Goodbye to All That

Glub . . . glub . . . glub. At the very start of 2009, in my editor's note in the January e-Briefing newsletter, I predicted that the year ahead would be "Byrom-esque." That's a phrase I made up, drawing from an observation put forward by one of the grand corporate statesman of the 1960s and '70s, Fletcher Byrom (pictured), who said: "The best motivated person is a 5-foot 10-inch nonswimmer in 6 feet of water."

That's how I saw 2009 for corporate directors — that the crisis of credit, markets, leadership, and confidence would make board members feels like Byrom's splashing-like-mad nonswimmers in a 6-feet-of-water boardroom — i.e., in (slightly or utterly) over their heads.

That was a pretty good call. Many board members slipped below the surface, never making it through the year. We saw that at Bank of America, Citigroup, AIG, GM, and other troubled entities. When the markets hit their lows in March, it sure looked like lots of bodies were going to be pulled from the water.

That didn't happen, thankfully. In an ocean of troubles, directors played a vital role in helping keep their managements from going under. This fulfilled the second part of Byrom's aphorism: "If you're doing as well as you should, everyone's head ought to be a little under water all the time. People perform best under conditions of moderate tension."

Well, 2009 was a time of more than moderate tension. As we close out the year, let's recognize the survival instincts and crisis-inspired leadership abilities of those directors who made it through this Byrom-esque year.

Sadly, Fletch himself never made it through the year. This grand business leader of the old school — a CEO who led a major industrial corporation (Koppers Co.), served as a powerful presence on the boards of several Fortune 500 companies, moved comfortably between the business world and service to government, science, academia, and philanthropy, and operated as an all-around strategic adviser on the world stage — died in July at the age of 91. I got to know him a bit when I published a major article by him — a classic commentary on succession planning titled "A Message to My Successor" — in 1999.

So, goodbye to Fletch . . . and goodbye to all that splish-splashing of 2009. Can we rest our bobbing arms a bit now?

A Hot Trend

It's not often a quarterly journal like Directors & Boards can beat the Wall Street Journal in getting a story into circulation. It's fun when it happens.

We experienced that this month when our current edition featured a major article on a trend we think is about to explode: how HR officers will become much closer and more valued counselors for the board — a trend that will include chief human resource officers (CHROs) becoming desirable board candidates. We titled it "A Strengthening Nexus: Boards and the CHRO." That issue hit the street Dec. 4. On Dec. 14 the WSJ reported that "HR Executives Suddenly Get Hot," with the article subhead adding "Profession Is in Demand for Board Seats as Firms Seek Guidance on Pay Deals."

I like this as a compelling example of the serendipity of good ideas being explored by multiple sources at the same time . . . as well as affirmation of our respective trend identification.

Kathy Herbert (pictured) is what I termed in the Directors & Boards article a preeminent example of the HR expert who has been recruited as an outside director. She is the former EVP of human resources of Albertson's Inc. who is serving on the board of Covidien PLC, the Tyco Healthcare Group unit that was spun off to Tyco International's shareholders in 2007, at which time she joined the board. She authored for us a Top 10 list of "What the Board Needs from the HR Chief." This is a primer for board members who want better advice on which to make key human capital, compensation, and succession and management development decisions — as well as a primer for HR officers on how to become a trusted adviser to the board. Her views were supplemented by two top HR officers, Angela Lalor of 3M Co. and Ian Ziskin of Northrop Grumman Corp., who discussed the impact that progressive HR practices can have on the governance of public companies today.

I have some skin in this trend. I've published pieces on the HR-Board relationship that date back a decade and more, so I've been an early advocate for the strengthened nexus. And now I have been invited to participate in the meetings coming up in 2010 of the CHRO Board Academy. Formed by Dennis Carey, senior client partner of Korn/Ferry International, the CHRO Board Academy is an organization that specializes in preparing HR executives to work with their boards as well as to serve on outside boards. The above-mentioned Ian Ziskin along with Daniel J. Phelan, chief of staff for GlaxoSmithKline, are co-chairs of the CHRO Board Academy.

I look forward to bringing to the readers of Directors & Boards more thought leadership on how HR executives not only have gotten hot but stay hot in the bubbling cauldron that corporate governance likely will be in 2010 and beyond.

Photo of Kathy Herbert by Kathy Richland ©2009

High Times

It was hard to resist a chuckle when I read Jason Zweig's The Intelligent Investor column in this weekend's edition of the Wall Street Journal, titled "Does Golden Pay for the CEOs Sink Stocks?" The always readable and sensible Zweig reviews two new studies that "suggest that when chief executives get paid more, shareholders end up earning less."

It was his concluding observation on the results of these two studies, one of which was by a savage critic of inferior governance practices, Lucian Bebchuk of Harvard Law School, that brought a wry smile to my face. "It's high time," Zweig wrote, "for corporate compensation committees — and investors — to start doubting whether the lavish pay packages they endorse actually work."

The "high time" message is one that we here at Directors & Boards communicated almost three decades ago — in a powerful article titled "Is Any CEO Worth $1 Million a Year?" I remember this article well because we published it in one of the first issues after I joined the journal in 1981. It has since become a classic. (And I have on numerous occasions been known to say that if we dusted this article off today we'd have to add one if not two zeros to the end of that dollar figure for the update.)

What's fair and rational to pay CEOs has so many layers. Our board panel for this 1982 article wrestled mightily in peeling this onion. Here were several comments that illuminate the Solomon-like judgment that a compensation committee must bring to bear:

• "Increasingly, the chief executive officer is dealing with external problems — legislation, regulation, and a variety of other things that aren't measured by the bottom line. As much as 40% of the CEO's time is spent in this kind of work. But the bottom line doesn't register that fact."

• "The CEO is involved in laying out where the company ought to be at a future point. Trying to compensate him for results today is not only unrealistic but unfair."

• "The current CEO and top management are really being evaluated by decisions made by someone else four or five years ago — in effect, they are implementing existing strategies. How should that influence their compensation?"

• "In the vast majority of companies, the endeavor to match compensation and performance will be dwarfed by the characteristics of the stock market today."

These are all sophisticated comments of concerns that often don't get reflected in CEO pay critiques. That last comment is particularly telling. One thing it tells me is that three decades ago it was high time for comp committees to be critical of lavish pay packages, that it's high time today, and that three decades from now we'll still be saying that it is high time for comp committees to be better arbiters of fair and rational compensation.

A Christmas Day Story: The 'Vertical Leap'

For many, there will be no tears shed for year 2009 coming to an end. Some say the Great Recession is over, but many are beset with great troubles. And if we're lucky enough not to have great troubles, we're still probably feeling troubled about the state of the economy and world stability.

But today, Christmas Day, let's be properly thankful for the blessings we do have. As troubled as the times are, a big blessing is to be living in the world at this moment in time. Consider the following, from a speech that I heard recently:

________________________

"Economists have tried to reconstruct what the average income of people would have been through time. By the way, this is not easy. Obviously we didn't have price indexes and statistical agencies, and so on, until the 20th century. But using a kind of 'economic archaeology,' economists have estimated that between the time of Christ and 1800, the average world income was flat.

"Just think about that. Although incomes in some parts of the world were higher than others, on average people throughout the world were no better off in 1800 than they were 1,800 years earlier.

"That's remarkable! And yet, in the last 200 years, U.S. income per capita has increased by a factor of 30 or 40. If you were to look at any chart of per capita income in the world — or by country — you would see an almost vertical leap starting from the Industrial Revolution and continuing on thereafter."

_________________________

Robert Litan, an expert on banking and finance, told the above to an audience of Foreign Policy Research Institute members and guests. You could hear jaws dropping all over the room at the Union League when he unveiled this economic fact of life — 2,009 years of life since the birth of Christ that is being celebrated today — to the rapt crowd.

Yes, Virginia, it's a good day, and a good time, and a good place, to be alive. As tough as the year may have been, there have been tougher years — many many more tougher and leaner years — in the history of humankind. Let's celebrate and be thankful. Merry Christmas!

The Foreign Policy Research Institute is a Philadelphia-based think tank on global affairs. Robert Litan is vice president for research at the Ewing Marion Kauffman Foundation and a senior fellow of Economic Studies at the Brookings Institution. He is an economist and lawyer who has served in a variety of federal agencies and White House posts. Click here for a full copy of his FPRI speech, "Innovation and the World Economy: The Second Annual Rocco Martino Lecture on Innovation."

Illustration: "The Carpenter" by Nathan Greene

Peter Scanlon: A Voice Heard From

I'm a PMA Guy — positive mental attitude being my fundamental mindset. But I have to say that there was a lot to not like about 2009 — such as the number of my past authors who passed away this year. Since January this blog have been riddled with obit tributes to distinguished executives who have graced the pages of Directors & Boards while I was their editor.

Peter Scanlon, a former chairman of Coopers & Lybrand, died on Dec. 3 at the age of 78. As the New York Times obit recounts, he led the then Big 8 accounting firm from 1982 to 1991; the firm merged with Price Waterhouse in 1998 to form PricewaterhouseCoopers.

Mr. Scanlon wrote an article for me in 1984 that addressed several significant proposals being put forward by the Financial Accounting Standards Board. "Brace for More Change to the Balance Sheet" we titled his article. The accounting changes he felt moved to do a heads up on are somewhat moot now a quarter of a century later. But one point he made in his article still has pertinency today as a governance leadership principle.

"Setting new accounting standards isn't an easy job because of the many different interests that need to be considered," he wrote. "It's not unusual for academicians, analysts, accounting firms, businesses and, of course, the general public to all see the issues involved from different perspectives. There is no argument that the ultimate goal should be to provide more and better information. But given the complexity of many of the standards and the diversity of financial statement readers, it's inevitable that this goal won't be achieved to everyone's satisfaction.

"America's companies are the ones ultimately responsible for implementing and explaining the impact of accounting changes to shareholders, lenders, and employees, and for adjusting to cope with any new standards. You — CEOs and others who serve on boards of directors — must be involved to make sure your companies are on top of the business implications of any changes and are making your views heard. The FASB listens to its constituency as it addresses issues and attempts to solve problems. You should be key participants in that process."

Peter Scanlon was making his views heard, and I am glad that he was doing so in the pages of Directors & Boards. That voice of business leadership is now silenced.

On the Docket for 2010

This is the time when I get deluged with queries on what hot topics I'll be addressing in the coming year in the pages of Directors & Boards — i.e., my "editorial calendar" for 2010. It is not fixed in stone, but here goes:

First Quarter (Winter)

• Roundtable: A Fresh Assault on and Defense of the Logic of Separating the Chairman and CEO Positions

• Board Comp: What to Pay the Nonexecutive Chairman

• Audit Committees vs. Risk Committees: Best Approaches for Risk Management

Second Quarter (Spring)

• Selecting an Independent Compensation Consultant for the Board

• Who Speaks for the Board? Should Boards Have Their Own PR Adviser?

• Board Composition: First Timers — How I Got on a Board (and Lessons Learned)

Governance Year in Review (Annual Report 2010)

• A Full Recap of the Events, People, Organizations, Regulatory Initiatives, Legal Cases, and Other Actions and Reactions that Defined Board Oversight in 2009

Third Quarter (Summer)

• Board Compensation: Review of the Spring Proxy Reports on Pay Levels and Practices

• Are Directors Underpaid?

• Board Diversity — Progress Report?

Fourth Quarter (Fall)

• How to Get on a Board in 2011

• HR Expertise On and For the Board

• Risk Committees of the Board: Are They Getting Any Traction?

Many other topics will be addressed in the year ahead. Other pressing issues may arise that will cause some of the above topics to be rescheduled or tabled. But this is the working calendar for a year in which corporate governance itself should again be the hottest of topics.

Pictured: Henry Keizer, Global Head of Audit of KPMG International and U.S. Vice Chair-Audit of KPMG LLP, who will address key issues of risk management by board audit and risk committees in the Q1 2010 edition of Directors & Boards.

Business Journalism, Boards, and a Called Bottom

When I first got into business news in the mid-1970s, this branch of journalism was a backwater in the mainstream media industry. (This is after getting a journalism degree from a top-ranked J School in which there was zero focus on business reporting.) As things turned out, I ended up taking a job with a start-up business trade newspaper, and have spent my whole career since putting out business publications.

When I was being recruited to be editor of Directors & Boards in the early 1980s, corporate governance wasn't even a term in the popular lexicon. Sure, there was a hubbub about foreign payoffs in the mid-'70s but that seemed largely confined to the pages of The Wall Street Journal with its tiny agate typeface at the time, which would be unreadable now (remember that?). So I turned this job down at first. I was then editing a weekly regional business magazine, writing about finance, marketing, management, strategy ... but not anything about corporate governance. In fact, in the two years that I was a senior editor for this weekly magazine I can't recall one story we ever published about a board of directors. Boards were in deep background, not even a pimple in a corporate profile. Putting out a quarterly journal on this arcane concept of corporate governance thus held zero appeal. But again, as things turned out (a story in itself), I eventually relented to the recruitment effort and took the job with Directors & Boards.

In the almost 35-year trajectory of my career in business journalism, the backwater was left far behind. Business news became a hot topic — think about M&A mania, the various bubbles and bubble-burstings, the scandals (Enron, anyone?), the rise of Wall Street banker-tycoons and celebrity CEOs, the global expansion, the hoi polloi becoming shareholders, et al., up to today's Great Recession. And in that time "corporate governance" now trips lightly off the tongue, and boards have moved front and center as an angle in breaking business news.

Well, things change again. That hotness is cooling off, as per this sobering commentary by David Carr, "Business Is a Beat Deflated," in the New York Times, and Fortune columnist Stanley Bing's musing on his Bing blog, "How To Save Business Journalism."

Those in the business beat are not immune from the Grim Reaper — the financial crisis, the cyclical advertising downturn, the secular transition from print to digital, the changing patterns of readership — that is killing off great swaths of print media and those who work in it.

But we may have put the bottom in. Just yesterday the death of Editor & Publisher was announced. This is the monthly journalism trade publication, now shutting down after 108 years in business.

Okay, I'm going out on a limb here. It's said that they don't ring a bell at tops and bottoms of the market. But I'm calling a bottom in the death plunge of the print media industry. There may be some more pain to come, but could there be any louder clang than the killshot to Editor & Publisher to signal a coming bounceback for the print media? I say no.

That means plenty more and hearty coverage of business — and boards — to come. There will be no return to behind-the-curtain status for directors, nor will corporate governance become again an arcane term in the business lexicon. The bottom is in.

[Illustration: "Evening News" by Francis Luis Mora (1874-1940), oil on canvas, displayed at the James A. Michener Art Museum, Doylestown, Pa.]

A.G. Lafley, Coming and Going

Procter & Gamble Chairman A.G. Lafley told the P&G board yesterday that he was stepping down as chair on Jan. 1. This is a move that came sooner than many had expected, according to the Wall Street Journal's report. It was only this past July that he had given up the CEO post.

His has been a steady and successful hand on the tiller of P&G. But it sure didn't start out that way. Here is the story he tells of his being named CEO. Talk about sudden succession. It's a tale he told in the book The Game Changer (Crown Business, 2008), co-authored with Ram Charan. Here goes:

___________

It came on June 6, 2000, a few minutes before a business meeting in California. On the line was John Pepper, former chairman and CEO of P&G.

John got right to the point: "Are you prepared to accept the CEO job at P&G?" I was stunned. Just the afternoon before, I had been speaking with chairman and CEO Durk Jager about our plans for the final month of the fiscal year.

"What happened to Durk?" I asked.

"He resigned."

"Why? What happened?"

"I don't have time to go into that now. I just need to know whether you're prepared to do the CEO job for P&G."

"Of course I am."

"Then get on a plane as soon as you can and come directly to my office when you arrive back in Cincinnati."

I turned to my colleagues and told them something had come up. I had to leave. On the plane, I considered this sudden and totally surprising turn of events. I tried to put first things first: What would I need to do in the next 24, 48, 72 hours? And what would I need to do in the first week, first month?

Job one was to determine the state of P&G's business. At 6 a.m. on June 7, I began digging into the numbers — business by business, region by region, customer by customer. Unfortunately, we were in worse shape than I had expected. We were 23 days from year-end and there was no way we were going to make the month, the April-June quarter, or the 1999-2000 fiscal year.

After briefing the board on Thursday, June 8, we issued another profit warning. P&G's stock opened more than $3 lower in the morning I was announced as CEO. By the end of the week P&G's stock price was down more than $7 from Monday's close. It was not exactly an early confidence booster for me.

_____________

So, end of the new CEO story, but the beginnings of another new story — the reinvigoration of P&G. Well done, Mr. Lafley.

Women on Boards — Bigtime

Here is one incredible statistic: In the third quarter of 2009, 43% of newly appointed directors were women.

This is a chart-busting number. Directors & Boards has been tracking new board appointments by quarter since 1994. We publish the quarterly data in each edition of the journal in a section called the Directors Roster. In the early years of our director data tracking, it was not unusual for the percentage of new directors who were women to be in the low teens or single digits even. That was the case in 1996, for example, when women represented only 9% of all new board appointments.

It wasn't until the fourth quarter of 2005 that the percentage of women named to corporate boards broke above 20%. It stayed in the low to mid-20% range for the next several years, occasionally dipping back into the teens for a quarter or two.

Then we broke through to an impressive new high in the first quarter of 2009, when 38% of new directors were women. I honestly thought this might have been an anomalous report, and that we wouldn't see this number surpassed this year — or perhaps ever! The number of women appointees did dip to 32% in the second quarter, but that was still way above trendline.

Now here we are witnessing women being almost one out of two board appointments in the July through September period.

Melissa Payner-Gregor (pictured), Frances D. Fergusson, and Nancy E. Cooper are representative of these new appointments. Payner-Gregor is the CEO of Internet retailer Bluefly Inc. who has joined the board of Destination Maternity Corp., a designer and retailer of maternity clothing; Fergusson is the retired president of Vassar College who is now a director of Pfizer Inc.; and Cooper is EVP and CFO of CA Inc. (formerly Computer Associates) who has been added to the board of Teradata Corp., the $2 billion data warehousing business.

There is something happening. While national surveys still show a shockingly poor representation of women on boards, our Directors Roster data looks to be an early indicator of big changes afoot in the board recruiting market. Stay tuned to this data.

Don't Underestimate the Value

I always like to see good things happen for Directors & Boards authors, especially when good things come in pairs. So congratulations go out to Bonnie Gwin on being named chair of the Make-A-Wish Foundation of America. Gwin is a managing partner of the executive search and leadership advisory firm Heidrick & Struggles International. Earlier in November came the big news that she was tapped to lead the firm's North American Board Practice.

"Over the last four years I have had the distinct privilege of serving as a member of the Make-A-Wish national board, an organization that brings hope, strength, and joy into the lives of countless children and their families each year," Gwin said upon the announcement of her new leadership post. "Being named chair of the board is both a profound honor and a great responsibility, one that I take very seriously. I look forward to this new challenge and to helping the Foundation continue its important work, as it enriches lives and fulfills dreams for those who need and deserve it most."

Quick cut to a corporate board pointer. In 2006 Gwin co-wrote with Heidrick colleague Anne Lim-O'Brien a substantial advisory on women on boards. We titled it, "So Many Public Companies, So Few Women Directors." Among the issues she addressed in this analysis of how to increase the number of women on corporate boards was The Nonprofit Factor. Here is what she had to say about that:

"Today women are more likely to win board seats in the nonprofit sector than in the corporate sector. But the women we met were fairly divided on whether their nonprofit work served as a springboard to corporate boards.

" 'I've been on nonprofit boards for 20 years, but that hasn't helped me get on a public board — it's not a direct path,' one woman said. However, many others argued that the value of serving on nonprofit boards shouldn't be underestimated.

"With more nonprofit boards being held to Sarbanes-Oxley standards and adopting a public company-like operating structure, the nonprofit sector could become another important feeder for public boards. In any case, we found that nonprofit board work was a tremendous source of personal satisfaction for the majority of women we met."

With her new commitment to the Make-A-Wish Foundation, we have a compelling example of a consultant following her own advice. Congratulations, Bonnie.

Get Up and Get Going!

December 1. Start of a new month. A special month, with the holiday season underway. Here on the East Coast it's a bright morning marked by a bracing chill. A feel of promise is in the air.

For all of the above, or for some other subconscious reason entirely, I am reminded of the story that Gerald Long told in the pages of Directors & Boards 20 years ago. Shortly after he retired as chairman and CEO of R.J. Reynolds Tobacco USA, Long wrote a piece for us titled "Leadership and the Pursuit of Excellence." It was full of wonderfully inspiring stories. Here was one of them:

"Analyzing leadership is a lot like studying the Abominable Snowman: You see the footprints, but never the thing itself. Leadership is like electricity. You can't see it, but you certainly can't miss its effect. And yet, this elusive, intangible thing we call leadership might very well be the most essential ingredient in personal and business success.

"Louis XIV [pictured], pursuing his dream of becoming a global leader, neglected his people and started a revolution. But a wealthy young Frenchman named Count St. Simon heeded their cries for food and justice by devoting his time and fortune to his countrymen. The count told his servant to wake him each morning by grabbing his shoulder and shouting: 'Get up, monsieur, you have great things to do today!' "

Now that's the way to get up and greet each day.

Fred Joseph: What a Board Is For

Fred Joseph, who "helped to create the junk bond business as chief executive of Drexel Burnham Lambert," as noted in the New York Times obit, died on Nov. 27 at the age of 72.

I had invited Mr. Joseph, then co-head of investment banking at Morgan Joseph & Co. Inc., to contribute to a "Best Board Advice" compendium piece that I was including in the 30th anniversary edition of Directors & Boards. The theme of this special issue, published in 2006, was "Wisdom of the Ages." Mr. Joseph's piece of advice certainly was a worthy one. Here is what he offered up:

"A tempting as it may be to impress your friends, a board is not merely for show and tell. As difficult as it is to share your concerns with them, a board should be used to help you make your most important and stressful decisions."

Well said, Mr. Joseph. He passes on at a much too young age. But this insight is a timeless one.

[Photo courtesy of Time Life]

Sighted: A Long-Term Thinker

Close readers of this blog know of my admiration for Harold Geneen, the legendary leader of legendary conglomerate International Telephone & Telegraph Co. The incisive management mind of Hal Geneen has been cited regularly in this blog and in my editor notes for the Directors & Boards print journal and e-Briefing newsletters.

Thoughts again turned to Geneen when I read Rachel Sanderson's superbly reported and written Nov. 27th Financial Times profile of Michele Ferrero (pictured), patriarch of the Italian confectionary company that is in the mix over possibly bidding for Cadbury. Take note of this passage from Sanderson's story:

"He is still busy. Ferrero's latest invention is a dessert tasting of Sicilian lemons called Gran Soleil which, when put in the freezer and shaken, turns into a kind of ice cream. It was designed to be easily transported in China, India and Africa. In a rare interview, Mr. Ferrero told local journalists: 'You'll see, in 50 years time it will be as big as Nutella' " (another Ferrero invention).

What's so striking about that? Simply this: here is a company leader now in his 85th year (he was born in 1925, according to the FT article) doing some product line projecting five decades into the future. Is this not the rarest sighting in business today — a long-term thinker?

What's the Geneen connection? You'll readily see it in this anecdote told by David J. Mahoney, an impressive leader himself of the old Norton Simon Inc. juggernaut, who counted the ITT master builder among his most important influences. In an excerpt that I published from his memoir, Mahoney wrote of Geneen: "[He] always taught me to look forward. When I complained that a certain project would not pay out for 10 years, he replied, 'Yes, but it will pay out in 12.' He was 77 at the time."

Peter Drucker's Humble Assertion

Today marks the 100th anniversary of Peter Drucker's birth, about which a big deal is being made in the business media and throughout the business world. Activities include an international conference in Vienna, the city where he was born.

Drucker made several appearances in the pages of Directors & Boards. The first such appearance is the most memorable — an eight-page Q&A interview conducted by another expert on leadership, Warren Bennis. We published it in early 1982, just a few months after I joined the journal. (What an early coup for the new editor.) And what a textbook case of two brilliant guys sitting around talking about "The Invention of Management," as we titled the article.

Drucker made a rather charming admission in our article. "I am ashamed to admit how little I knew about management," he recounted to Prof. Bennis about his early forays into studying industrial organizations. "It was amazing, not because I was so ignorant but because nobody knew anything."

As he explained: "You could find all the books you wanted about salesmanship — and they have not improved since, by the way. You could find all you wanted about accounting; of course, that has improved. You could find an enormous amount about insurance and insurance law and banking. But management? Nothing.

"So maybe I can claim to have been the first, in my one-eyed way, and with very poor vision in that eye. I saw management as a generic function in the future of industrial man. That, I think, is the one and only contribution I've really made to management."

I'm sure all those convening today and throughout the month to honor this management thinker on the centennial of his birth would vigorously dispute his humble assertion.

Portrait of Peter Drucker that accompanied his 1982 Directors & Boards article.

Sam Heyman: No Gin Rummy for Him

I always thought Sam Heyman, who died on Nov. 7 at age 70, got a bad rap when he was lumped in with all the other quick-buck takeover artists roaming the land in the 1980s. The New York Times called him a "corporate raider" in its obit but got it closer to the truth when it noted that he "preferred to hold on to the companies that he bought and run them rather than sell them for a quick profit."

Mr. Heyman was not a happy man when I published him in 1986. I opened up the pages of Directors & Boards for him to rail against the slapdash restructuring being done by many CEOs in the mid-'80s. He was suspicious that much of this restructuring was being done "to perpetuate entrenched managements." I titled his article "A Nation of Gin Rummy Managers" — his term for managers who were "discarding their least attractive asset at every turn" without giving the right kind of thought to the future potential of these operations and taking the hard actions to make them profitable.

One of his critiques has resonance to today's retrenchment environment, in the way companies are handling employee layoffs. Heyman worried that the layoffs that came with all the restructurings in the '80s would "deprive these companies of their brightest and ablest executives." He suggested this:

"We must adopt instead a surgical, rather than sledgehammer, approach to employee cutbacks so as to ensure that these programs serve not only to reduce costs but to permit management the latitude to choose for itself between those it wishes to retain and the nonperformers who must be weeded out in any process of this sort. This approach will surely require that managements have intimate knowledge of their organizations and people, that decisions be made strictly on the basis of performance, and that companies assume what inevitably will be some litigation risks. But by addressing the issue in a thoughtful, carefully conceived manner, companies can avoid the otherwise disastrous consequences for the future of their organizations."

Thoughtful is indeed the approach he took with GAF Corp., the company he won in a historic proxy fight in 1983 and proceeded to reinvigorate without resorting to the slash and burn techniques of other notorious restructurers, both those operating inside the corporate walls as well as those banging at the gates on the outside. Up until recently he still held the title of chairman of GAF Corp. — now that's a long-term holding.

His legacy lives on in the governance field with the Samuel and Ronnie Heyman Center on Corporate Governance, which was founded at the Benjamin N. Cardozo School of Law in 1987, shortly after his article appeared in Directors & Boards.

[Portrait illustration accompanied his 1986 article]

Heroes Are All Around Us

Veterans Day 2009. Memories stir of my service with the U.S. Navy. I am proud to have worn the uniform and to have given four years of my life to my country while the Vietnam War raged in the late 1960s and early '70s.

A few years ago my friend Bob Dilenschneider wrote a book titled A Time for Heroes, an exploration of the nature of heroism. Here is a passage:

"Some people define heroes as those who are willing to forfeit their lives for others. Like legal scholars who interpret the Constitution in a narrow way, these people might be considered strict constructionists: no sacrifice, no heroism.

"Myself, I'm a loose constructionist, if I may use that term. I believe in all manner of heroes.

"There are those who spend a lifetime in pursuit of a grand vision. Think of Nelson Mandela, imprisoned for 27 years before he triumphed over apartheid and became president of South Africa.

"Some heroes are intellectual pioneers whose ideas open up new territories of thought. Charles Darwin, Isaiah Berlin, and Sigmund Freud are examples.

"Others alert us to problems in our midst, like Rachel Carson, whose book Silent Spring warned of the dangers of pesticides.

"Some heroes motivate people to aim higher, perhaps to create a more equitable society or to actualize their own abilities.

"All of them have courage — the courage to dare, the courage to fail, the courage to persist."

Well stated, Bob. Count me as a loose constructionist, too. I believe that Corporate America's boardrooms are filled with heroes.

These are men and women who, largely out of public view, are attacking problems that are life-threatening to the enterprises that they are dedicated to protecting and preserving. Especially this past year, with the debilitating volleys that the Great Recession has hit boards with, there must be a legion of heroes taking their seats — hot seats — in boardrooms across the land, summoning up the courage to persist and prevail.

This is a good day to remember those who have worn the uniform of our country's military forces. And it's a good day to appreciate those who are showing courage in all its stripes, including those fiduciaries we call board directors.

A Walk Through the Waldorf

I walked through the lobby of the Waldorf-Astoria Hotel on my way to a business meeting today. I find the hotel a pleasurable place to attend meetings or, as I did today, just to stroll through — a grand hotel that evokes luxury and importance.

There is a delightful anecdote, recently printed in the quarterly magazine of the Philadelphia Advertising Club, of someone quite well known who enjoyed his stroll through the hotel's lobby.

Back in the early 1970s, English actor David Niven wrote the following in his autobiography. Before becoming an actor, he was a poorly paid liquor salesman living at the Montclair Hotel in New York City.

"The hotel was pretty awful and the steam heat in my tiny room was suffocating. But it was cheap and right on the edge of my territory.

"The front door of the Montclair was on Lexington Avenue, exactly opposite the back door of the Waldorf-Astoria. So, during the miserable cold winter, I made a point to come out each morning from the Montclair, cross Lexington Avenue, climb the long stairs at the rear entrance to the Waldorf, went my way through the vast gilded lobbies of the most luxurious hotel in New York, descend the steps to the front entrance, pass through the revolving doors and issue onto Park Avenue to start my day.

" 'Good morning, Mr. Niven,' said the doorman, saluting deferentially.

" 'Morning, Charles.' Every morning he had an instant pick-me-up. Very good for my morale."

We could all do well with a morning pick-me-up — especially those mornings when we're walking into a board meeting. Do you have one?

The Hush

Kudos to Wharton School Professor Tom Donaldson. He is being honored today in New York City by the Aspen Institute Center for Business Education with a Lifetime Achievement Award, a preeminent recognition during Aspen's 2009 Faculty Pioneer Awards event. Dubbed the "Oscars of the business school world" by the Financial Times, this annual event celebrates business school instructors who have demonstrated leadership and risk taking in integrating social, environmental and ethical issues into the MBA curriculum.

Prof. Donaldson wrote a very popular article for Directors & Boards titled "Dangerous Currents." In it he analyzed six factors that contribute to "almost every major corporate ethical disaster." One of those factors was Discussion Vacuum. Here is what he wrote about that:

"When bad things can't be talked about in a company, even worse things can happen.

"The most striking example is the U.S. tobacco industry, which was forced eventually to settle allegations against it for a cost of nearly $300 billion.

"The allegations centered on the claim that it hid the truth about cigarette smoking from its customers. From the 1950s until nearly the end of the century, lawyers in the tobacco industry concerned about liability suits had come so firmly to dominate the culture of the industry that discussions of smoking and health were virtually impossible.

"I remember a personal experience in the mid-1980s in which I spent a day conducting a workshop in Aspen, Colo., for executives of a leading U.S. tobacco company. Near the end of that day I suggested that we could no longer leave aside the question of tobacco and health.

"The response stunned me. After what seemed like a full minute of embarrassing silence, one participant announced, 'We don't believe there is a connection between smoking and health'! That was the extent of discussion of tobacco and health that I managed that day.

"I learned later that a name existed for what I had experienced — the 'tobacco hush.' Fear of liability had come so fully to dominate the tobacco industry's culture that people felt forced to remain silent. Yet, arguably, the 'tobacco hush' eventually cost the industry hundreds of billions of dollars."

It's a powerful story. It made a big impression on me when I first published his article five years ago. It certainly makes you wonder how many discussion vacuums contributed to the financial and business performance crises of the past two years. For example, was there a "leverage hush" that quashed any discussion of whether being levered at a 30 to 1 ratio made any sense?

As a board member, you need to be particularly attuned for any hushes that seem to settle unnaturally when certain issues are raised. Take a tip from Tom Donaldson's tobacco story — where there's a hush, there may be a fire.

On Turning Your Fellow Directors' Heads

In my blog post of October 30th below, I offered an excellent tactic, courtesy of Kent Thiry, on getting the best from your directors in a board meeting. Kent's tactic was one that the board chair might employ.

Here are three tactics that directors might employ to make their contribution to a board meeting more impactful. They are offered by Scott Ginsberg, a media and image adviser who has written several books on communications effectiveness:

• Bite Your Tongue: Don't say anything until the last five minutes of the meeting. That way you can collect your thoughts, clarify your position and speak confidently. By looking around, listening and learning first, your comment will contain its maximum amount of brilliance.

• Come Out of Nowhere: When the meeting leader says, "Does anybody have any questions?" or "Any final thoughts before we finish?" you raise your hand and say, "I had an observation..." All the people in the room will turn their heads, rotate their chairs and look in the direction of the one person who hasn't said anything all morning — you.

• Articulate Your Ideas: This is the best part. See, if you only say one thing, it becomes more profound because scarcity creates a perception of value. What's more, the longer you wait to say something, the more everybody else will want to know what you're thinking. Ultimately, your calmness, patience and quietude will draw them in.

Ginsberg's tactics may not be right for every director or for the dynamics of every board. But one or two, or all three, may work well for you and your participation on certain of your boards.

I can't help but think that directors using some combination of the above three tactics along with the chairman employing Kent Thiry's "airtime metric" described below would result in one heck of a productive board session.

The Airtime Metric

Want a terrific idea for getting the most out of your board members? Especially the more quiet ones, who you know have important insights and counsel but may be reticent to speak up?

Here is a tactic employed by Kent Thiry, chairman and CEO of DaVita Inc., an NYSE company that is the largest independent provider of dialysis services in the U.S. He calls it "one of the simplest and most self-evident ideas you could imagine." This is from his article, "Powerful Tactics to Power Up Your Board," published earlier this year in Directors & Boards:

"Every single board I have sat on had a subset of the members who did most of the talking. Furthermore, on many issues, a couple directors would do most of the talking, someone would venture forth with a conclusion, some heads would nod (or at least not object), and the discussion would move on.

"Therefore, I began the following practice: A couple of times at a board meeting, after there has been some give and take on an important issue, I will ask for us to go around the room and have every director speak, and sometimes each executive as well — even if it seems like there is a directional consensus.

"The consistent result is that we get some of the most insightful comments of the entire meeting.

"These are comments that would otherwise have never been made, because people did not want to fight for airtime, or they were worried it would prolong the conversation forever, or because while it was a value-added comment it would not directionally challenge the answer — all sensible reasons to hold back from throwing in another comment.

"But for an important topic, these synthetic closing thoughts, provoked by the extensive conversation that preceded them, are often the most valuable. Since each director knows they will get their turn, there is no need to rush — quite the contrary, they know the whole point is to reflect on the entirety of the issue.

"Some will link our discussion to other big issues, some will tie it to history, some will point out organizational issues it raises, some will point to capital market or implementation issues, while others point out optical issues.

"Whatever it may be, the aggregate result is every director becomes engaged by providing thoughtful closing comments on an important issue, with the rest of the board as their undivided audience."

Give it a try at your next board meeting. You might be astonished at the results when you employ this airtime metric. As Thiry admitted, "I only wish someone had brought it up to me years earlier, as I have been struck by its power."

A Trend That Will Change Everything

October is Women in Small Business Month. Kate Knapp of Smith Publicity has passed along to me some impressive stats, collected by the Center for Women's Business Research:

• There are 10.1 million firms that are 50% or more owned by women.

• These businesses are employing 13 million people.

• They generated $1.9 trillion in sales in 2008.

• One in five firms with revenues of $1 million or more is woman-owned.

Now add in a macro trend that renowned investor Jim Rogers identifies in his new book, A Gift to My Children. Rogers is always worth paying attention to when he opines on trends in the markets and specific investments. Here is what he sees ahead:

"Traditionally, women in Asia have been treated differently from men. In many countries, a girl's family had to pay a dowry when she married as a further inducement to find her a husband. Like women everywhere, Asian women have long suffered a lack of equal opportunity in society; they have been treated unfairly in pay and promotion in the workplace.

"But this is all going to change.

"In China, Korea, India, and other Asian countries, where the priority has been placed on the birth of boys, girls are now in short supply. Soon the typical Asian man will experience great difficulty in finding a wife. For instance, in South Korea, there are 120 twenty-year-old boys for every 100 twenty-year-old girls, while in China, the birthrate is 119 boys for every 100 girls.

"As all these girls become women, they'll be able to demand more freedom. The ramifications from this will be enormous: Professions, education, politics, everything will change."

Women-power, as celebrated this month for its present strength and, as identified by Rogers, as an explosive game-changer for the future, should be moving higher up on the opportunity scale for all CEOs and board members. And higher up on the risk scale, too — should this trend not be adequately recorded on your radar screens.

Jim Rogers closes out this trend alert by noting, "I am so pleased to have two daughters!" A hearty second to that — I am blessed to have a daughter myself.

Norm Augustine Takes the Stage

Congratulations to Norm Augustine on receiving the B. Kenneth West Lifetime Achievement Award at a big dinner in Washington D.C. this evening. The award, presented by the National Association of Corporate Directors at the organization's annual conference, is "in recognition of his remarkable career and his dedication to the improvement of corporate governance practices."

Norm, the retired chairman and CEO of Lockheed Martin Corp., is a cherished colleague of both the NACD and Directors & Boards. He is a board member of the NACD and a member of the editorial advisory board for Directors & Boards. What better places from which to exert the considerable force of his intellect and personality to advance the best practices of board governance? I've had the pleasure to publish several articles Norm has written for Directors & Boards over the past two decades, and each one has been a gem — chock full of wisdom on corporate life and leadership.

Several of Norm's peers lauded his personal qualities and professional accomplishments at tonight's awards dinner. Procter & Gamble Chairman A.G. Lafley, for one, said, "Boards look to Norm for wise counsel and outstanding judgment." Is there any higher tribute that could be paid?

But when it comes to Norm Augustine, special mention is always made of his sense of humor. It comes through in his writing and speaking and, as his peers made sure to mention at the awards presentation, in his board interactions. (He is, by his own count, a veteran of 500-plus board meetings of Fortune 100 companies.) His acceptance speech anecdotes generated hearty guffaws in the crowded ballroom of the Omni Sheraton. Like this assertion that was once told to him: "The best sight is seeing the back end of a bus full of directors leaving town."

One of the biggest laughs came earlier in the day, when Norm was on a panel discussing the topic of the board's role in corporate strategy. Asked to talk about one of his worst war stories related to the topic, he gamely told of his board involvement with an unfortunate organization that faced this situation: "The CEO didn't believe he needed a strategic plan..." Pause. "...and proceeded to implement it."

Lifetime achievement awards, while marvelous to receive, come with a tinge of finality. Recipients are rightfully ambivalent about being recognized with such an honor. So while we extend our congratulations to someone who has considerably brightened boardrooms — and our pages — with his brilliance, I'm sure my NACD colleagues join me in a follow-on wish that Norm Augustine's wisdom and wit reign powerfully for years to come.

Bruce Wasserstein: 'Let's Just Think About That'

So sudden — the death of investment banker Bruce Wasserstein yesterday at the age 0f 61. Tributes to his colossal impact on M&A dealmaking have been made in the Wall Street Journal, New York Times, Financial Times, and other publications.

Directors & Boards visited with Wasserstein in 1999, when he sat for a cover-story interview with our lead columnist Hoffer Kaback. Over the course of nine pages of sharply conducted Q&A, Wasserstein gave a peek into his playbook for getting a deal done.

Of all the tips and tactics discussed, there was one practice of his that he talked about that is ideally suited for helping boards in all their decision making, not just with M&A.

When the conversation turned to his admiration for one of his Harvard Law School professors, Lon Fuller, Wasserstein said this:

"I admired him both in an ethical sense and for the way he was able to shave an intellectual problem, if you want to put it that way, and look at it from many different points of view. A prism of fact, if you would. And I guess I was attracted to that way of thinking.

"He had an expression, 'Well, let's think about that.' Someone would come up with the obvious answer and he'd say, 'Well, is that right? Let's think about that.' And that's what I try to do with the people around here. You get a young, bright guy who says, 'We're going to do this to solve that.' Maybe he's right. I don't know. 'Well, let's just think about that.' I find that taking that little extra time to think about something is helpful when everyone's in a big rush."

Powerful advice for boards. In the heat of the action, when management is raring to go down a particular path, how much better a decision will be made if one or more of the directors bats back with a "Well, let's just think about that"?

Board Pay: View from Warburg Pincus

The passing of Lionel Pincus on Oct. 10 reminds me of an excellent corporate governance article for Directors & Boards that came out of the Warburg Pincus investment firm in 1998. It wasn't written by Mr. Pincus, a legend in private equity investing, but by the firm's then president and vice chairman, John Vogelstein (pictured at the time of the article's publication).

Writing as a PE investor and board member — in fact, I titled the article "As I, an Owner-Director, See It," Mr. Vogelstein offered up a set of measures that, in his words, "have the likelihood of improving the functioning of U.S. boards." At the time of the article's publication he was a director of Advo Inc., Golden Books Family Entertainment Inc., Journal Register Co., Knoll Inc., Mattel Inc., and Vanstar Corp. Here were three of his recommendations:

• "I have observed that directors who own meaningful (to them) amounts of stock pay more attention to the stockholders' interests and generally do a better job. Consequently, I would increase and formalize the ownership requirements for board representation. There are far too many 100-share directors engaged in determining the fate of multibillion-dollar corporations."

• "I would pay all directors' fees 50% in cash and 50% in stock, with the requirement that the director continue to hold the stock so long as he or she remains on the board. But stock acquired in the manner would not substitute for the ownership requirements I mentioned above; a director has to have some personal net worth on the line."

• "I would do away with annual retainers — a director who misses a meeting shouldn't get paid — and I would significantly increase attendance fees. I would also require any director who missed more than 50% of a company's board meetings for two years in a row to resign from the board."

Vogelstein has been in the investment business for 55 years and is still with Warburg Pincus, holding the title of managing director and senior advisor of the firm's U.S. Advisors. He joined the firm in 1967, shortly after its founding. And he still keeps his hand in as a corporate director, serving on the board of Flamel Technologies.

In the 10-plus years since his article's publication, boards have made progress on some of his metrics. Meeting attendance is much improved, for one. We need further improvement on director "skin in the game." I too have championed that directors be required to hold on to any and all shares until they resign from the board. We have a long way to go on that initiative. All in all, a set of strong beliefs on enhancing director performance by this longtime board authority that retain much applicability to today's governance practices.

As is this philosophy re CEO performance: Wrote Vogelstein, "We have a saying at Warburg Pincus — 'We have never fired a bad CEO too soon.' " With beliefs like these, there is no question how he and Lionel Pincus built Warburg Pincus into one of the most storied forces in the private equity industry.

ROI: Return on Insight

Last week I met a fellow who championed the use of ROI. No, not return on investment. His ROI metric is one that his firm uses in its consulting work with clients — return on insight. He explained how his firm delivers what all consulting firms should deliver: value-generating insights to its clients. I had never heard that usage of ROI before.

Value-generating insights. That's what this blog, "Boards At Their Best," endeavors to deliver. Today marks its first anniversary.

I started this blog as an academic exercise. A year ago I was teaching a course in "Fundamentals of Public Relations Writing" at Temple University, my alma mater. For a final paper, I intended to give the class the assignment to start a blog. If I wanted each of them to become bloggers so as to be adept at this important capability for a PR practitioner, I figured I better become a blogger myself to test the doability of the assignment. If I could create a blog, then anyone could do it, certainly twentysomethings with a lot higher comfort level with technology and social media.

The title of the blog was chosen with care, as was the subtitle: "Insights on Leadership and Corporate Governance." I try to make sure each posting has a nugget of distinctive advice or perspective that you won't find in the mainstream media or elsewhere in the blogosphere. That's why I like that ROI metric — return on insight. I invite and encourage you to return here often over the next 12 months of postings to see how you would score its ROI.

Ken Lewis Advice: 'Keep a Level Head'

With the sudden resignation of Ken Lewis, the Bank of America board now faces a classic succession crisis: the much earlier-than-foreseen departure of an iconic CEO, with no clearly defined and vetted successor ready to step in. And this is happening at one of the most important financial institutions in the country and to the country, in terms of helping the capital market system return to full and fair functioning.

The New York Times calls it "a remarkable boardroom drama," and describes the directors as being "stunned by the turn of events."

Take heart, BofA board members. Your own CEO offered some sound advice on what to do in such a situation. Here from an article by Ken Lewis published in Directors & Boards in 2006:

"Directors must have grace under pressure. Given the regulatory environment in which we now operate, the likelihood that your company will face an issue at the board level at some point during your service — related to accounting, disclosure, compliance, an ethics breach, or something else — is high. Directors must accept that issues arise in all organizations.

"What distinguishes companies is how managers and directors respond. The first job of a director is to keep a level head, get the facts, and give management the opportunity to take appropriate action. It is only when management fails to act, or to acknowledge the issue, that directors must act decisively and hold management accountable. Figuring out which situation the company is in — and when directors need to take independent action — may not always be easy. But it's the most important judgment directors will ever be called on to make."

At the time he authored those words, there probably was no stronger or more highly regarded CEO in the country. The intervening years have not been kind to the man or his reputation. This particular piece of wisdom, originally dispensed to be a best practice to boards generally, has applied in a most particular way to his own board over the past 18 months, what with the near collapse of the financial system, the TARP funding, the Countrywide and Merrill Lynch purchases, the Merrill bonuses, the Paulson/Bernanke gangtackle, and other "issues at the board level." (Some of those directors, in fact, can no longer keep a level head, seeing as their heads were lopped off a couple of months ago in a board putsch.)

And now, with Ken Lewis dropping the "early retirement" bombshell on them, the BofA directors find themselves yet again having to embrace their beleaguered leader's advice to "keep a level head."

Rule No. 1 in M&A

A transaction that started Labor Day weekend just got to a flash point: The U.K.'s M&A regulator has given Kraft Foods six weeks (till Nov. 9) to make a binding offer to buy Cadbury PLC — a "put up or shut up" demand — or Kraft will have to walk away for six months. Cadbury's board has rejected Kraft's initial advance, a $16.7 billion combined cash and stock bid.

Ah — there's the rub. Cash and stock. Maybe Kraft needs to revert to Rule 1 in M&A to get this deal done. And what is that rule? I turn to one of my past authors, D. George Harris (pictured), who stated it with simple elegance:

"Rule No. 1 in the takeover game: If someone makes an all-cash, any-and-all-shares tender offer, and they've got any kind of a reputation to back it up, you know that company is going to be sold to someone. The question becomes: To whom, and what degree of control will you have in that determination."

Harris had intimate familiarity with this rule. He lost his company to a hostile acquirer. He was head of chemicals company SCM Corp. when it was bid on by Hanson Trust PLC in the takeover mania of the mid-1980s. He wrote a detailed case study for Directors & Boards of the attack, defense, and ultimate surrender to the voracious British conglomerate.

I titled the article, " 'This Can't Be Happening': The Takeover of SCM." That title was inspired by another of Harris' hardbitten lessons, which Cadbury's board and management might heed. Warned Harris: "One of the things defenders have to contend with — a wish, really — is that 'this can't be happening to us.' As a director of such a company, I think you have to make sure management knows: It can happen, and it is, and if you want to do anything about it, you'd better get a move on."

Post-SCM, Harris went on to a distinguished next phase of his life as an investor in and owner of chemical companies. I was saddened to learn as I was writing this that he died in 2007. Let's see if his "Rule No. 1" lives on in how the Cadbury transaction concludes.

Irving Kristol: 'Godfather' and Corporate Director

Irving Kristol, the powerful thought leader in political affairs, the "Godfather of Modern Conservatism" as the New York Times called him, died on Sep. 18 at the age of 89.

In various glowing tributes to him on his passing, which traced the impressive arc of his career and influence, I saw no mention of his corporate directorships. He was a full-contact player in the political realm, but he did keep a hand in on the corporate side of life. In my records I see that he was a director of Lincoln National Corp., Basic Books Inc., Citizens Utilities Co., Warner Lambert Co., and several Dreyfus mutual funds. He and I corresponded in 1984 about his writing a piece for Directors & Boards.

In was in that year that he published an essay, "Dilemma of the Outside Director," for the Wall Street Journal that caught my attention. Retrieved from my archives, what follows is a passage from that essay, which gives a taste of his thinking on board matters. Its conservative thrust, no surprise, would not find favor with a shareholder activist. Here he is reacting to an article that Harold Geneen had just written for Fortune magazine in which the legendary ITT chieftain attacked overpaid CEOs:

"[Geneen] believes it to be a scandal that the pay of top executives is almost never reduced, even when the corporation performs poorly. Well, there are indeed occasional scandals in corporate compensation, but this happens not to be one of them.

"Mr. Geneen might well have asked himself: Why is this rigidity in compensation visible not only in corporations but in nonprofit institutions as well? Does a university president get his salary cut when his budget falls into the red? Of course not. Does the head of the U.S. Postal Service get his salary cut when mail delivery deteriorates? Of course not. Does the head of the American Red Cross take a salary cut when donations diminish? Of course not.

"In short, such rigidity on the downside of executive compensation is a feature of all large organizations, where holding on to executive talent is always a primary consideration. After all, if you cut the CEO's salary, leaving other managerial salaries untouched, you have publicly diminished his authority to a degree where he might as well leave. And if you cut other managerial salaries proportionately, you will end up losing some of your best managerial talent. There is a market for such talent, as there is for musical, baseball and entertainment talent. Many of us may think this talent is often inequitably rewarded and wonder why a Michael Jackson or a Dan Rather do so well. But either the market regulates these salaries or government does. Between the two, it's not such a hard choice."

A rather prescient last two lines in this passage, considering it was written a quarter of a century ago and where we are today with the government's encroachment on compensation decision making. Indeed, prescience is an attribute of Kristol's that the Wall Street Journal's editorial writers specifically cited in their homage to him the day after his death: "Perhaps the greatest gift of the gifted Irving Kristol was prescience. This does not mean predicting the future. Prescience, a more useful gift, is seeing the direction in which the future is headed."

28 Years

Today marks my 28th anniversary with Directors & Boards.

I chuckle now when I think about how I turned down the offer to join Directors & Boards back in 1981 — not once but twice over the course of several months of discussions with the principals backing the journal. It was at that time too academic a publication for my tastes, and, besides, who ever heard of corporate governance? It wasn't even a term in the popular lexicon three decades ago. I was a business writer and editor — covering everything from high finance to low sales (1981 being a pretty punk year for Corporate America). Not a word had I ever written or published about boards of directors. A board was in deep background back then — directors weren't even a factor in popular business coverage.

So, I am somewhat bemused that here I am, starting my 29th year as editor of Directors & Boards. The aforementioned principals must have seen something in me that I didn't see in myself. I finally relented, agreeing to give this "beat" of specializing in corporate boards a shot. On Sep. 21, 1981, I showed up at the door as the next editor of Directors & Boards.

On such an anniversary milestone, I am mindful of the following anecdote. When writer William Saroyan asked famed magazine editor H.L. Mencken (pictured) how to become a magazine editor, Mencken responded: "I notice what you say about your aspiration to edit a magazine. I am sending you by this mail a six-chambered revolver. Load it and fire every one into your head. You will thank me when you get to hell and learn from other editors there how dreadful their job was on earth."

I sometimes think Mencken's sentiment applies as well to those aspiring to a seat on a corporate board. Yes, there are days when the job can be dreadful. Just ask, for example, how it must feel to be a Bank of America director now being subpoenaed by New York Attorney General Andrew Cuomo. Or being a director of a company facing bankruptcy or scandal.

But (sorry, H.L.) if there is one thing I have learned over all these years, it's this: the joy of finding your calling in life — be it in editing a journal of corporate governance (especially now that the term is viscerally embedded in the lexicon) or in lending your time, energy and expertise to board service.

Dominic Cadbury on Brand Power

"Cadbury Vision Is to Stay Single" is the headline of a recent piece in the Financial Times covering the $16 billion bid by Kraft Foods for the British confectionary company. "Cadbury, On Its Own, Says Future Looks Sweet," chimed in a headline in a Wall Street Journal report today of the company's desire to swat away Kraft's acquisitive interest.

That desire is as true now as it was 18 years ago when Directors & Boards Publisher Robert Rock and I had a chat with Dominic Cadbury (pictured). He visited the journal's office on the way to giving a presentation to the Financial Analysts Society of Philadelphia.

He was group chief executive at the time of the company then called Cadbury Schweppes PLC. The three of us huddled to talk about the power of brands. The resulting interview appeared in a special 15th anniversary edition of Directors & Boards, themed "Being a Global Leader," published in the fall of 1991.

Here are two snippets from that interview that echo over the decades to the present stance being taken by both sides of this bidding interest (remember that Kraft has been in and out of Philip Morris):

• On the Prospect of a Takeover: "Philip Morris wanted to be a major global competitor in coffee. It bought Suchard, which gave them that opportunity. It also took them into confectionary. Will they decide to be a global competitor in confectionery? If so, everybody knows that they've got the cash flow to buy anything in the world. We're all public companies. Theoretically, they could say, 'Why don't we buy Cadbury Schweppes?' That would give them a very strong confectionary position in worldwide markets. I have no idea whether that could happen. My guess is that what it will come down to is, year by year, who does the best job individually of developing their business. If we do an excellent job of developing our confectionary business, my guess is that it would not be very attractive to somebody else to pay a huge premium to buy us."

• On the Value of Strong Brands: "The financial market has attributed over the last few years very high value to brands. It's so expensive and may become even more expensive in the future to build a brand name like a Cadbury. There is a scarcity value. I sometimes think it's a bit like old houses with attractive gardens in an attractive part of the countryside. There are a certain number of those in a country like Britain, and they are going to get fewer. The value tends to keep climbing higher. Brand names fall in the same category. It's going to be very difficult for anybody to build any of these brand names from scratch in the future."

"Build or buy (or, be bought)" is a board's perennial strategic dilemma. Cadbury-Kraft will be a dandy case of how two boards resolve this dilemma. We'll see if Sir Dominic's (he was knighted in 1997) words prove prescient. No matter how the deal jockeying proceeds, his thoughtful musing on the power of brands certainly stands the test of time — past, present and future.