Category: Corporate Governance

Reviewing the Corporate Counsel’s Playbook

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Hurricanes. Hostile Mergers. Data breaches. A misconstrued comment on social media. These are a few of the real and figurative storms that companies weather regularly with the help of internal and external staff, and regular advice from their general counsel (GC).

James Barron

The National Association of Corporate Directors (NACD) recently convened its General Counsel Steering Committee. Crisis communications counsel James Barron, a managing director of the New York office of Sard Verbinnen & Co. (SVC), a specialist financial and crisis communications firm, led a discussion of more than 30 GCs from top companies in a discussion on topics that keep them awake at night, including cyberattacks, scandals, and the delicate art of communicating to stakeholders when a crisis occurs.

Barron emphasized that often times the GC plays “the role of the company quarterback,” having witnessed this many times during his tenure at SVC. Directors often turn to their GCs to understand the roles they should play during a crisis, being cautious not to open themselves to future liability. General counsel can also be instrumental in ensuring that leadership proactively creates a response plan and then follows that plan should a crisis arise.

Concepts to include in the GC’s crisis playbook follow:*

1. Create a crisis response plan that is usable. No one has time to read dense policies in a crisis. “While there are some crises that can be anticipated and materials can be prepared in advance, I don’t believe in crisis plan books that are six inches thick,” Barron said. He pointed out that companies should take the time to identify and drill on the most likely crises, then use the lessons learned to refine crisis response processes and assign senior executives and board members to appropriate tasks.

2. Drill the plan. No company can prepare for every scenario that will emerge in a crisis, Barron noted that tabletop exercises can help GCs and boards identify their blind spots and fine-tune assignments of who will be responsible for what portion of the response. One Steering Committee member also pointed out that tabletop exercises surface differing opinions about how to handle a crisis. Consider, for instance, that the GC and the director of public relations often times have very different opinions regarding messaging and speed of outreach. Hashing out disagreements before an event occurs will encourage the GC, executives, and directors to present a united front when a crisis occurs.

3. GCs are Quarterbacks. Barron said GCs often play the role of organizing the team and breaking down silos. “GCs find themselves corralling multiple groups, including senior management, the Board, operational management and communications functions. In addition, they have responsibility for outside counsel and often specialist PR firms such as Sard Verbinnen,” he said. “Their role is often to balance competing needs, particularly where there is a tension between the business needs and legal requirements.”

4. Identifying the need for public communication. Barron reminded the members of the Steering Committee that during times of peace at the company, they should consider mapping out which scenarios will need to be communicated publicly and which shouldn’t, what regulatory and legal ramifications exist for disclosing and not disclosing certain matters, and communicate the plan to the board and senior executives accordingly.

5. Understand who must be included in a crisis response plan. One Steering Committee member brought to the group’s attention that sometimes regulations demand that the CEO is involved in response to a crisis. Still another mentioned that the board at his company could not be involved in crisis response because they could not move at the speed that their senior management team could respond.

6. Seek outside counsel when a key player acts out of step with the plan. Barron pointed out that even with a plan in place, sometimes a key executive speaks out of order during a crisis, causing tension and discord between the board, and other executives. In this case, Barron notes that it’s “sometimes easier for an external legal advisor or communications group to ensure that the right decisions are made.”

7. Update your corporate contacts regularly. Several participants pointed out that having the right phone numbers for the right people is essential when management, the board, and GCs have only minutes to respond to a crisis. While this seems like a fairly simple task, Steering Committee members pointed out that having a list of who needs to be contacted immediately should exist in the crisis-response playbook—including every possible phone number or other contact needed to reach that person. Contacts should also be kept fresh for essential regulators, outside counsel, and other stakeholders who may need to be contacted.

8. Plan for the long-haul. One GC pointed out that some crises require weeks and even months of attention from top-level executives and the board. In addition to planning for immediate response, Steering Committee members agreed that a chain of assistance should be built to support the work done by responding executives and GCs. Not doing so could create undue risk within the organization caused by neglected leadership.

NACD’s General Counsel Steering Committee brings together progressive general counsel from leading companies to engage in frank, informal discussions with each other and with NACD leaders about corporate governance practices and the changing business and regulatory environment. These conversations help inform the development of NACD resources, education programs, and events with a goal of strengthening the partnership between the general counsel and the board. NACD thanks the Steering Committee for its participation, and for strengthening and supporting the work of corporate directors across the country.

*All General Counsel Steering Committee meetings are held under Chatham House Rule. The names of GCs and companies are removed accordingly.

10 Turn-Around Lessons from Zale Corp.’s Theo Killion

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Jill Griffin

When former Zale Corp. CEO Theo Killion shared his leadership lessons of turning around Zales at a recent NACD TriCities Chapter program in Austin, Texas, it jogged some childhood retail memories for me.

Growing up in the 1960’s, my small hometown of Marshville, North Carolina, boasted a thriving town square of mom-and-pop stores. Because my family’s home was a hop, skip and a jump from these businesses, they became my playground. I was their frequent visitor, and with those visits came benefits. For example:

  • Remember when white go-go boots were all the rage? Mr. Gaddy, who owned the shoe store, made sure my sister and I scored pairs from his first shipment.
  • As a child, I received a personal call from Mr. Creech, the toy store owner, when his long-awaited skateboards arrived.
  • One spring, I stood with other locals as the Chrysler dealer eagerly removed the drop cloths revealing that year’s beautiful new big-fended models. (The fact the dealership offered up lots of free doughnuts, coffee, and soft drinks didn’t hurt either.)

I was rapt throughout the program as Melissa Fruge interviewed Killion, a modern-day version of my favorite childhood shop-owners, but on a grander scale.

Zales was on the brink of bankruptcy in 2004. Something had to be done. The bold and unvarnished self-assessment undertaken by the company’s senior leadership uncovered the business’s truths. These revelations, combined with sheer perseverance not to fail, brought the national jeweler back from the edge.

Here are some of my top take-aways from Killion about what executives and boards should do to turn around a struggling business:

1. Stay humble. Killion prefaced his remarks by stating that they were his opinion, and that many of the tenets he spoke about originated from great thought leaders. A mark of a strong leader is his or her ability to acknowledge with humility the admired ideas of others.

2. Interim in any title keeps you focused. By the time Killion took the reigns, Zale Corp. had had six CEOs in 10 years. When Killion’s best friend was fired as CEO, the board needed a quick fill. Killion was named interim CEO—leaving him keenly aware that he was considered temporary. He entered the role ready to make the most of the time he had.

3. Follow the money. Zales had six short months before its cash ran out. The company was in desperate need of an equity infusion. From day one, Killion and his finance team were reaching out to possible providers.

4. Dig deep for insight. Over a three-month period, Killion and his two-member strategy team worked 12- and 14-hour days, including weekends, to put a decade of operational decisions under a microscope. They carefully ferreted out what worked, what didn’t work, and why. They then presented these findings to the board.  Killion observed and reported that management’s bad decisions were made on the board’s watch. He wanted the board to feel the same deep discomfort that the executive leadership team was feeling.

5. Detail the new strategy. Zales’ new strategy document totaled 150 pages and spelled out in clear, concise details what the company would do going forward—and why. For example, severe cost cutting had reduced the customers’ experience of buying an engagement ring into a commodity. Consider, for instance, that the customer left the store with the ring—which often times is one of the most meaningful, expensive jewelry purchases a person will make—in a plastic bag.

The new strategy brought customer emotion and meaning back to a purchase at Zales. The purchase process was no longer treated as a transaction, and store training ensued to make it a well-crafted, loving, and memorable customer experience.

6. Flip the pyramid. Before Killion stepped in, the leadership philosophy of the company placed management at the top of the pyramid. The pyramid was inverted and a customer-focused culture was born. It looked like this:

  • Top tier: customers of Zales’ 1,100 stores;
  • Middle tier: 12,000 employees; and
  • Bottom tier: corporate management.

7. Think like Jeff Bezos. Bezos has built Amazon.com to be customer-obsessed, keen on technology and analytics, and is always testing new concepts. Killion sees this as a road-map for any retailer succeeding today.

8. The nominating and governance committee is key to matching strategy to board composition. Killion pointed out that Zales needed board directors with skill sets that matched the company’s five-year plan. Retail expertise was a must, and the nominating and governance committee needed to ensure its goals matched those needs. This committee must ask itself what skill sets the business needs. In retail today, Killion advises, a board member with deep literacy in e-commerce is essential.

9. Apply lessons from Vanguard’s 2017 Open Letter. Killion admires Vanguard CEO F. William McNabb’s open letter to public company boards of directors. Vanguard has 20 million investors, and currently is the second largest fund manager in the world. McNabb is keenly aware of the responsibility boards play in the success of the companies that the fund invests in. Here are the highlights of McNabb’s message to directors that especially resounded with Killion:

  • Sell quality things.
  • Practice good governance.
  • Pay close attention to the compensation program crafted for senior management.
  • Understand the company’s risks, and especially the role of climate risks.
  • Inclusion of women and other directors from diverse backgrounds on boards is important.

10. Brick-and-mortar retail is not dying. Instead, Killion believes retail is entering its golden age partly because of the many ways today’s retailer can reach a customer and make a sale.

The program is available to view via NACD Texas TriCities Chapter’s YouTube channel. It’s a meaty discussion and well worth your viewing time.

By the way, to this day I’m a recreational bargain shopper.  Simply walking into a favorite store lifts my spirits, and I’m glad that Killion and the directors of companies are working to help the retail industry thrive in the twenty-first century marketplace.

Governance at 30,000 Feet

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American Airlines Group director Alberto Ibargüen recently led a fireside chat with the company’s CEO and Chair Doug Parker during the NACD Florida Chapter’s season kick-off event at Miami International Airport. With more than 100 in attendance, the program featured insights into the highly competitive airline industry along with some key considerations for directors.

A New Day for the Airline Industry

From left to right: Sherrill Hudson, NACD Florida Chapter Chairman; Lauren Smith, NACD Florida Chapter President: Doug Parker, American Airlines Group Inc. and American Airlines CEO and Chairman, and American Airlines director Alberto Ibargüen

From 1978 until deregulation of the airlines, the airline industry yielded no return on capital; however, since the merger of American Airlines and US Airways less than four years ago, American has generated $20 billion in profits. Three airlines—American, Delta, and United—are now leading the pack in rationalizing and leveraging the hub model to offer passenger service across the globe while generating positive returns. Parker insists this is the industry’s “new normal” and spends a great deal of time convincing constituents that the industry is not simply experiencing a temporary “up” in a long-term cycle.

Parker explained that the company must now invest in its people and its products, taking a long-term view of the business. For example, American invested in new aircraft and now has the youngest fleet of any U.S. airline. With regard to employees, many of whom are unionized, Parker raised wages in the middle of a contract term in order to fulfill his promises to them during the merger. He explained, “I use the ‘look them in the eye’ test when it comes to the 120,000 people on the American payroll,” emphasizing the importance of transparent communication with employees. Another area of investment is data protection, and the board routinely raises the issue of cyber risk.

Merger Advice

“Never undertake a merger when there’s not a clear strategy,” cautioned Parker, when talking about the successful US Airways and American merger. Recognizing the herculean amount of work required to meld systems and go-to-market philosophies, he added, “You shouldn’t put your team through one unless two plus two will equal five, not 4.2.”

In terms of building a post-merger board, the merged company board consisted of two American board members, three US Airways board members, including Parker, and five members from the creditors’ committee. With this blended group, directors did not focus on the “this is how we did things” historical perspective, but rather the group was able to move forward as a relatively cohesive unit from the beginning.

Communication and tone at the top became priorities for the board and management after the merger as well. Parker began holding town hall-style meetings, taking questions from employees. These sessions are recorded and offered to American’s employees worldwide.

A Strategic-Asset Board Focused on the Customer Experience

Parker emphasized that by asking the right questions, the board has had an enormous impact on management, “ensuring that the team has a strategic focus.” Given the day-to-day demands of running an airline, pulling the team from those responsibilities can be challenging. Still, the board insisted on an offsite focused on strategic planning, which proved to be very valuable. “I put off the retreat for two years because we were so busy with the integration,” said Parker. “But the offsite was valuable because we were forced to articulate our strategy in a way that could be understood by others, like the teams and investors.”

American Airlines director Susan Kronick, who was in the audience, added that the board works well because it is diverse. “Our board is diverse in terms of gender, ethnicity, and, most importantly, points of view,” she said. “We have rich discussions, and everyone is moving forward together.” She added that a keen focus on the customer experience is a unifying factor. “We take the proactive perspective that the culture of the company is a competitive advantage for us with customers.”

Parker added that the board members aren’t afraid to speak up, and his job is to ensure his team is communicating well to the board. He also echoed the board’s focus on the customer.

“We are transporting people at 525 miles per hour, so we are constrained by the laws of physics,” said Parker. “But we can make sure the rest of the experience is as efficient and comfortable as possible.”

The NACD Florida Chapter would like to thank American Airlines and Miami International Airport for supporting this event and the behind-the-scenes airport tour that preceded the program.

Kimberly Simpson is an NACD regional director, providing strategic support to NACD chapters in the Capital Area, Atlanta, Florida, the Carolinas, North Texas and the Research Triangle. Simpson, a former general counsel, was a U.S. Marshall Memorial Fellow to Europe in 2005.