January
The financial crisis has drained the world's capacity for dealing with shocks. That is one of the conclusions of the World Economic Forum's Global Risks 2011 report. Published in cooperation with Marsh & McLennan Companies and others, the report draws on the insights of 580 expert respondents.
The SEC adopts final rules approving the provision in the Dodd-Frank legislation that provides shareholders with the right to advisory say on pay votes. The advisory vote will apply to initial filings made on or after April 25, 2011 (with smaller companies exempt until 2013). Notes shareholder advisory firm GMI, “The new rules are designed to give shareholders greater input over executive compensation after many investors expressed outrage during the financial crisis at lavish pay practices.”
Warren Buffett decides to leave the board of Washington Post Co., a longtime investment of Berkshire Hathaway Inc. “At 80,” he says, “it was time to get off the board.”
Board shakeup at Hewlett-Packard: H-P appoints five new members — Shumeet Banerji, CEO of Booz & Company; Gary Reiner, former CIO of GE; Patricia Russo, former CEO of Alcatel-Lucent; Dominique Senequier, CEO of Axa Private Equity; and Meg Whitman, former CEO of eBay Inc. They replace four incumbents not standing for re-election — Joel Hyatt, John Joyce, Robert Ryan, and Lucille Salhany. The board now has a majority of directors who were not involved in the controversial ousting of former CEO Mark Hurd in August 2010.
In a conciliatory move, J.C. Penney Co. agreed to give two board seats to activist investor Bill Ackman and Steven Roth, chairman of Vornado Realty Trust, who have been amassing a stake in and collaborating to shake up the retailer.
“How sick is Steve Jobs?” asks the Wall Street Journal (WSJ) when the Apple CEO again announces he will be taking a medical leave for unspecified reasons. His departure raises anew the disclosure dilemma of a board with an ailing leader. Henry Blodgett of the Business Insider news site, writes, “In our opinion, the wording of one sentence of Steve's email to Apple staff in not encouraging: ‘I love Apple so much and hope to be back as soon as I can.' Those are not the words of someone taking a short leave who is confident he will be back at the company soon (or ever).”
Golden parachutes: CEOs who have generous severance deals are more likely to settle for lower acquisition premiums, according to a study co-authored by Ralph Walkling, a finance professor and executive director of the Center for Corporate Governance in the LeBow College of Business at Drexel University. He and his co-authors examined more than 850 acquisitions announced in the U.S. between 1999 and 2007.
ZL Technologies Inc, a leader in archiving and e-discovery software, announces its predictions for e-discovery in 2011. No.1 on its list is New Sources of Data Will Become Routinely Sought in Discovery, explaining: “There once was a time that email was not requested in discovery requests. And there was a time when nobody asked for voicemail, IMs, text messages or social media posts. But now, each of these are routinely sought in all lawsuits. This will not slow down in 2011.”
Pearl Meyer, a pioneer in the field of providing executive compensation consulting advice, dies. “For more than 30 years, Meyer served as trusted advisor to the boards and senior management teams of hundreds of major corporations. She played an integral role in developing many of today's most widely used board and executive compensation programs and arrangements,” notes the National Association of Corporate Directors (she was the first woman inducted into the NACD Directorship Corporate Governance Hall of Fame).
Davos imposes a gender quota for its 2011 gathering of honchos. The key group of 100 companies participating as “strategic partners” are told they must bring at least one woman in every group of five senior executives sent to the event — an attempt, reports The Guardian newspaper of the U.K., to “improve the traditionally dismal gender balance” at this high-profile summit.
GE Chairman and CEO Jeff Immelt is appointed by President Obama to chair the President's Economic Recovery Advisory Board — a decision that gets a big dose of second-guessing by critics who note the thousands of jobs GE has cut in the U.S. while shipping jobs offshore. “Is a multinational CEO the best jobs czar?” asks the New York Times (NYT).
Google Inc. names co-founder Larry Page to replace longtime CEO Eric Schmidt in “the biggest management shake-up since the Internet search giant was an obscure California start-up,” observes the WSJ. Schmidt will become executive chairman in April.
More boards in the making: The announcements that both Motorola Inc. and ITT Corp. will be splitting up into separate public companies presage a year ahead that will see several other boards deciding, often at the instigation of activist investors, to break up their companies.
M&A is off to a strong start in 2011. Thomson Reuters reports that the volume of M&A surged to $310 billion in January, up 69% from a year ago and the fastest start to dealmaking since 2000.
February
What some are calling the biggest M&A case in 20 years, Delaware Chancery Court Judge William Chandler upholds the poison pill defense put in place by Airgas Inc. to block a hostile bid from Air Products & Chemicals Inc., a battle that dragged out for most of 2010. In his closely watched ruling, Chancellor Chandler affirms that the “power to defeat an inadequate hostile tender offer ultimately lies with the board of directors” — important clarity on the balance of power between the board and shareholders in a takeover situation.
In another headline Delaware ruling, Vice Chancellor J. Travis Laster of the Chancery Court blasts the “manipulation” of the buyout of Del Monte Foods by the company's financial advisor, Barclays. The bank's tactics to protect its own interests in the transaction — “to obtain lucrative buy-side financing fees” — led to a defective sale process, the judge rules in delaying a shareholder vote on the buyout by a consortium of private equity investors led by KKR. (See sidebar on page 18.)
In “seemingly contradictory votes,” as the Financial Times (FT) calls the result, Apple Inc. shareholders at the annual meeting defeat an ISS-backed proposal requiring the company to disclose its CEO succession plan, but approve a CalPERS-introduced measure for majority voting of directors.
More than two dozen companies appeal to the SEC to revise its ‘whistleblower' plan requiring that workers report wrongdoings by employers, the WSJ reports. The companies are concerned that workers will be lured by the prospect of a huge payday by going direct to the SEC and bypassing corporate hot lines and other internal reporting mechanisms.
The Manhattan Institute launches ProxyMonitor.org, a new website (www.proxymonitor.org) described as “the first and only free, public database to contain shareholder proposal and proxy ballot information for the top 100 publicly traded American companies over the last three years (2008-2010).”
With the growing influence of long-term sustainability issues on business decisions, businesses will need to change the way they disclose their sustainability efforts in a more consistent and rigorous investment-grade report. That is a major conclusion of a new PwC report, “Creating Value from Corporate Responsibility.”
On the activist front: Carl Icahn discloses a 9% stake in Clorox Corp., and also says he wants three seats — and may nominate a full slate — for the Mentor Graphics Corp. board. And Nelson Peltz announces an 8% ownership stake in Family Dollar Stores Inc. and says he is willing to buy the rest of the retailer in a deal that could be valued as high as $7.6 billion.
A new boost for activism in Japan: Two organizations join together to launch a $1 billion fund to invest in underperforming companies and work with management to raise their value. Tokio Marine Asset Management, Japan's fourth-largest pension asset manager, and Governance for Owners, a U.K.-based shareholder advocacy group, are spearheading the Japan Engagement Fund, the first such move by a big Japanese asset manager, the FT reports.
Youth movement: In a roundup story on trends in CEO succession, Bloomberg BusinessWeek finds that “New CEOs have fewer gray hairs — recruiters say executives approaching 60 are today often bypassed in favor of younger candidates.” Another provocative claim: “Some recruiters see a limited pool of CEO candidates, especially since private equity firms have siphoned off talent from public companies' management.”
CFA Institute releases its “Compensation Discussion and Analysis Template,” a report that provides “much-needed guidance” for public companies wishing to improve the CD&A portion of their proxy statement.
Harvard Business School announces that it will be revamping its MBA program to give an increased focus to ethics and teamwork. The school's chief marketing officer, Brian Kenny, tells the WSJ that the changes are aimed at creating “leaders of competence and character, rather than just connections and credentials.”
In Deloitte's annual “Look Before You Leap” survey, nearly two-thirds of respondents (63%) — corporate executives, investment bankers, private equity executives, and hedge fund managers — report that FCPA and anticorruption issues caused their companies to renegotiate or terminate deals over the last three years.
March
Bank board seats in the spotlight: After only a year on the Goldman Sachs board, former Wal-Mart CEO H. Lee Scott decides to leave the board, per a Goldman statement, “as a result of increasing time requirements associated with his other commitments.” Over on the Morgan Stanley board, director Sir Howard Davies decides to stick with his board membership even as he steps down under a cloud of controversy from his leadership of the London School of Economics. The school is under fire for its ties to Libya's Col. Qaddafi and his son, Seif, a graduate of the school, and for the funding it has received from the regime
Total pay for nonemployee directors grew for the first time since 2008, as the value of board equity awards rose in line with improved stock performance, according to the 2010-2011 NACD Director Compensation Report released this month. In contrast, the cash portion of 2010 director pay packages — annual retainers and board meeting fees— was relatively unchanged.
A report from GovernanceMetrics International finds that more than 40% of the world's largest publicly listed companies have not appointed even one woman to their boards. Even in major markets like Japan, Italy, the United Kingdom, and the United States, women continue to be “grossly underrepresented” on corporate boards, GMI concludes.
A study by law firm Eversheds, reported in the FT, finds that better-performing companies have a higher representation of female board members — in fact, it is the “third strongest link to good share price performance,” after board size (smaller is better) and having substantial shareholders (who hold “more than 3% of the issued capital each”).
No fan of Dodd-Frank: Former Federal Reserve Board Chairman Alan Greenspan, writing in the FT, observes, “In pressing forward [to write its Dodd-Frank rules], the regulators are being entrusted with forecasting, and presumably preventing, all undesirable repercussions that might happen to a market when its regulatory conditions are importantly altered. No one has such skills.”
A stakeholder relations miscue? Kraft Foods Inc. CEO Irene Rosenfeld is excoriated in the U.K. media for snubbing an appearance before a Parliamentary body to answer questions on the company's post-acquisition handling of the Cadbury business. Writes an FT columnist: “If Ms. Rosenfeld had appeared before the committee, apologized fulsomely for the mistake [in how a factory closing was handled], said that she understood how angry the workers were and declared her affection for and commitment to the U.K., that would probably have been the end of it.”
Get out the vote: Richard Daly, CEO of Broadridge Financial Solutions Inc., the nation's largest shareholder communications company, in a speech before the National Press Club in Washington, D.C., calls on all CEOs to encourage individual shareholders, including employee shareholders, to vote their proxies. In 2010, he notes, just one in 20 individual retail investors exercised “their fundamental shareholder right” — down from “recent historical levels four to five times as high.”
The SEC issues draft proposals that would tighten the standards of independence for board compensation committee members and also for judging the independence of compensating consulting firms that boards would hire.
Still trying to lessen the Treasury's grip on its control and to strengthen its corporate governance, AIG adds two new board members — W. Don Cornell, former chairman of Granite Broadcasting Corp. and a former investment banker at Goldman Sachs, and John H. Fitzpatrick, chairman of Oak Family Advisors LLC and a former CFO at two insurance companies.
The wives of Washington Mutual's two top executives when the nation's largest thrift collapsed in 2008 are accused by the FDIC of illegally moving personal assets into trusts to shield them from legal claims — “the latest sign of how the FDIC is ratcheting up the pressure on executives and directors at financial institutions that failed during the crisis,” reports the WSJ.
Its governance was messy, what with J. Crew Group Inc. CEO Mickey Drexler negotiating the sale of the clothing firm before notifying the board of his talks with potential buyers, but the deal wins shareholder approval to be bought by two private equity firms.
Globalizing the board: Mukesh Ambani, chairman of Reliance Industries Ltd., is named a director of Bank of America, the first foreign citizen to be elected to the board of the nation's largest bank. Reliance, which has operations in petrochemicals and other businesses, is India's largest private enterprise and Ambani is India's richest man, the FT notes at the time of the appointment.
On the global governance front: Russian President Dmitry Medvedev issues a call to overhaul the boards of major state-controlled companies by replacing ministers and state officials with independent directors; and Germany's largest listed companies, caving in to government pressure, indicate that they will set voluntary quotas for women in top management by the end of 2011 (in 2010 only 2% of executive board members of the Dax index companies were women, according to a German research institute).
Warren Buffett's reputation as a governance maven — and judge of character — takes a beating when David Sokol resigns suddenly amid revelations about his personal stock trading in shares of Lubrizol Corp. ahead of Berkshire Hathaway's bid for the chemicals company. Sokol was seen as a leading contender to succeed Buffett as the head of the famed investor's holding company. In other “Sage of Omaha” news, in a speech in India, as reported in the FT, Buffett “criticized the pay policies of top U.S. companies for recklessly rewarding the success of their executives but failing to punish poor performance.”
Catalyst, the organization founded in 1962 to expand opportunities for women in business, presents its 2011 Catalyst Award to Kaiser Permanente, McDonald's Corp., and Time Warner Inc. “for their innovative and dynamic initiatives advancing women in the workplace.”
The SEC files charges against former McKinsey leader Rajat Gupta, accusing him of leaking inside information to a hedge fund while he was on the boards of Procter & Gamble Co. and Goldman Sachs Group Inc. A lawyer for Gupta calls the charges “totally baseless.”
A hazy (but prescient?) forecast: At an investor conference in Berlin, Carlyle Group's founder and co-CEO David Rubenstein predicts that social media will impact shareholder activism in ways that neither he nor other investment firms or corporations yet fully understand.
April
The California State Teachers' Retirement System (CalSTRS) and the California Public Employees' Retirement System (CalPERS) announce they are developing a new digital resource — the Diverse Director DataSource, known as 3D — devoted to finding untapped diverse talent to serve on corporate boards. The two big pension funds have commissioned The Corporate Library, which has an existing database of 130,000 public company directors, to develop the director data bank.
CTPartners Executive Search Inc. releases its annual list of hot executive jobs. The 2011 report also includes “Key Board Positions for 2011,” which the firm identifies as: 1) nominating committee member, 2) lead director, 3) nonexecutive chairman, 4) diverse director, and 5) chief human resource officer (CHRO). The firm notes that boards are beginning to search for CHROs “who can help them reorganize for the shift from recession to recovery. Strong CHROs are finally becoming strategic partners to the CEO and the board.”
Board-investor communications milestone: Occidental Petroleum Corp. becomes the first company to hold what is becoming known as a ‘fifth analyst call' — a conference call with a company's group of influential investors focusing exclusively on corporate governance matters. Participating in the call are Occidental's lead independent director and its chair of the executive compensation and human resources committee. This kind of call is proposed to be held in addition to the traditional four quarterly earnings calls.
The board, unveiled: China telecom equipment maker Huawei Technologies makes public for the first time the members of its board. The FT describes this as “an attempt to improve transparency and address U.S. concerns about its alleged links to the Chinese military.”
A Towers Watson analysis shows CEO compensation has “rebounded strongly” due largely to improved company performance and a rising stock market: median total cash compensation, which includes base salary as well as annual and discretionary bonus payments, increased 17% for CEOs in 2010. Other studies show that CEOs are now reaping huge option gains from grants given during the depths of the financial crisis. One disgusted money manager complains to NYT columnist Gretchen Morgenson: “Stock-based compensation plans are often nothing more than legalized front-running, insider trading and stock-watering all wrapped up in one package.”
William B. Chandler III, chief judge of the Delaware Chancery Court, announces he will be retiring. It is “the end of a storied judicial career,” writes the NYT “Deal Professor” columnist Steven Davidoff, noting Chandler's 26 years of service on the Delaware courts (14 years as Chancery Court chancellor) and his more than 1,100 judicial opinions, some of which — including the Disney decision on Michael Ovitz's pay and the Airgas decision (see February) “reshaped Delaware law.”
An “ill-tempered affair” is how the WSJ describes the BP annual meeting of shareholders, its first since the 2010 Gulf oil spill. With the company's share price still down by almost 30%, among the protest votes was a 43% withholding of support for the chair of the board's safety committee, Sir William Castell.
A “no conflict, no interest” policy of board membership? That, notes Business Insider, is an attitude held by venture capitalist John Doerr that raises hackles in Silicon Valley. BI reports that after receiving a legal opinion that as a member of Google's board of directors it would be a conflict of interest for Doerr to also join the board of Twitter, Doerr showed up at a Twitter board meeting as a “board observer.”
Nice work after giving up a board seat: In a filing to the SEC spotlighted by Business Insider, AOL paid board member Jim Wiatt a $1 million consulting fee after he stepped down from the AOL board. Wiatt is the former CEO of the William Morris talent agency.
Research by Heidrick & Struggles documents that over the past five years the number of foreign directors on the boards of the U.K.'s largest companies has jumped by more than half: 40% of directors of the 50 largest companies traded in London are now from outside the U.K., compared with 26% in 2005.
Not walking its own talk: The New York Stock Exchange, which “has always held itself up as a model of good corporate governance,” writes Andrew Ross Sorkin of the NYT, refuses to talk with a potential competitive bidder — rival Nasdaq OMX Group — as it pursues a merger with Deutsche Borse, much to the dismay of NYSE Euronext shareholders (fund manager Bill Miller is a particularly agitated holder). “When it comes to its own shareholder democracy, well, the NYSE is not as quick to take its own advice,” Sorkin observes.
Are boards too old? That was the cover story of the Second Quarter edition of Directors & Boards, published just as these two director developments are announced: Kirk Kerkorian, 93 years old, steps down from the board of MGM Resorts International to become an emeritus director and continuing adviser to the company; and L'Oreal heiress Liliane Bettencourt, age 89, is reelected to the board of the cosmetics company.
This might make boards nervous: According to data from Hedge Fund Research Inc., global hedge fund assets surpassed the $2 trillion mark for the first time ever, marking “a rebound for the industry from market losses and customer flight during the financial crisis,” the WSJ reports.
 
RIMS (the Risk and Insurance Management Society) and insurer Chartis form the Risk Management Hall of Fame (RMHF). The RMHF will maintain the history and tradition of the field of risk management and will serve as a means to recognize those professionals who have made significant contributions to advancing the discipline. 
The Center for Corporate Governance at Drexel University's LeBow College of Business presents the Outstanding Academic Contribution to Corporate Governance Award to Steven Neil Kaplan, the Neubauer Family Professor of Entrepreneurship and Finance at the University of Chicago. The distinguished scholar award is presented at the Center's annual academic conference on corporate governance.
Sustainability: A KPMG study reports that nearly 55% of U.S. executives say their organization has a formal sustainability strategy in place. Another 12% say they are working on a strategy and an additional 19% expect to eventually develop a formal plan.
May
The SEC releases its much-anticipated final whistleblower rules. The rules finalize Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. “Too many people remain silent in the face of fraud,” says SEC Chairman Mary Schapiro. But Steven Pearlman, co-chair of law firm Seyfarth Shaw's SOX whistleblower team, weighs in that the Dodd-Frank bounty provisions and the SEC's new implementing rules “give employees a strong incentive to bypass internal compliance mechanisms mandated by SOX and complain directly to the SEC. The potential consequences are daunting.”
The governance implications of dual-class stock structures as a management entrenchment mechanism come under close scrutiny as LinkedIn goes public with this structure in place. Despite the criticism, the IPO is a roaring success, closing on its first day of trading at $94.25, up from its $45 offering price. “LinkedIn may be using the hot demand for its initial public offering to adopt structures that shareholders will live to regret,” warns NYT columnist Steven Davidoff.
“Proxy season is a bust,” declares the NYT, noting a decline in shareholder activism, especially among hedge funds willing to initiate a proxy contest. Say on pay proposals are passing readily, with law firm Schulte Roth & Zabel reporting that in the first 30 days of the rules being in effect, say on pay proposals were approved at 93 of 95 companies.
Booz & Company's annual study of CEO succession among the world's top 2,500 companies reports that CEO turnover made its sharpest decline of the decade in 2010, falling 19% from 2009. The rate of CEOs forced from office fell to 2% globally, the lowest rate of chief executive terminations since 2001.
Martha Stewart Living Omnimedia “is about to get more of the Martha Stewart touch,” as entertainment news website TheWrap notes when the company announces that she will be rejoining the board later in the year. A 2006 settlement with the SEC barred her from being a director or officer in a public company for five years.
Concerns about violations of the Foreign Corrupt Practices Act at Avon Products Inc. heat up as a probe that started three years ago into bribery payments to foreign officials appears to widen from the original focus on China. The company reveals that it fired four executives involved in payments to Chinese government officials.
No, it sure doesn't: “It doesn't make the Yahoo board look like they were on top of things,” says fund manager and Yahoo shareholder Eric Jackson when it is revealed that one of the company's prized investments, a stake in the China online payment company Alipay, was sold out from under it in a transaction arranged by Chinese Internet firm Alibaba's CEO, Jack Ma.
Lead directors: The National Association of Corporate Directors (NACD) convenes an influential group of over 20 corporate directors and governance thought leaders to begin the “2011 Report of the NACD Blue Ribbon Commission on the Lead Director.” The commission, chaired by Barbara Hackman Franklin, director of Aetna Inc. and Dow Chemical Co., and Irv Hockaday, director for Ford Motor Co., Estee Lauder, and Crown Media Holdings, will develop recommendations focused on defining and clarifying the role of the lead director in the boardroom. Lead directors serve on 66% of boards, a significant rise from only 39% just five years ago, according to the NACD.
Reputational risk has overtaken regulatory compliance risk as a board's primary concern, according to EisnerAmper's second annual board of directors survey.
Ernst & Young LLP enhances its corporate governance advisory capabilities with the addition of a corporate governance team and other assets from Proxy Governance Inc. (PGI). With its newly established Corporate Governance Group, E&Y says it now has “a unique ability to examine the governance and shareholder engagement needs facing boards and senior executives.”
Topping this year's list (compiled for the WSJ by the Hay Group) of highest-paid CEOs is Philippe Dauman of Viacom at $84 million, Larry Ellison of Oracle at $69 million, Leslie Moonves of CBS at $54 million, Martin Franklin of Jarden at $45 million, and Michael White of DirecTV at $33 million. In its own reporting on the highest-paid CEOs, Bloomberg Businessweek declares, “In the boardroom, it's as if the Great Recession never happened.”
A coda to a top risk-management governance story of 2010 comes when a yearlong investigation into the Massey Energy Co. explosion that killed 29 mine workers in West Virginia concludes that the accident was “primarily the result of the failure of the company's safety systems, as well as inadequate oversight by federal and state regulators” (WSJ).
This can't be a good sign: On the eve of its initial offering on the NYSE, Chinese social networking company Renren Inc. replaces the chair of its board audit committee. The IPO still has a nice pop (up 37% at one point over its $14 offering price) on its first day of trading, but investors begin to bear down hard on the accounting and governance at U.S.-listed Chinese companies.
Catalyst President and Chief Executive Officer Ilene H. Lang is honored with the John C. Whitehead Social Enterprise Award by the Harvard Business School Club of New York. Lang is recognized for “applying innovative business practices and managerial disciplines to drive sustained social change.”
The FT reports that “British headhunters are putting the finishing touches to a code of conduct to counter accusations that they are hindering women's entry into boardrooms,” adding that the move was demanded by an official investigation into why the FTSE 100's representation of female nonexecutive directors “has remained stuck at 12.5%.” In the U.S., one company that comes under a shareholder and publicity barrage for not having any women on its board is clothing retailer Urban Outfitters, as Calvert Investment Management Inc. and Connecticut's public pension fund get 23% voting support for their proposal to have the company update its diversity practices and open up its boardroom to women and minorities.
Hedge fund billionaire Raj Rajaratnam is convicted of insider trading, handing the government “its biggest victory in a generation in its campaign to root out corruption on Wall Street,” writes the FT. His circle of acquaintances included Rajat Gupta, former board member of Procter & Gamble and Goldman Sachs, among other companies (see March).
June
Director pay in the middle market is up 7%, reflecting the increased responsibilities, time commitment, and regulatory issues — such as Dodd-Frank — that boards face today. These factors, coupled with a rebounding stock market, have allowed companies to increase director pay to $110,155, up from $102,809 in 2009, according to an analysis of 600 companies conducted by BDO USA LLP, a leading accounting and consulting organization.
The Public Company Accounting Oversight Board states that it will consider mandatory rotation of audit firms to help improve audit quality and the independence of auditors from their audit clients. The PCAOB is also proposing that audit firms disclose more judgmental information about the quality of a company's financial reporting and “more insightful assessments of management's stewardship,” says PCAOB Chairman James Doty.
Companies are being pressured to adopt policies against using corporate funds for political purposes. For a high-profile demonstration, several investor organizations are using Target Corp.'s shareholder meeting this month to protest the retailer's “spending of corporate profits on politics,” as Common Cause, one of the protesters, announces. The Conference Board forms a committee of Fortune 500 companies to study the disclosure and accountability of corporate political spending.
In what observers see as its beefing up the board in advance of an IPO filing, Facebook Inc. adds Netflix Inc. CEO Reed Hastings as a director. Fortune magazine calls it as “a strategically brilliant move” by Hastings, as Netflix “could gain a significant competitive advantage by nursing a deeper relationship with the world's dominant social network.”
LRN's fourth annual Ethics & Compliance Leadership Survey finds that almost half of ethics and compliance leaders now report to the board of directors on a quarterly basis, up from only 27% in 2010.
In a reaction to an ISS recommendation to remove Chesapeake Energy Corp. CEO Aubrey McClendon from the board of the energy company for “appearing to flout normal standards of corporate governance regarding compensation” (WSJ), the board gives way and files a statement with the SEC committing to implement an “executive compensation system that includes objective performance criteria.”
Kenneth Chenault, American Express Co. chairman and CEO, is honored with the “Legend in Leadership Award” from the Yale Chief Executive Leadership Institute. Jeffrey Sonnenfeld, senior associate dean for executive programs at the Yale School of Management, says in his tribute remarks: “From the disruptive technological and consumer market revolutions that converged on the world of finance in the 1980s and 1990s, to the horrors of the 9/11 attack on the World Trade Center adjacent to American Express, to the turmoil and its consequences over the past decade, and the global financial crisis of this current decade, Ken Chenault has been both a stabilizing pillar of wisdom and an inspiring leader with compelling vision for the future. As a leader who embraces change, Ken is referred to by many CEOs as a model for sorting through and refining regulatory changes, identifying new consumer interests, entering emerging markets, and embracing new technologies.”
Attention, bank boards: You may need to raise more capital, suggests Federal Reserve Governor Daniel Tarullo. Capital cushions may be needed at levels higher than that agreed to by policymakers at Basel in 2010.
A record 109 shareholder resolutions are filed in the 2011 proxy season with 81 U.S. and Canadian companies on climate change and related sustainability risks, reports Ceres, which leads a coalition of investors and NGOs that works with companies to address sustainability challenges such as climate change and water scarcity.
“The Changing Face of Proxy Solicitation” is how Corporate Secretary magazine describes the proposed $500 million merger of Computershare and Bank of New York Mellon's investor services business, the two largest players in the transfer agency business.
Former U.S. Senator Rick Santorum steps down from the board of Universal Health Services Inc. as he formally announces he will be campaigning for president of the United States. He joined the for-profit hospital chain board in April 2007.
The rate of dismissal of CEOs in the S&P 500 due to disciplinary actions has increased in recent years, while 25% of boards of directors facing a chief executive succession have opted for an outside hire, according to “The 2011 CEO Succession Report” from the Conference Board, the global business research and membership organization.
The City of London's reputation for corporate governance probity is damaged when two independent directors of Eurasian Natural Resources Corp. are ejected after expressing a lack of confidence in the CEO. Such a move is seen as imperiling minority shareholders in foreign (especially Russian) companies flocking to list on the LSE. The FT reports that “Corporate governance experts say that they cannot recall any other case of a director of a blue-chip company being dismissed in the 27-year history of the FTSE 100.”
The governor of Delaware nominates Court of Chancery Vice Chancellor Leo E. Strine Jr. to replace retiring Chancellor William B. Chandler III as the top judge on the top business court in the country. He has served as vice chancellor since 1998. His appointment is confirmed on June 22 (see sidebar on page 34). Chandler joins Wilson Sonsini Goodrich & Rosati as a partner and will advise clients on internal investigations, M&A transactions, and corporate governance matters.
On the activism front: Investor Nelson Peltz, known for shaking up food companies such as Wendy's and H. J. Heinz, buys a stake in Kraft Foods Inc. And Carl Icahn plans to nominate four candidates to the board of Forest Laboratories Inc. One of his nominees is Lucian Bebchuk, a professor of law, economics, and finance and director of the program on corporate governance at Harvard Law School.
“It turned out to be the worst decision we ever made,” an unnamed Bank of America board member tells the WSJ as the bank announces a $20 billion charge tied to its $2.5 billion purchase of Countrywide Financial Corp. in 2008. Another bank board wrestling with the aftermath of loan problems stemming from the financial crisis is Regions Financial Corp., whose audit committee is investigating whether company executives delayed disclosure of souring loans.
Grounded boards? President Obama targets the tax breaks given for corporate jet ownership. He wants Congress to limit the depreciation break for executive jet owners.
At its annual meeting this month, management and the board of Tokyo Electric Power face the wrath of shareholders for the first time since the meltdown of the company's nuclear plant in March. With its share price down 85%, the company still is able to see through the reappointment of its 17 board members, including its 71-year-old chairman, “raising questions about the extent of the overhaul that the company promised after the nuclear disaster” (NYT).
“If you lose your C-suite job, at least you can keep Angry Birds,” notes the WSJ, citing the Footnoted research service as “ferreting out” a new trend in severance perks — taking your iPad with you when you leave office.
Consumer activist Ralph Nader “is taking up the cudgel for another oppressed class, the shareholders of Cisco Systems,” writes Barron's in describing the longtime crusader's campaign to have the technology company pay out more of its cash hoard to shareholders. Writes Nader in a letter to Cisco CEO John Chambers: “It is time for a long-overdue Cisco shareholder revolt against a management that is oblivious to building or even maintaining shareholder value.”
Citing ISS Europe data, The Economist identifies what it terms a “controversial recent trend” in European corporate governance: an uptick by companies to recombine the roles of chairman and CEO. In Great Britain the share of companies where the same person holds the two top roles fell from 5.2% in 2007 to 1.5% in 2011, but on the continent the numbers rose from 10% in 2007 to 16% in 2011.
July
This month marks the one-year anniversary of the Dodd-Frank Act. Taking the positive view, the FT editorial page judges it “a flawed financial reform, but a step forward” in mitigating systemic risks in the banking system. The always quotable Steve Wynn, CEO of Wynn Resorts, tells a conference call audience: “I'm saying it bluntly that this administration is the greatest wet blanket to business and progress and job creation in my lifetime…. I could spend the next three hours giving you examples of all of us in this marketplace that are frightened to death about all these new regulations coming from left and right.” For this “not-so-happy birthday,” as Barron's calls it, of Dodd-Frank, the National Association of Corporate Directors issues an updated version of its most widely read publication — the “Report of the NACD Blue Ribbon Commission on Director Professionalism.”
The D.C. Circuit of Appeals strikes down the SEC's proxy access regulation, a victory for the Business Roundtable and U.S. Chamber of Commerce, which had sued to overturn the rule. The SEC had issued a stay on the rule in September 2010 pending judicial review. The Competitive Enterprise Institute notes that the decision marks the first court invalidation of a rule stemming from the Dodd-Frank Act. “We think the court got it wrong,” says Ann Yerger, executive director of the Council of Institutional Investors, adding, “We will continue to advocate for proxy access and will encourage the SEC to promptly address the court's concerns.”
As if Dodd-Frank is not enough, boards now have to be mindful of the U.K. Bribery Act of 2010, which becomes effective July 1, 2011. Legal and D&O experts are warning of its “long arm” and how it surpasses the FCPA in potential liability exposure as governments around the world increasingly collaborate on cross-border cases.
“Ink-Stained Wretchedness” is how Bloomberg Businessweek headlines a story on the erupting phone-hacking scandal at Rupert Murdoch's News Corp., and that same headline might well describe how shareholders are feeling about the company's governance. As investigators and the media dissect the events and executives involved, many questions are raised about the lack of independence of the News Corp. board and how a “culture of lawlessness,” as the FT calls it, “was allowed to take hold” under the board's oversight.
The European parliament calls for EU-wide legislation to ensure that company supervisory boards consist of at least 40% women directors by 2020. The FT notes that there are just over 10% female directors in large listed companies in the EU, “a figure that has hardly risen in recent years.”
To help address its problems arising from government investigations of deficient manufacturing processes at certain of its plants, the WSJ reports that Johnson & Johnson's board has agreed to create a new regulatory and compliance committee that will monitor oversight of compliance and quality issues.
Big California pension fund CalSTRS reports strong success during the 2011 proxy season in engaging companies to adopt a majority voting standard, which requires that a board nominee receive a majority of the shareholder votes cast in order to be reelected. The fund's engagement on the issue resulted in its withdrawal of 21 of 26 proposals to adopt majority voting “after companies made progress in implementing the proposals.”
Dennis Beran, CIA, CCSA, senior vice president and director of audit at J.C. Penney Inc., is elected chairman of the board of the Institute of Internal Auditors for 2011-2012. Beran has spent his 40-year career at J.C. Penney, joining the company in 1971.
Carl Icahn makes a bid for Clorox Co. — at $76.50 a share, which values the household goods maker at $10 billion. While some market observers claim “Icahn fatigue” over his latest activist foray, NYT columnist Steven Davidoff reminds readers of a 2011 study (titled “Is Carl Icahn Good for Long-Term Shareholders?” by professors at Oklahoma State University and Texas A&M) that finds that companies that are acquired after Icahn takes a stake experience average stock gains of 25%. Shares in those businesses that remain independent fall roughly 60% in the 18-month period after his ownership is disclosed. What the study concludes, according to Davidoff: “The problem may not be Mr. Icahn but rather the failure of the troubled companies to follow Mr. Icahn's strategies.”
Facing restive shareholders at its annual meeting, Research in Motion Ltd. pledges to review its leadership structure, in which its two top executives share co-CEO and co-chairmen roles. The company reaches a compromise with one of its institutional investors to withdraw a proposal to separate the chairman and CEO positions and to have an independent director appointed chairman.
The governance of Chinese companies comes under heightened scrutiny as rating firm Moody's warns of “red flags” at 61 companies, highlighting concerns over opaque business models, quality of earnings, and quality of audits and financial statements.
Mid-year tally: 98.5% of companies have received say on pay approvals from their shareholders. Of 2,532 companies reporting, tracked by pay consultancy Compensia Inc., only 39 received a turndown vote. Prominent among those is Hewlett-Packard Co. and Stanley Black & Decker Inc.
August
Steve Jobs officially steps down as CEO of Apple Inc. He will remain as chairman. In a tribute on its editorial page, the WSJ writes: “When the history of the past 40 years is written, who will be seen as the more consequential figure — the average American President, or a college dropout who built the first personal computer in a garage and went on to lead the most important company of the early 21st century? We'll put our history money on Steve Jobs.” Also this month, Apple and ExxonMobil Corp. take turns atop the list of “World's Most Valuable Company.”
“It has been a month of seismic change for the tech sector,” notes the Knowledge@Wharton newsletter — citing the resignation of Steve Jobs as Apple's CEO and the upheaval at Hewlett-Packard Co. H-P shocks investors when it discloses that it is looking to sell or spin off its PC business and that it has agreed to pay $10 billion for a British software maker. “I didn't know there was such a thing as corporate suicide, but now we know that there is,” former H-P director Tom Perkins tells the NYT.
Another set of shocked investors are those at Bank of America when the market pounds the stock as speculation rises that the bank will need to raise billions in more capital. Shares are down over 50% so far this year. “Bank of America shareholders are assigning themselves to life on skid row,” declares the breakingviews.com website. But Warren Buffett comes to the rescue of the beleagured bank with a $5 billion investment infusion seen as “a desperately needed jolt of confidence” (WSJ).
A new high for women directors:
Directors & Boards announces that a record number of women were elected to corporate boards in the second quarter of 2011. According to its Directors Roster research tracking of board appointments, 48% of newly named directors were women. The previous high-water mark was 43% in the third quarter of 2009. (Pictured is Elizabeth Comstock, senior vice president and chief marketing officer of General Electric Co., who joined the Nike Inc. board during the 2011 second quarter.)
The National Association of Corporate Directors introduces a credentials program for corporate directors — which the organization calls the first of its kind. By completing educational requirements in the NACD Fellowship Program, directors obtain the credential and renew it annually. “The program provides a mix of informational, situational and skills-specific courses resulting in better informed directors,” says NACD President and CEO Ken Daly.
In a sudden ouster, the board of Bank of New York Mellon Corp. forces the resignation of Chairman and CEO Robert Kelly. Press reports say he had alienated some board members and officers by becoming difficult to work with and “blaming some company problems on other members of senior management” (WSJ) and that the board feared losing highly valued employees.
Scrambling to contain the damage from the phone hacking scandal at News Corp. (see July), the planned nomination of Elisabeth Murdoch to the board is pulled. The board still professes full confidence in Rupert Murdoch's leadership, and Murdoch says he intends to remain in his dual role of chairman and CEO and that he has no plans to make changes to the board, notwithstanding the growing criticism of the board's closeness to the CEO.
Just say no: Starbucks chief Howard Schultz sends a letter to fellow CEOs asking them to end donations to either political party until lawmakers “deliver a fiscally disciplined long-term debt and deficit plan to the American people.” More than 100 business leaders quickly sign on to the campaign.
Bullish boards: With share prices nose-diving this month (the S&P skids 11%) over global financial system fears, but with earnings rising, more companies announce share buybacks this month than in any month since 2008.
On the activist front: Stepping up his fight with Clorox (see July), Carl Icahn threatens to replace the company's board with his own candidates after his acquisition offer is rebuffed; Kraft Inc., under pressure from investors, including Nelson Peltz (see June), announces it will split up into two separately trade companies, one focusing on its international high-growth snacks business and the other on a lower-growth North American grocery foods business; and there is speculation that McGraw-Hill Cos. may be broken up now that two institutional investors are increasing their ownership stakes in the data and ratings-service company.
“One naughty case of pillow talk” is how the New York Post (NYP) describes the SEC's settling charges with the husband of former Playboy Enterprises Inc. CEO Christine Hefner for insider trading in the shares of the company's stock. According to the government's complaint, Hefner warned her husband about trading in the company's shares and even asked the company's general counsel to talk to him about the dangers of insider trading.
The board of AT&T Inc. is in for a long legal battle as the Justice Department sues to block the proposed $39 billion takeover of T-Mobile USA.
Paul DeNicola, director at The Conference Board's Governance Center (and a Millstein Center “rising star” in corporate governance — see June) joins PwC's Center for Board Governance as a
director.
September
Bye, bye Leo Apotheker: After less than a year on the job, H-P's CEO gets booted by the board. Among the post-mortem revelations is that many of the board members chose not to meet Apotheker when he was being interviewed for the job. “Maybe Hewlett-Packard's board should fire itself,” opines the WSJ. Choosing not to conduct another CEO search, the board turns to fellow director Meg Whitman, who joined the H-P board in January 2011, to step in as CEO, a move that prompts another round of questioning of the H-P board's actions.
Bye, bye Carol Bartz: “I am very sad to tell you that I've just been fired over the phone by Yahoo's Chairman of the Board,” writes Bartz in an email to employees announcing her ouster as Yahoo CEO. Henry Blodgett of Boardroom Insider sums up Yahoo's situation thusly: “The company has gone from being the bright, shining leader of a vibrant new industry to a collection of aging assets that the board of directors can't seem to figure out what to do with.” One person who steps into the mess is activist investor Daniel Loeb, who acquires a 5% stake in Yahoo and calls for “sweeping changes” in both the board and company leadership. “Firing a chief executive by phone smacks of hasty, panicky decision-making,” comments The Economist. “Doofuses” is what Bartz calls the Yahoo board in a post-firing interview with Fortune.
The SEC says it will not appeal a federal court decision (see July) that struck down its proxy access ruling that would have given shareholders more power to nominate and oust directors. SEC Chairman Mary Schapiro says she is “committed to finding a way to make it easier to nominate candidates to corporate boards” and that the agency will continue to review the court's decision.
Corporate boards are vulnerable to hacking and information theft, reports a Thomson Reuters survey. Information provided to members of corporate boards is often in unencrypted email accounts and computers or otherwise provided in forms that are easily lost, misplaced or stolen, making boards a “weak link” in the chain of information security.
The pension plan of the American Federation of State, County and Municipal Employees (AFSCME) files a shareholder proposal asking Goldman Sachs to adopt an independent board chair, a move that would strip Lloyd Blankfein of the position. “Goldman shareholders would benefit from independent board leadership,” says AFSCME President Gerald McEntee. “It's time for Lloyd Blankfein to stop grading his own homework.”
Board shakeup at News Corp.: Venture capitalist James Breyer of Accel Partners is nominated to the board of the media company, while two longtime directors, Thomas Perkins, another successful VC, and Kenneth Cowley, a former News Corp. executive, will be stepping down. A group of shareholders file an amended class action suit in Delaware claiming the phone-hacking scandal is part of “a broader, historic pattern of corruption.” Says Jay Eisenhofer, a lawyer for the shareholder group, “The revelations surrounding News Corp.'s corporate governance lapses get worse with each new disclosure.”
All eyes on a Facebook IPO: Word is filtering out that the social networking giant is definitely eyeing a 2012 IPO, and in a move seen as further bolstering its board in advance of an offering, the company adds Washington insider Erskine Bowles to its board. Bowles, a former Clinton administration chief of staff and former co-chairman of the Obama administration's deficit-reduction commission, also holds board seats with Morgan Stanley, Cousins Properties, Norfolk Southern, and Belk Inc.
Why do investors vote against executive compensation? A survey from the Council of Institutional Investors and Farient Advisors nails down the four primary reasons: pay for performance disconnect (92%), poor pay practices (57%), poor disclosure (35%), and reasonableness of compensation (16%).
Facing activist investors pushing for a splitup (see August), McGraw-Hill Cos. announces it will separate into two public companies, a financial services business and an education products business. Chairman and CEO Harold “Terry” McGraw says the changes have been studied for a while and are not in response to investor pressures. More splitup news: Tyco International Ltd. will separate into three companies, its second breakup in four years, “sending another signal that the era of the conglomerate is drawing to a close” (WSJ).
Lacking shareholder support, Carl Icahn withdraws the slate of directors he put up for his bid for Clorox Co.; meanwhile, Clorox Chairman and CEO Donald Knauss is named by Corporate Responsibility magazine as a 2011 Responsible CEO of the Year. Among other sustainability initiatives, the award credits Knauss for “providing full disclosure of ingredients in its cleaning products and committing to decreasing greenhouse gas emissions, energy consumption, and water use each by 10% by 2013.”
Sitting on their cash is what boards are doing: the Federal Reserve reports that corporations have a higher share of cash on their balance sheets than at any time in nearly half a century.
When asked what topics they would like to spend more time on, a majority (55%) of board members at public companies give a nod to risk management. The 2011 BDO Board Survey also found that 71% of directors say they do not want to spend more time on executive compensation.
The Business Law Section of the American Bar Association (ABA) appoints John H. Stout to a three-year term as chair of its 2,400-plus member Corporate Governance Committee. The committee is responsible for monitoring developments in corporate governance and promoting dialogue regarding corporate governance within the ABA. Stout is chair of the Corporate Governance and Investigations Group of Fredrikson & Byron, a Minneapolis law firm.
October
Among the remembrances of this month being in certain respects the 10th anniversary of the disaster that was Enron is this from Andrew Hill of the FT: “On Oct. 16, 2001, Enron hosted the earnings call that first alerted the world to the toxicity of its off-balance-sheet arrangements. It triggered a death spiral.…Enron was turned into books, films, a play and a byword for fiduciary failings and fraud.”
Occupy Wall Street gets busy occupying the press and public's attention. “I continue to be impressed with the Occupy Wall Street protestors,” writes famed shareholder proponent Robert Monks on his website. “They are a daily, hourly reminder of the dysfunctionality of our political and economic system.” In an advisory to corporate leaders titled “The October Surprise,” CEO advisor Robert Dilenschneider counsels, “This is not the right climate to ignore the public's fears and anxieties or to stoke them by insensitive displays of wealth and extravagance. A company's reputation for good governance, social responsibility, compassion for employees and willingness to do what it can to help those in need has never been more important. But in this climate such a reputation is easy to lose and if lost, difficult to regain.”
“A very rich adieu” is how the WSJ characterizes the $100 million in cash being paid to Nabors Industries Inc. Chairman and CEO Eugene Isenberg as a severance payment — although he is not leaving the company. The payment is being triggered by his giving up the CEO title. It is “one of the largest executive paydays in recent years,” the WSJ reports.
Rupert Murdoch and the rest of the News Corp board are reelected at the annual meeting this month “despite fiery attacks from shareholders” (NYT). Murdoch tells shareholders, “We cannot just be a profitable company. We must be a principled company. We must admit to and confront our mistakes and establish rigorous and vigorous procedures to put things right.” The NYT reports that shareholders voted largely against reinstating Murdoch's two sons, James and Lachlan, to the board as per the tally the company filed with the SEC.
Barclays Capital and Del Monte Corp. agree to pay the food company's shareholders nearly $90 million to settle a case that raised conflict of interest issues about deal-financing practices once common on Wall Street (see February). The settlement, reports the WSJ, counts as one of the largest in a shareholder lawsuit challenging an M&A transaction and “also marks the rare instance in which a bank advising a company, rather than just the company itself, ended up named as a defendant in a deal-related shareholder suit.”
Joining this year's breakup club is Abbot Labs, announcing that it will spin off its $18 billion pharmaceutical business in search of “unlocking shareholder value.” Writing on his leadership blog, former Medtronic Chairman and CEO Bill George turns thumbs down on the move: “It is hard to see how any sustainable economic value will be created by the bit of financial engineering.…After decades of success, why shift to chasing short-term shareholder value?”
Time to ask yet again, “Where was the board?” as MF Global Holdings collapses into bankruptcy. “This one's right up there with the most spectacular CEO disasters ever,” notes Business Insider's Henry Blodget, adding “18 months after Jon Corzine took over the helm of MF Global with the goal of building it into a real investment bank, he flew the company into a mountain.”
Crunching its latest numbers on director pay at the Fortune 500, Towers Watson finds that total compensation for directors climbed 6% in 2010 to a median value of $212,512. Total comp includes cash, annual or recurring stock, and factors in the annualized value of one-time equity grants some directors receive when joining the board. More than half (54%) of director pay came from equity, while 46% was from cash.
Governance scandal in Japan: Michael Woodford, the CEO of optical products maker Olympus, is abruptly fired after charging the board with overseeing bizarre M&A purchases with exorbitant fees paid, involving elusive offshore special purpose vehicles. A Briton, he was the head of the company's European operations before being named CEO in February 2011, the first non-Japanese executive to run Olympus in its 92-year history. In the widening investigation, the chairman of Olympus, Tsuyoshi Kikukawa, a 40-year veteran of the company, resigns.
The New York Post reports that hackers who infiltrated the Nasdaq's computer systems installed malicious software that allowed the hackers to spy on directors of publicly traded companies. Nasdaq's trading platforms were not compromised but its Directors Desk program was attacked. An FBI and National Security Agency investigation is ongoing.
Negotiations are underway between U.S. and Chinese authorities to allow American audit firm inspectors into China to scrutinize the work of Chinese accounting firms. Numerous questions are being raised about the veracity of the financials of U.S.-traded Chinese companies, many of which are audited by Chinese firms.
The SEC announces that Chairman Mary Schapiro will stay with the agency for at least another year if not longer. President Obama, who appointed Schapiro to head the SEC, affirms his support, crediting her “tireless work to ensure that the commission is effectively fulfilling its mission of enforcement, implementing reforms of the financial system, and protecting our public markets.”
The University of Michigan Law School joins the ranks of academic institutions that have launched a directors college. Its Directors' College for Global Business and Law, which the school says is “being designed with business in China and India in mind,” will hold its inaugural program in April 2012 in Washington, D.C.
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 survey by Thomson Reuters Governance, Risk & Compliance. The survey was conducted of U.K. and global companies polling general counsel and corporate and company secretaries across a wide variety of industries.
Fraud remains predominantly an inside job, according to the Kroll Annual Global Fraud Report. This year's study shows that 60% of frauds are committed by insiders, up from 55% last year.
IBM Corp. names Virginia Rometty as its next CEO, taking office on Jan. 1, 2012. Samuel Palmisano will remain chairman. With her appointment there will be for the first time 16 women CEOs of Fortune 500 companies, according to Catalyst. IBM is celebrating its 100th anniversary in 2011. Rometty is a 30-year veteran with Big Blue.
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 KPMG Audit Committee Institute. 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).
Steve Jobs, Apple co-founder and a pioneer of the personal computer industry, dies on Oct. 5 at the age of 56. From Apple CEO Tim Cook's note to employees: “Apple has lost a visionary and creative genius, and the world has lost an amazing human being.…Steve leaves behind a company that only he could have built, and his spirit will forever be the foundation of Apple.” Attention again shifts to the Apple board. As the WSJ's Joann Lublin writes, “For years, the company's directors operated in [Steve Jobs's] long shadow.…The board went along with [his] culture of secrecy and never developed a significant counterweight to the chief executive.”
November
Shoring up its board after the death last month of Steve Jobs, Apple appoints Walt Disney Co. CEO Bob Iger as a new director, and longtime director Arthur Levinson, chairman of Genentech Inc., will become board chairman. Apple did not have a chairman until Jobs took on the role in August, when he relinquished his CEO position. “There may be no more prestigious perch in global business than a seat on the board of Apple,” comments the FT.
Where was the board? — the board of trustees of Penn State University, that is, as a scandal breaks out involving allegations of child sex abuse committed by a former assistant football coach. In a WSJ op-ed, Anne Neal, president of the American Council of Trustees and Alumni, writes: “Every generation or so, a scandal emerges that not only exposes the flaws of an institution but shakes entire industries to their foundations. For higher education, that scandal should be Penn State.”
Theodore Forstmann, considered a pioneer of the leveraged buyout, dies at the age of 71. Beginning in the 1970s he bought, sold, and turned around dozens of companies, including Gulfstream Aerospace and General Instrument, and was famously involved in the battle for control of RJR Nabisco in the late '80s. He is credited with popularizing the phrase “barbarians at the gate.”
Now that is what you call overboarding: An FT investigation finds that a small group of what the paper calls Cayman Islands “jumbo directors” are sitting on the boards of hundreds of hedge funds as demand for independent directors booms in the Caribbean tax haven. At least four individuals hold more than 100 nonexecutive directorships each, and 14 have more than 70, each worth as much as $30,000 a year.
When the market starts rumbling with war chants for change, it is hard for any CEO to ignore, and PepsiCo CEO Indra Nooyi finds herself in that position. The NYP summarizes the discontent: “After five years at the helm of the drinks and snacks giant, Nooyi is testing the patience of company directors who are fretting over the lack of an heir apparent amid a series of marketing missteps and a stock that is as flat as day-old soda.”
Shareholder activist Ralph Whitworth, who accumulated a 1% stake in Hewlett-Packard, is added to the board. His appointment “is a serious first step towards allaying investors' concerns about Hewlett-Packard's governance, board composition and recent performance,” says Anne Sheehan, corporate governance director of CalSTRS, a big H-P investor.
CalSTRS adopts a policy that calls for portfolio companies to annually report their expenditures on political contributions and to make that information readily accessible to shareholders. Noting that shareholder support for such disclosure proposals has been steadily growing — from about 9% in 2004 to 30% in 2010 — CalSTRS investment committee chair Harry Keiley says the teacher pension fund “wants to make sure political contributions will not have a deleterious effect on the long-term value of our portfolio companies.”
The ever-present reputation risk of board service: The unfolding investigation of potential misdeeds at Japan's Olympus Corp. (see October) drags Nobel laureate economist Robert Mundell into the headlines. He was among the first outside directors to join the company's board, which he did in 2005, just prior to the company's questionable deals. Mundell, “known as the father of the euro and supply-side economics” (WSJ), received the Nobel Prize in 1999.
More companies are reporting on corporate social responsibility: An analysis from KPMG finds that among the top 100 U.S. companies, 83% report on their CSR activities, up from 74 companies in a 2008 survey. And a new study by researchers at Catalyst and Harvard Business School suggests that companies with more women at the top may be better practitioners of CSR. One such compelling finding: in 2007 (the study covered the period 1997-2007) the average donations of companies with three or more women directors were 28 times higher than those of companies with no women directors.
True assets: Jenne Britell, Ph.D., is awarded the 2011 Director of the Year honor by the National Association of Corporate Directors. She is a senior managing director of Brock Capital LLC and is nonexecutive chairman of United Rentals Inc. The NACD also honors Jon F. Hanson with its 2011 B. Kenneth West Lifetime Achievement Award. Hanson is chairman and founder of The Hampshire Companies. “They both bring a wealth of experience from the front lines of company management to years in the boardroom to be true assets on the boards they serve,” says NACD CEO Kenneth Daly.
A key finding from the Frederic W. Cook & Co. 2011 Top 250 Executive Compensation Report is that for the first time in the history of this report, the use of long-term performance shares now is more prevalent than the use of stock options.
Spencer Stuart's annual governance study reveals that S&P 500 boards elected just 294 new directors in the 2011 proxy year, which the firm calls “the smallest intake in 10 years and a 25% drop over the past five years.”
Rep. Barney Frank (yes, of Dodd-Frank fame) — “the tart-tongued liberal who has served in the House for 30 years” (NYT) — announces that he will retire in 2012. His co-author of the 2010 law, Sen. Chris Dodd, announced his retirement from the Senate in December 2010.
Carl Icahn, on the move again: The activist investor says he intends to nominate a slate of six directors to the board of specialty truck maker Oshkosh Corp. He announced a 9.5% stake in the company in July 2011.
December
With its stock price “wilting like mascara under a sunlamp,” in the inimitable wording of The Economist, Avon Products Inc. announces that Andrea Jung will be replaced as CEO. She will retain her position as chairman. She is the longest-serving female CEO in the Fortune 500, having led the beauty products company since 1999.
Women's board membership is “still stalled,” reports Catalyst, in releasing the results of its 2011 census of Fortune 500 women board directors, which finds that women held 16.1% of board seats in 2011, up from 15.7% in 2010. About one in 10 companies had no women serving on their boards.
Fortune names Starbucks chief Howard Schultz as its 2011 Business Person of the Year, writing “Howard Schultz rescued Starbucks. It had record financial results. Now the CEO is on a campaign to save the country from its politicians.” (See August about Schultz's political contributions initiative.)
H-P headlines, cont.: Responding to stinging criticism of the huge severance packages paid to fired CEOs Mark Hurd and Leo Apotheker, Hewlett-Packard revises its severance policy to limit payments paid to senior executives who are ousted by the company. Hurd loses his legal battle to keep under court seal an eight-page letter detailing his alleged advances to contractor Jodie Fisher. It is revealed that he paid Fisher “more than $1 million of his personal fortune to keep the sordid details under wraps” (NYP). And Patricia Dunn, whose leadership of H-P as its chairman was derailed by her involvement in a program of spying on the company directors to stop leaks from the board, dies of cancer at the age of 58.
Mandatory audit firm rotation would be too costly with minimal benefit. That is the overarching message of the Institute of Internal Auditors in its response to the Public Company Accounting Oversight Board's Concept Release on Auditor Independence and Audit Firm Rotation (see June).
Despite many companies in North America anticipating a decline in shareholder value in 2011, a majority expects to pay executive bonuses that are as large as or larger than last year's awards, according to a survey by Towers Watson.
A Deloitte poll of 1,300 executives concludes that market volatility demands more CFO-general counsel collaboration. “CFOs and GCs are beginning to connect much earlier on transactions and other corporate events,” says David Williams, CEO of Deloitte Financial Advisory Services LLP, “but our findings show many companies still have a long way to go.”
Corporate Secretary magazine's award for best proxy statement of the year goes to Prudential Financial. Kudos are given for the “excellent use” of charts and graphics that made the proxy “less intimidating,” and “bold labeling of key information made it easier to navigate than most proxy statements.” The magazine also cited such innovations as an up-front snapshot summary, detailed profiles of director qualifications, and an extensive listing of governance policies, including “sustainability factors.” Pictured is Prudential's chief governance officer, Peggy Foran.
A bankruptcy “tell”?: Three directors exit the board of Eastman Kodak Co. in one week. The company revealed in November 2011 that it was facing financial issues and needed to raise new capital.
How important is succession planning? Just ask Maurice Levy. For a profile of the CEO of Publicis, one of the world's largest advertising agencies, The Economist does just that, and gets this answer from Levy: “I know that if I fail to find the right successor, my entire career will be a failure.”
On the activism front, public pension funds in several states are pressing a proposal to give shareholders of Nabors Industries to right to nominate board candidates on official company ballots. The funds are outraged by the company's executive compensation practices, especially the $100 million being given to Chairman Eugene Isenberg to give up his CEO title (see October). “Nabors has a long history of poor governance, including a board that has consistently been unresponsive to shareholder concerns,” North Caroline Treasurer Janet Cowell tells the WSJ.
“This could be Japan's Enron moment,” says the FT about the still-unfolding Olympus accounting scandal (see October). A 200-page report is released giving the most complete accounting yet of the chain of events that have sabotaged the company, and the report brings into sharp relief “the organizational problems that plague many Japanese companies: lack of transparency, little regard for shareholder rights and reluctance to challenge authority” (WSJ).
What about China having an “Enron moment”? Headline-generating fraud allegations are sinking Sino-Forest Corp. in the wake of a short seller's report accusing the firm of overstating the value of its assets. The Chinese forest products company's largest shareholder calls for the CEO and board members to be replaced.
That treacherous law: Wal-Mart Stores discloses an internal investigation into whether some of its employees may have violated the FCPA. “We are taking a deep look at our policies and procedures in every country in which we operate,” says a company spokesman.
“The Euro Crisis Has Hit the Boardroom” is a headline in the FT's Christmas Eve edition. “Board directors are starting to think the unthinkable about the end of the euro or a collapse in the banking system.… Board members tend to believe that political leaders will do whatever it takes to ensure the euro survives. They also know that their companies must take measures now to ensure — regardless of the outcome —that they will still be in business next year.”
The S&P 500 index finishes the year where it started. Comments one market observer to the WSJ, “It is almost cruel that with all the tumult the markets gave us this year that the major U.S. indices are ending up basically unchanged.” The same, assuredly, cannot be said of the year in corporate governance. â–