Performance Metrics That Make a Difference

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This morning’s plenary on “Performance Metrics That Make a Difference,” brought together the two co-chairs of the 2010 NACD Blue Ribbon Commission on Performance Metrics, John Dillon and Bill White, as well as NACD Chairman Barbara Hackman Franklin and Jannice Koors from Pearl Meyer & Partners.

When it comes to financial metrics, NACD Chairman Franklin stressed that the board “sometimes… just takes what management gives us.” The board must “make sure that senior management really buys into [the established] strategy, goals, and performance measures,” agreed Jan Koors. It’s important to “trust, but verify,” and for the board to take a more proactive role in overseeing performance metrics.

The panelists agreed that a conversation on performance metrics easily lends itself to a discussion about compensation. However, what boards should be trying to accomplish is a wholesome, deeper dive into all of the various components of the enterprise. Understanding information about your company provides clarity into what can be improved and ultimately perform better.

A lively discussion from the crowd of 750 directors at the 2010 NACD Corporate Governance Conference

A lively Q& A session from the crowd of 750 directors at the 2010 NACD Corporate Governance Conference

John Dillon, who serves on boards including Caterpillar and DuPont, emphasized that, while boards currently address performance metrics in proxy statements, the board needs to think more broadly and engage leadership to get an appropriate number of financial and nonfinancial metrics to understand what is going on in the company.

Jan Koors summed it up best when she said “boards do a good job at telling shareholders what the metrics are, but less good at telling why these metrics were chosen and how they relate to strategy and moving the company forward.”

Click here to purchase your copy of the Report of the NACD Commission on Performance Metrics’ Performance Metrics: Understanding the Board’s Role.

Just Do It! Board-Shareowner Communications for 2011

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NACD’s Annual Corporate Governance Conference opened with a topic that hangs heavy in the air. The first plenary session concentrated on board-shareholder communications in the aftermath of the passage of the Dodd-Frank Act.

The panelists for “Just Do It! Board-Shareowner Communications for 2011” were CalSTERS’ Janice Hester Amey, The Corporate Library’s Nell Minow, Computer Associates’ Bill McCracken, and Broadridge’s Marvin Sims. The panel tackled the hot topic issues related to the Dodd-Frank Act such as say-on-pay, majority voting, executive compensation, and separation of the CEO and chairman. While consensus on these topics was elusive, panelists did agree that the next year will be a “bumpy ride” for both boards and shareholders.

The panelists agreed that the Dodd-Frank Act is intended to improve board-shareowner communications; however, the results will likely be mixed. For example, proxy access was a point of disagreement amongst the panelists; some believe it will help foster greater accountability to the shareholders, while others believe it is not well thought-out as presented by the SEC.

Conversation also turned towards executive compensation. Nell Minow believes “nothing is more central than compensation.” Countering Ms. Minow was Bill McCracken, who emphasized that there should not be over-reliance on compensation, as there is more to consider when anticipating the failure or success of the board.

Nell Minow Bill McCracken Janice Hester Amey Marvin Sims
Editor and Co-Founder, The Corporate Library CEO, CA Technologies; Director, NACD Portfolio Manager, California State Teachers’ Retirement System (CalSTRS) Vice President of Regulatory Affairs, Broadridge

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.