Prepare to Be Tortured

The French government announced last week that it will soon introduce a bill to raise the minimum retirement age to 62 from 60. Predictably, howls of outrage issued from certain French quarters.

The announcement came out about the same time that Robert (Bob) Kelly, chairman and CEO of BNY Mellon, was talking about the need to get retirement spending under control at the 14th Annual Wharton Leadership Conference, held on June 16. With a wry touch, Kelly reminded the crowd that when the retirement age was set in this country at 65 in 1935, the average life expectancy was . . . 61.7 years. Basically, that meant you could retire after you died. (Today, life expectancy is more like 79.)

This was one topic in Kelly's sweeping and generally upbeat analysis of the state of the economy and banking. "The banking system is healthy again," he said, noting that all the big banks are in good shape, with TARP monies repaid, although there are still "lots of writeoffs" to come. He did admit that during the financial crisis the banking system "came to the edge of the abyss . . . our toes were over the edge." But "really bad things" were avoided, and the economy is now expanding.

He made one comment that, while not directly about corporate governance, in my mind should serve as a warning to all board members and top management. It came while addressing something that did worry him on the world scene — Europe.

Greece's dire economic situation was top of headline news during his Wharton appearance. He took to task the "Club Med" countries for their "ugly high-debt-to-GDP" spending. Watching the European government and banking communities trying to rein in Greece's economy, the important lesson for all economic leaders, said Kelly, is clear: "If you don't do the right thing, markets will torture you."

I say that is sound advice for boards, too. The torturers will be displeased investors. We saw in 2009 several companies get tortured by emboldened shareholders — think of the successful campaign that Finger Interests waged against Bank of America to change its board composition and culture (a campaign that Jonathan Finger provides the back story on in the Governance Year in Review special issue of Directors & Boards due out in early July).

Say on pay and proxy access are just two potential tools that will give shareholders heightened opportunities to challenge board decisions. But even without those new abilities, shareholders are primed to apply the screws. They see boards as having failed during the financial crisis to exert proper oversight. This anger-fueled resentment will result in a readiness to push back on what managements want to do and what boards are willing to approve.

Case in dramatic point, which has all the makings of being a harbinger of the future: the shareholder revolt when Prudential PLC attempted to buy AIG's Asian units. Neither company was prepared for the punishing torture that this spending decision prompted.

As we look ahead to the post-crisis era in board-shareholders relations, it would be wise to heed Bob Kelly's warning.

Ask

As much learning as there is to be gained at the Wharton Leadership Conferences (see my blog post of June 17th below), not all of it is one way — dispensed from the podium outward.

A few conferences ago, I was sitting nearby a fellow participant. We may have exchanged a few pleasantries at some point — program leader Mike Useem favors having all the attendees get up from their seats and do a 360 turn of hellos right at the beginning of the day. But any exchange was inconsequential. Until, that is, late in the afternoon session. Here is what transpired.

Sitting in the same row of seats, we listened to a CEO of a venture-backed company give a presentation on his leadership of the firm. Conditions in his industry were tough at that time — tough as in fairly dire. His leadership mostly had to do with keeping the firm afloat.

In the CEO's telling, there came a point when there was no way to avoid it — he was going to have to suck it up and ask his venture backers for more funding. He didn't want to do it. He really did not want to do it. He sweated and fretted about it for days on end. If he could have found any way out of having to make that request, he would have jumped at it with alacrity. Alas, a cash call was the only option for salvation. With fear and trembling, he reached out to the moneymen.

And guess what? They said okay. They didn't say,"No problem," but they didn't carve a pound of flesh off the CEO's hide. He got his needed extra funding, and all was well with the world and, eventually, the business. He lived to tell the tale at Wharton.

Here is where the real learning from that CEO's story came for me. This fellow near me looked over at me and said, "It just goes to show — you have to give someone the opportunity to say 'Yes.' "

What a lesson in leadership. For anyone. At any level of the organization. And in life itself.

Give someone the opportunity to say "Yes."

For the record, I came to learn that this wise commentator was Alan Berson, an executive and leadership coach with his firm Pulse Point Coaching.

'Grab the Strange Opportunities'

Want a tip for getting ahead in your career? Follow this advice from GE's Susan Peters: "Grab the strange opportunities."

Peters (pictured) is vice president of executive development and chief learning officer for General Electric Co. She was a compelling speaker at the 14th Annual Wharton Leadership Conference (see post below).

She joined GE in 1979 and served in human resource roles in several GE businesses in the U.S. As she explained to the conference attendees, there came a point in her career with the company that she wanted some global operating experience, so she took an overseas assignment — one that was actually a step down. Hence, the strange opportunity.

But that potentially risky gambit actually propelled her upward trajectory with GE. She returned to the U.S. and onto a new leadership track. Today is responsible for talent identification, leadership development, training, performance management, and succession planning for all GE executives worldwide.

That leadership lesson certainly resonates with me. In 1981 I got a call out of the blue asking me to come talk with the new owners of a business journal called Directors & Boards. At the time I was the senior editor of a weekly business magazine and was very happy in my job, with no thoughts of moving on. I checked out this new opportunity, and didn't much care for what I saw. Directors & Boards was then a rather staid academic journal, devoted to an arcane topic. Corporate governance? What the heck was that? It wasn't even a term in the popular lexicon then. And who cared about boards of directors, anyway? I had been in business journalism for five years by that time and had yet to write a single word about a corporate board. No thanks. I walked away.

I am not sure what it was, but the owners saw something in me. Over the course of several months they kept me on the hook, kept arranging the occasional lunch and office visit to talk up the prospects for this publication — to be a prestige journal of leadership addressing the concerns of the preeminent business ruling class in the country.

So, one day, I did it. They wore me down. I grabbed this strange opportunity. And here I am almost 30 years later. I sure wasn't sure of it at the time, but it seems to have been the right move at the right time for what I was destined to do with my life and career.

There is a governance dimension in Susan Peters' lesson here too. Sometimes board invitations come wrapped as strange opportunities. "You're asking me to serve on that board? Are you crazy?" Maybe so. How inviting can it seem to be asked to help pull a company or a nonprofit institution out of a financial tailspin, maybe even a bankruptcy situation? Or to right the ship after a scandal of some kind? Or maybe it's a succession crisis that looks daunting?

Rather than categorically swat away any such invitation, give deep consideration to whether it is, instead, a strange opportunity that should be grabbed.

My Must-Attend Leadership Conference

Among conferences focused on the development of leaders — perhaps the most vital issue facing boards of directors and senior management today — the one that gets my vote as best of the best is the Wharton Leadership Conference.

This one-day program is put on every year in June as a joint initiative of the Wharton Center for Human Resources, whose director is faculty member Peter Cappelli, and the Wharton Center for Leadership & Change Management, directed by professor Michael Useem. Of the dozens of leadership and governance programs held every year, this Wharton program goes on my calendar as a must-attend event.

It is not just the richness of its content that gives this program such distinction. It is the roster of speakers that the attendees are exposed to.

You see corporate superstars up close and personal (such as UPS Chairman and CEO Scott Davis, pictured), but you also get exposed to perspectives on talent development and management from diverse worlds — politics, the military, religion, the media, and, certainly, academia. Even more, you also hear from experts beyond the average executive's normal sphere of interaction. In years past attendees have listened in on the leadership lessons from those who scale treacherous mountains to those who jump into the middle of raging forest fires to those who are a creative force in the arts and humanities. It's an astonishingly diverse mix of big names doing big things, all leadership driven, and you just don't find that in most other such programs.

This year's 14th annual Wharton Leadership Conference, held June 16, carried on the grand tradition, as this agenda shows. My next several blog posts will be reflections inspired by what I heard this year at this Wharton conference. And I will be sure to give Directors & Boards readers a heads up when the date for the 15th annual conference is set so you can consider it for your must-attend lineup in 2011.

Win Churchill's Winning One-Liner

I always take pleasure is seeing good things continue to happen for my past authors. My congratulations to Win Churchill on his receiving the Yitzhak Rabin Public Service Award from the America-Israel Chamber of Commerce this month. Churchill is a founder and managing general partner of SCP Partners, a venture firm that has invested in many Israeli start-up companies.

"I have received many awards in my life for charitable efforts," Churchill said in an interview with the Jewish Exponent, but the newspaper reported that he points with particular pride to this latest honor. "We are plowing money back into the Israeli economy. ... In terms of covering the broader areas of my life, this is the best award ever."

I have an award I would give Win Churchill. It would be the award for the best one-liner about executive compensation to ever appear in the pages of Directors & Boards.

Let me set the context. In late 1993 Churchill was the kickoff speaker for the inaugural session of a new corporate governance program being launched in Philadelphia — the Wharton/Spencer Stuart Director's Institute (formed by prime movers Dennis Carey and Robert Mittelstaedt). He was then chair of an investment firm, Churchill Investment Partners Inc., that he had formed in 1989, a few years after practicing law for a lengthy spell with a Philadelphia law firm. He was also serving on several boards then, as chair or director. So with that background he had quite a bit of wisdom and counsel to offer to the attendees of this board educational initiative housed at the Wharton School.

His talk was titled, "The 10 Commandments of Ownership." (I kept that title when I published his speech as an article in the Spring 1994 edition of Directors & Boards.) He presented a set of guidelines for how institutional investors should be thinking about exercising their role as responsible professional owners. The guidelines had crossover application to how board members should be acting as responsible overseers.

Commandment 9 is the one that wins the alltime best one-liner award for governing executive compensation: "Successful management should end up wealthy; unsuccessful management should not end up wealthy."

Now, I ask you: Is there not more wisdom in this baker's dozen worth of words than in any, or all, book and article texts ever devoted to the topic of managing exec comp?

Win, the award is all yours.

On Hiring Your 'Man in Washington'

The State of the Union address is soon to start as I sit down to write this. Whatever the President has to say tonight, we can be certain that the future holds even more government involvement in the life of the corporation and its people, from the C-suite on down to the shop floor (are there any shop floors left?).

Here is a terrific tip for corporate management thinking about how to protect or advance their interests in Washington. It comes from John Endean (pictured), president of the D.C.-based American Business Conference, a coalition of CEOs of midsized companies.

Hire the right person to represent you, Endean advises. As he explains:

"Companies with government affairs offices typically hire people from the Hill or a relevant regulatory agency to run them. Very few of these people dream of a corner office at headquarters, and that disinterest in advancing within the company can be a problem. It makes sense to assign bright executives within the company to head the D.C. office, similar to the way many companies tap their best and brightest for overseas assignments. A tour of duty in Washington would endow operating executives with political experience — a desirable skill in this environment — while insuring that the interests of the company are intelligently and fully represented by someone whose career path depends upon it."

That is an excellent piece of advice — a smart combination of a management development and regulatory affairs strategy — from a man well-versed in Washington's ways. I first heard John give a superb briefing on whether and how to get more active in Washington to the annual board meeting of the SEI Center for Advanced Studies in Management at the Wharton School last fall. I asked him to write up his above tip and several others that he offered into an article that will be published in the First Quarter 2010 edition of Directors & Boards. That issue will hit the streets in February.

Anyone doubt that President Obama will tonight with his State of the Union address make John's article an even more urgent read?

The Hush

Kudos to Wharton School Professor Tom Donaldson. He is being honored today in New York City by the Aspen Institute Center for Business Education with a Lifetime Achievement Award, a preeminent recognition during Aspen's 2009 Faculty Pioneer Awards event. Dubbed the "Oscars of the business school world" by the Financial Times, this annual event celebrates business school instructors who have demonstrated leadership and risk taking in integrating social, environmental and ethical issues into the MBA curriculum.

Prof. Donaldson wrote a very popular article for Directors & Boards titled "Dangerous Currents." In it he analyzed six factors that contribute to "almost every major corporate ethical disaster." One of those factors was Discussion Vacuum. Here is what he wrote about that:

"When bad things can't be talked about in a company, even worse things can happen.

"The most striking example is the U.S. tobacco industry, which was forced eventually to settle allegations against it for a cost of nearly $300 billion.

"The allegations centered on the claim that it hid the truth about cigarette smoking from its customers. From the 1950s until nearly the end of the century, lawyers in the tobacco industry concerned about liability suits had come so firmly to dominate the culture of the industry that discussions of smoking and health were virtually impossible.

"I remember a personal experience in the mid-1980s in which I spent a day conducting a workshop in Aspen, Colo., for executives of a leading U.S. tobacco company. Near the end of that day I suggested that we could no longer leave aside the question of tobacco and health.

"The response stunned me. After what seemed like a full minute of embarrassing silence, one participant announced, 'We don't believe there is a connection between smoking and health'! That was the extent of discussion of tobacco and health that I managed that day.

"I learned later that a name existed for what I had experienced — the 'tobacco hush.' Fear of liability had come so fully to dominate the tobacco industry's culture that people felt forced to remain silent. Yet, arguably, the 'tobacco hush' eventually cost the industry hundreds of billions of dollars."

It's a powerful story. It made a big impression on me when I first published his article five years ago. It certainly makes you wonder how many discussion vacuums contributed to the financial and business performance crises of the past two years. For example, was there a "leverage hush" that quashed any discussion of whether being levered at a 30 to 1 ratio made any sense?

As a board member, you need to be particularly attuned for any hushes that seem to settle unnaturally when certain issues are raised. Take a tip from Tom Donaldson's tobacco story — where there's a hush, there may be a fire.

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]

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.

Such an Unnecessary Crisis

Optimism suffused the ether just about everywhere on Inauguration Day, including in a Wharton School lecture hall. 

Famed finance professor Jeremy Siegel (pictured) started off a special lecture on the financial crisis by asking the class, a mix of undergrads and MBA students with a few invited outsiders, to what extent they agreed or disagreed with this statement: "I am confident that President Barack Obama will lead us back to prosperity in his first term." Using their handheld instant-recording devices, a tool becoming familiar in many business conferences, the answers soon splashed up on the screen: 9% strongly agree, 13% agree, and 31% somewhat agree. Okay, not a commanding majority — but this is, after all, an analytical bunch of number-crunching financiers in training. At least their tempered optimism was better than the raspberry the stock market blew the incoming President by sinking over 300 points on his swearing-in day.

If you are like me, you're seriously wondering if this crisis was really necessary. And your ire is getting pretty up there with each shovel of government billions into the banks. What we're basically doing, aren't we, is paying off Wall Street's gambling debts? For a raging outburst of ire, see my Jan. 15th post below about WaMu and its boiler rooms.

It seems that Prof. Siegel would concur that this crisis didn't have to happen. Here is what the good professor has fingered as the cause of the mess: "The financial institutions buying, holding and insuring large quantities of risky mortgage-related assets on borrowed money." That's it, in one sentence. And you know what? This is the killer — "Banks didn't have to hold those assets," Siegel declares. They could have flipped them, he says — much as the investment banks flipped the risky IPOs they brought to market in the 1998-2000 tech bubble. When the tech crash came, the banks weren't holding onto those IPO securities; they had flipped them off their ledgers.

Why didn't the banks flip these real estate securities? After all, as Siegel explains, most of the profit was generated through creating these securities. But no, in their infinite wisdom, the banks "decided these were great assets to hold" — and then compounded this deadly decision by greatly underestimating the risk of these assets. 

It's just all so maddening. If he had to pick the No. 1 culprit for this crisis, Siegel aims his laser pointer right at the CEO's office. It's the CEO's responsibility "to stand back and look at the big picture," he says. To which I would add: That's what the board should be doing, too; that is the value-added of a board.

If it was a lack of big-picturing that got us into this morass, boards may need to do what the country has just done — get themselves a new leader with a new vision of how to get us back on the road to prosperity. Some have already done that, documented by Joann Lublin in the Wall Street Journal, and more changes at the top are happening each day. And they certainly need to refresh their own board composition by adding members with a knack for "seeing around corners," as I like to say. 

As our new President declared on Tuesday, "For the world has changed, and we must change with it." Boards, make your move to help reverse this unnecessary crisis.