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Directors & Boards
Robert H. Rock
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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 |
Look Up
Let’s each of us find a way — our own small way — that we can influence
the national mood. Don Keough says it best: ‘One optimist can make all
the difference.’
Two things seemed to have happened this summer. One is that the economy
may have touched bottom, with some indicators hinting that the
nightmare of the Great Recession is ending. The second is that my
invitation to the Allen & Co. media summit must have, yet again,
gotten lost in the mail.
Every year in July all the big wheels in the communications,
entertainment, and Internet industries gather for an annual retreat in
Sun Valley, Idaho. The week of briefings, schmoozing, and dealmaking is
hosted by investment banker Herbert Allen.
Maybe next year I will advance a notch higher in media moguldum to
warrant an invite to this high-profile confab. The next best thing to
mixing it up with the media machers was to dip into Allen & Co.
Chairman Donald Keough’s book, “The Ten Commandments of Business
Failure” (Portfolio, 2008). It’s a superb memoir and inspirational
tract by this longtime Coca-Cola executive who, upon retiring from the
beverage company in 1993 as president and COO, became nonexecutive
chair of the Allen & Co. investment bank (and still sits on the
Coca-Cola board).
There is a passage in the book that speaks to the times we are in at
this moment when the economic crisis seems to be winding down, and yet
fear still haunts many people —senior executives, as well — of whether
a prosperous future can be regained.
One of Keough’s commandments of failure is: Be Afraid of the Future. “To aspire
to any kind of leadership in business you simply have to be an
optimist,” he counsels. “One optimist in a sea of pessimists can make
all the difference.” What all great marketers as well as great
political and business leaders have, he says, is “the ability to sense
a mood … They know what the prevailing mood is and, when it is
negative, they sense how to change it.”
Which is what Keough and his colleagues did in another “bleak year” in
our nation’s history — 1974.
“What a time!” he writes. “President Nixon was named a co-conspirator
in the infamous Watergate case and resigned in disgrace. The Mideast
oil-producing countries embargoed oil shipments to the United States.
Gas shortages popped up all over the country. There were bloody IRA
terrorism attacks in Belfast and London, even at Harrods department
store. We had our own homegrown terrorism, such as the kidnapping of
Patty Hearst by some group called the Symbionese Liberation Army. India
developed the atomic bomb. And we were still trying to pull out of the
Vietnam War. In short, it was not a good time for America.”
But … “Therefore, it was a perfect time for Coca-Cola to be
optimistic.”
In consultation with his advertising agency, Keough aspired to “create
a theme that might help raise the sagging spirits of the country.” That
theme became: “Look Up, America.”
The campaign — “a wonderfully uplifting series of commercials” —
triggered a huge response, one that demonstrated how “Coca-Cola had an
ability, in a small way, to influence the national mood.”
As the economy tries ever so grindingly to leave the bleakness of the
Great Recession behind, perhaps there is a way — even if it’s a very
small way — that each of us can contribute to influencing the national
mood. To raising the spirits. To being that valiant optimist. Surely
that’s something that directors can bring into their board meetings
with the CEO and management teams.
Be a leader … and look up.
As always, I welcome your comments at jkristie@directorsandboards.com.
Jim
Kristie is the editor and
associate publisher of Directors
& Boards.
Harvey Golub’s Advice for a CEODon’t try to be the board members’ best friend ... and other key principles of CEO-board relations.
By Harvey Golub
Ed. Note: Harvey Golub was named in May 2009 to be one of six new members nominated to the board of AIG Inc. On Aug. 6 he was elected nonexecutive chairman of the board. "Harvey Golub is one of the most experienced and respected executives in the financial services industry today, known for his leadership, integrity, and business acumen," said outgoing AIG Chairman Edward Liddy of his successor. In 2004 Mr. Golub authored a cover story for Directors & Boards titled “A CEO Looks at the Director’s Role.” The following is an excerpt from that article.
Different CEOs have different ways of working with their board, and I would not try to prescribe one set of rules to apply to all companies. But I believe that a few principles are of value:
The Elements of a Board’s Schedule Should Be Set Well in Advance
At American Express, I set the key elements a year ahead of time, including where and when the off-site meetings would be held, and what strategic issues would command significant blocks of time and when.
For example, in November I would give an assessment of how the company did over the year and review overall performance. In January, we would conduct an extensive review of strategy. Obviously, some issues had to be dealt with as they emerged. But the goal was structure, planning, and consistency.
These characteristics tend to provide discipline and focus. They also are essential to attracting good directors and getting the most out of them, given that the best board members tend to be busy people who need to be able to plan ahead of time. To read more, click the link below.
[Click
Here to Read
the Entire Article]
The Airtime Metric
Here is a powerful tactic to make sure you get full input from all your board members — not just the most talkative ones.
By Kent Thiry
From my experience, most directors come to board meetings with two sincere objectives: (1) to add value, and (2) to not be bored.
Unfortunately, in one of life’s great ironies, management often comes to the board meetings with two relatively contradictory objectives, namely: (1) to demonstrate that they have already thought of everything, and (2) to demonstrate how much that is.
Therefore, I coach new CEOs to demonstrate their self-confidence by going to the edge of business issues, openly bringing up the unanswered questions, and letting the board opine. If at least 40% of the total board time is not a general and engaged discussion, as opposed to directors listening to presentations, you are at serious risk of getting far less value because the directors go numb in their chairs.
Here is one of the “simplest” and most self-evident ideas you could imagine. I only wish someone had brought it up to me years earlier, as I have been struck by its power. To read more, click the link below.
[Click Here to Read the Entire Article]
CFO and Treasurer
Zebra Technologies
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.
As companies make tough choices to navigate the rocky economy, how is the CFO’s role in balancing the need for near-term profitability with the imperative for long-term growth changing?
In the middle of the economic session that we’re having, there seems to be a misperception that CFOs now have a meaningful role in the business that they didn’t have before. In reality, if we are doing our jobs right, CFOs must be relevant in every part of the economic cycle. In the good part of the cycle, if you do your job well you and your company can build on success even in the downturn.
In the downturn, CEOs are continuing to work closely with CFOs to provide key insights about managing the business during a time so focused on finances. In doing so, the CFO has more pressure than before to show profitability in the near term. However, an increasingly important thing CFOs need to account for in the current environment is that the decisions made that show profitability now do not hinder the company’s ability to deliver on its long-term growth strategy. Whether it be continued investment in R&D, the decision to embark on major business initiatives that have some inherent risk, or dive into new markets, it is the CFO’s role to help the company not lose sight of the long-term even in tough times. In good times, CFOs must do a good job providing a strong financial foundation so the company can justify the investments needed to support change, drive innovation and ultimately deliver on the long-term growth strategy of the company. To read more, click the link below.
[Click Here to Read the Entire Article]
Headcount Reductions in Sector Nearly Complete; Job Growth Not Anticipated; 2010 Expected to Bring Stronger Revenue and Profitability
Senior business leaders in the banking and financial services industry foresee their industry’s recovery lagging that of the national economy, but still see 2010 as a turnaround year as they expect improvements in revenue and profitability, according to a recent survey conducted by KPMG LLP, the audit, tax, and advisory firm.
In the KPMG survey, slightly more than a third of the banking and financial services executives thought their industry would fully recover from the current economic crisis ahead of the overall U.S. economy. Yet, while expecting a comparatively slower recovery, 78 percent of banking and financial services executives expect the business conditions for their industry to improve in 2010 with 72 percent of them expecting much stronger revenue and 68 percent expecting improved profitability.
Stabilizing real estate market critical to recovery
When asked to identify the top three triggers they think will spur an economic recovery, 46 percent of banking and financial services respondents cited a stabilized real estate market, 45 percent said an increase in jobs, and 43 percent said improved consumer confidence. The banking executives most frequently cited the stabilization of the real estate market as a key trigger for recovery.
The three triggers cited least frequently by the banking and financial services executives included effective regulations (6 percent), government stimulus spending (3 percent), and government bailouts / Troubled Asset Relief Program (2 percent).
Biggest challenges to recovery
When asked to identify the biggest challenges they currently faced in dealing with the economic downturn, banking and financial services leaders most frequently cited managing risk (70 percent), finding new sources of revenue growth (57 percent), complying with regulations (44 percent), raising capital (44 percent), and restoring investor confidence (44 percent).
Risk management, IT and outsourcing all part of recovery efforts
More than half of the banking and financial services executives said they already had created or modified their risk management plans, while one-third more said they were in the process of doing so in reaction to the economic downturn. Interestingly enough, almost half (45 percent) cited implementing IT solutions to reduce operational costs as a means to adjust to the downturn, while about one-third said they were increasing the amount of outsourcing they were doing.
Headcount reductions almost complete; no growth predicted
Two-thirds of respondents in banking and financial services noted they had already completed their headcount reductions and only 15 percent were contemplating further actions.
Banking and financial services leaders were not sanguine about the employment situation in their industry next year; 70 percent said it would be worse or about the same. Conversely, 30 percent think it will be better in 2010.
About the survey
The KPMG survey was conducted from May through July of 2009 and reflects the responses of 130 CEOs and other C-level suite executives in the banking and financial services industry. There were an equal number of respondents amongst banks and other financial services companies. About 35 percent of respondents work for institutions with annual revenues exceeding $1 billion; 19 percent have annual revenues in the $250 million-$1 billion range, and 45 percent have revenues below $250 million. Clarion Research Inc. conducted the survey and compiled the data.
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Thinking about "friending" your boss on Facebook? You may want to reconsider. According to a recent survey, nearly half of executives are uncomfortable being friended by the employees they manage (48%) or their bosses (47%).
The survey was developed by OfficeTeam, a staffing service specializing in the placement of highly skilled administrative professionals. Executives were asked, "How comfortable would you feel about being 'friended' by the following individuals on Facebook?" Their responses:
Your Boss Your Co-workers People You Manage
Very comfortable 19% 13% 12%
Somewhat comfortable 8% 38% 32%
Not very comfortable 15% 13% 15%
Not comfortable at all 32% 28% 33%
Don't know 6% 8% 8%
100% 100% 100%
"The line between personal and professional has grown increasingly blurred as more people use social networking websites for business purposes," said Robert Hosking, executive director of OfficeTeam. "Although not everyone is comfortable using sites like Facebook to connect with professional contacts, it's wise to be prepared for these types of requests."
Director Resources
Say on Pay Legislation: A major step towards mandatory say on pay votes at all public companies was taken on July 31, 2009, when the House of Representatives approved the Corporate and Financial Institution Compensation Fairness Act of 2009. For an insightful analysis of the legislation by the Pearl Meyer & Partners compensation consulting firm, click here.
Executive Compensation: James F. Reda & Associates has published a study on performance metrics trends in executive compensation among the largest 200 companies in the S&P 500 Index. Among the findings: a shift away from long-term incentives to include more focus on short-term incentive plans; short-term incentive plan performance measures shifted to profit and cash flow from capital efficiency; and companies are increasing their emphasis on time-vested restricted stock and restricted stock units. Click here for a copy of the study.
Governance Regulatory Matters: An extraordinary amount of proposed corporate governance reform is currently under consideration. The Kirkland & Ellis law firm has begun issuing the Kirkland Governance Watch, a periodic publication summarizing significant corporate governance developments. Click here for a copy of the inaugural issue.
Boards and Risk: The SEC's proposed new rules that would impact the board's role in risk management and oversight are analyzed by KPMG in a new public policy alert. Click here for a copy of the alert. Also, the firm released in August its “2009 Fraud Survey Report.” Among the findings: one-third of executives expect fraud to rise in their organizations this year, and two-thirds say internal controls may need work. Click here for a copy of the report.
More on Risk: A recent survey by Ernst & Young LLP shows that companies spend about 4% of revenue on risk management activities. Considering the events of the past 12 months, it is not surprising that 96% of recent survey respondents believe that their risk management programs could be improved. Click here for a copy of the white paper titled, “The Future of Risk: Protecting and Enabling Performance.”
Pay for Performance: There is new evidence that many U.S. banks are failing to deliver on their often-stated goal of paying for performance. Presidio Pay Advisors studied executive compensation among a group of 115 publicly traded banks participating in the Troubled Asset Relief Program (TARP). Its finding: since 2006, changes in CEO and CFO compensation have no relationship with changes in the banks’ financial performance. Click here for the full study.
Role of the Board: The ABA’s Corporate Governance Committee Task Force has issued a report on the “Delineation of Governance Roles and Responsibilities” between shareholders and boards of directors, in light of the current economic climate and growing interest in corporate governance reforms in Congress and among regulators. The Report examines the extent to which rights and responsibilities of shareholders and boards of directors may be shifting, and includes a set of observations and recommendations for shareholders, boards, and policy makers. Click here to download the full report.
Resource-Filled Website: Change Leaders Inc., a consultancy specializing in board development, CEO coaching, and executive team development, has created a website with 600-plus links for CEOs, boards, and corporate governance topics. Click here to access the site.
Author Notes
Michael G. Oxley, a former member of Congress best known as co-sponsor of the Sarbanes-Oxley Act of 2002, has been elected chairman of the board of directors of the nonprofit Ethics Resource Center.
Stephen P. Lamb, who served as a vice chancellor of the Delaware Court of Chancery since 1997, is joining Paul, Weiss, Rifkind, Wharton & Garrison LLP as a partner in both the Corporate and Litigation Departments. Vice Chancellor Lamb left the court at the expiration of his 12-year term on July 28, 2009.
Jefferson Wells, a global provider of risk advisory, tax, and finance and accounting-related services, has established an alliance with S&S Business Solutions (S&S), a leading provider of professional services in India. The alliance agreement enables Jefferson Wells to meet its growing clients’ needs in the region by aligning with S&S’s established practice in India.
Richard A. Bennett, president and chief executive officer of The Corporate Library, the corporate governance research and risk analysis firm, was elected to the board of governors of the International Corporate Governance Network. ICGN is a not-for-profit, global organization of leaders in corporate governance whose mission is to raise standards of corporate governance worldwide.
Brand Velocity, an Atlanta-based IT consulting firm to Fortune 500 companies, has opened a Western Group in Los Angeles and hired Jay Wagman to lead the Los Angeles office. The expansion follows the recent launch of the company's book “Reinvent Your Enterprise” and Strategic Profiling®, the company's “enterprise project acceleration instrument,” both of which the firm says are “focused on implementing key Peter F. Drucker insights better and faster.”
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Directors & Boards e-Briefing is a monthly service of Directors & Boards. All contents copyright 2009, MLR Holdings LLC.