One of the findings from KPMG’s recent 28-city Audit Committee Roundtable Series is that leading boards are becoming more engaged in strategy as they pay greater attention to risk.
As boards take a hard look at their risk oversight process, they naturally turn to the risk element of the company’s strategy. The SEC’s proxy disclosure rules will require boards to take a good hard look at how they oversee risk. “If there isn’t a clear framework in place, that’s probably job number one” according to the roundtable report.
As boards engage in risk discussions, they are becoming more insistent that management provide alternatives and choices regarding the company’s strategy, as opposed to the “review and concur” approach of the past. In this way, some boards are helping to develop and determine the company’s risk appetite.
As one director said, “It takes time, effort and calories to do this right, but digging into the strategy is the only way to really understand what risks the company should or shouldn’t be taking.”
Smart CEOs look to the board in the strategy process.
For more insight on CEO communications with their Boards and shareholders, please visit http://ping.fm/X9Tf3
Friday, February 26, 2010
Wednesday, February 17, 2010
The Power of an Individual Director
John Gillespie and David Zweig offer “solutions” to their indictment of corporate boards in their book, Money for Nothing: How the Failure of Corporate Boards is Ruining American Business and Costing Us Trillions. In addition to their recommendations to split the chairman/CEO role, to allow shareholders to call an extraordinary general meeting, add some clout to say-on-pay, they cite individual talented and committed directors who have helped to improve governance.
Jack Krol is cited for his role in helping Ed Breen to restore Tyco after the Kozlowski debacle, Ralph Whitworth is lauded for the ways he restored governance to Waste Management and Michele Hooper for her leadership in changing board culture and spreading those changes to multiple boards.
“Drawing on her early experience on Target’s now legendary board beginning in the 1990s, Michele Hooper, a financial expert with a University of Chicago MBA, has brought those lessons to Warner Music Group, PPG Industries, AstraZeneca, UnitedHealth Group, Seagram and DaVita. Hooper learned from Target the value of having “a boardroom that allows for open and collegial discussion around the table without people getting upset or having a CEO who is going to put the kibosh on conversations.”
Michele has modeled excellence and has been generous about sharing what she’s learned. As the president of the Chicago chapter of the National Association of Corporate Directors, she volunteers her time to lead one of the strongest chapters of NACD, distinguished by its highly highly effective seminar programs. A board member of the national NACD, she facilitates training sessions for directors. In her day job, she is president and CEO of the Directors’ Council, which finds candidates for boards.
By highlighting the impact of directors like Michele, the critics Gillespie and Zweig demonstrate that boards of directors are still our best hope for providing oversight to our management system.
For more insight into corporate board communications, please visit http://ping.fm/Avvvg
Jack Krol is cited for his role in helping Ed Breen to restore Tyco after the Kozlowski debacle, Ralph Whitworth is lauded for the ways he restored governance to Waste Management and Michele Hooper for her leadership in changing board culture and spreading those changes to multiple boards.
“Drawing on her early experience on Target’s now legendary board beginning in the 1990s, Michele Hooper, a financial expert with a University of Chicago MBA, has brought those lessons to Warner Music Group, PPG Industries, AstraZeneca, UnitedHealth Group, Seagram and DaVita. Hooper learned from Target the value of having “a boardroom that allows for open and collegial discussion around the table without people getting upset or having a CEO who is going to put the kibosh on conversations.”
Michele has modeled excellence and has been generous about sharing what she’s learned. As the president of the Chicago chapter of the National Association of Corporate Directors, she volunteers her time to lead one of the strongest chapters of NACD, distinguished by its highly highly effective seminar programs. A board member of the national NACD, she facilitates training sessions for directors. In her day job, she is president and CEO of the Directors’ Council, which finds candidates for boards.
By highlighting the impact of directors like Michele, the critics Gillespie and Zweig demonstrate that boards of directors are still our best hope for providing oversight to our management system.
For more insight into corporate board communications, please visit http://ping.fm/Avvvg
Friday, February 5, 2010
Directors, Your Image Problem Isn't Going Away
The current issue of Newsweek features an interview with John Gillespie, one of the authors of Money for Nothing: How the Failure of Corporate Boards Is Ruining American Business. The title alone is fairly daunting for directors who have served and are serving on boards. Even if the public at large doesn’t read the book, the broad reach of Newsweek will brand boards as “inept.”
Charles Elson, the corporate governance expert at the University of Delaware, traces the origins of shareholder activism to the anger shareholders were feeling that they were being ignored.
The truth is that there are strong energized boards and business leadership dedicated to delivering durable long-term value through sustained economic performance, sound risk management and high integrity and through meaningful consultation with shareholders. But the new book paints a dark picture because so little was known about corporate governance until the financial collapse.
Good directors should be concerned about ”Money for Nothing.” If they thought the legislative changes were merely grandstanding efforts by politicians, they are wrong. Actions by the SEC and Congress reflect the general concern that governance isn’t being carried out effectively.
Good boards are stepping up to the new environment to demonstrate that they can make corporate governance more effective to serve the company, its shareholders and stakeholders. It will take reevaluation and rededication.
In this era of transparency, everyone will be watching. The public won’t settle for less than effective oversight.
Charles Elson, the corporate governance expert at the University of Delaware, traces the origins of shareholder activism to the anger shareholders were feeling that they were being ignored.
The truth is that there are strong energized boards and business leadership dedicated to delivering durable long-term value through sustained economic performance, sound risk management and high integrity and through meaningful consultation with shareholders. But the new book paints a dark picture because so little was known about corporate governance until the financial collapse.
Good directors should be concerned about ”Money for Nothing.” If they thought the legislative changes were merely grandstanding efforts by politicians, they are wrong. Actions by the SEC and Congress reflect the general concern that governance isn’t being carried out effectively.
Good boards are stepping up to the new environment to demonstrate that they can make corporate governance more effective to serve the company, its shareholders and stakeholders. It will take reevaluation and rededication.
In this era of transparency, everyone will be watching. The public won’t settle for less than effective oversight.
Wednesday, February 3, 2010
Directors Have an Opportunity
The Deloitte/Directorship survey demonstrated that opinions from both ”Main Street” — journalists, policymakers, analysts and the “C-Suite” including CEOs and directors as well as teachers, laborers, policymakers, doctors, students and community leaders have a relatively poor opinion about the effectiveness of the current corporate governance.
Smart CEOs and boards will see this as an important opportunity to use the current proxy season as a way to reach out to shareholders in a credible way. By drafting CD&As in plain English that are designed to explain the board’s philosophy in devising pay programs that reward performance rather than failure.
The InterimCEO is a worldwide network of interim, contract and project executives. Their website has posted my comments on board leadership on their home page. The InterimCEO network serves as a rich resource for executives and companies that are looking for assistance.
For more information about board-shareholder relations, please visit http://ping.fm/wpCuk
Smart CEOs and boards will see this as an important opportunity to use the current proxy season as a way to reach out to shareholders in a credible way. By drafting CD&As in plain English that are designed to explain the board’s philosophy in devising pay programs that reward performance rather than failure.
The InterimCEO is a worldwide network of interim, contract and project executives. Their website has posted my comments on board leadership on their home page. The InterimCEO network serves as a rich resource for executives and companies that are looking for assistance.
For more information about board-shareholder relations, please visit http://ping.fm/wpCuk
Monday, January 18, 2010
The Public Has an Opinion about Boards Your Message
As directors read the landmark survey of Main Street and C-Suite undertaken by Directorship magazine and Deloitte in conjunction with Korn Ferry International, they will see that the public’s opinion of them and their performance is not high.
Directors need to know what people are thinking and saying and why. The results from the first survey create a baseline drawn from “Main Street” — journalists, policymakers, analysts, members of the C-Suite including CEOs and directors and more importantly teachers, laborers, policymakers, doctors, students and community leaders.
Let’s begin with the credibility of board directors and CEOs. While less than half, 43 percent, said board and CEO credibility was poor, 39 percent said it was only adequate and only 17 percent said it was good with only 1 percent said credibility of boards is outstanding today.
To the question of how boards performed their role of oversight during the economic crisis, a whopping 57 percent said poor with another 29 percent calling their performance adequate. A mere 1 percent gave boards an outstanding rating and 13 percent said good.
What can directors do about these low ratings? The Directorship article suggests that directors communicate. Directors should be willing to engage in a role that helps shape public opinion says Korn Ferry’s Steve Mader.
For more insight about Board-Shareholder relations, please visit http://ping.fm/Er6md
Directors need to know what people are thinking and saying and why. The results from the first survey create a baseline drawn from “Main Street” — journalists, policymakers, analysts, members of the C-Suite including CEOs and directors and more importantly teachers, laborers, policymakers, doctors, students and community leaders.
Let’s begin with the credibility of board directors and CEOs. While less than half, 43 percent, said board and CEO credibility was poor, 39 percent said it was only adequate and only 17 percent said it was good with only 1 percent said credibility of boards is outstanding today.
To the question of how boards performed their role of oversight during the economic crisis, a whopping 57 percent said poor with another 29 percent calling their performance adequate. A mere 1 percent gave boards an outstanding rating and 13 percent said good.
What can directors do about these low ratings? The Directorship article suggests that directors communicate. Directors should be willing to engage in a role that helps shape public opinion says Korn Ferry’s Steve Mader.
For more insight about Board-Shareholder relations, please visit http://ping.fm/Er6md
Wednesday, January 13, 2010
Corporate Leaders at Risk as Government Takes Over
(I co-authored this article that appeared in the Houston, TX Chronicle January 8, 2010)
An endangered species is a population of an organism which is at risk of becoming extinct because it is either few in numbers, or threatened by changing environmental or predation parameters. — Wikipedia
Over the last decade, the center of gravity for corporate authority and oversight has shifted from the CEO to the board of directors, to shareholders and now increasingly to the federal government. In this new world, the government is exerting growing oversight and control over mergers and acquisitions, executive and board appointments, executive compensation and the ownership and financing of businesses.
Just how vulnerable are directors? Are their numbers so few, has the environment changed so dramatically and predation parameters shifted so significantly that directors could go the way of the dodo bird?
Directors are a small and rarefied breed. The route to board membership has been through the crucible of success. Now, as more companies limit the number of boards their CEO can join, directors are drawn from the ranks of other top-level executives.
Not only have bankruptcies reduced the number of iconic companies in the Fortune 100, but more companies are seeking to go private to avoid public scrutiny, and what appears to be a creeping socialism by the government. As board work becomes more demanding and thankless, the ability to attract sufficient numbers of qualified directors adds to director vulnerability.
For generations, corporate boards carried out their responsibilities behind closed doors. Communication with shareholders was largely handled in legal documents, 10Ks, 10Qs, proxy statements and annual reports. Facing a financial collapse of global magnitude, businesses and other enterprises are reeling. Today, the public at large has joined the chorus of shareholders and the financial media to ask, “Where were the boards?”
In the face of high unemployment, recession and a volatile stock market, shareholders and the general public place far less trust in prevailing corporate board governance. Congressional hearings, new legislation and general skepticism convey a hostile environment for many directors, especially for the role they played in approving the compensation packages that rewarded CEOs in excess of 300 to 400 times the average employee's salary.
The consequence of director inaction is shareholder and government action. Emboldened by wins on “say-on-pay,” shareholders are morphing into a stronger force in corporate governance. More alarming, the government has intervened in private enterprise in ways that were once unimaginable. Bills in both the Senate and the House seek to regulate executive compensation, director election and shareholder involvement, further usurping what was previously the exclusive domain of the corporate board.
Beyond the issues of executive compensation and risk management, directors face a more challenging responsibility for succession planning, the critical practice of ensuring the long-term value of the enterprise. Independent surveys by executive search and other organizations continue to confirm that many corporate directors do not believe that the companies they serve have adequate succession planning processes, let alone qualified internal candidates for the CEO position. Recent data confirms record turnover for CEOs with tenure under four years. There are growing indicators that directors will be challenged as to whether they are dutifully carrying out effective risk management in this critical area. These and other issues are giving rise to growing demand for separation of the chairman and CEO roles.
Directors have an opportunity to demonstrate and communicate proactive leadership in restoring trust and sound governance. But, they need to move beyond the audit and accounting risks and an overall compliance mentality and look ahead to the larger issue of ensuring the long-term value of the enterprise by insisting on stronger talent identification and leadership development/succession programs within companies at both the executive and director levels.
Directors are best positioned to create solutions. But, as boards more fully embrace their public constituencies — shareholders, employees, the community and the public at large — adopt greater transparency in their actions, show a willingness to engage appropriately with diverse publics, they enhance their roles as stewards.
In asserting their leadership, independent directors are best qualified to hold management accountable for developing the most talented, innovative and responsible leaders within an organization.
Directors can ensure their survival by focusing on the work that ensures long-term. sustainable value creation for the company, the employees and the community.
About the author: Karen Kane, former board secretary for the Federal Reserve Bank of Chicago, heads a communication practice providing independent communication counsel to boards.
For more information and insights into board communications and shareholder relations, please visit http://ping.fm/B5WUq
An endangered species is a population of an organism which is at risk of becoming extinct because it is either few in numbers, or threatened by changing environmental or predation parameters. — Wikipedia
Over the last decade, the center of gravity for corporate authority and oversight has shifted from the CEO to the board of directors, to shareholders and now increasingly to the federal government. In this new world, the government is exerting growing oversight and control over mergers and acquisitions, executive and board appointments, executive compensation and the ownership and financing of businesses.
Just how vulnerable are directors? Are their numbers so few, has the environment changed so dramatically and predation parameters shifted so significantly that directors could go the way of the dodo bird?
Directors are a small and rarefied breed. The route to board membership has been through the crucible of success. Now, as more companies limit the number of boards their CEO can join, directors are drawn from the ranks of other top-level executives.
Not only have bankruptcies reduced the number of iconic companies in the Fortune 100, but more companies are seeking to go private to avoid public scrutiny, and what appears to be a creeping socialism by the government. As board work becomes more demanding and thankless, the ability to attract sufficient numbers of qualified directors adds to director vulnerability.
For generations, corporate boards carried out their responsibilities behind closed doors. Communication with shareholders was largely handled in legal documents, 10Ks, 10Qs, proxy statements and annual reports. Facing a financial collapse of global magnitude, businesses and other enterprises are reeling. Today, the public at large has joined the chorus of shareholders and the financial media to ask, “Where were the boards?”
In the face of high unemployment, recession and a volatile stock market, shareholders and the general public place far less trust in prevailing corporate board governance. Congressional hearings, new legislation and general skepticism convey a hostile environment for many directors, especially for the role they played in approving the compensation packages that rewarded CEOs in excess of 300 to 400 times the average employee's salary.
The consequence of director inaction is shareholder and government action. Emboldened by wins on “say-on-pay,” shareholders are morphing into a stronger force in corporate governance. More alarming, the government has intervened in private enterprise in ways that were once unimaginable. Bills in both the Senate and the House seek to regulate executive compensation, director election and shareholder involvement, further usurping what was previously the exclusive domain of the corporate board.
Beyond the issues of executive compensation and risk management, directors face a more challenging responsibility for succession planning, the critical practice of ensuring the long-term value of the enterprise. Independent surveys by executive search and other organizations continue to confirm that many corporate directors do not believe that the companies they serve have adequate succession planning processes, let alone qualified internal candidates for the CEO position. Recent data confirms record turnover for CEOs with tenure under four years. There are growing indicators that directors will be challenged as to whether they are dutifully carrying out effective risk management in this critical area. These and other issues are giving rise to growing demand for separation of the chairman and CEO roles.
Directors have an opportunity to demonstrate and communicate proactive leadership in restoring trust and sound governance. But, they need to move beyond the audit and accounting risks and an overall compliance mentality and look ahead to the larger issue of ensuring the long-term value of the enterprise by insisting on stronger talent identification and leadership development/succession programs within companies at both the executive and director levels.
Directors are best positioned to create solutions. But, as boards more fully embrace their public constituencies — shareholders, employees, the community and the public at large — adopt greater transparency in their actions, show a willingness to engage appropriately with diverse publics, they enhance their roles as stewards.
In asserting their leadership, independent directors are best qualified to hold management accountable for developing the most talented, innovative and responsible leaders within an organization.
Directors can ensure their survival by focusing on the work that ensures long-term. sustainable value creation for the company, the employees and the community.
About the author: Karen Kane, former board secretary for the Federal Reserve Bank of Chicago, heads a communication practice providing independent communication counsel to boards.
For more information and insights into board communications and shareholder relations, please visit http://ping.fm/B5WUq
Monday, January 4, 2010
When the Guy Hands of the World Criticize Pay, Bankers Beware
Buyout firm founders are by nature risk-taking entrepreneurs. By making money for their clients, they create a loyal following as has Guy Hands, founder of buyout firm Terra Firma Capital Partners. In his holiday letter, he criticizes a system that has allowed “risk to be taken in the knowledge that, if things go right, bankers will take on average 60-80% of the profits generated through compensation and, if they go wrong, shareholders and ultimately the Government will pick up the costs.”
Add to his remarks, those made recently by National Economic Council director Larry Summers, “there is no financial institution that exists today that is not the direct or indirect beneficiary of trillions of dollars of taxpayer support for the financial system.”
It would be wise for bank directors to consider these views when approving compensation plans.
For more insights and information about shareholder relations, visit http://www.karenkaneconsulting.com
Add to his remarks, those made recently by National Economic Council director Larry Summers, “there is no financial institution that exists today that is not the direct or indirect beneficiary of trillions of dollars of taxpayer support for the financial system.”
It would be wise for bank directors to consider these views when approving compensation plans.
For more insights and information about shareholder relations, visit http://www.karenkaneconsulting.com
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