Book it: Best bets for board reading

LEADERSHIP Book it: Best bets for board reading From a roundup of new books, leadership insights on rethinking a succession plan, becoming a first-time president, stakeholder strategizing, VIP treatment, and an ISS-BRT pow-wow. An unprecedented trip to deliver a message From Corpocracy: How CEOs and the Business Roundtable Hijacked the World's Greatest Wealth Machine — and How to Get It Back by Robert A. G. Monks. Copyright 2008 by the author. Published by John Wiley & Sons Inc. ( O NE DAY IN LATE MAY 2006, Johii Castellani, the president of Business Roundtable (BRT), drove out to the Rockville, Md., headquarters of Insti- tutional Shareholder Services (ISS) to meet with its CEO, John Connolly. Judging solely by the surface of things, this VkTould not appear to be an extraordinary event. BRT is headquartered on Rhode Island Avenue in Washington, D.C. not more than a half hour away by car or Metro. What's more, the two groups would seem to share common interests. I founded ISS in 1985 to advise institutional investors on proxy voting and on corporate governance issues. Over more than two decades, much of that time under the innovative ownership of my son, Bobby, ISS has grown into the world's largest such service. Although Bobby sold the company in January 2007, the core mission of ISS remains unchanged: to enhance the interaction between shareholders and companies and to help shareholders manage risk and drive value. Business Roundtable is older than ISS by 13 years and has far deeper pockets. Formed in 1972 out of the merger of three preexisting organizations, BRT limits its membership to CEOs of leading companies. Inevitably, tensions arise between the two groups. ISS rep- Ed Note: Excerpts printed with permision of the publishers. All rights reserved. 54 DIRECTORS & BOARDS How CEOs and the Business Roundtable Hijacked the World's Greatest Wealth Machine— and How to Get It Back resents owners, especially the institutional shareholders who tend to be most involved in their ownership stakes. BRT speaks for management, in particular its very top tier. ]ohn Castellani had never visited ISS before, and when he did this time, he wasn't paying a courtesy call. Castellani had driven — or more likely had been driven — the roughly 20 miles between the two headquarters so he could berate John Connolly for ISS's rec- ommendation that Pfizer shareholders withhold their proxy votes from compen- sation committee members who were involved in ap- proving the pay package for CEO Henry McKinnell. The fact that McKinnell was dou- bling at the time as Business Roundtable chairman un- doubtedly stoked Castellani's fire, but Connolly was not a man to suffer insult lightly. "Are you threatening me?" he asked Castellani. "No," the artful BRT head replied. "I'm giving you a message." What was John Castellani's message? And why had he made this unprecedented trip to ISS's headquarters to deliver it? The answer to those questions goes to the heart of why the Busi- ness Roundtable really exists — its stealth core mission as op- posed to its public one. Robert A.G. Monks has served as a CEO, a director of 10 publicly trad- ed companies, a founder of Institutional Shareholder Services Inc, the LENS Fund and The Corporate Library, and has written six books on corporate governance ( Robert A. G. Monks LEADERSHIP The buses stopped running, unfortunately From Beat the System by Robert W. MacDoimUi Copyright 2008 by the author. Published by John Wiley & Sons Inc. ( A T LIFEUSA, we once told the agents that if they wrote a billion dollars worth of business, we would charter a boat and take them on a cruise in the Ca- ribbean. That was the kind of powerful incentive that was great for the company and its agents. But what about all of the home office employees who would be left out? Well, we told them we couldn't take the entire home office, but we did set up a system that allowed a large number of people from the home office to go on the cruise. What the program created was a sense of participation — from the mailrooni on up — in the awards program. We did the same kind of companywide reward system for another big event. Shortly after Allianz merged with LifeUSA, we decided to sponsor a golf tournament that happened to be held in Des Moines, Iowa. Now, when bureaucratic companies do this sort of thing, off go the chief executives, their senior people, and their big customers. They're flown first-class to the tournament site where they are wined and dined. That's a position we did not want to take. We wanted to foster the entrepreneurial man- agement lifestyle of LifeUSA in our new Allianz working environment. And we wanted to say to those people work- ing in the home office that you are as important as our customers and our chief ex- ecutives. One of the things we did was set up ways for people who worked in the home of- fice to get to Des Moines to participate in that golf tour- nament. We set up a series of buses so that everybody could go on certain days. When our employees arrived, they'd get the VIP treatment, including meeting the top players, and even caddy for them. The whole purpose was to make these em- ployees feel that they were truly our real VIPs. In later years, after 1 left the company, the buses stopped running, the event was moved to Florida, and the home office employees got the shaft. They're sitting in their cubicles, hear- ing about how al! of the executives escaped from the subzero February cold in Minnesota to enjoy the balmy sunshine on a tournament golf course in Boca Raton. Now, is that building "BEAT SYSTEM : < >: I 'L^^ to iiuiidiTig an KMr'-Lprcneurial Culture eaucratic World lllllllTl W. MiHillinillll an entrepreneurial culture or is that allowing bureaucracy to take over? Robert W. MacDonald rose from door-to-door insurance salesman to the CEO of Allianz Life of North America. He was the founder, CEO, and chairman of LifeUSA. This is his third book on leadership. Altering Alcoa's succession plan Frorti The Age of Turbulence by Alan Greenspan. Copyright 2007 by the author. Published by The Penguin Press (www.peuguin.corn). S hortly before I left for the Fed, 1 joined the majority of Alcoa directors in a rebellion against CEO Charles Parry, who was pressing the board to elevate chief op- erating officer C. Fred Fetterolf to succeed him upon retirement. There was no question of Fetterolf's superb under- standing of the internal tech- nical aspects of the company, but a number of us outside directors thought he lacked the broad global perspective that Alcoa was going to need in the following decade. The dissidents, led by W. H. Krome George, a former Alcoa chairman, and includ- ing me, Paul Miller of First Boston, Paul O'Neill, presi- dent of International Paper, and others, met one evening at the Links Club in New York and concluded that we had to counter Charlie's choice of Fred with an alternative. We surveyed the table and settled on O'Neill, my old friend and collaborator in the Ford adminis- tration. Support from most of the rest of the board and a little arm-twisting of Paul launched him on a very successful career as Alcoa's chairman until George W. Bush prevailed on him to become secretary of the Treasury in 2001. (In any event, Paul was about to retire and turn over the reins to Alain Belda.) Despite its all too obvious shortcomings, U.S. corporate governance over the past century must have something to recommend it. For were it otherwise, the U.S. economy could hardly have risen to its current state of world economic leader- ship. There can be no doubt that American business has been highly productive and profitable. This, along with my observa- tions of a quarter of a century of board experience, has led me to conclude, however reluctantly, that if owners are no longer the managers, CEO control and the authoritarianism it breeds Alan Greenspan THE AGE OF TURBULENCE FIRST QUARTER 2008 55 LEADERSHIP are probably the only way to run an enterprise successfully. These do not appear to be credible alternatives to placing the power of governance in the hands of the CEO and trusting that even his handpicked directors will hold him to task, or, if they prove unable or unwilling, that corporate raiders will take over and revamp management. Alan Greenspan served as chairman of the Federal Reserve Board from 1987 until his retirement in 2006. Rank stakeholders on their 'strategic posture' From Managing for Stakeholders by R. Edward Freeman, Jeffrey S. Harrison, and Andrew C. Wicks. Copyright 2007 by the authors. Published by Caravan, a Yale University Press book ( W E HAVE FOUND in our work with companies that it can sometimes be useful to try to cat- egorize stakeholders by their strategic posture. By "strategic posture" we mean the capacity for change in order to influence the outcomes of a decision. For instance, let us suppose that a particular stakeholder is very influential on the outcome of a project but is also very coop- erative, and if we lost their support the results would be disas- trous. Contrast this posture with one where a group has a large negative influence on a project that really couldn't get any worse, but if we could turn them around it would be an enormous help to us. By analyzing current be- havior, cooperative poten- tial, and competitive threat of each stakeholder we have a surrogate for the potential of a stakeholder to affect the ways that we create value. Obviously, we want to treat those stakeholders who have high cooperative potential and low competitive threat differently from those groups who have low cooperative potential and high competitive threat. Mana Stake Survivfli. Rep ging for holders R. Edward Freeman is the Elis and Signe Olsson Professor of Business Administration and director, Olsson Center for Applied Ethics, Darden School of Business, University of Virginia, and Andrew C. Wicks is as- sociate professor and co-chair of the Olsson Center. Jeffrey S. Harrison is the W. David Robbins Chair in Strategic Management, University of Richmond. The first rule of being a great leader From The Education of an Accidental CEO by David Novak. Copyright 2007 by the author. Published by Crown Business (wv/ I N 1997,1 WAS HUMMING ALONG as COO of Pepsi East when 1 attended a meeting in the Adirondacks of Pep- siCo senior executives. At the time, KFC was struggling for its seventh straight year. I knew something was about to go down. Not too long after that, 1 got a phone call from Wayne Callaway, chairman of PepsiCo. He asked me if Td be interested in becoming presi- dent of KFC. You would think that someone whose goal for such a long time had been "presi- dent of something" would have given more thought to the kind of president he might want to be, but I hadn't. In my defense, I was so involved in the nuts and bolts of the business, the question hadn't much occurred to me. Despite its best efforts to be otherwise, PepsiCo had always been more of a top- down company. Among the upper management there was a tendency of maintaining emo- tional distance, of putting some barriers between you and the people who worked for you so as to better be able to make the tough calls. That just wasn't me. One of the lessons I had learned years earlier from Jack Byrum, my image coach — "Don't look up, don't look down, always look straight ahead" — had had a profound effect on me. Now that 1 was the one that people would be looking up to as president, it was more important to me than ever that I came across as just a member of the team — albeit one who ultimately got to make the calls. That's just who I am — positive, upbeat, together we can get it done. I realized at that moment that I could never be "President David Novak." I had to be David Novak, who happened to be presi- dent. I no longer felt there was some idea of what a president had to be that I had to live up to. That might seem like a small thing, but it was a big deal for me, and it affected everything I did from then on. Today I preach that the first rule of being a great leader is to be yourself. David Novak is chairman and CEO of Yum! Brands Inc., an NYSE com- pany that is the world s largest restaurant company in terms of system restaurants, with over 34,000 restaurants in more than 100 countries. 56 DIRECTORS & BOARDS

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