This is the second of a two part report on the NACD Directorship 100 program in New York on November 8-9. See part one.
Human Capital, Risk and Reward
Catherine M. Kilbane, Senior Vice President, General Counsel and Secretary, American Greetings Corp., Director, Andersons, Inc.
Gilbert F. Casellas, Director, Prudential Financial, Inc., Former Chairman, U.S. Equal Employment Opportunity Commission
Lorie Almon, Co-Managing Partner, New York Office and Co-Chair, National Wage & Hour Litigation Practice Group, Seyfarth Shaw LLP
Subha V. Barry, Senior Vice President and Chief Diversity Officer, Freddie Mac; former Managing Director, Global Head of Diversity & Inclusion for Merrill Lynch & Co., Inc.
Moderator: Jeff Cunningham, Managing Director and Senior Advisor, NACD
Catherine Kilbane suggests lunch in the company cafeteria, instead of the boardroom. We put words in people’s mouths (American Greeting), so they have to really be in touch. Her company has a real commercial imperative for diversity and creativity. Uptick in fiduciary claims. Once they file, discovery legal costs go up and now they are getting confidential proprietary information that will be disclosed to the public. Chair of comp committee took Tulane through Katrina, so should be able to handle anything. Partners with organization to take in Hispanic high school kids. Tweaking the program. Social media, if you can’t use it, you’re not there.
Lorie Almon – If you are 8 out of 8 that’s not good but process and procedures are even more critical. You don’t want to be a target. The more top and bottom look alike, the better your defense in discrimination, class actions, entrepreneurial lawsuits. Better target if no women or minorities on board. Inclusiveness is a new entrapeneural tool. 50% women at bottom, 2% at top… need to examine why. Likely target. Former employee is typically the starting point for lawsuit. Lawyer comes up with angle, looking for the bigger return on lawsuit investment. They do their homework statistically… expert analysis. Research your website, investigate your c-suite. Board with all white males is generally harder to defend. How you look?
Information often starts with disgruntled employees… common evolution is for them to then work with EEOC to investigate initial issues. They can have EEOC ask for them, the plaintiff. Take strategies to avoid demonization. Board’s would do well to improve, measure, responsibility.
Subah Barry – Create more diversity at the management level and bring them up. Focusing on diversity is often seen as a distraction by middle level management. Focusing on the risks of group-think, on the benefits of having a diversity of skills – will build right solution for that group. Push back with data and logic. Challenges… can’t find women in metals in mining. If we are 8 out of 8, that shows it can be done. Availability data analysis. You might have to build the pipeline. Tools to demonstrate positive impact from a selfish point of view. Candid feedback. When you take on an employee, you take on both an asset and a potential liability. Get people to talk in their own language. Bring in the university professor as they have quantified (yes, my notes are cryptic but I think the entent was to demonstrate the benefits of a board that is constantly learning from each other). Barry provided examples where diverse groups had better solution than more talented homogenous thinkers. Thoughts, perspectives viewpoints. Not only each company but each division… each segment. Sports analogy: Where will the puck be so that you can position yourself to be there when it comes you way?
Inherently, there is bias. Her company has a high competency autism internship program which places them where they will succeed. Training is more important for the pool they work with than for the autistic employee. Wouldn’t it be wonderful if managers took as much care placing “normal” employees? Monitor what’s being said in the social media, especially by current and former employees.
Gilbert Casellas – It is a flag, having someone come forward. Set goals for women at executive level. Benchmark by group or type. Market is important for Dell as well. You want to sell more things, reach consumers. You won’t know that without outside perspectives and thoughts. Are we winning in the marketplace? Accountability, we had targets. We needed a mix so that employees can see people like themselves in leadership roles. Pay me now or pay me later. Preventative medicine is best practice. Mentoring program can help develop diversity talent pool
M&A: More Than Meets the Eye
Dave Dorman, Chairman of the Board, CVS/Caremark Corp., Director, Yum! Brands, Lead Independent Director, Motorola Solutions
William McGuinness, Chair, Litigation Department, Fried Frank
Paul Parker, Investment Banking Executive Committee and Chairman and Head, Global Mergers & Acquisitions, Barclays Capital
Moderator: Jeff Cunningham, Managing Director and Senior Advisor, NACD
One third of deals are cross-border. don’t bet the farm. Tuck-in acquisitions that can be bought at a reasonable price will allow you to survive, even if you get it wrong. Go for the adjacent, unerstandable. Get the price close to right. Transformational deals.. more time spent on the deal before is often better than time spent after. How do you allocate risk among competing parties? Reverse break-up. Seller recieves a pa yment because buyer can’t close the deal. Down side risk can get enormous. There is no such thing as 90% chance. There must be synergy.
Private equity v corporate buyer. Sandy Weil never thought Inbev would come up with $70 per share. Under today’s standards, boards need context…. much better practice. Legal consequences. Be current on business trends. High risk of failure. Grounding and context exposes liability if you haven’t done you due diligence. When does auction not have to take place? Revlon requires highest possible value. Act in a “reasoned manner” to get highest value. If you go into auction mode you might lose an offer that might be the highest value. M&A is rarely the result of banker to banker discussion. You need the attorney’s involved. Typically, seeds are sown a year in advance. Direct approach CEO to CEO shows respect. Risk in hostile deal goes up dramatically. We’re in the same space… joint venture, optimize value, take the measure.
Difference in process: PE v corp? PE, not open to wider scrutiny but could taint if CEO tied to PE firm. Leaks, context, can PE pay higher than strategic value? Debt markets are more favorable to corporations rather than PE, 75% cash these days in $3T market. Evaluations now done on both parent and constellation of companies in portfolio. Don’t get the deal done until you’re ready to announce it. Engaging the board broadly is the best way. HP problem on board, leaks from boardroom are not normal. Especially where management may have an ownership role. Happens all too frequently. Given example where CEO put board on spot in such a deal. They hired counsel, did a different deal raising about 20-25% more. You don’t really get deal fever if you’ve done your due diligence in advance. If management sponsored and board turns it down, CEO generally is out. Combined boards very difficult (Spint Nextel). CVSCaremark worked.
Sequential acquisitions? Disciplined integrative process. Good cultural fit. Generally aspirational… cultures are often different. The more you do, the more the market will ok the next one. Don’t get caught up in deal fever at top of market. Don’t catch a falling knife.
Jay Grinney, President and CEO, HealthSouth
Jon Hanson, Chairman, The Hampshire Companies, Chairman of the Board, HealthSouth and Pascack Bancorp
Moderator: George Davis, Co-Managing Partner, Global Board Practice, Egon Zehnder International
Jay Grinney, Jon Hanson, Moderator George Davis
This team liked the idea of a split chair and CEO that they are out selling it. Grinney likes the idea that Hanson is available to other board members. They have chemistry. He acts as a sounding board that is not a direct report.
CEO runs the company. Chair is involved on governance side. Since the split, they have developed more of a dialoge at board meetings. They conduct board effectiveness reviews. Asked about how know when Hanson is discussing as a mentor or as a chair. Mentor discussions are usually as asides, rather than on company specific issue. Difference between lead and exec. chair? Chair runs meeting. Public doesn’t understand lead director. Ego is the problem that gets in way of split. Paradigm shifting. Next generation will be more collaborative. Hard to take it away when role has been combined. Younger generations are more used to getting input from a lot of sources. Only 27% have nonexec chair and 1/2 of the 27% involve CEO’s in training.
A good chair is a good listener. Self-assessments generally higher than reality, some less. Best peer review is a third party. Hard to do a good review of peers without third-party involvement. Transparency and openness key to getting what you want out of board.
Do you think about having succession for the chair? We have term limits, age limits. Third party facilitator to discuss. Myth or reality, easier? Easier. I rely on Jon’s wisdom as to where directors are on a variety of issues. He’s there for independent sessions. Not all are as willing to be as candid with me. “Jon, you go tell him…” Very important: you need a nonexec chair who doesn’t aspire to be CEO.
You let people talk and build consensus. Chair can facilitate that process. Gatekeeper? Open access. They don’t have to call. I don’t know when they do. Create the atmosphere. Don’t have time nor would I want to be gatekeeper. Open communication. Who communicates with shareowners? CEO does. Two years ago we met with top 12 investors to talk about corpgov guidelines. Aft30 seconds on corpgov guidelines they wanted to move to the financials. We wanted dialogue, they wanted quarterlies. Hopefully, it will get better.
How can we get you to chat with others, an audience member asks? When you hire new make separate positions. Shareholder has to be receptive. Forums like this help. No compelling reason to stay with combined role. Is there a backstop? Chair of corpgov committee would be the right person to go to. Jon was that person. We were also hit with refrains of one size doesn’t fit all.
Hon. Mary K. Bush, President, Bush International, LLC, Director Discover Financial Services, Independent Director, Marriott International, ManTech International Corporation, Former U.S. Representative, board of the International Monetary Fund
Laura Stein, Senior Vice President and General Counsel, the Clorox Company, Director, Franklin Resources
David Kistenbroker, Managing Partner, Chicago Office, Katten Law
Stuart M. Grant, Co-Founder and Managing Director, Grant & Eisenhofer
Combined audit and risk committee works best in simpler line of business. Use all standing committees to look at risks within those committees. Every director must be aware of top ten risks. Integration team is very important. Have HR person at side. Culture / business practices are risks. HR may have better sense. Hear directly from local auditors periodically. Also useful is having groups within company rank risk and probabilities.
US has exported class action lawsuits. Mostly started on consumer level. Mexico most recent. Class actions still not readily available but you are seeing actions in the court systems of Western Europe. Netherlands has put itself out as the Delaware of Europe. Law firms there will form an organization of injured parties, which will be treated it like class action. Judgment in one country precludes judgement in others. Investigation prosecutor is also judge — parallel civil action. Shareowners can bring collective actions without really suing… just settling. Litigation of Royal Dutch Shell. US action settled as tail rather than dog.
By tapping the global capital markets and selling securities to soverign wealth funds, you’ll up the chances of getting sued in other countries. Canada very aggressive. IMAX court certified a global class. User pay rules. Court of Ontario approved litigation funding entity. Two publicly traded litigation funders. One in Australia and one in UK. Many think they could suffer capital risk but don’t take into account reputational risk. Brand/reputation is everything. Reaction usually counts more than the damage itself. ESG big issue in Europe. US parent may focus more exclusively on shareowners to their peril, since foreign subsidaries may need to include other constituencies, having legal duties to other stakeholders. There are requiremets and they change.
The National Association of Corporate Directors (NACD) Directorship 100 Forum in New York City brought together more than 350 directors and C-suite executives from leading companies and boardrooms around the country along with governance professionals, regulators and investors. According to Ken Daly, president and CEO of NACD:
This year’s forum was a huge success, recognizing leading directors, showcasing dynamic speakers and translating directors’ concerns to opportunities. NACD is a primary resource for all directors and boardrooms, and we provide the essential tools to help directors identify, understand and implement leading practices. The attendees will be able to efficiently translate the information and insights from the event into effective practices for their individual boards.
In order to stay ahead of the emerging issues impacting directors, participants engaged in a variety of peer-to-peer knowledge exchange workshops and panel discussion sessions. I didn’t cover the more granular workshops in these posts, mostly because I don’t want to inhibit candid discussion but I would have to say that these sessions frequently tackled the tougher, more demanding issues.
NACD has an important role to play in creating and reinforcing the leading practices and standards of boardroom stewardship, increasing core values in decision making, and examining the behaviors and processes of boards and management. In most cases, I wouldn’t consider them in the vanguard but they certainly help in setting a floor of standards and the NACD must be seen as the preeminent forum on how to deal with typical issues facing directors.
In addition to honoring the 2011 NACD Directorship 100, the Director of the Year and the B. Kenneth West Lifetime Achievement Award winner, the recent class of NACD Board Leadership Fellows and NACD Governance Fellows were recognized, as well as the relatively new category of “people to watch,” which included yours truly.
One feature I really enjoyed was a table of people tweeting on Twitter about the event. As I recall the tweeters were @UrmiAsha @DrRLeblanc @DougChia @AdamQuinton @FayFeeney and @AnnaEliseWalton. It was a good group of individuals, all worth “following” on Twitter. They not only kept people around the world up on the proceedings minute by minute, they helped those in attendance recover at least one misplaced item. One tweet and the item was quickly located by someone following their tweets inside the room! More evidence that social media has an impact.
Fay Feeney, CEO, Risk for Good told directors “don’t think of it as something only your kids do – your customers and employees are engaged in the conversation around the world 24/7.” Each tweet is either building your brand and reputation or taking it down. This is reason enough to explore how Twitter is being used in your organization.
Read Part 1 of my NACD Directorship100 coverage. Both posts are simply my notes and impressions. I strive for accuracy but please let me know of any inaccuracies, so that I can correct.