Corporate Governance Lessons from the Girl with the Dragon Tattoo

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Fifty years old and I still haven’t kicked the habit of the end-of-summer book report. Sad really.

The Girl with the Dragon Tatoo

I must admit I didn’t think that Steig Larsson’s first thriller would provide food for NACD thought, but listen up all you private company directors, nomination and governance chairs worried about CEO succession, and anyone concerned with boardroom ethics and director independence. This book review is for you.

Several things are well known about the author of The Girl with the Dragon Tattoo author, Steig Larsson:

  • He died before his trilogy of crime stories became best sellers.
  •  He was Swedish.
  •  He was a former journalist who was expert in covering right-wing extremism.

It is not known how much he knew or cared about fiduciary responsibility or the governance practices of the best-run family businesses, and midway through the book it becomes obvious that the corporation and the magazine company around which most of the action is set, have not based their governance practices on the NACD Key Agreed Principles. Sure, both are private (not public) companies and being based in the frozen north of Sweden and in Stockholm respectively, are not bound by U.S. law. Nonetheless, the conditions under which old man Vanger joins the magazine company board, and the threats subsequently made to the company co-founders, would raise the eyebrows of anyone with even a rudimentary knowledge of the Duty of Loyalty. Transparency is not a core value and self-interest rules the day.

The Vanger family who run the company—and, indeed, the community at the heart of the book—would benefit from attending the family business session at this year’s NACD conference. As usual, the session will be facilitated by Jack Moore, a member of the Benjamin Moore Paint family and well-seasoned in helping directors and executives of family-run companies deal with some very sensitive interpersonal issues. Jack will be joined by Linda Thomas, the CEO of Wilcox Farms, an egg distribution company based in the Pacific Northwest. Chris Wilcox, one of the family members now involved with running the 100-year-old egg farm, will be there too. This will be textbook—not crime thriller—corporate governance, but the panel have promised some lively stories even if they can’t manage mystery and intrigue. Don’t miss it.

Later in Larsson’s novel (and I must be careful not to give away the plot) there are serious questions about who should lead the Vanger empire, although the old man is still very much alive at the end of the story. It all comes out all right in the end, but there’s no doubt that their succession planning and executive evaluation process was sadly lacking. The company counsel, Frode, is pretty much a good guy throughout, but really questions must be asked about the board process and how he allowed it to become so compromised. HealthSouth director and law professor Charles Elson, Heidrick and Struggles’ Bonnie Gwin, and Peter Wiley, chairman and former CEO of Wiley and Sons, will discuss C-suite succession planning at the NACD Conference. Join them to find out how it should be done.

And if a girl with a dragon tattoo offers to invest in your latest venture, give her a wide berth. I have reason to believe her fortune was not made honestly.

 

Beyond Strategy: How Boards Can Accelerate ROI of a Deal

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Highway of Life: Expect Delays

Highway of Life: Expect Delays

An old comic strip in my office shows the character Ziggy in a car facing two billboards: “Highway of Life” and “ Expect Delays.”  This sentiment seems to apply to Sanofi-Aventis’s prolonged merger negotiations with Genzyme.

According to published reports, the apparent source of the delay has been agreement upon price, given the manufacturing problems at Genzyme. However, a bigger question the board must assess is whether senior management can address these issues within a timeframe that provides the expected return on investment.

This situation is not unique. As opportunities for “bargain” deals resulting from performance problems become more plentiful in our rapidly changing business environment, it’s critical for boards to go beyond questioning the logic and price of the deal and also assess the potential impact of cultural issues that can make or break success.

Here are questions to ask senior management:

  • What are the business culture strengths and obstacles that will impact integration (e.g., speed of decision making, communication flow, etc.)?
  • What plans exist to deal with the natural organizational anxiety and resistance that comes with mergers?
  • What is the plan for communicating with stakeholder groups to gain their support before and during integration?

Asking these and other questions regarding culture, combined with questions regarding strategic fit, will enable your board to not only accelerate ROI in the short term but in the long term as well. 

Pamela S. Harper

Pamela S. Harper

Pamela S. Harper

Pamela S. Harper is founding partner and CEO of Business Advancement Inc (BAI). and author of the book Preventing Strategic Gridlock (Cameo Publications). She is on the boards of two nonprofit organizations. Since 1991, BAI has collaborated with senior executives and boards to develop strategy, increase leadership effectiveness, and improve organizational engagement and capability for maximum innovation, growth and profitability.

Proxy Access: The Ultimate Weapon

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On a recent conference call with our Board Advisory Services faculty, we invited Anne Sheehan, director of corporate governance for the California State Teachers’ Retirement System (CalSTRS), to provide her perspective on how CalSTRS plans to use the recent proxy access regulations.

For background, CalSTRS is the second largest public pension fund with over $134B under management. CalSTRS is a long-term shareowner and is considered a passive investor. Their mission is to act as the steward for California state teachers’ retirement funds—ensuring that California’s K-14 professors and teachers (kindergarten through community college) have sufficient funds available when they retire. Approximately half of CalSTRS’ portfolio is invested in equities across roughly 7,000 companies. Typically CalSTRS’ investment is around 0.5 percent of outstanding stock per company.

Anne’s comments were extremely important for directors of publicly traded companies, as CalSTRS leverages corporate governance practices to add value and minimize risk to their portfolio. CalSTRS looks to directors to oversee delivery of long-term growth and value for shareholders. It does not have a political agenda; it’s all about long-term value creation.

Aside from shareholder value creation, the goals of Anne’s team are focused on creating a dialogue with companies and boards. Importantly, the majority of CalSTRS requests are resolved through dialogue.

During our meeting last week, Anne provided a brief summary of recent proxy access rules—SEC Rule 14a-11 and amended SEC Rule 14a-8(i)(8)—and what they mean for directors. While many organizations have provided detailed descriptions of these rules, Anne emphasized the following four key points:

  1. Boards need to proactively engage in shareholder communications and dialogue. While boards need to be aware of shareholders concerns and desires, boards do not have to do as all shareholders request. Frequently shareholders perceptions are simply based on not knowing why.
  2. The new proxy access rules level the playing field.
  3. If a board and/or senior management disregards and/or avoids a shareholder’s request for information, proxy access is the tool of last resort.
  4. Proxy access is seen by large investors as the “ultimate weapon” to influence a board.

Net: If your board is looking for an independent, third party to help conduct a confidential and customized in-boardroom program on strategy, the current environment, or succession planning; or for assistance conducting CEO and/or director succession planning, or exchange-mandated board evaluations, NACD’s Board Advisory Services faculty of 100 percent current directors and leading governance experts is ready to help your board advance exemplary board leadership. NACD’s Board Advisory Services (BAS) team is poised to help boards perform as strategic assets for their shareholders and senior management.

Don’t wait until it’s too late; contact us at inboardroom@NACDonline.org or call 202-572-2101.