At the same time, COVID-19 is rewriting the book on business strategy and execution.  Growing complexity, disruption and uncertainty have made the job of leading an organization more challenging. Yet, board turnover remains where it’s been for years, below 10 %.

Racial justice brings new urgency to board refreshment. Boards are expected to reflect the company’s customers and communities. Will racial advocates be content to wait as changes in the boardroom continue at its present glacial pace?

Companies need more diverse perspective in boardrooms now given the board’s responsibility for  providing guidance while building talent around the company’s strategy and future needs.  Relevant technical skills in cybersecurity, entrepreneurship and human capital are also critical.

While annual election of directors would seem to imply a fresh slate of board directors, it’s not the practice within the boardroom today.  The average company director has been in his seat for more than a decade. And, the majority of directors continue to come from the same recruitment pool.

Today, most directors see their board assignment as a term for life, or at least a decade. Because the role of director brings with it the imprimatur of a successful corporate career, most directors are loathe to give it up. As one veteran director observed, even with the increased requirements for directors, no one wants to give up the prestige of a board position.

Board refreshment needs to be an annual event. In countless surveys, the majority of directors admit that at least one board member is no longer effective.  However, the collegiality of the boardroom prevents fellow directors from singling out their less effective colleague, however obsolete his or her expertise and contribution has become.

The way to accelerate board refreshment is to require all directors to annually submit their board resignation to the Nomination and Governance committee chair.  That simple practice would give the board the opportunity to create the most relevant and diverse board for the current business environment.

Given the sluggish turnover of directors, investors are paying more attention to board composition. Institutional investors have increased the number of no votes against chairs of the nomination and governance committee.

If investors were assured that the slate of directors presented annually went through a true re-nomination, the board would be strengthened and its legitimacy reaffirmed. The practice would enable the board to retain its most productive members and create vacancies to recruit for greater diversity and new and needed skills.

The stakes have never been higher to ensure the most diverse and relevant expertise in the boardroom.

Karen Kane, former board secretary of the Federal Reserve Bank of Chicago, is a NACD Board Certified Director and Governance Fellow, writes frequently on governance topics and works with CEOs and boards to improve board performance.

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.

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.

Karen Kane describes how activists are advocating and making changes in her article in Korn/Ferry Institute’s Briefings on Talent + Leadership.

Click here to read her article.

The CEO job has never been easy.  

 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.

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.

Shareholder 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.”

Former 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.

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?

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.”

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.

See this post on BoardProspects.com

Berkshire Hathaway’s CEO Warrent Buffett has long demonstrated leadership in engaging with his investors by turning the Annual General Meeting into a company love fest. The meeting of more than 35,000 shareholders – already known as “Woodstock for Investors” – added a new twist this year:  Buffett invited Doug Kass of hedge fund Seabreeze Partners Management to attend.  Unlike the other investors, Kass is a short-seller who makes his living betting against Berkshire Hathaway by shorting the stock.

The meeting in the Quest Center is the central focus of the Berkshire shareholder’s year, where Buffett and Vice Chairman Charlie Munger take questions from shareholders and reporters both in person and online for six hours – albeit with a break for lunch.  The weekend kicks off with a free cocktail party.  The lines may be long to get a drink or hors d’oeuvres, but it’s free.  Shareholders are also free to wander the convention hall where Berkshire-Hathaway company booths line the floor.  The jewelry and furniture businesses offer deep retail discounts to shareholders.

By inviting Kass to join the Annual Meeting, Buffett proved that he was willing to be challenged.  In fact, Buffett has quoted Darwin that it is “man’s natural inclination is to cling to his beliefs, particularly if they are reinforced by recent experience.”  Buffett has also pointed out that when Darwin came across a finding that contradicted his conclusion, he made it a practice to write it down within 30 minutes.

Buffett’s deliberate, lifelong effort to find people to tell him why he might be wrong is one of the reasons for his success.  Another is respecting the people who have invested in the company and honoring that investment with a willingness to listen to them and answer their questions.

(I am now posting selected blogs on BoardProspects.com Please check out the experts who are contributing to this new resource for boards and directors.)

But there are some important nuances that directors should note.

Activist investors can no longer be dismissed as malcontents or profiteers. In fact they’ve recently garnered the label  “asset class.”

“Activist investors have won more respect as their research has improved and their campaigns succeeded,” said an investment officer for the California State Teachers Retirement System (CalSTRS.) In addition, once-passive institutional investors like CalSTRS are teaming up with activists in proxy battles.  Notable this proxy season is CalSTRS joining Relational Investors’ Ralph Whitworth to press Timken to divest its bearings and steel business to remove the “conglomerate discount that has persistently impaired Timken’s investment value for shareholders.”

Relational cites Timken’s history of poor corporate governance – notably the board’s refusal to declassify board seats following a majority-supported shareholder resolution in 2008, a “D” rating on pay-for-performance and recommended withholding votes on three of the four Director nominees by Glass Lewis characterized as insiders and family members. Both sides have filed additional documents in the runup to the May 7 annual meeting.

Ackman’s Pershing Square Capital Management LP  has incurred significant losses on its 18 percent ownership of J.C. Penney. However, the other directors are not off the hook.  Clearly, Ackman was convinced that Johnson could revitalize Penney’s fortunes, after all, at Apple he drove store sales to the highest per square foot in the industry.  Ackman convinced an independent board of directors of the logic of his strategy. Ackman was no doubt persuasive in gaining support from the J.C. Penney board of directors composed of five retired chairmen  and presidents (Radio Shack, Colgate-Palmolive, Texas Instruments, Southwest Airlines and Oxygen Media), a real estate executive, a university president and a marketing executive for Kraft Foods.  Did anyone have department store retail experience?

Johnson himself was convinced he could deliver. And yet Johnson left Penney’s with little to show for his 17-months of service because he agreed to be paid predominantly in stock and eschewed any rights to exit pay if he were fired. Additionally,  Johnson purchased warrants clearly indicating he was a pay-for-performance leader.  Compare that to Leo Apotheker who left the Hewlett-Packard Company with a $12 million package after his 11-month tenure left the company in shambles.

What investors may observe from the JC Penney saga is that activist investors may not be right 100 percent of the time.  However, they, like the shareholders, have skin in the game.  Johnson appeared to be a strategic choice for the CEO role when he was named.  What had the board done?  Did they just go along with Ackman? Unfortunately, it does not appear that the board did any succession planning during Johnson’s reign.  They gave the former CEO his old job back.

The ground is shifting, directors.  Investors and the media are scrutinizing your background and expertise.  Do you have the industry knowledge to understand and provide oversight of management’s strategy?  Do you devote sufficient time to understand the challenges that the enterprise faces?  Do you request additional information if management’s explanations are inadequate? Are you going along to get along? If you are sitting there pretending to understand, you are taking up a valuable spot.

With more than half the U.S. population believing that our current economic system is unfair,  capitalism, the great engine of prosperity and personal growth, needs a reboot. Corporate directors have a great opportunity to help, Robinson told the NACD Directorship 100 Forum.

Acknowledging that the economic and employment landscape has been completely altered by globalization and technology, hope for a better future for all Americans must be restored.

“As directors, we have a role to play in building companies but also rebuilding the public’s trust in the best system of the world.”  He calls it inclusive capitalism.  Businesses need to help today’s workers acquire the knowledge and skill to get the jobs that are available,  adopt an “easy button” philosophy to make life less cumbersome for their suppliers.  Most important, “boards and management and shareholders must balance short-term and long-term priorities, which are essential to restoring trust.”

“The issue of good governance goes beyond the corporate world, and includes the White House, state and local officials.”  He urges directors to make their voices heard.

We all know how important small companies are to the economy: Small companies are the engine of growth, the creator of jobs.  In fact, the majority of public companies are small, not the behemoths that make the headlines. Many small companies fail because of the difficulty of finding financing.  The odds are stacked against small companies.

Epstein is a corporate director and capital markets expert with extensive finance, legal and operating experience as well as an expert in corporate governance, which he has applied to understanding and therefore helping smaller companies.  His book, “The Perfect Corporate Board:  A Handbook for Mastering the Unique Challenges of Small-Cap Companies.”

The book begins with Finance because he has seen the way small cap company directors can be their own worst enemy by not facing up to the hard realities that small companies confront in order to stay in business. He prescribes a three-step process to start every financing along with the common mistakes to avoid.  Small-cap companies have to be smart about hiring the right help with the right expertise.  Directors can be enormously helpful in this process by asking the right questions.

Oh, and by the way, these directors are not getting rich in the process.  As Epstein notes, the compensation for an entire small-cap board is often less than fees that an individual director at a Fortune 500 board might be paid..  In the end, he says, being a small-cap director “is an exercise in entrepreneurial governance—being nimble, doing more with less and shepherding an asset against long odds for risk-embracing shareholders.”

If you are a director of a small-cap company, you need this book. For those who are not, this is a guided tour of just how tough it is to create success.  And just how hard so many small companies and their managers and directors are working to beat the odds.

While others were enjoying the holidays, participants at the SEC Institute Executive Compensation Disclosure Forum in San Francisco and those attending by webinar spent a day drilling down to the details of executive compensation, led by Mark Borges, Principal of Compensia and chair of the Institute’s Forum. The former SEC special counsel in the Office of Rulemaking has encyclopedic knowledge of the issues and the challenges of executive compensation in a post-Dodd Frank world.

Subtitled, “How Say on Pay Has Changed Everything,” Borges conducted the all-day seminar with the skill of a concertmaster in bringing in the perspective of faculty members including David Lynn, Partner at Morrison & Foerster former Chief Counsel for the SEC’s Division of Corporation Finance, his Compensia colleague Rebecca Busch, Cooley attorney Amy Cole and shareholder engagement strategist, Karen Kane.  Eli Lilly and Company Assistant General  Counsel, Bronwen Mantlo and Susan Hutchens, Eli Lilly Director of Executive Compensation provided real world commentary on best practices. Many participants reported that they had already started proxy preparations for 2013 with the seminar a stage-setting opportunity.

Key takeaways:

Borges:  “My thesis is that the imposition of mandatory say on pay has fundamentally changed the way companies approach disclosure.  It’s no longer a compliance exercise but a communication  operation. We have seen disclosure evolve over the last few years to a much more sophisticated presentation of a company’s pay for performance message because you know that’s what’s being evaluated by your investors and the proxy advisory firms.  It also points to the fact that shareholder engagement more important than ever.”

Lynn:  “It’s not just the amount of money that the board approves in executive compensation, but the process the board went through in arriving at their decisions.”

Busch: “About 15 percent of companies receive negative recommendations from proxy advisory firms on their say on pay vote.  But remember, only 2 percent actually fail their say-on-pay votes. Although receiving a negative recommendation puts you at a higher risk of failing, it is not a guarantee and many companies are able to convince their shareholders to support them in spite of proxy advisory firm recommendations.”

Kane:  “Compensation is a window on board competency. Say on pay legitimizes shareholder scrutiny of the board of directors and its competency in providing oversight.”

Mantlo:  “We convene a cross-functional team to manage the proxy process to bring the right communication focus to a plain English and readable proxy.

Hutchens:  “We work with our corporate communication department to ensure that our messaging around compensation is clear and consistent.”

Cole: “Dealing with proxy advisory firms has become a critical aspect of preparing for the annual meeting in the say on pay environment.  In setting up a call and engaging with the proxy firm analyst when there is a discrepancy it’s important to convey that you take their opinion seriously.”

The SEC Institute is dedicated to helping public companies in the U.S. and abroad do the best possible job of meeting the filing requirements of the U.S. Securities and Exchange Commission.  Check out their conference and workshop offerings.

Her New York Times best-selling book, “By Invitation Only:  How We Built Gilt and Changed the Way Millions Shop,” which she co-authored with best friend and co-founder of Gilt Groupe, Alexis Maybank is a how-to for would-be entrepreneurs.

How the ‘Pivot’ and ‘Naysayers’ Help You Refine Your Ideas

She offered the sound advice of someone who seems to have found balance in what was a dizzying tale of bringing exclusivity and excitement of sample sales to a young, internet-savvy luxury fashion clientele, growing  Gilt to a 5 million member online shopping destination.

Janet Hanson, the founder and CEO of 85 Broads, praised the young women’s ability to “cultivate relationships, take calculated risks and execute their game-changing, visionary ideas.  The key takeaway is that one needs to have an entrepreneurial spirit and indomitable will to succeed no matter what path you’re on.”

In the morning discussion she provided insight to the advice in the book.  She believes the best leaders are confident with humility.  “You can have a great idea, but be ready to pivot depending on what the market is telling you.”

Naysayers are important, Wilson says. Listen to negative feedback, but put it into context.  “We cross-checked the negative feedback with the reasons we thought the idea would be a smashing success.  And usually the feedback helped us to refine our pitch. In getting the best decision, plan or proposition, the friction and doubt cast by contrarians are usually critical to vetting all potential angles and counterpoints before moving forward.”  Negative reactions to their idea prepared them for meetings with future brand partners and investors.

The critical element is that both parties need to be committed to the dialogue.

When AgendaWeek asked me for my advice, I noted the bias for open, clear and consistent communication with the CEO.  Many insights of the board are communicated to the CEO through the Chair-CEO relationship.  Strong board chairs are astute listeners who are able to bring to the CEO any questions or concerns.

“Ultimately, steady and open communication is crucial to establishing a relationship of trust and confidence between the board and CEO,” writes Browning, lead director at Nucor and Acuity Brands and director of Lowe’s Companies and Enpro Industries.  “Closer collaboration allows directors to spend their time more efficiently and be better shareholder advocates.”

Read full article here. .

After being asked to assist John Hickenlooper, the newly elected governor of Colorado in recruiting talented leaders for his cabinet, Smart concluded that there were too few great leaders in government as well as “forces keeping our greatest leaders out of government.”

While it would be natural for Smart, the founder of the leadership firm ghSMART, to conclude that getting more great leaders in government was the solution, he was pleased to find that such a movement was already underway.  It took Smart to name it, “Leadocracy,” which he says means “government by society’s greatest leaders” and he found a shining example in Fred Steingraber.

The three As of Leadership are Analyzing, Allocating and Aligning, three things that Steingraber did when he took over as President of the Village of Kenilworth.

Like many communities, Kenilworth was in trouble—three consecutive years of deficits. “Great leaders start by analyzing the needs and priorities of their constituent group,” according to Smart. Before becoming president, Steingraber led a strategy study of the town. Not only did he convince the village to do a needs analysis and quality survey but to gather benchmark data from other communities as well, helping them to evaluate their own costs, services provided, productivity and the like.

Smart calls Steingraber “possibly the most overqualified government leader I have ever met. He had served as CEO and Chairman of A.T. Kearney, the international management consulting firm.  Under Fred’s leadership, the company achieved massive success.  He grew the firm from $30 million when he took over to $1.5 billion when he left.”

Steingraber has had just as dramatic impact on Kenilworth, trading deficits for surpluses, engaging in strategic partnerships with other communities and improving communication between village management and the residents.

Steingraber’s private sector success created jobs, notes Smart. “The number of employees under Fred’s leadership grew from two hundred to 6,500. Amazing! Bravo! Imagine all the tax revenue that his firm and the taxpaying employees generated for their countries, states and municipalities.  In addition, he has served on twelve corporate boards, four advisory boards, and over twenty not-for-profit boards.”

Steingraber also has been an advocate for boards taking the initiative in restoring confidence to our capitalistic system. Fred and I co-authored the Corporate Finance Review article, “What Boards Need to Do to Preserve Their Relevance and Provide Value in the World of the New Normal.”

If not, a board is simply speculating – betting that the price of fuel, or metal, or money, is going to move in a certain direction. A decision not to use available risk-management tools to hedge commercial or financial risks is a decision to speculate, says Sandor. Speaking to a hometown crowd gathered June 20 at the Chicago Council on Global Affairs to mark the publication of his book, “Good Derivatives:  A Story of Financial and Environmental Innovation,” cited the role of fuel hedging by Southwest Airline as a major factor in outdoing those airlines that left themselves – and their shareholders – exposed to the volatility of world oil markets despite the existence of highly-liquid, well-regulated futures markets where they could have transferred the risk of rising fuel costs to other parties and thereby prevented or reduced financial losses.

One result of the financial crisis is that the word ‘derivatives’ is now applied indiscriminately, blanketing contracts traded on regulated futures exchanges with the same opprobrium heaped on the too-clever financial instruments that Wall Street engineered to trade among themselves and their biggest clients. The former are risk mitigation tools linked to underlying commercial activity in metal mining, agriculture, financial services and a host of other business activities. The future price of any of these useful contracts is determined in a transparent process that balances supply and demand factors. What we saw in the financial meltdown were financial products that were opaque and which offered no counter-party guarantees because they were traded “over the counter”, between sophisticated firms that supposedly knew what they were doing, instead of being traded on regulated exchanges that utilized an independent central clearinghouse to monitor the financial status of market participants and ensure timely payment by both sellers and buyers of futures contracts. Check this out for more up-to-date information.

What about the management of companies in using hedging devices such as derivatives? Sandor suggests that the board develop an understanding of available derivatives markets and hold management accountable if they don’t find a way to utilize derivatives to manage the risks inherent in their respective businesses. At the same time, boards need to inform shareholders how the governance process intended to serve as the shareholders’ fiduciary representatives encompasses the use of available hedging and risk-transfer tools, or provides the rationale for foregoing such protection and accepting exposure to volatility in the cost of financing and other inputs.

If Americans don’t “get derivatives,” the Chinese do. Sandor’s firm, Environmental Financial Products, specializes in inventing, designing and developing new financial markets.  Sandor serves as a distinguished professor of environment finance at the Guanghua School of Management at Peking University.

Perhaps Boards Need Fewer Famous and Iconic Board Members 

The government’s prosecution of such an iconic leader, says that such an insider mentality and breach of responsibility will not be tolerated. He was a figure of trust. His conviction emphasizes the importance of board members who are trustworthy and behave ethically.  Directorships are not honorariums to be awarded to those who have been successful in business or government. If there is a separate set of rules for the elite and famous, then average investors have no reason to invest. That’s why trust is so critical. Shareholders must trust that all investors will be treated fairly.  Ethical behavior by directors and management is critical to the operations of the free market.

He laid out the cost of our staggering indebtedness, fourth only to Japan, Iceland and Greece brought about by a 30 year practice in Washington of using the national debt to avoid saying no to anyone. Whoever takes office in January of 2013 will be presiding over a country whose debt is 103 percent of GDP. With interest payments on the debt soon to exceed the Defense Department’s budget, Admiral Mike Mullen, former chairman of the Joint Chiefs of Staff,  said that the debt is the biggest risk to our economy and national security.

How do we move from “kicking the can down the road” or ignoring our plight to address our debt and put the U.S. back on a sound financial footing for prosperity and growth?

Stevens gave us three principles: candor, compromise and an equitable solution in the broadest sense.

Candor is first, says Stevens because “A great nation is honest with itself about its priorities.” That is, take the debt seriously and deal with it. The most promising solutions to our fiscal problems are multi-faceted and require compromise, something we must insist that our representatives do. Finally, solutions must be equitable in the broadest sense, meaning that budget cuts alone or tax increases alone can solve the problem, but a combination of the two.

Activist investors have become a factor in today’s boardrooms, Rogers said.  “It’s important that boards don’t become distracted by activist investors,” Rogers said.  “That’s the challenge. For that reason, it’s important for boards to become knowledgeable about all shareholder concerns.  Directors should understand all shareholder issues, in addition to activist investors.  They can become knowledgeable by reading and understanding the issues that buy-side and sell-side analysts raise. I have seen activist investors become quite destructive when not properly addressed.”

Avoiding distractions is essential in order to spend quality time with your kids and address important details like providing them with modest clothing for girls. By minimizing distractions, such as putting away phones or turning off the TV, parents can fully engage with their children, fostering meaningful connections.

While Rogers is well known for founding Ariel Investments 29 years ago, the former basketball star from Princeton University has the distinction of beating Michael Jordan one-on-one.  The YouTube video has garnered more than five million views.

In the webinar, “Anticipating and Addressing Potential Negative Recommendations,” Andrew Comstock presented examples from Harsco, Staples and Starbucks and other companies to show the critical value of communicating how the board is handling compensation.

Additional charts, headlining the practices the board is undertaking, the key is showing how the board is proactive in addressing compensation issues.  “Your Board of Directors took steps during fiscal 2011 to strengthen its policies and practices regarding executive education,” was the way Headwater outlined the steps they took.

Most interesting was the way CalSTRS and BlackRock described their “opportunities for discussion.” Instead of a one-size-fits all, BlackRock said it would provide a “fair, respectful and in particular, open minded airing of views” and that it is “willing to support unconventional approaches as long as they can be expected to serve the interests of long-term shareholders.”  CalSTRs “believesthat there is an opportunity for the marketplace, issuers and shareholders to work together in the developent of a realized pay model.”

In this changing world of governance, engaging in the issues in a meaningful way brings great value.

The Chicago Red Cross is “Helping people prevent, prepare for and respond to emergencies. Serving Cook, DuPage, Kane, Kendall, Lake, McHenry, Will, Kanakakee, Grundy, Dekalb counties in Illinois and several counties in Northwest Indiana.

If you’ve missed what the Red Cross is doing in your own backyard, sign up to follow the organization on Twitter (@chicagoredcross) where you’ll learn things like:
“Yesterday our responders helped accommodate three dozen people displaced by
home fires. Thanks volunteers!”

Malone spoke of the importance of board members helping with external stakeholder relations, especially in the way the organization should be perceived by the community, bringing important information back to leadership.  Edwardson spoke of her pride in being a servant to the Red Cross and how important it was for directors to bring their passion to a non-profit board. Estrada spoke of the value of director expertise to fill in gaps of knowledge and expanding the network of the non-profit.

Since fundraising is an important element of non-profit board duties, all three leaders spoke about their concern of losing a strong board member, either through term limits or retirement.  Yet these leaders said they’ve learned to have faith in their board’s nomination and governance committees or leading directors in their thoughtful and proactive efforts to identify new talent in renewing the board with new skills that help to contribute to the longevity of the organization.

As strong leaders of their organizations, they spoke of the value in the engagement with their boards, an impressive demonstration of governance.

In addition to Katten and Shields Meneley, the Roundtable was an undertaking of Gloria Castillo of Chicago United, Ted Dysart of Heidrick & Struggles and Brad Wilks of Sard Verbinnen.

and what they heard in sessions with He characterized the upcoming proxy season as “uncertain” noting a presidential election on the horizon, anger as expressed by the Occupy Wall Street groups and As he looked broadly at the

The webinar is based on Lev’s latest book,  “Winning Investors Over:  Surprising Truths about Honesty, Earnings Guidance, and Other Ways to Boost Your Stock Price.” He points out that capital markets are crucial to companies’ success and those who lead them. But corporate leaders are largely mired in misconceptions that
govern their behavior to the detriment of employees, investors and interested
parties. Perhaps one of the biggest myths is that investors are focused on
short term, quarter-to-quarter results.

Instead, Dr. Lev presents detailed research that charts how investors
are patient and  have strongly supported long-term growth investments from 1947 to 2007.

The bromide to winning this battle is honest, regular communication with investors coupled with conservative accounting. He advises companies to go beyond required
disclosure to enhance investor understanding.  And actions such as corporate leaders increasing their personal investment in a company also goes a long way to convey credibility.  “Share some knowledge.  Let your investors know what’s in the
pipeline of products.”

By challenging conventional wisdom and backing it up with research, Baruch Lev gets it right.

Smisek acknowledged that mergers are difficult enough for employees but if you have the same terrible boss after the merger as you had before the merger, it’s not going to help you make the airline better. The new United has a new culture based on dignity and respect.  “It’s simple. It’s what your mommy told you: ‘Treat people the way you want to be treated and never tell a lie.”

That culture will encourage employees to use their best judgment in doing the right thing, the key to being a great company. And, he’s made it the responsibility of the top 700 leaders in the company to help him root out the bad bosses by tying it to their compensation.

His remarks were brief, the answers to questions candid and forthright and the warm welcome conveyed the audiences support that he’s the man to get the job done.

The obituaries reminded us that this was the man who transformed the way we use technology, how we listen to music, watch TV shows and movies. Not only a genius, Steve Jobs will be remembered as the leading figure of our time.
Jobs saw himself as neither a hardware engineer nor a software programmer, but a technology leader who chose the best people possible.  And once they worked for him, he encouraged them, yes but more often he prodded and criticized them. Occasionally, he even humiliated those who dared to bring him anything short of “insanely great.”
Be careful, leadership gurus, how you spin these critical characteristics. In anyone less than Steve Jobs, that is, all of us, such insistence on being better, not settling for less could turn mean, harsh, brutal.

Steve Jobs meddled, demanded that everyone do better. Steve Jobs who suffered his own purgatory at a young age, grew success outside of Apple and returned to create greater triumphs in recreating the company, embodied the gifts and the knowledge to elicit extraordinary loyalty.

“He was the most passionate leader one could hope for, a motivating force without parallel,” wrote Steven Levy, author of the 1994 book “Insanely Great,” which chronicles the creation of the Mac.

In a webinar, sponsored by Jim Kristie of Directors & Boards magazine and
the law firm Morvillo Abramowitz, Barry A. Bohrer and Richard D. Weinberg
discussed “Internal Investigations 2011: What Directors Need to Know.”

In light of the new SEC rules that reward whistle-blowers with rich bounties,
the renowned attorneys stressed the need for strong compliance programs and a
corporate culture that encourages employees to report problems early.

Weinberg suggested that boards consider “prepared preliminary action plans,”
which could include how the board would handle an internal investigation,
vetting outside attorneys and forensic experts in advance and discussions about
whether they would delegate oversight of the investigation to audit or a
special committee.

How the board handles the investigation is critically important in terms of
disciplinary action. Did the organization self report? Did they handle the
investigation expeditiously and credibly?  Did they engage independent
help in the form of advisors, attorneys and forensic specialists?

Shareholders, employees and the public are watching.

In Winston & Strawn’s excellent eLunch (webinar) program last week, “Preparing for the 2012 Proxy Season: Governance and Executive Compensation Strategies,” Michael Melbinger, Christine Edwards, Oscar David, Erin Stone and Erik Lundgren reviewed the past season and advised that this is no time for complacency. (The presentation is still available online.)  Boards should be reviewing what they learned from their shareholders and preparing for the upcoming season, which will feature more Dodd-Frank requirements in the CD&A and other disclosures that link pay to performance.  “Prepare early.  Think about it now.  Tell your story,” Melbinger told the audience.

The SEC wanted Say on Pay to cause boards to interact with shareholders.  That’s what happened, particularly for companies with contentious issues.  Those that prepared executive summaries, used charts and plain English to explain their compensation plans and even those who filed supplemental materials were largely successful.

The curtain has been lifted. Shareholders have greater expectations for communication with the board, more involvement in governance.  Smart boards will anticipate shareholder issues and minimize contentious issues. Don’t
wait for 2012 proxy season.  Begin now.

In a Blank Rome LLP webinar, partner Keith Gottfried warned participants not to be
that board. Conduct your own evaluation of the board’s vulnerabilities: Has the
board failed to hold management accountable? Is the compensation excessive?
Does the board lack sufficient industry experience? Has the board explained how each director is qualified?  Is the board lacking in diversity? Is the board sufficiently independent?  Is there a perception that the board is not “fully engaged”?

Paul Schulman of MacKenzie Partners and Chris Cernich of ISS also participated in the webinar.

Shareholders are now part of the governance dialogue.  Not only must the board carry out its duty of care to represent all shareholders, but they must convey in
board structure and leadership how the board governs.  The webinar together with the presentation is posted on the Blank Rome website.

In a Blank Rome LLP webinar, partner Keith Gottfried warned participants not to be
that board. Conduct your own evaluation of the board’s vulnerabilities: Has the
board failed to hold management accountable? Is the compensation excessive?
Does the board lack sufficient industry experience? Has the board explained how each director is qualified?  Is the board lacking in diversity? Is the board sufficiently independent?  Is there a perception that the board is not “fully engaged”?

Paul Schulman of MacKenzie Partners and Chris Cernich of ISS also participated in the webinar.

Shareholders are now part of the governance dialogue.  Not only must the board carry out its duty of care to represent all shareholders, but they must convey in
board structure and leadership how the board governs.  The webinar together with the presentation is posted on the Blank Rome website.

Entrepreneurs, they say, “need to look beyond day-to-day operational firefighting.  They need the timeliest, savviest, most reliable counsel about markets, trends and companies.” The authors provide a helpful guide to the natural stages of enlisting advisory help.  Sure, the entrepreneur can go it alone, but he or she is likely to fall victim to “myopic decision-making to which nearly all closely held companies are prone.” A private company may seek independent board members when it needs liquidity but the right independent advisors can bring so much more to emerging companies. Not only do independent directors help the entrepreneur to develop stronger, more professional management, but they often oversee the creation of financial and operational controls. The presence of talented business men and women serving as independent directors also sends a message to world that the CEO entrepreneur is confident enough to challenge his thinking in growing a stronger company.

One of the questions posed during the webinar was about the performance of internally developed CEOs versus externally recruited CEOs.  A recent study by the Kelley School of Business of Indiana University, led by Fred Steingraber, directly addresses this question.  An article outlining the study’s findings (co-authored by me) appeared in a recent issue of Corporate Board Magazine. The study, which details the superior performance of internally developed CEOs, examined the leadership of the most successful non-financial S&P 500 companies from 1988 through 2007. The 20-year duration was critical to the study because it minimized distortions of performance that could have occurred over shorter time spans of three, five or even 10 years. In addition, this two-decade period was characterized by different economic cycles, globalization, dramatic technology advances, shifting consumer preferences and changes in leaders competing under a wide variety of conditions.

In our article, we summarized how this group of 36 S&P 500 non-financial companies was distinguished by consistent, superior leaders over the 20-year span, outperforming the remaining S&P 500 firms in seven measurable metrics: return on assets, equity and investment, revenue and earnings growth, earnings per share (EPS) growth and stock-price appreciation.

We believe this study demonstrates the ability of “home-grown leadership” to consistently generate superior results and the importance of the board’s focus on effective CEO succession.

Compensation consultant Robin Farracone of Farient Advisors warns boards not to “just sit there and do nothing” because it invites opposition to grow. Let it fester, she says, and it places the board and the company in a negative spotlight that “creates reputational damage and could even have a depressive effect on the stock price.”

Boards have been reluctant to engage with shareholders because they often don’t have a picture of what a board engaging with shareholders might look like.  Often, they believe it is the job of the investor relations department. But “say on pay” focuses on the board’s role in approving compensation programs for the named officers for the company.  And shareholders expect the board to be responsive.

“Good engagement takes different forms, but it’s critical to get an early start,” says Patrick McGurn of ISS, also interviewed in the Corporate Secretary article.  The Dodd-Frank requirement for Say on Pay voting was designed to encourage dialogue between the board and shareholders.  Some boards, like Prudential, established a dedicated compensation committee email address and actively seeks electronic queries on pay matters and anything else related to board work.  Prudential regularly sends board members and representatives on engagement exercises with investors.

Not only should board members be able to demonstrate that the compensation program is aligned with performance, but they should be able to explain compensation in general terms.  This has proven to be a difficult task that directors should correct by requiring themselves to explain

In rushing to get the rule in place, the SEC failed to “determine the likely economic consequences” of the rule and its effect on “efficiency, competition and capital formation” — all of which it must do by law.

But directors should consider the level of shareholder concern about their governance record–and not just the unions that are seeking increased benefits. Creeping federal regulation is the result of “corporate officers and directors are not doing their jobs,” according to Hillary Sale in her paper, The New ‘Public’ Corporation. “They have failed to understand the force of public scrutiny and have, thereby, failed their corporations.  They are not good public company stewards.”

The message to companies about the past ten years of increasing shareholder power is that shareholders are part of the governance conversation. Whether the SEC redoes its analysis and reissues its rule, corporate directors would do well to consider the level of shareholder disappointment that helped create Dodd-Frank and develop more effective board-shareholder engagement to satisfy and encourage long-term investment and participation.

The search firm identified five concerns that boards need to address: 1) Preparing the next generation of chairmen with the caveat that not all CEOs are automatically suited to becoming chairmen, noting the critical skill of running a board meeting, drawing out and listening to all points of view, synthesizing the arguments and reaching conclusions without appearing to dominate. 2) The right of non-executives to seek advice because creating supplementary information channels is important for non-executive chairmen to discharge their duties in leading the board in oversight. 3) The pressure to appoint more women to boards has resulted in quotas in Norway.  And while many protest that there aren’t enough women with the relevant experience to serve, their view is that “there is a pool of potential candidates if boards are prepared to look less at proven general management experience and more at talent potential—to consider creative ideas and take some calculated risks.

While many sitting CEOs find it too time-consuming to sit on additional boards, Owen posits that 4) it is in the long-term interest of business that more working CEOs serve on boards. The 5^th challenge is to create more engaged boards but they note that when there are individuals in the boardroom who are really not contributing, it is “always uncomfortable to change the status quo” and ask the poor performing directors to leave.

One of the more interesting sidebars is “The Decline of the Guinea Pig,” which described the job of an independent director as a “delightful perk for important (and often self-important) business folk at the end of their professional career.”  These independents were “sometimes known as ‘guinea pigs’—for a guinea and a free lunch they were happy to sleep through any chief executive’s presentation of his corporate plan.”

Tell your story was the theme of the action items that Melbinger suggested.  “Silence is not golden. Unless you affirmatively, unequivocally adopt best practices, unambiguously disclose them and beat ISS over the head with them, you run the risk that ISS and others will assume that you do not follow that best practice.”

Now is the time for boards to review what they learned from shareholders – whether at the annual meeting or proxy voting or shareholder outreach.  As for compensation,  and get rid of the problems and follow best practices now.

Rumsfeld calculated that he has lived through a third of our nation’s history.  As both the youngest and oldest Secretary of Defense, a White House Chief of Staff, Representative to NATO and four-term congressman from Illinois, he has been an active participant in that history. He took four years to write the book and digitized a portion of his archive and made it available on his website www.rumsfeld.com  in conjunction with the book’s publication.  Since launching in February, the site has received over 18 ½ million hits. Access to such a rich trove of information shows that “decisions are made with imperfect information.”   The bestseller has been called the first memoir of the information age.

Many U.S. and international institutions date back to the Truman years, an inflection point at the end of WWII and the beginning of the Cold War.  NATO, the UN, DoD, CIA and so many other organizations date back to those days.  “We’ve been changing and the world has been changing. And we need to be comfortable that the rest of the world is not like us.”

Rumsfeld’s message was that all organizations need to continue to transform.  He’s led by example, making handwritten and typewritten memos and papers from his long government service available for everyone to draw their own conclusions.

In his recent comments at a financial industry conference in New York he conveyed what his company has learned in practice. “What did we do wrong,” was their initial reaction when AFLAC investors asked for the SOP prior to the new regulations.  Directors and management “came to the shared belief that investors should have the right to know how the compensation packages at a company are calculated.”

In his view, lack of transparency has an impact on stock price because it creates uncertainty for investors. Companies should view Say on Pay votes as part of an ongoing effort to be more transparent with investors. AFLAC’s conclusion is that open communication with investors and analysts is better for long-term growth.

Using his example of his work as CEO of NACD, Daly demonstrated how important it is for CEOs to invite candid dialogue from the board. “Trust is built over time and developed through actions, not words. The way to develop trust is for the board and management to recognize that they are on the same team, that communication is straight-forward, two-way and “straight from the horse’s mouth.”  It’s also important to telegraph emerging issues.  Duberstein noted that management and boards are on the same team but have different roles—management is charged with execution and the board need to actively participate in strategy decisions and provide oversight for all shareholders by monitoring performance and asking the right questions.

Properly managing executive sessions and giving good feedback to the CEO was discussed. Levine, a best-selling business author, noted that the CEO of Broadridge has a practice of calling each board member prior to the meeting to get a sense of the board’s issues and concerns. “That way, we’re already engaged before the meeting.”

What the discussion among these leaders with broad experience emphasized was how important both boards and CEOs have to do to “get it right.”  The webinar provided valuable insight.

Boards need to get the information they need and engage in rigorous discussion when it comes to oversight of a company’s risk management and growth.  “There’s no need to be disrespectful, but it is critical that directors get the answers they need to understand the issues.”

Fellow panelist Lisa A. Payne concurred.  “You have to train management to eliminate the mind-numbing presentations that go out in the board books and tell them that management should come to the board with a handful of overheads so that we can use our time together to get to the heart of the matter.”  She is Vice Chairman and Chief Financial Officer of Taubman Centers, Inc. and a director of Masco Corporation and Taubman and a trustee of the Munder Funds.

Executive session is a key tool for the board.  “We often begin with an executive session,” said Payne. “It enables us to focus on the key issues through the duration of the meeting.  We often meet again in executive session after the formal meeting.”

The discussion centered on the role of the board in encouraging employees to use the internal system to report any concerns.

“We do employee surveys at our company,” said Roberta S. Brown, a director at several regulated energy companies. “The HR Committee asked to see all the written comments that accompanied the surveys,” she said as a way to better understand employee issues and concerns.  “And we learned that employees were impressed to hear we read them.”

The board’s action sent a message to employees that their opinions were valued and concretely conveyed that the board was concerned about employee sentiment on all issues.  In that way, the board encouraged the use of the internal mechanism to report concerns.  It also conveyed the importance of “tone at the top” in terms of the board’s commitment to hear the employees’ perspective on issues.

His presentation was part of the NACD Director Professionalism training in Houston May 4-6.

Rather than getting caught up in the minutia, directors should ask management, “Are we on track to meet our financial goals and if not, what is the company doing about it?” He encourages directors to ask the CFO if he/she is comfortable with the financial demands of the CEO.  “Is there pressure to make the numbers?”

Directors should ask internal auditors if they have any concerns with accounting or reporting issues. In following up with the external auditors, directors should ask how the company differs from others in the industry? What weaknesses did they find?  How aggressive is the company’s accouting policies relative to the competition? And, is management responsive to the issues they raise?

Shaw cited chapter and verse of well known companies whose directors didn’t ask the basic questions.

Asking some obvious questions would have saved millions of dollars of shareholders’ investment and sometimes the company itself.

His presentation was part of the NACD Director Professionalism training in Houston May 4-6.

Rather than getting caught up in the minutia, directors should ask management, “Are we on track to meet our financial goals and if not, what is the company doing about it?” He encourages directors to ask the CFO if he/she is comfortable with the financial demands of the CEO.  “Is there pressure to make the numbers?”

Directors should ask internal auditors if they have any concerns with accounting or reporting issues. In following up with the external auditors, directors should ask how the company differs from others in the industry? What weaknesses did they find?  How aggressive is the company’s accouting policies relative to the competition? And, is management responsive to the issues they raise?

Shaw cited chapter and verse of well known companies whose directors didn’t ask the basic questions.

Asking some obvious questions would have saved millions of dollars of shareholders’ investment and sometimes the company itself.

Communication professionals have pointed to Arthur W. Page, a PR executive for AT&T from 1927 to 1946 who developed a set of principles about how a company should operate including “a successful corporation must shape its character in concert with the nation’s. It must operate in the public interest, manage for the long run and make customer satisfaction its primary goal.”

Professor Sale has used the law to describe how officers and directors of companies should act. She attributes the creeping regulation as a result of “the failure of officers and directors to govern in a sufficiently public manner has resulted not only in scandals, but also in more public scrutiny of their decisions, powers and duties.” The government and the media, she says, is driven by the public, and now “have increasing influence over corporations, which requires a change in the way officers and directors understand and do their job.”

CEOs and corporate directors would do well to read her excellent article in the Duke University journal, “Law and Contemporary Problems.”

The bell has already been rung. The government and a larger public are involved in corporate governance and their concerns need to be addressed.

John Wilcox, the Chairman of Sodali commented, “that directors of U.S. companies are not ready for open dialogue with their investors, even on a narrowly defined topic such as corporate governance and the annual meeting. The reason they are not ready is because U.S. companies – and boards in particular – are generally on the defensive in their communication with shareholders. Instead of communication, U.S. companies practice disclosure. Disclosure is defined by prescriptive rules and enforced by liability and regulatory penalties.”  This, he says makes “boards and shareholders mistrustful of each other and relies on adversarial modes of engagement.

Boards guided by legal counsel continue to respond by addressing the “letter of the law” grudgingly meeting new demands for transparency rather than the spirit of the law, which Mary L. Schapiro, SEC Chairman emphasized as “true engagement with shareholders.”

In this environment, Washington will continue to regulate, with many unintended consequences until CEOs and their boards see shareholders as part of the governance process and critical to not only their long-term health but the health of capitalism in the 21^st century.

Barton spent 18 months talking to 400 business and government leaders around the world to develop his Harvard Business Review article, “Capitalism for the Long Term.”

McKinsey has posted videos of Barton discussing his ideas as well as articles to encourage others to engage in the discussion.  “There’s a lot of things that business leaders can fix,” Barton says in one short video.  “We don’t need the government to tell  us what to do but we need to get out there and move on it.”  Businesses are self living organisms which can survive without the involvement of the government. With the help of the b2c crm constantly, a business can be regulating service by keeping in touch with customers thus never stopping the flow of cash.

This videos were posted on Youtube as he knows that in that way he could reach a bigger audience, as more views the video gets, the more it gets recommended by the Youtube algorithm. Check the most recommended buy youtube views service, to get your video to another level.

Moving on it requires adjustments, shifting from a quarterly to a long-term focus, serving stakeholders while building value for shareholders, and strengthening governance.

Pointing to the increased complexity of business, Barton observes that the current governance model was developed for another time 30 years ago.  The most shift is that directors need to spend more time on board work to understand the business well enough to provide strategic advice. He points out that boards of private equity firms spend about 74 days a year; corporate boards spend 15-20 days, too little to provide the strategic help that companies need in a competitive, global and 21^st century environment.

Barton spent 18 months talking to 400 business and government leaders around the world to develop his Harvard Business Review article, “Capitalism for the Long Term.”

McKinsey has posted videos of Barton discussing his ideas as well as articles to encourage others to engage in the discussion.  “There’s a lot of things that business leaders can fix,” Barton says in one short video.  “We don’t need the government to tell us what to do but we need to get out there and move on it.”

Moving on it requires adjustments, shifting from a quarterly to a long-term focus, serving stakeholders while building value for shareholders, and strengthening governance.

Pointing to the increased complexity of business, Barton observes that the current governance model was developed for another time 30 years ago.  The most shift is that directors need to spend more time on board work to understand the business well enough to provide strategic advice. He points out that boards of private equity firms spend about 74 days a year; corporate boards spend 15-20 days, too little to provide the strategic help that companies need in a competitive, global and 21^st century environment.

As we said in our tweet earlier today (Karen Kane@BoardAdvisor)  Daly is right to use his position to encourage shareholder education by asking the country’s top 1000 CEO’s to mobilize employees to participate in corporate governance by voting their proxies.

Daly calls Broadridge the major player in investor communications and proxy distribution, providing the digital pipes for these transactions but he also notes that Broadridge makes no more or less money from an increased exercise of proxies.

Companies and the boards of directors that provide oversight need to embrace the concept that engaging shareholders has never been more important in restoring trust. Shareholders need to be reminded that their proxy represents their investment, their wealth and their financial returns.

“It is clear to me that when raising capital, creating jobs and effectively competing in an ever increasingly global market, companies need input and support from shareholders to validate they are on the right track.”

Social media may be a helpful competency but so much of what is embedded in the Dodd-Frank Act is a call for greater transparency, better communication between directors and the shareholders who elect them.  Social media is communication, albeit faster and user-generated.  Since the concept of communicating directly with shareholders is a new concept, boards need the assistance of high-level communication strategists—either as board members or consultant –to help boards craft their own communication policy and get them ready for the dialogue shareholders are demanding.

What directors are really worried about is hijacked media where a company’s asset or campaign is taken hostage by those who oppose it. Managing social media is rooted in best communication practices including crisis management.

Social media may be a helpful competency but so much of what is embedded in the Dodd-Frank Act is a call for greater transparency, better communication between directors and the shareholders who elect them.  Social media is communication, albeit faster and user-generated.  Since the concept of communicating directly with shareholders is a new concept, boards need the assistance of high-level communication strategists—either as board members or consultant –to help boards craft their own communication policy and get them ready for the dialogue shareholders are demanding.

What directors are really worried about is hijacked media where a company’s asset or campaign is taken hostage by those who oppose it. Managing social media is rooted in best communication practices including crisis management.

The Chicago Council on Global Affairs, co-partnering with the CFA Society of Chicago  convened the session to discuss the current state of the economy.

While acknowledging that there remain challenges to the economy, Zandi expressed optimism noting the way American businesses have dramatically improved their operations since the financial crisis, cutting costs and increasing productivity.  “U.S. companies are making money everywhere,” he said.  “They’ve got their cost structure down and improved their unit labor cost, which is rising in other countries.”  And, he added, companies are in a historically strong cash position, enhancing their global competitive strength.

What an optimal time for companies to get ahead of the Dodd-Frank Act requirements to more actively engage with  shareholders by taking steps now to convey how boards are providing better oversight, more engagement in corporate strategy and greater respect for the shareholders.  

Mindful of Regulation Full Disclosure, the call would be scheduled 10 to 15 days before the annual meeting and cover material that is in the proxy.  While every company will need to examine its particular needs, this proposal is a framework that encourages dialogue.

Directors should embrace this opportunity to efficiently communicate with institutional investors and beneficial owners with the ability to interact directly with shareholders not filtered through proxy advisory firms or solicitors.

Yes, it will require preparation.  But shouldn’t those who are paid to represent the interest of shareholders be able to discuss the company’s governance framework and philosophy, the board’s structure, effectiveness and succession planning? Directors should be able to discuss the internal controls and risk management practices and even answer questions about executive compensation.

Such dialogue could be enormously helpful to boards at this critical time in helping to restore trust in their work in providing governance oversight.

Mindful of Regulation Full Disclosure, the call would be scheduled 10 to 15 days before the annual meeting and cover material that is in the proxy.  While every company will need to examine its particular needs, this proposal is a framework that encourages dialogue.

Directors should embrace this opportunity to efficiently communicate with institutional investors and beneficial owners with the ability to interact directly with shareholders not filtered through proxy advisory firms or solicitors.

Yes, it will require preparation.  But shouldn’t those who are paid to represent the interest of shareholders be able to discuss the company’s governance framework and philosophy, the board’s structure, effectiveness and succession planning? Directors should be able to discuss the internal controls and risk management practices and even answer questions about executive compensation.

Such dialogue could be enormously helpful to boards at this critical time in helping to restore trust in their work in providing governance oversight.

The McKinsey global managing director has spent the past 18 months talking to more than 400 business and government leaders across the globe.  He concludes that capitalism has been and can continue to be the greatest engine of prosperity ever devised.  However, if the fundamental issues revealed in the recent crisis remain unaddressed and the system fails again, “the social contract between capitalism and the citizenry could rupture, with unpredictable but severely damaging results.”

Barton confirms that boards must become more effective, representing a firm’s owners and serve as the agent of long-term value creation. Being a director is also a much bigger job, requiring more time and deeper understanding of the company and its strategy.  He makes many of the same points that Fred Steingraber and I make in our article in Corporate Finance Review, “What Boards Need to Do to Preserve Their Relevance and Provide Value in the World of the New Normal.”

There is an urgency for management and boards to work together to fight the tyranny of short-termism, and “infuse their organizations with the perspective” that serving the interest of all stakeholders is an essential to maximizing corporate value.  Finally, boards need to bolstered to govern like owners.

Inaction will produce the most negative consequences.

It might be well for U.S. directors to consider that governance concepts that originate outside of the U.S. have a history of moving into the American mainstream rather quickly. Consider “Shareholder Say on Pay,” which began when U.K. cabinet minister Stephen Byers’ 1999 white paper suggesting that shareholders have a more active role in overseeing companies by requiring a “non-binding shareholder advisory vote on remuneration.” In 2002, the U.K. government adopted the Directors’ Remuneration Report Regulations, which made annual pay votes mandatory.  By 2004, say on pay spread to continental Europe as the Netherlands made it a requirement, moving to Norway, Sweden, Spain, Portugal, Denmark, France, Germany and Australia before institutional investors in the U.S. filed shareholder proposals at 44 companies by 2007. Just last week, the SEC finalized the rules on say-on-pay and say-on-golden parachute rules.

Diversity is on the minds of American directors, according to the recent PwC’s Annual Corporate Directors Survey with 45 percent of them citing the difficulty in finding qualified candidates of diverse gender, race and with expertise in technology.  A whopping 86 percent of directors say they use their own network of contacts to recruit new board members. Given the possibility of quotas for women on U.S. company boards and the new rules for greater transparency in describing the competencies of every board member, directors are well advised to look more broadly for board candidates or shareholders may propose their own candidates in proxy access.

It might be well for U.S. directors to consider that governance concepts that originate outside of the U.S. have a history of moving into the American mainstream rather quickly. Consider “Shareholder Say on Pay,” which began when U.K. cabinet minister Stephen Byers’ 1999 white paper suggesting that shareholders have a more active role in overseeing companies by requiring a “non-binding shareholder advisory vote on remuneration.” In 2002, the U.K. government adopted the Directors’ Remuneration Report Regulations, which made annual pay votes mandatory.  By 2004, say on pay spread to continental Europe as the Netherlands made it a requirement, moving to Norway, Sweden, Spain, Portugal, Denmark, France, Germany and Australia before institutional investors in the U.S. filed shareholder proposals at 44 companies by 2007. Just last week, the SEC finalized the rules on say-on-pay and say-on-golden parachute rules.

Diversity is on the minds of American directors, according to the recent PwC’s Annual Corporate Directors Survey with 45 percent of them citing the difficulty in finding qualified candidates of diverse gender, race and with expertise in technology.  A whopping 86 percent of directors say they use their own network of contacts to recruit new board members. Given the possibility of quotas for women on U.S. company boards and the new rules for greater transparency in describing the competencies of every board member, directors are well advised to look more broadly for board candidates or shareholders may propose their own candidates in proxy access.

Directors, please turn to the New York Times Magazine of December 16 and read about Jump, a hybrid strategy firm focused on growth. Either charter a new committee to review organic growth targets and trends or add that to another committee’s responsibilities. Innovation is what will enhance a company’s and yes, even the country’s success. Directors who understand the broader developments in products and services, markets and channels, geography and relevant resource requirements can challenge and expand management’s thinking.  This committee should oversee the due diligence related to acquisitions as well as post-merger audits. They would also be responsible for understanding and overseeing the targeted and actual growth in revenues from new products in the last three to five years.

What a shame!

Just a few weeks ago, a number of CEOs gathered to discuss their agenda for dealing with the sluggish economy and other key challenges in a Wall Street Journal CEO Council.  Their view was the need for “jobs, jobs, jobs” to get the economy moving. Doesn’t that sound like business and unions are on the same page?

“If the U.S. wants sustainable job growth, it must strongly embrace global trade” the CEOs concluded.

In the meantime, “free trade” has become a toxic term. Like it or not, the U.S. competes in a global marketplace. Business and government need to join forces to foster broader understanding that there are benefits for the U.S. to engage globally.  At the same time, business needs to do a better job explaining what they are doing well in the international market and how it benefits consumers.

The truth is that there is no turning back to isolation and protectionism. ” Rebuild the consensus around free trade by emphasizing the benefits to the developed world.  Encourage the flow of intellectual capital through immigration and across borders. Business should talk more about the jobs created from trade and the benefits to consumers. ”

Communication can help to open minds to the benefits and opportunities of a global environment .

Columbia Acorn may be a different because they do their own homework, reading the proxies for every stock they own.  The fund has a lower turnover than most– 20 percent.  “Compare that with a hedge funds that is 11 seconds,” said McQuaid, President and Chief Investment Officer of Columbia Wanger Asset Management  at an NACD  panel on performance metrics and compensation this week.

In addition, McQuaid would like it to be easier to find basic information in the proxy that the small and mid-cap investor cares about:  How many options are outstanding? How many options were awarded?  How many shares do directors own personally?

With a 26 year career in the investment business, McQuaid recognizes that companies are competing for talent and not adverse to high pay for superior performance.  “Good management can add value to a company and increase shareholder return.”

“Ideas, particularly political ideas, are meant to be shared, to redefine themselves over the blue flame of discussion…increasingly Americans live in separate information silos. In uncertain times the tribes gather close. People don’t talk to outsiders.”

The editors urge the press to help “rebuild the forum that makes democracy work by being its best self” by taking steps to “Ignore the bias bullies”, “Stand up for facts” and “Return to deep reporting backed by institutional processes” which means “lots of feedback from near and far, fact-checking, copy-checking and double-checking, all part of the practical effort to publish something as accurate as possible.

“A massive retreat into ideological niches is hardly restricted to cable TV, and it doesn’t help the nation address its challenges.”

Amen.

“Speaking both as a regulator and as a former board member, I believe that it is vital that shareholders and board members move beyond the minimum required communications and become truly engaged in the shared pursuit of high quality governance.

“For boards and their companies, engagement means more than just disclosure. It means clear conversations with investors about how the company is governed — and why and how decisions are made.

“But engagement is a two-way street. Boards can also benefit from access to the ideas and the concerns investors may have. Good communications can build credibility with shareholders and potentially enhance corporate strategies.”

It wasn’t surprising then that the first question during the Q&A asked about running afoul of Regulation FD.  As she has said in the past and repeated “Reg FD doesn’t present a barrier to director-shareholder communication. “We have provided additional guidance to directors such as pre-clearing conversations, imposing no-trading restrictions on the shareholders who are talking to directors.  In short, Regulation FD is not meant to be a barrier.”

In conclusion she noted that, “Technology, investor attitudes and the way financial markets work have all changed dramatically during the past decade. The way in which we, and in which you and your shareholders communicate, must similarly change.

“The SEC cannot and is not interested in determining the communications strategies of individual companies. But we are interested in breaking down barriers that may prevent effective engagement, and affect investor confidence and, ultimately, financial performance.”

Boards should be developing communication plans now, re-examining their governance documents in light of the changing environment and developing strategies to contribute to improved governance.

In the tumult of change, Krol was concerned about the company’s risk and proposed that he and members of the board visit every division of Tyco, talk to the leadership and build a risk profile of the company, an enterprise-wide assessment. Not only were the board members able to develop an assessment of the company’s risk, but  in the process, board members got to know the next level of leadership in the company. Tyco divisional management liked the unfettered access to the board. Of course the company had its own risk assessment process and they are currently combining the two.

It’s not easy to take on such a task.  But after developing a process and executing on it, the board came to a deeper understanding of the company. Directors like Jack Krol, willing to spend the time and energy to help a company recover and become better, bring real value to shareholders.

If ever there was a time for compensation committees to clearly and credibly communicate, given the scrutiny they are under for creating and approving executive compensation, it would seem to be this proxy season.  The first step in “Say on Pay” would be for the committee to clearly articulate their decisions in arriving at the executive compensation decisions. It gives them an important chance to “tell their story.”

“Directors must ensure that the CD&A—which is the primary tool for shareholders to understand executive pay—is straightforward, complete and written in plain English,” said Warren Batts, veteran CEO, chairman, director and NACD “Director of the Year” in a blog on executive compensation. “In addition, directors need to respond to shareholder questions and concerns as quickly as possible.  I have stood up as chairman of the Compensation Committee more than once to explain what we were doing and why—and never had a negative comment afterwards.”

Compensation Committees that take the time to carefully explain the philosophy and background of its decisions is a sign of respect for shareholders.  Getting advice on how clearly you’ve accomplished that assignment could be the most cost-effective risk mitigation tool of the season.

Have you given your board the tools it needs to navigate the coming proxy season?  It’s up to you to see that your board is prepared.

The Dodd-Frank Act creates new requirements for board disclosure and greater transparency.  Governance power has shifted to shareholders, who are now empowered to hold boards and management accountable. How your board moves forward in this new environment is critical.

CEOs need to see their boards as helping them to restore confidence in the system. If you wear the mantle of both CEO and chairman, it’s even more critical that you set the tone for clear disclosure and genuine engagement with shareholders. It sends a signal that you respect their importance in the long-term health of the organization.

The new disclosure rules encourage boards to build trust with shareholders through the application of sound principles, transparent communications and actively engaging with them to secure a favorable vote. Board members will need to become better communicators.  But they need guidance in demonstrating independence and credible oversight.  Some basic communication planning should begin now.

What may prove to be a best in class approach is for the board to articulate its principles, its own “Articles of Governance” to serve as the source for board communication and shareholder engagement.  By reviewing its current identity, which resides in governance and legal documents, the board can craft a comprehensive board governance doctrine that prepares the board for the upcoming proxy season and beyond.

This proactive approach enables the board to discuss and decide in advance how it will handle critical issues.  By working through issues in an atmosphere of calm, the board is better prepared to face a crisis and even avoid or mitigate one.

Disclosure in governance is an area we understand well and we would be happy to assist you.

During this period leading up to the proxy season, directors should be engaging in some form of self-evaluation to understand what their vulnerabilities are—do shareholders have concerns about executive compensation, the capabilities of the current board of directors or other governance issues? 

Nazareth reminded the participants that “investor protections has been a focus of the SEC and one way of ensuring protection is good corporate governance.”  

Directors should “consider ways to enhance shareholder communication so that you’re not in the position of your 3% shareholders feeling that they need to nominate their own directors because they are not being represented appropriately by the current board.”

During this period leading up to the proxy season, directors should be engaging in some form of self-evaluation to understand what their vulnerabilities are—do shareholders have concerns about executive compensation, the capabilities of the current board of directors or other governance issues? 

Nazareth reminded the participants that “investor protections has been a focus of the SEC and one way of ensuring protection is good corporate governance.”  

Directors should “consider ways to enhance shareholder communication so that you’re not in the position of your 3% shareholders feeling that they need to nominate their own directors because they are not being represented appropriately by the current board.”

Directors, do you have a shareholder engagement program? Have you reviewed and assessed the board capacity for shareholder communication and dialogue?  Have you discussed how you will handle increased dialogue and interaction with shareholders?

The board world has changed.  Shareholders have greater power to influence board composition and executive pay based on the provisions of Dodd-Frank for proxy access, say on pay, limits on broker discretionary voting.

By remaining silent, boards increase the power of proxy advisors as the only independent guidance to shareholders on how to vote.  Boards increasingly need to engage with key shareholders, initiating communication and dialogue.

Get started now.

The context for this change is the “new normal”, a term coined by economists that characterizes an environment of high unemployment, slow growth, consumer distress, overly careful investors and long-term owners who will seek growth where they can find it. This is a challenging environment in which to serve as a director.

Millstein sees the changes wrought by the Dodd-Frank Act as tectonic, making Sarbanes-Oxley look like child’s play.

But directors shouldn’t wait until the final rules of the Act are written.  Rather, they should engage with their shareholders now.  He cited the fulsome letter that the Prudential board wrote in the proxy, introducing their thoughts on compensation. While Millstein believes directors should know what their shareholders think, he doesn’t believe that they have to agree with them.  “Explain why the board has a different view.  That seems to me perfectly rational.”

He noted that there was a huge amount to do in communication with shareholders and boards should get ready to engage. Now.

Hurd and his predecessor, Carly Fiorina, who was also fired by the board, brought new meaning to the HP Way.  Certainly, it was a different company than when brilliant engineers and founders William Hewlett and David Packard were at work in the company. Their instinctive style of “managing by walking around” would be almost impossible to replicate. Fiorina, ambitious and eager to make her mark aggressively drove the Compaq merger while a subplot revealed that the HP board had its own problems as chairwoman Patricia Dunn stepped down facing felony charges. After the scandal, Hurd’s success was welcomed even if he took a cost-cutting and execution style approach to management.

With Hurd occupying both the Chairman and CEO role, Robert Ryan has served as lead director since 2008.  But it has been Mark Andreessen handling the Hurd resignation.  As the founder of another storied company, Andreessen has the gravitas to insist on a leader that not only performs well but behaves well.

Andreessen is given to greater transparency as well as sensitivity to culture and a larger group of stakeholders including investors, employees and the larger public given that he is an under-40 wildly successful entrepreneur now leading a company that provides a platform for social networking websites.

Andreessen is the spark that HP needs at this time, setting the tone and communicating what the board is doing on behalf of shareholders and stakeholders.

Gregory made these remarks on a National Association of Corporate Directors and Weil Gotshal webinar attended by hundreds of directors on Friday as boards try to gain a better understanding of the requirements that the new legislation that President Barack Obama signed into law on July 21, 2010.

“I want to emphasize that the theme within the legislation is that boards are the problem,” said Gregory.

Boards are well advised to recognize that the implementation of the legislation will fundamentally change their interactions with shareholders.  For directors who have eschewed any contact with shareholders, they must engage with shareholders in meaningful ways to elicit their support.  The sooner and more intelligently that they begin this dialogue, the better for them.

Gregory made these remarks on a National Association of Corporate Directors and Weil Gotshal webinar attended by hundreds of directors on Friday as boards try to gain a better understanding of the requirements that the new legislation that President Barack Obama signed into law on July 21, 2010.

“I want to emphasize that the theme within the legislation is that boards are the problem,” said Gregory.

Boards are well advised to recognize that the implementation of the legislation will fundamentally change their interactions with shareholders.  For directors who have eschewed any contact with shareholders, they must engage with shareholders in meaningful ways to elicit their support.  The sooner and more intelligently that they begin this dialogue, the better for them.

“I’d hate to think that the U.S. corporate world will become as dysfunctional as the U.S. Senate,” he said, referring to “this monstrosity ” of legislation.  His questions to his fellow panel members reflected his belief that new regulations were going to stifle performance.  “This is meant to encourage dialogue with shareholders, which is an important principle of the legislation,” the panelist replied.

It turns out the moderating director has  the  educational and legal experience that boards seek.  But he’s 70 years old.  He has served on his current board since 1977.  The other director who joined the board with him is 86 and a third director, who is 83, joined the board in 1959.  There are younger board members–74, 62, 52 and 46.  But clearly, this is a board that needs to renew itself.

The world has changed.  Board work has changed.  It requires recognition of the important role that shareholders play in governance.  The director may be an esteemed professional but he has missed the last ten years of shareholder activism, brought about because boards turned a deaf ear to shareholders.

“I’d hate to think that the U.S. corporate world will become as dysfunctional as the U.S. Senate,” he said, referring to “this monstrosity ” of legislation.  His questions to his fellow panel members reflected his belief that new regulations were going to stifle performance.  “This is meant to encourage dialogue with shareholders, which is an important principle of the legislation,” the panelist replied.

It turns out the moderating director has  the  educational and legal experience that boards seek.  But he’s 70 years old.  He has served on his current board since 1977.  The other director who joined the board with him is 86 and a third director, who is 83, joined the board in 1959.  There are younger board members–74, 62, 52 and 46.  But clearly, this is a board that needs to renew itself.

The world has changed.  Board work has changed.  It requires recognition of the important role that shareholders play in governance.  The director may be an esteemed professional but he has missed the last ten years of shareholder activism, brought about because boards turned a deaf ear to shareholders.

“Enterprise risk management is not limited to crisis situations.  Establishing governance best practices to anticipate threats is a critical part of the challenges facing boards,” he writes. And further, “To fulfill fiduciary responsibilities, questions and preparation both strengthen a company’s ability to respond to unforeseen events.”

Levine, a veteran board member and author of such best-selling business books as “Cut to the Chase” notes the need for board-level conversations and processes that review performance, risk and ethics.

What’s still important:  having a crisis plan. It can be as simple as a flow chart:  How will you marshal your resources? Do you have a crisis webpage ready to go live when the crisis hits? Do you have well-defined process, a central point of contact for responding and making decisions?

Begin by developing a set of principles.  Live by them.  Then, listen, engage and move forward with transparency.

While you want to be flexible about engaging and solving the problem, a number of key elements should already be in place:  Do you have contacts lined up at the key stakeholders and influencer groups expected to be impacted in your crisis scenarios? And more important, do you have relationships with these stakeholders so that you can reach out to them early in the crisis to get input and help? Do you have internal contacts to proactively manage those relationships? Has your company/organization moved to a stance of engaging with key audiences early in resolving a crisis instead of facing off under old-school confrontational approach?

Scenario planning is invaluable.  One of the best guides remains “Shell Global Scenarios to 2025:  The future business environment: trends, trade-offs and choices.”

Ask for help.  Form new alliances.  Let your customers, employees, suppliers and community members tell you what’s important.

You won’t do everything right, but if you move forward guided by principles, you will be regarded as a decent member of the community.

Even with the containment cap placed over the ruptured oil well a mile deep in the gulf, the live camera feed of the spewing oil creates a disturbing visual representing the ineptitude of BP and Tony Hayward himself.  Earnest Hayward, promising to “make it right,” has become fodder for late night comedy.

Beyond stopping the leak from the well, what does Tony Hayward need to do to save BP’s reputation and his own?

The gruesome images from the Gulf Shores, combined with the nearly incomprehensible size and scale of the disaster, only magnifies the extreme lack of control faced by BP in managing this PR nightmare.

Hayward’s biggest fault is not seeing the explosion and gushing well deep below the ocean’s surface as an epic, global crisis. If Hayward had chosen to move beyond the legalese offered by counsel and his network of advisors, was there anything he could have done or said that would improve his standing with the public? Did he have any good choices?

BP has been innovative in asking the public to help solve the problem, a laudable effort largely unrecognized. BP has received more than 20,000 ideas on how to stop the flow of oil or contain the oil spill. However, the promise to clean up every drop of oil and “restore the shoreline to its original state” appears as futile as the booms bobbing on the Gulf barely containing the oil. As globs of oil foul the wetlands and the beaches, the company’s commitment to meeting all of its responsibilities seems impossible to achieve.

The other media star of this drama, President Barack Obama sought first to maintain distance between BP’s gusher and his presidency.  Reading the downward drift of the polls on his own leadership, he paraded his concern on Larry King Live, in a third visit to Louisiana, and in political briefings and radio addresses. Obama also promoted new regulations and ordered an investigation into BP’s behavior.

What can each man have done differently—and do differently going forward—to gain credibility and respect? What positive developments can come out of the BP oil spill?

1. Hayward and Obama need to forge a new business/government relationship that stops the name-calling and blame-laying—and instead conveys to a concerned public their shared dedication to solve the problem. On their own, they are each appealing for votes or applause or vindication, which the public finds insulting.
2. They must create a way for the public to participate in the solution. What programs can be put in place to engage the public in volunteerism related to the crisis? This type of work is cathartic for individuals who are grieving the loss of pristine coastlines and shorebirds. What’s more, images of volunteer crews would supply positive, inspirational images to replace the current onslaught of disturbing images.
3. Obama must appoint an unassailable environmental leader—such as Bill Ruckelshaus—to  develop energy policy that is green and business neutral. This individual must find innovative ways to invite participation and dialogue.
4. Invite the nations of the world to join together to create an environmental prize, based on solving or making progress in solving the world’s greatest environmental problem—an environmental Nobel.
5. Create a new meaning for the British and U.S. relationship for the Fourth of July. Tony Hayward and BP should develop a unique participatory event for Americans on July 4^th. Think big.

Even with the containment cap placed over the ruptured oil well a mile deep in the gulf, the live camera feed of the spewing oil creates a disturbing visual representing the ineptitude of BP and Tony Hayward himself.  Earnest Hayward, promising to “make it right,” has become fodder for late night comedy.

Beyond stopping the leak from the well, what does Tony Hayward need to do to save BP’s reputation and his own?

The gruesome images from the Gulf Shores, combined with the nearly incomprehensible size and scale of the disaster, only magnifies the extreme lack of control faced by BP in managing this PR nightmare.

Hayward’s biggest fault is not seeing the explosion and gushing well deep below the ocean’s surface as an epic, global crisis. If Hayward had chosen to move beyond the legalese offered by counsel and his network of advisors, was there anything he could have done or said that would improve his standing with the public? Did he have any good choices?

BP has been innovative in asking the public to help solve the problem, a laudable effort largely unrecognized. BP has received more than 20,000 ideas on how to stop the flow of oil or contain the oil spill. However, the promise to clean up every drop of oil and “restore the shoreline to its original state” appears as futile as the booms bobbing on the Gulf barely containing the oil. As globs of oil foul the wetlands and the beaches, the company’s commitment to meeting all of its responsibilities seems impossible to achieve.

The other media star of this drama, President Barack Obama sought first to maintain distance between BP’s gusher and his presidency.  Reading the downward drift of the polls on his own leadership, he paraded his concern on Larry King Live, in a third visit to Louisiana, and in political briefings and radio addresses. Obama also promoted new regulations and ordered an investigation into BP’s behavior.

What can each man have done differently—and do differently going forward—to gain credibility and respect? What positive developments can come out of the BP oil spill?

1. Hayward and Obama need to forge a new business/government relationship that stops the name-calling and blame-laying—and instead conveys to a concerned public their shared dedication to solve the problem. On their own, they are each appealing for votes or applause or vindication, which the public finds insulting.
2. They must create a way for the public to participate in the solution. What programs can be put in place to engage the public in volunteerism related to the crisis? This type of work is cathartic for individuals who are grieving the loss of pristine coastlines and shorebirds. What’s more, images of volunteer crews would supply positive, inspirational images to replace the current onslaught of disturbing images.
3. Obama must appoint an unassailable environmental leader—such as Bill Ruckelshaus—to  develop energy policy that is green and business neutral. This individual must find innovative ways to invite participation and dialogue.
4. Invite the nations of the world to join together to create an environmental prize, based on solving or making progress in solving the world’s greatest environmental problem—an environmental Nobel.
5. Create a new meaning for the British and U.S. relationship for the Fourth of July. Tony Hayward and BP should develop a unique participatory event for Americans on July 4^th. Think big.

Corporate leaders need to be strategic. “They need to get the big ideas right.” For Petraeus, the big idea that the US military got right was a surge not just in troops but  in ideas to change the war the U.S. was in danger of losing in Iraq.  The second requirement is to educate and communicate the big ideas or the strategies to those in your command—the troops or the workers.   One of the things Petraeus expected of his troops down to the private on the street was to respect the rights of the Iraqi citizens, even those under arrest.  This “live your values” approach was part of the critical task of securing the population.  The third lesson is to oversee the implementation of the big ideas by utilizing effective feedback mechanisms.  And the fourth lesson is not to micromanage. Within that is the requirement to capture the best practices and kill the bad practices.

This four-star general, a Ranger, a Ph.D. from Princeton’s Woodrow Wilson School whose doctoral thesis challenged not only the conventional thinking on the Vietnam war but the prevailing strategies about war itself.  “This is not a ‘take the hill, plant the flag’ kind of war,” Petraeus said.

Communication is at the core of his leadership style.  “Be first with the truth,” he says.  He is quick to distil leadership lessons and write about them as he did listing 14 lessons learned in training the Iraqi army.

Petraeus showed two slides in his presentation—one was a chart that graphed the number of violent incidents in Iraq on a weekly basis, a dramatic visual of how bad it was and how the violence has subsided.  The second was a photograph of a re-enlistment ceremony—thousands of young Americans re-enlisting after hard campaigns.  “I want to close by thanking you for your support of our troopers.  It’s critical.  They re-enlisted not only because they believe it’s right and they’re making a difference but because you appreciate what they’re doing.”

Americans are lucky that David Petraeus is Commander of CentCom and the most admired military thinker in the world today.

It’s the Lake Wobegon syndrome where 95 percent of directors think they’re doing a good job. CEOs see it differently.  According to work by Heidrick & Struggles, CEOs “almost universally confide” that they have one or two directors who provide wide counsel, offer advice on key issues and contribute both formally and informally to the enterprise.  That means that 80 percent of the directors are seen as not being very effective by the CEO.

The fictional town of Lake Wobegon, where “all the women are strong, all the men are good looking, and all the children are above average,” has been used to describe a real and pervasive human tendency to overestimate one’s achievements and capabilities.

CEOs need to see their boards as providing a competitive advantage to them and their enterprise. If board members are less effective, the board needs to replace them.  Without outside help, CEOs and other directors find it hard to ask less effective directors to leave.

CEOs need to ask, are they giving their boards the right tools to be effective.  Is management teeing up information for decision, providing the context and the why for the company considering it. Or, do boards get a firehose of information or worse yet, only the information that management want them to see? Are boards spending their time on the right issues?  Do boards have access to tools and advisors to make them more effective?

Boards are working harder than ever.  CEOs need to see to it that the board has the resources it needs to create strong work groups.

While the news is full of reports about shareholder concerns over the value their elected representative, the board of directors, bring to the enterprise, it turns out that CEOs have questions too.

It’s the Lake Wobegon syndrome where 95 percent of directors think they’re doing a good job. CEOs see it differently.  According to Heidrick & Struggles, CEOs “almost universally confide” that they have one or two directors who provide wide counsel, offer advice on key issues and contribute both formally and informally

If that’s where shareholders and the larger public are today on corporate governance issues, directors should take notice. A top-down standard setting enforcement process of the 1970s isn’t going to fix the more complex issues today. He concludes that “people affected by change have to be deeply involved in crafting of solutions” and “we have to get better at both involving people in the process of change and providing them with enough information to make that involvement useful and worthwhile.”

While he’s talking about environmental issues, couldn’t that be applied to boards and shareholders?

As Bonnie Hill has observed in her years as a director engaging with shareholders, “We have learned so much from our interaction with shareholders. It has made us better directors.”

The world has changed.  We can’t fight the last war or use yesterday’s solutions to solve today’s problems. The new tools are more direct engagement with shareholders, not to pacify them but to involve them in the long-term investment of our companies.

Of course, there’s much more to being the Investor Relations Officer than supporting the CFO or making presentations at major financial conferences or even the daily routine of interacting with analysts and shareholders. Many IROs provide analysis and information to management about who is buying and selling the company’s stock. They may hire a surveillance firm to assist, but they are front-line analysts, interpreting aggregated information and making strategic recommendations.

Amid increased shareholder activism as well as regulatory and congressional proposals, boards increasingly want access to this information as well.  Such requests offer the IRO a unique opportunity not just to respond to the board but help them take the next step in achieving greater effectiveness with shareholders.

In this new era of transparency and disclosure, boards need to understand the quality of shareholder interactions and ensure that the company provides transparent, effective shareholder communication across multiple audiences-including investors, brokers, owner research groups, employees, customers, and the community and public at large. As a member of management, the IRO can provide intelligence on stock and investment strategies to the board; however, the larger issues of governance communication best practices requires the perspective of an outsider. To preserve its oversight function, boards need an independent communication advisor to help them think through their communication practices.

The board-shareholder communication discussion begins in executive session. How will the work of shareholder communication be handled? Will it be a subcommittee of an existing committee? Is it naturally the role for the lead director or independent chair?  Has she or he had media training?  Does the rest of the board know how to handle telephone calls and other information requests by referring the inquiry to the designated board member? What kind of standard does the board want to establish in communicating with shareholders?

An independent communications advisor with governance expertise can facilitate the board’s work in this area, bringing a unique skill set as well as an outside perspective. The consultant’s corporate experience recognizes management’s communication resources and expertise, balancing message consistency with the board’s responsibility for oversight.

How would the board handle a corporate governance challenge?  Advance planning is the key to avoiding or minimizing negative impact.  The board needs to preserve its independence by deciding how it will engage with shareholders and the public—constituencies that have in some cases lost faith in the board’s ability to provide oversight. In other words, decisions about board-shareholder communication must emanate from the board.

The IROs who see that the tide has turned in favor of empowered shareholders—shareholders who want and expect unfettered access to the board they elect—will recognize the importance of communication expertise for the board. By anticipating and meeting the board’s need for communication help amid cynicism and increased scrutiny, they engage a powerful ally in the company’s reputation. As the board utilizes communication opportunities and begins to develop shareholder loyalty, the IRO helps to build a base of shareholders who embrace longer-term investing.

The Financial Times concludes, “The [note] is an implicit admission that Goldman’s long-held strategy of giving short shrift to criticism of its behavior and pay policies during the crisis has done little to quell the public backlash against the Wall Street bank.”

After such a mea culpa, how will Goldman Sachs handle its annual meeting?  Will it be a kabucki show or will Chairman and CEO Lloyd  Blankfein lead his directors in a sincere effort to engage with shareholders?  Blankfein has a chance to demonstrate that he’s committed to minimizing reputation risk by making the meeting a true opportunity for shareholders to question and receive genuine responses from him and the board of directors.

It’s a dramatic change and they should be preparing now.

The Financial Times concludes, “The [note] is an implicit admission that Goldman’s long-held strategy of giving short shrift to criticism of its behavior and pay policies during the crisis has done little to quell the public backlash against the Wall Street bank.”

After such a mea culpa, how will Goldman Sachs handle its annual meeting?  Will it be a kabucki show or will Chairman and CEO Lloyd  Blankfein lead his directors in a sincere effort to engage with shareholders?  Blankfein has a chance to demonstrate that he’s committed to minimizing reputation risk by making the meeting a true opportunity for shareholders to question and receive genuine responses from him and the board of directors.

It’s a dramatic change and they should be preparing now.

Proposals being submitted for inclusion in upcoming company proxies include

• The right to call a special meeting
• Independent board chairman
• The end of the supermajority vote requirement
• Say-on-pay
• Review/report on political spending

Over 60 boards have proactively adopted “say on pay” in addition to those institutions that are required to offer shareholders an advisory vote on compensation by virtue of the TARP funds they received.  How involved is the board in writing and reviewing the proxies?  What do they know about the sentiment of their shareholders on these issues?

In the current environment, boards should be actively engaging with shareholders.

Not only does Prudential Financial prove that the proxy can serve as an effective communication vehicle to shareholders while fulfilling its legal requirement, but the company has added a number of innovations that set a new standard for others.

It begins with the Letter from the Board of Directors to our Shareholders: “As stewards of the Company, we are committed to governing Prudential in an an effective and transparent manner.  We hold ourselves to high standards with respect to governance “best practices” and we believe that communicating with you on significant matters is an important part of our obligation to align governance and management with the best interests of shareholders.”

The letter summarizes the way the board has been responsive to shareholders, items that will be explained in depth in the proxy but the letter enables the board to highlight its shareholder-friendly approach, from the advisory vote on executive compensation, the special financial award to 15,000 employees, clawbacks, the board’s active engagement in succession planning and how it has approached risk oversight.

It also invites shareholders to write to the board providing an email address for independent directors as well as a website for feedback on executive compensation. How simple and effective.

The proxy does a nice job of describing the current board and their qualificationsas well as a process for selecting directors including an explanation of how shareholders can recommend director candidates. The board explains its process and philosophy for compensation.

Best of all, it’s in plain English, clear, readable and understandable.

An investor network comprised of public pension funds, labor funds, asset managers, and representatives of public companies formed a working group and spent almost three years studying the ramifications of a say on pay vote.  The companies on this working group including Intel, Prudential Financial, and most recently Colgate have enacted some form of say on pay.

“Our intention is to hold the board’s feet to the fire, so that they are asking management questions on our behalf to protect our interests,” said Anne Sheehan Director of Corporate Governance of CalSTRS.  “There is a shift in communication responsibility, board members should talk to shareholders.”

She recognizes that such dialogue with shareholders could be time consuming.  Certainly boards should have some kind of mechanism to talk to their ten largest shareholders, she said.  But smaller shareholders should have some kind of unfiltered access to the board, through a website or other method.

To the many boards that have been reluctant to adopt an advisory vote, Timothy Smith, Senior Vice President of Walden Asset Management says that the advisory vote has become a more normalized response to the executive compensation issue and is not the fringe idea it was considered several years ago.  “There’s a strong business case to adopt say on pay,” says Smith.  “It’s a good defensive strategy and removes the potential for a conflict with shareholders.”

To the boards that counter that such a vote doesn’t tell the board anything, Smith responds:  “Yes, an advisory vote is a simple yes or no. But you should know where your shareholders stand on your compensation issues.  You should never be caught not knowing what your shareholders think. You should know that before the vote.”

Engaging with shareholders on key issues is what boards should be doing anyway.

But if shareholder voting on the election of directors is viewed as a critical component of good governance, how do you get registered shareholders to vote?

The SEC has launched an investor-focused Web site to help consumers invest wisely and avoid fraud. The site, www.Investor.gov provides tools and information, a way to ask questions, research brokers and even the mission of the SEC in ensuring fairness in the markets.   There’s a tab for proxy issues where the SEC explains “Your right to vote”, “Voting Your Shares”, “What You Should Do” and “How to Vote.”

Some companies see the opportunity to engage with shareholders.  Peggy Foran of Prudential Financial and has taken a creative approach, offering retail shareholders who vote their proxies an environmentally correct tote with the Prudential logo.  Or, the proxy-voting shareholder can also opt for a donation to a charity.

Not only will such a move encourage shareholders to vote but it signals the company’s true desire to engage with shareholders.

Navigating this proxy season will not be easy but companies that find creative ways to engage with their shareholders will improve their position and set the stage for the future.

But if shareholder voting on the election of directors is viewed as a critical component of good governance, how do you get registered shareholders to vote?

The SEC has launched an investor-focused Web site to help consumers invest wisely and avoid fraud. The site, www.Investor.gov provides tools and information, a way to ask questions, research brokers and even the mission of the SEC in ensuring fairness in the markets.   There’s a tab for proxy issues where the SEC explains “Your right to vote”, “Voting Your Shares”, “What You Should Do” and “How to Vote.”

Some companies see the opportunity to engage with shareholders.  Peggy Foran of Prudential Financial and has taken a creative approach, offering retail shareholders who vote their proxies an environmentally correct tote with the Prudential logo.  Or, the proxy-voting shareholder can also opt for a donation to a charity.

Not only will such a move encourage shareholders to vote but it signals the company’s true desire to engage with shareholders.

Navigating this proxy season will not be easy but companies that find creative ways to engage with their shareholders will improve their position and set the stage for the future.

As boards take a hard look at their risk oversight process, they naturally turn to the risk element of the company’s strategy.  The SEC’s proxy disclosure rules will require boards to take a good hard look at how they oversee risk.  “If there isn’t a clear framework in place, that’s probably job number one” according to the roundtable report.

As boards engage in risk discussions, they are becoming more insistent that management provide alternatives and choices regarding the company’s strategy, as opposed to the “review and concur” approach of the past. In this way, some boards are helping to develop and determine the company’s risk appetite.

As one director said, “It takes time, effort and calories to do this right, but digging into the strategy is the only way to really understand what risks the company should or shouldn’t be taking.”

Smart CEOs look to the board in the strategy process.

In his opinion article in AgendaWeek, Richard Koppes discusses the ways directors can rebuild trust.  Because Koppes has served for 30 years in highly regarded expert in corporate governance, his words should reassure directors, especially those who began their service ten years ago.

In an article “Giving Boards Their Voice”  in  the new Korn Ferry International Briefings on Talent,  I discuss  the shift–from behind-the-scenes advisors to highly accountable public figures. It  is a profound transformation that boards are only beginning to grasp.  The article discusses the importance of board-shareholder communication.  By establishing independent communication, boards and their companies may succeed in quieting dissenting shareholders and even winning the confidence of investors enabling companies to operate in the interests of the long term.

Jack Krol is cited for his role in helping Ed Breen to restore Tyco after the Kozlowski debacle, Ralph Whitworth is lauded for the ways he restored governance to Waste Management and Michele Hooper for her leadership in changing board culture and spreading those changes to multiple boards.

“Drawing on her early experience on Target’s now legendary board beginning in the 1990s, Michele Hooper, a financial expert with a University of Chicago MBA, has brought those lessons to Warner Music Group, PPG Industries, AstraZeneca, UnitedHealth Group, Seagram and DaVita.  Hooper learned from Target the value of having “a boardroom that allows for open and collegial discussion around the table without people getting upset or having a CEO who is going to put the kibosh on conversations.”

Michele has modeled excellence and has been generous about sharing what she’s learned.  As the president of the Chicago chapter of the National Association of Corporate Directors, she volunteers her time to lead one of the strongest chapters of NACD, distinguished by its highly highly effective seminar programs. A board member of the national NACD, she facilitates training sessions for directors. In her day job, she is president and CEO of the Directors’ Council, which finds candidates for boards.

By highlighting the impact of directors like Michele, the critics Gillespie and Zweig demonstrate that boards of directors are still our best hope for providing oversight to our management system.

It’s clear that strong effective boards are in everyone’s interest.  Directors who offer a strategic sounding board for management, and bring to bear their wisdom and experience as the company encounters challenges, are to be highly prized.

It will take more than just committed directors to improve corporate governance.  CEOs, whether they hold the title of chairman or not, need to make the investments in effective boards. In addition to their personal commitment to make the relationship work, they need to provide the resources and support to help directors be effective.