Tuesday, March 31, 2009

Say It Ain't So: 'Parsley on Fish'

Irving S. Olds, chairman of U.S. Steel from 1940-1952, once opened a speech by declaring, "Directors are like the parsley on fish – decorative but useless." 

An appalling statement, no? (That's Mr. Olds pictured above, seated at left signing documents.) 

I had occasion to resurrect this infamous quote when I sat in on Prof. Stew Friedman's class at the Wharton School today. A close colleague, Stanley Silverman, gave a guest lecture on CEO and board leadership to about 60 MBA students. It was a superb briefing, covering the highlights — and some lowlifes — that have marked corporate leadership during the past two decades of Stan's public and private company CEO and board service.

At one point in the class discussion, Stan turned to me to chime in with a comment. He didn't need to do so, as he was doing such a good job that I hesitated to try to supplement the wisdom he was passing along. I chose this moment to hit the students with Mr. Olds' brutal accusation against boards. I felt that this might be the worst thing they would ever hear said about a corporate board, so they might as well hear it while they were in school, in an historical context — and hopefully realize that from such a rock-bottom assessment the "stock" of corporate boards has risen inexorably in the years since.

But ... and isn't there always a but? In Stan's own presentation to the class, he splashed up in full-screen PowerPoint this observation by John Schnatter, chairman of Papa John's International Inc., taken from the Wall Street Journal: "Behind every Freddie Mac, Bear Stearns or Lehman Brothers who led their company down the path toward financial ruin, there was a board of directors that sat by silently and let it happen."

In other words, parsley on fish. Ouch.

And double ouch — this lecture coming on the day after the government ousted GM Chairman and CEO Rick Wagoner. A company on the brink of annihilation, accompanied by a government takedown of the CEO, looks suspiciously like more parsley on fish.

I tried to tell the students that at GM there undoubtedly is a board working feverishly to pull the automaker out of its death spiral. The GM directors I've known bear no resemblance to parsley. But who's to say that the final verdict on the GM board will be — "decorative but useless"?

I hope the students believe me. And I trust the students saw in Stan Silverman the leadership talent, managerial expertise, and ethical character that reflect the best that our executive suites and boardrooms have to offer. It's just that this hellacious recession is proving how hard it is to banish the ghost of Irving Olds as simply a curmudgeon from some long ago and far away era of corporate governance.
[Photo by Time Life]

Friday, March 27, 2009

Board Minutes? No, Board Moments

I expected Duke to go further into the playoffs. Unfortunately for phenomenal Coach Mike Krzyzewski, his new book The Gold Standard: Building a World-Class Team (Business Plus) landed on my desk just as his team was falling victim to Villanova.

Over the years I have published a few articles that attempted to affirm the notion of the board as a team. The proposition is enticing. Elements of teamwork certainly apply, such as a group of individuals coming together, pledging themselves to serve an organization, and dedicating their collective efforts to achieve set objectives — profitability, revenue, market share, product innovation, a transformational deal ... whatever directors most want to see on the scoreboard when the whistle blows at the end of the quarter or fiscal year.

As attractive as the notion is, the concept of the board as a team has its holes. Board members generally meet too infrequently to be convincingly called a team. And often the charge is leveled that directors act more as a collection of No. 1 draft picks rather than a cohesive coterie of balanced talents. So this is one theory of board dynamics that is unsettled.

But back to Mike Krzyzewski. In his new book he offers another way to define the nature of teams and teamwork, and it's one in which you can bring boards onto the team bench. Here's how Coach K lays it out:

"The time you spend as a team is defined by moments: moments that unite, create understanding, and allow you to discover your collective identity. These moments make you one, make you better, make you proud. Some moments are planned. You know they need to happen, so you design them. But there are other moments that happen on their own, a natural by-product of team formation. Still other moments pass by unnoticed until you discover their importance later on. You come to realize what they really mean and how critical they actually were.

"How do you build a team?" Coach K continues. "Embrace moments. Plan for moments. There are moments of anger, moments of joy, moments of togetherness, and sometimes just moments of awareness. Learn how to recognize them, facilitate them, reevaluate them, and, most important, share them. They are the lifeblood of your team."

Bad timing for Coach K to have his new book come out just as his team fell short in the run to the big show. But never a bad time to impart his wisdom on team building — something that, especially in these trying times, could bring more boards together in common strength and spirit. 

Friday, March 20, 2009

An Arm Around the Shoulder

As the recession tightens the screws on their companies' operations and finances, board members have to be seeing the pressure on their management teams. Other than feeling their pain and trying to be as supportive as possible, directors are probably wondering what else they can do to help keep their CEO on a even keel. 

How about giving the CEO a hug?

It worked for Mel Bergstein (pictured), when he was on the receiving end of a thoughtful director's empathy.

Bergstein was CEO of Diamond Management & Technology Consultants Inc., a publicly traded technology consulting company, when the dot-com bust hit. The company survived, but endured a painful, almost near-death, experience mounting its comeback. He describes how he and his management team pulled the company back from the brink of extinction in the cover story he wrote for the First Quarter 2009 edition of Directors & Boards — a first-person account full of applicable wisdom and tactics for battling through the current downturn.

And what about that hug? Well, let Bergstein describe it. "For the board of directors," he writes, "it's important to understand the pressure and sense of helplessness that the CEO feels in these times. I was always encouraged by one director in particular who would put his arm around my shoulder and tell me I was doing the right things and the business would recover. I knew he hadn't a clue more than I did. But, hearing him say it to me helped me not feel so alone and burdened. He earned his director comp 10 times over because he was sensitive enough to understand. He'd been through it himself in the S&L crisis in the 1980s."

Bergstein, now chairman of the company, has several other pointers on how the board can help management work through these hard times. You can read his full account in the original article — leave a comment here or email me at jkristie@directorsandboards.com and I'll email a copy to you — or click here for an excerpt that appears in the March issue of the Directors & Boards e-Briefing.  

What a choice piece of advice for all board members — that simple arm around the shoulder to buck up a stressed CEO might be just the heroic gesture needed to help the CEO pull himself and the company one step back from the brink.

Monday, March 16, 2009

AIG: Bizarro World

I consumed DC Comics as a kid, which was my first exposure to Bizarro World, and I'd laugh at the Bizarro World skits on "Saturday Night Live" in the 1970s. But who could laugh now as we digest the details of AIG's bonus payouts. This is a whole new orbit of Bizarro World — a weirdly mutated version of life and finance.

What is there left to say that hasn't been said by outraged politicians, government bureaucrats, the press, "talking head" commentators, and incensed taxpayers and shareholders? Other than that it's Bizarro World — lose unimaginable gobs of money, even destroy the company, but still be eligible for millions of dollars in bonuses.

Well, I do have a few questions:

• If AIG went bankrupt, would these supposedly inviolable contracts be honored? Here we have an insolvent company that is on government life support. This doesn't give the conservators the right to rip up the contracts? To the aggrieved bonus recipients, I'd have three words: "So, sue me." Anywhere but in Bizarro World these "contracts" shouldn't mean spit.

• How is it that the AIG board hasn't been forced to step down by now? How is it that the board even stays out of the limelight and headlines like it has? Can you name one person on the AIG board? Could a fresh team of gunslinging governance and turnaround types do any worse than the present board, which has presided over this historic disaster? Anywhere but in Bizarro World the board shouldn't mosey along in the shadows when a disaster of this scale strikes.

• And, who are these guys that crafted these unbreakable contracts? Every CEO and board member should be thinking to themselves, "Next time I have a contract I need made up, that's who I want on my side of the negotiating table." Talk about rocket scientists on Wall Street! They're not on the trading floor but in the legal department. Anywhere but in Bizarro World the biggest guns in the White House, the Congress, and the Treasury Department should be able to trump the sharp-penciled types who drew up these contracts.    

Oh my. What's left except to say, however lamely, "Boards, be careful what you contract for." You never know when your boardroom may turn into a very public episode of Bizarro World. 

Friday, March 13, 2009

A Master Builder's Blueprint for Success

Love of risk has plunged the nation into some deep doo doo. How about love and risk being a winning formula to get us cleaned up and out of crisis?

It's a question that brings me to legendary real estate developer Trammel Crow, who died two months ago at age 94. His passing slipped by without a great deal of attention, not surprising in a period when any news about commercial real estate is more likely to be riveted on financing troubles, failed projects, and busted developers. His spirit speaks to our troubled times, however, so let me pay tribute before he fades into obscurity.

Crow, in his day, was a classic American success story. Starting out as an accountant, he switched to real estate at age 33, and began a run of projects in the late 1940s that reshaped the skylines of several cities, especially his hometown of Dallas. My only brush with Crow came in 1989, when I published in Directors & Boards an excerpt from a new biography about him. The book, full of color on this master builder, was written by Robert Sobel, a professor of business history at Hofstra University (who died in 1999). Let me share two of the choice anecdotes about Crow that were in our piece:

• "After giving a guest lecture at Harvard Business School, a student asked Crow to identify the most important single element in creating a successful business. 'Love.' Crow firmly believes that if you truly have love for people you will be more successful with them. If you love what you are doing, you will be successful at your job. If you love yourself, you will be a better person."

• "An English businessman, visiting Dallas for the purpose of making some investments, was invited to dinner at Crow's home. Afterward, the two of them and some of Crow's friends and colleagues sat around and talked of many things, including their aspirations and goals. 'Trammel, I'd just like to get a little better view of your circumstances,' the visitor said. 'I've seen your library, I've met many of your friends, I see you're athletic, I understand your involvement in many affairs, and I'm quite impressed with all the beautiful objects of art you have in your home. If you had the opportunity to add another dimension to your life, what would you want to do?' Without the slightest hesitation, Crow responded: 'I'd like to make another deal.' "

Risk taking got us into this economic mess, but it's going to be good old-fashioned, iron-backboned, pioneering-spirit risk taking that is going to get us out. And let's ladle in a hearty dollop of love, something in short supply as the layoffs mount. 

Love and risk takingFor boards longing to reconnect with the spirit of progress and profit, that sounds like a winning formula. It was the empire-building blueprint of an American great like Trammel Crow. Put it to work for you.

Wednesday, March 11, 2009

He Called It: No Welshing Allowed

For any board member or otherwise interested party who was wondering how the Dow Chemical-Rohm & Haas dispute was going to turn out — perhaps even better, speculating with hard cash on the deal going through — a subscription to Directors & Boards would have had you "seeing around corners" on the outcome ... and maybe made you some money.

In our current issue, on the street in January, lead columnist Hoffer Kaback (pictured) analyzed the intricacies behind two instances of buyer's remorse. The first was Hexion Chemical's backing away from its agreement last fall to acquire Huntsman Chemical. The second was a trip down M&A memory lane. He revisited an "infamous deal," as he called it, from the early 1980s — the offer by Gulf Oil to acquire Cities Service Co.

"Ignore that the merger agreements in Gulf/Cities Service and Hexion/Huntsman were not identical," he writes. "The essential dynamic was the same: overpayment; buyer's remorse; and the attempt by the on-the-hook buyer to bootstrap itself off the hook — in a word, to welsh."

His column cast a scant eye on buyers trying to evade their obligations. This passage may have been all you needed to read to discern how Dow-Rohm was going to go down:

"To observe that it is tough in Delaware to get out of a merger agreement under a 'material adverse change' clause is an understatement. It has never happened."

The record stays intact. Dow Chemical reached an agreement earlier this week — virtually on the Delaware Chancery Court's steps — to seal the deal. It's an ugly deal for Dow. This critique in today's Wall Street Journal is particularly sobering if you're on Dow's side of the term sheet. 

Kaback, president of investment firm Gloucester Capital Corp., is an arb who cut his teeth in the deals frenzy of the 1980s. Importantly, he is trained in the law — a Harvard Law School grad who began his career with a major New York law firm. Armed thusly, he can read the Delaware Law rulings on transaction disputes — and the nuances of those rulings — with the best of the best deal makers and legal scholars. He has been lead columnist for Directors & Boards since 1997.

An example of great value-added for our readers. If you haven't seen Kaback's column, leave a comment on this blog item or shoot me an email at jkristie@directorsandboards.com and I'll share a copy with you.

Friday, March 6, 2009

Time for a New Attitude

It's a new month. Times are as tough as ever, and in some measures, such as today's jobs report, getting tougher. But enough! It's time to take on a new attitude.

Here is just the attitude worth emulating. It's one that Tom Robertson (pictured), dean of the Wharton School, expressed as he opened the proceedings for the 5th Annual Wharton Restructuring and Turnaround Conference, held a week ago.

Taking the dais to welcome a huge crowd squeezed to the gills in the Lincoln Ballroom of Philadelphia's Union League Club — a crowd said to be the largest outside group ever hosted at the club in its 147-year history — he set a constructive tone:

"We're beyond saying, 'Things are bad.' It's time to say, 'How do we take advantage of the situation? ... How do we come out of the backside of this stronger than we went into it.' "

Right on! The shells are still flying, and one may yet land in your lap. But I'm in the dean's camp, and I know many corporate leaders are, too. It's time to rise up out of the bunkers and start mounting a forward-moving assault on your competitive marketplace.

Dean Robertson can count on one prominent business executive who studied at Wharton to buy into this new attitude thinking. Steve Wynn, the casino company mogul, expressed this "I will survive" attitude, albeit a bit more colorfully than the dean's measured tone, in an interview with Wall Street Journal reporter Tamara Audi: "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."

Just so. And here is a thought: For those who read tea leaves, the fact that this restructuring conference drew such a record-busting crowd might signal some kind of a top — or is it bottom? — in today's troubled times.