Friday, May 29, 2009

A Commendable Commencement Address

With the end of May, we're coming to the end of commencement speaker season. A quirk of mine is monitoring stories on commencement speeches, such as this report on Jamie Dimon's commencement address at Harvard Business School. And here is the actual commencement address, courtesy of The Daily Beastgiven by Christopher Buckley at Yale — brimming with hearty chuckles from this master humorist. 

I have published just one commencement address in my almost 30-year tenure here at Directors & Boards, and it was a memorable one. It was given by my editorial advisory board member, Norman Augustine, to the Drexel University graduating class of 2007, an occasion in which he was awarded an honorary degree. Norm, the retired chairman and CEO of Lockheed Martin Corp., is a master himself in sprinkling great wit along with great wisdom into his speeches and writings. So let's wrap up the month on a lighter note. Here is Norm's commencement lead-in before he begins to dispense his guiding thoughts to the graduating class:

"To receive a degree from Drexel University is a great honor indeed ... Nonetheless I am acutely aware of the difference between the degree I am grateful to have just received and the degree that will soon be conferred upon each of you — yours being known in the world of academia as earned degrees! As Neil Simon once remarked, 'Would you let an honorary mechanic work on your brand new Mercedes?'

"The commentary that was offered about my career was exceedingly generous. But among those who would perhaps take a somewhat different perspective is Mr. Laurence Peter, progenitor of the renowned Peter Principle — whom I have never met, but whose letter I treasure. He stated that he had been studying my career and that I had undermined his entire life's work: I had, he asserted, risen not one, but two, levels above my level of competence!

"In thinking about what remarks might be worthy of such an auspicious occasion, I solicited advice from my wife of 44 years. After careful consideration, she counseled, 'Well, whatever you do, don't try to sound intellectual, clever or charming ... just be yourself!'

"I will try to do that, and, furthermore, follow the advice once given by a student to Al Neuharth, the founder of USA Today, when Neuharth, a graduation speaker, asked the student what his fellow graduates might like to hear from him. 'Not much!' replied the student. 

"So, as George Steinbrenner is said to have told his new managers during the early years of his ownership of the Yankees, 'I won't keep you long.' "

Keen — albeit, as promised, succinct — wisdom was then imparted. You can read Norm's full commencement address here.

As we witnessed throughout the month of May, the world of governance is still a rough go for many directors. A self-deprecating wit, like Norm Augustine's, is one way of dealing with the challenges and keeping grounded. I hope Norm's comments brought on a chuckle or two. 

Thursday, May 28, 2009

Harvey Golub, Onward to AIG

It's good to see Harvey Golub's name among the six nominees announced last week for election to the board of AIG. He and the other nominees are taking on a huge challenge, but the briefest glance at his c.v. gives one confidence that he's got the right stuff for the task at hand. He retired from American Express Co. in 2001 after seven years as chairman and CEO, a tenure during which the company achieved record earnings and the price of its shares increased sixfold. Director experience comes from service on the boards of Campbell Soup Co. (including a period as nonexecutive chair), Dow Jones & Co., Warnaco Inc., and other public and private company involvements.

Confidence also comes from a rereading of the cover story he authored for Directors & Boards in 2004, in which he laid out key principles for CEO-board relations. Here are three that strike me as especially pertinent to the situation ahead at AIG:

• "The CEO should not try to be the board members' best friend. Some believe that by keeping up an extensive schedule of private dinners and special events with directors, a CEO can build an atmosphere of rapport and friendship that will carry over into the boardroom. But the board is not the CEO's friend — it is the CEO's boss. The board of directors is not just a collection of individuals — it is an institution with a responsibility for representing the interests of shareholders. Friendship should never allow a CEO to get concurrence when it otherwise wouldn't be coming."

• "The important challenge for the CEO is to keep the board on track. It is essential  that directors be able to focus on the overall strategic issues and understand the company's strategic goals and how the business processes help advance them. On a good board, there is too much experience and judgment sitting around the table to waste it on anything of secondary importance."

• "The last piece of advice I would give a CEO is to be completely open and honest. Be careful to discuss the failures as well as the successes. Never surprise the board. Never ask it to vote on a complicated issue without explaining its nuances and risks."

AIG got wrecked on the nuances and risks of its businesses — and the seeming lack of understanding of such in the boardroom. Anyone concerned about the soundness of the financial system and the return to health of essential players like AIG can only hope there is a lot more explaining that will be done in future board meetings under the demanding oversight of its new directors like Harvey Golub. 

Monday, May 25, 2009

Director's Mantra: 'Another Day in Which to Excel'

I did something very out of my comfort zone today — I marched as a military veteran in a Memorial Day parade. 

I'm rarely in a position to be so public about my military service. Vietnam-era vets, after all, are used to not much fuss being made about them or their service to Uncle Sam. But when my local Congressman, Joe Sestak, put the word out for a group of vets to march with him today, I answered the call. (Now in his second term in Congress, this popular and much-admired public servant spent 31 years in the U.S. Navy, rising to the rank of three-star Admiral.)

I initially answered the call back in 1968. Just out of high school, with the Vietnam War going hot and heavy, I enlisted in the Navy. I'm proud to have served my nation in a time of trouble. It's as simple as that, and I generally leave it at that. But stimulated by a holiday like Memorial Day and an experience like my march today as a veteran, I'll share one of my favorite memories — one that has had a formative influence on my life.

The year was 1972, near the end of my four-year hitch. I was attached to a NATO facility in Naples, Italy. With my discharge imminent, my thoughts turned frequently to what my next step might be. I was in one of these contemplative states early one morning when something strange happened. 

I entered the elevator of the base headquarters building. Following me into the elevator was a senior officer, a naval commander, chest splashed with ribbons and medals. A distinguished-looking leader.

After a year of riding this elevator every day, and it being a close-knit community of U.S. naval personnel working in the building, I generally recognized the officers here. But he was a complete stranger. Elevator etiquette being not particularly conducive to striking up conversation between strangers — especially between an enlisted man like me and a high-ranking officer — I gave the obligatory yet friendly salute and settled into what I expected to be a silent ride up.

Little was I prepared for what happened next. The elevator doors closed and we began our ascent. Seconds passed, and he then turned to me. He looked me straight in the eye and said, "Another day in which to excel." With that, the doors opened, he stepped out, the doors closed behind him ... and he was never to be seen again.

A random encounter? Probably. Something of a more mystical nature that may have just transpired? Intriguing to ponder. Whatever the nature of that chance meeting many years ago, it gave me my life's mantra — every day, when I walk into my office, I step to the window, look out to the sky and skyline of the city, and say to myself, "Another day in which to excel."

In his Memorial Day address, Congressman Sestak said, "As every sailor knows, there is inevitably a storm at sea." That's something every board member learns too. I've often thought how great it would be for our corporate governance system if every director entered a board meeting heeding the mantra, "Another day in which to excel." There might well be fewer storms to navigate ... and far fewer queasy shareholders!

Monday, May 18, 2009

The Battling Board

Today, by proclamation of President Obama, starts Small Business Week 2009. As the President noted in his signed proclamation, "Our Nation's success depends on America's small businesses and entrepreneurs. Their contributions are necessary to rebuild our economy so that it once again offers the opportunity to succeed to all who seek it. This week we thank small business owners, entrepreneurs, and employees for helping America achieve that promise."

And let's not forget small business board members. These hardy individuals render vital service to entrepreneurs. But small business boards are a breed unto their own. The challenges in recruiting for, structuring, and managing a board for a small business are daunting. 

The President's proclamation reminds me of an article I published in 1994 titled "Problems with Boards of Small Companies." It was written by venture capitalist Harry Edelson. It was so good that I selected it for special honors as one of "20 Classics" published in the journal's first two decades, from 1976-1996, when I did a special 20th anniversary edition of Directors & Boards in 1996.

Edelson, general partner of Edelson Technology Partners, identified a whole range of problems endemic to small company boards, but also offered helpful solutions to each problem. Harry has a keen sense for human foibles—not a bad quality to have for a VC. One problem/solution that may give you a chuckle during this designated week for honoring the distinctiveness of small business is his observation on what he called "The Battling Board." Here's Harry:

Problem: Normally, outside board members do not associate enough to develop an intense hatred for each other, but it is a different story for members of management or for an officer and an outside board member. I attended a board meeting with three others in a small conference room where the chairman and president got into an all-out fist fight, knocking over the table and chairs.

Solution: When officers despise each other it is time for the board to fire one or both. Incidentally, if you think a fist fight is likely, make sure that the conference room is large enough for innocent board members to avoid injury and gain a good vantage point.

I join the President in his salute to the "entrepreneurial spirit ... of small business owners" and add my own salute to the feisty spirit of service—minus the fisticuffs—of small business board members. 

Friday, May 15, 2009

Wes Edens and G.B. Shaw on The Great Liquidation

When Fortress Investment Group reported  its first quarter earnings this month, it provided an occasion for the media to cite Fortress Chairman and CEO Wesley Edens' characterization of the Great Recession as "The Great Liquidation."

Here from the Wall Street Journal's report: Edens "said his firm expects to thrive [as the financial crisis grinds on]. Cash-strapped investors are still being forced to sell in 'The Great Liquidation,' as he and his partners call it, creating opportunities 'unlike anything we've seen in many, many years,' Mr. Edens said."

What Wes Edens said precisely about that was conveyed in his letter to shareholders in Fortress's 2008 annual report: "If this is the Great Recession of our lifetimes, then surely what will follow will be the Great Liquidation—first and foremost by the government, financial institutions, banks and insurance companies shedding 'toxic assets.' ... You have undoubtedly heard many comparisons to the RTC over the past year; those were great times to invest in financial assets, and we expect this market to eventually generate even greater opportunities. The scale and scope of this crisis is notably more extensive and complex—this is a crisis not only of real estate and financial markets but truly a crisis affecting virtually every business in the U.S. and around the world." 

Could Wes Edens be channeling playwright George Bernard Shaw? Shaw (pictured) knew something about Great Liquidations, as evidenced by this passage from "Heartbreak House," a play Shaw wrote in 1916 which I just saw performed on stage. 

The setting: a dysfunctional family gathering, into which enters a businessman by the name of Alfred "Boss" Mangan who, during the course of the play, makes the following admission of his methods:

"I don't start new businesses: I let other fellows start them. They put all their money and their friends' money into starting them. They wear out their souls and bodies trying to make a success of them. They're what you call enthusiasts. 

"But the first dead lift of the thing is too much for them; and they haven't enough financial experience. In a year or so they have either to let the whole show go bust, or sell out to a new lot of fellows for a few deferred ordinary shares: that is, if they're lucky enough to get anything at all.

"As likely as not the very same thing happens to the new lot. They put in more money and a couple of years more work; and then perhaps they have to sell out to a third lot. If it's really a big thing the third lot will have to sell out too, and leave their work and their money behind them.

"And that's where the real businessman comes in: where I come in."

Sounds like Nobel Laureate G.B. Shaw, writing 90 years ago, had a bead on being a Great Liquidation opportunist with the best of today's breed of PE investor and hedge fund trader. Who knew?

Sunday, May 10, 2009

Smile When You Say That

Here is a tip to make you a more effective chairman of a board, CEO of a management team, or director in a board meeting.

It comes from Andy Andrews, an inspirational speaker and bestselling author whose messages of hope, faith, and perseverance have resonated with the multitudes. I just dipped into his book, Mastering the Seven Decisions that Determine Personal Success [Thomas Nelson], and jumping right out at me was this choice piece of advice.

"I've often wondered," Andrews writes, "what I would say if somebody ever brings me in to speak and says, 'You've got one minute on stage and this is the last minute you'll ever speak in your entire life—tell them one thing that can change everything.'

"I've got the secret. Are you ready? It's going to blow your mind because it's so simple. You can learn it in a couple of days and it will change everything.

"Here's the secret: Smile while you talk.

"I'm not saying 'smile a lot' or 'smile at everyone you meet.' I'm saying SMILE WHILE YOU TALK!

"Very few people do this. Watch ... In everyday conversation, the vast majority of us speak to others with a serious or bland expression on our faces.

"Learn to smile while you talk, and your life will be forever transformed. And if you throw in a little chuckle while you're talking, even better. Why will everything change? People cannot help but smile at somebody who smiles at them!

"You want people to join the church softball team? You want them to buy a house from you? You want them to sign the deal? You want them to be a client forever? You want them to contribute to a cause? Learn to smile while you talk!" 

So there you go. Try it in your next board meeting. See if it makes a difference in the culture and collegiality of the boardroom and in your personal effectiveness in the board's discussion and decision making. I know I will.

Friday, May 8, 2009

Ken Lewis, Non-Chairman

Bank of America CEO Ken Lewis can't be happy about being forced to give up the chairman's role. In an article for Directors & Boards in 2006 on governance best practices, here is what he had to say on the separation of the roles:

"The idea that separating the chairman's function from the CEO's might provide stronger oversight is not new. And, in some circumstances, it could be correct. But there is also the risk that companies with an independent chairman can end up with ambiguous leadership, split allegiances on the board and in management, and an incoherent vision for the company's future.

"What is helpful when the chairman and CEO are the same person is to have an independent lead director, who can chair meetings and coordinate other activities of the other nonmanagement directors. This is a model our company adopted [earlier in 2006]. It provides an important communications link between the other independent directors and our shareholders.

"In working with a chairman and CEO, members of any board must be able to do their job, which is to provide guidance and support as long as the CEO has their confidence, and to remove the CEO when he (or she) has lost it. If they can't do that, the company doesn't need a new chairman; it needs new directors."

Well, guess what? The Wall Street Journal is reporting today that BofA is on the hunt for new directors. Oy vey! 

Monday, May 4, 2009

Louis Lowenstein (1925-2009): 'A Stitch in Time...'

Hang around long enough as a publication's editor and one thing that happens, sadly, is you begin to see a steady stream of your past authors move on to the big boardroom beyond. A loss this past month was Louis Lowenstein. 

The New York Times in its April 25th obit described him as an "influential law professor and former corporate executive who for nearly three decades dissected the excesses of Wall Street and warned of the dangers of short-term investing." I describe him as one of the most incisive analyzers of corporate governance to appear in the pages of Directors & Boards during my 28-year tenure as editor. 

I had the pleasure of publishing several pieces by Mr. Lowenstein. An article he wrote for me in 1997 is as vital to pointing the way forward for a sound governance system as it was when it first appeared a dozen years ago. Titled "A Governance Tool that Really Works," Lowenstein highlighted a factor that often is not fully recognized and appreciated in debates over how to make corporate boards and managements more effective: our financial accounting and disclosure system.

In the nonstop handwringing over how to improve governance, he wrote, "we usually look to board structures, compensation patterns, independent oversight, and the like. The debate has thus far been waged without so much as a nod toward the day in-day out impact of our accounting standards. I will suggest that good financial accounting, the extensive disclosures mandated most often in the English-speaking world, and notably in the U.S., is an often overlooked but powerful tool for enhancing corporate performance."

He went on to flesh out brilliantly this thesis. Let me cut to his two concluding paragraphs:

"According to a proverb that was popular in America when I was a child, 'A stitch in time saves nine.' My mother darned my socks, as most mothers did in those days, and as few if any mothers do today. But my mother would have understood corporate governance in those same terms: It is better to act before more damage is done.

"As we have recognized in the U.S. for over a half-century, good financial accounting is important to the integrity of our markets — but it is also an important corporate governance tool. It provides the brightest light and the most objective, detailed, and textured portrait of managerial performance. Without it, neither the financial press, nor shareholders, nor markets could scrutinize that performance, except by inference from sketchy data or by reliance on inside information of uncertain quality and consistency. Without it, the necessary stitches will not be taken in time."

Did I say his article is as vital as ever? My misspeak. Make that more vital than ever. As this Great Recession grinds on with its profusion of accounting and disclosure atrocities (hello Citigroup and Bank of America/Merrill Lynch, et al), Mr. Lowenstein's paean to accounting integrity and full disclosure should be Exhibit A in the reading list for all new board members, especially those assigned to audit committees. From my past interactions with this famed Columbia Law School prof and former president of Supermarkets General Corp., I believe he would approve.
[Photo by Gabriel Cooney]