Tuesday, December 30, 2008

So Last Century

The news stories about Time Warner CEO Jeffrey Bewkes being named chairman of the board, effective Jan. 1, strike an odd note. It's as if this news is lifted right out of the pages of business history — from the 1970s or '80s.

These days, with the inexorable progress of governance best practices, one of which is splitting the chairman and CEO positions, you would more likely expect to be reading news stories that companies like Time Warner have separated the two top roles — not trumpeting that the CEO has added the chairman's title.

This news from Time Warner is not a surprise. It was baked in the contract when Jeff Bewkes was named CEO in January 2008. And he may make a fine chairman and CEO, so this is not meant as a personal criticism. 

As a matter of full disclosure, I have been in and out of Time Warner stock since the mid-1980s. I was lucky to be out of it at the time of the AOL deal, but I've been back in it for the past several years and it has been one of the doggiest stocks in my portfolio. I have fond memories of being a Warner Communications shareholder under the late great Steve Ross (pictured), who had his flaws but he knew how to put money in the shareholders' pockets, something his successors have not done well at. Hopes run high that Bewkes will reverse the shambling market performance of this media giant.

If combining the chairman and CEO roles helps Bewkes get this company back on the winning track, then the tactic will have been proved right. But on the eve of his ascent to the combined offices, it looks more like a page out of a dusty old board playbook. So last century. 

Tuesday, December 16, 2008


The Bernard Madoff investment scandal is being called one of the biggest Ponzi schemes ever or the biggest Ponzi scheme of all time. Naturally enough, since the shocking revelation of massive losses the names Madoff and Ponzi are linked at the hip.

I first became acquainted with Charles Ponzi (pictured) when I wrote a review of Famous Financial Fiascos, a book by investment counselor John Train, for the Philadelphia Inquirer in 1985. The Ponzi scheme — the pyramiding technique in which early investors get paid off with funds from succeeding waves of gullible latecomers — had a starring role in the book that recounted 20 of history's massive financial debacles. 

What few people know is that Ponzi's original scam rested on a simple arbitrage proposition: Buy an International Postal Reply Coupon in a country with a devalued currency, redeem it in a strong-currency country, and pocket an immediate profit.

As I wrote in my review: "Why hadn't this foreign-currency play occurred to someone other than this small-time con man?" With the inimitable wit and style that marked not only this book on investment calamity as well as his other classic examinations of investment genius, Train answered, "Many of us have been struck by falling apples, but only Newton, rubbing the spot and glaring upward, derived the law of gravity."

Ponzi rode his scheme for big money for about a year until it, like all his namesake schemes since, collapsed of its own duplicity in 1920. But his name has lived on in infamy — and, like a ghost from the grave, has been again summoned forth in the horror wreaked by Madoff.

This year has been a ferocious bear market ... for trust. In so many boardrooms over the past 12 months, the trust factor has taken a huge hit. Does the board trust the management? Does management trust the board? Do directors or managers trust the investors? Do the investors trust the board and management team?

The Madoff affair is sure to feed more raw meat to that bear market in trust among men and women of business. That's the follow-on tragedy after the missing dollars are accounted for.

Friday, December 12, 2008

Two Joes Talkin' about Risk

Arithmetic was never my strong suit in school, but here is some math that even I can understand: "At 30 to 1 leverage, a 3% or 4% drop in asset prices means you're wiped out."

I thank Joseph Rizzi for the simple yet profound clarity of that equation. Mr. Rizzi is senior investment strategist at CapGen Financial. He was the guest speaker last month at a program on the lending crisis put on by the Center for Corporate Governance at Drexel University's LeBow College of Business. His presentation was the best I've heard all year in identifying the roots of the crisis and what needs to be fixed, from a governance standpoint. I'll be wanting to get more of his keenly observed analysis into the pages of Directors & Boards in the year ahead. 

I thought of his comment when something else just came across my desk: "Risk managers will emerge as heroes from the financial crisis." That's a powerful statement, put out by Joe Plumeri (pictured here), chairman and CEO of global insurance broker Willis Group Holdings. Speaking at the annual dinner of the Association of Insurance and Risk Managers on Dec. 10, Mr. Plumeri said that risk managers have never been more important than they are today in helping their companies evaluate risk and access capital.

I had the pleasure of interviewing Mr. Plumeri for a Directors & Boards cover story a few years ago. He calls it like he sees it, and this is picture-perfect vision.

I'm not sure how heroic it is to stare at a 30 to 1 leverage ratio and not recognize that there is, in the lyrics of my favorite movie musical, "trouble in River City." According to reports, Lehman Brothers was levered 32 to 1. Lehman is among the wiped out. 

But directors should appreciate the implications of Mr. Rizzi's risk equation and Mr. Plumeri's shining the spotlight on the role that risk managers can and should play in their deliberations on risk. The heroic nature of risk managers should come from keeping the leadership in a risk-aware state — note that I didn't say risk-averse state — and not from having to push back against a culture that, through ignorance or denial, could cause the board to preside over a wipe out.

Wednesday, December 10, 2008

Madam Chairman

Speaking of former U.S. Secretary of Commerce Barbara Franklin, which I did in my post of Thursday, Dec. 4, I couldn't be more pleased to see that the National Association of Corporate Directors has elected her to be the organization's vice chairman, and that she will assume the chairmanship on March 31, 2009.

She has been a prominent member of the NACD for nearly 15 years, often speaking at its annual conferences — and always being a voice of reason and sound thinking on governance at these confabs, as well as in the pages of Directors & Boards. She was presented the NACD Director of the Year Award in 2000.

You can't get more well-credentialed for this chairmanship. She has been a director of 14 public companies over her career, including current directorships at Aetna Inc. and Dow Chemical Co. She joined her first corporate board in 1979, fresh from six years as a commissioner of the U.S. Consumer Product Safety Commission. That was early days for women on boards. 

I can't resist sharing this story she told me when I interviewed her for the "Oral History of Corporate Governance" special 25th anniversary edition of Directors & Boards in 2001. Remembering those early days, she recalled going on the Westinghouse board, and promptly running into this buzz saw (or maybe I should say buzzard):

"I raised a question about something at the very end of a [board] meeting. One guy looked at me and said, 'Barbara, why don't you leave these things to more experienced directors.' I was real unhappy about that! I collared him afterwards and told him I didn't think that was an appropriate comment for him to make. He apologized."

The chairmanship of the NACD is going to be a hot seat in 2009, what with a change in Administration and a Congress on the warpath looking for culprits — some to be found sitting in director seats, for sure — who drove the economy into a deep and dank ditch. The new powers that be may tee up legislation that will take board service into a distinctly unfamiliar and unwelcome territory. 

"In such uncertain economic times," she says, "more is expected of us as corporate directors. We must work to restore trust in the governance of our companies." The world of corporate governance will be fortunate to have Barbara Franklin in this leadership position. Talk about leaving things to an experienced director.

Monday, December 8, 2008

'Awash in Liquidity' — Not!

The Tribune Co. bankruptcy filing prompts a haunting flashback.

It is late 1988, and I am in a hotel conference room in New York listening to a presentation by a hotshot financier from still-existent Bankers Trust Co. Out of his mouth comes the first time I hear this expression: "The world is awash in liquidity." Well ... within a year the world begins its sickening plunge into the devastation of the early '90s. That excess liquidity did a vanishing act.

The flashback now fast forwards to early 2007. I open up the Wall Street Journal one morning to read real estate mogul Sam Zell (pictured), in an article by Alan Murray, saying that the world is experiencing "a massive excess of capital." 

I start breathing hard. Did I just again hear a hotshot financier say that the world was awash in liquidity? My next move, of course, should have been to add to that excess capital by liquidating my equity portfolio.

Zell did it. He acted on his stated unease by unloading his Equity Office Properties Trust portfolio of commercial read estate holdings to Blackstone Group. For a big number: $39 billion. A brilliantly timed move. Promptly followed by a colossal blunder — buying Tribune Co., on the eve of the evisceration of the newspaper industry.

Alert to boards: The next time you hear the expression "The world is awash in liquidity," or any variation thereof, tell your CFO to run for cover. With the way things are going, it may be a long while before you hear it, but keep your ears tuned. 

And I implore somebody to kick me if I don't do the same. No one wants to take a third called strike at this phantom fastball called "massive excess liquidity." 

Thursday, December 4, 2008

Carry a Big Stick

It's always interesting and instructive to see who a CEO picks to be a member of his or her team. As such, I suspect business leaders are riveted even more closely than the average citizen on a President-elect's choices for his Cabinet.

Barack Obama's economic team took shape first, with New York Federal Reserve Bank President Timothy Geithner spearheading as nominee for Secretary of the Treasury, followed by the foreign policy team, headed by nominee Sen. Hillary Clinton for Secretary of State. Yesterday, Obama introduced New Mexico Gov. Bill Richardson as nominee for Commerce Secretary.

The Richardson appointment reminds me of a letter I sent to Barbara Hackman Franklin upon her nomination to be Commerce Secretary in the George H.W. Bush administration. Barbara is a longtime colleague who has authored several important articles on corporate governance for Directors & Boards. On the eve of her Senate confirmation in early 1992, I penned her a good wishes note, reminding her of the observation put forth by Henry Adams (pictured here), noted author and historian and great grandson of second President John Adams and grandson of sixth President John Quincy Adams:

"You can't use tact with a Congressman. A Congressman is like a hog. You must take a stick and hit him on the snout."

With the job at hand, I hope the country's new CEO and his team are coming to Washington with sticks in hand.

Wednesday, December 3, 2008

The Rule of Athithi Devo Bhava — Guest of God

The terrorist attack on Mumbai is an awful event. Here is an inspiring message coming from that shattered corner ... and it may be something that gives comfort to boards of companies doing business in India or contemplating entering the Indian market (India's Prime Minister Manmohan Singh pictured here). 

This is from Sunil Singhania, president of IAIP, the CFA India Society. I am a longtime member of the CFA Institute, the global association of investment professionals, and this message from the Indian unit head was circulated through the association. These are edited excerpts of the message:

"There is no doubt that the intention of the terrorists was to destabilize the commercial city of India and thus cause financial setback to one of the fastest growing and most resilient economies of the world ... However, the terrorists don't know the resolve of the Mumbaikars and Indians. We have bounced back immediately earlier and we will bounce back even faster this time.

"We Indians will rise from this temporary setback and work all the more harder to defeat the intentions of our enemies to weaken us in any way. We saw most of Mumbai return to work on Friday itself, while our brave soldiers were still fighting with the militants. The stock markets rose, almost yelling that do whatever one can, India will continue to shine.

"The events must have surely shaken the confidence of people who have visited India and, more so, stayed in one of the two hotels targeted. The spontaneous reaction would be to cancel all travel plans to India. By doing this, you will only be making the endeavors of the terrorists more successful.

"We Indians follow the rule of Athithi Devo Bhava or Guest of God. We assure all our international brethern that Indians will lay down their life to protect those of our guests."

Come to think of it, that kind of steely resolve is just what is needed to surmount the economic assault we're all facing — now that, ahem (see my post below), a recession has been officially declared. 

Tuesday, December 2, 2008

By Golly, It's a Recession

Ouch. That 680 point decline in the market yesterday was a kick in the gut. Lots of continuing bad news — including the "dog bites man" announcement by the National Bureau of Economic Research that, yes, can you believe it, we're officially in a recession.

In times of market duress, I suggest that boards retreat for guidance to "Conventional Wisdom Codification" — a brilliant, and often sardonically witty, collection of some 250 principles of surviving and thriving in the credit markets. 

Here is the kind of advice that might keep your personal balance sheet as well as your company's solvent as we work through this historic credit and business contraction:

• The bottom is always 10% below your worst-case expectation.

• When everyone likes a stock, it must go down; when nobody likes a stock, it may go up.

• Price wars get worse than you think.

• If you can figure out who will get the cash inflow in a cycle, you've got that cycle beaten.

• Risk is what's left over after the bad news hits. 

The codification was originally published in the Financial Analysts Journal in 1978. With the exception of a few outdated entries, it holds up remarkably well as a survival guide. I first recommended the codification back in the September 2007 e-Briefing, right after the first big crack in the market the previous month. My original citation included a few additional investment principles and an offer, with permission of the CFA Society, to share a copy of the entire codification (page 1 pictured here). 

I well remember that first downdraft in August of last year, as I was on vacation in Boston and spent way too much time glued to CNBC in the hotel room tracking the initial carnage.

Perhaps you too can point to a moment of crystal clarity that your company and your investments might be threatened in a seriously destructive way. Let's hope we have the prospect of experiencing a similar moment that tells us that all the bombs have been dropped and we can come out of the foxholes to start rebuilding wealth in the reshaped global economy.  

Thursday, November 27, 2008


Thanksgiving Day 2008. In the spirit of being grateful for one's blessings, let me share with you two vignettes of thankfulness.

The first comes from Jack Bogle's new book, Enough. This anecdote, in fact, inspired the title of the book. (See my blog post of Nov. 24 below for another reference to Jack's book.) Here goes:

"At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs his pal, Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch-22 over its whole history. Heller responds, "Yes, but I have something that he will never have — enough."

The second insight into "enough" has been a longtime personal favorite.

It comes from H.L. Mencken (pictured here), a newspaper and magazine editor long revered by journalists as one of the most influential writers of the early 20th century. When the "Sage of Baltimore" (as he was known, thanks to his birthplace and base of punditry) was coming to the end of his days, he recounted in his diary the many things he was grateful for. One was this: "I always had a dollar more than I needed."

On this day, and in all days to come, may you feel blessed for all that you do have.

Monday, November 24, 2008

Bogle Is 'Not that Bearish'

Is there any steadier-at-the-tiller mind in the world of finance and investing than Jack Bogle's? I'm hard-pressed to name one.

Bogle has been the author of several pieces in Directors & Boards, which merit but minor mention among his voluminous output of books, articles, papers and speeches over his long and distinguished career. He is out with a new book, titled Enough [John Wiley & Sons] that I am anxious to read. 

I caught up with Bogle again on Nov. 20 when he did a special live radio broadcast from Philadelphia's Union League Club with the city's talk radio maestro Michael Smerconish. He fielded questions for an hour both from Smerconish and the 500-strong audience listening raptly for some guidance in navigating the choppy market from this wise elder statesman.

Here are a few sound bites from that broadcast:

• "Mutual fund portfolios will experience a 350% turnover this year" — more than a 10-fold increase over the average 30% turnover that was the norm in Bogle's early years of investing.

• "The market is now selling at 1.6x book value — the last time it was at that level was in 1986." It was at 8x book in 2001, Bogle noted.

• In answer to a question from the audience as to whether "Hank Paulson is an idiot?" Bogle replied, "No, something worse than that ... he is an investment banker." After a big laugh from the crowd, Bogle explained that being an investment banker gives him a skewed view of the world, one that may not be helpful in coming up with the right solutions for the current crisis.

• A damning verdict for the financial services industry: "Any business that subtracts value from its clients is going to be hoist by its own petard."

• He says he's "not that bearish" on the market. This "serious recession" will take about "1 and 1/2 to 2 years to get through, but the market will anticipate that and will start its recovery ahead of time." 

• What's needed when we get through this period is "to go back to a society based on long-term investing and not the folly of short-term speculation." 

• Rejecting the title of economic guru — "There are no economic gurus" — he answered the question of "Who do you trust?" with a forthright "The American electorate."

Put this book on your holiday shopping list. And, by the way, if you're passing through Philadelphia on a business trip or pleasure jaunt, tune in to Michael Smerconish's show, broadcast from 6 a.m to 9 a.m. Monday to Friday on 1210AM WPHT. It starts my day with a heady brew of current events analysis and lively guests — such as the inestimable Jack Bogle, whom I will call an economic guru whether he likes it or not.   

Thursday, November 20, 2008

Board MVPs

It's official — the Most Valuable Players of this past baseball season have been named.

In the National League, Albert Pujols, first baseman for the St. Louis Cardinals, got the MVP honor. To the chagrin of Philadelphia Phillies fans — yes, that's me, a lifelong Philadelphian — he edged out Ryan Howard, a major contributor to the Phils winning the World Series this year. 

Dustin Pedroia of the Boston Rex Sox gloved the big award in the American League, becoming the first AL second baseman voted MVP in nearly half a century.

Boards of directors have their MVPs too. What goes into being the most valuable player on a board?

Directors & Boards Publisher Robert Rock (pictured here) has seen such individuals in action. As he notes, "On the public and private boards on which I serve, I have worked with several directors whom I have come to admire as truly exceptional in the value they add to board deliberations and decision making. They are the MVPs of these boards."

Bob examines the skill set and personal attributes of a board MVP in his Letter from the Chairman, published in the Fourth Quarter issue of the journal and also in the November issue of the e-Briefing newsletter.

Does your board have an MVP? 

Tuesday, November 18, 2008

Capital Meets Capitol

Here is a sobering thought for all CEOs and board members: "Washington is now the financial capital of the U.S." The CEO who made that observation appended this remark with "God help us."

That comment was voiced at the annual board meeting of the Wharton School's SEI Center for Advanced Studies in Management, from which I have recently returned. I am reminded of that comment every time I see the head of Goldman Sachs' Washington office, aka Treasury Secretary Hank Paulson, leading the day's news developments. 

This is the world we're in at the moment. Plan accordingly ... and, as my CEO board colleague cautioned, God be with us.

The SEI Center, by the way, is headed by Prof. Jerry Wind, a thought leader in numerous business areas, including corporate governance. He authored what I like to call a "seeing around corners" cover story (pictured here) for Directors & Boards three years ago that asked the question, "Can one board do it all?" His well-argued answer was "No." Drop me a note and I'll share a copy of the article with you.

Incidentally, also overheard at the SEI board meeting: "One-third of the House and Senate members don't have passports." Let me append to that, "God help us."

Thursday, November 13, 2008

Five Words

Want a challenge? Describe what makes a great director — but do it in five words.

James Skinner, vice chairman and CEO of McDonald's Corp. (pictured here), nailed it when he did the honors of presenting the Public Company Director of the Year Award to McDonald's Chairman Andrew J. McKenna.

Mr. McKenna was selected by the National Association of Corporate Directors for this highest of honors, and was given the award on Oct. 20 during the annual NACD conference. In the award writeup on their honoree, the NACD noted that:

"Mr. McKenna has earned great respect for his strong leadership through very turbulent times. The untimely passing of two CEOs in the early 2000s posed difficult challenges to the company's board. Mr. McKenna demonstrated great compassion during these events, and his pragmatic leadership helped keep the board focused on business objectives."

But it was Mr. Skinner who cut to the quick. Eschewing any flowery rhetoric, the CEO gave the audience packed into the JW Marriott ballroom in Washington, D.C., the five-word formula for what makes a great director:

"Sound judgment and wise counsel."

Can you top that? Why try? It's perfect as is. All companies should be blessed with board members for whom this five-word description would apply.

Monday, November 10, 2008

A Leadership Idea for Lead Directors

I don't know how the banks are going to do it — scoop financial rescue money in the front door and shovel big bonuses out the back door. No matter what the rationale offered, I just don't see how this passes any kind of smell test. The stink of it will bowl you over even if you've got wads of tissue stuck up both nostrils.

$15 trillion.
That's how much investors have lost so far this year in the stock market collapse, as reported by the Wall Street Journal. And that's not even factoring in a couple of deep downdrafts the market has taken since that number was reported on Nov. 6.

Yet, Wall Street is still talking about bonuses earned. How incredulous is that?

My longtime colleague in governance watching, Nell Minow, put forward all the right reasons why there should be "No Bonuses for You" in her New York Post commentary.

So, here is a leadership idea for boards. The lead directors of all the financial institutions taking government bailout funding should publicly propose to their fellow board members and management that there be a bonus moratorium for 2008.

Some adult in the room has got to take the smell test and say, "This just doesn't pass."

The lead directors not only would be in harmony with the national interest but they'd be doing their fellow board members a favor. The bonus dispersal is going to be a reputational risk nightmare for the boards involved.

Lead directors, stand up and be counted — and that means don't be counting out millions in bonus bucks.

Thursday, November 6, 2008

Can You Say, 'Change Is Coming'?

Whew! The long march to the White House is over. We now know who the President-elect is.

Politics aside, who could dispute that Barack Obama is a masterful orator? And that those rhetorical skills propelled him from the streets of Chicago to 1600 Pennsylvania Avenue.

All leaders don't need to be masters of oratory, but they do need good speaking skills. There is a lot that can be learned by studying how Obama used his communication skills to present a vision of organizational change and energize the stakeholders. 

I expect the new book Say It Like Obama [McGraw-Hill] to be a hot motivational self-improvement book for CEOs, board members, and leaders of all stripes. In it are copies of Obama speeches, including the speech that started it all — his 2004 Democratic National Convention Keynote Address — and what the book terms "the speech that made history again," his 2008 Democratic National Convention Nomination Address. Leadership development coach Dr. Shel Leanne dissects the speeches and rhetorical techniques and shows how to construct an argument that is persuasive and motivates others to action. 

My previous post on Oct. 30 was a recommendation for a book that will equip you to navigate perilous financial markets. The "market" for organizational change will be huge at the tail end of this year and into 2009. This book will better equip you to motivate your key constituencies to do the job that needs to be done so as to still be here to enjoy the better days ahead that the new President has envisioned.

Tuesday, November 4, 2008

Ultimate Succession

Today is Election Day 2008. It's a day of ultimate succession planning — in which we as a nation designate the new Chief Executive who will lead the enterprise that we call the United States. 

What's going to happen today brings to mind one of the most trenchant remarks ever made about the voting role of boards in executive succession.

Brace yourself if you are a CEO. I'm not sure that you would be happy to have a group of directors who walk into every board meeting hewing to this voter's mandate.

And what mandate might that be? Simply this: According to one of the grandmasters of governance, the first decision that the board should address upon taking their seats is to answer this question — "Is this the day that we fire the CEO?"

I learned that from Robert Mueller (pronounced Miller), pictured above. Bob was a dear colleague. He was one of the most knowledgeable individuals about the workings of corporate and advisory boards, having written 18 books on leadership, and was himself an expert practitioner of directorship. Monsanto was but one of his public company boards. I'll have to devote one or more future blog posts about Bob because there is just so much to be said about him.

Bob served on a board (not Monsanto) whose members asked themselves this question before the start of every board meeting. If the answer was "no," Bob said the meeting then proceeded on course. But the focus on the leader's qualifications to maintain office was regularly before the "electorate" — and not subject to the vastness of four-year intervals of rendering judgment on performance and capabilities.

We won't be firing the current Chief Exec today. But I wonder how many voters are going to the polling stations and subliminally answering "yes" to the Mueller mandate: "Is this the day that we fire the CEO?"

Thursday, October 30, 2008

'Merchandise Well Bought...'

It is an understatement to say that October was a challenging month to be an investor. Or to have an investment portfolio. It was the market's worst month in 21 years. It was a month when, as my blog post earlier this month notes, the 201(k) became the new 401(k).

Warren Buffett certainly got deserved kudos for trying to buck up the beleagured investor class with his Oct. 17 New York Times op-ed, titled "Buy American. I Am." In it, he sets forth a piece of investing advice that he is famous for — "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful."

As we get set to start a new month, in which we can all hope to make up some of the fearsome losses of October, let me share with you another piece of investment wisdom that I think should be as top of mind as Buffett's.

It comes from John Neff. Neff is not in the godlike pantheon of Buffett, but he is an investment Hall of Famer by any measure for his long tenure at Wellington Management Co. running the Windsor Fund. If you have not read his book, John Neff on Investing [John Wiley & Sons], put it on your must-read list. It is an investment primer deserving close study, particularly for investing in treacherous times when markets are going against you in a big way, as they often did for Neff with his contrarian stance.

I spent some good time with Neff in the past. He was one of the historians I interviewed for the Directors & Boards special 25th anniversary "An Oral History of Corporate Governance" edition published in 2001. Neff achieved his superstar portfolio manager status with a splash of activist shareholder as part of his playbook. He then became a corporate director to top off his impressive career.

Now to Neff's piece of wisdom that can go toe-to-toe with Buffett: "Merchandise well bought is well sold."

There seems to be a lot of merchandise on sale right now. Is it time to buy? Maybe Neff's guidance will apply — to individual shareholders, institutional investors, and dealmaking CEOs and boards. Think of how these current prices will change a year or two, or more, down the road. Will you be muttering to yourself, "If only I had pulled the trigger?"

Wednesday, October 29, 2008

Executive Sessions in the Early Days

We've just marked the first-year anniversary of the passing of Stanley Foster Reed, founder of Directors & Boards. Stanley died on Oct. 25, 2007, at the age of 90. 

His obit in the Washington Post is a good backgrounder on this eclectic and entrepreneurial executive, but only hints at what an early guru he was in corporate governance. The term was not even in the popular lexicon when he founded the journal in 1976. In fact, he taglined his new publication "The Journal of Corporate Action," and not "The Journal of Corporate Governance."

He didn't suffer fools gladly, befitting his years in the board trenches. I always got along well with him both when I joined the journal in 1981, right after he sold it to its current owners and he stayed on for a while as a consultant and eminence grise, and for years afterward for the occasional phone chat. Of course, his daughter, Alexandra Reed Lajoux, brilliantly helmed the journal during this transition period from old to new ownership. Alex is still a force in the governance field as the chief knowledge officer of the National Association of Corporate Directors.

Stanley wrote so many profound commentaries on board behavior while he was publisher and even years after. The picture of him above comes from a photo taken for a reflective essay he wrote for the journal's special 20th anniversary issue in 1996. Since he was a corporate director himself, his writings were infused with his own experiences — the good, bad, and even the ugly. 

One of Stanley's confidences to me that always made an impression was when he took me aside one day to say, "You know, Jim, some of the most productive conversations that we board members ever had were in the rest room during breaks in the board meeting." I could tell from his tone that more than one CEO's fate was probably sealed behind the bathroom door. 

Who needed the formalization of executive sessions? This was the executive session at the dawning of the modern era of corporate governance. Much has progressed since, thanks to pioneers like Stanley Foster Reed.

Monday, October 27, 2008

All Risk All the Time

If there was one word on the lips of the 700-plus attendees at last week's annual conference of the National Association of Corporate Directors, it was this: "Plastics." Whoops, wrong blog.

Seriously, and I do mean on a more serious note, that word would be "Risk." Actually, that word usually came with an appendage — typically, risk management ... risk avoidance ... risk identification ... risk mitigation ... risk behavior ... and other iterations.

How about litigation risk? Yes, that too, for sure.

This is a good time to get comfortable with general counsel. Directors can be forgiven for reaching for the holy water and crucifixes at the approach of a lawyer. Whether that be a counselor working for the board or against them, a lawyer on the scene can bode ill. That sucking sound you hear can be money, time, and reputation just oozing away.

I make a few constructive comments about our colleagues in the bar in my introduction to the Directors & Boards Boardroom Briefing "The Legal Issue" just recently published. It will give some comfort that a strong and collaborative relationship with in-house and outside counsel is what you will need to be well armed as we enter a heightened age of risk.

Friday, October 24, 2008

John Whitehead, Mensch

I always enjoy a Yiddish expression dropped into business conversation. My paternal grandfather spoke Yiddish, which may be one reason why the language resonates with me. 

I'm just back from the National Association of Corporate Directors (NACD) annual conference. There is much fruit for future blog posts to come out of the sessions and speeches. Here is the first.

The NACD, in a brilliant decision, presented its Ken West Lifetime Achievement Award to John Whitehead. John's credentials and accomplishments would not even fit into a supersized blog entry. Suffice for current purposes to say that John is a former co-chair of Goldman Sachs and one of the most renowned if not revered banker-businessmen of our times.

In a buildup to John's stepping on stage to be handed the award, a short film was played that showed several friends and colleagues lauding the honoree. One was Josh Weston, former head of Automatic Data Processing Inc. The accolades were piling up to the ceiling of the JW Marriott ballroom. 

Finally, as the tape wound down, Weston admitted that there was no word in the English language that could capture the essentialness of John Whitehead. The only word, he said, that could do justice to John was this: "Mensch."

Josh had it right, and the 700-strong crowd knew it. They jumped to their feet to applaud what a stand-up guy (a lame interpretation of the Yiddish salute) John Whitehead is. Our congrats to John, with whom we did a cover story interview in our Summer 2005 edition, on this well-deserved recognition. 

Thursday, October 23, 2008

Of TARPs and 201(k)s

Before a few weeks ago, what the initials TARP meant to me were Temple Association for Retired Persons — an educational outreach program that my alma mater, Temple University, offered to the retired citizenry in its Philadelphia community that was run by a longtime close colleague, Patricia Rooney.

Well, not so much now for that name association.

TARP is the Troubled Asset Relief Program that has been rushed into being to help mitigate the toxic mortgages held by the nation's banking system. We'll see how mitigating this whopper of a program is. Neither the stock market nor many members of the punditry or the citizenry have given it much of a ringing endorsement.

Truth be told, I wouldn't argue with anyone who thought TARP stood for Tycoon Assistance Relief Pact.

And referring to new monikers, I'm scribbling these thoughts on the morning after another deep swoon of the market — down over 500 points on Wednesday, Oct. 22. I'm afraid to go to the Fidelity website to peek in on my 401(k). It might now be a 201(k).

Sunday, October 19, 2008

A Ring of the Bell

Market mavens say they don't ring a bell at market tops or bottoms. Do you believe that? I don't. 

Can't you point to past instances where a little voice inside your head said, "This is a decisive moment in a trend line"? 

Here was one for me: When Blackstone went public last year. I don't think I was alone in thinking that, "Yes, this is some kind of a market top." What beautiful timing for the Blackstone partners. This was actually a second dip at the timing well — how about their great timing in buying and then immediately selling off huge chunks of the Equity Office building portfolio earlier in the year? What would their fortunes look like now had they held onto that real estate for even a few additional months.

I don't begrudge them their timing. I begrudge not acting on that little voice inside my head.

I just listened in to what might well be a ring of the bell on executive pay. 

My pastor at Sunday services, for the first time ever from this pulpit, railed against the unjust compensation practices of corporate America. When a conservative minister turns from Biblical passages for his weekly sermon to lash out at the salaries and bonuses given to company leaders who have led the nation into deep doo doo ... well, I hear bells — and it's not the usual melodious ringing from the parish steeple. 

Forget Barney Frank. Forget 'say on pay.' Forget Hank Paulson and his TARP-induced strictures on exec pay. When the clergy of America become so incensed over the unfairness of board-approved pay for failure that they feel an obligation to use the pulpit to express outrage, then we've hit some kind of a trend point. 

I don't know if you'd describe it as a top or a bottom. A top in the inequities of pay practices. Or, a bottom in the sense that the craziness finally ends here with the stock market crash of 2008 and that there is no way but up for boards in crafting pay plans that truly reflect management's performance. 

But I say a bell has rung. 

Sunday, October 12, 2008

End of an Era

It's rare that an editor will have the opportunity during his or her tenure atop a masthead to write an "end of an era" commentary. But I feel that the Editor's Note I wrote for the Directors & Boards e-Briefing October issue is one such editorial.

Perhaps it's appropriate that I begin this new blog on an "end" note.