Posts filed under ‘Corporate Governance’

Succession Planning: Not Just for Older Leaders

Dell Computer and the story of its potentially going private have occupied  many a news column of late. In the most recent turn of events, Blackstone Group  withdrew its bid for the company after making the determination that Dell’s future and the PC industry looks bleak. Throughout all this I cannot help but  ask what seems to be a fundamental underlying question about this company, and that is, who should lead Dell going forward?

Yes, Michael Dell is an icon of the stature of Steve Jobs and Bill Gates.  He is highly intelligent and incredibly successful with a net worth of $15.3  billion as of March 2013 (per Forbes Magazine.) But he has been leading Dell  Computer (save for three years when Kevin Rollins was at the helm) for the past 29 years, since he started the company while at College at the age of 19. No matter whom the talent, anyone in the same position for several decades is bound to become temperate, or perhaps even myopic. It is essentially impossible not to and this is particularly true in the ever-changing and evolving technology industry.

According to The Conference Board, CEO tenure has decreased to an average of 8.4 years as of 2011 from 10 years in 2000. This should come as no surprise given the increasing independence of corporate boards and the pressure to take decisive action when the company is stagnating. There is also ample evidence that there is a lifecycle of effectiveness for any business leader (perhaps this holds true for leader in any field, even politicians!) In fact, in research reported in the Strategic Management Journal (February 2006), Henderson, Miller and Hambrick found “in the dynamic computer industry, CEOs were at their best when they started their jobs, and firm performance declined steadily across their tenures, presumably as their paradigms grew obsolete more quickly than they could learn.”

This presents an interesting dilemma. It is clear once again that planned CEO succession is necessary. Appropriate and carefully selected and strategic change at the top can do much to resuscitate an organization. It is also evident that even the best leaders have a “shelf-life.” However Michael Dell is in fact only 48 and he is also Dell’s largest shareholder. The usual best practices may be hard to apply.

But apply they must! In all of the news and speculation surrounding this story there is rarely a mention of who should lead Dell going forward and whether Michael Dell remains the best candidate for the job. We know the PC market is in a free fall and we know the financials of the company ad nauseum, but what about the brainpower, ingenuity and creativity that is needed to steer this behemoth in the right direction? Some guidance and information along these lines is becoming unavoidable.


April 30, 2013 at 10:36 pm

Women and Boards: Musings and Reflections!

imagesCAXTK431On 12/12/12, 1400 people in the US and Europe got together at 27 luncheons to discuss the topic of women and corporate boards. These events were organized by various chapters of 2020 Women on Boards, a Boston based non-profit with the simple goal of insuring that by 2020, at least 20% of board seats are filled by women. Simple goal, yet challenging to actually achieve.

The 2012 Catalyst Census that was just published states that in 2011 women held 16.1% of board seats. They hold a mere 3.3% of board chair positions and 8.4% of lead director roles. Some good news in these statistics is the fact that women hold 19% of nominating/governance chair roles (we won’t belabor the point that this number dropped slightly from the year before when it was 19.2%). This puts us in an ideal role to decide on who joins the board when there is an opening.

In preparing to participate on one of these panels I researched and explored this topic ad nauseum! The one thing that no one will disagree with is that the issue is complex and there is no one or easy solution. However there are certain realities and facts that are worth summarizing:

1-Gender diversity is a value driver for the organization – it is not a hand-out (about a year ago I wrote on the subject of why we need more women on boards. At this point, the advantages have been shown over and over again)!

2-It is also not an entitlement or right. The best boards elect qualified directors with an emphasis on qualifications!

3-The United States is 11th amongst industrialized nations regarding women’s representation on boards. The US trails Norway with 36%, Sweden with 26% and France with 17%.

4-Legislation to boost women’s representation on boards has spread like wildfire. There is also a global conversation on the subject going on right now but the changes are still slow to come.

5-Part of the challenge with this issue is turnover on boards. The average director’s age has risen from 60.1 to 62.6. Only 4% of S&P companies now have term limits.

6-As of a couple of weeks ago, even the United Arab Emirates has a requirement for compulsory appointment of women to boards.

7-Another aspect of the challenge has to do with simple business priorities. A company may want to boost the number of women on their board but given the many business challenges it faces this may simply be lower down on the priority list.

8-Sponsorship can help. This involves advocating for high-profile women in one’s organization or elsewhere and helping them access board opportunities.

9-For those wanting to sit on a board, manage your career, raise your profile and seek opportunities to run something if at all possible. Operating experience is still the number one desired skill set in the boardroom.

10-If you are a board member keep diversity on the agenda. Make is a strategic priority.

There is so much more than can be said but these few thoughts and facts should make it crystal clear that change is underway. It will, however, take the efforts of many in assorted and enduring ways to see it through.

December 20, 2012 at 12:44 am

CEOs and Board Relationships: Does the Rolodex Matter (Still)?

How do informal social ties and connections between members of a board of directors and a CEO impact the effectiveness of the board and hence corporate governance overall? This can be a complex and immeasurable phenomenon but Dr. Bang Dang Nguyen of the University of Cambridge, Judge Business School attempts to answer this question in his paper “Does the Rolodex Still Matter Corporate Elite’s Small World and the Effectiveness of Boards of Directors”

To begin with, it should be mentioned that the central findings of Dr. Nguyen’s paper, namely that when a CEO and a number of board members belong to the same social networks, the former is less likely to be dismissed for poor performance, should not come as a big surprise to anyone. However, that was not the only interesting finding.

What Were Dr. Nguyen’s Findings?

Dr. Nguyen’s paper is based on empirical analysis of a sample of the largest publicly-traded firms in France between 1994 and 2001. Yes, times have changed since then and yes, the United States is indeed not France but this type of analysis, of normally non-measurable and non-visible elements of governance are rare and thus at least worth considering.

In the study, Dr. Nguyen found that close ties can adversely affect company performance as a connected CEO was almost three-times less likely to be fired for poor performance than a non-connected CEO. It makes intuitive sense that we tend to be more lenient with those we have something in common with than those where there is no emotional or personal connection. On the other hand, Dr. Nguyen believes that opposing forces are at play in that there is the positive impact from information sharing gained from having close ties between the CEO and the board.

Moreover, Dr. Nguyen’s paper also found that a “socially connected” CEO was more likely to find new and often better positions even after a forced departure for poor performance than a “socially un-connected” CEO. Hence, social networks (in the pre-Facebook sense of the word) appear to impact board effectiveness in its key role of hiring CEOs – a problem when it’s the job of the board to protect shareholder value by hiring the best person for the role.

Where do these ties come from? In France the corporate elite begin long-term friendships when attending a handful of exclusive colleges or so-called “Grandes Ecoles” and through elite civil service (Grands Corps de l’Etat). In the United States some of this occurs with networks formed at Ivy League colleges being fairly permanent and indelible.

A Few Recommendations

Dr. Nguyen did make the comment in his paper that the USA economy is much larger, more deregulated and has more elite schools than France’s – meaning social ties between top executives might be different or work differently than in the smaller and more close knit world of corporate France. He also admitted that there is little regulators can do about social networks as they tend to be resilient while the ties themselves are not readily observable nor quantifiable but he does suggest that regulators might want to broaden their analysis to include factors like common education backgrounds and social connections.

Hence, it’s worth adding that shareholders and executive search practitioners have a role to play in ensuring that the CEO position and slots on the board of directors are open to a greater pool of talent and not just to insiders who are all members of the same small and closed social networks. After all and in today’s competitive marketplace where regulators are increasing breathing down everyone’s necks, drawing names from the same Rolodex or old boys’ or girls’ network simply will not cut it anymore.

November 26, 2012 at 5:13 pm 7 comments

Why Did Tuesday Morning Corporation Oust Their CEO?

This past summer, home furnishings retailer Tuesday Morning Corporation
abruptly fired their CEO Kathleen Mason after a new but activist shareholder
filed a letter with the SEC that was highly critical of the company’s
performance under her 12 years at the helm. And while a CEO being fired for
performance thanks to an activist shareholder might still be an unusual
incident, what makes this case even more unique is that Mason has since filed a
discrimination suit against her former employer alleging that she was fired not
for poor performance but because she was being treated for breast cancer.

Tuesday Morning Corporation Fires Their CEO

Trouble for Mason apparently began when Tuesday Morning Corporation reported a wider than expected third-quarter loss along with a fourth consecutive sales decline in April. Then on June 6, Becker Drapkin Management L.P., a Dallas based hedge fund that owns a 5.7% stake in Tuesday Morning Corporation, filed a letter with the SEC to disclose their stake in the company. They took the filing as an opportunity to give a scathing review of Mason’s performance as CEO. She was fired the same day. Becker Drapkin then gained control of four board seats and signaled that more changes would be coming in how the company is run.

Was Mason Fired for Performance or For Having Breast Cancer?

However, the story does not end there. According to BusinessWeek, Kathleen Mason (aged 63) says she was diagnosed with breast cancer in the summer of 2011 and then quietly underwent three surgeries during the months of October and November using her vacation time for post-operative visits. She would also schedule doctor appointments for early in the morning and then work in her office until 7 or 8 pm in the evening.

In January and February, Mason decided to inform two Board members of her medical condition in order to stem office gossip over weight loss and the loss of her hair. In March about 60 days before the firing, Mason said that she had received a $500,000 bonus and an amended employment contract.

However three weeks before being fired, Mason claims she was given an ultimatum to either resign or retire and that three of the five board members wanted to fire her because they feared she would be too distracted by medical treatments to turn around the company’s flagging sales. Mason did say that Tuesday Morning Corporation’s severance package included 10% of her $1.3 million compensation package if she would agree to stay on as a company consultant for 10 years and this period would then be followed by an 18- month non-compete period. She would also keep her medical benefits.

Questions or Lessons for CEOs and Corporate Boards

Obviously this could turn into a lengthy and ugly case that won’t benefit any of the parties involved (including shareholders) yet it raises a few important questions for other CEOs or executives and corporate boards faced with similar situations.

For starters, when are CEOs (or senior executives) obligated to inform their Board of a medical condition that could impact their performance in the job and hence, the company’s performance? Moreover, when and after what steps or protocols can the Board fire an executive over performance when they know the person also has a potentially serious illness that could be impacting his or her performance?

In this particular case, Mason has defended her performance by pointing out that at least half-dozen competing retail chains (e.g. Linen ‘N Things, Bombay & Co. Inc. and Filene’s Basement) had filed for bankruptcy during her 12 year tenure as CEO.

Mason’s attorney has also stated that Tuesday Morning Corporation did not follow proper procedures or protocols to warn her about any perceived problems regarding her performance. If that’s the case, one also has to wonder whether the Board consulted with an attorney or expert in such matters before making a decision to fire her as no doubt they would have been advised to proceed more carefully given her known illness.

At this point in time, there is not enough information publicly available to determine how this case would be decided if it came to trial. However there are lessons to be learned from this story on all sides of the equation. And one final thought, the last thing Tuesday Morning Corporation needs is to have its customers, most of whom are probably female, thinking that they fired their CEO because she had breast cancer.

September 25, 2012 at 2:01 pm 2 comments

Twitter for the Uninitiated

There are over a billion Tweets sent every three days. Twitter currently has 140 million active users and the top region for Twitter usage is Venezuela with, believe it or not, 100% of the population using this social network. In the US, the number is approximately 30% and growing. As of May 2010, Thursday and Friday were the most active days on Twitter and 10:00-11:00 pm was the most active time. But like all things social media the rate of change is intense.

Being amongst the 30+% of Twitter users in this country I am hooked and constantly surprised at how many around me still do not use the site. Since the way it can be used is virtually endless and the tweets represent conversations related to almost any topic imaginable Twitter probably holds some value for most of us.

Following the follies of celebrities is what perhaps some of us associate with Twitter and that can certainly hold no interest. On the other hands, here are my top five suggestions for making Twitter indispensable for you:

1-Sign up! Use a standard professional photograph and put a few words in the bio section. Then use “what’s trending” or “browse categories” to search for topics that are of interest to you. Carefully select (Twitter can quickly become noise if you follow too many irrelevant folks) those you want to follow and observe.

2- In today’s world, news is old by the time it gets to the papers. News web sites are certainly abundant and have been for years and provide a more up-to-minute sense of what is going on. But Twitter allows you to take this one step further. By following your favorite news sites and even having this news delivered to your mobile device, you begin to get real time exposure to breaking stories. This can hold major competitive advantage for some of us or at least make for interesting conversation for others. Some of the most influential on Twitter are: @nytimes, @cnn, @financialtimes, @bbcbreaking

3-The peculiarly named, yet oh so useful hashtag is one of my favorite Twitter tools (how many of you knew that the symbol # is called a hash symbol?) Using a hashtag before a word or phrase allows Twitter to organize all tweets with the same hashtag together. For example, during the Olympics, inputting: #olympics or #olympics2012 or #london2012 provided varied comments and information on the Olympics all neatly assembled for one’s perusal.

4-Today most articles on the web have an icon attached that allows it to be tweeted or shared in a variety of other social media outlets. Why not use Twitter to assemble the articles that you read and may want to reference at some point? By Tweeting the article it becomes part of your Twitter page and it can be referred back to at any time. It is like having your own virtual library.

5-Finally, for those of us interested in the world of corporate governance there is an abundance of feeds that can provide up-to-the-minute information from a variety of perspectives. Some of my favorites are: The Conference Board Governance Center (@tcbcorpgov), Corporate Secretary (@corpsecmag) and Nell Minow (@nimow). There are, of course, so many others but hopefully your curiosity is spurned and you can make your own discoveries!

September 4, 2012 at 1:28 am 1 comment

The P&G Board: Too Much of a Good Thing?

Several conditions make a company attractive to an activist investor. Per the Milken Institute, these include an undervalued business, poor share price performance, failure to meet communicated goals and the company being a conglomerate or mini-conglomerate.

Bill Ackman’s Pershing Square Capital Management recently announced a $2 billion investment for a 1% stake in Proctor & Gamble (P&G).  P&G, with 2011 sales of $82.5 billion represents a significant target for Pershing Square and is in fact the firm’s largest investment ever. It will be interesting to watch these powerful forces collide.

At the center of much of the criticism of P&G is CEO Robert MacDonald who took the helm of the company in 2009 after a well-planned and executed succession planning process. In fact, P&G is an oft-cited case for succession planning best practices. They have a succession planning program that has been consistently studied and replicated. As a big believer in the advantages of planned and strategic succession, even I have used P&G as an example in my teaching on the subject. Yet, Robert MacDonald, the hand-picked and groomed successor to A.G.Lafley (P&G’s former Chairman, President & CEO) is being blamed for the lackluster results P&G has been experiencing lately. As such, it is being speculated that he will be the initial target of the changes Bill Ackman is looking to make.

Subsequent to this, the focus most certainly will turn to the board of directors. According to research at NYU’s Stern School of Business out of 151 activist hedge fund targets studied between 2003 and 2005, activist shareholders received a seat on the board about 44% of the time (this number is surely on the rise). So, what will Ackman find as he and his team begins to scrutinize the P&G boardroom?

In addition to CEO Robert MacDonald, P&G has a stellar group of seriously accomplished executives in their boardroom. The CEO’s of some of this country’s largest and best known companies are directors of P&G. This includes Ken Chenault of American Express, Jim McNerney of Boeing, Meg Whitman of HP and Pat Woertz of Archer Daniels Midland. With such a stellar cast of characters, is there anything that Ackman can find to improve?

The answer is, as it always is, yes!  Eight out of the ten independent directors on the P&G board are active CEO’s and six of the eight are also the Chair of their company’s board. Additionally, six of the ten independent directors have a board seat  in addition to their own and P&G. This means that these active CEOs are sitting on two or more outside boards for a total of three (and in one case four) board commitments. That is a lot of responsibility.  The convention these days for sitting CEOs is to participate in one or oftentimes, no outside boards.

Speaking of multiple commitments, serving on a board these days can take upwards of 20 hours a month (PWC reported this in 2009). Add to this the consuming responsibility of running a multi-national, multi-billion publicly traded company in these days of tough economic times and increasing demands from all sides and that doesn’t leave a lot of time even for the most efficient and effective.

In 2011, 59% of P&G’s sales came from outside North America. Asia currently represents 16%  and is contributing double-digit growth to the company. Overall P&G is experiencing disproportionate growth from developing regions yet the only non-American on the board is Ernesto Zedillo, former President of Mexico.  The company and/or Ackman would be prudent to eventually add an executive from any of a variety of emerging markets. Someone with “on-the-ground” operating experience from one or more of the 180 countries P&G does business in could be invaluable.

Ackman may eventually make a big deal out of some interlocks that exist on the P&G board as this type of circumstance is ripe for the focus of an investor looking for lapses of any kind (remember the resume fiasco at Yahoo that now seems like ancient history!) Both Ken Chenault and James McNerney sit on the IBM board in addition to P&G.  Bob MacDonald and Mary Alice Wilderotter, another P&G director, also sit on the board of Xerox.  Finally, P&G director Scott Cook who is the President of Intuit also sits on the Ebay board. He has sat on Ebay since 1998, the year Meg Whitman became CEO of the company. So he and Whitman spent nine years in the boardroom at Ebay and now they serve together on the P&G board.  All of these connections make for a collegial group that has a lot in common but the familiarity can breed an environment that is too amicable and perhaps too tight-knit.

Finally, while it is extremely desirable to have CEO expertise on a board of directors some diversity of skills is important as well.  Perhaps Ackman is going to push for some  online marketing, social media, technology or supply chain talent.  In any case, even on  a board jammed with high-profile and accomplished leaders there is always room for some improvement!

July 20, 2012 at 1:03 am 1 comment

The Corporate Secretary’s Increasingly Crucial Role

With ever-increasing emphasis on corporate governance practices in light of the financial crisis and the legislative and regulatory response by the SEC and Dodd-Frank, boards of directors are under pressure to quickly adapt to the new business landscape. There is much at stake. Companies having a weak and inadequate framework for corporate governance are more likely to experience anemic profits, higher risk and be held in low regard by investors and industry peers.

As never before, boards of directors are tasked with multiple responsibilities, including oversight of the CEO, succession planning, advancing the strategic mission of the organization, fiduciary duty to stakeholders and finally of course, corporate governance.

With so much on their plates, how can directors adequately focus on corporate governance best practices? Regular director training and education is part of the answer, as well as support from an experienced and diverse group of professional advisors. But increasingly, one of the most important officers in the boardroom, when it comes to overseeing responsible board practices is the corporate secretary. In fact, many organizations, recognizing the broadened role of the corporate secretary, have expanded the title of corporate secretary to include chief governance officer.

How Does the Corporate Secretary Ensure Sound Governance?

A corporate secretary must wear many hats. Elemental to the role is ensuring  accurate and sufficient documentation exists to meet legal requirements. This means, amongst other things, the accurate recording of minutes of board meetings. He or she is also responsible for preparation and distribution of proxy statements and other documentation associated with the annual shareholders meeting. The corporate secretary also responds to shareholder inquiries, acts as a bridge between directors and senior management, maintains corporate records, ensures the organization and the board are in compliance with best governance practices and a tangled web of rules, laws and regulations. The corporate secretary also advises the CEO and is designated as the go-to officer for corporate governance matters. Negotiations with
shareholders (much more common these days) can also be part of the corporate secretary’s purview.

Corporate secretaries must advance sound corporate governance principles within the framework of all of their duties. Every document, every record and every interaction with directors, stakeholders and management must be prepared and undertaken with impeccable governance in mind. If the corporate governance and compliance functions of a corporate secretary seem overly board and complex, that’s because they are. So, how can a corporate secretary in the post-financial crisis environment of Dodd-Frank adequately adapt and offer the support and knowledge a board of directors needs to make sound and ethical business decisions?

Corporate Governance Gatekeeper

During an interview with the Metropolitan Corporate Counsel publication last year, David W. Smith, former President of the Society of Corporate Secretaries and Governance Professionals described corporate secretaries as “gatekeepers and filters of governance and other challenges facing corporations.” Indeed, corporate secretaries must keep abreast of important developments in corporate governance and compliance issues, inform and advise directors of these developments before, and during and after board meetings. Directors rely on the corporate secretary during
meetings to provide expert counsel on governance issues before making decisions. If a corporate secretary fails to properly provide the appropriate information, costly mistakes can be made. Providing the right information, at the right time and in the right amount is often a balancing act. It comes down to proper filtering. However, too much filtering can leave directors uninformed or misinformed.

A Larger Seat at the Table

How can we help the corporate secretary with their increasingly demanding and complex role? One way is to simply provide them with a “larger seat at the table.” The corporate secretary is not the technical record keeper but rather a partner and trusted advisor to the board. More time should be allotted for and devoted to governance and his/her expertise should be fully utilized. On the other hand the corporate secretary must be sensitive to and cognizant of the underlying workings, dynamics and culture of the board. To be fully effective he/she must gain the trust of this high-powered group of individuals.

The corporate secretary must be given the authority and freedom with which to perform and serve the corporation. This starts with who he/she reports into and definitely influences the parameters and perception of the role. In most cases the corporate secretary reports into the general counsel however given the increasing responsibility to the board there is oftentimes a dotted line to the chairman or when the role of corporate secretary is combined with general counsel the position reports into the CEO.

In this perilous regulatory environment, corporate secretaries are more important
than ever before. Dr John Carver, one of the most published thinkers on governance worldwide says that, “it seems to me that corporate secretaries have more opportunity to influence corporate governance in a modernizing direction than academics and lone voices.” Let us give heed to this comment and fully utilize the expertise available to us!

October 21, 2011 at 5:23 pm

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