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Directors & Boards
Robert H. Rock
Publisher
James Kristie
Editor
Lisa
Cody
Chief Financial Officer
David Shaw
Publishing Director
Scott Chase
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Barbara Wenger
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From Jim Kristie | Article of the
Month | Columnist
Reader Profile |
Research | News |
Sing It Out, Baby
Why executive compensation
always has been and always will be a hot topic. And it’s not what you
think.
I always get a bit whimsical when September rolls around. Summer comes
to an end. I go back to school to do my adjunct teaching. And I
celebrate a big anniversary this month of the year — I’ll be starting
my 28th year with Directors &
Boards.
So in that spirit of whimsy, here are two seemingly disparate facts,
following which I will tie them together — with tongue only lightly
planted in cheek.
Fact 1: My paternal grandfather spoke Yiddish. This may be why I am a
big appreciator of Yiddish expressions in speech and writing. Here is a
Yiddish proverb I am particularly fond of: “With money in your pocket, you are wise
and handsome … and you sing well too.”
Fact 2: In compiling my Governance
Year in Review that was published in this year’s Annual Report special edition
of Directors & Boards,
even I was surprised at the sheer number of entries dealing with
executive compensation matters. ‘Say on pay’ initiatives gained
momentum last year (see Bob Rock’s “Columnist” comments below for more
about that), so that accounted for many of the entries in the
month-by-month timeline, as did the usual flare-ups over payouts that
seemed egregious.
But of course! That’s what everyone is missing about the endless flap
over executive pay. It’s not about the money, or about greed. It’s
about wanting to be wise and handsome (or beautiful) … and especially
about being able to belt out a tune.
It all makes sense. Can’t you just picture this:
• L. Dennis Kozlowski of Tyco looting infamy doing a mean cover —
perhaps at his then-wife’s Sardinian birthday party — of the Beatles’
“Money (That’s What I Want).”
• How about Angelo Mozilo of Countrywide Financial, who took out big
bucks from the firm on the eve of its implosion, channeling Tony
Bennett to croon “Rags to Riches”?
• Remember Jill Barad being ejected from Mattel with an eye-popping
severance? Perhaps it was all about singing out loud and proud, a la
Donna Summer, “She Works Hard for the Money.”
• And let’s not forget Robert Nardelli’s whopping pay package from Home
Depot; who knew that that was all about stepping up to the spotlight to
do a rousing rendition of Dire Straits’ “Money for Nothing”?
• Lastly, there is that big clawback by the UnitedHealth Group board
involving nearly $1 billion from company CEO William McGuire and other
executives; could it be that it wasn’t greed that drove their option
backdating but simply a guy group wanting to reprise — in my favorite
version of this standard — the melodious sound of the Mills Brothers’
“Pennies from Heaven”?
That’s got to be it. As long as we all harbor private dreams of
carrying a tune in public, I guess executive pay will be with us as
something to fuss over.
I’m sorry my grandfather is no longer around to bounce this notion off
of. Then again, he might just think this is all foilishtik.
I welcome your comments at jkristie@directorsandboards.com.
Jim
Kristie is the editor and
associate publisher of Directors
& Boards.
Let’s Talk Fair Value … and
Management’s Value CreationSFAS 157 – how boards use fair value reporting rules to assess the executive team’s performance.
By PJ Patel
The FASB’s recent issuance of the Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements, has faced significant scrutiny.
The rule has come to the forefront as many companies face write-downs in the process of assessing the fair value of assets on their balance sheet. Many companies are grumbling about these write-downs in light of current economic conditions.
SFAS 157 defines fair value, establishes a framework for measuring fair value in Generally Accepted Accounting Principles (GAAP), and expands disclosures about fair value measurements. It is often used in conjunction with SFAS Nos. 142 and 144 to assess the impairment of assets.
Despite recent complaints about Statement 157, boards of directors may find that the information resulting from these assessments (SFAS No. 157 together with SFAS Nos. 142 and 144) can provide a useful benchmark in evaluating the contribution of an acquisition and, ultimately, the performance of management.
Those Fabled Synergies
As you would expect, when doing an acquisition most management teams are optimistic about the synergies and growth opportunities a potential acquisition may represent.
[Click
Here to Read
the Entire Article]
‘Say on Pay’: A Populist, but Misguided, Notion
If shareholders are unhappy with executive compensation, there’s a better way for them to get their message across.
By Robert H. Rock
Throughout this election season the two presumptive presidential candidates have been highlighting their differences; however, on one thing they do agree — ‘say on pay,’ the corporate governance initiative that gives shareholders a vote on executive pay packages.
Both Barack Obama and John McCain are vigorously supporting proposed legislation mandating a nonbinding resolution on the ballot at each annual meeting asking for shareholder endorsement of executive compensation practices. The legislation passed the House of Representatives by a 2-1 margin, and a similar bill, introduced by Sen. Obama, is awaiting action in the Senate. Not to be outdone, Sen. McCain came out with an even more far-reaching endorsement, suggesting that the shareholder vote be binding, not merely advisory.
For politicians, in particular presidential candidates, say on pay is a populist position too good to pass up. Incensed by egregious CEO pay packages, politicians of every stripe are jumping on the say on pay bandwagon in an effort to be seen as reining in corporate excess. Up until now President Bush’s opposition has helped block passage of the bill in the Senate, but come next year, say on pay almost certainly will become the law of the land.
Proponents of the bill insist that they are not trying to exert power over boards in managing executive compensation but, rather, want to institute a “dialogue” between the board’s compensation committee and shareholder representatives.
[Click Here to Read the Entire Article]
CEO
Brand Velocity, 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.
What is the failure rate of large Enterprise technology projects?
Most organizations consider their Enterprise project launches unsuccessful according to the Robbins-Gioia survey of 232 public and private organizations. Consider the following:
• 7 in 10 technology projects are considered failures (OASIG study)
• 88% of projects exceed deadlines, budget or both (Standish Group)
• 40% of projects fail to achieve their business case within a year of go-live (The Conference Board)
• Half of projects cost nearly 3X their original estimates (Chaos Report survey by Standish Group)
• Only 3% of projects with labor costs over $10 million succeed (Standish Group)
• Nearly one in five projects will be canceled entirely (Standish Group)
Who are the major players involved in a company’s technology project?
The five most important players in large Enterprise technology projects are the CEO and his/her key executives, the board, the program director, the systems integrator, and the software licensor.
The systems integrator—the consulting firm that helps the client implement the software—is the largest cost driver. The program director relies mainly on them for project management. The company’s board typically oversees, in conjunction with the CEO and his/her team, budgetary approvals and key milestones.
Unfortunately, the traditional approach with these players—used for more than 20 years—has proven to fail about 70% of the time.
Why do large technology projects go wrong so often?
The main reason for the high failure rate is that the traditional project management approach is inherently unproductive with large Enterprise projects. ...
[Click Here to Read the Entire Article]
Compensation worsens when a company is the object of a securities class action (SCA) lawsuit, according to initial findings of the latest report from The Corporate Library, the independent leader in corporate governance information and risk analysis. The report, Pay Now Sue Later, explores the compensation practices of a group of 54 companies that were the object of an SCA suit during 2005.
The report analyzed the compensation ratings (a component of The Corporate Library’s proprietary governance risk ratings) and pay practices of the sample companies before, during and after the filing of the suit, finding that in most cases, the compensation ratings worsened over the study period. Along with poorer grades, compensation levels continued to rise at a majority of companies, though not as steeply as that of CEOs of companies that were not being sued. On the other hand, while many CEOs in the study made significant profits on the exercise of stock options prior to the suit’s filing, this was not the case afterwards.
“The findings of the study suggest that boards do not change their behavior in regards to compensation as a result of litigation,” said Senior Research Associate Paul Hodgson, author of the report. “For this reason, it would seem clear that if one of the objects of shareholder plaintiffs in filing an SCA is not only to recoup losses but to prevent the behaviors that might have caused the losses in the first place, then changes to compensation policy must be mandated as part of any settlement.”
In 2007, The Corporate Library launched its Securities Litigation Risk Analyst (SLRA) ratings, which employ a numerical scale, and incorporated these and other findings into a more advanced model for predicting future SCAs. With access to this new risk measure, The Corporate Library research staff is planning follow-up studies that will further explore the correlations between SCA risk and compensation. SLRA subscribers can access these ratings for more than 3,200 public North American companies at www.thecorporatelibrary.com.
The 10-page report, titled Pay Now Sue Later, is available for $45 from The Corporate Library’s online store at http://www.thecorporatelibrary.com.
September
8-10, 2008
Columbia Business School Executive Education presents "Corporate
Directors' Responsibility: Enhancing the Integrity of Financial
Disclosure." Led by professors Nahum Melumad and Stephen Penman, the
three-day program focuses entirely on crucial financial disclosure
issues. Directors will deepen their expertise in analyzing financial
statements and in evaluating the appropriateness of financial reporting
and accounting decisions made by management. For more information, call
212-864-3395 or visit
September
9, 2008
The Forum for Corporate Directors (FCD), a leading Southern California
resource for promoting excellence in corporate governance and boardroom
leadership, will hold its second annual Governance Outlook event at The
Bowers Museum in Santa Ana, Calif. The presentation highlight this year
will be a panel discussion of governance issues moderated by Richard
Koppes, of counsel at Jones Day in San Francisco and former deputy
executive officer and general counsel of the California Public
Employees' Retirement System (CalPERS). The expert panel includes Eric
Baggesen, CalPERS senior investment officer, and Christopher Ailman,
chief investment officer of CalSTRS, the California State Teachers'
Retirement System. For further information, contact Michelle Conry at
929-375-3323 or by email at michelle@fcdoc.org.
September
14-17, 2008
The Society of Corporate Compliance and Ethics (SCCE) holds its 7th
Annual Compliance & Ethics Institute in Chicago. The SCCE champions
ethical practice and compliance standards in all organizations and
provides the necessary resources for compliance professionals and
others who share its principles. Experts from major corporations,
ethics organizations, law firms, academia, and the government will
address the most challenging issues related to designing, implementing
and managing effective compliance and ethics programs. For more
information, visit
September
22, 2008
The Practicing Law Institute holds its Sixth Annual Directors'
Institute on Corporate Governance at the PLI New York Center. The
program is presented in cooperation with the Society of Corporate
Secretaries and Governance Professionals. Daniel Amos, chairman and CEO
of Aflac Inc., will do the kick-off presentation, and Patricia Dunn,
former chairman of Hewlett-Packard Co., will do a luncheon address. For
more information, visit
September
24-26, 2008
The Directors' Education Institute (DEI) at Duke University will
conduct an intensive and innovative two-day program to address the
critical issues facing boards today. This ISS-accredited program is
designed for board chairs, corporate directors, and senior executive
officers of publicly traded companies. Through an examination of
topical issues - such as succession planning, strategy, compensation,
institutional investor activism, financial accounting and reporting,
audit committee practices, ethics, litigation, D&O insurance, and
crisis management - the DEI provides substantive instruction to
participants and the opportunity to engage with peers to develop best
boardroom practices. To register, please visit
October
1-3, 2008
The Boardroom Bound Boardology Institute presents their Pipeline
Seminar in New York City. Register online at
October
13-15, 2008
The New York Stock Exchange and Corporate Board Member magazine host
the fifth annual Board Committee Peer Exchange on Oct. 13. The event is
designed for board committee chairs, lead directors, and general
counsel to interact and exchange information with their peers who face
similar challenges in performing their chairmanship duties. It will be
held in New York City at the Grand Hyatt. On Oct. 14-15, the two
organizations will co-host the Annual Boardroom Summit. For more
information on these events, call 615-309-3200 or visit
October
19-21, 2008
The National Association of Corporate Directors (NACD) holds its 2008
Annual Corporate Governance Conference. This year's theme is "Building
Balance in the Boardroom: Risk, Reward, and Responsibility." The
program will cover such topics as: Roadmap for Compensation;
Identifying Risk; Effective Chairs and Lead Directors; Oversight of
Corporate Pension Plans; and CEO Succession Planning. The conference,
which also includes the Director of the Year awards banquet, will be
held at the JW Marriott Hotel in Washington, D.C. For registration and
hotel information call 202-775-0509, or visit
October
21-22, 2008
CompensationStandards.com will conduct two consecutive conferences -
"Tackling Your 2009 Compensation Disclosures: The 3rd Annual Proxy
Disclosure Conference" and "5th Annual Executive Compensation
Conference." The programs provide practical guidance on how to
implement responsible executive compensation practices and the latest
developments regarding executive compensation disclosures. The event
will be held in New Orleans and via video webcast. For information,
visit
October
29-30, 2008
The Forbes Family Business Forum will be held in New York. The theme of
the event is "Family Dynamics in Dynamic Families: Navigating the
Perils of the Present and Building the Promise of the Future." This is
the third annual gathering of family business leaders for peer-driven
discussion and analysis of the challenges and trends of today's family
businesses. Carol Lavin Bernick, executive chairman of Alberto-Culver
Co., and John Tyson, chairman of Tyson Foods Inc., are among the
outstanding lineup of speakers. For more information visit
November
10, 2008
Denver Women on Boards holds a session at the Grand Hyatt Denver. The
program is designed to educate and prepare women for board service.
Panelists include Kate Paul, CEO and president of Delta Dental of
Colorado, and Steffie Allen, principal of The Aetna Group. For more
information, visit
November
13-14, 2008
The Boardroom Bound Boardology Institute presents their Pipeline
Seminar in Los Angeles, CA. Register online at
December
2, 2008
Twin Cities Women on Boards holds a session at the Metropolitan
Ballroom in Golden Valley, Minn. The program is designed to educate and
prepare women for board service. Panelists include Lois Martin, SVP and
CFO of Capella Education Co., and Robin Engelson, managing director of
Lazard Middle Market. For more information, visit
The Directorship 100 one-day conference will be held at the Metropolitan Club in New York City. The D100 Recognition Dinner will be part of this event. Major topics included will be compensation strategies, management dynamics, risk management and D&O, and a capital markets symposium. To register,
What should be encouraging to companies planning an IPO, a survey released last month of leading IPO attorneys found them optimistic that the U.S. will retain its share of global equity issuance. Globally converging accounting standards and the prospect of further relaxation of U.S. regulations affecting foreign issuers were important factors in their view.
The survey was done by Gavin Anderson & Co. “Despite the difficult market conditions this year, top IPO attorneys generally believe that credit and liquidity concerns will ease and regulatory burdens will diminish,” said Richard Mahony, head of the firm’s New York office.
Other findings in the survey of 57 top IPO attorneys, who have advised on more than $17.4 billion of transactions, were:
• 93% of the respondents believe that new equity issuance will be “much stronger” to “slightly stronger” in 2009. The most frequently cited factors holding back the current IPO market include “lack of liquidity,” “investor fear” and “low valuations.”
• Chinese companies continue to be seen as the dominant country of origin for global IPOs in the months ahead, receiving 44% of mentions. India was the second most mentioned country for likely new issuers, with 17% of mentions.
• Alternative energy led in the mentions of most likely industry sectors for IPOs in the coming months, with 28% of the total. Second was biotech/healthcare (22%), followed by technology (20%), and traditional energy companies (19%).
• Almost half the respondents expect SPACs (Special Purpose Acquisition Companies) to remain a significant source of new issuance. “People are very receptive to SPACS, and the economics of these structures are attractive to certain investors, like hedge funds,” noted Richard Aftanas of Skadden Arps.
Operating in key financial and political centers around the world, Gavin Anderson focuses on issues of strategic importance to business and political leaders, advising clients on their communications needs, often in critical situations, in the fields of financial, corporate, and public affairs. Click here for a copy of the IPO survey.
Director Resources
SEC Guidance on Company Websites: CCH Principal Securities Analyst James Hamilton, JD, has issued a new white paper, SEC Guidance on Use of Company Websites in the Internet Age. “For the first time in eight years, the SEC has issued guidance on corporate electronic communications,” Hamilton said. “This long-awaited guidance is very important to the corporate community in light of the widespread and pervasive use of the Internet.” Topics covered include disclosure subject to Regulation FD, hyperlinks from company pages to other sites, including analyst sites, the provision of summary financial information, and the use of blogs. Hamilton is a prolific blogger on current issues in the securities field. Jim Hamilton’s World of Securities Regulation can be found at http://jimhamiltonblog.blogspot.com/. CCH is a leading provider of securities and business law information.
Financial Reporting: In August the SEC hosted a roundtable to discuss International Financial Reporting Standards (IFRS). The roundtable consisted of two panels and included representatives from investor groups, public companies, auditing firms, and the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) were present as observers. Ernst & Young has published a report on the roundtable that summarizes the views and comments of the two panels. E&Y strongly supports having a single set of high quality global accounting standards, and believes that the SEC should make a clear statement that it will require all U.S. issuers to adopt IFRS as of a certain date.
Ethics: LRN, a company that helps businesses develop ethical corporate cultures, instituted new and enhanced online, offline, and experiential learning offerings that the firm says will help companies overcome several key challenges in ensuring effective and engaging business ethics and corporate compliance education.
Global Governance: A "White Paper on Corporate Governance in Japan" has been issued by the Asian Corporate Governance Association . This the first collaborative effort of its kind focusing on corporate governance issues in Japan and involving global institutional investors. The paper has been endorsed by leading global pension funds and fund mangers. MIDC Group http://www.midcgroup.com/english/index.html, a Japanese firm providing governance research and consulting services, was closely involved in the issuance of the paper. MIDC has collaborated on past initiatives with Directors & Boards.
Author Notes
James Kristie, editor and associate publisher of Directors & Boards, has been named to the advisory board of Vienna Human Capital Advisors, a firm that provides human capital management services and solutions for helping companies better leverage their people assets for greater business growth and success. He has also joined Drexel University’s LeBow College of Business Corporate Governance Advisory Council. Composed of prominent corporate leaders who serve or advise boards of public companies, the Advisory Council supports the mission of the Center for Corporate Governance at Drexel and provides advice and strategic direction regarding its programs and activities.
Self-proclaimed iconoclastic public relations executive — that’s why we like him as a Directors & Boards author and colleague — John F. Budd Jr. has authored a new book titled “Too Many Geese; Too Few Swans,” which he describes as “an unexpurgatorial account of the rise, fall and future of PR.” Budd is the founder and chairman of the Omega Group, a private think tank focusing on the public communication of corporate policies and is an active member of the National Association of Corporate Directors. Published in hardcover by Turtle Publishing Co. and retailing for $25.20, it can be ordered by emailing John at jfbuddjr@aol.com.
Mary Jo White, co-chair of Debevoise & Plimpton LLP’s Litigation Department, was named a 2008 Margaret Brent Women Lawyers of Achievement Award honoree by the American Bar Association (ABA). The award recognizes the accomplishments of women lawyers who influenced other women to pursue legal careers, opened doors for women lawyers in a variety of job settings that historically were closed to them, and/or advanced opportunities for women within a practice area or segment of the profession. Named after Margaret Brent, the first woman lawyer in America, the award was presented at a special luncheon at the ABA’s annual meeting in New York in August.
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