanges in terms of
market depth and liquidity, investor base, trading costs, and
transaction costs for IPOs and follow-on offerings. The program, for
which Directors & Boards is a promotional partner, is designed for
potential issuers, institutional investors, hedge funds, private equity
funds, venture capitalists, and the press. There is no fee to attend,
but advance registration is required. Call Amy Gottenberg at
212-508-4003 or Jennifer Hayhurst at 212-508-4018 for information, or register
here.
September
25-26, 2006
The Practicing Law Institute holds its Fourth Annual Directors'
Institute on Corporate Governance at the PLI New York Center. Key
program topics include: What the Board Expects of the General Counsel;
Accounting for Directors; Understanding Directors' Executive
Compensation Duties; and Corporate Social Responsibility and Charitable
Contributions. Ira Millstein will do the kick-off address, and John
White, Director of the SEC's Division of Corporate Finance, will do a
special luncheon presentation. For more information, visit
October
12, 2006
CompensationStandards.com will hold its 3rd Annual Executive
Compensation Conference in Las Vegas, which will also be available by
audio and video webcast. The theme of the one-day conference is
"Meeting New Standards: What Every Director (and Advisor) Needs to Know
-- and Do -- Now!" and is designed for all parties involved in and
responsible for implementing executive and equity compensation plans.
For further information, visit 3rd Annual Executive Compensation
Conference at
October
15-17, 2006
The National Association of Corporate Directors (NACD) holds its 2006
Annual Corporate Governance Conference. Themed "The Board Agenda:
Driving Long-Term Value," the program will cover the evolving best
practices in board oversight of executive compensation, strategy
development, succession planning, board evaluation, and the results of
the NACD's 2006 Blue Ribbon Commission on "Board Practices in
High-Performing Companies." The conference will be held at the
Renaissance Mayflower Hotel in Washington, D.C. For registration and
hotel information (last year's conference sold out) call 202-775-0509,
or visit
October
25, 2006
Directorship is presenting "Agenda 07," a one-day forum that previews
major board governance issues in store for next year. Among the
speakers will be Harvey Pitt, Jim Cramer, Ken Langone, Richard Breeden,
Christie Hefner, John Connolly, and Pearl Meyer. The program will be
held at the Union League Club of New York. For registration, call
617-399-3042, or visit
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
2-3, 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
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
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
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
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
Boardroom Briefing: Mergers &
AcquisitionsDirectors & Boards' Boardroom Briefing: Mergers & Acquisitions is now in the mail. This edition focuses on such key issues as the board's role in M&A, fairness opinions and valuation opinions, post M&A compensation and more. The results of Directors & Boards' most recent survey on M&A is also included. To view the Boadroom Briefing online, visit here.
Hedge Funds: A Battle-Ready Profile
Activist hedge funds have had “surprising success” with their proposals against targeted companies, with more than 35% of campaigns resulting in their winning board representatives, according to a study by investment bank Morgan Joseph & Co. Inc.’s newly formed Shareholder Activist Group (http://www.morganjoseph.com). The group authored a report, “Management in an Era of Shareholder Activism,” that warns that the emergence of a new class of activist investors will force management to be more mindful of their potential vulnerability.
In the study, Morgan Joseph examined 94 campaigns waged publicly by 29 hedge funds. As a group, the 29 activist hedge funds ranged in size from less than $100 million to nearly $10 billion under management, with average equity capital of $1.9 billion. The report concluded that activist demands tend to be concentrated around the following initiatives:
• Changing the capital structure
• Altering a company’s M&A decisions, forcing a sale of all or part of the company
• Replacing management or modifying a board’s composition, often to include the fund’s nominees
• Returning cash to shareholders through either a dividend or a stock repurchase program
The report urges all companies to undergo a vigilant review of strategic, financial, and operational initiatives to improve shareholder value. The firm held a conference call in August with corporate managements to discuss the results of the study. For more information on the report, e-mail Steven Anreder at steven.anreder@anreder.com.
Certification For Compliance and Ethics Professionals
Beginning in September 2006, compliance and ethics professionals have an opportunity to demonstrate their knowledge and expertise in the practice of corporate compliance. The Society of Corporate Compliance and Ethics (SCCE) has established a program that will provide a Certified Compliance & Ethics Professional certification to individuals associated with the compliance and ethics profession. For details visit the SCCE Web Site: http://www.corporatecompliance.org/CCEP/ccep.htm
Headquartered in Minneapolis, the SCCE is a nonprofit organization dedicated to enhancing the role of compliance professional, and advancing corporate governance, compliance and ethics on a global scale. Its mission is to champion compliance standards, corporate governance, and ethical practice in the business community, and to provide the necessary resources for compliance and ethics professionals and others who share these principles.
People And Processes Not In Sync: Deloitte Survey
Nearly half of senior executives worldwide surveyed by Deloitte and the Economist Intelligence Unit report that their people and processes are not in sync with overall corporate strategy. As a result, companies may be missing opportunities to increase and protect their value and may fall short of reaching their true potential.
According to the survey report, “Adopting the Value Habit (And Unleashing More Value for Your Stakeholders),” respondents identified three primary obstacles to the value-creation process within their companies: misalignment of processes, people, and systems with strategy; an inconsistent link between value-creation and the approval, execution, and tracking of projects and initiatives; and low emphasis on long-term and non-financial objectives.
A copy of the full survey report is available on Deloitte’s Web site at http://www.deloitte.com/us/adoptingvaluehabit.
Author Notes
Felix Rohatyn is joining Lehman Brothers Holdings as a senior adviser. Rohatyn was the subject of a Spring 2003 Directors & Boards cover story interview with D&B columnist Hoffer Kaback. Among the memorable moments in their discussion, the longtime Lazard investment banker recalled being on the board of Avis Rent-A-Car in the 1960s when Lazard bought control of Avis, and having Avis’s iconoclastic CEO Robert Townsend tell him, “A really good board is one that only reduces the efficiency of the company by 20%.” Townsend later went on the write the brilliant bestseller, Up the Organization.
Anne Klein, president of Anne Klein & Associates, a public relations consulting firm in the Philadelphia region (http://www.akleinpr.com), has been inducted into Rowan University’s Public Relations Hall of Fame. The award recognizes PR professionals of national prominence. Klein authored a major crisis management advisory that was published in the September 2004 e-Briefing.
AlixPartners LLC (http://www.alixpartners.com), a corporate turnaround and financial advisory services firm whose principals have authored several articles for Directors & Boards, arranged a significant investment in the firm by Hellman & Friedman LLC, a private equity investor. The recapitalization, which puts the total enterprise value of the firm in excess of $800 million, will allow the AlixPartners 78 managing directors along with its more than 500 employees to gain a sizeable equity stake in the enterprise.
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Directors & Boards e-Briefing is a monthly service of Directors & Boards. All contents copyright 2006, MLR Holdings LLC.