Boards At Their Best

Are Boards Too Old?

2011-03-30T21:45:00.000-04:00

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

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

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

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

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

The seed was thus embedded.

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

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

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

Women Directors: Survey vs. Survey

2011-03-11T09:46:00.008-05:00

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

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

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

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

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

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

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

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

What we are looking at is velocity — a moving target — and you are measuring an end point.
In looking at the Directors Roster that just hit the street this week, you can see for yourself the flow of activity that we tracked in the fourth quarter of 2010 and the new women directors that came to our attention.
It seems to me that we need both sets of measurements — yours and the Directors Roster — to properly gauge marketplace activity, and I don't really see any conflict in what these two sets of numbers report.

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

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

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

New Directors: The 2010 Class

2011-03-10T15:03:00.002-05:00

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

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

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

2010's New Directors

1. Retired Executives: 148 (35%)

2. Chairman/CEOs: 84 (21%)

3. Senior Officers: 67 (16%)

4. Finance: 43 (10%)

5. Academia: 30 (7%)

6. Consultants: 28 (7%)

7. Not for Profit: 10 (2%)

8. Legal: 5 (1%)

9. Miscellaneous: 5 (1%)

Total: 420 (100%)

Women: 142 (34%)

Source: Directors & Boards Directors Roster

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

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

This is the first look at this data.

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

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

Women Directors: Big 2010 Finish

2011-03-08T07:16:00.003-05:00

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

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

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

• Q1: 34% (31 women out of 90 new directors)

• Q2: 36% (41 women out of 115 new directors)

• Q3: 26% (27 women out of 102 new directors)

• Q4: 38% (43 women out of 113 new directors)

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

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

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

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

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

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

It Happened in Davos

2011-01-26T23:14:00.010-05:00

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

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

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

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

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

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

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

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

Directors & Boards cover illustration by Dave Gothard

Founder-CEOs: Proceed with Caution

2011-01-24T19:08:00.006-05:00

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

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

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

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

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

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

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

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

When Illness Comes to the Corner Office

2011-01-20T17:55:00.005-05:00

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

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

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

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

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

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

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

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

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

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

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

ITT: Present at the Creation

2011-01-17T20:58:00.005-05:00

ITT Corp. is making its final endgame move in dismantling the historic behemoth that Harold Geneen built in the 1960s and '70s. It will separate its remaining major businesses into three specialized companies serving the industrial products, water treatment, and military equipment industries.

Renowned investment advisor Felix Rohatyn was present at the creation of the corporate empire that Hal Geneen built upon his joining ITT in 1959. He was a close counselor to Geneen and banker on the multitudinous deals that were to come. In fact, Rohatyn brought to Geneen the very first deal that started it all — a small company in California called Jennings Radio Manufacturing, which made vacuum switches and other products for the telecom industry.

Rohatyn recounts that first step in the launch of the ITT conglomerate in his memoir Dealings: A Political and Financial Life [Simon & Schuster, 2010]. It was a deal that came with a certain amount of boardroom drama and had crucial implications for the future of the company, as Rohatyn describes:

Here was an acquisition, I suggested, that made sense for ITT. Not only did it fit into Geneen's plan to build an economic core of American technological concerns, but Jennings was also a company with potential: its engineers were exploring new and profitable areas.

Geneen was intrigued. He ordered his staff to run the numbers and to investigate the science. Very quickly, they agreed: purchasing Jennings Radio made sense. It was a deal with a promising upside. And the $20 million price — a pittance for ITT— was reasonable.

It would be Geneen's first acquisition as CEO, and the first deal we had made together. But my excitement was abruptly dashed. When Hal proposed the purchase to his board of directors, he reported to me with a feisty bewilderment, they were reluctant. The board did not want ITT to make the deal.

Geneen realized at once that more was at stake than simply the acquisition of a small San Jose technology concern. The board was attempting to undermine his control — and all his large plans for the future growth of ITT. With a calm resolve, he gave the board members an ultimatum: either the deal is made, or I will resign.

The board capitulated. With the acquisition of Jennings Radio, the principle was established in the company that what Harold Geneen wanted, he would get. Hal was soon off and running on one of the largest acquisition sprees in American corporate history. And I was running with him.

Now that the Geneen empire is drawing its final curtain, how interesting to see how that first act set the stage for what was to come.

A Tag Line Retired

2011-01-14T21:44:00.009-05:00

"Directors & Boards is to the field of corporate governance what Variety is to show business."

That was the judgment rendered 10 years ago by the New York Stock Exchange's nyse magazine, at that time a well-written and designed publication distributed to the Exchange's member companies. In its Winter 2001 issue, the magazine took a look at what was ahead for corporate boards and turned for insight to Directors & Boards as one of its primary sources.

When the article appeared and we saw what was written about us, our reaction was, "What a wise conclusion this authoritative outsider came to." Of course we used the NYSE's Variety comparison as a tag line in our promotional materials and other outreach to the governance marketplace. Beyond the feel-good nature of this commendation, we did feel they got it right — that we were producing a journal that anyone serving on a board or interested in being a director needed to read, just as anyone working in the entertainment industry needed to be reading Variety.

But that apparently is not the case anymore when it comes to Variety. A recent report in TheWrap, an online Hollywood news service, concludes that Variety has lost its once-dominant position in the entertainment must-read hierarchy: "Beset by aggressive competitors and shackled by a paywall in the age of instantaneous news coverage, Variety has become a shadow of its former self," writes TheWrap's Sharon Waxman.

As someone who first started being an avid Variety reader in my teens, I am saddened that it may be sliding into irrelevance. And I am almost inconsolable that it looks like we must retire what has been a venerable descriptor for Directors & Boards. As I read other coverage coming out of Hollywood that traces the ups and downs of the trade papers, it unfortunately appears that Variety is no longer to the field of show business what Directors & Boards is to corporate governance.

Dealmaking: Feeling the Love

2011-01-11T17:58:00.007-05:00

This could be an "uh oh" moment. The Financial Times reports today that M&A deal making is hitting the $83 billion level already this year — the busiest start for deal activity in a decade. According to the FT, "U.S. companies are estimated to have $1 trillion in cash on their balance sheets and are expected to come under increasing pressure to put those funds to work or return money to shareholders."

Well, we know where this is headed. Managements are generally loathe to return monies to the owners, and doing deals is ever so much more fun and dynamic. That is where the "uh oh" comes in. And where a good board needs to come in.

Let me turn to Robert Denham (pictured) to amplify.

Bob Denham, as you may recall, parachuted into Salomon Inc. with Warren Buffett to help stabilize the investment firm following its 1991 Treasury auction scandal. He had been a partner in the law firm of Munger, Tolles & Olson, where he had worked for 20 years advising clients on strategic and financial issues, and to which he returned after resolving all the legal and regulatory issues that threatened to destroy Salomon and negotiating the sale of the investment firm to Travelers Corp. for almost $10 billion. When the dust cleared on all that travail, he recorded a set of thoughtful observations on corporate governance for a Directors & Boards article that we titled, "What Should We Expect from a Board?"

When it comes to M&A, here is what, unfortunately, shareholders can often expect:

The board can play a valuable role in connection with proposed acquisitions. Ego, animal spirits, and badly structured compensation systems all conspire to encourage CEOs to love acquisitions even when shareholders should hate them. Vastly more money is wasted on bad acquisitions than on overpaid CEOs.

For a board to be effective here, however, it has to have its own sense of the value of things — the value of their company and the target. While a good investment banker will seek to privately discourage management from a bad transaction or from paying too much, the board is unlikely ever to get a sense of this. If the transaction is being presented to the board, any good management will have found an investment banker to endorse it. There is really no substitute for the board making its own judgments about value, and that is something that many boards are ill-equipped and ill-prepared to do.

With M&A signings already so robust, and with all that cash sloshing around on balance sheets, shareholders can be forgiven for looking ahead trepidatiously at a banner year of "uh oh" moments in dubious dealmaking.

Josh Weston's Math

2011-01-06T22:27:00.004-05:00

"The clothes are great, but the governance isn't," writes New York Times DealBook Editor Andrew Ross Sorkin of how the planned buyout of J. Crew is being handled by management and the board. Sorkin's verdict came in his Jan. 3 column devoted to "roasting and toasting" the deal makers of 2010.

Questions abound about CEO Mickey Drexler's influence in driving the deal, especially his seemingly tardy timing in bringing the board into the loop on the discussions he was having with backers to take the company private.

I note that Josh Weston is on the J. Crew board and is a member of the special committee overseeing the deal process. Weston is a former chairman and CEO of ADP Inc. and a veteran public company director. (Before joining ADP in 1970 he was No. 2 at J. Crew.) I was in attendance when he was given an "Outstanding Director" award by the ODX organization in 2006.

He is a past Directors & Boards author. In 1998 I published his article, "A Formula for Prosperity," in which he offered up "10 principles that I have learned that have been most relevant and helpful to me as CEO of a team that achieved [as of that date] 146 consecutive growth quarters." A remarkable record for a remarkable company.

One of his 10 principles always particularly resonated with me, and I think of it again in connection with the J. Crew deal. It was his Principle N0. 9: "The ADP Math Adds Up." Here is what he means:

At ADP, 39 plus 1 equals more than 40 plus 0. What do I mean? Forty plus zero represents the very, very busy person who's got a loaded in-basket while the phone is ringing every 15 seconds. In his 40-hour week, he's busy dealing with all of this stuff, with zero time to think about what he's doing and how he's doing it. A 39-plus-1 person has the same in-basket and phone problem. Nonetheless, he will take one of his 40 hours to think about improving or even eliminating some of what he's doing. A 39-plus-1 person will get a lot more done than a 40-plus-0 person.

I can't imagine that Josh Weston is a happy camper that J. Crew's governance is the butt of an Andrew Ross Sorkin slapdown. Knowing a little bit about him, his track record as an engaged director, and his "formula for prosperity," I think the chances are fairly strong that there will be some Weston math happening in sewing up a deal at J. Crew that will wear well for management and shareholders.

Photo of Josh Weston at time of his article's publication in 1998.

The Cosmic Banana Peel

2011-01-03T21:42:00.002-05:00

My holiday reading included the book Bird by Bird: Some Instructions on Writing and Life by bestselling author Anne Lamott (pictured). It was a gift from Directors & Boards lead columnist Hoffer Kaback. Here is a passage that jumped out at me:

"Remember that whenever the world throws rose petals at you, which thrill and seduce the ego, beware. The cosmic banana peel is suddenly going to appear underfoot to make sure that you don't take it all too seriously."

Were truer words ever spoken? We are all familiar with the dynamic: At the moment, or period, of maximum accomplishment, success, recognition, the cosmic banana peel gets underfoot, resulting in disappointment, disdain, even disaster.

It is true in all fields of endeavor, from sports (Brett Favre, anyone?) to entertainment (Tom Cruise?) to, of course, business (BP, Toyota, Mark Hurd).

For board members and top management, a good two-fold resolution for the coming year will be to not get enamoured with your press clippings or glowing analyst reports and, paraphrasing the famous advice of Intel's Andy Grove (re his book Only the Paranoid Survive), be paranoid — of slipping on the cosmic banana peel.

Actually, as I heard it put by another cautious soul, it's not just a question of being paranoid but . . . are you paranoid enough?

Watch your step every step of the way as you exercise leadership and judgment in 2011. Don't let this be the year that you — and your shareholders — take a fall, courtesy of the cosmic banana peel.

Gen. Georges Doriot's Holiday Party Advice

2010-12-21T09:56:00.001-05:00

I first became aware of Gen. Georges Doriot — a famous Harvard Business School professor who is widely acknowledged as the founder of the modern-day venture capital industry — during a conversation with Barbara Hackman Franklin. I was interviewing Barbara for the "Oral History of Corporate Governance" special 25th anniversary issue of Directors & Boards published in 2001, and this was one of her remembrances:

"I certainly don’t recall corporate governance included in any studies at Harvard, although I still find it amusing today to remember that a course taught by one of the most esteemed members of the faculty, Gen. Georges Doriot, was closed to women. We were warned by our counselling professors not to try to sign up for that course because he didn’t take women. When I ran into him many years later, I told him I had wanted to take his course, and what did he think about not allowing women in his class. He looked right at me and said, 'I’m damn proud of that!' ”

Barbara was a good sport and laughed about it when we talked, but I am sure it was not a laughing matter at the time. As one of the first women to graduate from Harvard Business School (which she did in 1964), she and other high-achieving women missed out on taking a class with this renowned individual. As the New York Times stated in its obituary when the General — as he was universally called because he had been a brigadier general in the U.S. Army during World War II — died in 1987, "for four decades [he] was widely credited with inspiring and training more leaders of American corporations than any other person."

The blog Creative Capital, written by Spencer Ante as a follow-on initiative to his book, Creative Capital: Georges Doriot and the Birth of Venture Capital, listed the "Top 10 Aphorisms of Georges Doriot." It is a marvelous set of observations and guidance.

One in particular is quite applicable to this time of year — the Christmas and New Year's holiday season, when parties and festive occasions are in full swing . . . and wine and spirits are flowing freely. Thus, take heed of the General's counsel:

"Never have more than two cocktails on any occasion. If any information is to be exchanged over whiskey, let us get it rather than give it."

That sounds like prudent behavior for executives of all stripes. (Another of the General's top 10 aphorisms is this: "Do not have a banker on your board — in bad times he remembers he is a trustee of someone's money"; but we won't deign to comment on that eyebrow-arching maxim at this feel-good moment when Christmas is almost upon us.)

So on this note of party etiquette from the General, we will close out the "Boards At Their Best" blog for 2010, and wish all our readers of this blog and of Directors & Boards and the monthly e-Briefings a joy-filled holiday season and my very best wishes for a resoundingly strong year in 2011. Be sure to come back and read us in January.

Photo of Gen. Georges Doriot courtesy of Harvard Business School

Executive Stress: We Have Been on the Case

2010-12-16T07:27:00.002-05:00

I venture to claim that there is almost no topic of board governance and leadership that Directors & Boards has failed to address in its 35-year history.

Take executive stress, for example — as in Jeffrey Kindler's stress-related retirement as Pfizer Inc. chairman and CEO, announced last week.

A dip into the Directors & Boards archives — circa 1977, a year after the journal was founded — turns up this article: “Beyond Executive Stress: Board Responsibility for CEO Mental Health,” written by Patricia Aburdene. (Ms. Aburdene went on to co-author the huge bestselling Megatrends series of books, and is now out with Megatrends 2010.)

A pertinent passage that certainly speaks to what just unfolded in Pfizer's boardroom:

A CEO under stress can make a disastrous decision before his condition has deteriorated to the point of breakdown. A tangle of family and marital problems might not affect a chief executive’s performance one iota. But if the business is going downhill too, it could become too much. A strong and competent corporate head is, after all, only human. Says Dr. Gertler of New York’s Stresscontrol Center, “It’s up to the board to keep track of how much stress the CEO is under at any given time” — and how much the CEO is capable of withstanding.

Corporate executives are no more prone to mental problems than any other group and perhaps less so. But because the adverse consequences of mental problems are multiplied by the level in the organization the executive has attained, it is always a cause for concern whenever it occurs among senior management.
At the shop level, it’s hundreds of dollars lost; at the department level, thousands; at the divisional level, millions; and at the corporate level, tens or even hundreds of millions.

The Pfizer board is taking heat now for this sudden succession issue. Did the board wait to long to force the matter? Should the board have separated out the chairman and CEO roles before this to ease the load on their CEO? Such questions naturally arise.

But this incident raises awareness of a little-commented upon role of the board — to monitor the CEO's tolerance for stress and to take action when warranted.

Even in its earliest days Directors & Boards was making this case. But you don't have to be such a longtime reader of the journal to know that we are specialists in pointing boards to the high ground of enlightened engagement with their managements and shareholders.

"The Scream" (2001), illustration by Jean Kristie

Russia House: The Pepsi Formula

2010-12-14T06:13:00.003-05:00

In the fall of 1990 Directors & Boards Publisher Robert Rock and I traveled to PepsiCo headquarters in Purchase, N.Y. The reason for our trip? The Iron Curtain was coming down, Eastern Europe was opening up as a new market for U.S. goods and services, and Russia was undergoing perestroika — a thawing of relations with the West — all of which boded promisingly for American companies. We wanted to talk to a leader who knew how to penetrate previously closed-off marketplaces for some lessons that would be useful for our journal's readers in pursuing this historic business-development opportunity.

That meant talking to Donald Kendall.

At the time of our visit, Don Kendall was chairman of the executive committee of the PepsiCo board. Earlier in his career, he was the engineer of PepsiCo's breakthroughs in Eastern Europe and the Soviet Union (and in China, too). You can see him pictured above at left with Soviet Premier Nikita Khrushchev and U.S. Vice President Richard Nixon at the historic U.S. Exhibition in Moscow in 1959, where one of the exhibits was famously a display of Pepsi-Cola. Kendall, then the president of Pepsi-Cola International, arranged for that exhibit. Over the next 13 years, he patiently worked to develop a relationship with Soviet officials. Finally, in 1972, the company signed a breakthrough trade agreement providing for the bottling and sale of Pepsi in the U.S.S.R. — the first foreign consumer product to be sold in that nation. By 1990 it was the leading foreign soft drink in the Soviet Union, widely available in restaurants, grocery stores and from street kiosks, and was also the most widely distributed soft drink in Eastern Europe.

Kendall was elected chairman and CEO of the corporation in 1971 and held those positions until 1986. Bob Rock and I spent an hour with this affable veteran of global expansion, capturing his memories of those very early forays into inhospitable markets — asking him everything from what Moscow was like in 1959 to the intricacies of bartering Pepsi for vodka to lessons for CEOs in venturing abroad.

Of course, this recall of our visit with Kendall is prompted by PepsiCo's bold bid for Wimm-Bill-Dann, an offer of $3.8 billion for a two-thirds stake in the dairy and juice company — the largest acquisition by an American company in Russia.

Here are two of the questions we lobbed at Kendall, and his answers give you a taste of how this Pepsi visionary thought about risk and opportunity.

Directors & Boards: Given the current instability in the Soviet Union, would you encourage your colleagues in major Western companies to enter the country at this time?

Kendall: Absolutely. There is no place with greater opportunity. If you wait until you have stability and convertible currency, the opportunity is going to be gone. When you have an opportunity is when there are problems — when everybody is not running there. In running a business you have to take risks. Where there is opportunity there is always risk. If there were no risks in the Soviet Union, someone else would already have the business. So I don't think instability is something that would stop me from going to the Soviet Union. What is going to happen? They are not going back to what they had before. You might have civil unrest. A lot of the republics may end up seceding from the union. But they are going to have some system that will be different. It probably won't end up like the United States or Germany. It will probably end up more of a socialist country. Nobody knows how it is going to end up. But there will be some structure there in which you can continue to operate. Nobody would have dreamed years ago that you would have what's happened in the Soviet Union today. But I believed back then that given the opportunity, we could be successful. We were successful under the old system, so you know we are going to be very successful under the new system.

Directors & Boards: You even held a PepsiCo board meeting in the Soviet Union way back in 1974 — the first U.S. company to do so. Do you think other boards have begun to embrace the opportunities to be found in the Soviet Union and in Eastern Europe? Or is it more of a curiosity?

Kendall: I wanted the board to understand the opportunities. One of the problems we have in the U.S. with our international operations is that a lot of chief executives don't get involved. Somebody said one time that a lot of chief executives are inclined to travel the 'silk stocking' route — they love to go to London, Rome, and Paris. They won't go over to the Soviet Union and conduct negotiations. This will change over time, but if a chief executive — the decision maker — goes over there, he can get something done. Furthermore, you don't get the enthusiasm for something unless the chief executive gets involved. The same is true in China and in a lot of other countries. You must go there and find out what the opportunities are.

Identifying opportunities, measuring risk, making bold moves, and reaping rewards — that was Don Kendall's 'Russia House' formula for Pepsi's growth and success, being applied again in the Wimm-Bill-Dann deal.

The Annual Meeting as the Art of Romance

2010-12-09T06:16:00.003-05:00

As discussed in my previous blog posting, I am underway on a cover story for the first Directors & Boards issue of 2011 that will tee up a major rethink of the annual shareholder meeting — what is wrong with how it is done today and what may be needed to fix it for the governance era ahead.

Which brings me to Steve Ross (pictured).

I have fond memories of Steve Ross from back in the mid-1980s when he was head of Warner Communications. I made some money in Warner stock, which makes for warm recall. And as a shareholder I attended a couple of annual meetings that he ran. I remember them as some of the best annual meetings I have ever sat in on — infused with his outsized "CEO rock star" personality, his ultrasmooth handling of the crowd — and it was quite a crowd in those heady days when a Hollywood studio like Warner Brothers still reigned over the global entertainment industry — and his marvelous presentation of the scope and scale of Warner's businesses.

Connie Bruck, in her superb 1994 biography of Ross, Master of the Game: Steve Ross and the Creation of Time Warner, further amplifies my recall of why Ross was so masterful about so many things in his business dealings — including running an annual meeting. From her book, a telling anecdote, capped by a nicely personal coda:

From the start, Ross prided himself on his shareholders' meetings.

Over the years, he would become more polished, but even in the early days of Kinney Service he came to these events like a natural; showcasing his depth of knowledge about the company, his numerical nimbleness, his salesmanship so consummate that it seemed more about the art of romance than about selling. As he did with other business tasks, Ross made his preparation for these meetings into a game; he challenged his associates to find a question that would stump him, as though he were about to appear on one of his favorite television quiz shows.

He had a strategy for these meetings ("You never play a shareholders' meeting to win, you play to tie") as, it often seemed, he did for everything in life. And once he was on the podium, taking questions from the audience like so many lobbed balls, he seemed to want them to go on forever. "To make him stop answering questions," recalled the company's longtime secretary, Allen Ecker, "you'd have to turn out the lights."

Despite his prowess, however, in later years Ross liked to recount how he had gotten into trouble in one of those early meetings. "We were in the parking business then, and a woman asked why we didn't have a garage at a particular location in Brooklyn," Ross told me. "I gave some response, and she said, 'You're making fun of me because I'm from Brooklyn.' And I said, 'No, no, I'm not doing that at all. I wouldn't do that. I'm from Brooklyn too.'

"Well, after the meeting my mother came up to me. 'Steven.' (She only calls me that when she's angry.) 'Do you know how many years we've been trying to live down that we came from Brooklyn, and now you've come right out and said it, in front of al these people!' "

Hmmm . . . the annual meeting as the "art of romance." Maybe that is one of the fixes that is needed — to have the current generation of chief executives bring a Steve Ross-style verve to this corporate event and return it to a rightful place as a centerpiece for the display of CEO and board leadership.

How to Fix the Annual Meeting

2010-12-07T09:42:00.009-05:00

It seems that no one — management, boards, shareholders — is happy with how annual meetings are conducted these days. Annual meetings can be a frustrating and often futile exercise — in meeting statutory requirements, yes, but not much else as a worthy vehicle for demonstrating corporate leadership and facilitating shareholder relations.

Thus, the cover story for the first Directors & Boards issue of 2011 will be:

What’s Wrong with the Annual Meeting . . . and How to Fix It

I am going to seek a roundup of opinion on what to do about the annual meeting. The seed of this article idea was planted this past summer when I was a peripheral participant in a study group looking at "Electronic Participation in Shareholder Meetings" — i.e., the pros and cons of virtual annual meetings and the practices necessary to hold a meeting that meets the needs of all parties. This group was organized by a close colleague, Gary Lutin, through The Shareholder Forum initiative that he chairs.

The virtual annual meeting will be an important dimension of the discussion, and possibly factor in as a "key fix" — or maybe not, depending on the input I get from important players who are doing virtual meetings or thinking of going in this direction. Early adopters, and their shareholders, have had some rocky initial experiences with virtual meetings.

And there may be other fixes that we should focus on for reconfiguring the annual meeting for a coming governance era of heightened transparency and disclosure.

Stay tuned. It should make for a lively lead article in the Q1 Directors & Boards.

Photo: A Johnson & Johnson annual meting from the 1970s, courtesy of Kilmer House.

'One Terrible Cost of Leadership'

2010-12-03T21:03:00.002-05:00

It is interesting how J. Crew's Mickey Drexler identified a classic leadership characteristic as one of the things he wished he knew when he started out in business (as per my earlier blog post) — the need to ease an executive out of the organization once it is determined that he or she is not up to the job. As Drexler put it, "Let those who aren't working out go quickly."

I first came across this counsel in an interview I edited that Warren Bennis conducted with Dr. Franklin Murphy, which was published as a Q&A article in Directors & Boards in 1982. Dr. Murphy is not a household name today in the annals of corporate leaders, but he was a major figure in the 1960s into the 1980s. He had a most unusual route to the top of a major corporation. Trained as a medical doctor, he began his management career at the University of Kansas, serving as dean of the medical school and then, at age 35, chancellor of the university. He subsequently spent eight years as chancellor of the University of California at Los Angeles. In 1968 he was personally recruited by Norman Chandler, then chairman and CEO of Times Mirror Co., to be his successor.

In 1982 Murphy was chairman of the executive committee of Times Mirror when Bennis spoke with him on “Starting Corporate Life at the Top,” as we titled the article. Here is the key question and answer that identified a classic test of a leader's ability to act:

Bennis: You’ve been in very responsible positions virtually from the start. Are there any costs of responsibilities?

Murphy: Yes, there’s one terrible cost and it’s the one thing in administration that I find the most distasteful by far — and that is when you have to fire somebody. Having to let go a loyal and capable person who just isn’t up to his job is so painful. I brood about that, but it is a price you pay. You’re not just disemploying an individual, you’re affecting a wife, children, a whole group. I must say, if I’m indecisive about anything it’s in that area. But I’ve learned over time that the quicker it’s done, the better it is for all parties.

As Murphy implies, the removal, while it must be done, can be done with a human touch —another classic characteristic of a leader.

Franklin Murphy died in 1994. Portrait of him shown above was done by Directors & Boards to accompany his 1982 article.

The Dancing Board Member

2010-12-01T05:40:00.003-05:00

The holiday shopping season is off to a rousing start. Crowds were strong on Black Friday, and it appears Cyber Monday set new records.

There can be a governance angle in almost anything. When Y&R consumer expert John Gerzema announced in mid-November that he expected Zappos.com, the online merchandiser of apparel and footwear, "to win the online shoe retailing war with its celebrated customer service" this shopping season, I was just reading Zappos.com Inc. CEO Tony Hsieh's book, Delivering Happiness: A Path to Profits, Passion, and Purpose [Business Plus, 2010].

Here is a choice story he tells in the book. Before becoming CEO of Zappos.com, Hsieh headed LinkExchange, a Web design company he cofounded in 1996. That's where this story takes place:

I’m not quite sure how it started, but we had a really fun tradition at LinkExchange. Once a month, I’d send an email out to the entire company letting them know that we were having an important meeting, and that some of our important investors and board members would be attending, so everyone was required to wear a suit and tie on the day of the meeting.
Everyone except for the most recently hired employees knew that it wasn’t a real business meeting, and that they didn’t actually need to wear a suit and tie. The real reason for the meeting was so that we could initiate and haze all the new employees who had joined LinkExchange in the past month.
So once a month, all the newly hired employees would show up to the office dressed up in suits and ties. There they would realize that they were the target of the companywide practical joke. In the afternoon meeting, all the new hires would be called up to the front of the room to complete some sort of embarrassing task.
After an investment by Sequoia Capital, we asked Sequoia partner and our new board member Michael Moritz to attend our initiation meeting, and we called him up to the front of the room along with the other six employees who had been hired in the past month.
After each person introduced himself, we let them know that in honor of Moritz’s presence, we decided that we wanted everyone to move together in unison to the music that was about to be played.
If you’ve ever read anything in the media about Moritz, he’s generally portrayed as an intelligent, introspective, and proper British journalist-turned-venture-capitalist, so everyone was excited to see that he was willing to stand in front of the room with the other new employees. Someone brought out a boom box and turned on the power as everyone started clapping and cheering. And then music started playing. It was the Macarena.
I don’t think that words can every truly describe what watching Moritz being forced to do the Macarena was like. It ranks up there as one of the strangest sights to behold. Everyone in the entire room was cheering and laughing, and by the end of the song I had tears streaming down my face from laughing so hard.
I remember looking around the room at all the happy faces and thinking to myself, I can’t believe this is real.

Two years after cofounding LinkExchange, Hsieh sold it to Microsoft for $265 million. He then guided Zappos from almost nothing to over $1 billion in gross merchandising sales annually, and got it onto Fortune magazine's "Best Companies to Work for List." And then along came Amazon, which bought Zappos in 2009 for $1.2 billion.

This is an impressive case of how creating customer value creates shareholder value, but maybe Tony Hsieh is on to a new tactic for how a board can help create shareholder value — get the directors up dancing in front of the team.

Mickey Drexler at the Met

2010-11-24T23:04:00.007-05:00

The J. Crew buyout announced this week calls to mind the time I saw its CEO, Millard (Mickey) Drexler, in action — giving a standout performance on, of all places, the stage of the Metropolitan Opera House at Lincoln Center.

That needs some explaining. So let me back up a bit.

Investor Ronald Baron of Baron Capital Group was holding his firm's annual investment conference at the Met. This was November 2007. I was a shareholder in one of the Baron family of mutual funds at the time, and thus was invited to attend.

This was my first Baron Investment Conference, and I was bowled over by what an event Ron Baron puts on for his investors. The daylong gathering included presentations in the morning by CEOs of companies in which the Baron funds hold sizable positions and who are leaders that Ron Baron and his portfolio managers hold in high regard. During the lunch break, in a tent set up on the Lincoln Center grounds, we ate our box lunches while rocking out to a live performance by Sheryl Crow. After lunch, back in our comfy seats at the Met, came brief remarks by the firm's portfolio managers and a fuller overview of the investment landscape and state of the firm by Mr. Baron. He then turned the stage over to a "surprise entertainer" – who turned out to be Bette Midler. She proceeded to give one of her inimitable songfests. The day then wrapped up with "milk and cookies" with the firm's portfolio managers and analysts. This was not your grandfather's annual meeting.

Now back to Mickey Drexler. This "retail statesman," as the Wall Street Journal called him in its report on the buyout, was one of the CEOs addressing the packed house. His presentation on J. Crew was cleverly couched in the context of "Things I Wish I Knew When I Started Out in Business."

Befitting the setting of this grand opera house, Drexler gave a riveting performance. His "wish list" was full of sound management wisdom that would be widely applicable across industry lines, not just for success in retailing trendy apparel. For example, one of his learnings was, "Let those who aren't working out go quickly." Another: "Old dogs need younger dogs around." He had rich material to amplify each of his management maxims.

Indeed, I was so taken with Drexler's presentation — immediately seeing its potential to be a cover story in Directors & Boards — that I followed up after the conference with his counselors about adapting his remarks into an article. Alas, nothing has come of that . . . yet.

But I am nothing if not dogged in pursuit of worthy additions to the canon of how great leaders lead. It may be hard to pin this down while the buyout process runs its course, but Drexler's "Things I Wish I Knew. . ." deserves to be captured in print — in the pages of Directors & Boards. Then, we will all know what he means, and how we can apply it to our own businesses, when this business dynamo says such things as, "It's All About the Mustard."

Arnold, Corporate Director

2010-11-22T08:54:00.008-05:00

Esther Dyson, longtime IT maven, VC investor, board director, and cosmonaut in training, among the many impressive dimensions of her life, just posed an interesting question to her Facebook network: What should/will Arnold Schwarzenegger's next career be?

Some of the responses were on the level — "executive producer of various movies," "the international 'kick ass' guy on climate change and clean energy," and, citing his "great role" in "Kindergarten Cop," an FBer suggested, "Maybe a next gen of teacher, especially with young kids." Then there was this possibility: "Isn't his ultimate ambition to run for President?"

Of course Esther's query stimulated a few jokesters: "What was his last career? Bankrupting a state?" And this Conan-themed response: "Do we even have to ask? It will be to crush his enemies, to see them driven before him, and to hear the lamentation of their women."

I chimed in, too, with this suggestion: "How about a corporate director? Lots of possibilities — a media company, a defense contractor, even WWE." To which I added, "Then I get to interview him." I was only being somewhat playful, especially with the cite to World Wrestling Entertainment Inc., when I posted this to Esther's FB page.

But, actually, why not consider Arnold for a board seat?

Any other two-term governor of a major state — and remember that California's economy is the largest in the nation and the eighth-largest in the world — would get a serious lookover by board nominating committees and recruiters.

It was then, with a few curious clicks of the mouse, I discovered that there is, of all things, an opening on the board of WWE. Michael B. Solomon, a managing partner of Gladwyne Partners LLC, announced earlier this month (with no reason given) that he was stepping down from the board. The investor had been on the WWE board since 2001.

So, gentlemen and ladies of the WWE board nominating committee, start your engines!

And if Arnold does turn up in our Directors Roster as a newly elected board member somewhere in corporate America, I will indeed endeavor to line up an interview for a Directors & Boards article.

This is a bit of a fun blog post to kick off Thanksgiving week — a week that I hope finds the Directors & Boards audience in a thankful mood for having survived a year that brought us a plethora of new SEC rulings on governance disclosures and a year that also brought us Dodd-Frank. More than a few directors might well feel like asking: Where was The Terminator when we needed him!

GM's IPO — Hit It, Dinah!

2010-11-18T08:46:00.003-05:00

For the first time since it entered bankruptcy reorganization in June 2009, a new high-flying General Motors stock returns to Big Board trading today. Its IPO was priced swimmingly yesterday, looking to be the second-largest IPO in U.S. history, according to preliminary reports.

Who better to greet the return of GM from the dead than Dinah Shore, with her serenade of "See the USA in Your Chevrolet" in the clip above.

I am showing my age here, but I well remember Dinah singing this advertising ditty in her television show in the 1950s, although my remembrance of this goes back to the late '50s and not 1952, the date of this clip. A superstar entertainer during that decade, Dinah had a long and close association with GM and its Chevrolet brand. "The Dinah Shore Chevy Show" ran from 1956-1963. According to this detailed account:

A GM spokesman told Time magazine in December 1957 that the company considered its link with Dinah to be "one of the most enduring love affairs in TV." Indeed, Dinah Shore was helping to make Chevrolet the most popular automobile brand in America. In the 1950s, Chevy sales in the U.S. averaged 1 million or more cars and trucks a year. . . . She became the "queen of General Motors" in its heyday — a super-salesman and more.

So, welcome back GM. For most of my 30 years at Directors & Boards, the GM board has been held in fairly — and, in many cases, unfairly — low esteem. There have been many good people who served on the GM board, which has been inordinately defamed over the decades. But rightly or wrongly, just saying "GM board" has been a kind of shorthand for a board that fiddled while Rome burned.

Perhaps now, as trading gets underway in this resurgent automaker (that is actually making enviable profits again), we relegate to the junkyard GM's reputation as a lemon in the world of corporate governance.

How Long to Get a Board Seat?

2010-11-16T07:27:00.005-05:00

A fascinating stat somewhat buried in the 2010 Board of Directors Survey recently released by Heidrick & Struggles and WomenCorporateDirectors (WCD) is this —

• It takes women about 2.4 years to achieve their first board seat once they start actively seeking a corporate directorship; the comparable "time in search" for men is 1.4 years.

The one-year difference in male-female board seating is an interesting story in itself. But my reaction to this statistic is this: Call me just a tad skeptical.

I say that based on years of anecdotal reports from close readers of Directors & Boards who have written and called me for counsel on the best ways to be considered for a corporate board. My sense from these interactions is that it typically takes longer — sometimes a lot longer — than the 1-3 years cited in the survey.

Here is one such seeker, who emailed me this note about a year ago:

When I turned 50, I felt like I had enough experience to add value to a public board of directors. I had served on private boards, and had also briefly been chairman of a public company. I want to serve for a public company. I joined the National Association of Corporate Directors, and began soliciting smaller public companies to serve on their boards. I even solicited pink sheet companies. I solicited private equity firms to serve on the boards of portfolio companies. I signed up with headhunters, and Nasdaq Board Recruiting. In the last several years, I have sent my CV to hundreds of people, and made hundreds of telephone calls. I have been in the running, but so far no board positions.

I did not have much to offer to this fellow — and it was a man who wrote this — other than to say that it seemed to me like he was doing all the right things. I passed along a few keen advisories on "How to Get on a Board" that Directors & Boards has published, and also planted the idea that one thing he might consider to raise his profile is to do some writing on leadership issues for us and other prominent publications.

But after receiving notes like his, and reading and hearing many similar stories of the frustrations in trying to crack the code of the director selection process, you can see why this particular stat jumped out at me. I am tempted to do some further fact finding on this. Stay tuned for that in Directors & Boards in 2011.

This board survey, overall quite impressive in its findings, is recommended reading for both present board members and hopeful candidates, and can be accessed on both the WCD website and the Heidrick & Struggles website.

Pictured is Susan Stautberg, the enterprising co-founder and co-chair of WomenCorporateDirectors, an organization that describes itself as "the only global community of women corporate directors."

Women on Boards Q3 2010

2010-11-14T20:55:00.000-05:00

The torrid pace of women being elected to corporate boards has cooled off in the third quarter of 2010. Our Directors Roster data tracking of newly elected board members shows women comprising 27% of the total. This is down from 36% in the second quarter of this year and 34% in the first quarter. For 2009, women comprised 39% of newly elected directors, according to our closely watched Directors Roster data.

The third quarter — July through September — can often be the slowest quarter of the year for new corporate board elections. The Roster recorded 103 board additions in total, down a tad from 115 in the second quarter, but up from 90 additions in the first quarter.

Representative of the Q3 elections is Trudy A. Rautio (pictured), EVP and CFO of hospitality and travel company Carlson, who was elected to the board of Imation Corp., which offers data storage and security products, in July. (A noteworthy feature of the Imation board is that it has a woman as nonexecutive chairman — Linda W. Hart, vice chairman and CEO of the Hart Group, a diversified group of companies primarily involved in residential and commercial building materials.)

The full display of the July-September board elections will be in the Directors Roster that is published in the Fourth Quarter edition of Directors & Boards. That issue comes off press in early December.

Trench Foot: A Veterans Day Tale from Warren Bennis

2010-11-11T09:14:00.008-05:00

Being a veteran of the U.S. Navy, this day has great meaning for me. Here is a tale of battlefield leadership that has just made a big impression on me that I want to share as we celebrate our country's past and present servicemen.

It comes from a new book by Warren Bennis, who has distinguished himself in so many ways over a long well-lived life — in leadership positions in academia both as teacher and administrator, as an adviser and consultant to companies, and as an author (of 30 books!) and thought leader in the art and science of management. His book is titled, "Still Surprised: A Memoir of a Life in Leadership" (published by Jossey-Bass).

That life in leadership started early. Here he is as a young officer leading a platoon of soldiers on the front lines "in the final throes of the Battle of the Bulge, that murderous last-ditch effort by the German military," he writes. There is no way to effectively paraphrase Bennis' tale, so here it is in his own words (copyright by the author):

In the field, one of the dangers our G.I.'s faced was a horrible condition called trench foot. For their march across Europe, the men had old-fashioned leather boots, not the rubberized ones that would be standard issue later. Their boots and socks would quickly become soaked through as they slogged through the snow. In a vain attempt at keeping their boots dry, they would wrap them in burlap sacks. That only kept the moisture inside, making the situation worse. Soon their feet would become infected. If they weren't tended to properly, their toenails fell off, their feet eventually turned black, and they developed gangrene. Frostbite might cost you some toes, but trench foot cost soldiers their feet, even their legs. The problem was enormous, especially for those soldiers stuck in water-filled foxholes for weeks at a time. Stephen Ambrose writes in "Citizen Soldiers" that in the winter of 1944-45, 45,000 American fighting men had to be taken off the front lines of the European Theater of Operations because of trench foot.

Some officers thought the men were goldbricking, getting trench foot on purpose in order to be relieved of duty. Given how agonizing and potentially crippling the condition was, I found that hard to imagine. I had been warned of the seriousness of trench foot by one of the doctors back at the regiment's makeshift first-aid station. He said that the only way to avoid it was to take off your boots and socks, wash your feet, and then dry them carefully, toe by toe, preferably by a fire.

Given the bitter cold and the men's ambient level of exhaustion, they were loathe to bother with this complicated nightly toilette. After all, it meant heating water from their canteens in their helmets, draping their wet socks around their necks to dry overnight, washing and meticulously drying their feet, then putting dry socks and their boots back on. But I had taken the regimental doctor's warning to heart. Other companies were losing a lot of men to frostbite and trench foot. I decided I would preach the gospel of meticulous foot care to my men. My crusade didn't have a heroic ring to it, but it would serve two important purposes: it would save the men from suffering, and it would limit the company's losses to those caused by German snipers and other perils we couldn't avoid.

This wasn't the kind of campaign you could wage by fiat. Every night I would go from squad to squad, making sure each man took off his boots, washed his feet, dried them carefully, and put on dry socks before he put his boots back on. And my initiative did what it was supposed to do. None of my men got sent back because of trench foot.

In retrospect, it is one of the things I am most proud of doing during the war. It sounds compulsive, even fussy, but it was an example of an officer fulfilling one of his most important obligations — taking care of his men. To this day, I think of those soldiers every morning after I shower and carefully dry between my toes.

A powerful story of leadership, no? It is just such displays of care for their country and their fellow comrades by veterans like Warren Bennis that we honor on this day.

NCR's William Anderson: Lessons for Today from the 'Japan Miracle'

2010-11-09T10:16:00.007-05:00

In its report today about Avon selling its Japanese operation to private equity firm TPG Capital, the Financial Times calls the deal "emblematic of the gloomy sentiment regarding corporate prospects in Japan."

Gloomy? You can't get much gloomier than the assessment of Japan's decline on the world stage reported by the New York Times in mid-October in an extremely downbeat article, "Japan Goes from Dynamic to Disheartened." These accounts are dramatic testimony on what a turnabout the country has experienced, from world leader to world laggard.

When I arrived at Directors & Boards in 1981, we were just going to press with an article on the "Japan miracle," as the author called it. That author was William Anderson, then the chairman and CEO of NCR Corp.

Anderson had a unique perspective on the rise of Japan as an industrial behemoth: He had been a prisoner of war, serving for four years in a Japanese prison camp, and then was a witness at the war-crime trials in Tokyo at war's end. "I saw Japan at the low point of its long history," he wrote. "I was stunned to see the Japanese economy shattered, its political and social fabric torn, and its people demoralized. Those of us who were in Japan immediately after World War II had serious doubts as to whether the nation would ever rise to be a first-rate power."

Rise it did. Remember the early '80s hysteria that Japan was going to rule the industrial world, supplanting the U.S. as the engine of growth and productivity — and buying up America while it was at it.

And yet . . . read again Bill Anderson's description above of the Japanese economy. Does this sound familiar in how commentators are describing the U.S. economy today — angst-ridden wonderings about whether this nation will be a first-rate power in the future?

Maybe we should draw on the playbook that Japan followed to reenergize its economy. Here is that playbook, as Anderson laid out in his classic Directors & Boards article, titled "Scrutable Success: A CEO's View of Japan Inc.":

The structure on which Japan Inc. was built was beautifully simple. In the government sector, the Ministry of International Trade and Industry would develop and promote a national industrial plan. And the Bank of Japan and the Ministry of Finance would supply the capital and carefully control the purse strings in order to keep the new industrial plan on track.

Meanwhile, the doers — that is, business and labor — would be given a relatively free hand to utilize the inherent strengths of the capitalistic system. Taxation and government intervention would be kept to a minimum. Social programs would be deferred until Japan could afford them. Emphasis was to be on the future, not the past, or even the present.

In looking to the future, Japan's vision was clear. Modernization of its industry was given top priority.

Perhaps a national industrial plan as Japan crafted it would be questionable for adopting here, but that bit about taxation and government intervention being kept to a minimum certainly seems to be crucial to reenergizing the U.S. economy.

It is always heartening to find in the Directors & Boards archives a piece of wisdom that provided thought leadership at the time of publication and offers continuing thought leadership for solving today's great challenges.

Illustration of William Anderson that appeared with his article published in the Summer 1981 edition of Directors & Boards.

Gone, Baby, Gone: Lawyer-Directors

2010-11-05T18:26:00.005-04:00

The Directors Roster that is published in every issue of Directors & Boards is mostly well known for its tracking of newly elected women directors and the noteworthy data findings from that research.

But many other insights into director recruitment and board composition come out of our Roster research. Here is one such finding worthy of note: In the Directors Roster launch year of 1994, the percentage of lawyers taking a seat on corporate boards was 11%.

Can you guess the percentage total in 2009? The answer: 1%. That is a major ramping down.

A smart aleck might chime in and say, “Gee, I am surprised it was so high.” The common wisdom is, “Why would a lawyer choose to join an existing or potential client board? Why subject yourself to revenue-foreclosure possibilities for the firm? Or risk being tripped up by the director independence rules or potential conflicts of interest? Or the liability”

But as our Roster data suggest, there obviously was in governance days of old — not so old at that — a greater representation of lawyer-directors.

One of my favorite anecdotes relating to the role lawyers played as board members was told to me by Raymond Troubh.

Regular readers of Directors & Boards will be familiar with Ray Troubh. He is one of our favorite authors — always chock full of important insights on board leadership and generous with his wise counsel on being a good director. Ray proudly wears the mantle of professional director. A graduate of Yale Law School, he came to corporate directorship first as a lawyer and then as a banker, before hanging out his shingle as a fulltime director.

The background in law was a valued asset he brought to his board work. We talked about that when I interviewed him for the “Oral History of Corporate Governance” that I did in 2001, on the occasion of the 25^th anniversary of Directors & Boards. In reviewing his career trajectory from law school to the boardroom, here is a snippet of what he had to say:

“For board purposes the combination of my legal and investment banking experience was a great advantage. As a young lawyer I used to attend board meetings and draft minutes and prepare resolutions and watched how boards functioned — watched the chemistry among the directors. As an investment banker I made presentations to boards on doing financings or doing a tender offer or merger. And because I understood corporate law I was not as afraid of lawsuits and of standing up to the hostile bar.”

You can imagine what a comfort it was to his fellow board members to have a peer steeped in the rule of law, and procedures of law, and someone who is able to go toe to toe with inside and outside counsel as well as opposing counsel. Who would not want to serve on a board with a member like that?

For better or worse, the Directors Roster is documenting that those days are over. An option for knowledge sharing and “courage making” among the close circle of board members has been made moot — just as directors are being barraged by an unprecedented onslaught of new regulatory and investor aggressiveness.

What a time it would be to have within their ranks a member intimate with the law — the law as wielded by Congress and the White House, regulatory agencies, and the plaintiff’s bar.

It’s clear that, post-Dodd-Frank et al., boards need to embrace an ever-closer relationship with inside and outside counsel. For this Boardroom Briefing, we tapped many experts in the legal community who are close advisors to boards for their current best advice on a range of timely and pressing governance matters. Click here to access a copy.

Dickensian Times

2010-11-01T19:07:00.008-04:00

I did not see "corporate director" as one of the 100 Best Jobs in America just tallied by Money Magazine and Payscale.com.

I did not see "editor" on the list either.

To people who inquire of me about the state of the publishing business, I am telling them that while some in the media industry are calling it Darwinian, the term that for me best describes things is Dickensian.

That's Dickensian as in "The best of times, the worst of times." It is the best of times in that this is an exciting, even historic, time to be in the media business as we transition from print to digital. A whole new world of distributing information and communicating with audiences lies ahead.

It is the worst of times in trying to make it through that transition and coming out whole on the other side to be able to enjoy this new world and the opportunities it holds in promise. Even the best minds in the industry are not sure what the business model is that will undergird this industry going forward.

Perhaps the same situation holds for being a corporate director. It is the best of times because the role of the director has never been as important, and that importance will be magnified as we move into the future of heightened investor input and stakeholder expectations, spurred by ever-activist regulators and legislators.

But it is the worst of times to be a corporate director as this new balance of power among the directors, management, investors, and regulators sorts out. The financial crisis has put the boot to what remains of many of the comfortable and clubby old paradigms that governed how things were done in the boardroom, starting with how a new member was recruited to how directors acted once on the board.

For example, can you imagine any director being added to a board now with the understanding that he or she is to be seen but not heard during their first year in office? Ridiculous, no? Or the notion that directors don't need their own independent consultants. Or that the CEO should always be the chairman. Or that directors shouldn't talk to shareholders. So many dying embers of classic board behavior paradigms.

When behavioral paradigms and operating models become untenable, the present becomes a harsh place to do business as all eyes focus on the path to a more promising future. That's Dickensian times. So it is no surprise that neither corporate director nor editor are on any "best jobs" list.

Taunting the Gods of the Markets

2010-10-29T07:52:00.002-04:00

Oh my, this is not good.

Here is a headline staring out at me in this morning's New York Times business section — "Awash in Liquidity." The piece examined the amount of institutional funds sloshing around the world looking for yield.

Why does this make me tremble? This is why.

To recap the above link ever so briefly, I have had prior run-ins with a prominent declaration that "The world is awash in liquidity" . . . only to see shortly thereafter a dramatic and dismaying drying up of that so-called "excess liquidity."

The example cited in the link above that last made me extremely fretful happened in December 2008. It caused me to suggest at that moment in time that any board should warn its CFO to run for cover and any investor to think about bulletproofing his or her portfolio.

A good call indeed. Within weeks, the market plunged scarily, hitting a low on March 9. It was a gut-punch of a first quarter of 2009.

Will history repeat? Is it again time for boards to tell their CEOs and CFOs to batten down the hatches?

October has been a good month for investors. Call me superstitious, but it sure seems to me that, upon hearing the intrepid claim of a world awash in liquidity, the gods of the markets are then moved to swiftly and ruthlessly vacuum up said liquidity.

If you don't go to cash (or even more cash than is now sitting on your corporate and personal balance sheets), then maybe Bette Davis's legendary line in the movie "All About Eve" is your next best move, now that the gods have again been taunted: "Fasten your seatbelts, it's going to be a bumpy night."

Why Pick on Her?

2010-10-20T09:14:00.003-04:00

There is plenty of shame to go around among those who were directors of Lehman Brothers. But I can appreciate the outrage that women feel over the choice of photo by the New York Times to illustrate its article spotlighting directors of companies that collapsed during the financial crisis.

As you can see from the clip above, of all the Lehman board members that it could have chosen to splash across the top of the front page of its business section, the paper chose the one high-profile female director — Marsha J. Evans, a retired U.S. Navy rear admiral who after her distinguished military career ably led such organizations as the Girl Scouts of the USA, the American Red Cross, and the LPGA (Ladies Professional Golf Association) as well as being in demand for corporate board service.

I personally witnessed the umbridge taken over this sexist slight. It happened last month at the all-day globally oriented Gender Balance on Boards conference held in Washington, D.C., at Johns Hopkins University that I previously wrote about. One of the principal speakers held up the NYT offending page for all in the audience to see. A quite audible groan reverberated through the crowd — a room largely comprised of senior women executives, directors, academics and diplomats.

It is hard to tell on whom to pin the wrap for this questionable choice of graphic — the co-reporters (one of whom was a woman), the photo editor, the business editor, the copy desk, the makeup department, and/or other. But the women called it for what it was — a cheap shot.

In light of my previous blog postings this month on the theme of gender balance on boards, I am reminded anew of this experience as another example of the hard path it is, with unpleasant potholes (such as this article treatment) tripping them up, that women traverse to gain access to and succeed in the boardroom.

A Not So Magic Number

2010-10-15T09:54:00.007-04:00

We all like to be recognized for our expertise and accomplishments, and people in corporate governance welcome as eagerly as anyone the pat on the back.

My governance colleague, and past Directors & Boards author, Catherine Bromilow brought to my attention her selection (along with two of her PwC colleagues) for the latest "100 Most Influential People in Corporate Governance" list. This is a roundup assembled by the National Association of Corporate Directors that recognizes influencers in all spheres of corporate governance.

Good for Catherine. She is partner in PwC's Corporate Governance Practice. She advises clients on strategies to achieve enhanced transparency and greater director accountability and on providing shareholders with a voice in certain boardroom decisions. She has a long and impressive set of involvements in advancing governance best practices, from her consulting, writings and speeches, and director education engagements. Full disclosure: We also know each other from our service on the advisory council of the Center for Corporate Governance at Drexel University.

Now let me digress. This NACD Directors 100 list always bemuses me. I am never on it. How legit a list can this be if someone who has been engaged in corporate governance for as long as I have — a tenure lengthier than most everyone on the list — and contributed the vast thought leadership to the field that I have in three decades as editor of Directors & Boards — not make this list?

Okay, now let me get down off my high horse and unplant my tongue from where it was just now firmly planted in cheek.

The 100 list is worthy and appropriate recognition and is a good thing for the NACD to be doing.

Here is what is really interesting about this latest list.

Catherine is one of only 15 women on the list. By my count, that means women make up 15% of these 100 key influencers in governance. Why does that figure jump out at me? Because it exactly matches up against the 15% representation of women on the boards of the Fortune 500, according to the 2009 census by Catalyst.

What's up with this 15% figure for women board leadership? It's a not so magic number, that's what. And my tongue is not planted in cheek when I say that.

Pipeline to Nowhere

2010-10-14T21:28:00.002-04:00

She's pretty — that's Katharine Weymouth, pictured at right, publisher of The Washington Post and CEO of Washington Post Media (and newly elected board member of the Washington Post Co.), who was the keynote speaker at a business leadership event in Philadelphia last week. But the report released at this event was anything but pretty.

The event was the unveiling of the annual survey of women on boards in the top 100 companies (by revenue) in the Philadelphia metropolitan region. This is a survey done by Philadelphia's Forum of Executive Women. The 2009 board composition tally was unveiled on Oct. 8. Here are some of the key findings:

• In percentages, women held 11% of board seats at Philadelphia's largest public companies, up slightly from 10% in 2008.

• In terms of the number of board seats, women held 90 of 844 total board seats at the 100 companies.

• 43 companies had no female board members.

• 8 companies had three or more female board members.

• 7 board seats were held by women of color.

The Forum survey also tallies women in the executive suite. There is no robustness in the numbers to be found there either:

• Women held just 11% of the top executive positions in 2009, the same representation as in 2008. That is, women were in 71 of the 645 top spots.

• 57 of the companies had no women among the top executives.

In reaching to find a "somewhat more encouraging" number, the Forum looked at five-year data. The meager finding:

• The number of women holding board seats increased from 84 in 2005 to 90 in 2009, a 7% rise.

• The number of women in C-suite positions increased from 62 to 71, a gain of 15%.

Concludes Forum President Ellen Toplin: "There have been some gains over time but the numbers point to a stubborn trend: While more women than ever are in the corporate talent pipeline, companies continue to tap mostly men for top positions."

Show of Support for Gender Quota on Boards

2010-10-11T09:04:00.003-04:00

The majority of directors, both men and women, do not favor a gender balance quota on corporate boards. That is one of the major findings in a survey of nearly 400 male and female board members done earlier this year. The results were released on Oct. 6 at a briefing at the 21 Club in New York. The survey was conducted by Heidrick & Struggles International Inc., WomenCorporateDirectors (WCD), and Dr. Boris Groysberg of the Harvard Business School.

Now, here is who supported diversity quotas for boards: 25% of the women directors. And for the men? No surprise that it is a number that barely registers on the meter: 1%.

There were many other important findings that came out of this survey, which I will be citing in my blog and in Directors & Boards as time goes on. But this is the story that was buried in the overall report: That one-quarter of the women directors favor a board gender quota is an astonishing show of support for this controversial tactic.

This quota finding hits the market just as the new edition of Directors & Boards comes off press with our major examination of board gender balance and the pros and cons of a gender quota (front cover pictured).

A lead article offers up a Norwegian minister who walks the reader through his country's thinking on legislating a gender balance board quota and the process of how it got there — i.e., from women holding 7% of board seats in 2003 to today's mandated representation of 40%. That is quite a tale, one that is getting worldwide attention, providing the template for other efforts to institutionalize a quota system or contemplating a move in that direction.

Another article in this new edition takes our own informal poll on whether to mandate a board gender quota in the U.S. We asked a select group of directors, recruiters, and governance experts to write a brief essay attacking or defending the concept. Interestingly, that roundup of opinion mirrors the Heidrick/WCD survey.

"It is interesting to see in the survey and in our conversations with women directors around the world how the idea of quotas is gaining traction," says Alison Winter, co-founder and co-chair of WCD, which has over 700 members serving on over 850 boards in 27 global chapters. Look for more traction as this survey and the new issue of Directors & Boards roll out over the next few weeks.

Birth of the Hedge Fund

2010-10-03T16:31:00.003-04:00

Every day UPS delivers to my office at least one or two, sometimes three or four, review copies of new business books from publishers. Only a tiny fraction make it into "Book It: Best Bets for Board Reading" — a popular section of each issue of Directors & Boards that spotlights a handful of these new books.

It is one of my favorite pieces of each edition to pull together. I select the chosen few for "Book It" and present a brief passage from each book that serves two purposes: 1) to give the Directors & Boards reader a taste of the book, and 2) the passage must be a sprightly written and observed pointer in leadership that stands alone in the telling. If both objectives are achieved, the hope is that "Book It" prompts a few extra sales of the spotlighted books. My colleagues in the book publishing industry tell me how much they like our "Book It" feature for bringing some much-needed attention to their offerings in a crowded market.

I learn a lot in editing the "Book It" feature. For example, in considering Randall Lane's book, The Zeroes (Portfolio, 2010), I learned about something I had not given much thought to – the birth of hedge funds (and, yes, the breathtaking hedge fund fee structure). Let me share Lane's interesting bit of business history:

A writer for Fortune named Alfred Winslow Jones, in the course of preparing a story on stock market forecasting, developed a strategy that held that selling some stocks short (betting that some prices would go down) while simultaneously buying others, and borrowing against both types of trade for added oomph, would provide a “hedge” against market risk, at least matching the overall market in good times while greatly outperforming it in bad. “Speculative techniques used for conservative ends,” as he put his leveraged “long-short” philosophy.

In 1949, he raised $100,000 — $40,000 of which was his own — and thus the first “hedge fund” was born.

By the mid-1960s, Jones had proven phenomenally successful, and copycats abounded, notably Michael Steinhardt and George Soros. Most, however, did not adhere to Jones’s long-short model, and the roiling 1970s markets efficiently punished that oversight; by 1984, a researcher could locate only 68 hedge funds globally.

But Jones’s influence was far from finished. In 1952, three years into his fund, Jones institutionalized an innovative compensation system for himself. He didn’t follow the structure of a mutual fund, which generally charges 2% of all money managed to cover costs and its fee. Rather, Jones arranged to get 20% of the profits. In other words, while a mutual fund manager was mostly incentivized to not lose money, Jones was incentivizing himself to make money, and taking an outsized cut if he did.

For some boards that get into their gunsights, hedge fund managers are not the most popular people. The next time a hedgie starts upsetting your boardroom apple cart, you might let out a little curse directed at that Fortune writer who got hit by a Newtonian apple in the 1940s about a new way to coin money in the capital markets.

A Board Mystery: The Case of the Emeritus Director

2010-10-01T17:15:00.014-04:00

It happened again this week — a request for a copy of "The Enigma of the Emeritus Director." This is an article Directors & Boards published in our Fall 2003 edition, written by Dan Dalton and Catherine Daily (now Dalton) of the Kelley School of Business at Indiana University.

Invariably every couple of weeks I get an emailed request for this article. Apparently there is so little in the governance literature that deals in detail with policies and practices related to designating an emeritus director that our article comes up high in the Google search rankings.

In fact, I just tested it — and yes, what comes up second in the Google listing, at least on this day, for Emeritus Director is a condensed version of the article that I ran in our monthly e-Briefing newsletter in 2005. In that adaptation I offer to send readers the full version published in the print journal, which stimulates the emailed requests for the full article.

I am always happy to share this article because the authors' research fills in a lot of the missing pieces on what this relatively obscure board title is all about. (Pictured is noted venture capitalist Arthur Rock, cited in the article as an emeritus director of Intel Corp. at the time of the article's publication.) As they acknowledge in their article, "We are not familiar with any general source that one might consult for guidance on the status of emeritus personnel on the board, their efficacy, or their related rights and privileges."

Dan, dean of the Kelley School at the time of the article's writing and now director of its Institute for Corporate Governance, and Catherine, the institute's research director, ably fill in the blanks. They analyze three different models of emeritus director and address such specific matters as the independence of an emeritus director and what the term limits and compensation might be for this special breed of board member, as well as other questions that come up in transitioning a board member to this status.

With the dearth of information on how boards employ the emeritus director designation, the authors propose that companies can and need to do a much better job of disclosure to take what they call the "mystery" out of this board practice. Here is their conclusion:

For those firms relying on emeritus directors, proxy material might include that the board of directors has authorized the director emeritus designation and an explanation of eligibility requirements (e.g., distinguished service, years of board service, reaching mandatory retirement age). These materials should also define what the term is for emeritus status (lifetime designation? to be reviewed every five years?) and grounds for withdrawing emeritus status.

Such disclosure should also include the roles and responsibilities of emeritus directors (voting privileges? board attendance at will or by invitation? both full board and committee meeting participation?). And, of course, the compensation and benefits that accrue as a function of emeritus status should be clear, particularly to the extent that they differ from compensation and benefits awarded to non-emeritus board members (advisory or consulting services?).

Since such disclosures are still slow in coming, it appears I can count on many further requests for a copy of "The Enigma of the Emeritus Director."

The Anomaly of Long Tenure

2010-09-21T06:36:00.007-04:00

I come to work this morning wondering if I am the longest-tenured editor of a national magazine currently active in the industry.

On this day in 1981 I joined Directors & Boards as a senior editor, and within months took on full editorship of the journal. Thus I begin my 30th year with the publication.

When I am asked about my career, I whimsically describe it in one word: "Preposterous."

How many people have the opportunity in this era to spend that kind of time with one organization? Rare. And especially in publishing, how many editors have that kind of tenure atop one masthead? The rarest few.

In the modern media business, editors are a high-turnover lot. Many editors have the kind of tenure that CEOs have — five or six years being a good run (Mark Hurd, e.g., who joined HP in 2005). Case in point in publishing: the Harvard Business Review, which has had eight editors of that august journal during my tenure here.

I have a few years to go before I reach the lengthy reigns of my two idols:

• In the business magazine category, Jim Michaels (top) was editor of Forbes for 38 years, from 1961-1999.

• And in the general magazine category, William Shawn (bottom) was editor of The New Yorker for 35 years, from 1952-1987.

On my tenure milestone, let me note with admiration a few others in this rare breed:

• George Plimpton, editor of the Paris Review, with a tenure record that likely will never be equaled, having co-founded and edited the literary journal from 1953 until his death in 2003.

• William F. Buckley Jr., founder of the National Review and its editor for 35 years, from 1955 to 1990.

• Paige Rense Noland, editor of Architectural Digest for 35 years, from 1975 until her retirement earlier this year.

• Helen Gurley Brown, editor of Cosmopolitan for 31 years, from 1965-1996.

• Lewis Lapham, editor of Harper's for 28 years, from 1976 to 2006 (taking a two-year hiatus from 1981-1983).

• Stephen Shepard, editor of Business Week for 21 years, from 1984-2005.

• Art Cooper, editor of GQ for 20 years, from 1983-2003.

• Walter Anderson, editor of Parade (the newspaper magazine supplement) for 20 years, from 1980-2000.

I know of one long-tenured active contemporary: Anna Wintour, editor of Vogue, who has been the guiding force of that magazine for 22 years, since 1988. There may be others, but certainly not many.

What is the secret to being a long-tenured editor? I again have a one-word answer: "Publisher." You don't get to enjoy a lengthy run as editor unless you have the backing of the publisher.

I have been blessed to have the equally long-tenured father and son ownership team of Milton and Robert Rock, who purchased Directors & Boards right before I came aboard and who have had the confidence in me all these years to produce this "journal of thought leadership in corporate governance," as our tagline goes. (Or, as the New York Stock Exchange once said of us in its own nyse magazine: "Directors & Boards is to the field of corporate governance what Variety is to show business.") Simply put, Milt and Bob have been the most supportive publishers that any editor could hope to have.

Just as I now embark on this milestone year of 30, Directors & Boards is entering its 35th year of publication, which will culminate in a special 35th anniversary edition in fall 2011. More news forthcoming on that. Right now all I can do is think back to that 21st day of September in 1981 and be astonished at the anomaly of it all.

Closing the Gender Gap

2010-09-17T09:14:00.010-04:00

I am just back from Washington, D.C., where I took part in a most enlightening conference. Themed "Closing the Gender Gap: Global Perspectives on Women in the Boardroom," the daylong program held on Thursday, Sep. 16, was filled with experts from the corporate, diplomatic and academic sectors from around the world — all of them influential in tracking trends in board diversity and even moving the trendline along for increased presence of women on boards.

As a member of the opening panel in the morning, I had the pleasure of sharing with the audience some of the newsworthy data from the Directors & Boards Directors Roster, our quarterly and annual reviews of new appointments to corporate boards.

Actually, SEC Commissioner Luis Aguilar beat me to the punch. He launched the day with a keynote address in which he cited some of our Roster data in his compelling tribute to the value of board diversity and review of what the SEC is doing to move the needle in making it happen.

The key stat that both the Commissioner and I conveyed was that 39% of board recruits in 2009 were women. That represented a big ramping up from the 25% rate of women as new board recruits in both 2008 and 2007 — and a tripling from the 13% rate of women named to boards that we tracked in the first year of collecting this Roster data, which was 1994.

One reason 39% is a figure worthy of note is that much of the conference centered on analyzing the impressive experience underway in Norway, which legislated a gender balance on boards mandate of 40%. We are not anywhere near that in the U.S., so I did have to temper the enthusiasm over the Roster data by admitting that even a continuing 39% rate of new women directors does not get us anytime soon to a state when women hold 40% of U.S. corporate board seats.

Nonetheless, the Roster holds hope that a progressive trend is in place. We are still maintaining an elevated state of new women directors so far in 2010: In this year's first quarter, the rate was 34%, and in the second quarter (being announced here for the first time), the rate was 36%. (As a representative new woman director elected in Q2, pictured is Christine McCarthy, EVP of corporate finance and real estate and treasurer of Walt Disney Co., who joined the board of FM Global, a commercial and industrial property insurer with $5 billion in revenue.)

Kudos to Susan Ness, senior fellow of the Center for Transatlantic Relations at the School of Advanced International Studies (SAIS), Johns Hopkins University. She brilliantly organized and chaired the "Closing the Gender Gap" conference, which was held at SAIS. If we can keep the Roster (i.e., free market activity) data in an upward trajectory, keep the SEC providing its big-stick backing for board diversity, and keep having impressive consciousness-raising programs like this SAIS conference trumpeting the value that women bring to boards, we are bound to show progress in closing the gender gap in the boardroom.

All Directors Are Not Equal

2010-09-14T23:41:00.001-04:00

Good things happen again for a past Directors & Boards author. Our congratulations to Dr. Curtis Crawford (pictured) on being selected to receive a special award at next month's annual conference of the National Association of Corporate Directors. He is being honored with the B. Kenneth West Lifetime Achievement Award. This award, named for an esteemed former NACD chairman, recognizes individuals who have been instrumental in bringing management, boards, and investors together to find common ground on issues of transparency, director independence, and corporate responsibility.

In his article for Directors & Boards, which appeared in our First Quarter 2008 edition, Dr. Crawford put the fork into the notion that all directors are equal. Here is a taste of his disagreement with that "polite fiction":

"Corporate directors are chosen from a pool of highly qualified people, and being selected as a shareholder representative is a very significant achievement that demonstrates that the director has cleared a high hurdle of competence. However, it is naive to assume that all directors are equally capable in every respect.

"While traditional boards might find it useful to maintain this polite fiction, all directors and boards are not equal. Maintaining this position is an excellent way to enforce a status quo that limits the board's performance.

"Although all directors are high achievers with equal legal responsibilities to serve, exercise duty of care, and act in good faith, they differ substantially in the kinds of value they can contribute to the board. Each director embodies differences in experience, background, interests, and tenure, which is desirable, considering that multiple talents are necessary for the board to execute its responsibility effectively."

That wasn't the only notion he pooh-poohed in his article. He also had the temerity to argue that "even CEOs who are generally great leaders do not necessarily make the best directors."

Dr. Crawford comes to his conclusions from having been in a lot of boardrooms and seen a lot of directors in action. He is president and CEO of XCEO Inc., a consulting firm that provides governance support to corporate boards. A couple of the boards he currently serves on are DuPont Co. and ITT Corp. He has held positions with such companies as IBM, AT&T, and Lucent Technologies, and is the author of two books on leadership and governance. Additional passages from his article can be found in this adaptation that ran in the September e-Briefing.

I wonder what other notions he may challenge when he takes to the stage of the JW Marriott Hotel in Washington, D.C., on Monday evening, Oct. 18, to receive his award. I hope to be a friendly face in the audience for this past author, and will report back on this blog.

Three Years in the Valley

2010-09-06T08:54:00.004-04:00

On the day when the news is breaking that Mark Hurd will be joining Oracle as co-president, here is an interesting passage that I have just come across from the new book, "The HP Phenomenon" by Charles H. House and Raymond L. Price (Stanford University Press). Presented without further comment about the idiosyncratic and sometimes unfathomable C-suite personnel moves in the tech sector:

Three years is a long time in the Valley and in the high-tech world. It was, for example, only three years from the acme years of both John Young and Lew Platt that the HP board ended their careers. John Akers retired in disgrace from IBM three years after its high point in revenues under his leadership. DEC’s best two revenue and profitability years ever were in 1987 and 1988; Ken Olsen was fired three-and-a-half years later after winning international accolades for the 1987-1988 comeback. Ed McCracken at Silicon Graphics delivered 52% growth and 10% net profits — bests on both scores — as SGI attained $2 billion in 1994; three years later, he was fired. Rod Canion had many great Compaq years — 1989 saw 40% growth to $2.8 billion, two years before he was cast away when Compaq lost its way. Successor Eckhard Pfeiffer in 1997 delivered 30% growth in revenue (to $31 billion) and the highest profit on record (7.7%); 15 months later chairman Ben Rosen removed him. No CEO escapes the question, “What have you done for me lately?”

Actually I do have one add-on comment: Perhaps no shareholder escapes the question, "What in tarnation is the board thinking . . . both in its firing — and hiring?"

Good Move: Bess Joffe to Goldman

2010-09-02T10:48:00.000-04:00

Now here is a smart move by Goldman Sachs to address its impaired reputation and strained shareholder relationships. The firm has hired Bess Joffe as vice president-governance, and she will join the firm's investor relations team starting on Oct. 4.

That's none too soon, as shareholder forces are already starting to mobilize for the 2011 proxy vote. Crain's New York Business has just called the firm "target No. 1 for activist investors looking to shake up corporate boards."

So Bess will have her work cut out for her. But from my recent experience in publishing her in Directors & Boards, I see her being a dynamic new asset for the firm in constructively engaging with investors on behalf of Goldman's board and management.

She will be joining Goldman from Hermes Equity Services Ltd. in London. Here is her bio note that I ran earlier this year: "She joined Hermes in 2005 to work on corporate governance and responsible investment in the Americas. In her role, she actively engages at the board level with underperforming companies that are fundamentally sound but have a variety of strategic, financial or governance issues, with the objective of helping improve long-term financial performance."

Bess was a forceful contributor on a panel discussion that Charles Elson and I organized and conducted at the Weinberg Center for Corporate Governance at the University of Delaware (where the above photo was taken). That discussion, held in November 2009, addressed the pros and cons of separating the chairman and CEO positions. The resulting article, titled "The Great Divide," appeared in the First Quarter edition of Directors & Boards.

Here is a telling comment she made in the article: "We at Hermes are responsible for protecting the interests of long-term shareholders. We recognize that different boards face different situations at different times. But shareholders need to understand with much more specificity why boards have made particular decisions at a particular time. Right now that information is really lacking."

My bet: With Bess Joffe's experience as an investor advocate, starting in October Goldman shareholders, and the financial markets in general, will start getting much more clarity into the firm's governance and board conduct. Her hiring is a signal that Goldman is getting quite serious about its needs in this area.

Proxy Access: Brace Yourself

2010-09-01T00:54:00.003-04:00

Approved by the SEC on Aug. 25, the proxy access rule, years on the drawing board, is now with us. Thus begins a new era in shareholder-board relations, and, perhaps, board composition.

We will have to wait and see if the dire predictions come true of those who fear that this rule will be a tool for unions and other politically driven and issues-oriented activists. Often the worst projections fail to materialize.

But Corporate America might well brace itself. Proxy access's impact could be huge.

Why do I suggest that? I am mindful of something that one of the preeminent shareholder activists said to me about the one thing that truly leads to change in board behavior and, consequently, in company performance: The addition of new members to a board.

This was a fundamental lesson learned by Nell Minow (pictured). She shared it with me when I interviewed her in 2001 for an "Oral History of Corporate Governance"-themed 25th anniversary edition of Directors & Boards. Here is what she had to say, and it is worth paying close attention to in light of proxy access's passage:

"If there is anything that I've learned in all that I've done, it's that what really matters is who is on the board. I saw that with Sears. After Bob Monks left ISS in 1990, I rejoined him a year later, in time for his second proxy fight with Sears. In settling the shareholder lawsuit, the company agreed to add two new independent directors — thinking, I imagine, that they would be two more patsies. It was the presence of those additional directors that I believe made more difference in what Sears did to restructure itself to unlock shareholder value than anything else that we could have done. I was to learn that lesson over and over again. The only thing that ever brought about change was adding new directors to the board."

That is a powerful bit of learning — for CEOs, boards, and shareholders. The prudent and foresightful will take this under advisement as the era of proxy access gets underway.

'The Thing That Keeps Me Up at Night'

2010-08-22T12:04:00.006-04:00

On Aug. 16 two accounting firms, Eisner LLP and Amper, Politziner & Mattia LLP, announced that they are combining. The new firm, EisnerAmper, will create what Crain's New York called "a regional powerhouse": the 10th largest auditor of SEC-registered firms in the U.S. and the 14th largest overall in the nation.

Both firms have contributed their expertise in writing on governance and financial issues for Directors & Boards, so we certainly wish them well in their joining forces and extending their reach and capabilities to benefit present and future clients.

I am particularly grateful to a past Eisner partner, Bruce Strzelczyk (pictured). Bruce founded and co-chaired its technology/Internet/new media division. In 2002 he invited me to sit in on a workshop he organized for an audience of venture-backed company executives that was tackling how to run an effective board meeting. He assembled a marvelously talented panel to talk through the issues, and afterward he and I worked together to adapt that panel discussion into a superb article for Directors & Boards, titled "Ground Rules for Great Board Meetings."

Here is how Bruce set up the context for the gathering, which attracted an overflow crowd in a conference room at New York's Palace Hotel:

"Let me start off by telling you how this panel discussion was organized. I was at a board meeting with one of our portfolio companies. At the end of the meeting one of the VCs got up and said, 'This meeting was horrible. Let's fire the CEO.' All hands went up, and he was gone. It was an experience I will never forget. Nor will he!

"An incorrectly run board meeting can be a painful experience. It takes up more time for management, more time for the VCs, more time for everybody. For a company that is having problems, especially if it involves CEO performance, a badly run meeting is often the straw that breaks the camel's back. Or, when done well and everybody's expectations are met, it is much more efficient and much more effective."

And then we were off . . . on a discussion that ran a couple of hours, and resulted in 11 pages of solid tips and tactics in Directors & Boards.

Bruce mostly served as the panel moderator, but he did chime in with the occasional gem of wisdom of his own. I will always remember him for telling the crowd this:

""The best board meeting that I have ever attended was conducted by the CEO of one of our clients. He starts out the meeting this way: 'This is the thing that keeps me up at night . . . this is what I'm thinking about . . . and this is what I want you to help me on.' He gets a great response to that. He's now on his third company — the previous two were each sold profitably. My experience is that a board meeting's style, format, and matters covered are all reflections of what a good CEO is thinking about and concerned about."

A sad coda: Bruce died in 2005, way too early in life for someone who, again citing Crain's New York, was selected as one of the "100 leaders who will shape New York's technology industry." Thankfully he helped shape for Eisner clients and Directors & Boards readers some superb thought leadership on running an effective board meeting — one that won't cause a board to fire the CEO!

The Lew Platt Test

2010-08-19T21:48:00.007-04:00

The HP boardroom has been full of sturm und drang for a decade, dating back to Carly Fiorina's arrival in 1999 as an outsider CEO. It may be hard to fathom after the recent tumult, but a steadier state did actually exist at one time.

Back in 1997 Directors & Boards caught up with then chairman and CEO Lewis Platt for a cover article he authored on "Governance the H-P Way." Platt was a lifer at HP, having joined the company as an entry-level engineer in 1966 and worked his way up to being appointed CEO in 1992 and chairman in 1993.

As I am continually reminded, words from the past have a way of echoing through the ages to resonate pertinently on present circumstances. I say no more but simply share with you the concluding paragraph of Lew Platt's article:

"A good test of whether your board is functioning well is if you can answer 'yes' to the question, 'Do I feel free to discuss anything with my board . . . to talk with full candor about anything that's worrying me?' I feel fortunate in this regard. Not all CEOs can say the same. For one reason or another, something goes wrong with the relationship between the CEO and the board, or between company management and the board, which leads to secrets, to a lack of trust, to poor board performance, and ultimately to poor corporate performance. My board has been very helpful to me with its perspective and advice, and our candid dialogue takes place in an atmosphere of mutual respect, which is the key to having a good board relationship."

Upon retiring from HP in 1999, Platt went on to serve as CEO of Kendall-Jackson Wine Estates and as a corporate director. Interestingly, he was nonexecutive chairman of Boeing Co. when its board in 2005 forced the resignation of CEO Harry Stonecipher over an affair with a company employee. Platt died later that year at the age of 64.

Hit by a Buss

2010-08-16T19:12:00.006-04:00

Any discussion of CEO succession planning has to take into account the 'hit by a bus' scenario — the sudden death or disability of the leader.

It is uncomfortable for the CEO and the board to face concerns about mortality. That's why a lot of boards don't do it. Last year the National Association of Corporate Directors reported that 44% of directors it surveyed at public companies said their boards have no succession plan in place for when the CEO leaves. To which leadership guru Marshall Goldsmith rightly reacted: "What kind of message does that send out? How about chaos, disorganization, and lack of preparedness?"

Crafting a succession scenario is especially hard to do when the leader is relatively youthful and full of energy and vitality. When he or she is at the peak of their potential, just getting underway with an organizational revival or, having done the heavy lifting of a turnaround and repositioning, ready to roll it out for greater gains to come, taking the board and shareholders along for a profitable ride.

But preparing for the unexpected must be done. The advice is familiar but that doesn't make it any less fundamental. Or timeless, going back to the Good Book: "We know not the time nor the hour. . . ."

We're obviously thinking of Mark Hurd with these comments. His sudden, shocking removal from office following ramifications of a relationship with a marketing rep for the company gives an electrifying twist to the 'hit by a bus' scenario.

Let's call it 'hit by a buss' — to distinguish moral hazards from mortality hazards.

Both concerns — as improbable as they are to ponder — must drive a new impetus to nail down a succession plan. That's the clear and compelling lesson for all boards coming out of the trouble at HP.

Packard Principles

2010-08-12T15:33:00.003-04:00

On March 15, 2002, just as the contentious merger of Hewlett-Packard and Compaq Computer was heading toward a showdown vote, David W. Packard took out a full-page ad in that day's Wall Street Journal to reprint the transcript of what he described as "an informal speech my father made in 1960 to a group of HP managers."

HP co-founder Dave Packard (pictured at left with Bill Hewlett) "spoke about HP people and values and the importance of genuine technical contributions to customers. Full of sincere and timeless truths, his words provide a window into the reasons for HP's enduring greatness," wrote his son (who was opposing the merger) in an intro to the printed speech.

The following is a passage from that 1960 speech by Dave Packard to HP's managers:

"I want to touch on other aspects of your work which are important. As supervisors you will be expected to set high standards of behavior. This is obvious and shouldn't even need to be mentioned. But the example you set is important and I am going to mention specific things which should be kept in mind. Tolerance is tremendously significant. Unless you are tolerant of the people under you, you really can't do a good job of being a supervisor. You must have understanding — understanding of the little things that affect people. You must have a sense of fairness, and you must know what is reasonable to expect of your people. You must have a good set of standards for your group but you must maintain these standards with fairness and understanding."

Why Does Succession Planning Produce So Few Successors?

2010-08-11T08:50:00.006-04:00

As noted in the blog posting below, that is the question that Heidrick & Struggles Vice Chairman Stephen Miles (pictured) has wrestled with. In October 2009 he issued an advisory that identified three "common roadblocks," as he called them, that "sabotage effective leadership transitions at companies."

The Hewlett-Packard board's ouster last week of CEO Mark Hurd prompts a fresh focus on these roadblocks. Here is how Miles has described them:

• Favoring the 'exciting' external candidate over an internal option: "It appears boards often prefer the devil they don't know to the devil they do. They often find it difficult to imagine an internal candidate in a higher role after seeing them operate for a time in a lesser one. Internal candidates will hear time and time again that they are still 'one or two years away' from being ready, while they watch their external 'competition' being lauded for similar efforts."

• Demanding a 'ready now' successor: "The concept of a 'ready now' executive effectively eliminates perfectly viable candidates from true consideration. The fact is that a company would only know that someone is 'ready now' after the fact — when they see the executive moving to another company, probably a competitor, and proving himself there. The candidate might have been ready to lead all along, but the company missed its chance. This is actually a risk management decision — and the amount of risk a board can take is dependent on the requirements of the role looking forward combined with the complementarity of the top team."

• Focusing on the high-profile CEO role and not on the whole team: "The best succession planning really involves constant assembly and re-assembly of a leadership puzzle with many pieces, including not only the CEO but the CFO, COO, sales and marketing chiefs, and other C-level officers. A trend we are seeing in the best-managed companies is that boards are looking beyond the CEO and his or her direct reports. Now boards want a detailed calibration of the C+2 and C+3 executive populations to see who's 'on deck' to take the reins down the road. Again, from a risk management perspective it is important to understand the bench strength and resulting strength or risk in the 'people portfolio.' "

Miles, who oversees the Heidrick & Struggles worldwide executive assessment/succession planning activities, also made an observation in this advisory of more than nine months ago that eerily presages the precarious position that the H-P board got itself into — if indeed it must look outside the company for its new CEO:

"Boards can, and really must, direct succession planning with an honest evaluation of current talent and the development of a rich pipeline of talent that can form the future of the company. It is this kind of forward-looking, proactive leadership that can mitigate risk and maintain confidence among internal and external stakeholders."

Into the Abyss

2010-08-10T22:40:00.001-04:00

There is so much that is distressing in the sudden forced resignation of Mark Hurd (pictured) from Hewlett-Packard.

The distress level is so high because there is no reasonable explanation for the personal tragedy that unfolded. A man living a life of accomplishment and acclaim falls in a flash into the abyss of disgrace. And those who are in the know about why and what really happened aren't telling.

Of all the reporting and analyzing that I have read since Friday's ouster, I suspect Business Insider's Henry Blodget gets pretty close to the truth with this review of the situation — but he even has to qualify that his truth seeking is "as best we can tell."

As the shock wave of the ouster subsides, here is the next reason to be distressed about this whole affair: the early line seems to indicate that the H-P board will be going outside for a new CEO. For a company with such a history of turmoil at the top (even predating Carly Fiorina's reign), the H-P board should be one of the least likely to have yet again bungled an orderly CEO succession by not ensuring there was one or more eminently qualified internal candidates.

Why does CEO succession planning produce so few successors? That is a question that Stephen Miles, vice chairman of executive search firm Heidrick & Struggles, raised last year when he looked around at Corporate America's C-suites. Then crunching 2008 data, this expert in leadership succession issues noted that of the 80 new CEOs who were appointed among Fortune 1000 companies that year, only 44 of them — 55% — were promoted from within.

"While almost all companies technically have a succession plan in place," Miles stated, "the fact that 45% of them had to go outside to hire a CEO means that many of these plans failed to hit the mark."

He has pinpointed several ways that boards trip themselves up, which I review in the follow-on posting of August 11th. Will we see clues to how H-P "failed to hit the mark"? (No wordplay intended.) Almost surely.

Now that we have witnessed a CEO falling into an almost unimaginable personal abyss, we are about to witness a board falling into the abyss of a succession nightmare — one that, maddeningly, is all too imaginable.

Sidney Harman on 'The Most Overlooked Skill'

2010-08-05T12:16:00.003-04:00

Here is an insight into Sidney Harman, new owner of Newsweek, that you won't find in the coverage of his purchase of the magazine this week. I think it explains a lot about why he is making this huge investment.

Harman has been aces in my book since I read his 2003 memoir "Mind Your Own Business" (Currency Books). It was just what its subtitle promised: "A Maverick's Guide to Business, Leadership and Life." I published an excerpt in Directors & Boards. Not only that, I then took that excerpt and made it a reading assignment in a course I have been teaching for several years at Temple University.

I wanted my Directors & Boards readers as well as my students to appreciate how much an impressive corporate leader such as Sidney Harman regarded the ability to write as crucial to success in life. Here are a few of his observations:

• "Sadly, writing is lightly regarded in business and often dismissed as unnecessary. Executives frequently declaim, 'I do not write. I'm a people person. I like to look the other fellow in the eye.' That's a clever rationalization. There is a time to look the other fellow in the eye, of course, but writing is a unique and powerful instrument."

• "The person who invests in writing, who exercises the discipline to do it well, and who uses it frequently, will possess a matchless instrument for discovery, clarity, and persuasion."

• "My own experience persuades me that it is the most overlooked skill in the business arena, and one that rewards the executive in many ways. It helps clarify one's thinking. It improves all other means of communication by enhancing vocabulary and promoting the ability to formulate thoughts in coherent and creative ways. It is first cousin to public speaking, because it helps frame the material in a fashion that makes it explicable and communicable. That is essential in public speaking."

• "Writing, like public speaking, does not come easily. You must invest in it. You must tolerate frustration and disappointment. You must persevere. But hanging in and learning from one effort to the next pays dividends."

• "It will come as no surprise that I have promoted writing at Harman [International Industries, the maker of audio equipment that he founded in 1953]. Today in our company virtually every executive of any consequence writes. I would wager that virtually all of them agree that it is one of the most productive tools they have acquired at the company."

If you have 13 minutes, spend it watching Harman address the Newsweek staff. You will see up close a leader of great grace, charm, wit, intelligence and, yes, courage. Dire predictions are still being leveled for Newsweek's prospects, but it seems to me that the publication is in sound ownership hands for writing its next chapter.

What You Say

2010-08-03T22:27:00.008-04:00

Be mindful of what you say — inside or outside of a board meeting.

It is a learning point from Walter Green, former chairman and CEO of Harrison Conference Services, a leading conference center management company. He has written a book, "This Is the Moment" (Hay House), that will be coming out this fall in which he describes a fascinating personal undertaking. Over the course of a year he went on the road to reconnect with 44 people who played an important role in his life — at which time he expressed to them his gratitude for how they shaped the person he became.

It was striking to him to realize that, often unaware at the moment, he did his own fair share of shaping.

Green writes: "We all do some things in life automatically, and that doesn't diminish the value of them. As my friend Stephen Kaufman, a senior lecturer at Harvard Business School (and one of my 44), told me, 'Many times we fail to realize that simple, off-the-cuff comments or reactions that don't really register with us can touch important nerves or strike chords in others. My students and former colleagues often drop me notes referring to something I did or said five or ten years ago as having had a deep impact on them, yet at the time they just seemed to me like ordinary conversations with no particular import.' "

Green's important conclusion: "To be reminded of the variety of ways in which we impact people — no matter what our condition or position or locale — left an indelible impression on me. Being made aware of the value to others of what we do or say made me vividly conscious of how I might be more helpful in the future as well."

A sound piece of advice for modulating your formal interactions — and perhaps even more consequentially, those casual tossed-off comments — with your management team and fellow board members.

BP Failed 'Surprise Governance'

2010-07-26T21:40:00.006-04:00

Re the FT, BP Chief Tony Hayward is out. And as the Wall Street Journal reflected today on its editorial page, "You don't preside over an environmental catastrophe of such magnitude and survive in such a job, at least not if you run a publicly held company in the private economy."

Directors & Boards has some experience with ousted BP CEOs. Back in 1992 I published an article written by Robert Horton (pictured), chairman and CEO of what was then called British Petroleum. Shortly after the article's publication (and not in any way causally related), he was deposed in a palace coup. His ouster followed a slump in earnings but, in the estimation of close observers, his abrupt departure was more related to personality and culture clashes with the board and other top executives as he endeavored to shake up the oil giant.

A rereading of his article, which I titled "Surprise Governance," still persuades me that he had it right in the advice he offered to business leaders on how they must be mentally thinking and personality poised to meet sudden threats that come at them. His advice certainly would have applied to Tony Hayward and the current BP board and management:

• "Faced with the unpredictability of almost every aspect of business in today's chaotic world, the average corporate leader might be forgiven an erosion of will, if not a failure of nerve. Whatever happens, however buffeted by surprise, a company must respond effectively to every event. It is up to the company's leaders to see that it does."

• "When you never know how your company is going to be surprised from day to day, the great need is to meet each surprise with more knowledge and creativity. One thing about surprises is that rarely do you get to repeat a previous solution."

• "No company can ever draw up sufficient policies governing what might have to be done on the spur of the moment. Individuals must be quick to see connections and grasp the implications of events. And they must be given the power to respond without bogging down."

• "In today's business world, the people in place must learn to meet surprise with flexibility and grace. The prime value is shifting from respecting experience to treasuring understanding."

• "Beyond all the other attributes out of business history, today's global manager must learn new traits of flexibility, collegiality, openness, and trust."

"By definition," Horton noted, "the businessman cannot plan for surprises — a surprise foreseen is an oxymoron." True enough, but per Horton what should not be an oxymoron is a prepared board, one that is ready to tackle surprises with that enlightened combination of flexibility and grace. That was not the BP board.

Portrait for Directors & Boards of Robert Horton in 1992 for his article.

The Real Volcker Rule

2010-07-21T18:34:00.005-04:00

The Dodd-Frank Bill signed today by President Obama incorporates what most legislators and market participants would admit is a watered-down Volcker Rule — the former Federal Reserve chieftain's proposal on restricting proprietary trading by banks.

Bank CEOs are glad about that, but what they might really be glad about is that another Volcker Rule did not get written into the legislation: a mandate to separate the chairman and CEO positions at banks and financial institutions.

"My favorite idea on corporate governance is that I like the idea of separating the chairman and chief executive officer" Volcker told Directors & Boards lead columnist Hoffer Kaback when being interviewed for a cover story in the journal in 2000. Here is more of what he said:

"Chief executive officers like to be chairmen. There's no question about that. But, most specifically, when a company gets into trouble, and if there's some question about the CEO in terms of his tenure, responsibility, the need for new blood, or whatever, it's just much more difficult to make the change when you don't have an alternate source of leadership on the board other than the chief executive himself.

"A bank gets into trouble. As the bank regulator, you at least raise the question whether part of the trouble isn't the management. Who do you talk to without using a two by four? You look for some leadership in the bank to change policies or change direction, and board members say, 'That's not me. I don't have any responsibility. All I am is a poor board member. Go to the chairman.' Well, the chairman is the problem."

Volcker did not think much of the lead director as an alternate source of board leadership — "in a lot of situations it may be a second-best solution." The best option, one he liked both as a regulator as well as a director — he was at the time of the interview with the James Wolfensohn boutique investment bank and serving on several corporate boards — is separating the top roles.

His firm conclusion: Having "a [nonexecutive] chairman who can set the agenda for the board and stay in close contact with the chief executive, and be simpatico but nonetheless bring independent judgment that doesn't always come out very clearly in a board meeting because of the collegiality involved and the reluctance to speak out, is useful."

Bank chairmen-CEOs may feel they dodged a bullet on the Volcker Rule's intent to separate out their proprietary trading arms. Little do they know what kind of bullet they dodged had a Volcker Rule to separate their titles been embedded into the Dodd-Frank Bill.

Goldman: What Might Have Been

2010-07-16T18:15:00.008-04:00

There is no surprise that Goldman settled with the SEC yesterday. The firm would have been foolish not to, and the sooner the better. Two surprises did come out of the settlement, one minor and one major:

• The minor surprise was the settlement amount of $550 million. I thought the SEC would peg the fee to get out of the penalty box at $1 billion, a number that would memorialize for the ages the whole reason it brought its case against Goldman. In my opinion, at its core this case was never really about Abacus. It was a statement by the SEC that the ethos of Wall Street, from the head firm (Goldman Sachs) down through the tentacles of every trading outfit, was poisoning the capital markets and jeopardizing the soundness of the economic system. The lower number dialed down that statement, but the SEC accomplished its intended and appropriate "come to Jesus" moment.

• The major surprise was that Lloyd Blankfein kept his hold on the firm. "Some had speculated the legal dustup would at least cost him his chairmanship," noted New York Times reporter Graham Bowley in his account of the leadership implications of the SEC deal for Goldman.

I never expected that the SEC would force Blankfein out. I did anticipate that, in allowing him to stay on as CEO, the agency would insist on the firm having an independent nonexecutive chair. This would not have to be a permanent split, but long enough — perhaps two years — for the firm to rebuild its battered reputation.

This is the action that would have made a substantial statement to a nation still suffering from the ill effects of a Wall Street gone amuck that the leading firm in finance is indeed serious and committed about finding its "true north" again.

I use that phrase deliberately, because here is the thing — Goldman Sachs has sitting on its board the one person who could step into the nonexecutive chair role and get the firm perceived as being regrounded in a sense of ethical leadership. That person is Bill George (pictured). Mr. "True North" himself.

A passing glance at Bill's career — his business accomplishments and contributions to the thought leadership of "doing the right thing" — would persuade that Goldman had taken a decisive step in addressing its defaced image. That should have been a desired outcome of the settlement, one that the firm fully embraced — meaning that Goldman might have proactively taken this action, with or without SEC prompting. It certainly could live with shared leadership, as there is a legacy of shared leadership (albeit insiders) of the firm, as witness the eras when John Whitehead and John Weinberg shared the reins, and then when Robert Rubin and Stephen Friedman were co-leaders.

So, a major surprise in the Goldman SEC settlement, and a major missed opportunity for the firm to restore a sacred reputation for trustworthy and far-sighted leadership.

It Happened in Norway . . . What About Here?

2010-07-14T23:50:00.008-04:00

In 2003 women represented 7% of board directors in Norway. Today, that total is 40%.

What happened? In 2003 the Norwegian Parliament introduced legislation that instituted a gender quota for the country's major companies. The formal mandate was that at least 40% of both genders must be represented on the board. Companies were given two years to comply.

The quota achieved its goal. Other countries are exploring similar legislation.

"The use of quotas is simply a tool to display women's competencies," said Auden Lysbakken, Norway's Minister of Children, Equality and Social Inclusion. He reviewed the country's experience with board quotas at the Global Roundtable on Board Diversity, an initiative of the World Bank's International Finance Corporation. The Roundtable was held in March 2010, ably organized and conducted by Irene Natividad, chair of Corporate Women Directors International.

While the news concerning board diversity among U.S. companies is not all bad — see the findings that Directors & Boards came up with for 2009 as per the blog post below — the numbers pulled from most surveys might be summed up in two words: "glacial progress."

How long would it take for women to hold 40% of all U.S. boards seats? Let's face it — we will never see it, not in the lifetimes of anyone now serving on boards or those newly coming into board eligibility. That is, if present practices persist.

So, let's put the hard questions out there. Is a board quota a good thing or a bad thing? Could it work here? Why or why not? Should a quota — or some form of a quota — be tried here? What's to fear? What would stop it from working? What could go right? What could go wrong?

I am going to seek out expert opinion from my network of colleagues, and we will report back. I will make this the cover story in the Third Quarter edition of Directors & Boards. Stay tuned as we crunch down on one of the most provocative issues in board composition and recruiting.

Illustration: "The Scream" by Norwegian artist Edvard Munch, exhibited in the National Gallery of Norway.

Yes! There Is Good News on Women Directors

2010-07-12T09:33:00.000-04:00

Most of the surveys on women on boards are pretty punkish — showing incremental, at best, advances by women in securing board seats. Among the key findings in ION's 2010 survey released in March:

• The low number of women directors and executive officers in U.S. public companies has stayed more or less the same, with small variations from year to year.

• In the 14 regions represented by ION's member organizations, women hold between 8% and 18% of the board seats in all the companies included in the research.

• In Fortune 500 companies in ION's 14 regions, women hold between 12% and 19% of all board seats. Nationally, the comparable figures for Fortune 500 companies are 15% (2009 Catalyst Census) and 16% for the S&P 500 (2009 Spencer Stuart Board Index).

The only good news that I ever see are the numbers that we here at Directors & Boards report — and do we have some exceptional numbers that we are just releasing for 2009.

Last year, women represented 39% of all new board appointments! That is up from the previous record high of 25% representation in 2008. And way way up from the more typical 13% when we first started recording board appointments in 1994.

That 39% figure represents 165 women out of 424 board positions filled in 2009 as recorded in the Directors & Boards Directors Roster.

We do an authoritative tracking on a quarterly and annual basis of public company board appointments. I have reviewed the parameters of our Directors Roster reporting here. These are numbers you can take to the bank.

Something big happened in 2009 — women did indeed make a major advance in securing board appointments. We may be the lone voice in the wilderness of board diversity surveys to note that, but it is true and it offers the promise of much stronger advancement by women in the boardroom in the future.

Pictured is Janet Jankura, who was elected to her first corporate board in 2009; she is profiled in the special Governance Year in Review issue of Directors & Boards in a new series called "My First Board," reported by Roster Editor Kelly McCarthy.

New Directors: The Numbers Are In

2010-07-10T09:49:00.007-04:00

The numbers are crunched, and here is how year 2009 shaped up for director recruiting.

According to the Directors & Boards Directors Roster, the journal's quarterly and annual reporting of executives named to public company boards, we tracked a total of 424 new director appointments named to 326 company boards. Here is where the new directors came from, ranked by predominance of background:

1. Retired Executives: 170 (40%)

2. Senior Officers: 65 (16%)

3. Chairmen/CEOs: 57 (14%)

4. Finance: 47 (11%)

5. Academia: 39 (9%)

6. Consultants: 22 (5%)

7. Not for Profit: 14 (3%)

8. Legal: 6 (1%)

9. Miscellaneous: 3 (1%)

Total: 424 (100%)

Women: 165 (39%)

Source: Directors & Boards Directors Roster

The number of new women directors is worthy of further comment. See the follow-on blog post of July 12.

Seven pages of the Governance Year in Review special issue of Directors & Boards just coming off press are devoted to "Who's on Board 2009" — a sampling of this new director activity. The article displays the companies adding one or more (as in the government-mandated cases of AIG and General Motors, for example) new board members, who those new directors are and their titles and affiliations at the time of appointment. A superb mini-data base for those wanting more detail beyond the numbers. The Directors Roster is sponsored by our close colleagues at Heidrick & Struggles International.

Pictured is John Lechleiter, chairman, president and CEO of Eli Lilly & Co., who joined the board of Nike Inc. in 2009; he represents a declining category from which new directors are being successfully recruited, i.e., a sitting CEO. In 2008 Chairman/CEOs represented 21% of all new directors.

Juanita Kreps: No Napping for Her

2010-07-07T18:29:00.008-04:00

I found in my archives a funny story Juanita Kreps told to Forbes magazine in 1976. She was sitting in a corporate board meeting during a complicated financial discussion. An elderly fellow director was beside her, napping peacefully. "Just as the vote was to be taken," she said, "he woke up and proceeded to explain the issue to me!"

Such was life for women on boards in that pioneering decade.

Kreps, who died on July 5, had some notable firsts that she leaves behind as her legacy. She is perhaps most well known for being the first woman to hold the position of U.S. Secretary of Commerce. She was Jimmy Carter's Commerce Secretary from 1977-1979. As the New York Times noted in its obit, not only was she the first woman but also the first economist (she was a professor of economics and vice president of Duke University) to hold this Cabinet post.

When she was appointed in 1972, she was the first female director of the New York Stock Exchange. And when you look at the impressive list of corporate boards that she served on, likely she was the first woman director to be welcomed into certain of these boardrooms: American Telephone & Telegraph Co., Armco Inc., Chrysler Corp., Citicorp, Deere & Co., Eastman Kodak Co., J.C. Penney Co. Inc., RJR Nabisco, UAL Corp., and Zurn Industries.

Another first: When the National Association of Corporate Directors inaugurated its Director of the Year Award in 1987, Juanita Kreps was the chosen one. That was a progressive call on the part of the NACD to institute this award by recognizing a prominent woman in the boardroom.

She seems to have been the right woman at the right time for her government, business, and academic engagements. But more than anything related to gender, as the NACD award attested, she brought "gold standard" thinking into the boardroom. Here is a key observation Forbes reported about her back in the mid-1970s:

• She says she's on the board to make management talk about things they would otherwise overlook. "Our job is not only voting on questions brought before the board," she observes, "but deciding what subjects to insist on discussing." There is just one thing that bothers her: "The trouble isn't whether you have the courage to raise the issues. Where you might fall down in your obligation to stockholders is in not knowing enough about what's going on to make an intelligent decision."

Boards at their best — that was Juanita Kreps.

Shift Happens

2010-07-01T10:07:00.003-04:00

The fourth annual Year in Governance special edition of Directors & Boards just coming off press (cover pictured) is a document that records for posterity the next momentous attitudinal shift that will drive governance in the era ahead.

As you might imagine, there have been a lot of shifts that have taken place in corporate governance.

A big one early in my three-decade tenure as editor of Directors & Boards was the shift to a board composed of a majority of independent directors. It was not uncommon in the early 1980s to see many insiders sitting on boards. Those of you who share with me a little gray hair may recall that in 1978 Johnson & Johnson was threatened by the NYSE with delisting unless it opened up its board to independent directors.

Here are a few other shifts that have taken place over the past 30 years:

• More women being added to corporate boards.

• The adoption of executive sessions of the board.

• The embrace of the lead director concept.

• The increased splitting of the chairman and CEO positions.

• Greater usage of search firms in recruiting directors.

• The change in scope of the nominating committee of the board to a broader-gauge corporate governance committee.

• Vastly expanded purview of the audit committee.

• Much more box-ticking, instigated by court cases like Van Gorkom and Caremark and legislation like the Foreign Corrupt Practices Act and Sarbanes-Oxley.

• A reining in of "overboarded" CEOs and other types of directors.

I could go on and on. But what I would be going on about are what I consider process shifts. Much rarer have been attitudinal shifts — a revision, revolutionary rather than evolutionary, in the mental construct of the role of a director and the role of the board.

In 2006, at the annual conference of Yale University's Millstein Center on Corporate Governance and Performance, I heard former SEC Chairman William Donaldson identify perhaps the most momentous attitudinal shift taking place in the boardroom in the past half-century when he remarked: "It used to be said that it's the CEO's board; now, it's the board's CEO." That was a big and bold statement.

Here is the next momentous attitudinal shift that will energize governance in the coming era. It is pinpointed by Vanguard Chairman Emeritus John Brennan in his keynote article for the Governance Year in Review issue: "There has been a great attitudinal shift in boards away from what is right for the insiders to what is right for the shareholders."

That is huge. You might say that this should have been the mental construct of the board all along, but obviously when we look at board decision making in executive compensation, M&A, management performance and succession, capital investments, and other metrics, it can be a hard case to make that what many boards do is right for the shareholders.

Shift happens. And if Jack Brennan and many of his peers in the investor community are right, it is happening now.

Prepare to Be Tortured

2010-06-21T17:05:00.007-04:00

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

2010-06-20T19:50:00.004-04:00

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'

2010-06-18T21:46:00.007-04:00

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

2010-06-17T23:09:00.007-04:00

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

2010-06-09T22:18:00.008-04:00

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

2010-06-07T20:05:00.007-04:00

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

2010-06-05T20:36:00.004-04:00

"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

2010-06-04T07:09:00.006-04:00

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.

Memorial Day 2010

2010-05-31T06:33:00.001-04:00

Memorial Day has particular resonance for me, being a proud veteran of four years in the U.S. Navy during the Viet Nam War era (although, thankfully, never setting foot in Southeast Asia). For a day of tribute like this one, I try to cite something special on this blog that appropriately ties in to the essence of the holiday. Here is that something special.

The following are a few passages from a speech that General Electric Co. Chairman and CEO Jeffrey Immelt (pictured) delivered at the U.S. Military Academy at West Point on Dec. 9, 2009.

From his intro: "First and foremost, let me tell you how honored I am to be here with you today. I've always been an admirer of West Point, and the character and accomplishments of its graduates. I'm awed by their heroism and self-sacrifice in the wars they've fought and the peace they've kept.

"West Point graduates are responsible for some of the world's greatest engineering feats. They've led some of the most important advances in aviation and medicine and information technology. They've founded colleges and businesses and charities.

"We have 11,000 veterans working at General Electric: 238 West Point graduates, and nearly 600 from all the service academies. We actively recruit from the military because we have learned that the values you bring to our company are essential to our success.

"A recent Gallup poll asked Americans: 'Who do you admire?' It will please you to know that the military finished first, with a 77% approval rating. Conversely, big business and Congress received approval from only 20% of our fellow citizens. People have lost faith in many big institutions. . . ."

And from his closing: "Like all Americans, I read about the sacrifices you and your colleagues have made in Iraq, Afghanistan, and around the world. And I am sure that all of you have friends who have been killed or wounded during the war.

"Their example, and the example of every American who stands in harm's way so that we may be secure in our freedom to build our businesses and follow our dreams and improve our lives, is the voice of our national conscience.

"Few of us will ever do what many of you will do for duty, honor and country. But America doesn't expect heroism from all of us. It does expect us to be good citizens of this country where no one's dreams are too big, a country that is defended so bravely by others. It expects us to honor the sacrifice made on our behalf by making the best use of the freedom you protect. Wherever our talents lie, and whenever our conscience requires, we must all, to the best of our abilities, help keep America the great force for good it has long been. We are trying to do that at GE.

"America is at a turning point. The U.S. military defends our freedom to succeed, and your values will help to direct our renewal. It has been a great privilege to talk with you."

And for me, on this Memorial Day 2010, a great privilege to share Mr. Immelt's remarks.

Take a Chance to . . . Relax

2010-05-29T06:43:00.001-04:00

It looks like the Avis rental car company is in a tough fight to win over rival car-rental firm Dollar Thrifty Automotive Group from the clutches of Hertz, as detailed in Friday's Wall Street Journal.

I don't have any comment on that deal, but I do have a comment on the founder of Avis Rent-A-Car, Warren Avis. I published in Directors & Boards an excerpt from his memoir, titled Take a Chance to Be First, that he wrote in 1986.

This being Memorial Day weekend, the passage that appealed to me 20-plus years ago to present to my readers seems particularly fitting for the leisure mode that we should all be in this holiday, and with the summer shortly upon us. Here is an excerpt from the excerpt, a few paragraphs in which Warren Avis shares his "vacation" philosophy:

"Because I'm a very intense person, I need plenty of time off to maintain my staying power year after year. If I didn't pace myself and take good care of my physical and emotional needs, I'd quickly burn out — and I might well run into various health problems.

"I began to understand this principle a number of years ago, during one of my first entrepreneurial ventures as an independent sales representative. My inclination to throw myself body and soul into various sales challenges made it necessary for me to pull back periodically to recoup my energies. So from the very beginning, I always gave myself generous vacations.

"In addition to regular vacations, I also took plenty of time off during the rest of the year as well. So I might put in a 16- or 18-hour day when going full steam with a project. But then I'd always intersperse my hard work with play and relaxation. Money is no good if you have to work so hard for it you don't have time to enjoy it.

"But to live by a 'relaxed' philosophy and maintain an outstanding sales record, it's necessary to get extremely well organized — and work like hell when the time for work has arrived. Specifically, my approach was to really work hard for about three weeks each month, and then take the rest of the month off. But during that three weeks, it was necessary to go at top speed."

Warren Avis died in 2007 at the age of 92 — from natural causes. According to his New York Times obituary he was "fit and active until shortly before his death, even water skiing until the age of 89." While taking the chance to be first in business, as he titled his life story, he took the chance to relax along the way. That sounds like a life well lived. How are you living this Memorial Day weekend?

Deal Trouble

2010-05-28T14:53:00.009-04:00

Maybe it is a good thing for the shareholders of Prudential PLC to be rebelling against management's desire to acquire AIG's Asian life insurance unit, as reported in today's Wall Street Journal. The price tag is a big gulp — $35.5 billion on offer.

In the midst of proxy voting season right now, shareholder bile levels are running high about levels of compensation. But getting back to the Prudential deal, it is worth being reminded, as a wise hand once said, "Vastly more money is wasted on bad acquisitions than on overpaid CEOs."

That sensible note comes from Robert Denham, in an article he wrote for Directors & Boards 10 years ago. Denham parachuted into Salomon Inc. with Warren Buffett to help stabilize the investment firm following its 1991 Treasury auction scandal that threatened to destroy the firm. He returned to his partnership at the Munger, Tolles & Olsen law firm in Los Angeles after negotiating the sale of Salomon to Travelers Corp. for almost $10 billion.

I resurfaced some of Denham's wisdom on cautious dealmaking for the latest Boardroom Briefing, a series of special reports Directors & Boards produces four times a year. Click here to access a copy of it.

Another bit of Denham's deal wisdom seems particularly worthy of mention. I don't know that this applies to the Prudential situation, but shareholders of the U.K. insurer (which is not related to the U.S. insurer of the same name) may rightly be fearful that it does:

"The board can play a valuable role in connection with proposed acquisitions. Ego, animal spirits, and badly structured compensation systems all conspire to encourage CEOs to love acquisitions even when shareholders should hate them."

Pru's shareholders seem to hate this AIG deal — at least at the proposed price. The board should take a page out of the Denham playbook and proceed cautiously.

Enron as a Porsche Turbo

2010-05-09T12:39:00.007-04:00

"Enron" — the play on Broadway — closes today, running just a week in New York, although it had a longer run in London. I can't imagine how they ever made a play out of the Enron situation, and I guess I won't have the opportunity to find out — unless the show has a second life in the regional theater circuit.

Enron, the company, has been a big part of my life as the editor of a corporate governance journal — citations continually find their way into multiple articles since the energy firm's plunge into ignominious bankruptcy in 2001. Pretty much all one has to do is say the word Enron and you have a shorthand description for abject board leadership.

One author who did a particularly scathing examination of Enron's board is Leo Hindery. This was for his 2005 book, It Takes a CEO. Hindery is managing partner of InterMedia Partners LP, a private equity firm. He has a long and successful track record running companies in the communications field, such as AT&T Broadband. I had the pleasure of running an excerpt from his book in Directors & Boards.

As the final curtain comes down on "Enron," the play, here is a choice passage on Enron, the board, from Hindery's book:

"[The] directors could and should have done a whole lot better. Becoming a member of the board of a company like Enron, circa 1999, was a little like getting into the passenger seat of a Porsche Turbo: you know it goes fast. Knowing that, you keep an eye on the driver. If the driver starts taking the turns too fast, you tap him on the shoulder and make him slow down. If you don't, and the cops later pull you over, don't say you didn't see the scenery whizzing by. You did."

What an entertaining observation, no? It makes me wonder that if the play was as entertaining, perhaps it might have had a longer run. Maybe the producers should have called in Hindery as a script doctor.

A First

2010-05-05T22:15:00.011-04:00

Before the Second Quarter edition of Directors & Boards rolls off the presses tomorrow, let me note a first in our 35-year publishing history — Bob Monks is the first person to appear twice on the cover of the journal.

Granted, we did not start picturing lead authors on our covers until 1996, some 20 years after the publication's founding. Yet, that makes his dual appearance all the more worthy of recognition.

Bob joined a melange of authors pictured on the cover of the Governance Year in Review special edition published in the spring of 2009, and then again some nine months later in the First Quarter 2010 edition, also in a photo montage of debaters on "The Great Divide" — our panel discussion on whether to separate the chairman and CEO positions. (Accompanying photo is from this debate held at the Weinberg Governance Center at the University of Delaware in November 2009.)

I first published Bob in 1989, a co-authored article with his longtime business partner and collaborator in shareholder activism, Nell Minow. Since then he has written frequently for Directors & Boards and has become a cherished colleague in advancing good governance. He can always be counted on for bringing clear thinking — and, I like to think, right-minded thinking — to the often complex issues of board leadership.

His most recent weigh-on on whether to separate the chairman and CEO roles is a perfect example of the cooly rational mind at work on one of the thorniest issues confronting boards today. It is an issue that he is personally close to — having bumped up against the daunting powers that be at ExxonMobil in presenting a proposal for the energy giant to make the split. He lost in that initiative. But let me share one of his keen comments made at our panel that is worthy of deep consideration as other managements, boards, and shareholders continue to wrestle with this "great divide":

"We are getting to the point now where the size of corporations is a major factor in the political and social life of countries. ExxonMobil, for example, a company that many know I have had a particular involvement with as an activist shareholder, is the 14th largest enterprise — and that includes countries — in the world. What corporations of that size do has a huge impact on society. They have to be concerned not only with meeting their numbers but also meeting their responsibilities to society. This raises very complicated questions for them — questions of global warming, questions of hiring practices in different parts of the world, and many other difficult issues. With the legitimacy of corporations constantly on people's minds, you need leaders who are sensitive to the company's impact on society. That requires a range of skills that is not impossible to find in a single person, but if you can't get that in a single person then that is another reason you may have to separate the roles at the top."

Well said — especially considering the less-then-deft treatment he received from ExxonMobil management in presenting his proposal, this is not a vituperative charge against the company but a statesmanlike projection of a future leadership requirement.

I trust we will have more opportunities to present the wisdom of Bob Monks to the Directors & Boards audience. That might even mean the prospect of a three-peat appearance on the cover.

New BofA Chairman Chad Holliday

2010-05-03T06:31:00.007-04:00

It strikes me as a superb decision by the Bank of America board to have Charles "Chad" Holliday Jr., former chairman and CEO of DuPont Co., be the company's new chairman.

Directors & Boards author Jack Roddy visited with Mr. Holliday last year — a meeting that resulted in a Q&A article on Holliday's style of leadership that we published in the Fourth Quarter 2009 edition.

I had come to know Roddy as an avid devotee of leadership. He studies it intently in his role running J.P. Roddy Consultants, through which he specializes in recruiting leadership candidates in the automotive, transportation, plastics, and chemical industries. When he shared with me the transcript of his conversation with Chad Holliday on what makes a good leader, I jumped at the chance to share it in turn with the Directors & Boards audience.

As I reread this now six-month-old article in light of Holliday's new appointment at BofA, I am even more persuaded that the troubled institution and its shareholders are in good hands. Here is one of Holliday's answers to Roddy's question as to the importance of spontaneity as a leadership trait. Keep in mind as you read his answer the fateful decision by BofA to complete the Merrill Lynch acquisition:

"My style has always been to be spontaneous as a way of managing in a meeting or other situation. I find myself constantly asking, 'Am I listening well? What is this person saying that I need to hear?' I believe being comfortable with spontaneity is important for a good leader.

"I remember once we were considering an acquisition and we were far along the way to going forward with a positive decision. Then suddenly someone asked a new question about certain factors. This opened up a whole new way of looking at the acquisition such that we said to ourselves, 'What did we miss that caused us to move this far without seeing another important viewpoint?'

"Ultimately, we decided against the acquisition, which was the right decision, yet we almost missed the boat on that one due to singular-direction thinking. The fact that we were open to new questions helped us to make the right decision."

Singular-direction thinking is a threat to many boards. To the extent that such thinking may have almost sunk BofA, my guess is a change in board culture is coming with Chad Holliday chairing the board meetings.

He Didn't Just Say That, Did He?

2010-05-01T18:00:00.007-04:00

Amusing? Or appalling? You be the judge.

Vicky Ward shares this story in her new book, The Devil's Casino (John Wiley & Sons), about the collapse of Lehman Brothers. The tale goes back to the days when Lehman was first being spun out of American Express. Amex's then-chairman Harvey Golub was giving the Amex board a presentation about the benefits of the spinoff of the investment banking firm.

Ward writes: "The presentation — a basic rundown of the businesses within Lehman, and what the economics looked like going forward — went over well, and the board signed off on the deal. Two memorable moments occurred.

"First, when former Secretary of State Henry Kissinger, then on the American Express board, opened a sweetener packet, emptied it into his iced tea, then stirred the beverage with his pencil — eraser end first.

"The second was when another board member, former U.S. President Gerald Ford, asked Golub if he could please explain the difference between 'equity' and 'revenue.' There was an awkward moment of silence as everyone digested this.

"One person in the room recalls that Golub 'did a very skillful job. I was very impressed. It's a very basic concept, and he explained it to the former president without making it sound like he was talking down to him.' "

The Henry the K anecdote is amusing. The Gerald Ford anecdote? Not so amusing.

You read something like that and it sure explains a lot about the ability of these financial institution boards to oversee the complex wheelings and dealings of the firms, including — and most ironically — the abject failure of the Lehman board to prevent the firm's annihilation.

Weinberg's Words

2010-04-22T23:06:00.004-04:00

So, Lloyd Blankfein thinks the SEC's attack on Goldman Sachs is politically motivated and is telling clients, according to today's Financial Times, that it will "hurt America."

Sidney Weinberg must be spinning in his partner's office in the great beyond.

Weinberg is a renowned past leader of Goldman Sachs & Co. He joined the firm in 1907 and became chairman in 1930, heading it until 1969. His son John joined the firm in 1950, eventually rising like his father to head the firm as co-chair with John Whitehead from 1976-1984 and as sole chair until 1990.

Weinberg pere died in 1969, but he was the author of a cover story in the Summer 2003 edition of Directors & Boards. How that happened was that we got our hands on a remarkable speech that he delivered in 1949 to the Harvard Business School Club of Cleveland. He titled his talk, "The Functions of a Corporate Director." Why this speech is remarkable was the very reason I made it the cover story — I wanted to bring to a modern-day audience a "present at the creation" document that put forward how a public company board of directors needs to conduct itself for a progressive era of governance. It was everything the most assertive activist investor would want to hear.

I think of Sidney Weinberg, nicknamed "Mr. Wall Street" by the New York Times for his vast influence in his day on the banking business, spinning madly at Blankfein's assertion that the SEC is "hurting America" because here is what the distinguished banker warned in his 1949 speech:

"One must remember that every time a national corporation takes a step which is, or appears to be, against the public interest, it reacts on all corporations and is detrimental to our whole system of private enterprise."

The message, then, from one former Goldman chairman to his present counterpart: You are right about America being hurt, but are very wrong about the reason — it's not the attack on Goldman but what Goldman may have done to draw out the attack dogs.

Wasted Real Estate

2010-04-16T16:42:00.013-04:00

I started reading the Wall Street Journal in the 1970s, when I first got into the business world. The long-running joke was that the loneliest job in the newspaper business was photo editor of the Wall Street Journal, because the paper rarely, and I mean almost never, ran a photograph.

As the WSJ evolved its page design (still an unhappy development for us diehard business-news junkies), that joke has been long retired. But would someone please tell me why photos of highway accidents in California and crime victims in Chicago, both of which appeared in the WSJ this week, are now taking up important real estate in this bible of business news?

I don't get it. There is so much of consequence happening in the corporate and financial markets that needs continuing, detailed examination — not the least of which are complex narratives like today's lodging of fraud charges by the government against Goldman Sachs. For the paper to squander even the slightest attention on grisly car wrecks and random street crime is ludicrous.

I don't suppose under Rupert Murdoch's proprietorship we can hope the photo editor's job is going to get a little more lonely again. But maybe the job could be more businesslike in its photo selection. Give us more of what board members need to add to their understanding of what's going on on Main Street and Wall Street.

What Steve Wynn Reads

2010-04-14T21:52:00.004-04:00

Speaking of Steve Wynn (see my blog post of April 13th below), Joel Kurtzman tells a good story about the casino mogul in his new book, Common Purpose [Jossey-Bass].

The culture at Wynn Resorts, Kurtzman explains, rewards heroic efforts by employees to take care of the company's customers, and then to share these experiences with fellow staffers. The company has an internal website for employees to tell their stories of what they did to make guests happy. The objective in sharing their stories is to transfer the experiential learning so that each employee more fully grasps the essence of the Wynn Resorts experience.

Stories like the one of the bellman who helped an elderly guest to her room, upon which the guest realized she left some needed medication back home. Not to worry. Here is what happened next, as Kurtzman recounts:

"The bellman wrote down the woman's address in Los Angeles, and at the end of his shift and on his own initiative, he changed his clothes, went down to the employee parking lot, and got into his car. He filled the tank with gas and proceeded to drive four and one-half hours through the desert to the Los Angeles suburb where the woman lived. He knocked on the door of the house and was let inside by the woman's son, who handed the bellman the bottle of pills.

"The bellman then climbed back into his car and drove another four and a half hours to Las Vegas. When he arrived, he put on his uniform, rode the elevator to the guest's floor, and delivered the pills to the astonished, delighted, and relieved woman.

"When he was finished, he went to the employee lounge and posted his story on the website so other people could learn from his actions on behalf of a guest."

There are hundreds of such stories on the company website. The No. 1 reader of the site is, you guessed it, Steve Wynn. Kurtzman notes: "Bellmen, clerks, waiters, and maintenance people know the company's founder is seeing and thinking about their stories of heroism at work."

I call Wynn an impresario — someone who makes things happen with an extra bit of zing and swagger — in my blog posting below. Kurtzman in his book calls Wynn "a consummate hotelier, showman, casino operator, and real estate operator." I think we both have it right. And we both know, as do most boards of directors, that Corporate America needs more leaders of this kind — CEOs who, as Kurtzman's book is subtitled, "get organizations to achieve the extraordinary."

Impresario

2010-04-13T22:40:00.009-04:00

"Impresario." There are not many company CEOs who can be called that. Steve Wynn is one. The business world needs impresarios. They make things happen -- with an extra bit of zing and swagger in everything they do.

Directors & Boards almost had Wynn in our hometown. For the past few weeks he had been angling to take over a long-troubled casino project on the Philadelphia waterfront. It looked like he had a lock on the property — extensive design plans were drawn up and he had been making good headway with the licensing authorities.

Although I hate the idea of city and state municipalities resorting to gambling to close their budget gaps, I looked forward to seeing Wynn bring his brand of sizzle to a business community that has very little of it. I thought to myself that maybe when he got established here I would have the opportunity to do a sit-down with him to talk about how he runs his board at Wynn Resorts.

Then . . . poof. Away he went. Sudden abandonment of any interest in the casino development. It was a surprise when he first showed up, and it was surprise when he scooted back out of town. But that's the way with impresarios — they are full of surprises.

Say what you want about Wynn, this he has: a crisis management philosophy that belongs in every CEO and board playbook. In an interview with the Wall Street Journal during the darkest days of the financial markets meltdown, he showed no fear. "Are we all supposed to go buca buca buca and fall dead on the floor? Or are we supposed to have the ability to survive and do well? ... The hell with Wall Street. I'll be here after this is over."

That's what I like about impresarios. And that's why we need more of them in Corporate America.

Bob Rock, at 60 . . . and at 22

2010-04-11T20:27:00.006-04:00

Directors & Boards Publisher Robert Rock celebrated one of those seminal birthdays this past week — the big 6-0. Our congratulations to him on his achieving this milestone with his usual cheerful aplomb and hearty humor.

Bob became publisher of Directors & Boards in 1988. It was the smoothest of executive successions — from father Milton, who spearheaded the purchase of the journal in 1980 and became its publisher at that time until son Bob's transition into the publisher's seat. With this new role came a new responsibility for Bob: to pen the "Letter from the Publisher" column in each edition. This is the publisher's chance to opine on the big issues of the day that may be vexing the country and its corporate leaders, and to point the reading audience to the higher ground.

For his first "Letter," in the Summer 1988 edition, Bob took on no less ambitious a topic than the state of American competitiveness. "Declarations of the decline in U.S. competitiveness have been echoing throughout corporate boardrooms, university classrooms, and Capitol Hill hallways," he noted. But he would have none of it.

With a forthrightness that would mark his succeeding Pub Letters, as we call them around the office, he identified the immediate need ahead now that the big purge of mid-1980s restructuring (often instigated by takeover types) was behind Corporate America: "The next round requires U.S. firms to enhance their competitive position in world markets by investing in education and training."

Then came the challenge. "The board of directors," he declared, "must make certain that appropriate, even aggressive, investments are made in the corporation's human resources. What will separate the leaders from the also-rans — companies as well as nations — in the world order of the 1990s is clear: the ability to marshal the best-trained and most highly motivated people, from the factory floor to the boardroom."

That was a darn good call for his first outing as pundit. (Think of the Internet Age that was just about to dawn.) And Bob certainly followed his own advice. In the 22 subsequent years in which he has topped the masthead of Directors & Boards as our publisher, he has invested much of himself — his time, talent, enthusiasm, support, and commitment — to ensure the journal's success and to make sure that Directors & Boards continues to play a seminal role in the education of corporate directors.

On behalf of all the staff and his many colleagues in business and boardrooms that he has touched through the pages of the journal, we salute him on this milestone birthday.

The specially designed mockup cover of Directors & Boards, pictured above, was crafted by the journal's longtime art director, Bill Cooke, for this celebratory occasion.

Take the Experience First

2010-04-07T20:44:00.012-04:00

It doesn't take much for me to find a reason to cite one of the grandmasters of American business — Harold Geneen, leader of International Telephone & Telegraph Co. in its heyday decades of the 1960s and '70s. Close readers of Directors & Boards, our monthly e-Briefings, and this blog come across numerous citations to the managerial wisdom of Hal Geneen — such as this, and this, and this.

My thoughts again turn to Geneen in reflecting on the hornet's nest being stirred up by the New York Times article on unpaid internships. The essence of the article is that most companies that have unpaid interns are likely violating federal law on minimum-wage and other working standards.

Here is the passage from the NYT article that is riveting attention: " 'If you're a for-profit employer or you want to pursue an internship with a for-profit employer, there aren't going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law,' said Nancy J. Leppink, the acting director of the [Labor Department's] wage and hour division."

This shot across the bow of Corporate America is not being well received. We can count on the Wall Street Journal to mount a more rational counterpunch. Its "War on Interns" editorial today takes the emminently sensible position that unpaid internships aren't "exploiting young people. It's letting young people exploit an opportunity."

The late and great Hal Geneen would agree. Here is how he once put it: "You get paid with two coins in life — money and experience. Take the experience first. The money will come later."

There is an extension of this unpaid intern controversy to board life. Many executives believe that serving on nonprofit boards will eventually yield an offer to join a corporate board. Others pooh-pooh the notion that nonprofit board service is a stepping stone to a public-company boardroom. Where I come down on this, not surprisingly, is in the Geneen camp — take the board experience first.

First of all, accept the nonprofit board invitation if you believe in the mission of the organization and, second, if you believe that you can help support and advance the organization through your board involvement. A distant motivation is if you think it will get you higher up on the opportunity scale for a corporate directorship. That may happen — just as an internship may open up employment options — but "take the experience first" and have a spirit of openness for whatever might come later. If Geneen is right — and one didn't do well betting against him when he was in his prime empire-building years with ITT — you will be rewarded later.

I will be monitoring how the unpaid internship debate plays out, but I will continue to share Geneen's sound advice with the students I teach at Temple University.

Donald Frey: He Saw the Ugly

2010-04-05T13:02:00.011-04:00

I never knew Donald Frey was the designer of the Ford Mustang, which he did earlier in his career as an engineer with the Ford Motor Co. and which the New York Times highlighted in its obituary of him. When I published him in 1995 I knew him as the former chairman and CEO of Bell and Howell Co. and a veteran director who had served on many corporate boards. Mr. Frey died a month ago, on March 5, at the age of 86.

I also knew him as that rare corporate leader who let it all hang out — the good, the bad, and the ugly (primarily the latter two categories) — in recording his experiences in the boardroom. His article for Directors & Boards, "Reminiscences on Succession Planning," was an unvarnished set of reflections on how CEOs and boards mishandle their responsibilities for ensuring a smooth and effective succession.

Just how ugly does it get? Here are a few of his "reminiscences":

• "I have observed cases of CEOs trying to stay on (perhaps better said, 'hang on') after normal retirement. Various reasons are offered, one being that his or her successor is not yet ready and needs more mentoring by the CEO. In one case, a hidden reason was that the retiring CEO did not make any money on his stock options. In another case, no logical successor could be identified because the CEO in earlier years systematically destroyed potential successors, so that no one is perceived by the CEO as threatening or perceived by the board to be ready at his normal retirement. (Boards almost never hear both sides of a dismissal or demotion). Lack of self confidence or paranoia are surprisingly not unknown, even with successful CEOs. For whatever reason, the sitting CEO is kept on year to year by a supine board, sometimes until the roof totally caves in."

• "Another scenario has the CEO appointing, with no board involvement, one of his internal buddies as successor. The chief characteristic of this heir apparent may be loyal service—to the retiring CEO. Loyal service does not automatically mean leadership. The ultimate result is frequently disaster, with yet another new chief executive to soon follow. This can give birth to the oft-noted strong-weak-strong-weak CEO sequence."

• "I have observed on a number of occasions how long it takes to get a consensus for needed change. The reluctance to move on an underperforming CEO is palpable at first, and changing minds takes time. Seemingly competent, intelligent men and women can sit at board meeting after board meeting watching the company go nowhere, or slowly sink—"slow leakers" I call them—and do or say nothing. Nobody seems to want to speak up. Nobody says those magical and historic words,'The King has no clothes.' "

Don was 71 when he penned these reflections, and even though he was comfortably ensconced in academia at the time as a revered professor of industrial engineering and management science at Northwestern University, it still took courage to be so candid in revealing how often "the board has no clothes" when it comes to its preeminent accountability for CEO succession.

Cary Grant on Executive Pay

2010-04-01T13:10:00.013-04:00

The month of April kicks off in earnest the executive pay reporting season. The Wall Street Journal is headlining today that "CEO compensation edged lower in 2009, the first time in two decades that pay declined for two consecutive years." This finding is based on a survey done for the WSJ by the Hay Group.

My first reaction to the finding was, "How could they tell?"

I am only half-jesting. I had just a week before sat in on a day-long meeting of directors hosted by Drexel University's Center for Corporate Governance. CEO pay was a big topic of discussion. The debate veered in many directions — a major one being the extreme complexity of proxy disclosures of executive compensation. The verdict seemed to be that pay data in proxies are virtually undecipherable, and what is readable borders on pure boilerplate — yielding little to no insight on the actual comp results or any sign of the governance footprint on pay policy.

I am sure the Hay numbers crunchers did their best to defog the data to come up with their findings. This is a useful survey to lead us into the fevered pitch of the proxy disclosure season.

How to avoid all this agida over CEO pay? How about if everyone followed Cary Grant's advice. As told to David Mahoney, former chairman and CEO of Norton Simon Inc. and cited in his memoir Confessions of a Street-Smart Manager, here is what the legendary actor had to say on the subject:

"Do your job and demand your compensation — but in that order."

Cary Grant had the right idea. That is proper counsel for anyone — from the CEO (and board directors) to the shop floor. If CEOs are doing their job — creating value for the shareowner — then there should be nothing to be defensive about. If you are worth it, and you know you are worth it, and your board knows you are worth it, then be steadfast under siege.

The First Woman Director

2010-03-30T15:09:00.010-04:00

March was Women's History Month. Before the month comes to a complete close, let's add one last entry to the history books — the first woman corporate director.

Directors & Boards Publisher Robert Rock had occasion to track down this milestone in board composition last summer. He had just received an invitation from "Vision 2020" — a group that is preparing celebrations for the 100th anniversary of Aug. 26, 1920, when the 19th amendment gave American women the right to vote — which then peaked his curiosity about the first woman to join a corporate board. Drawing from various references, here is what several sources have concluded.

There were a handful of women who upon the death of a husband or father came onto the board of an American corporation, most notably Marjorie Merriweather Post, who in 1914 joined the board of the frozen foods and cereal company started by her father.

Other business historians point to Lettie Pate Whitehead (pictured) as the first independent woman to serve on the board of a major U.S. corporation. An Atlanta business, church and civic leader, she joined the Coca-Cola Co. board in 1934. This was a year after President Roosevelt appointed Frances Perkins as Secretary of Labor, the first woman to hold a Cabinet post. Ms. Whitehead served on the Coke board for 20 years. Her philanthropic legacy continues to this day to benefit charitable initiatives.

Perhaps her legacy also continues to benefit the Coca-Cola company and its board. I just took a quick look at the Coke board today and was pleased to see that three highly accomplished women serve as directors: Cathleen Black, Alexis Herman, and Maria Elena Lagomasino. Three is good, at a time when many companies still have no women directors and many others feel that having one woman is a sufficient nod to board diversity.

You Are Right, Jack

2010-03-29T08:13:00.003-04:00

How would you like to be on the receiving end of this blast from Jack Welch: "What, are you stupid!?"

Mary Stengel Austen was — and survived this encounter with a boisterous Welch quite nicely, thank you. So much so that on March 11 she was recognized with the 2010 Paradigm Award for her role as a major corporate leader in the Philadelphia metropolitan region. Austen (pictured above at the award event) is president and CEO of Tierney Communications, a leading advertising and PR firm. "Ms. Austen is truly a remarkable business leader and an amazing asset to our region," declared Rob Wonderling, president and CEO of the Greater Philadelphia Chamber of Commerce, the organization that presents the Paradigm Award.

Now, as to that bump-up against Jack Welch. Here is the story in her own words, which she recounted unabashedly in her award acceptance speech:

"I was at a two-day conference in Boston — billed as 2 Days with Jack — several years ago. I was fortunate enough to be in a room with only a handful of other CEOs. So I was able to get into this great conversation with Jack and he asks me, 'Mary, who's your mentor?' I paused and said, 'Well, I really don't have a mentor.' Without skipping a beat, Jack Welch looks me in the eye and barks, 'What, are you stupid?!' "

"Not my proudest moment," Austen admited.

This character-building moment ended up being a career-enhancing moment. She explained to the 800-person crowd packing the Marriott ballroom that turned out to see her get the Paradigm Award what happened next: Welch "went on to say that people are usually flattered when others ask them for advice or to serve as a mentor. They expect it, and chances are they relied on mentors themselves and see it as an opportunity to give back." Now, said Austen, "I have many mentors."

That's an important lesson in the vital formation of a leader. And Mary's story serves as a useful reminder that a role of a board member is to be a mentor to the CEO and management team. That is a role not often analyzed in the governance literature or emphasized in board-management interaction. In a quick search through the almost 35-year archives of Directors & Boards, I can point to at most a bare handful of articles that touch on this role of the board.

With so much hard-earned — read "hard-learned" — wisdom residing at the board level, it is, in Jack Welch's inimitable phraseology, "stupid" not to channel that into a mentoring relationship with the organization's managers. Who knows, that might be just the ticket to honing a future award-winning business leader like Mary Stengel Austen.

Say Yes

2010-03-20T20:10:00.013-04:00

I am constantly hearing directly from, or about, executives who have turned down an invitation to serve on a board. Too risky . . . not enough time . . . already overboarded . . . not the right board . . . not the right time . . . excuse, excuse.

If you have said no to a request to get involved in a board or other advisory role lately, and are in that mindset about future board invitations, you might want to take under advisement the following recommendation. It comes from University of Connecticut President Michael Hogan. As reported in the March issue of The Atlantic, he imparted this advice to graduates at last year's commencement address. According to the Atlantic article, he was addressing the phenomenon of students' turning down jobs, with no other alternatives at hand, because they didn't think the jobs were good enough.

"My first word of advice is this," he told the graduates. "Say yes. In fact, say yes as often as you can. Saying yes begins things. Saying yes is how things grow. Saying yes leads to new experiences, and new experiences will lead to knowledge and wisdom. Yes is for young people, and an attitude of yes is how you will be able to go forward in these uncertain times."

The only nit I would pick with President Hogan's inspiring words is that an attitude of yes is not only for young people. Why shouldn't it apply to someone at any age? In the context of this "Board" blog, why shouldn't it apply to someone who has been identified as the right person for a board or advisory role?

Should such an invitation come your way, think hard about saying yes.

Comcast's Ralph Roberts at 90

2010-03-15T15:57:00.011-04:00

I opened up my Sunday Philadelphia Inquirer this past weekend to see an article on Comcast co-founder Ralph Roberts celebrating his 90th birthday. According to the article, Roberts "still keeps a near daily presence at company headquarters as a senior adviser to son Brian Roberts and other top managers."

We had the pleasure of having Ralph Roberts as a member of the Directors & Boards editorial advisory board during the late 1980s and early '90s. How could you be based in Philadelphia and not want such a preeminent business leader also working here to play such an advisory role? Not us.

As you might imagine of someone who has lived a long life and built a major corporation from virtually scratch, many tales abound of Ralph's trajectory of success. In a Fortune profile in 2001, the magazine traced his roots thusly: "Ralph Roberts started humble in 1963, with a 1,200 subscriber cable television franchise in Tupelo, Miss. He'd already been in such varied businesses as golf, cologne, Muzak, and suspenders, so he knew he was onto something with this one when, he says, 'People chased our truck down the street yelling, Please stop at my house!' "

Many tales are of his legendary frugality, perhaps not surprising for a child of the Depression. Here is a choice one from a Philadelphia Inquirer piece in 2001: "Just this past week, Roberts — who routinely is at or near the top of the list of the region's best-paid executives, making tens of millions in salary and stock options annually — proudly boasted of a bargain he found at a local store. 'I wasn't going to buy it,' he said, holding up a bottle of vitamin E tablets — retail price, about $22. But the store was running a deal: buy one, get one half off the next sale. He couldn't pass that up."

I have my own favorite tale that I tell of Ralph. When someone wants to schedule a business breakfast with me, I have us meet up at a restaurant called Little Pete's. It is a 24-hour no-frills diner-type establishment a few blocks from my office — with a long U-shaped counter and a set of about 10 booths lining the wall, serving hearty basic food at reasonable prices (you can scarf down a bacon and egg breakfast, hash browns, toast, coffee and juice for about $6). Who have I seen on a number of occasions also grabbing breakfast there? Yes, Mr. Comcast himself. I get a huge kick out of telling my dining companions that one of the richest men in Philadelphia also eats at Little Pete's. (Ralph has actually gone on record with Philadelphia Magazine as describing the joint as "my favorite restaurant.")

That same Philadelphia Magazine article from 2006 also had Ralph summing up his credo for success: "The advice I gave my son Brian was to follow his own instincts, do it well, don't be thwarted by those who find your objectives are not to their liking. Be creative. Tell the truth. Maintain a high level of integrity. And do the right thing for people."

On his 90th birthday, I can't help but think of this credo as a gift that Ralph gives to all of us to follow — and may we have as near a long and bountiful life in following it as he has had.

Win Churchill's Winning One-Liner

2010-03-13T16:03:00.008-05:00

I always take pleasure is seeing good things continue to happen for my past authors. My congratulations to Win Churchill on his receiving the Yitzhak Rabin Public Service Award from the America-Israel Chamber of Commerce this month. Churchill is a founder and managing general partner of SCP Partners, a venture firm that has invested in many Israeli start-up companies.

"I have received many awards in my life for charitable efforts," Churchill said in an interview with the Jewish Exponent, but the newspaper reported that he points with particular pride to this latest honor. "We are plowing money back into the Israeli economy. ... In terms of covering the broader areas of my life, this is the best award ever."

I have an award I would give Win Churchill. It would be the award for the best one-liner about executive compensation to ever appear in the pages of Directors & Boards.

Let me set the context. In late 1993 Churchill was the kickoff speaker for the inaugural session of a new corporate governance program being launched in Philadelphia — the Wharton/Spencer Stuart Director's Institute (formed by prime movers Dennis Carey and Robert Mittelstaedt). He was then chair of an investment firm, Churchill Investment Partners Inc., that he had formed in 1989, a few years after practicing law for a lengthy spell with a Philadelphia law firm. He was also serving on several boards then, as chair or director. So with that background he had quite a bit of wisdom and counsel to offer to the attendees of this board educational initiative housed at the Wharton School.

His talk was titled, "The 10 Commandments of Ownership." (I kept that title when I published his speech as an article in the Spring 1994 edition of Directors & Boards.) He presented a set of guidelines for how institutional investors should be thinking about exercising their role as responsible professional owners. The guidelines had crossover application to how board members should be acting as responsible overseers.

Commandment 9 is the one that wins the alltime best one-liner award for governing executive compensation: "Successful management should end up wealthy; unsuccessful management should not end up wealthy."

Now, I ask you: Is there not more wisdom in this baker's dozen worth of words than in any, or all, book and article texts ever devoted to the topic of managing exec comp?

Win, the award is all yours.

Stop Being Stupid

2010-03-12T15:06:00.003-05:00

I am borrowing the title of today's blog post from one used by New York Times columnist Bob Herbert in December 2008. Here is a sample of what he had to say in his column:

"Americans must resolve to be smarter going forward than we have for the past few years. ... We have behaved in ways that were incredibly, astonishingly and embarrassingly stupid for much too long. We've wrecked the economy and mortgaged the future of generations yet unborn. ... We were stupid in so many ways. We shipped American jobs overseas by the millions and came up with the fiction that this was a good idea for just about everybody. We could have and should have taken the time and made the effort to think globalization through, to be smarter about it and craft ways to cushion its more harmful effects and to share its benefits more equally. We bought into the dopey idea that you could radically cut taxes and still maintain critical government services — and fight two wars to boot! ... It's time to stop being stupid."

This appeal to "resolve to be smarter going forward" readily applies to what goes on in the boardroom. On the day that I write this, March 12, the Wall Street Journal is reporting three developments that absolutely cry out for someone to say, "Stop being stupid." Allow me the dubious honor:

• AIG is announcing that it intends to recoup millions of dollars in retention payments slated for employees who have already left the firm.

• The Black & Decker board felt there was no perceived conflict of independence in putting on a special committee charged with appraising the company's acquisition by Stanley Works — which would trigger an enormous payout to Black & Decker's CEO — a member who was significantly invested with the CEO in a personal real estate development.

• What the WSJ describes as a "scathing report" has been released on the collapse of Lehman Brothers, alleging transaction designed to distort a clear picture of the financial soundness of the firm; a follow-up statement from a lawyer for Lehman's then CEO, Richard Fuld, is saying: "Mr. Fuld did not know what those transactions were — he didn't structure or negotiate them, nor was he aware of their accounting treatment."

C'mon, people. What is a board doing when it approves a multimillion-dollar compensation arrangement designed to reward executives to stay but will still pay them royally if they leave? What is a board doing permitting a director who is in bed with the CEO on a personal investment to be on a special committee approving his merger-instigated huge payout — and not thinking that's a conflicted situation? What is a chairman and CEO, well-documented for his hands-on role in running the firm, doing in saying that he had no involvement whatsoever in a tactic crucial to staving off the collapse of his company? (Granting that he had no such involvement, why would he issue such a statement anyway — what kind of a reflection is that on his leadership to be claiming such ignorance?)

Some of the best minds in governance believe that "courage" is the most important attribute in being a director. Last year I devoted an editor's note to that very topic. Yes, exhibiting courage in the boardroom is one way to have a governance system that functions the way it should. Another way is to stiffen the spine of the system through legal and regulatory ordering — hastily enacted legislation like SOX or some of the stuff now spewing from Washington.

A third way, and maybe the best way — thank you, Bob Herbert — is to just stop being stupid.

On the Dot-Com Bust's 10th Anniversary

2010-03-10T13:03:00.009-05:00

Ten years ago today the dot-com bubble burst. I never drew much from the tech sector for authors for Directors & Boards. Rightly or wrongly, I guess my feeling was that Silicon Valley was not a hotbed of "thought leadership in corporate governance" (the tagline of our journal).

One author I did turn to from the tech sector to write a piece for me is Regis McKenna. This was a no-brainer to invite this tech expert into our pages. He has been a longtime technology industry marketing consultant who helped launch important innovations, including the first microprocessor (working with Intel Corp.) and the first personal computer (working with Apple). In addition to his marketing counsel, he has been a venture partner with Kleiner Perkins Caufield & Byers and has done boardroom duty. There was no question in my mind that he was the kind of thought leader who would have something of consequence to say on corporate governance for the Directors & Boards audience.

So in 1995, as the tech boom was entering blastoff stage, we connected on an article, titled "Boards of a Different Breed" — in which he addressed the set of issues facing early-stage companies and the character and capabilities needed to be a good director in such a situation. Here was one extremely important point that he made that has application far beyond the confines of Silicon Valley's boardrooms:

"The board must allow management to make mistakes and, at the same time, keep the company from turning mistakes into catastrophic failures. An entrepreneur told me once that he woke up one day with a $500 million company in trouble. But no one had ever taught him how to manage trouble. Entrepreneurs do not often admit to weakness, and boards too often are little more than monthly or quarterly financial review sessions. Entrepreneurs need training as well as everyone else. This is one of the chief responsibilities of the board — educating the president and CEO."

How many CEOs have woken up over the past two years with a company in trouble? On this 10-year anniversary of the rolling over of an entire sector of risk-taking entrepreneuralism — that admittedly inflated into a sphere beyond the absurd — this is a worthy reminder of, again in McKenna's words, "each board member's responsibility for helping the CEO and management learn, grow, build relationships and alliances, raise capital, and compete more effectively."

[Regis McKenna pictured in 1995 at the time of his article's publication.]

Women on Boards: It's All in the 'Velocity'

2010-03-08T12:16:00.019-05:00

Today is International Women's Day — a day to mark the economic, political and social achievements of women. The first IWD apparently was celebrated in 1911, so this special day of recognition is impressively headed toward its centenary.

I can't think of a better way for Directors & Boards to mark this day than to highlight the strong numbers that we are seeing in our Directors Roster of women being named to corporate boards. The Roster is the special feature published in each edition of Directors & Boards that tracks quarterly appointments to corporate boards. It is our mini-database in each issue of new directors compiled by our research pro, Roster editor Kelly McCarthy.

The just-published First Quarter 2010 edition of the journal includes our tracking of new directors added to boards during the final three months of last year, October-December 2009. Here is the number: Of the 111 new directors we recorded, 46 are women. That is 41%, for those counting in percentages. And that is a noteworthy percentage, for sure.

To put this in some perspective, when we first started the Directors Roster quarterly recording of new directors in 1994, it was more the norm for the percentage of new women directors to be in the low teens if not high single digits. Yes, that's right. Take the final quarter of 1996, as a rather inglorious example: Of the 199 new directors in that Roster, 16 were women — 8%, if one has the temerity to count.

Our numbers are very much different from the results reported by the major surveys on board composition, which still show a poor representation of women on boards — solidly anchored for years, it seems, in the teens.

But a business colleague with whom I recently shared our numbers put her finger on the nature of this discrepancy, even better than I have been in framing our results: the Directors Roster, she recognized, measured the "velocity" of new women entrants onto boards. If that quarterly velocity stays strong, the overall representation that is measured by the annual surveys should gradually rise. In other words, the Roster is an early indicator of a "change in the atmosphere."

The Q4 Roster caps the strongest year we have ever seen here at Directors & Boards for women joining corporate boards: In the Q1 2009 period, we recorded 38% representation of women; Q2 came in at 39%; and Q3 totaled 43%. And now for Q4 we only ratcheted back a notch to 41%. These are breakthrough numbers.

So on this International Women's Day let's give a cheer for the velocity with which women are being appointed to boards. By the centenary celebration could I be in position to report that our velocity number has cracked 50%?!

My thanks to Autumn Bayles, SVP of strategic operations for Tasty Baking Co. and an officer of the Forum of Executive Women in Philadelphia, for refining the "velocity" nature of the Directors Roster data.

Pictured is Lisa Caputo, EVP of global marketing and corporate affairs of Citigroup Inc., who was a representative member of the Q4 2009 grouping of new women on boards; she was added to the board of Best Buy Co. Inc. And what a fitting new director she is to single out on this International Women's Day-themed blog posting: Her background includes being founder, chairman and CEO of Citi's Women & Co., an education, resources and networking initiative that helps women build financial knowledge.

The 'Great Divide' II: It Is Inevitable

2010-03-05T11:51:00.007-05:00

Here is round 2 of the debate on separating the chair-CEO roles, as explored in an eight-page cover story in the Directors & Boards First Quarter edition just off press.

The first shot highlighted in this blog came from former American Express Chairman and CEO James Robinson, in the posting of March 4th below. Now we turn to panel member Reuben Mark, who retired from Colgate-Palmolive Co. at the end of 2008 after having served as chairman of the board for 22 years and CEO for 23 years. His outside directorships have included Cabela's Inc., Citigroup Inc., the New York Stock Exchange Inc., Pearson PLC, and Time Warner Inc. Listen to what his long tenure of holding down both the chair and CEO positions has led him to conclude:

"Now having stepped down from both positions I have become convinced that separation is required. During the last three or four years of my tenure as chairman-CEO, I was devoting an increasing amount of my time to board management — eliciting directors' opinions, bringing them together on issues, and so on — and less time perforce on the CEO job. The president ended up absorbing more of my CEO duties. It became clearer and clearer that being chairman was virtually a full-time job.

"Also, let me acknowledge this. People who serve as CEOs, and I certainly include myself among them, tend to have a touch of megalomania or a leaning toward tyrannical action. After all, a corporation is a kind of benevolent dictatorship. If there is a separation, and assuming good faith and assuming the right people are in place, the board has an additional conduit of information and oversight that they would not have had. So even though my personal experience is contrary to this conclusion, I believe that separation of the roles not only should happen but inevitably will happen."

When one of the nation's most respected business leaders has convinced himself that there is a new and better way of running a corporation and its board, attention must be paid. A recommendation like this can kick the "great divide" debate into a higher gear.

Reuben Mark, in white shirt, is pictured above at the Weinberg Center on Corporate Governance at the University of Delaware, where the debate was held in November 2009; also in photo are (l. to r.) shareholder activist Bob Monks, HealthSouth Corp. Nonexecutive Chairman Jon Hanson, and Charles Elson (standing), the center's director who moderated the panel discussion.