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To Split or Not to Split?

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In the last year alone, JPMorgan Chase has been in the news for the “London Whale” trading losses, executive compensation packages, and simply because of its size. Further adding to the company’s media exposure, this week several institutional investor groups—including the American Federation of State, County and Municipal Employees (AFSCME), the Connecticut Retirement Plans and Trust, Hermes Equity Ownership Services, and several New York City pension funds—announced their support for a proposal requesting that JPMorgan’s board name an independent chair.

This announcement is one of many actions recently undertaken by AFSCME to alter the governance structures of publicly traded companies. Last week, the employee union announced its 2013 shareholder proposals, targeting “too big to fail” financial firms and “imperial CEOs.” AFSCME submitted shareholder proposals at 11 companies, including General Electric, Lazard, Lockheed Martin, and Wal-Mart. This is not the first time JPMorgan Chase has been the subject of a proposal to split leadership roles. Just last year, AFSCME submitted a similar resolution, which fell short with 40 percent support.

Despite its failure to attain majority support at JPMorgan, AFSCME claimed victory in 2012 following Goldman Sachs’ appointment of a lead director—a compromise from the union’s original proposal to name an independent chair. Nevertheless, the charge to separate the chair from CEO positions at large financial institutions is an uphill one. According to data from NACD’s 2012-2013 Public Company Governance Survey, just 38 percent of responding companies combine the chairman and CEO positions. At large and mega financial companies, this percentage jumps to 48 percent.

Board leadership has proven to be a divisive topic in the corporate governance sphere. Many investors and governance experts view the combined CEO/chair leadership position as an inherent conflict of interest, as the board—charged with oversight of the CEO—is chaired by the CEO. Additionally, the role of CEO requires a significant time commitment, compounded by the oversight responsibilities of the chairman.

Not all are convinced, however, that separating the leadership positions is the optimal structure for every board. Other governance experts note that the dual sources of authority created with the independent chair may undermine the CEO’s ability to run the company, or may allow the other directors to overly rely on the work of the non-executive chair.

Interestingly, in an announcement earlier this week, Norges Bank Investment Management—the world’s largest sovereign wealth fund—recognized that governance codes cannot be substituted for judgment. It still advocated, however, for separation of the chairman and CEO roles, despite what it sees as a need for additional study.

Smartphones, NACD Mobile, and You

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At nearly every NACD program addressing risk and strategy, mobile technology and cloud computing are part of the discussion—and not without reason. According to data from Forrester, 93 percent of Americans have mobile phones and 50 percent own smartphones.

Corporate directors, however, have tended to fall behind as adopters of new technology. Studies and articles bemoan directors’ use of social media, their need to place information technology at the top of boardroom priorities, and even go so far as to call boards “luddite.” In fact, the same Forrester research found that among those between 57 and 67 years old (the average director is 62), 89 percent have mobile phones but just 28 percent use smartphones.

Imagine our collective internal surprise when analysis showed that 20 percent of visits—one in five visitors—to NACD’s home website came from a mobile device. This is compared to the national average of 13 percent.

To provide a resource for our increasingly digital membership, NACD has developed an app: NACD Mobile. Because directors need the most up-to-date information and news both inside and outside of the boardroom, NACD Mobile conveniently culls content from our NACD Directors Daily news briefing, Directorship.com, and the NACD Board Leaders’ Blog. Also included with these articles are videos from NACD BoardVision and an upcoming education programming calendar.

 The app is organized into several categories:

  • Daily News: newsfeeds pulled from NACD Directors Daily and Directorship.com.
  • Insights: articles, blog posts, and videos from Directorship.com, the NACD Board Leaders’ Blog, and NACD BoardVision.
  • Categories: a way to drill down into the areas that interest you most, including compensation, board composition, and regulatory issues.
  • Events: upcoming NACD in-person events, peer exchanges, and webinars.
  • Resources: access to select NACD member benefits, including the ability to submit questions, find director candidates, and schedule a complimentary board consultation.

NACD Mobile is available for free download in the Apple App Store and Google Play Store by searching “NACD Mobile.” For a video tutorial, visit www.NACDonline.org/mobile. And while it is primarily designed for members, non-members will also have access to some features.

Unique Dynamics, Common Issues

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As NACD general counsel and head of Board Advisory Services (BAS), I’ve gained tremendous insight interacting with all types of boards from startups to the top of the Fortune 500. Each board comes with its own unique dynamics, incorporating differing personalities, skill sets, advantages, and obstacles. But despite these differences—and regardless of the size and sophistication of the board—there are several common issues with which most boards are grappling.

While I’ve seen just about every scenario one could imagine, BAS is typically engaged for the following reasons:

  1. The company has reached a turning point in its strategy, which has created tension and a need for alignment with the board and management.
  2. The board is struggling with directors’ extended tenure on the board, which has created a stale environment and an obstacle to fresh thinking.
  3. Often related to the second point, the board is wrestling with the thorny issue of succession planning and how to deal with underperforming directors.
  4. The board is composed of strong, experienced directors, but management does not feel they are as engaged as they could be and are not bringing all their skills to the table.

In each situation I’ve found that our clients, despite facing significant pressure points, all have the desire to improve. Even the most sophisticated boards are willing to admit they don’t have all the answers. As such, they bring NACD—as an objective third party—into their boardroom to assist in identifying steps for improvement.

In my next posts, I will drill down further into these common issues. How are companies dealing with underperforming directors? What new succession planning techniques are working? Does extended tenure affect director independence, engagement levels, and the creation of fresh ideas? How can the board and management team be more effectively aligned?