Wednesday, March 30, 2011

Are Boards Too Old?

I often get asked, "Where do you get your ideas?" It's a fair question, considering the decades that I have been editor of Directors & Boards.

Some ideas have a very long germination. Let me share the seedling of the idea for the cover story of the Q2 2011 edition of Directors & Boards — "Are Boards Too Old?"

It goes back to the early 1990s. These were tough years for American corporations. One great company that hit a particularly rough patch was IBM Corp. In fact, things got so dicey for Big Blue and investors got so restive that the board did the unthinkable — it eased out the CEO, John Akers, in 1993.

At the 1993 annual meeting, one especially vociferous shareholder got on his feet to charge the board with being "too old." This gent, no spring chicken himself (!), further denounced the directors: "Most of them come from an era of manual typewriters and carbon paper." Ouch!

That made a big impression on me at the time. I wondered: Does this fellow have a point? Could the computer giant have missed a crucial beat or two by not having some younger talent on the board? A study of the average age of the IBM board at that time showed it to be slightly over 61.

The seed was thus embedded.

Over the years I would come across other data, anecdotes, and text references re boards and age, and they all would be like watering this original seedling of an idea.

As the business world hurtles into a new global order, one driven in so many important ways by social media and advanced digital capabilities, the opportune moment has arrived for this seed of a story idea — "Are Boards Too Old?" — to burst forth.

Pictured is W. Clement Stone, business chieftain famous for his "Positive Mental Attitude" success philosophy, who served on a corporate board while in his 90s with Directors & Boards Publisher Robert Rock.

Friday, March 11, 2011

Women Directors: Survey vs. Survey

It has happened again. When I release the results of our quarterly Directors Roster report on new women joining corporate boards — which I did in my blog post of March 8th — I inevitably hear from one or more of the other trackers of board composition. They are puzzled — and, it appears, alarmed.

Their beef is that there is a big disconnect between the Roster numbers and their numbers. The Roster has been documenting for two years now elevated levels of women joining boards — in the fourth quarter of 2010, 38% of new directors were women; for 2010 as a whole, 34% of board appointees we tracked were women. Most if not all other major surveys point to board representation of women still stuck in the mid-teens range, where it has been for years.

"So what's up with your numbers?" I get asked. There is an underlying fear that prompts this question, which is this: the optimistic picture that we present could lull people into thinking that recruiting developments are going along just swimmingly, when in fact all the major surveys of board composition do not seem to bear that out.

I am moved to share my response to the challenge I received after this week's release of the Directors Roster report on women board recruiting:

Dear Colleague,

I do not see the disconnect or discrepancy that you see. Let me explain how I mesh the numbers.

Your data is a snapshot of board composition at a fixed point in time — an annual look at who is sitting on a defined universe of boards.

The Directors Roster data is a snapshot of a quarterly flow of activity at a random universe of boards — companies that happen to have added a new board member.

This is apples and oranges. There is no way to sync these two sets of data to make any sensible matchup.

What we are looking at is velocity — a moving target — and you are measuring an end point.

In looking at the Directors Roster that just hit the street this week, you can see for yourself the flow of activity that we tracked in the fourth quarter of 2010 and the new women directors that came to our attention.

It seems to me that we need both sets of measurements — yours and the Directors Roster — to properly gauge marketplace activity, and I don't really see any conflict in what these two sets of numbers report.

It is understandable that my counterpart is concerned about overly optimistic conclusions that might be drawn from the Roster data. That’s why I feel the urgency to bring other surveys to the attention of the Directors & Boards audience that show how sluggish the progress is of board diversity. Our Roster numbers are useful for adding an important dimension to the discussion of board diversity, but I agree that many questions are left unresolved about the enduring impact of this measure of velocity.

Perhaps it is a matter of time — and it will be a lot of time — before we see the cumulative impact of these elevated velocity levels. But something is going on, and that is where the Roster data plays an important tracking role.

Pictured is Ellen Kullman, chair of the board and CEO of DuPont Co., who has joined the board of United Technologies Corp.

Thursday, March 10, 2011

New Directors: The 2010 Class

The numbers are crunched, and here is how year 2010 shaped up for director recruiting.

According to the Directors & Boards Directors Roster, the journal's quarterly and annual reporting of executives named to public company boards, we tracked a total of 420 new director appointments named to 359 company boards.

Here is where the new directors came from, ranked by predominance of backgrounds:

2010's New Directors

1. Retired Executives: 148 (35%)
2. Chairman/CEOs: 84 (21%)
3. Senior Officers: 67 (16%)
4. Finance: 43 (10%)
5. Academia: 30 (7%)
6. Consultants: 28 (7%)
7. Not for Profit: 10 (2%)
8. Legal: 5 (1%)
9. Miscellaneous: 5 (1%)

Total: 420 (100%)

Women: 142 (34%)

Source: Directors & Boards Directors Roster

The number of new women directors gets further comment in my blog post of March 8.

Further detail on the 2010 director class — including names and affiliations of the new board members displayed with the companies who added these individuals — will be provided in the "Governance Year in Review" special issue of Directors & Boards to be published in July. The Directors Roster is sponsored by our close colleagues at Heidrick & Struggles International. Kelly McCarthy is editor of the Directors Roster.

This is the first look at this data.

There are a number of interesting observations to be made about the 2010 director class, which will be the topic of follow-on "Boards At Their Best" postings.

Pictured is Stanley McChrystal, retired U.S. Army general who commanded the U.S. and NATO's security mission in Afghanistan and who is now a senior fellow and teaches a leadership seminar at the Jackson Institute for Global Affairs at Yale University; Gen. McChrystal joined the JetBlue Airways Corp. board in November 2010.

Tuesday, March 8, 2011

Women Directors: Big 2010 Finish

Here is a key piece of data to announce on the 100th anniversary of International Women's Day:

After dipping back into the mid-20% range in the third quarter of 2010, the recruitment of women to corporate boards rebounded strongly in the fourth quarter. During the October to December period, 38% of the newly elected directors tracked by the Directors Roster were women.

Here is how year 2010 added up for the board recruitment of women:

Q1: 34% (31 women out of 90 new directors)
Q2: 36% (41 women out of 115 new directors)
Q3: 26% (27 women out of 102 new directors)
Q4: 38% (43 women out of 113 new directors)

Total: 34% (142 women out of 420 new directors)

The Directors Roster is the quarterly and annual record of newly elected directors to corporate boards tracked by Directors & Boards and published as a special feature in each edition of the journal. The data is gathered and written up by Directors Roster Editor Kelly McCarthy.

Year 2010's total for women of 34% is down slightly from 2009's total of 39%, representing 165 newly elected women directors out of an overall 424 board appointments. But 2009 marked a surprising leap from 2008 — when women represented 25% of the total tally of new directors, closer to trend throughout the earlier years of this decade. (For stark perspective, in the mid-1990s when we first started the Directors Roster data tracking, the percentage of newly elected women directors on a quarterly and annual basis was typically in the high single digits or low teens.)

So with one-third of new directors in 2010 being women, it does show that 2009 was not an utter fluke. We will continue to track the numbers closely in the Directors Roster to see how 2011 plays out. But two back-to-back strong years might well indicate that we have entered an era that will be characterized by elevated levels of board recruitment activity for women.

And on that upbeat note I will happily join in celebrating International Women's Day.

Pictured is Margaret Foran, who joined the board of Occidental Petroleum Corp. in 2010's fourth quarter. Peggy Foran is chief governance officer, vice president, and corporate secretary of Prudential Financial Inc.

Wednesday, January 26, 2011

It Happened in Davos

We had great success with our "It Happened in Norway" issue — in which we devoted a sizable chunk of the Third Quarter 2010 edition to exploring the provocative move toward mandated gender quotas for corporate boards of directors. The movement got rolling in Norway and has begun extending into other European corporate sectors, including France and Spain. That particular edition was widely acclaimed for its thorough and balanced treatment of this hot-potato topic and has almost sold out all overrun copies.

Well, guess who else is hot on the issue of gender quotas? The powers that be that run the World Economic Forum (WEF), underway this week in Davos. The best report on this development comes from the U.K.'s Guardian newspaper, in its article "Davos Imposes Gender Quota." Here are a few key pointers from the article:

• In an attempt to improve the traditionally dismal gender balance at this month's event, the WEF has for the first time imposed a minimum quota of women.

• The forum's "strategic partners" — a group of about 100 companies including Barclays, Goldman Sachs and Deutsche Bank — have been told they must bring along at least one woman in every group of five senior executives sent to the high-profile event. Strategic partners account for 500 of the 2,500 participants expected this year.

• Relatively few women have benefited from this high-level schmoozing. Women made up only 9-15% of those present between 2001 and 2005. Progress has been made — last year 17% were women.

• Critics may argue that one in five is actually a pretty small achievement, and real progress would call for two or three. Just finding one suitably senior candidate this year, however — given the gender balance in the global business elite — may prove enough of a challenge.

A challenge, yes, but surely one that can be met. If a country like Norway has found a sufficient number of women to populate the 40% mandated gender quota of its major corporations' board seats, then so can the comparative handful of pooh-bahs that descend on Davos.

Of course, the big knock on this Swiss schmoozefest (try saying that five times!) is that it is "more talk and partying than action." Which raises the interesting question: Would the right kind and number of women leaders even be inclined to mosey on over to the WEF shindig, mandate or not? But that is a gender-balance — or, should we say, gender-difference — question for another day.

Directors & Boards cover illustration by Dave Gothard

Monday, January 24, 2011

Founder-CEOs: Proceed with Caution

Larry Page (pictured) may make a fine chief executive of Google Inc. It is not at all unknown for company founders to be exceptional CEOs and, in fact, for some to come back into the role and do good things for their companies, as this Business Insider feature displays. But a fair number of founders have fumbled as operating chiefs. Thus, shareholders have room for concern in the surprise leadership change at Google that finds Eric Schmidt stepping down as chief exec.

Directors & Boards author Randy Thurman served on a board with a founder. It was not a happy experience. He cited it in a classic article he wrote for us in 2000 titled "The Unique Nature of Small-Company Boards."

In many smaller companies the founder is also the CEO or even chairman. On one board where I participated, the founder was the chairman, CEO, president and chief scientist. The company outgrew his executive and scientific ability. Because he was the founder, the board hesitated far too long in addressing his deficiencies. By the time we did, the individual had created numerous problems. When faced with the problems and the board decision to remove him from his executive roles, the founder resigned. It took several years to correct his mistakes. The board (and I was a director) should have acted sooner. The tendency to give founders too much time to overcome their deficiencies is common. The founder usually sits on the board, making candid discussion of his problems difficult. Inevitably it remains a board problem until resolved.

Thurman, who has been in a number of boardrooms in his roles as a chairman, CEO, board director, advisor, and investor — with particular expertise in technology and health care — also offered some cautionary words about scientists on boards:

The scientist as a director can present unique challenges for the small company. This may be more applicable in high-tech or health care industries where there is a prevalence of scientifically and medically trained executives. No one would take anything away from their extraordinary intelligence, educational credentials, scientific skill, and professional accomplishment. But their tendency can be to focus solely on the technical and scientific issues and avoid the business and governance challenges of the board.

In addition, I have observed that science and business executives do not always mix well at the board level. A CEO friend of mine calls it the problem of the "MD-iety." I know for a fact that the scientific types have their own issues about us purely business types, but therein lies the problem and small companies experience more of this conflict of professions. By the way, I am not suggesting that there is no room on small public company boards for the scientist; but, one well-suited scientific director may be just the right number.

Two examples underscore this issue appropriately. The first was a Fortune 500 company where I was on the board. Of nine directors, one was an M.D. and dean of one of the top five medical schools in the country. His presence over many years added value consistently in numerous ways. His contribution was in proportion to the other eight corporate types on the board. In contrast, I sat on a small-company board where the chairman was a Ph.D. and two of the directors were M.D.’s. Their desire to concentrate board time on scientific matters became a detriment. (As a side note, it still amazes how much they disagreed among themselves on scientific matters.) Ultimately, two were asked to step off the board and the one remaining M.D. contributes greatly.

While Google is anything but a small company, it is not much of a stretch to see Randy Thurman's observations having some perhaps worrisome degree of application to the tech giant now with co-founder Larry Page assuming the CEO role. This is a development that thrusts the Google board — and Google owners — into a whole new dimension of leadership monitoring.

Thursday, January 20, 2011

When Illness Comes to the Corner Office

Shareholders have every right to worry when a CEO is felled by illness, as Apple's owners are doing right now with the announcement by Steve Jobs of his latest time out for medical treatment.

Close observers of the company and its executive team seem confident in the company's bench strength. Nonetheless, there is still plenty of reason for trepidation. As John Tropman, a Directors & Boards author who has studied the implications of executive illness, wrote in our pages in 2008, "Boards and staff colleagues are left stumbling because, incredibly, there still are no accepted approaches to executive impairment."

In his thorough analysis of the organizational instability created by CEO illness, Tropman identifies three of the leading "bench" dangers:

Office Distraction — Illness generates succession politics. As the executive’s attention wanes and his or her time becomes attenuated, others with an eye on the “executive prize” begin to strategize for power, influence, and possible succession. Major distractions develop as various executives and cadres strive for current influence and future power. The organization can suffer “mission attenuation,” in which employees begin to rivet their attention on who will be the ultimate “winner” rather than on the objectives of the business.

Bad Decisions — Illness diverts decision making into backchannels or “non-responsible parties” (e.g., Woodrow Wilson’s wife; a boss’s support person).

Uncertainty Reigns — Colleagues (superiors, peers, subordinates) experience problems similar to those confronted by the ill person’s family. Bosses do not want to intervene too soon. Subordinates do not want to appear overreaching but also do not want to delay intervention for fear of being faulted for undue delay. Peers are not sure what their role is, or could be, or should be, especially because they might be in line for succession if the ill person cannot resume her duties. Subordinates are perhaps in the most difficult position, because they are climbing up the power grid and anything they say is suspect.

John Tropman is a professor of nonprofit management at the University of Michigan School of Social Work and an adjunct professor of management and organizations at the university’s Ross School of Business. His co-authors on this article, titled "When Illness Comes to the Corner Office" [Third Quarter, 2008], are Robert Winfield, M.D., head of and a practicing physician at the University of Michigan Health Service and the university’s chief medical officer, and Penny Tropman, a practicing social worker, an adjunct professor in interpersonal practice at the University of Michigan School of Social Work, and a principal at Midlife Renaissance, a firm that offers wellness programs for individuals and the corporate market.

Here is a sobering bit of counsel that the three authors offer that should be taken under advisement not only by the Apple board but other boards that face this extremely uncomfortable, and not uncommon (AIG and Sara Lee, e.g., have just gone through this) situation:

Executive illness is a complex and important problem in the executive suite. The idea that one can rely on the executive to take the lead in the handling of his or her own illness is problematic for many reasons, not the least of which is that denial is characteristic of many illnesses. On the other side, “governors” — whether they be board members or staff colleagues — seem woefully ill prepared to take action.

Few options have been thought through and put in place to be readily exercisable. This gap creates and supports indecision and inactivity. Hence, we are faced with inaction on more or less every side, broken only by some dramatic event that forces steps to be taken. We owe our executives, our shareholders, and our organization’s stakeholders better than such stumbling.

Here is a slightly expanded excerpt that we ran in the Directors & Boards e-Briefing from "When Illness Comes to the Corner Office."