Thursday, December 31, 2009

Goodbye to All That

Glub . . . glub . . . glub. At the very start of 2009, in my editor's note in the January e-Briefing newsletter, I predicted that the year ahead would be "Byrom-esque." That's a phrase I made up, drawing from an observation put forward by one of the grand corporate statesman of the 1960s and '70s, Fletcher Byrom (pictured), who said: "The best motivated person is a 5-foot 10-inch nonswimmer in 6 feet of water."

That's how I saw 2009 for corporate directors — that the crisis of credit, markets, leadership, and confidence would make board members feels like Byrom's splashing-like-mad nonswimmers in a 6-feet-of-water boardroom — i.e., in (slightly or utterly) over their heads.

That was a pretty good call. Many board members slipped below the surface, never making it through the year. We saw that at Bank of America, Citigroup, AIG, GM, and other troubled entities. When the markets hit their lows in March, it sure looked like lots of bodies were going to be pulled from the water.

That didn't happen, thankfully. In an ocean of troubles, directors played a vital role in helping keep their managements from going under. This fulfilled the second part of Byrom's aphorism: "If you're doing as well as you should, everyone's head ought to be a little under water all the time. People perform best under conditions of moderate tension."

Well, 2009 was a time of more than moderate tension. As we close out the year, let's recognize the survival instincts and crisis-inspired leadership abilities of those directors who made it through this Byrom-esque year.

Sadly, Fletch himself never made it through the year. This grand business leader of the old school — a CEO who led a major industrial corporation (Koppers Co.), served as a powerful presence on the boards of several Fortune 500 companies, moved comfortably between the business world and service to government, science, academia, and philanthropy, and operated as an all-around strategic adviser on the world stage — died in July at the age of 91. I got to know him a bit when I published a major article by him — a classic commentary on succession planning titled "A Message to My Successor" — in 1999.

So, goodbye to Fletch . . . and goodbye to all that splish-splashing of 2009. Can we rest our bobbing arms a bit now?

Tuesday, December 29, 2009

A Hot Trend

It's not often a quarterly journal like Directors & Boards can beat the Wall Street Journal in getting a story into circulation. It's fun when it happens.

We experienced that this month when our current edition featured a major article on a trend we think is about to explode: how HR officers will become much closer and more valued counselors for the board — a trend that will include chief human resource officers (CHROs) becoming desirable board candidates. We titled it "A Strengthening Nexus: Boards and the CHRO." That issue hit the street Dec. 4. On Dec. 14 the WSJ reported that "HR Executives Suddenly Get Hot," with the article subhead adding "Profession Is in Demand for Board Seats as Firms Seek Guidance on Pay Deals."

I like this as a compelling example of the serendipity of good ideas being explored by multiple sources at the same time . . . as well as affirmation of our respective trend identification.

Kathy Herbert (pictured) is what I termed in the Directors & Boards article a preeminent example of the HR expert who has been recruited as an outside director. She is the former EVP of human resources of Albertson's Inc. who is serving on the board of Covidien PLC, the Tyco Healthcare Group unit that was spun off to Tyco International's shareholders in 2007, at which time she joined the board. She authored for us a Top 10 list of "What the Board Needs from the HR Chief." This is a primer for board members who want better advice on which to make key human capital, compensation, and succession and management development decisions — as well as a primer for HR officers on how to become a trusted adviser to the board. Her views were supplemented by two top HR officers, Angela Lalor of 3M Co. and Ian Ziskin of Northrop Grumman Corp., who discussed the impact that progressive HR practices can have on the governance of public companies today.

I have some skin in this trend. I've published pieces on the HR-Board relationship that date back a decade and more, so I've been an early advocate for the strengthened nexus. And now I have been invited to participate in the meetings coming up in 2010 of the CHRO Board Academy. Formed by Dennis Carey, senior client partner of Korn/Ferry International, the CHRO Board Academy is an organization that specializes in preparing HR executives to work with their boards as well as to serve on outside boards. The above-mentioned Ian Ziskin along with Daniel J. Phelan, chief of staff for GlaxoSmithKline, are co-chairs of the CHRO Board Academy.

I look forward to bringing to the readers of Directors & Boards more thought leadership on how HR executives not only have gotten hot but stay hot in the bubbling cauldron that corporate governance likely will be in 2010 and beyond.

Photo of Kathy Herbert by Kathy Richland ©2009

Sunday, December 27, 2009

High Times

It was hard to resist a chuckle when I read Jason Zweig's The Intelligent Investor column in this weekend's edition of the Wall Street Journal, titled "Does Golden Pay for the CEOs Sink Stocks?" The always readable and sensible Zweig reviews two new studies that "suggest that when chief executives get paid more, shareholders end up earning less."

It was his concluding observation on the results of these two studies, one of which was by a savage critic of inferior governance practices, Lucian Bebchuk of Harvard Law School, that brought a wry smile to my face. "It's high time," Zweig wrote, "for corporate compensation committees — and investors — to start doubting whether the lavish pay packages they endorse actually work."

The "high time" message is one that we here at Directors & Boards communicated almost three decades ago — in a powerful article titled "Is Any CEO Worth $1 Million a Year?" I remember this article well because we published it in one of the first issues after I joined the journal in 1981. It has since become a classic. (And I have on numerous occasions been known to say that if we dusted this article off today we'd have to add one if not two zeros to the end of that dollar figure for the update.)

What's fair and rational to pay CEOs has so many layers. Our board panel for this 1982 article wrestled mightily in peeling this onion. Here were several comments that illuminate the Solomon-like judgment that a compensation committee must bring to bear:

• "Increasingly, the chief executive officer is dealing with external problems — legislation, regulation, and a variety of other things that aren't measured by the bottom line. As much as 40% of the CEO's time is spent in this kind of work. But the bottom line doesn't register that fact."

• "The CEO is involved in laying out where the company ought to be at a future point. Trying to compensate him for results today is not only unrealistic but unfair."

• "The current CEO and top management are really being evaluated by decisions made by someone else four or five years ago — in effect, they are implementing existing strategies. How should that influence their compensation?"

• "In the vast majority of companies, the endeavor to match compensation and performance will be dwarfed by the characteristics of the stock market today."

These are all sophisticated comments of concerns that often don't get reflected in CEO pay critiques. That last comment is particularly telling. One thing it tells me is that three decades ago it was high time for comp committees to be critical of lavish pay packages, that it's high time today, and that three decades from now we'll still be saying that it is high time for comp committees to be better arbiters of fair and rational compensation.

Friday, December 25, 2009

A Christmas Day Story: The 'Vertical Leap'

For many, there will be no tears shed for year 2009 coming to an end. Some say the Great Recession is over, but many are beset with great troubles. And if we're lucky enough not to have great troubles, we're still probably feeling troubled about the state of the economy and world stability.

But today, Christmas Day, let's be properly thankful for the blessings we do have. As troubled as the times are, a big blessing is to be living in the world at this moment in time. Consider the following, from a speech that I heard recently:

"Economists have tried to reconstruct what the average income of people would have been through time. By the way, this is not easy. Obviously we didn't have price indexes and statistical agencies, and so on, until the 20th century. But using a kind of 'economic archaeology,' economists have estimated that between the time of Christ and 1800, the average world income was flat.

"Just think about that. Although incomes in some parts of the world were higher than others, on average people throughout the world were no better off in 1800 than they were 1,800 years earlier.

"That's remarkable! And yet, in the last 200 years, U.S. income per capita has increased by a factor of 30 or 40. If you were to look at any chart of per capita income in the world — or by country — you would see an almost vertical leap starting from the Industrial Revolution and continuing on thereafter."

Robert Litan, an expert on banking and finance, told the above to an audience of Foreign Policy Research Institute members and guests. You could hear jaws dropping all over the room at the Union League when he unveiled this economic fact of life — 2,009 years of life since the birth of Christ that is being celebrated today — to the rapt crowd.

Yes, Virginia, it's a good day, and a good time, and a good place, to be alive. As tough as the year may have been, there have been tougher years — many many more tougher and leaner years — in the history of humankind. Let's celebrate and be thankful. Merry Christmas!

The Foreign Policy Research Institute is a Philadelphia-based think tank on global affairs. Robert Litan is vice president for research at the Ewing Marion Kauffman Foundation and a senior fellow of Economic Studies at the Brookings Institution. He is an economist and lawyer who has served in a variety of federal agencies and White House posts. Click here for a full copy of his FPRI speech, "Innovation and the World Economy: The Second Annual Rocco Martino Lecture on Innovation."
Illustration: "The Carpenter" by Nathan Greene

Tuesday, December 22, 2009

Peter Scanlon: A Voice Heard From

I'm a PMA Guy — positive mental attitude being my fundamental mindset. But I have to say that there was a lot to not like about 2009 — such as the number of my past authors who passed away this year. Since January this blog have been riddled with obit tributes to distinguished executives who have graced the pages of Directors & Boards while I was their editor.

Peter Scanlon, a former chairman of Coopers & Lybrand, died on Dec. 3 at the age of 78. As the New York Times obit recounts, he led the then Big 8 accounting firm from 1982 to 1991; the firm merged with Price Waterhouse in 1998 to form PricewaterhouseCoopers.

Mr. Scanlon wrote an article for me in 1984 that addressed several significant proposals being put forward by the Financial Accounting Standards Board. "Brace for More Change to the Balance Sheet" we titled his article. The accounting changes he felt moved to do a heads up on are somewhat moot now a quarter of a century later. But one point he made in his article still has pertinency today as a governance leadership principle.

"Setting new accounting standards isn't an easy job because of the many different interests that need to be considered," he wrote. "It's not unusual for academicians, analysts, accounting firms, businesses and, of course, the general public to all see the issues involved from different perspectives. There is no argument that the ultimate goal should be to provide more and better information. But given the complexity of many of the standards and the diversity of financial statement readers, it's inevitable that this goal won't be achieved to everyone's satisfaction.

"America's companies are the ones ultimately responsible for implementing and explaining the impact of accounting changes to shareholders, lenders, and employees, and for adjusting to cope with any new standards. You — CEOs and others who serve on boards of directors — must be involved to make sure your companies are on top of the business implications of any changes and are making your views heard. The FASB listens to its constituency as it addresses issues and attempts to solve problems. You should be key participants in that process."

Peter Scanlon was making his views heard, and I am glad that he was doing so in the pages of Directors & Boards. That voice of business leadership is now silenced.

Tuesday, December 15, 2009

On the Docket for 2010

This is the time when I get deluged with queries on what hot topics I'll be addressing in the coming year in the pages of Directors & Boards — i.e., my "editorial calendar" for 2010. It is not fixed in stone, but here goes:

First Quarter (Winter)
• Roundtable: A Fresh Assault on and Defense of the Logic of Separating the Chairman and CEO Positions
• Board Comp: What to Pay the Nonexecutive Chairman
• Audit Committees vs. Risk Committees: Best Approaches for Risk Management

Second Quarter (Spring)
• Selecting an Independent Compensation Consultant for the Board
• Who Speaks for the Board? Should Boards Have Their Own PR Adviser?
• Board Composition: First Timers — How I Got on a Board (and Lessons Learned)

Governance Year in Review (Annual Report 2010)
• A Full Recap of the Events, People, Organizations, Regulatory Initiatives, Legal Cases, and Other Actions and Reactions that Defined Board Oversight in 2009

Third Quarter (Summer)
• Board Compensation: Review of the Spring Proxy Reports on Pay Levels and Practices
• Are Directors Underpaid?
• Board Diversity — Progress Report?

Fourth Quarter (Fall)
• How to Get on a Board in 2011
• HR Expertise On and For the Board
• Risk Committees of the Board: Are They Getting Any Traction?

Many other topics will be addressed in the year ahead. Other pressing issues may arise that will cause some of the above topics to be rescheduled or tabled. But this is the working calendar for a year in which corporate governance itself should again be the hottest of topics.

Pictured: Henry Keizer, Global Head of Audit of KPMG International and U.S. Vice Chair-Audit of KPMG LLP, who will address key issues of risk management by board audit and risk committees in the Q1 2010 edition of Directors & Boards.

Friday, December 11, 2009

Business Journalism, Boards, and a Called Bottom

When I first got into business news in the mid-1970s, this branch of journalism was a backwater in the mainstream media industry. (This is after getting a journalism degree from a top-ranked J School in which there was zero focus on business reporting.) As things turned out, I ended up taking a job with a start-up business trade newspaper, and have spent my whole career since putting out business publications.

When I was being recruited to be editor of Directors & Boards in the early 1980s, corporate governance wasn't even a term in the popular lexicon. Sure, there was a hubbub about foreign payoffs in the mid-'70s but that seemed largely confined to the pages of The Wall Street Journal with its tiny agate typeface at the time, which would be unreadable now (remember that?). So I turned this job down at first. I was then editing a weekly regional business magazine, writing about finance, marketing, management, strategy ... but not anything about corporate governance. In fact, in the two years that I was a senior editor for this weekly magazine I can't recall one story we ever published about a board of directors. Boards were in deep background, not even a pimple in a corporate profile. Putting out a quarterly journal on this arcane concept of corporate governance thus held zero appeal. But again, as things turned out (a story in itself), I eventually relented to the recruitment effort and took the job with Directors & Boards.

In the almost 35-year trajectory of my career in business journalism, the backwater was left far behind. Business news became a hot topic — think about M&A mania, the various bubbles and bubble-burstings, the scandals (Enron, anyone?), the rise of Wall Street banker-tycoons and celebrity CEOs, the global expansion, the hoi polloi becoming shareholders, et al., up to today's Great Recession. And in that time "corporate governance" now trips lightly off the tongue, and boards have moved front and center as an angle in breaking business news.

Well, things change again. That hotness is cooling off, as per this sobering commentary by David Carr, "Business Is a Beat Deflated," in the New York Times, and Fortune columnist Stanley Bing's musing on his Bing blog, "How To Save Business Journalism."

Those in the business beat are not immune from the Grim Reaper — the financial crisis, the cyclical advertising downturn, the secular transition from print to digital, the changing patterns of readership — that is killing off great swaths of print media and those who work in it.

But we may have put the bottom in. Just yesterday the death of Editor & Publisher was announced. This is the monthly journalism trade publication, now shutting down after 108 years in business.

Okay, I'm going out on a limb here. It's said that they don't ring a bell at tops and bottoms of the market. But I'm calling a bottom in the death plunge of the print media industry. There may be some more pain to come, but could there be any louder clang than the killshot to Editor & Publisher to signal a coming bounceback for the print media? I say no.

That means plenty more and hearty coverage of business — and boards — to come. There will be no return to behind-the-curtain status for directors, nor will corporate governance become again an arcane term in the business lexicon. The bottom is in.

[Illustration: "Evening News" by Francis Luis Mora (1874-1940), oil on canvas, displayed at the James A. Michener Art Museum, Doylestown, Pa.]

Tuesday, December 8, 2009

A.G. Lafley, Coming and Going

Procter & Gamble Chairman A.G. Lafley told the P&G board yesterday that he was stepping down as chair on Jan. 1. This is a move that came sooner than many had expected, according to the Wall Street Journal's report. It was only this past July that he had given up the CEO post.

His has been a steady and successful hand on the tiller of P&G. But it sure didn't start out that way. Here is the story he tells of his being named CEO. Talk about sudden succession. It's a tale he told in the book The Game Changer (Crown Business, 2008), co-authored with Ram Charan. Here goes:


It came on June 6, 2000, a few minutes before a business meeting in California. On the line was John Pepper, former chairman and CEO of P&G.

John got right to the point: "Are you prepared to accept the CEO job at P&G?" I was stunned. Just the afternoon before, I had been speaking with chairman and CEO Durk Jager about our plans for the final month of the fiscal year.

"What happened to Durk?" I asked.

"He resigned."

"Why? What happened?"

"I don't have time to go into that now. I just need to know whether you're prepared to do the CEO job for P&G."

"Of course I am."

"Then get on a plane as soon as you can and come directly to my office when you arrive back in Cincinnati."

I turned to my colleagues and told them something had come up. I had to leave. On the plane, I considered this sudden and totally surprising turn of events. I tried to put first things first: What would I need to do in the next 24, 48, 72 hours? And what would I need to do in the first week, first month?

Job one was to determine the state of P&G's business. At 6 a.m. on June 7, I began digging into the numbers — business by business, region by region, customer by customer. Unfortunately, we were in worse shape than I had expected. We were 23 days from year-end and there was no way we were going to make the month, the April-June quarter, or the 1999-2000 fiscal year.

After briefing the board on Thursday, June 8, we issued another profit warning. P&G's stock opened more than $3 lower in the morning I was announced as CEO. By the end of the week P&G's stock price was down more than $7 from Monday's close. It was not exactly an early confidence booster for me.


So, end of the new CEO story, but the beginnings of another new story — the reinvigoration of P&G. Well done, Mr. Lafley.

Thursday, December 3, 2009

Women on Boards — Bigtime

Here is one incredible statistic: In the third quarter of 2009, 43% of newly appointed directors were women.

This is a chart-busting number. Directors & Boards has been tracking new board appointments by quarter since 1994. We publish the quarterly data in each edition of the journal in a section called the Directors Roster. In the early years of our director data tracking, it was not unusual for the percentage of new directors who were women to be in the low teens or single digits even. That was the case in 1996, for example, when women represented only 9% of all new board appointments.

It wasn't until the fourth quarter of 2005 that the percentage of women named to corporate boards broke above 20%. It stayed in the low to mid-20% range for the next several years, occasionally dipping back into the teens for a quarter or two.

Then we broke through to an impressive new high in the first quarter of 2009, when 38% of new directors were women. I honestly thought this might have been an anomalous report, and that we wouldn't see this number surpassed this year — or perhaps ever! The number of women appointees did dip to 32% in the second quarter, but that was still way above trendline.

Now here we are witnessing women being almost one out of two board appointments in the July through September period.

Melissa Payner-Gregor (pictured), Frances D. Fergusson, and Nancy E. Cooper are representative of these new appointments. Payner-Gregor is the CEO of Internet retailer Bluefly Inc. who has joined the board of Destination Maternity Corp., a designer and retailer of maternity clothing; Fergusson is the retired president of Vassar College who is now a director of Pfizer Inc.; and Cooper is EVP and CFO of CA Inc. (formerly Computer Associates) who has been added to the board of Teradata Corp., the $2 billion data warehousing business.

There is something happening. While national surveys still show a shockingly poor representation of women on boards, our Directors Roster data looks to be an early indicator of big changes afoot in the board recruiting market. Stay tuned to this data.

Wednesday, December 2, 2009

Don't Underestimate the Value

I always like to see good things happen for Directors & Boards authors, especially when good things come in pairs. So congratulations go out to Bonnie Gwin on being named chair of the Make-A-Wish Foundation of America. Gwin is a managing partner of the executive search and leadership advisory firm Heidrick & Struggles International. Earlier in November came the big news that she was tapped to lead the firm's North American Board Practice.

"Over the last four years I have had the distinct privilege of serving as a member of the Make-A-Wish national board, an organization that brings hope, strength, and joy into the lives of countless children and their families each year," Gwin said upon the announcement of her new leadership post. "Being named chair of the board is both a profound honor and a great responsibility, one that I take very seriously. I look forward to this new challenge and to helping the Foundation continue its important work, as it enriches lives and fulfills dreams for those who need and deserve it most."

Quick cut to a corporate board pointer. In 2006 Gwin co-wrote with Heidrick colleague Anne Lim-O'Brien a substantial advisory on women on boards. We titled it, "So Many Public Companies, So Few Women Directors." Among the issues she addressed in this analysis of how to increase the number of women on corporate boards was The Nonprofit Factor. Here is what she had to say about that:

"Today women are more likely to win board seats in the nonprofit sector than in the corporate sector. But the women we met were fairly divided on whether their nonprofit work served as a springboard to corporate boards.

" 'I've been on nonprofit boards for 20 years, but that hasn't helped me get on a public board — it's not a direct path,' one woman said. However, many others argued that the value of serving on nonprofit boards shouldn't be underestimated.

"With more nonprofit boards being held to Sarbanes-Oxley standards and adopting a public company-like operating structure, the nonprofit sector could become another important feeder for public boards. In any case, we found that nonprofit board work was a tremendous source of personal satisfaction for the majority of women we met."

With her new commitment to the Make-A-Wish Foundation, we have a compelling example of a consultant following her own advice. Congratulations, Bonnie.

Tuesday, December 1, 2009

Get Up and Get Going!

December 1. Start of a new month. A special month, with the holiday season underway. Here on the East Coast it's a bright morning marked by a bracing chill. A feel of promise is in the air.

For all of the above, or for some other subconscious reason entirely, I am reminded of the story that Gerald Long told in the pages of Directors & Boards 20 years ago. Shortly after he retired as chairman and CEO of R.J. Reynolds Tobacco USA, Long wrote a piece for us titled "Leadership and the Pursuit of Excellence." It was full of wonderfully inspiring stories. Here was one of them:

"Analyzing leadership is a lot like studying the Abominable Snowman: You see the footprints, but never the thing itself. Leadership is like electricity. You can't see it, but you certainly can't miss its effect. And yet, this elusive, intangible thing we call leadership might very well be the most essential ingredient in personal and business success.

"Louis XIV [pictured], pursuing his dream of becoming a global leader, neglected his people and started a revolution. But a wealthy young Frenchman named Count St. Simon heeded their cries for food and justice by devoting his time and fortune to his countrymen. The count told his servant to wake him each morning by grabbing his shoulder and shouting: 'Get up, monsieur, you have great things to do today!' "

Now that's the way to get up and greet each day.