Author Archive

Award Season!

February 3rd, 2011 | By

OK, director-colleagues (and those who are similarly aligned), I am sure you are all following the current season of best-film and best-acting nominations and awards with great interest. Or, maybe not. In either case, it’s time to step away, and to take a brief detour from your desktop, or your laptop, or your iPad, or whatever device on which this appears.

AwardWe’re going to have our own little group of highly unofficial award nominations. Not “Best Director,” not “Best Committee,” not “Best Board.” Those—or their facsimiles—have already been created. Our job here is to identify the awards that we hope our own boards would win for their own work. And my job is just to start the ball rolling, or rather, to get you thinking.

Here are my categories and a few comments on potential nominees. I hope you’ll read them, and then add to the list. After all, if we’re going to turn this into a three-hour event worthy of a network telecast, we’re going to need awards across a whole barrelful of categories. I’ll start, but then you’ll need to chip in.

  1. Most Over-Worked Topic on Board Blogs: And the nominees are: Social Networking, Social Networking, and Social Networking! Oh, yes—and Social Network—259,000 entries on Google. Current Favorite: Hmm…let’s think.
  2. Women in the boardroomTopic That Most Boards Aren’t Sure How to Deal With: Nominees: Social Networking, Political Contributions, Number of Women on the Board. Current Favorite: All of the above. One that won’t go away for a while: Number of women on the board. Our colleagues around the world have begun mandating membership ratios.
  3. Least-Favorite Current Topic among Board Members: Nominees: Social Networking, Proxy Access, Say on Pay, CEO Compensation, Director Compensation. Current Favorite: All of the above.
  4. Most Fruitful “New” Board Practice: Nominees: Instituting and participating in a regularly scheduled, board-management offsite on corporate strategy; reallocating more board time to committee meetings, as opposed to full-board sessions; changing the location of meetings from isolated boardrooms or offsite rooms to onsite, “middle-of-the-action” company locations; changing where people sit at meetings; and putting in a speaking-time limitation or edict to reduce the effect of “air-hogs.” Current favorite: Unclear, but we sure know the LEAST favorite. People HATE changing where they sit. Alas.
  5. Wildest Idea to Improve Board-Member Focus: Nominees: Measurably increase mandatory director shareownership and retention requirements; Take the Undercover Boss reality show concept and apply it to directors by making them go “undercover” as employees; Administer a How Much Do You Know about Your Company?” quiz to members at the board meeting and openly grade it immediately thereafter; Conduct a “Zero-PowerPoint” board meeting; Have board members randomly selected to present on the topic: “What I Learned in the Past Month about Our Company.” Current Favorite: None. In fact, just the mention of any of these could easily induce a lively—if not awkward— conversation about social networking.

Other nominees?  Other categories?  The envelope, please. 

Over to you.

Straight Talk on Sustainability

October 4th, 2010 | By

With all the noise on the topic, I recently decided to spend some time asking Gib Hedstrom to give me the straight scoop about how boards address the issue of sustainability. Gib has been the “expert in the room” on these questions at more than fifty board meetings with major global companies, including Air Products, Ashland, and AlliedSignal (Honeywell).  I asked him three simple questions. (OK, actually I asked him four):

  1. What’s the best way for a board to define sustainability?
  2. What do the “better boards” do in the area of sustainability?
  3. As an individual director, what should I know about the topic? What questions should I be asking?

Here’s how Gib responded:

1. What’s the best way for a board to define sustainability?

Sustainability is about achieving enduring growth and profitability in the harsh face of 21st Century realities. The “new world order” of a swelling population, oil depletion, global warming, water scarcity, and economic turmoil makes this the fiercest competitive battleground for the next 20 years. It means rethinking everything.

It’s what I call “The Messy Transformation.” Most companies face significant risks. Yet whether you sell technology or transportation or consumer products – the opportunities are massive.

2. What do the better boards do in the area of sustainability?

The better boards bring sustainability into their deliberations about both risk and opportunity. On risk, they do three things:

  1. Take a Business Portfolio Risk approach. For example, 20 percent of U.S. coal plants are scheduled to shut down by 2015. If that’s your energy source, it calls for a Plan B — and fast!
  2. Encourage action on managing the relevant risk profile (short and long term) on Carbon Risk. For example, we see Samsung announcing that by 2013 it will cut by 50 percent the greenhouse gas emissions from its own operations and from the use of its products. We see Sony announce its plans to achieve a zero environmental footprint by 2050.
  3. Keep Operational Risk management front and center. You don’t have to look far back in recent headlines for evidence about what a single disaster can do to your operations and public trust.

For the opportunity side, it’s about investment. Even in this uncertain financial climate, over $100 billion has been invested in renewable energy in the past two years. Companies like Cisco, IBM, Google and Microsoft are rushing to capture “smart grid” growth opportunities. P&G has a five-year goal to accumulate $50 billion in sustainable product sales by 2012, and will have “Sustainable Innovation Products” in 30 million U.S. homes by the end of this year. Bank of America recently announced it is ahead of schedule on its 10-year, $20 billion business initiative focused on addressing climate change.

3. As an individual director, what should I know about where a company stands on sustainability?  What questions should I be asking?

Directors really struggle with sustainability. In the 2009 NACD Public Company Governance Survey, directors rate their effectiveness at sustainability (corporate social responsibility) almost dead last. Meanwhile, in 2009 the number of shareholder resolutions on sustainability reached a record level. Investors care!

At the next board meeting (or better yet, before it), ask these questions:

  1. What would it look like to be a true sustainability leader? What would be the characteristics (e.g., zero waste, carbon neutral)? What would the portfolio look like (e.g., percent of sales from green products, services and solutions)? Is this just from our own operations or across our full supply chain?
  2. Do we have a robust sustainability strategy and a multi-year plan that identifies our risks and opportunities? Our own sustainability scorecard?

So that’s what we hear from the true expert. Now, what does your board do?

On the Global Investment Menu

August 18th, 2010 | By

In these times, it is rare to be able to use the words “extremely successful” and “real estate investor” in the same sentence. So when I consider the utterances of my friend Joe, an extremely successful real estate investor, I often take heed. One of Joe’s key aphorisms has long been:  “If we all had the same taste, we’d all be eating in the same restaurant.”

Those words, and their applicability to the choices and preferences of investors, regulators and directors, came to mind while on a recent two-week stretch in Singapore, the UK and the US.  The range of attitudes and approaches in responding to rule-making and compliance was noteworthy, as it demonstrated the spectrum of approaches that can be employed in attempting to reach the goal of good, responsible governance.

Without getting enmeshed in long, generalized discussions about cultural differences and attitudes on ensuring compliance, I thought it might be interesting to offer a few quick snapshots of what is on the regulatory menu around the globe.  Think of them as small “appetizers” from a number of cuisines, and please, disregard any old biases about English, Asian or American food.  There are great chefs at work, and great meals to be had in each of these places.

  1. SGX Blacklist

    SGX Blacklist

    In Singapore, regulators “name and shame” companies whose governance practices fail to measure up on specific requirements.  One of the consequences of ignoring the mandate to have separated the chair and the CEO roles, is having the company name appear on a list of those “out of compliance”, and having that list well-publicized and broadly published. The newspapers and the financial press are ready consumers and promulgators of the list.

  2. In the UK, the Financial Reporting Council (which is the principal corporate watchdog) has proposed a “comply or explain” requirement in a proposed UK Stewardship Code for the behavior of institutional investors as shareholders, matching the UK Corporate Governance Code which is already in place. In this case, for example, the goal is to bolster shareholder involvement in corporate governance.  The code, as proposed, is not mandatory, allowing for the possibility of extenuating circumstances such as size or a specific investment strategy.  At the same time, who adheres to the code, and who does not, becomes a matter not just of public record, but of public disclosure as well.
  3. Dodd-Frank financial reform has moved many of the questions regarding corporateIn the US, we have seen that governance, such as majority voting, out of the hands of legislators and into the hands of regulatory entities who are charged with balancing the interests of a wide band of constituencies, ranging from public-sector pension funds that own huge quantities of corporate shares all the way to smaller-scale, newly-public companies.  The public-sector investors have substantial leverage, and are clear about the practices they expect to see disclosed and followed on the corporate governance menu.

NACD Dodd-Frank Act Webinars

Business Judgment Rule

Business Judgment Rule

2011 Shareowner Expectations

2011 Shareowner Expectations

NACD Members, click here to access the complete Dodd-Frank Act webinar archives

So what’s the takeaway from all of this? Does it whet your appetite for more in the way of voluntary compliance?  More in the way of mandatory compliance? More or fewer consequences for non-compliance?

In the arena of restaurant practices, there is wide variation. Some jurisdictions publicize the names of restaurants who have recently “failed” inspection, and why.  Others make restaurants conspicuously post the most recent results of their inspections for cleanliness, with big colored signs carrying a letter grade or a test score.

Keeping in mind Joe’s views on peoples’ tastes, along with the global availability of venues in which to invest or manage, what do you want on the menu that will satisfy your appetite for good governance?

*NACD Members, click here to access the complete Dodd-Frank Act webinar archives.