The Digital Natives Are Restless

A new digital industrial economy is emerging where every company is a technology company, I write in the Korn/Ferry Institute Briefings on Talent + Leadership magazine.

It requires directors to develop a core understanding of how technology can impact the business, whether it’s lowering costs, better connecting to customers or improving the company’s offerings.

A new group of directors, call them “digital natives” have joined the boardroom.

Boardroom strife attracts activist investors

Boardroom strife attracts activist investors

Agenda, a Financial Times Service, interviewed Karen Kane about the current proxy season.

Poor performance is a key reason for making boards vulnerable to activist investors and their subsequent demands for change.  In addition, conflict on the board can also attract negative attention. As a University of Alabama study suggested, conflict is more common on boards where the CEO wields a high degree of structural power and control over director selection.

Elaine Wynn’s public battle to keep her board seat brought unflattering attention to Wynn Resorts as the company saw its stock drop after it cut its dividend by 67 % due to problems with its Macau business. Mrs. Wynn’s fellow directors did not re-nominate her.

T.Rowe Price, the company’s largest shareholder, supported the company’s slate of directors after Wynn Resorts promised to make changes to its governance practices and boardroom diversity.

Ms. Kane noted that the board has a year to deliver on its promise. “Time will tell whether the board is able to improve its diversity and the competency of its members,” she said.


CEO s and Activists

AckmanThe CEO job has never been easy.  It’s hard finding growth in a hyper-competitive environment. Satisfying shareholders becomes a bigger challenge when activists are watching. 

 What’s a CEO to do?

 Recognize that no company is safe from a rising activist tide.  Activists have the money and the analysis to go after lagging companies. Poor financial returns are the prime reason activists get involved. 

 CEOs should enlist the board in developing a dispassionate evaluation of the company and the board’s vulnerabilities.

 Understand the issues. What is the current performance and what is the potential?  Look at the board, it’s structure, how it’s elected, how it compensates management incentives.  Do they reflect that the board is doing right by shareholders?

 How involved is the board in strategy?  Has the board sought additional analysis to more fully vet the underlying assumptions about the strategy?

 What are your shareholders telling you? 

 Activists have raised the bar. Smart CEOs are looking for board member who can help him and his management team succeed.

Leadership Lessons from Dorothy Gale

8-BOSS-articleInline leadershipIn her message to the young women and supporters of the Metro Achievement Center for Girls, President and CEO of ComEd, Anne Pramaggiore offered her perspective on leadership with lessons from Dorothy Gale of the iconic film “The Wizard of Oz.”  Pramaggiore was honored with the MAC Leadership Award.

Pramaggiore contrasted the two Dorothys of the film:  Back in Kansas, Dorothy Gale was a fearful and tentative girl but once the bump on her head that landed her in Oz, Dorothy Gale regrouped and found her leadership skills.  She sought mentors and a support system and showed an appetite for risk by traveling to the Emerald City to find the Wizard.  Dorothy Gale also demonstrated resilience in her willingness to fail, pick herself up and try again–all important leadership lessons.

And what a fitting story for Midtown Education Foundation, dedicated to improving the future of Chicago education by offering high-quality enrichment opportunities for both girls and boys through after-school and summer programs of one-on-one tutoring, mentoring and parental involvement .  In its 49 year history, MEF’s Senior Class of 2014 became the 15th consecutive class to achieve 100 percent high school graduation and college enrollment.  Many of the MEF seniors were in attendance, selling raffle tickets and assisting with the program.

“We’re very proud of you and look forward to your greater achievements,” Pramaggiore told the graduating seniors.


Keith_GottfriedShareholder Activism on the Rise

A sure sign that shareholder activism has become more prevalent is when large cap and well-run companies like Apple and Microsoft attract the interest of activist investors, noted Keith Gottfried, a partner with the law firm of Alston & Bird LLP who leads the shareholder activism defense practice.

His advice to boards of directors:  be prepared.

“The activist playbook has become more sophisticated,” he told participants of a webinar.  “Today’s activists are knowledgeable, well-prepared and well advised.”

He suggested that boards of directors have a game plan to anticipate activist activity.  And, if the activists come knocking, he suggests a team approach to engaging with activists.

“First, know the activists’ issues,” he said.  “Some activists are focused on breaking up companies to unlock shareholder value.”

It takes coordination to respond effectively.

“Put together a team of internal and external resources,” he said.   Insiders would include the CEO, CFO and investor relations.  “You’ll want to include the proxy solicitor to understand the issues of the various shareholders as well as special counsel since the internal legal resources do not regularly deal with activists.”  It’s also important to include others such as communication experts who work with boards of directors to help them learn how to be effective in engaging with activists, he said.  “Think of any proxy battle as a campaign,” advised Gottfried.  “You not only need message points and speeches but an ability to get the messages out to the right audiences at the right time.”

He sees activism only increasing.  “The success of activist investors is attracting more investment.  Activist investors have convinced fellow shareholders that they can help to unlock shareholder value.”


Leadership Lessons from Bob Gates

blog_duty_robert_gatesFormer Defense Secretary Robert Gates spoke about his book, “Duty”, to a sold-out crowd at the Fairmont Hotel in Chicago this week.

Much of what he said he has said on television and other forums about how toxic Washington is today and the difficulty of working and accomplishing anything in the “partisan abyss”.

 Contrasting the sacrifice of our dedicated men and women in uniform with the selfishness of our elected officials, he was asked what advice did he have for the public-minded crowd assembled by the Chicago Council on Global Affairs?

His talk is available on YouTube in its entirety but his answer begins at 38:20 

 “Our politics have always been rough and tumble. As a historian and someone who has read a lot of history, I don’t think our Founding Fathers anticipated that people would make politics their life’s work.  I think they thought that farmers, lawyers, doctors would have their own life and as a matter of public service go to Washington to serve in Congress and then go home.

 “For members of Congress today being a member of Congress is all they are.  They’ve wrapped their psyche around being a member of Congress.  And being defeated is intolerable.”

 When they leave Congress, most of them stay in Washington.  “It’s as though they’ve forgotten where they came from. People come and stay for 30, 40, 50, 60 years.  That becomes their life.

 “The most empowering thing for me in Washington as Secretary of Defense was that everyone knew I wanted to go home.  I was begging to be fired. The more I wanted to go home; the more they wanted me to stay.”

 He said that if these people ever  “realized how empowering it could be to vote their conscience on issues and do what’s in the best interest of the country–first, it might be the best politics–but also, they might find it liberating.

 “I used to say, if I could be elected to one term in Congress and play a vital role in putting the country on a strong fiscal track and I got defeated at the next election, I would be proud to tell my grandchildren what I did during my one term in Congress.

 In summary, he said: “I think we have too many careerists in Congress and not enough people who go to give brief periods of public service.”

 He was reminded of a favorite quote of Teddy Roosevelt:  “I represent the public, not public opinion.”

 His answer was met with vigorous applause.









Directors Consider Peer Performance

Years ago, a highly regarded director and board chairman confided, “We have to be better about getting the poor and mediocre directors off the board.”  The issue was the collegiality of the boardroom and the reluctance to confront a non-performing director.

Today, according to the latest PwC 2013 Annual Corporate Directors Survey conducted during the summer of 2013, directors have signaled increased concern about their peers in the boardroom. With 934 public company directors responding, 35 percent now say someone on their board should be replaced compared to 31 percent in 2012.

And why do fellow directors worry about their peers’ performance?  Aging, lack of required expertise and lack of preparation for meetings are the three main reasons directors are not performing, according to the PwC survey.

Today, corporate governance continues to evolve at a rapid pace with directors taking on expanded roles and responsibilities. Expectations for board members have increased in response to regulation and greater shareholders demands.

It’s not the money (4 percent)  or prestige (3 percent) that motivates director to serve but rather intellectual stimulation (54 percent) and staying occupied and engaged (22 percent) that attracts directors to board service, according to the survey.

One of the unintended consequences of power moving from the CEO to the board is that directors themselves decide when they should step down.  It’s still rare that shareholders succeed in removing directors.  Retirement, reaching the age of 72 or 75, is the main reason for a director to leave a board.

One governance expert noted that some boards are reluctant to invite 40-year-olds to become directors because “they could be on the board for 30 years.” Why? If it turns out that the director is not effective, board leadership is uncomfortable addressing the issue, which also implicates the inadequacy of the  board’s own self-evaluation.

Is entitlement part of board service?  Do some retired-CEOs-turned-directors regard “intellectual stimulation” and “staying engaged” as their right to suitably interesting post-CEO careers regardless of the value they bring to the enterprise? The old saws of being a director as a “lifetime achievement award” or “a victory lap” may still be true.

Shareholders are noticing.

When JPMorgan was recently recognized for enlarging the powers of its lead director as a positive development for the firm’s corporate governance, one of the company’s large investors expressed concern for the age and long tenure of the individual in the post. Dieter Waizenegger, CtW Investment’s executive director, said he wants lead director Lee Raymond removed from that role because he has been a director for 26 years.  “We need someone who can lead a new and refreshed board that departs from the problems of the past,” he told the Wall Street Journal.

Boards need to develop and execute a robust evaluation of its members and the effectiveness of the board as a workgroup. Directors need to get the right help to carry out the task. They need-someone who knows business and governance and is independent, not selling ancillary services to the company as a result of his or her advice. And, they also need to follow-through on their evaluations.  If the director is too old, does not have the expertise required or is unprepared for meetings, the board should tell the director to step down.

Isn’t it better for directors to take the steps to ensure effectiveness themselves, rather than waiting for shareholders or regulators to assert greater authority in the boardroom?

Leadership, Peer Pressure and Sponsorship

Leadership, Peer Pressure and Sponsorship, The French-American Chamber of Commerce of Chicago’s Women for Women  Committee hosted a panel discussion, “Women on Corporate Boards: Exploring Different Approaches for Bringing More Women to the Boardroom”, an event co-sponsored by the Chicagoland Chamber of Commerce and Baker & McKenzie, where the meeting was held.

Laurel Bellows moderated the panel that included Sharon Thomas Parrott, President of DeVry Foundation and SVP of External Relations, DeVry Inc., Deb DeHaas, Vice Chairman and Chief Inclusion Officer, Deloitte LLP, Francoise Colpron, President, Valeo North America and Chris Curtis, President and CEO Schneider Electric North America.

The panel explored the international efforts underway for improving women’s representation in company leadership and corporate boards.

“Diversity is a business imperative,” said Parrott, who utilizes DeVry’s civic engagement funds to support the organization’s business leaders to get involved at a board level in non-profits in the community. She suggested a report card that scored companies on their inclusion of diverse leaders and board members. Colpron’s experience as a business leader in Europe and Latin America has convinced her of the importance of boards reflecting the community in which the company operates but sees quotas a short-term fix.

While DeHaas acknowledged the pace of change in the boardroom as documented by The Chicago Network’s annual survey of women on corporate boards in Chicago as “glacial,” she noted that it will take leadership and peer pressure to bring about the increased participation of women on boards. “I would add sponsorship,” said Curtis, which he differentiated from mentorship, noting that it takes a CEO or other leader’s investment in the success of the sponsored woman as a board member or corporate leader.

Women who are interested in attaining a corporate board seat should be actively engaged, the panel agreed. With the role for recruiting new directors moving from the CEO to the Nomination Committee and less than half of those committees using recruiters, networking has become more important. “It’s nothing short of a campaign,” said Curtis.

“There’s nothing casual about aspiring to a board director appointment. It’s part of your career planning,” said DeHaas. “Be realistic about your qualifications and what you can contribute. Be a student of good governance and let people know you have an interest.”


Directors:How Did You Do at Your Annual Meeting?

Annual meetingAs the 2013 Annual General Meeting season comes to a close, shareholders continue to make their presence known. Shareholders are taking action: eliminating classified boards, voting against directors who are perceived to be ineffective stewards, such as the museum executive who chaired the risk committee of JP Morgan Chase during the “London whale” scandal, and casting “no” votes on executive pay programs.

Even boards that won say-on-pay approval need a strategy and plan to manage shareholder engagement.

A review of your annual meeting is a smart place to start.

So, directors, what did you learn at the annual meeting? What will you do over the course of the next year to ensure that you understand your shareholders’ concerns, both large and small?

Did any board members speak at the meeting? Was a director designated in advance to speak for the board? Did the chair of the compensation committee respond to shareholder’s questions on the executive pay program? Was he or she trained and prepared to offer the “why” of the story?

What were the surprises? Did you hear new issues or concerns from shareholders? Did management respond to board questions? How would you rate your performance in appropriate communication to those in attendance? These are items that should have board attention.

Does it make sense to adopt a strategy to make next year’s annual meeting a chance for shareholders to “kick the tires” and get to know who is representing them in the boardroom? How could you go beyond the proxy to help them see that your experience and expertise are adding to the company’s value? What steps can you take now to ensure that you are fostering a better understanding of the value you bring in your role as a director?

Strategic boards understand that shareholders are now part of the governance dialogue and need to feel that they’ve been heard. Boards with effective shareholder engagement programs are able to listen to shareholders. Directors who understand shareholder concerns are able to both provide responsible oversight and effectively convey that the board is responsibly fulfilling its role to create long-term value for shareholders.

Begin now. The clock is ticking for the 2014 proxy season.

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