Prepare to Be Tortured

The French government announced last week that it will soon introduce a bill to raise the minimum retirement age to 62 from 60. Predictably, howls of outrage issued from certain French quarters.

The announcement came out about the same time that Robert (Bob) Kelly, chairman and CEO of BNY Mellon, was talking about the need to get retirement spending under control at the 14th Annual Wharton Leadership Conference, held on June 16. With a wry touch, Kelly reminded the crowd that when the retirement age was set in this country at 65 in 1935, the average life expectancy was . . . 61.7 years. Basically, that meant you could retire after you died. (Today, life expectancy is more like 79.)

This was one topic in Kelly's sweeping and generally upbeat analysis of the state of the economy and banking. "The banking system is healthy again," he said, noting that all the big banks are in good shape, with TARP monies repaid, although there are still "lots of writeoffs" to come. He did admit that during the financial crisis the banking system "came to the edge of the abyss . . . our toes were over the edge." But "really bad things" were avoided, and the economy is now expanding.

He made one comment that, while not directly about corporate governance, in my mind should serve as a warning to all board members and top management. It came while addressing something that did worry him on the world scene — Europe.

Greece's dire economic situation was top of headline news during his Wharton appearance. He took to task the "Club Med" countries for their "ugly high-debt-to-GDP" spending. Watching the European government and banking communities trying to rein in Greece's economy, the important lesson for all economic leaders, said Kelly, is clear: "If you don't do the right thing, markets will torture you."

I say that is sound advice for boards, too. The torturers will be displeased investors. We saw in 2009 several companies get tortured by emboldened shareholders — think of the successful campaign that Finger Interests waged against Bank of America to change its board composition and culture (a campaign that Jonathan Finger provides the back story on in the Governance Year in Review special issue of Directors & Boards due out in early July).

Say on pay and proxy access are just two potential tools that will give shareholders heightened opportunities to challenge board decisions. But even without those new abilities, shareholders are primed to apply the screws. They see boards as having failed during the financial crisis to exert proper oversight. This anger-fueled resentment will result in a readiness to push back on what managements want to do and what boards are willing to approve.

Case in dramatic point, which has all the makings of being a harbinger of the future: the shareholder revolt when Prudential PLC attempted to buy AIG's Asian units. Neither company was prepared for the punishing torture that this spending decision prompted.

As we look ahead to the post-crisis era in board-shareholders relations, it would be wise to heed Bob Kelly's warning.

Ask

As much learning as there is to be gained at the Wharton Leadership Conferences (see my blog post of June 17th below), not all of it is one way — dispensed from the podium outward.

A few conferences ago, I was sitting nearby a fellow participant. We may have exchanged a few pleasantries at some point — program leader Mike Useem favors having all the attendees get up from their seats and do a 360 turn of hellos right at the beginning of the day. But any exchange was inconsequential. Until, that is, late in the afternoon session. Here is what transpired.

Sitting in the same row of seats, we listened to a CEO of a venture-backed company give a presentation on his leadership of the firm. Conditions in his industry were tough at that time — tough as in fairly dire. His leadership mostly had to do with keeping the firm afloat.

In the CEO's telling, there came a point when there was no way to avoid it — he was going to have to suck it up and ask his venture backers for more funding. He didn't want to do it. He really did not want to do it. He sweated and fretted about it for days on end. If he could have found any way out of having to make that request, he would have jumped at it with alacrity. Alas, a cash call was the only option for salvation. With fear and trembling, he reached out to the moneymen.

And guess what? They said okay. They didn't say,"No problem," but they didn't carve a pound of flesh off the CEO's hide. He got his needed extra funding, and all was well with the world and, eventually, the business. He lived to tell the tale at Wharton.

Here is where the real learning from that CEO's story came for me. This fellow near me looked over at me and said, "It just goes to show — you have to give someone the opportunity to say 'Yes.' "

What a lesson in leadership. For anyone. At any level of the organization. And in life itself.

Give someone the opportunity to say "Yes."

For the record, I came to learn that this wise commentator was Alan Berson, an executive and leadership coach with his firm Pulse Point Coaching.

'Grab the Strange Opportunities'

Want a tip for getting ahead in your career? Follow this advice from GE's Susan Peters: "Grab the strange opportunities."

Peters (pictured) is vice president of executive development and chief learning officer for General Electric Co. She was a compelling speaker at the 14th Annual Wharton Leadership Conference (see post below).

She joined GE in 1979 and served in human resource roles in several GE businesses in the U.S. As she explained to the conference attendees, there came a point in her career with the company that she wanted some global operating experience, so she took an overseas assignment — one that was actually a step down. Hence, the strange opportunity.

But that potentially risky gambit actually propelled her upward trajectory with GE. She returned to the U.S. and onto a new leadership track. Today is responsible for talent identification, leadership development, training, performance management, and succession planning for all GE executives worldwide.

That leadership lesson certainly resonates with me. In 1981 I got a call out of the blue asking me to come talk with the new owners of a business journal called Directors & Boards. At the time I was the senior editor of a weekly business magazine and was very happy in my job, with no thoughts of moving on. I checked out this new opportunity, and didn't much care for what I saw. Directors & Boards was then a rather staid academic journal, devoted to an arcane topic. Corporate governance? What the heck was that? It wasn't even a term in the popular lexicon then. And who cared about boards of directors, anyway? I had been in business journalism for five years by that time and had yet to write a single word about a corporate board. No thanks. I walked away.

I am not sure what it was, but the owners saw something in me. Over the course of several months they kept me on the hook, kept arranging the occasional lunch and office visit to talk up the prospects for this publication — to be a prestige journal of leadership addressing the concerns of the preeminent business ruling class in the country.

So, one day, I did it. They wore me down. I grabbed this strange opportunity. And here I am almost 30 years later. I sure wasn't sure of it at the time, but it seems to have been the right move at the right time for what I was destined to do with my life and career.

There is a governance dimension in Susan Peters' lesson here too. Sometimes board invitations come wrapped as strange opportunities. "You're asking me to serve on that board? Are you crazy?" Maybe so. How inviting can it seem to be asked to help pull a company or a nonprofit institution out of a financial tailspin, maybe even a bankruptcy situation? Or to right the ship after a scandal of some kind? Or maybe it's a succession crisis that looks daunting?

Rather than categorically swat away any such invitation, give deep consideration to whether it is, instead, a strange opportunity that should be grabbed.

My Must-Attend Leadership Conference

Among conferences focused on the development of leaders — perhaps the most vital issue facing boards of directors and senior management today — the one that gets my vote as best of the best is the Wharton Leadership Conference.

This one-day program is put on every year in June as a joint initiative of the Wharton Center for Human Resources, whose director is faculty member Peter Cappelli, and the Wharton Center for Leadership & Change Management, directed by professor Michael Useem. Of the dozens of leadership and governance programs held every year, this Wharton program goes on my calendar as a must-attend event.

It is not just the richness of its content that gives this program such distinction. It is the roster of speakers that the attendees are exposed to.

You see corporate superstars up close and personal (such as UPS Chairman and CEO Scott Davis, pictured), but you also get exposed to perspectives on talent development and management from diverse worlds — politics, the military, religion, the media, and, certainly, academia. Even more, you also hear from experts beyond the average executive's normal sphere of interaction. In years past attendees have listened in on the leadership lessons from those who scale treacherous mountains to those who jump into the middle of raging forest fires to those who are a creative force in the arts and humanities. It's an astonishingly diverse mix of big names doing big things, all leadership driven, and you just don't find that in most other such programs.

This year's 14th annual Wharton Leadership Conference, held June 16, carried on the grand tradition, as this agenda shows. My next several blog posts will be reflections inspired by what I heard this year at this Wharton conference. And I will be sure to give Directors & Boards readers a heads up when the date for the 15th annual conference is set so you can consider it for your must-attend lineup in 2011.

A Director as CEO Successor

On June 3 major regional bank Wilmington Trust Corp. announced that Chairman and CEO Ted Cecala was retiring. He is giving up the CEO post immediately and will remain chairman until July 19. Board member Donald Foley, an independent director who was a senior executive with ITT Corp., was named CEO. The change at the top took the market by surprise, and investors did not react well.

This is the latest example of something that we see with some frequency in CEO succession — a board turning to one of its own to fill a sudden vacancy. Such incidents always raise an important question: Should there be, as a rule, on a board of 10 or 12 people at least one or two directors able to step in as CEO in the event of an emergency?

We raised this question in a classic advisory published in Directors & Boards in 1996, following of rash of cases of boards yanking one of their own to plug a succession vacuum — which, come to think of it, is often of their own making for not doing a proper job of succession oversight in the first place. John Burlingame, formerly a vice chair of General Electric Co., and board recruiter Roger Kenny (pictured, now heading the board services practice for CTPartners) teamed up to address a range of pros and cons in resorting to this stop-gap succession measure.

To synthesize their overall conclusions: yes, it makes a lot of sense for a board to be armed with this capability in the event of a sudden vacancy, which can arise from all manner of untoward scenarios. Here is one perfectly understandable situation that they posited:

"You may have the perfect succession plan in place, but there may be two candidates to whom you want to give another six months or a year before you decide on which to choose. Or, in a tragic situation, you lose your CEO and his designated successor in a plane crash. In these cases, if you can make a director the temporary CEO without disrupting the relationship of the internal management and the external directors, it may well be the smartest thing to do."

A big potential negative, they pointed out, in either expressly designating or having a gentlemen's understanding that a certain board member could be the CEO in extremis is the potential threat to the current CEO — does the CEO know if he has "a threatening contender" on his hands? — and also the likelihood of politicizing the boardroom, i.e., "creating a separate class of director."

Notwithstanding such risks, "having a qualified executive sitting around the table understanding the company's strategies, operations, and culture" is a kind of insurance that many companies might be wise to embrace, Burlingame and Kenny advise. But not as wise as doing a first-rate job of managing an orderly succession process in the first place.

Gillette Moment

I get my best ideas when I am shaving in the morning. I call them Gillette Moments. My staff colleagues know these well — often the first email they get in the morning is from me sharing my Gillette Moment of the day.

I just read about a variation of a Gillette Moment in the Wall Street Journal's obituary of John Shepherd-Barron, who died last month. He is credited with originating the first automated teller machine in 1967 in the U.K. Inspiration for this new kind of vending machine came to him in a "eureka moment while stewing in the bath."

Another variation of a Gillette Moment figured prominently in an article that Vincent L. Gregory, a former chairman and CEO of Rohm & Haas Co., wrote for Directors & Boards in 1985. Titled "The Chief Executive's Role in Research and Development," Gregory (who led the chemicals company from 1970 to 1988 when he retired) offered up an agenda of helpful ways that CEOs can improve the effectiveness of their research people and operations. Here is how he began his advisory:

"Shortly after I joined Rohm & Haas Co. in 1949, I had the privilege of working at one of our manufacturing plants, which included on the same site a substantial research unit. During my orientation at the plant, I overheard the production manager complaining about the scientists who struggled into work at all hours of the morning. The thing that particularly bugged him was that some of them even shaved on company time.

"Rather innocently I asked, 'Do they ever make any inventions?' He said, 'Oh yes! Our scientists are some of the best in the world. They make a lot of inventions, and some good ones, too.'

"So I said, 'Well, what difference does it make where they shave, as long as they make good inventions?' In retrospect, I think that's probably one of the most profound statements I've made in my years at Rohm & Haas."

You gotta love that. A self-effacing comment for sure, but who knows how many consequential ideas may have come from these shaving sessions in the Rohm & Haas facility.

Now, what's your setting for having a Gillette Moment?

I often think how much more productive board meetings might be if directors headed into the day's round of deliberations having had a Gillette Moment that morning that they could bring to the table.

One Tough Question

"What would you do if you were on the BP board?"

How about that for a tough question? Well, that's the question that was put to one of the most respected corporate chieftains in the country at a meeting of directors this past week.

This was a closed-door, off-the-record session, so I respect the confidentiality considerations of this gathering of board leaders. But I think it is okay to share, without naming names, what this top executive had to say in response to the question.

One, he says he would have asked, "What are we doing drilling in 5,000 feet of water?" — challenging management on why there, so deeply underwater in the Gulf, when there are far easier, more accessible places for the company to be drilling in the world today. Presumably that would have been a question put fast and hard to management long before the first piercing of the Gulf seabed (pictured is BP CEO Tony Hayward).

Then, said this board leader, who knows well his way around troubled situations, the only real thing the BP board can do at this moment is acknowledge that "We take responsibility, and we will do all we can to fix the problem." If I am not mistaken, he said this with a rueful sigh and a sad shrug of the shoulders, as if the question indeed placed him right inside the BP boardroom.

I looked around the room at the faces of the other corporate directors, and I didn't see one who looked like he or she had a different answer to offer. Perhaps all were channeling their BP board compatriots and thinking, "There but for the grace of God. . . ."

No Paper Left Behind

A tea leaf of the future for the newspaper?

I took Amtrak from Philadelphia where I am based to New York yesterday. Normally I buy a copy of the Wall Street Journal at Philadelphia's 30th Street Station before I hop on the train. I didn't this time, as I cut myself too closely on making the train to stop at the newsstand. No problem — I would just pick up a copy left behind by a fellow commuter when we got off in New York.

It didn't happen. When we pulled into Penn Station, I walked the length of my car for a left-behind paper. No Wall Street Journal. No New York Times. No Philadelphia Inquirer. No Washington Post or Wilmington News-Journal (this being the Washington to Boston run). Nada.

Come to think of it, I now don't recall anyone reading a newspaper during the hour and 20 minute ride. As for me, I caught up on some manuscript reading and editing that I haven't been able to do in the office. And the fellow next to me? I was a good Samaritan — since he was sitting on the aisle, he asked to plug his computer's cord into the window outlet next to me, so I had his PC cord dangling on my tray table the whole way into Newark where he got off.

This never happened to me before — not a single paper left behind for my retrieval when a whole carload of Amtrak commuters departed the premises. That did not make me feel good setting out on my day into one of the newspaper capitals of the world.

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