Friday, February 27, 2009

Boris Yavitz, 1923-2009: A Board Flashback

Boris Yavitz, a former dean of the Columbia Business School, died on Feb. 14 at the age of 85.

His New York Times obit doesn't mention it, but he was a big-time corporate director in addition to having a distinguished academic career. His directorships included J.C. Penney Co., Sterling Drug Inc., Barnes Group Inc., St. Regis Corp., Crane Co., and Medusa Corp. The Times does mention his service as a director and deputy chairman of the Federal Reserve Bank of New York.

We had the pleasure of Bob Yavitz's company at a roundtable that Directors & Boards held in 2000 (where he was photographed above). A major topic was the change in behavior of boards over the years. Here is a singular observation that he made:

"What I saw in the very early years of my service, which goes back to about 1975 ... [is that] most boards were not much more than rubber stamps. The CEO said 'Jump' and directors were allowed just one question: 'How high?' It wasn't a matter of not arguing with the boss — you typically didn't even question him."

Yavitz lived long enough to see a behavioral change. "There is a very different flavor now in most boards," he added. "It is getting much harder to find the bad guys because there has been a vast improvement. More and more companies are doing the right thing in terms of board composition, the number of outsiders, avoiding beholden directors, evaluating the CEO, and so on. We've come to a point where most boards are independent enough and concerned enough that I don't see us going back to the bad old days."

When we hosted him at our roundtable, Yavitz was a corporate governance consultant. He was a forceful presence in our group discussion, as I imagine he was in front of the classroom or in running a faculty meeting or chiming in at a board meeting. He may have jumped a bit in his younger days on boards, but I can't imagine that before too long he helped bring to the boardroom the progressive changes that characterize present-day boards.

I'm sure we all have days when we wonder just how much progress boards have made, especially when we look at boards that have presided over wrecked companies. But then, let's ask ourselves: Are there any CEOs who can still say "Jump" to their boards? Even a better question: Are there any boards that would respond, "How high?" If either question strikes you as even a bit laughable, perhaps that is a testament to the progress of time, the evolution of best practices, and the footprints left behind in boardrooms by a leader like Bob Yavitz. 

Wednesday, February 25, 2009

Just the Facts

Fortune reporter Shawn Tully did a good job dissecting how the Bank of America/Merrill Lynch deal, and the attendant Ken Lewis/John Thain relationship, went careening off the rails in an article titled "Divorce — Bank of America Style." Here is a key observation that Tully makes: 

"There's no doubt that Thain bears a lot of the responsibility for Merrill's recent woes... But Lewis, too, must shoulder a share of the blame... He failed to recognize how perilous [Merrill's legacy trading] positions were, and placed far too much confidence in Thain's assurances when the numbers told a different, dangerous story" [emphasis mine].

Readers of Directors & Boards will know what Tully is talking about — and where Lewis allegedly went wrong. In the First Quarter 2009 edition, author Jonathan Tuttle, a partner of Debevoise & Plimpton, examines the intricacies of internal investigations in his article, "The First 48 Hours: No Board Missteps." The first critical question to be addressed, Tuttle advises, is whether to conduct an internal investigation at all. Here is his advice:

"A single question can be an important starting point for making that judgment: Is the board receiving assurances or facts? Mere assurances of compliance programs working or accounting entries being properly recorded will wilt in the glare of hindsight, particularly if offered by those who may later turn out to be culpable in some form. Facts, on the other hand, may be more difficult to harness initially, but provide a much more concrete basis on which to determine the best path forward" [emphasis Jon Tuttle's].

If we needed a third opinion to seal the deal for facts vs. assurances, we would of course turn to "Dragnet" star Jack Webb (pictured), whose character Sgt. Joe Friday became famous for his investigative line, "All we want are the facts, ma'am." (Apparently, he never actually said "Just the facts, ma'am," as is widely thought — and which would have made for a catchier title for this blogpost.)

Boards have a big job helping their companies crawl out of this recession crater. To do this with agility and as proper fiduciaries, they are going to need to anchor themselves with facts, not assurances.

Thursday, February 19, 2009

Exec Pay Limits: A Page Out of the Mob Playbook

As soon as President Obama earlier this month announced an initial plan to restrict executive pay, critics lost no time in pointing out the infirmities in the proposal. One loophole that immediately was espied: configuring titles so that a particularly highly paid exec would not appear as an officer of the parent company, thus escaping disclosure. 

There is precedent for such legerdemain. It comes right out of the Mob playbook. 

Prime exhibit: "Casino," a 1995 film — based on a true story — of Mafia-run Las Vegas in the 1970s. Actor Robert DeNiro, in one of his many great film roles, plays a gangster named Sam "Ace" Rothstein, boss of the Tangiers Casino. But since Rothstein has a past criminal record when the Mob inserts him to run the casino, he can't appear in the regulatory filings as the CEO of the gambling establishment. 

So what title does he give himself? He actually holds three titles over the arc of his tenure running the Tangiers. He first sets himself up as Public Relations Director, then spends most of his time as the Food and Beverage Director, until finally closing out his leadership of the casino as Entertainment Director.

It worked well for the Mob, so why not for Corporate America? Let's test the notion out on a few high-profile situations:

• Bank of America CEO Ken Lewis could take on the title of Regional Manager-Charlotte.

• GM CEO Rick Wagoner could become Senior Labor Relations Negotiator.

• And why not Chrysler CEO Bob Nardelli as Private Equity Executive in Residence?

• Citigroup CEO Vikram Pandit could take on the mantle of Chief Restructuring Strategist.

• For Time Warner CEO Jeff Bewkes? Why, none other than Head Script Reader, of course.

• And for General Electric CEO Jeff Immelt, how about Locomotive Sales Chief? Or, Chief Jet Engine Inspector? Lots of possible titles in that conglomerate.

Farcical? You bet. But we're in early days of parsing these pay restraints. Who knows how the wiseguys in the corporate suites will emulate the wiseguys in the mean streets.

Before we leave "Casino," there is one line in the movie that should cause all corporate governance mavens to recoil. In referring to the cash-skimming and other financial shenanigans taking place on the casino floor and back office, DeNiro's Ace Rothstein defiantly declares, "The board of directors didn't know what the f**k was going on." Then and now ... on the silver screen and in real life ... too sad but true for our financial institutions that were little more than gambling joints.

Oh, by the way, Al Capone's title on his business card supposedly read Secondhand Furniture Dealer. 

Monday, February 16, 2009

Lesser Lights

I got a chuckle out of the Wall Street Journal's recent report on a mishap at a brokerage industry conference in Palm Beach, Fla. During a presentation on hedge funds, a power failure plunged the hotel into darkness. Quipped the WSJ, "The lights are going out all over hedgeland — literally."

It reminded me of my favorite anecdote about Harold Geneen (pictured), the legendary head of ITT Corp. during its uber-conglomerate decades of the 1960s through the 1970s.

The notoriously exacting CEO was holding court in Brussels with a group of his European managers. The lights in the room began flickering. Since it was 2 a.m. and the meeting was showing no signs of ending, one of the executives piped up, "You see, even the lights are getting tired."

Snapped Geneen: "Only the lesser lights."

When I look around at the havoc being wreaked by this recession, all I can think of is that this is the handiwork of lesser lights – from Wall Street to Main Street to Washington, from trading floors to boardrooms to Congressional offices. 

On this President's Day, a day when we honor profound leadership, here is a call to those now in power in the aforementioned boardrooms: Turn the lights out on any lesser lights in your midst. That means firming up the talent both on the board itself and in the senior management ranks. The challenge ahead is just too daunting to do otherwise.

Wednesday, February 11, 2009

Kudos to Mr. Korman

Here is something that I have never seen in 30-plus years of reporting on business — a CEO taking out an advertisement to implore his fellow CEOs to stop with the layoffs.

The CEO is Steven Korman of Korman Communities, a real estate development and management firm. The advertisement (pictured) may be too small to read, so here is the text of his appeal:

"I have listened to the executives of many companies say that they are eliminating thousands of jobs to 'improve the bottom line'

"I own stock in many of these companies and would prefer that the company make a smaller profit and the stock fall, in the short term, rather than affect the lives of our neighbors and their families as jobs are lost.

"Please join me in reminding all CEOs that we are not just dealing with numbers and profit, but with real people and real families who need to keep their jobs.

"Please keep your employees working."

Steven H. Korman
CEO and Chairman of the Board
Korman Communities

Applause, applause! According to Diane Mastrull's article in the Philadelphia Inquirer, Korman was catapulted into action when he heard Pfizer CEO Jeff Kindler say that he would eliminate 8,000 jobs prior to the intended acquisition of Wyeth. The article reports that, in addition to the advertisement, Korman will be sending his appeal by FedEx to Kindler and the CEOs of other companies whose stocks Korman owns.

As I noted in my blogpost below, Directors & Boards Publisher Robert Rock has made a similar case — that "CEOs must begin to think more about building businesses that secure and enhance employment," and that boards — and, especially, their compensation committees — should "underscore this notion by rewarding top management for retaining jobs and creating new ones." Read Bob's appeal, "Job One Is Jobs Won," here.

Two minds thinking alike — thinking about national security, i.e. "real people with real families who need to keep their jobs."   

Friday, February 6, 2009

On Line: Great Depression vs. Great Recession

As the AP reported today, employers eliminated 598,000 jobs in January, the most since the end of 1974 and far worse than expectations. The unemployment rate now jumps to 7.6% — which has to be vastly understated. "This is a horror show we're watching," said Lawrence Mishel, president of the Economic Policy Institute in Washington, in the New York Times upon the release of the Labor Department report.

I've read that we haven't quite come up with a name yet for this period of economic travail that we are in. We have a name for the 1930s economic collapse — the Great Depression, often shortened as the Depression, with a capital D. We seem to be still just calling this a recession, with a small r.

But it feels more than just a recession, doesn't it? Especially for those of us with a little gray hair who remember the 1973-74 deep downturn, the early 1980s and its raging inflation, the early 1990s banking and real estate troubles, and the 2000 tech meltdown. All were quite bad. But this feels more like a way-of-life changing event, much as I suspect the Depression was. 

Thus, I have a name to put forward for this period of economic decline — the Great Recession.

The iconic image I picture in my mind of the Great Depression is the soup line. The iconic image that may hold for this Great Recession might well be the job fair line.

We need to start creating jobs to mount a recovery. Speaking of which, Directors & Boards Publisher Robert Rock has written a compelling essay for the First Quarter 2009 edition of the journal. Its title is "Job One Is Jobs Won." I implore all board members to read this — and to get primed to act on it, for the good of the economy and the nation.

Better that this be called the Great Recession than the Great Depression II.

Thursday, February 5, 2009

Boards: Down Those Jets, Up That PR

I've asked the question privately to myself, and now I'm going public with it: How is it that the Citigroup directors are still warming their boardroom seats? 

Maureen Dowd's recent column on the "Citiboobs" was the tipping point for me. After reading it, see if you don't agree that this question cries out for an answer after all that the shareholders, the financial markets, and the taxpayers have been through with this lumbering carcass of a bank. Such outcries will come, I'm sure, at the annual meeting this spring.

It appears that not only is there a lack of financial savvy on this board to have kept Citigroup from virtual insolvency, but the corporate jet fiasco indicates there is not a lick of PR sensibility either. (Jet illustration by Jean Kristie.)

I teach PR as an adjunct instructor at Temple University, so I am doubly tuned-in to stinks like this. In fact, one of the early articles I published after becoming editor of Directors & Boards was a 1982 piece I titled "The Missing Director," which argued that boards need a greater PR awareness of their actions and thus more boards should have PR executives on them. "There would be fewer unpleasant surprises in terms of hostile public reaction to corporate moves because the communicators were in at the beginning," stated the author, Gerald Voros, who was then president and COO of Ketchum Communications.

The argument still holds, more than ever in today's crisis environment. Directors can't count on the accomplished executives sitting around the table with them to be PR smart. They should be somewhat PR savvy if they've gotten to this point in their careers. But boards so often exist in a cloistered chamber that seems to make them tone deaf to public perception and reaction. Combine that with the natural reluctance to push back against management and you've got a combustible mix that's perfect for uncorking PR disasters.

With the board on the line the way it is these days, here are two suggestions: recruit a top PR exec for your next board opening; or, failing that, the board should start getting more face time with the organization's top PR counselor. Maybe that person needs to start sitting in on board meetings. The Citiboobs could have used such an extra set of eyes and ears in the boardroom to shoot down the TARP jet and warn of other miscues from years of questionable oversight.  

Tuesday, February 3, 2009

'Golf Lengthens Life': An Updike Tribute

John Updike, who died a week ago on Jan. 27, almost made it into Directors & Boards. For the Summer 2007 edition, I was thinking of publishing a few of Updike's delightful observations from his book, "Golf Dreams." This would have made a fun sidebar to complement the article, "How to Get the Best Out of a Golf Outing" — a superb tipsheet for board members by Maureen Ryan-Fable, president of the event management firm First Protocol

Well, I ran out of space. It's hard to believe now that I left Updike on the cutting room floor. Picture your humble blogger slapping himself upside the head.

As I look out my office window today and see blustery snow flying by sideways, I'm thinking what better way to remember the man of letters — and to transport oneself to a more welcoming clime — than to dip into Updike's paean to golf. Here are several snippets from his book that I originally intended to publish. You too might similarly enjoy them as February flexes its wintery fist:

•  "The difference between a good shot and a bad shot was marvelously large, and yet the difference between a good swing and a bad seemed microscopically small."

• "My once-or-twice-a-week golf games have been islands of bliss in my life, and my golfing companions, whose growing numbers now include a number of the dead, are more dear to me than I can unembarrassedly say."

• "Somehow, it is hard to dislike a man once you have played a round of golf with him."

• "Certainly the sight of our favorite fairway wandering toward the horizon is a balm to the eyes and a boon to the spirit."

• "As soon say life is too short for sleep as say it is too short for golf. As with dreaming, we enter another realm, and emerge refreshed."

• "For the hours and days it has taken from me, golf has given me back another self, my golfing self, who faithfully awaits for me on the first tee when I have put aside the personalities of breadwinner and lover, father and son."

• "Golf lengthens life."

It may well have for this renowned author. He died at the age of 76. I bet he was a splendid companion on the links. For a splendid read, pick up a copy of "Golf Dreams," published by Alfred A. Knopf.