Friday, October 30, 2009

The Airtime Metric

Want a terrific idea for getting the most out of your board members? Especially the more quiet ones, who you know have important insights and counsel but may be reticent to speak up?

Here is a tactic employed by Kent Thiry, chairman and CEO of DaVita Inc., an NYSE company that is the largest independent provider of dialysis services in the U.S. He calls it "one of the simplest and most self-evident ideas you could imagine." This is from his article, "Powerful Tactics to Power Up Your Board," published earlier this year in Directors & Boards:

"Every single board I have sat on had a subset of the members who did most of the talking. Furthermore, on many issues, a couple directors would do most of the talking, someone would venture forth with a conclusion, some heads would nod (or at least not object), and the discussion would move on.

"Therefore, I began the following practice: A couple of times at a board meeting, after there has been some give and take on an important issue, I will ask for us to go around the room and have every director speak, and sometimes each executive as well — even if it seems like there is a directional consensus.

"The consistent result is that we get some of the most insightful comments of the entire meeting.

"These are comments that would otherwise have never been made, because people did not want to fight for airtime, or they were worried it would prolong the conversation forever, or because while it was a value-added comment it would not directionally challenge the answer — all sensible reasons to hold back from throwing in another comment.

"But for an important topic, these synthetic closing thoughts, provoked by the extensive conversation that preceded them, are often the most valuable. Since each director knows they will get their turn, there is no need to rush — quite the contrary, they know the whole point is to reflect on the entirety of the issue.

"Some will link our discussion to other big issues, some will tie it to history, some will point out organizational issues it raises, some will point to capital market or implementation issues, while others point out optical issues.

"Whatever it may be, the aggregate result is every director becomes engaged by providing thoughtful closing comments on an important issue, with the rest of the board as their undivided audience."

Give it a try at your next board meeting. You might be astonished at the results when you employ this airtime metric. As Thiry admitted, "I only wish someone had brought it up to me years earlier, as I have been struck by its power."

Friday, October 23, 2009

A Trend That Will Change Everything

October is Women in Small Business Month. Kate Knapp of Smith Publicity has passed along to me some impressive stats, collected by the Center for Women's Business Research:

• There are 10.1 million firms that are 50% or more owned by women.
• These businesses are employing 13 million people.
• They generated $1.9 trillion in sales in 2008.
• One in five firms with revenues of $1 million or more is woman-owned.

Now add in a macro trend that renowned investor Jim Rogers identifies in his new book, A Gift to My Children. Rogers is always worth paying attention to when he opines on trends in the markets and specific investments. Here is what he sees ahead:

"Traditionally, women in Asia have been treated differently from men. In many countries, a girl's family had to pay a dowry when she married as a further inducement to find her a husband. Like women everywhere, Asian women have long suffered a lack of equal opportunity in society; they have been treated unfairly in pay and promotion in the workplace.

"But this is all going to change.

"In China, Korea, India, and other Asian countries, where the priority has been placed on the birth of boys, girls are now in short supply. Soon the typical Asian man will experience great difficulty in finding a wife. For instance, in South Korea, there are 120 twenty-year-old boys for every 100 twenty-year-old girls, while in China, the birthrate is 119 boys for every 100 girls.

"As all these girls become women, they'll be able to demand more freedom. The ramifications from this will be enormous: Professions, education, politics, everything will change."

Women-power, as celebrated this month for its present strength and, as identified by Rogers, as an explosive game-changer for the future, should be moving higher up on the opportunity scale for all CEOs and board members. And higher up on the risk scale, too — should this trend not be adequately recorded on your radar screens.

Jim Rogers closes out this trend alert by noting, "I am so pleased to have two daughters!" A hearty second to that — I am blessed to have a daughter myself.

Monday, October 19, 2009

Norm Augustine Takes the Stage

Congratulations to Norm Augustine on receiving the B. Kenneth West Lifetime Achievement Award at a big dinner in Washington D.C. this evening. The award, presented by the National Association of Corporate Directors at the organization's annual conference, is "in recognition of his remarkable career and his dedication to the improvement of corporate governance practices."

Norm, the retired chairman and CEO of Lockheed Martin Corp., is a cherished colleague of both the NACD and Directors & Boards. He is a board member of the NACD and a member of the editorial advisory board for Directors & Boards. What better places from which to exert the considerable force of his intellect and personality to advance the best practices of board governance? I've had the pleasure to publish several articles Norm has written for Directors & Boards over the past two decades, and each one has been a gem — chock full of wisdom on corporate life and leadership.

Several of Norm's peers lauded his personal qualities and professional accomplishments at tonight's awards dinner. Procter & Gamble Chairman A.G. Lafley, for one, said, "Boards look to Norm for wise counsel and outstanding judgment." Is there any higher tribute that could be paid?

But when it comes to Norm Augustine, special mention is always made of his sense of humor. It comes through in his writing and speaking and, as his peers made sure to mention at the awards presentation, in his board interactions. (He is, by his own count, a veteran of 500-plus board meetings of Fortune 100 companies.) His acceptance speech anecdotes generated hearty guffaws in the crowded ballroom of the Omni Sheraton. Like this assertion that was once told to him: "The best sight is seeing the back end of a bus full of directors leaving town."

One of the biggest laughs came earlier in the day, when Norm was on a panel discussing the topic of the board's role in corporate strategy. Asked to talk about one of his worst war stories related to the topic, he gamely told of his board involvement with an unfortunate organization that faced this situation: "The CEO didn't believe he needed a strategic plan..." Pause. "...and proceeded to implement it."

Lifetime achievement awards, while marvelous to receive, come with a tinge of finality. Recipients are rightfully ambivalent about being recognized with such an honor. So while we extend our congratulations to someone who has considerably brightened boardrooms — and our pages — with his brilliance, I'm sure my NACD colleagues join me in a follow-on wish that Norm Augustine's wisdom and wit reign powerfully for years to come.

Thursday, October 15, 2009

Bruce Wasserstein: 'Let's Just Think About That'

So sudden — the death of investment banker Bruce Wasserstein yesterday at the age 0f 61. Tributes to his colossal impact on M&A dealmaking have been made in the Wall Street Journal, New York Times, Financial Times, and other publications.

Directors & Boards visited with Wasserstein in 1999, when he sat for a cover-story interview with our lead columnist Hoffer Kaback. Over the course of nine pages of sharply conducted Q&A, Wasserstein gave a peek into his playbook for getting a deal done.

Of all the tips and tactics discussed, there was one practice of his that he talked about that is ideally suited for helping boards in all their decision making, not just with M&A.

When the conversation turned to his admiration for one of his Harvard Law School professors, Lon Fuller, Wasserstein said this:

"I admired him both in an ethical sense and for the way he was able to shave an intellectual problem, if you want to put it that way, and look at it from many different points of view. A prism of fact, if you would. And I guess I was attracted to that way of thinking.

"He had an expression, 'Well, let's think about that.' Someone would come up with the obvious answer and he'd say, 'Well, is that right? Let's think about that.' And that's what I try to do with the people around here. You get a young, bright guy who says, 'We're going to do this to solve that.' Maybe he's right. I don't know. 'Well, let's just think about that.' I find that taking that little extra time to think about something is helpful when everyone's in a big rush."

Powerful advice for boards. In the heat of the action, when management is raring to go down a particular path, how much better a decision will be made if one or more of the directors bats back with a "Well, let's just think about that"?

Tuesday, October 13, 2009

Board Pay: View from Warburg Pincus

The passing of Lionel Pincus on Oct. 10 reminds me of an excellent corporate governance article for Directors & Boards that came out of the Warburg Pincus investment firm in 1998. It wasn't written by Mr. Pincus, a legend in private equity investing, but by the firm's then president and vice chairman, John Vogelstein (pictured at the time of the article's publication).

Writing as a PE investor and board member — in fact, I titled the article "As I, an Owner-Director, See It," Mr. Vogelstein offered up a set of measures that, in his words, "have the likelihood of improving the functioning of U.S. boards." At the time of the article's publication he was a director of Advo Inc., Golden Books Family Entertainment Inc., Journal Register Co., Knoll Inc., Mattel Inc., and Vanstar Corp. Here were three of his recommendations:

• "I have observed that directors who own meaningful (to them) amounts of stock pay more attention to the stockholders' interests and generally do a better job. Consequently, I would increase and formalize the ownership requirements for board representation. There are far too many 100-share directors engaged in determining the fate of multibillion-dollar corporations."

• "I would pay all directors' fees 50% in cash and 50% in stock, with the requirement that the director continue to hold the stock so long as he or she remains on the board. But stock acquired in the manner would not substitute for the ownership requirements I mentioned above; a director has to have some personal net worth on the line."

• "I would do away with annual retainers — a director who misses a meeting shouldn't get paid — and I would significantly increase attendance fees. I would also require any director who missed more than 50% of a company's board meetings for two years in a row to resign from the board."

Vogelstein has been in the investment business for 55 years and is still with Warburg Pincus, holding the title of managing director and senior advisor of the firm's U.S. Advisors. He joined the firm in 1967, shortly after its founding. And he still keeps his hand in as a corporate director, serving on the board of Flamel Technologies.

In the 10-plus years since his article's publication, boards have made progress on some of his metrics. Meeting attendance is much improved, for one. We need further improvement on director "skin in the game." I too have championed that directors be required to hold on to any and all shares until they resign from the board. We have a long way to go on that initiative. All in all, a set of strong beliefs on enhancing director performance by this longtime board authority that retain much applicability to today's governance practices.

As is this philosophy re CEO performance: Wrote Vogelstein, "We have a saying at Warburg Pincus — 'We have never fired a bad CEO too soon.' " With beliefs like these, there is no question how he and Lionel Pincus built Warburg Pincus into one of the most storied forces in the private equity industry.

Monday, October 12, 2009

ROI: Return on Insight

Last week I met a fellow who championed the use of ROI. No, not return on investment. His ROI metric is one that his firm uses in its consulting work with clients — return on insight. He explained how his firm delivers what all consulting firms should deliver: value-generating insights to its clients. I had never heard that usage of ROI before.

Value-generating insights. That's what this blog, "Boards At Their Best," endeavors to deliver. Today marks its first anniversary.

I started this blog as an academic exercise. A year ago I was teaching a course in "Fundamentals of Public Relations Writing" at Temple University, my alma mater. For a final paper, I intended to give the class the assignment to start a blog. If I wanted each of them to become bloggers so as to be adept at this important capability for a PR practitioner, I figured I better become a blogger myself to test the doability of the assignment. If I could create a blog, then anyone could do it, certainly twentysomethings with a lot higher comfort level with technology and social media.

The title of the blog was chosen with care, as was the subtitle: "Insights on Leadership and Corporate Governance." I try to make sure each posting has a nugget of distinctive advice or perspective that you won't find in the mainstream media or elsewhere in the blogosphere. That's why I like that ROI metric — return on insight. I invite and encourage you to return here often over the next 12 months of postings to see how you would score its ROI.

Friday, October 2, 2009

Ken Lewis Advice: 'Keep a Level Head'

With the sudden resignation of Ken Lewis, the Bank of America board now faces a classic succession crisis: the much earlier-than-foreseen departure of an iconic CEO, with no clearly defined and vetted successor ready to step in. And this is happening at one of the most important financial institutions in the country and to the country, in terms of helping the capital market system return to full and fair functioning.

The New York Times calls it "a remarkable boardroom drama," and describes the directors as being "stunned by the turn of events."

Take heart, BofA board members. Your own CEO offered some sound advice on what to do in such a situation. Here from an article by Ken Lewis published in Directors & Boards in 2006:

"Directors must have grace under pressure. Given the regulatory environment in which we now operate, the likelihood that your company will face an issue at the board level at some point during your service — related to accounting, disclosure, compliance, an ethics breach, or something else — is high. Directors must accept that issues arise in all organizations.

"What distinguishes companies is how managers and directors respond. The first job of a director is to keep a level head, get the facts, and give management the opportunity to take appropriate action. It is only when management fails to act, or to acknowledge the issue, that directors must act decisively and hold management accountable. Figuring out which situation the company is in — and when directors need to take independent action — may not always be easy. But it's the most important judgment directors will ever be called on to make."

At the time he authored those words, there probably was no stronger or more highly regarded CEO in the country. The intervening years have not been kind to the man or his reputation. This particular piece of wisdom, originally dispensed to be a best practice to boards generally, has applied in a most particular way to his own board over the past 18 months, what with the near collapse of the financial system, the TARP funding, the Countrywide and Merrill Lynch purchases, the Merrill bonuses, the Paulson/Bernanke gangtackle, and other "issues at the board level." (Some of those directors, in fact, can no longer keep a level head, seeing as their heads were lopped off a couple of months ago in a board putsch.)

And now, with Ken Lewis dropping the "early retirement" bombshell on them, the BofA directors find themselves yet again having to embrace their beleaguered leader's advice to "keep a level head."

Thursday, October 1, 2009

Rule No. 1 in M&A

A transaction that started Labor Day weekend just got to a flash point: The U.K.'s M&A regulator has given Kraft Foods six weeks (till Nov. 9) to make a binding offer to buy Cadbury PLC — a "put up or shut up" demand — or Kraft will have to walk away for six months. Cadbury's board has rejected Kraft's initial advance, a $16.7 billion combined cash and stock bid.

Ah — there's the rub. Cash and stock. Maybe Kraft needs to revert to Rule 1 in M&A to get this deal done. And what is that rule? I turn to one of my past authors, D. George Harris (pictured), who stated it with simple elegance:

"Rule No. 1 in the takeover game: If someone makes an all-cash, any-and-all-shares tender offer, and they've got any kind of a reputation to back it up, you know that company is going to be sold to someone. The question becomes: To whom, and what degree of control will you have in that determination."

Harris had intimate familiarity with this rule. He lost his company to a hostile acquirer. He was head of chemicals company SCM Corp. when it was bid on by Hanson Trust PLC in the takeover mania of the mid-1980s. He wrote a detailed case study for Directors & Boards of the attack, defense, and ultimate surrender to the voracious British conglomerate.

I titled the article, " 'This Can't Be Happening': The Takeover of SCM." That title was inspired by another of Harris' hardbitten lessons, which Cadbury's board and management might heed. Warned Harris: "One of the things defenders have to contend with — a wish, really — is that 'this can't be happening to us.' As a director of such a company, I think you have to make sure management knows: It can happen, and it is, and if you want to do anything about it, you'd better get a move on."

Post-SCM, Harris went on to a distinguished next phase of his life as an investor in and owner of chemical companies. I was saddened to learn as I was writing this that he died in 2007. Let's see if his "Rule No. 1" lives on in how the Cadbury transaction concludes.