By “personal,” I mean that when it comes to voting their proxies for director slates, shareholders will be focusing on individual directors in upcoming proxy seasons.
“Now, it’s personal” is an interesting phrase that I’ve heard more than once in recent conversations about director elections. By “personal,” I mean that when it comes to voting their proxies for director slates, shareholders will be focusing on individual directors in upcoming proxy seasons.
In companies with majority voting policies, individual directors deemed unworthy by shareholders won’t get their votes; enough abstentions and they’ll have to resign. And in the future, investors may be using proxy access to replace unwanted directors with their own individual candidates.
One target may be individuals serving on the compensation committee for companies where pay seems unrelated to performance. Shareholders may use “say on pay” to rebuke them collectively, and majority voting and proxy access to move them off boards.
Another target: audit committee members of boards that failed to anticipate and prevent financial crisis.
As for nominating/governance committee members, they may be targeted if there are overall failures in board performance—for example, perceived failures of oversight in company crises. In any case, they are on the front lines of communication to make sure that shareholders understand fully the value of the candidates they are recommending for the board and for service on key committees.
But there is a bigger picture to be seen. NACD’s resources drive home a key point: directors should never be seen solely as individuals. Even if shareowners are getting more “personal,” we have to help them see beyond individuals to the group. An undue focus on individual directors is the main risk in majority voting and proxy access because investors may hound out a director who possesses a rare expertise or trait that is a critical piece of the puzzle for a board. Conversely, there might be a “rock star” director who really does not add to the board. Only directors know this—and know exactly how boards function as a “whole.”
Boards and directors, long used to working collectively, can rise to this new challenge. Now, it is personal—but it’s also interpersonal. Directors can do a better job communicating who we are both individually and collectively, starting today.
Dr. Reatha Clark King, a member of the NACD board and a former longtime director of Exxon Mobil, agreed to be filmed recently for a new product NACD will launch in fall 2010. Anyone who has had the joy of hearing from Reatha will know that her grace, passion for quality and excellence, and her wisdom shine through every word she utters. Luckily she is not short of words.
Reatha is a research chemist who was part of the space program in the 1960s. Her job? To make sure rocket fuel really had the firepower needed to get America, if not to the moon and back, then certainly into orbit. In the research labs of the National Bureau of Standards the young Dr. King learned how to test hypotheses, ask questions until she was sure of the answer, and manage risk—skills that have served her well in her subsequent work as a director.
I asked Reatha to share her thoughts on why leaders from all walks of life should consider board service. Our self-study, multimedia program is called “How to Be(come) a Director” and is intended primarily for C-suite executives who are on the brink of board careers, and so it’s possible that many of you are too experienced to ever sign up for it. That would be a shame, because I think even the most grizzled and world-weary director would learn something from Reatha’s response. Here, just for you, is a sample of what she said. Enjoy—and be glad American entrepreneurialism continues to benefit from her judgment and commitment, day in and day out.
How to Be(come) A Director will be available from NACD in the fall. Don’t miss this chance to explore director responsibilities and rewards with some of America’s leading governance experts—directors who can lead the way for you.
In the week when the SEC revealed its rule on proxy access, a director from the National Association of Corporate Directors (NACD) had his own say on pay.
Bill White told more than 100 directors at NACD’s Director Professionalism course that he wishes compensation committees could be renamed. “I’d like to see them known as contribution or motivation committees,” he said. Bill is an experienced public and private company director and former Bell and Howell chairman and CEO.
In addition to his board service, Bill also teaches applied psychology at Northwestern University in Chicago. “People work best when they love what they do and believe it matters,” said Bill. “Pay is only one part of what makes them turn up and work hard. The emphasis on salary for executives has not been helpful in recent times. Whatever your committee is called, spend more time coming up with innovative incentives and rewards and focus beyond the $$$.”
Bill has it right, I think. I wasn’t happy in the best-paid job I ever held. I understood the mission, but I wasn’t very clear about how I could contribute. I never quite believed what I heard myself saying to my team, partners and customers. I didn’t trust my boss. (This turned out to be good thinking—he later went to jail for taking huge backhanders from a soft toy manufacturer and distributor in the Far East—a giant fake fur fraud case. Real Hong Kong Phooey.) I left after a year and my salary has gently declined while my job satisfaction has risen ever since.
When “Pay Czar” Ken Feinberg imposed his salary cap on executives from TARP companies, many board members feared key executives would leave. Bill reported that in fact 87 percent were still in place. “Where would they go?” he said. Of course, there have been loopholes in the salary rules imposed by the special master for executive compensation that mean many of these bailout business leaders are hardly hurting. Nonetheless, people at the pinnacle of their executive careers are often somewhat siloed in their own industry niche and have to consider many factors beyond compensation when they are eyeing current competitors as future employers. For people at any level in any organization, location, culture, autonomy, ability to innovate, empathy, excellent support and many other factors are vital to job satisfaction and career success. Of course the money is important too—NACD’s CEO Ken Daly should not take this posting too, too seriously as year-end and bonus time approaches…