Thursday, December 30, 2010

What REALLY Goes on in the Boardroom?

As a director, you are bound by your duties as a board member NOT to talk about the inner workings or deliberations that take place behind the closed doors.  So, how are new directors supposed to learn how to behave, how to contribute or even how to THINK like a director?

Julie Garland McLellan has written an excellent collection of real boardroom scenarios and asked internationally recognized governance professions for their “advice and consultation.”  The book, Dilemmas, Dilemmas, provides “Practical Case Studies for Company Directors” at listed firms, family-owned firms, private and venture firms, not-for-profit and government-owned entities. 

The dilemmas or case studies are taken from her newsletter, The Director’s Dilemma.  Twenty-two boardroom situations are presented from the perspective of an individual director – sometimes a new one, sometimes a director put into a specific and uniquely challenging situation.  “What would you do?” is the question posed to a number of directors or consultants representing a wide range of governance expertise, primarily Australian, but the experiences have relevance globally.  And Julie Garland McLellan regularly adds her own views as a professional non-executive director and consultant to boards and individual directors.

The introduction outlines each of the issues in focus for each case study.  The crucial question of directors’ duties provides a key emphasis for the majority of cases.  At the end of each scenario, the reader is challenged to decide for herself:

1.         Which answer provided does the reader prefer: why or why not?
2.         What aspects of the other answers would the reader incorporate into her chosen solution?
3.         What would the reader’s solution be?

There is no perfect or right answer.  The experts may agree, may offer unique insights or may offer an impossible response.  Every expert’s comments provide a powerful learning experience and unparalleled insight into boardroom challenges and deliberations.

At a minimum, the concluding impression is that boards – inside their boardrooms – face some extremely complex and intricate issues.  Ms. McLellan is to be commended for providing us with a balance and in-depth presentation of these tougher realities.

Friday, December 10, 2010

First Things First

We are making some progress in educating women what truly is required to serve on a corporate board in today’s tougher, more regulated economic marketplace.  It is possible to tell the difference between a serious, genuine and credible director candidate and the others.  There is a wealth of material available to women to help them understand the modern challenge of governance.  

Current directors, recruiters and nominating committees also are telling us the importance of “intangibles” in considering candidates – such factors as collegiality, an ability to pose questions effectively without being confrontational and a willingness to constructively debate and deliberate.  In other words, the demonstrated capability to participate in the give and take so essential to boardroom collaboration.

We talk about the dozen or so checklist of essential skills areas.  We also talk about the networks where serious candidates could become known.  In addition, the most important source of a board-level referral is your own performance on the job, within your profession, among colleagues who are counting on you to deliver results within your present position.  A crucial question is “What are you doing, NOW?” or “What is the value you’ve brought to the business lately?”

In writing my book, Outstanding in their Field: How Women Corporate Directors Succeed, the first essential step was to research the backgrounds and experience of the women directors.  What did the business community know about this person? That is where recruiters and nominating committees begin, as well, in order to get an idea of the problems or challenges a candidate is addressing currently or the solutions for which they have become known in the business world.  That is the foundation for selecting a candidate.

Women sometimes hide their talents under the proverbial bushel basket.  Or they are the eternal “support staff” behind other more outstanding corporate figures. If we cannot see what the individual is doing to address contemporary problems, what are we to think of her?

There are a host of major problem areas that business is attempting to address, any one of which provides the coattail for development of an effective career:

- cost effective health care programs that balance employer and employee needs
- health information technology that will cut costs and reduce waste
- building of effective internal whistleblower processes that deter real fraud, not simply pad law firm coffers
- dealing with global cultural differences while not running afoul of the Foreign Corrupt Practices Act
- motivating today’s multi-generational workforce
- understanding the internal corporate implications of hundreds of emerging regulations post Dodd-Frank
- identifying effective shareholder communication strategies without sacrificing the integrity of financial information
- investigating innovations such as virtual proxy meetings
- determining which sources of business risk will, when managed, reap benefits rather than discourage investment
- how to compete in global markets against emerging nations with trade preferences unavailable to US firms.

Women in leadership within our corporations are addressing issues on this scale.  They are visible, on the stage of that marketplace economy.  They do not rely upon “special networks” for their professional exposure.  They are working in the midst of the most active network available: the American economy, helping to rebuild it for future generations.

That is what is meant by putting “first things first.”

Saturday, December 4, 2010

The Ladder

We often hear the question, “How do I become a director? How do I get on a board?”  We tend to think of that position as something remote and distant.  Perhaps instead of thinking about a director role as if you were waiting to be invited to join some exclusive group, it might help instead to imagine yourself as the CEO of a company, considering how to build her very first board.

Let’s assume YOU are the CEO who is searching for the right people to populate that portion of your Articles of Incorporation or By-Laws that describe your corporation’s board of directors.  You’ve been in business maybe a dozen years or so, you’ve built a powerful reputation in your market, you’re making some reasonable money, and you’re ready to re-invest and grow your business to its next logical level.  You even have staff, maybe a CFO and some sales people.  You know you have to add to that team, maybe expand into new technologies or possibly reach out into international markets.  You need the wisdom of a small group -- reliable confidents to help you take this next step.  Now, maybe you can understand what it feels like to dare to put your firm in the hands of strangers. 

What kind of people will you bring to the table?  It certainly won’t be women marching with placards through the streets of your town.  You will only consider trustworthy people – individuals whom you know will not drive the company --  which you built with the sweat of your brow -- into the ground.  Let’s see how we find these very special people.

First, you will want people with a solid business education or an education that produced a demonstrable respect for business, in general, and for you, in particular, as a business person and everything you’ve tried to accomplish.  You will expect some fundamental financial literacy which might include economics, accounting, law, technology, marketing or communications – education valued by the business marketplace. Graduates of surf-city universities need not apply. Whatever the specific educational credentials, at a minimum, they will need to bring value to your business. Thus, the directions you want to take your business will guide the selection of skills you need to bring on board. And you will want someone who loves the concept of learning – about you, your business, your market, your industry and your challenges.

Next, you don’t want just any director who is warm and walking – you want people who acquired experience in the same areas where they invested in their education.  Those other people who studied in one field, then quit to become something else, probably won’t be able to handle the challenge of long-term strategic guidance.  What the candidate has done for herself will give you insight about what she could do for your business. Experience is good especially when it looks as if the individual loved the profession enough to acquire a lot of complementary skills over the years.

But, there are a lot of educated, middle management drones in the marketplace.  It’s YOUR business future we are talking about, so you want to bring in genuine expertise – some talent, some evidence that the individual isn’t just trying to get by.  You’d like to see candidates who could take the expert or witness stand and answer tough questions.  You want to see people who have done today’s tough research and analysis and are capable of talking about the important business issues you face --  in public debate, in presentations, and in dialogs that matter to you. Shy and retiring “help mates” won’t cut it. 

Still not good enough for YOUR business?  You need evidence.  It’s not enough that candidates can talk about what they think or what they are – you’re looking for people with a credible track record of achievement.  You’d like some external support – maybe evidence of a successful business, maybe a profitable enterprise similar to your own, but certainly some affirmative verification that what the individual did for herself or himself is probably what she could do for and with you. You might even search out a little reputational information or confirmation from others whose opinions you respect – just to be sure.  It IS your business, after all. 

But, wait, that’s not all!  There’s more!  You want to hear that the candidate has integrity -- that soft and squishy consistency of their actions, values, metrics, principles and outcomes.  You don’t want to be surprised, somewhere down the pike, by a candidate whom you believed was focused on competitive excellence, only to discover later on that she really was someone else who just wanted to advocate her own secret hidden agenda.  What does the candidate stand for in her every word and deed?  Is she the same person every time you talk with or about her?

If you can bundle these credentials altogether in a candidate, then you have that magic quality you seek in a director -- somebody in whose hands you can trust your business.  That is the gold standard.  If you can understand how difficult it is to find such a worthy candidate, then you are well on your way to becoming such an individual, climbing that career ladder to trust, capable of helping a colleague to take her business to the very highest level.


Tuesday, November 23, 2010

Let the Dialog Begin

Learning from our mistakes is not a damnation of our efforts – it is the beginning of learning. When women truly are ready to begin that process, we should be able to exchange thoughts on a host of important issues facing us. Let the dialog begin.

Has anyone else noticed that women do not participate in a “dialog?” One woman will throw out a broad viewpoint and expect everyone to be “informed and aware” of the rightness of her perspective. And so nobody comments or dares to challenge her world view even if it is a gross and outrageously sweeping opinion or generalization. Women just don’t debate.

So, to be equally wild and woolly on the other side of the discussion, here are some thoughts about the lessons from “what women do.” In reality, there are some things that women do that close the door on opportunity. These viewpoints are examples drawn from my recent direct observations of actions and reactions in the marketplace: a sampling of admittedly small proportions, but meaningful.

1. A board member (male, several years of experience on the board and with the organization) invited a promising woman to work with him on a committee which he headed. The committee was successful, not problematic; he was looking for new talent to train as his leadership replacement. He shared that goal with her. The woman who took it on showed hesitance to make decisions, so he provided coaching and training and gave her background material to bring her up to speed. The second year, she told him she would not be able to take over responsibility for the committee after all because she had “too many other nonprofit commitments.” He had to find an alternative and start all over again.

Lesson: Never take on an assignment unless you are able and willing to meet the commitment in full. Don’t overbook.

2. The leadership of an organization developed a succession plan that included a woman candidate in a vice president position who would progress to the presidency. Six months before his scheduled retirement and her scheduled ascension, she “opted out” saying again she had too many other commitments to take on the leadership role. The organization tapped another, younger and less experienced executive.

Lesson: When an opportunity for leadership is presented to you, don’t pass on it unless you’re prepared not to be considered for leadership again in the organization.

3. The CEO of a major corporation was asked by the board to resign. A woman CFO was named interim CEO. A committee of the board was chartered with the executive search to replace him. The woman CFO immediate took herself out of consideration for the position of permanent CEO.

Lesson: When an opportunity for leadership is presented to you, sometimes the smartest thing is to just shut up and see what happens next.

4. A woman was the head of a major group within a large corporation. Three times, over the span of a decade, successive CEOs to whom she reported were replaced. The third time, she was at least “in consideration” for the position of CEO, but lost out to an outside executive.

Lesson: When the writing is on the wall, read it.

5. A woman was head of an organization where the leadership transitioned every two years, with past presidents taking on a variety of continuity and senior committee roles. She, however, chose not to take on any initiative assignments, but opted only to provide “support” to the then-current president. When his term was up, he transitioned to senior leadership roles as had his predecessors. She became vocally bitter, digger herself deeper into anonymity.

Lesson: Organizational structures, both formal and informal, provide opportunities for growth and leadership. Learn how to utilize them.

6. Public speaking terrorizes human beings more than death itself. Men fear public speaking and yet have established entities like Toastmasters International to provide an organizational structure and supportive network to train members how to speak effectively and how properly to receive and assimilate feedback into better presentation techniques. Men have also created Dale Carnegie programs, Senior Core of Retired Executives and a host of other educational, training, and counseling programs to improve the way they conduct themselves in business settings. When some women receive suggestions that they take training or seek executive or career counseling, they interpret the message as being told that “women need fixing.”

Lesson: If we didn’t need improvement, we could run the world as we are. Listen when someone suggests an improvement. In fact, seek out such advice at every opportunity.

“Luck is what happens when preparation meets opportunity.” – Seneca the Younger, Roman philosopher (5 BC – 65 AD)

Friday, November 19, 2010

Anne Gust

Just about the best thing to result from the recent November elections was Anne Gust, Jerry Brown's campaign manager and wife. I look forward to her leadership of the Governor's Women's Conference sometime next fall.

I look forward to the possibility of a truly different Conference where finally we stop looking at women as the source of simplistic commiseration and instead begin to see in women the leaders we need for the 21st century.

For the past several year, the GWC has been full of tears, bling, and tragedy. If I see one more tear-jerking rendition from a Governor's First Lady, I'm going to lose lunch. Women today are not simply foils of charities -- they are equal partners, educated, mindful, intelligent beings. Few are "desperate" as portrayed in too many television episodes, way way too many journalist articles, and in every advertisement on the face of this earth.

Anne Gust is a talented lawyer well-regarded for her contributions in corporate life. I look forward to seeing that talent take on the GWC and re-charter the event toward
 
women investing (not simply shopping to please "him")
women building businesses (not simply calling for legislative "ACTION NOW" to tie corporations into knots)
women taking on financial literacy (instead of being duped by every con artist in the country)
women pushing back on bullies (male or female)
women writing with evidence and facts (instead of flailing away at emotionally charged windmills)
women in leadership (instead of simply Corporate Stepford Wives)
women entrepreneurs (building truly innovative businesses instead of simply nail and hair salons)
women solving women's problems (instead of passing the buck to federal, state, and local governments or to corporate welfare programs)
women paying women equitable wages (instead of underearning, underbidding, under paying women themselves)
 
In other words, I look forward to a Governor's Women's Conference full of Anne Gusts and her kindred sisters. 

Saturday, November 13, 2010

Quotas for Healthy Food

Does anyone remember the Sonia Sotomayor judiciary hearings when she was asked what she thought about a law that would require people to eat healthy food? She laughed at the idea. Then the San Francisco Board of Supervisors tried to legislate a “healthy food quota” forbidding giveaways of toys with kids’ meals unless the latter met strict dietary criteria. Now San Francisco Mayor Gavin Newsom has vetoed the ban which targeted sales of McDonald’s Happy Meals with children’s toys as too intrusive.

In announcing his veto, Mayor Newsom said, "Parents, not politicians, should decide what their children eat, especially when it comes to spending their own money."

There is a growing tendency in this country to try to legislate that which we have not been able to accomplish yet by other economic or market means.  Really, now, why don’t we all stop buying Happy Meals from McDonald’s rather than trying to legislate that EVERYONE stop buying them?  Last time I looked I thought this WAS a democracy.

Or, even more importantly, if some San Francisco ladies and gentlemen truly believe that it is possible to produce healthy food that meets strict dietary criteria (and hopefully tastes good too) they why don’t THEY go out and start up companies to produce those products economically in the marketplace just like Roy Kroc did decades ago?  Why is it necessary to pass laws to shove this stuff down our throats?

Yes, I don’t like paying for the externalities of my neighbor’s obesity.  Yes, I invest only in the best dietary foods I can find at reasonable prices.  Yes, I detest the marketing hype of selling garbage to kids through entertainment and games.  But, yes, I expect the marketplace to work better than the courts.  That means I will put my money into products and services in which I have confidence.

Think about this when you think about quotas for women or minorities on company boards of directors.  If we’re so smart and so sure we know what boards of directors OUGHT to be, then women as well as men OUGHT to be building quality companies, producing quality well-priced products for the marketplace, AND building boards of directors capable of competing with the likes of anyone.

Friday, October 29, 2010

The Mock Board

In law school, we have moot court where lawyers test themselves in a simulated courtroom environment.  In business school, we have business case studies that afford entrepreneurs the opportunity to evaluate real world scenarios and then discuss the issues and ramifications of alternative courses of action.  A “mock board” is another problem-based learning technique which allows the participants to focus on specific governance issues and to evaluate the collaborative decision-making process that exists in the boardroom.

A mock board setting is characterized by the following:

  • Instructor divides the class into groups representing diverse companies/disciplines.
- Provides a generic script to structure the approach to a “case study” problem.
- Facilitates the learning process by providing supportive research materials and/or analysis germane to the problem studied.
- Challenges the group presentation along with other class participants.

  • Participants take responsibility for their own group
- Define a few “key” roles required for collaboration: lead and scribe.
- Select from a menu of challenging, open-ended, loosely-defined and -structured “case study” problems.
- Organize and direct their specific approach to the learning process.
- Present and defend their positions in the classroom setting. 

The mock board decision-making context puts the participants in a simulated work and professional setting where they must define and defend policy, process and ethical challenges they face as they attempt to understand and resolve some key issue.

They work through learning strategies to discover the nature of the governance problem, the constraints and options for the problem’s resolution, input variables and the viewpoints involved. 

Through group collaboration, participants negotiate their way around the human, social and business complexities surrounding the problem. 

All members of the group are responsible for a collective search for resolution and a presentation of their informed decision.

The ultimate goal is to provide some personal experience, some engagement with boardroom problems and the decision-making process that underlies quality governance decision-making.

Monday, October 11, 2010

The Gorilla in the Room

How do you know there's a 900 pound gorilla in the room?  Because there's no room for anything else. That's how it feels sometimes as we read articles in the media about women leaving the finance industry or women NOT in some leadership category or women copping out.  That describes this huge, gigantic thing that blocks out everything else -- our thinking, our potential, our attention. 

When I first started writing my book about women on corporate boards of directors, I was going to call it The Nine Hundred Pound Gorilla in the Room -- Why Women Haven't, Can't, Won't or Shouldn't Succeed.  It was going to be based on the thousands of articles of that subject which I had discovered or which others had too-generously shared.

The book was to have three parts. The first was to be titled, It's All HIS Fault -- dedicated to all the explanations, behaviors, actions and chemicals that explained why men were the source of all the problem(s); why it was the men, their bias and discrimination that kept women back.  The second part was to be titled, It's All HER Fault, explaining all the things women did that kept them from achieving their true potential, what parts of women needed fixing, and why women were to blame for all the failings.  The final chapter was to be called, There Outta Be A LAW, again, dedicated to all of the solutions everyone decided would come from enacting one or more new law, rule, regulation, creation of some new office or the addition of one more police officer to the gender equity beat.

After assembling all those supposedly erudite articles, the 900 pound gorilla was still there in the room.  There was nothing else.  The gorilla just sucked the life, the very air, out of the discussion.  All that was left was the statement:  There!  SEE???? Theres the Gorilla! No more elbow room.  No more conversation.  No options. No mobility. No choice.  Just this huge thing staring us all in the face. 

The only solution was to challenge the gorilla.

So what if men have testosterone and women have estrogen?  Do we really expect that to change?  Are we going to find some other planet with different chemical-free populations to make decisions for us?  Or might we possibly gain some benefits as society and organizations from the internal factors that make us different and motivate us differently?  And, by the way, over time, each side of the gender equation modifies its chemical makeup inside their human beakers.  So, what difference does it make, over the long term?

So what if some people like numbers and others like words, or if some are better in math while others are better at communication? Are we that positive we can identify or predict peoples behavior or choices based only on gender? Last time I looked, human beings had a total of five basic senses plus a whole slew of external appendages to tap into their environment and a huge brain to assimilate all that received input. There are centuries of evolution wrapped up in our cerebral cortexes in addition to the core competencies of our limbic system. Why not use all of our intellection and emotional resources to comprehend our collective universe and address our combined challenges?

So what if some people are satisfied by playing with children while others are satisfied by playing with things?  There truly is no innate goodness in either -- there is choice.  All kinds of work are required to sustain and maintain life and lives.  Why not let people decide for themselves rather than bless one choice or another or dictate one choice or another because he or she is a he or a she.

This is not a contest to see which is the more perfectly evolved being: man or woman.  The answer is they both are works in progress, requiring great refinement, improvement and enhancement.  This holier-than-thou perspective from either one is intolerable and offensive.  Nobody elected either of them to be God or Gaia All Mighty.  We have a responsibility and an opportunity to work together.  When we do so, we make amazing  opportunities possible.  When we work against each other, it's not pretty.

So, how do we get rid of the 900 pound gorilla in the room? First, stop feeding it.  Stop giving credence to journalistic tripe that fosters a futile debate just to sell us more stuff.  For my part, I tore up the chapters to that first book and threw out all of the articles that people had "shared" with me like the plague.  Great firewood.  Let us all stop letting the gorilla suck the life out of our lives.  Show the gorilla the door and tell the gorilla to leave the room.  We need a little fresh air in here.

Monday, September 27, 2010

The New Ugly American?

Renee Ordeneaux and Fred Warga wrote an insightful article, “Trust But Verify,” for the latest issue of The Bottom Line, the company newsletter of RBZ, LLP (a Los Angeles-based accounting firm).  They highlighted the latest report of the Association of Certified Fraud Examiners (ACFE): 2010 Report to the Nations on Occupational Fraud and Abuse

The topic of “risk management” is on everyone’s agenda, from auditors to boards of directors and regulators.  We noted earlier that one of the most important parts of the Dodd-Frank Act was the heightened whistleblower provisions.  The ACME study provides the foundation for this note:  40.2% of all fraud schemes studied were detected by a tip, whereas 4.6% were detected by external audit, 13.9% by internal audit and 15.4% my management review.  Contrary to most discussions which allege that “it’s the board” or “it’s the CEO,” fraud is far more likely to be perpetrated by some desperate rank-and-file drone or middle management supervisor who lost his/her moral compass.

“Fraud perpetrators often display warning signs that they are engaging in illicit activity. The most common behavioral red flags displayed by the perpetrators in our study were living beyond their means (43% of cases) and experiencing financial difficulties (36% of cases).”

The blame-game loves to focus on those evil-doers in the corporate boardroom, or those CEO’s who are packing in exorbitantly excessive executive compensations.  But, a closer look at today’s headlines begins to reveal just how “Ugly” average American business people have become -- without the help of those at the top.

Let’s take a look at a selection from recent headlines.  Were these the directors? or were these Jane and Joe Does?

1.      Hewlett-Packard Co. agreed to pay $55 million to settle Dept. of Justice allegations that the company paid “influencer fees” to systems-integrator firms in return for recommendations that federal agencies purchase HP products; other charges alleged that a 2002 contract with the General Services Administration for computer equipment and software was defectively priced because HP provided incomplete information to contracting officers during negotiations. EMC Corp. paid $87.5 million to settle similar charges in May 2010.

2.      Intel derivative litigation settlement alleged the company violated a host of antitrust policies and practices since 2004; the agreement mandated 18 new compliance committee, general counsel, training and audit changes from the board level all the way down to sales and marketing.

3.      For-profit universities discover their recruiters encourage applicants to lie on their requests for loans.  Federal government support of student financial aid is at risk of insolvency because 75% of loans are not being repaid.

4.      Workers and managers on the BP oil rig and at the Massey Energy mines intentionally shut off or closed down safety valves because the protections “got in the way” of business as usual, which included resulting catastrophes and death.

5.      Mortgage brokers allegedly allowed or encouraged “liar loans” from applicants who provided fraudulent information on mortgage loan applications.  Mortgage bankers today report they still must be vigilant to ensure that applicants do not file fraudulent information even after everything we’ve learned from the subprime mortgage crisis and bailout. Mortgage "refis" are questionable at best.

6.      Lenders are discovered to have paid appraisers for inflated property valuations to overstate mortgages contained in mortgage backed securities.

7.      Widespread increase in so-called “strategic defaults” on mortgages where the property value has dropped below the mortgage principal, although the property owner has the capacity to pay the mortgage. Bankers today report an increase in “bad buys” where a homeowner, preparing to do a “strategic default,” attempts to buy a new home without reporting the existence of the old, under-water loan, in order to have a safe haven prior to bailing out.

8.      Insurance companies found to have paid agents under-the-cover fees to win business.

9.      State pension fund board member alleged to have received payments from investment managers in exchange for an inside track as a contractor to buy/sell securities to the pension fund.

10.  Pension fund board members reportedly neglect to file financial disclosure documents – not just once, but repeatedly in spite of fines.

11.  Municipal representatives allegedly not domiciled in the districts where they were elected to serve. Council members receiving sweetheart loans and excessive compensation. Municipal representatives reap astounding compensation and pension benefits, under cover.

12.  Credit ratings agencies found to have inflated bond valuations in order to win business from companies whose bonds or securities they rated.

13.  Research analysts receive bonuses for favorable buy-sell stock recommendations of companies that do business with the financial firms who employ the analysts. From approximately mid-1999 through mid-2001 or later, ten of the nation’s largest  investment banking firms engaged in acts and practices that created or maintained inappropriate influence over research analysts, thereby imposing conflicts of interest on research analysts that the firms failed to manage in an adequate or appropriate manner. In addition, the regulators found supervisory deficiencies at every firm.

14.  Accounting firms are now prohibited from providing management consulting services to companies whose financial statements they audit because of the perverse cross-payments.

15.  Compensation consultants to be required to disclose fees they received from companies where they provide executive compensation advisory services to prevent preferential treatment.

16.  Violations of the Foreign Corrupt Practices Act accelerate.  The FCP Act prohibits bribery payments to any foreign official in order to win business overseas.

17.  Sales personnel at technology firms reportedly provide off-book retroactive rebates to buyers to win business through the fabrication of fraudulent revenue-recognition practices.

18.  Accountants and general counsel at high tech start-ups back-date option grants to artificially increase stock bonuses for employees and management.

19.  Banks on both sides of the Atlantic, based on input from legal and tax advisors, conspire to establish phony off-shore entities as conduits and safe havens for tax evasion.

20.  Banks manipulate “Repo” balances just before the end of month or quarterly financial statements are released in order to inflate earnings reports.

21.  Medical doctors and insurance brokers reportedly collude to defraud the health reimbursement funds by fabricating illnesses, accidents, treatments and medical conditions.

22.  Papers and dissertations are for sale on the Internet.

23.  Surveys of students reveal alarming levels and tolerance of cheating “as a way of life.”

24.  Widespread use of steroids in sports. 


Why is there such extensive personal corruption in the American way of life, today?

Why do we so delight in gawking at the carnage of crashes on the highways of our lives (BP oil slick disaster, the Katrina flooding, Shirley Sherrod firing, Boston Police v. Harvard Professor confrontations) rather than mind our own ethical behavior and morality?

Why is there such righteous indignation and sanctimonious expectations of “socially responsible” behavior among entrepreneurs, corporations or government, yet so very little social conscience in our own personal economic and financial choices and behaviors?

Why is there such a great willingness to blame others for failings and to demand others’ take responsibility – but little or no individual personal accountability for performance? Do we really think that more “rules” alone will address these problems?  And are we sure that “boards of directors” are the ones ultimately responsible for this tsumani of unethical behavior inside companies -- at the employee, worksite and management levels? Have American employees and management forgotten how to compete fairly?  Do they believe that the only way they can succeed is by perpetrating fraud on each other?

Sources:

Wednesday, September 22, 2010

Tilt!

I am unabashedly an advocate of Elizabeth Warren and acknowledge her insight and contributions to formulating the original idea of a Consumer Protection Agency.  Her role as head of the Congressional Oversight Panel (COP) also won her great respect both for her dogged pursuit of the truth and her willingness to take on top financial challengers.  I sense, however, that the "pocket appointment" of her to the assistant director position advising Timothy Geithner, responsible for formulating the shape and charter of the CPA, was not handled in a manner that will give her the respect she deserves.  By avoiding the Senate confirmation hearings, President Obama probably ensured she will be able to hold the job, but she will have lost much of the credibility that she will need from within the financial community if she wants the CPA to function effectively. 

We cannot expect some of our leaders to hold positions of public responsibility by taking advantage of an easy street or a back door route.  Side-stepping the real world path to leadership carries with it a stigma that maybe she could not make it on her own merits or that she cannot play by the same rules we expect everyone else to follow.  What if we had "pocket appointments" of our female Supreme Court Justices? Would that imply that we believed they could not stand up to the rigorous Senate confirmation hearings?  If they could not do that, then how can we expect them to do the right thing on the job in the face of challenges inside, deliberating over specific decisions?

We did not like the way some Representatives used their positions of power to facilitate access to funding for large or small banks.  We did not like the way that too many Congressmen earmarked funding for favorite local projects.  We constantly hear the argument that "If they can do it, why can't we?"  The answer is that we know better -- we do not have to stoop to that level to "make it."

In her conversations on the Hill and among financial leaders, perhaps Ms. Warren and her supporters were persuaded that she could not win approval in Senate hearings.  Probably they also heard more specific objections to the CPA functions.  We, the public, will not know the reasons behind her decision, the objections from the Senate or anything about her views of what the CPA should do.  That lack of transparency is upsetting – especially from an administration that argued vehemently for the principles of disclosure and clarity. It suggests, again, the erroneous proposition that "once I get into office, I am no longer accountable."

Just because President Obama has the power to "tilt" the odds in favor of his choice does not mean that his choice should be unexamined and unchallenged. Elizabeth Warren will have to face the heat of examination, ultimately, and she must accept the consequences of her prior positions and the decisions as head of COP. She showed she was willing to face her challengers, then, and earned our respect for doing so.  Why, now, would she not want to earn our greater respect by taking on the challenge of building that office she so sincerely desired?

This action sends a mixed message to all of those truly dedicated women who played by the rules, did it the hard way, met their challengers, faced the consequences, and achieved positions of leadership.  It is unlikely that they would advise those who would follow them to look for some easy way, some back door path to leadership. Yet, this appointment advocates exactly that message.

This is the very same issue women directors face as some argue for "an easy path" or "a side door" into the corporate boardroom, as if the position were an entitlement rather than the culmination of a worthy career. The achievements and credentials of women candidates must be adequate to steel them to the challenges they will encounter inside the boardroom. If they want the respect of their peers and their constituencies, they too will have to avoid the appearance of been shooed in under the guise of some preferential quota system.

If we believe that Elizabeth Warren is the right choice for this position, the most capable person for the job, then we should be willing that she stand tall and walk through the front door of that office like everyone else in this democracy.  

Tuesday, September 7, 2010

Women of the Directorship 100

The National Association of Corporate Directors (NACD) Directorship magazine for September 2010 highlights the 4th annual "Directorship 100 . . a veritable who's who of the American corporate governance community ... the most renowned boardroom influentials."

The actual headcount is 184 people, of whom 36 are outstanding women in governance. Today's 19.6% of the top people in corporate governance is impressive in its own right, but also because we are hearing and reading about these women every day. Congratulations to all.

Accounting firms:
Sharon Allen, Deloitte LLP
Catherine L. Bromilow, PricewaterhouseCoopers
Beth Brook, Ernst & Young
Mary Pat McCarthy, KPMG ACI

Proxy advisors:
Carol Bowie, ISS Governance Services
Martha Carver, ISS Governance Services

Pension funds:
Amy Borrus, Council of Institutional Investors
Ann Yerger, Council of Institutional Investors
Hye-Won Choi, TIAA-CREF
Anne Sheehan, CalSTRS
Anne Simpson, CalPERS
Anne Stausboll, CalPERS

International Corp. Governance:
Christianna Wood, ICGN

Executive search:
Julie Hembrock Daum, Spencer Stuart
Bonnie W. Gwin, Heidrick & Struggles

Directors:
Dina Dublon, director at Microsoft
Bonnie G. Hill, director Home Depot, AK Steel, Yum! Brands
Mellody Hobson, director Starbucks, Dreamworks Animation
Blythe J. McGarvie, director Accenture, Viacom
Maggie Wilderotter, director Procter & Gamble, Xerox

Corporate:
Margaret M. Foran, Prudential Financial
Ellen J. Kullman, DuPont
Amy W. Schulman, Pfizer
Jean K. Traub, Capital One Financial

Compensation:
Pearl Meyer, Steven Hall & Partners

Law firms:
Holly L. Gregory, Weil, Gotschal & Manges

Politics:
Valerie B. Jarrett, the Obama Administration

Regulators:
Kathleen L. Casey, SEC
Meredith B. Cross, SEC
Mary L. Shapiro, SEC
Elisse B. Walter, SEC

Media:
Carol J. Loomis, (Hall of Fame), Fortune
Joann S. Lublin, The Wall Street Journal
Gretchen C. Morgenson, The New York Times
Becky Quick, CNBC
Louise Story, The New York Times

Had I picked up the counterpart issue when the Directorship 100 first came out in 2007, I would have seen just 100 names, and a grand total of 16 women, half of whom also are on the 2010 list.  However, CalPERS and the PCAOB also were among the top 100, and women were prominent at those entities as well.

2010    Directorship 100 - 2007
Yes      Sharon Allen, Deloitte & Touche
Yes      Catherine Bromilow, PricewaterhouseCoopers
Yes      Julie Daum, SpencerStuart
Yes      Holly Gregory, Weil, Gotshal & Manges
Yes      Joann LublinThe Wall Street Journal
Yes      Pearl Meyer, Steven Hall & Partners
Yes      Gretchen MorgensonThe New York Times 
Yes      Ann Yerger, Council of Institutional Investors
Laura Berry, ICCR
Carolyn Kay Brancato, The Conference Board
Margaret “Peggy” Foran, Pfizer
Barbara Hackman Franklin, Barbara Franklin Enterprises
Mindy Lubber, CERES
Nell Minow, The Corporate Library
Ann Mule, Sunoco
Carol Ward, Kraft

One other item: at their latest Director Professionalism training session in Laguna Beach, CA, the NACD reported that 29.8% of the attendees were women (31 out of 104). Outstanding!

Thursday, September 2, 2010

New Drucker on Leadership

Peter Drucker is an amazing teacher, whether you read or hear his original works or tap into this new book by William A. Cohen, Ph.D.:  Drucker on Leadership: New Lessons from the Father of Modern Management  (Jossey-Bass: 2009).  There’s always something new to be learned from the master of management. 

One small example is the book’s chapter on “applying segmentation to leadership.”  If we substitute “segmentation” of the workplace personnel for “diversity,” we get some new, truly out-of-the-box thinking. Segmentation tells us that personnel have differences that we could acknowledge, just as we recognize customer differences, market segments or economic preferences.  By understanding the different ways customer or personnel make value decisions, we improve out ability to respond to or acknowledge those differential values.

The chapter on Segmentation discusses how leaders “learn more about those you lead” while at the same time that leaders “must be careful not to let [followers] take your focus away from the organization’s main mission.” 

Dr. Cohen provides interesting insight into why leaders “manage by walking around.”  Most people assume that leaders are attempting to get close to workers and to make them feel more comfortable.  When magazines produce company listings of Best Places to Work, it’s as if the focus is on all the perquisites of being an employee. 

But Dr. Cohen tells us that such interactions with staff in meetings (whether inside the company or outside in off-duty sessions) are really an important part of the leadership review process.  These encounters all represent situations that allow one-on-one segmentation, giving the leadership “an opportunity to observe your people in action and see how they perform as leaders.”

Even social occasions and ceremonial events inside companies demonstrate whether “someone” can step up to the challenge, organize the event and run it in a manner consistent with the company mission.  By extension, creating things such as “women’s leadership networks” inside corporations also gives companies a view on who can lead, how well they lead, how well they organize others, and whether they understand the fit of that subgroup or network within the company mission.

A very interesting “case study” toward the end of the book (page 247) discusses how a new leader took over a group that had become known for its failures to perform.   The new leader repositioned the organization to “think about itself differently.” Rather than focus on how “unlucky” the group was, instead it became “unstoppable.”  The new leader built up a change of perception of the organization BY the members of the organization to hold themselves accountable for their own success.

If women’s leadership networks inside corporations focus primarily on perceived disadvantages, discrimination or other “unlucky” fortunes of women in the workplace, that will convey one type of message to management.  If these networks, instead, focus on building leadership talent among women as a workplace segment, that will convey a different and far more interesting impression.

Saturday, August 28, 2010

Intel Derivative Litigation Settlement

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE IN RE: INTEL CORP. DERIVATIVE LITIGATION, Docket No. 1:09-cv-00867
(See: www.bermandevalerio.com/images/pdfs/intel-notice.pdf (July 23, 2010))

Plaintiffs alleged that Intel directors “breached their fiduciary duties to the company by allowing Intel to engage in anticompetitive behavior for over a decade.”

Under terms of the settlement agreement, Intel stated it shall institute an abundance of measures to ensure that sales, marketing, and engineering middle management and staff refrain from the alleged antitrust and anticompetitive behaviors. Intel will not merely be required to have their Audit Committee address this specific type of risk – it will institute an entirely new Compliance infrastructure covering the front line of sales all the way up to the Board of Directors, itself.

Intel agrees it shall:

1. Form a Compliance Committee consisting of at least 3 independent directors;

2. Appoint a General Counsel with an extensive background in all aspects of antitrust practice;

3. Create a new attorney position within the Legal Compliance Group to focus solely on global antitrust compliance, and add attorney and non-attorney resources across most Intel geographic areas to support antitrust compliance efforts;

4. Add attorneys to the various geographic areas in Intel’s Sales & Marketing Group (SMG) to provide counseling, and address compliance issues regarding, antitrust and competition laws

5. Add/dedicate non-attorney personnel in Finance, SMG, the Microprocessor Marketing and Business Planning group (MMBP), and Information Technology (IT) to support antitrust compliance activities;

6. Create a process to audit accounts to assess compliance with Intel’s antitrust policy, the results of which shall be reported to the Global Director of Legal Compliance (“GDLC”) and the Compliance Committee;

7. Create a process to monitor individuals’ compliance with Intel’s antitrust policy, the results of which shall be reported to the GDLC and the Compliance Committee;

8. Continue to refine and enhance its pricing procedures to ensure that it has reliable pricing tools to enable it to set its microprocessor prices at levels that exceed the appropriate measure of costs used to determine when prices constitute anticompetitive conduct or unfair competition;

9. Eliminate retroactive rebates, absent approval by the head of SMG Legal;

10. Add new controls on requests for Marketing Development Funds (MDF) and Non-Recurring Engineering Funds (NRE) with respect to Intel’s principal product lines for all customers worldwide;

11. Move to a smaller number of standard deal types;

12. Add a requirement that, absent approval by the head of SMG Legal, all new sales and pricing agreements must: (i) be in writing, (ii) include standard integration and non-exclusivity clauses, and (iii) be kept in a centralized repository;

13. Implement the Intel Deal Management System (IDMS), an internal deal approval tool to include deal terms, cost guard band data, agreement/document repository, and rebate forecasting and payment information. (IDMS will assist with implementing and monitoring compliance with changes to sales process and policies.)

14. Roll out required basic antitrust training in 2009 – approximately 7,500 employees completed training in 2009;

15. Roll out enhanced processes to deliver and track advanced antitrust communications training course in 2009 – approximately 1,500 employees completed advanced antitrust communications training in 2009;

16. Launch Antitrust Awareness 2010 as a required course for over 8,000 employees, covering both SMG and the product groups;

17. Require that in 2009, all employees in SMG who deal with customers must certify their review of, and agreement to comply with, Intel’s refreshed antitrust policy; and

18. Roll out training on new sales processes and sales policies in the fall of 2009 to approximately 1,600 employees (primarily in SMG) involved in negotiating pricing and sales agreements.

The terms of this agreement reach deep into the sales, management, training, accounting and auditing of Intel’s business activities – not simply a slap on the wrist of the directors.

This case began in June 2008 with a letter from Annette Villari, an Intel shareholder, to the Board alleging antitrust behaviors. General Counsel, after discussion with the Board, replied that Intel did not perceive a problem existed. (See: http://www.amd.com/us/Documents/Settlement_Agreement.pdf)

Intel’s board of directors includes some of the best minds in modern technology and finance, including four women directors with outstanding credentials and experience: Craig R. Barrett, Carol Bartz, Charlene Barshefsky, Susan L. Decker, John J. Donahoe, D. James Guzy, Sr., Paul S. Otellini, David S. Pottruck, James D. Plummer, Jane E. Shaw, David B. Yoffie, and Frank D. Yeary.

The Senior Counsel for Competition Compliance at Intel since 2004 was Evangelina Almirantearena. Previously, Ms. Almirantearena was a partner at Howrey Simon Arnold & White LLP in their Menlo Park office. Her practice focused on civil and criminal antitrust litigation, government antitrust representation, antitrust counseling and intellectual property litigation. From 1988 to 1996, Ms. Almirantearena was an attorney with the Antitrust Division, Department of Justice in Washington, D.C. She has an Undergraduate degree from Stanford University and a law degree from Boalt Hall, UC Berkeley School of Law. (Admitted to CA bar December 1988.)

In 2009, Intel paid $1.25 billion to Advanced Micro Devices to settle antitrust charges that it tried to shut its rival out of computer markets and another $1.45 billion fine levied by the European Commission for monopolistic practices.

In August 2010, Intel reached another agreement with the FTC which would prohibit the firm from using anticompetitive rewards, threats and other tactics that regulators say induced computer makers Dell Inc., Hewlett-Packard Co. and others to buy exclusively from Intel. The settlement agreement requires Intel to cease engaging in so-called predatory-design changes and exploiting licensing agreements for the purpose of hampering competitors.

As with most such settlement agreements, the company “neither admitted nor denied any wrongdoing.”

Tuesday, August 24, 2010

Global Governance

Demand for corporate director candidates with international business expertise is on the rise.  Even for those with primarily domestic business skills, there also is a greater expectation for candidates to have some knowledge of international governance requirements.  From the Foreign Corrupt Practices Act to International Financial Reporting Standards, complex challenges are arising from all parts of the global governance spectrum.

The international executive search firm, Spencer Stuart, has provided an excellent overview of selected international requirements in its Governance Lexicon: A director's guide to corporate governance around the world (now in its 3rd edition: 2007). We compare the 2004 edition with this version and discuss some notable differences.

The first edition covered 11 countries:  2 North American (U.S. and Canada), the United Kingdom, 6 European (France, Germany, Italy, Netherlands, Spain, and Switzerland), 1 Pacific/Asian (Australia), and 1 African (South Africa).  In the 3rd edition, 19 countries are covered, adding the first South American nation (Brazil), Russia, 3 European nations (Austria, Belgium and Sweden) and 3 Pacific/Asian (China, Singapore and India).

Each nation is presented in a standalone section, followed by an overview of selected supranational organizations: the European Union, the Organization for Economic Co-operation and Development and The World Bank.

The Lexicon, in each nation’s section, provides a snapshot of the Current History of Governance in that nation, highlighting the legislation, committees, commissions and codes that represent domestic efforts to deal with governance issues.  The history is a brief focus on rules and regulations from the late 1990s forward. 

Following this are the Hot Topics -- priorities within each nation.  Most topics deal with the shared challenges of contemporary governance:  director liability, board structure, role of the chairman of the board.  Directors worldwide are struggling with many of the same challenges: 

Director independence
Terms of service
Committees: audit, nomination, remuneration
Nominating processes
Director remuneration

The Lexicon is a compact and insightful handbook that is a "must read" for anyone interested in a director role at a corporation with global linkages. Some interesting insights come from a closer examination of the dominant themes within each country.

First, two notable absences are Japan and Norway.  Japan has been struggling with opening its markets, but it is a surprise to see China and India (although not necessarily Singapore) included before Japan.  Second, for all the hoopla about Norway’s 2005 gender equity legislation, that country is not included.

In the 2007 edition, only 9 of the nations mentioned diversity directly or indirectly. France was not one of them.  France appeared more concerned with "economic patriotism" -- the issue of who shall own French companies.  The French propensity for "cronyism" was described as "lessening," but it was not as important an issue as socially responsible investments, independence of directors and more transparent financial information.

Another country that did not address the diversity issue was the United Kingdom, which barely gave footnote mention to the important work done by Dr. Laura D'Andrea Tyson, The Tyson Report on the Recruitment and Development of Non-Executive Directors - one of the best mandates for diverse candidate searches AND the strongest argument against government entities trying to "pick the winners" through exclusive lists or databases of women or minorities.

Diversity was a “Hot Topic” for the U.S. under the "Director recruitment" heading -- "the representation of women and minority directors still falls short of the level desired by boards.  It is a simple case of supply and demand:  the universe of qualified and available candidates in the most highly coveted groups (CEOs, women and minorities) remains very small." (p. 157)

Spencer Stuart is one of the leading executive and director search firms around the world and has been a leader in adding diversity candidates for consideration.  When they tell us there is a “supply challenge,” perhaps we might want to listen.

Germany, Netherlands and Spain are the only European countries with some mention of candidate diversity.  Germany's "Hot Topic" challenge is "Finding the right people to serve on boards," but the focus is on "people, skills, and experience" and "the most appropriate people in place given the company's strategic direction." (p. 65)

The Netherlands has a specific section on Diversity: the limited representation of women on boards is a reflection of the "[conclusion] that there is a considerable lack of Dutch women who have the necessary senior executive management expertise in large corporations to qualify them for these senior supervisory roles." (p. 92)

Spain also specifically mentioned "Gender diversity." Governance at Spain’s listed companies is covered by The Unified (or New) Code.  It is a "comply or explain why not" situation.  The Code expects boards to show "adequate diversity of knowledge, gender and experience," but companies need only explain their reasons for not having women directors or for having only a few.   The Code also mandates that there will be no bias in the nomination process and that boards will "make every effort to include qualified women in short lists of candidates." (p 127)

For Canada, "Women board directors" is the first "Hot Topic." Spencer Stuart cites its own Canadian Board Index, which reports that 12.4% of board seats at top 100 firms were held by women -- 14% fewer than the US experience at comparable boards.  "The lack of diversity is increasingly being seen as a business issue, not least because it suggests that too few women have gained sufficient senior management experience to qualify them for such directorships."

India's "Hot topics" also mentions a general "Shortage of qualified independent directors."  Recent board changes have resulted from regulatory pressure and internal corporate determinations "to create more stringent criteria for board membership linked to strategic focus and growth plans."  This expansive perspective, moving away from families and friends as directors, has hit the same challenge identified in other nations. "Despite the size of the country, it is not proving easy to find qualified, suitable candidates for non-executive directorships in leading firms, and the shortage of qualified independent directors is causing widespread concern." (p. 75)

Singapore's governance history is among the briefest, emerging only since the late 1990s compared to a 400 year history in the UK.  In its a comparatively youthful governance framework, the luxury of diversity has not been plumbed.  Singapore is concentrating on building up director training for everyone: "There is considerable doubt about whether many independent directors possess the necessary skills and knowledge."  As long as directors are recruited predominantly from personal contacts and friends of sitting directors, diversity of boards -- especially with regards to women -- "is unlikely to change." (p. 106)

The same challenge is mentioned in South Africa:  "identifying qualified non-executives and executives... with high standards of competence and participation expected of all board directors." South Africa has the continuing problem of racial bias: "Diversity representation on boards, in terms of both race and gender, is a burning issue in South Africa, as black economic empowerment (BEE) continues to contribute to the composition of boards." 

We cannot doubt the progress made over the years.  In the 2004 edition, The Tyson Report (again in a footnote) was the only mention of diversity in all 96 pages.  The lessons from the international experience are at least becoming clear.

First, the largest boards tend to lead in diversity. Diversity almost seems to be a luxury good:  not only do high-value firms have a greater propensity to seek out diverse directors, but also diversity candidates may be more attracted to higher-value firms.

Second, to quote The Tyson Report, the "marzipan" layer of competent, qualified, experienced candidates below the top managerial tier appears thin regardless of where we search world-wide.  This is a comment on management development and on the inadequacy of director training and education throughout the world.  The US, Canada, and the UK are no exception.

Third, it may be a comment on the non-substitutability of governance experience between non-profit and for-profit director roles.  The shortage of qualified women director candidates is not consistent with the increasing percentages of women at work in the western world, but it may be a measure of the hesitance that women have exhibited in taking on leadership roles and responsibilities in the business environment, compared to their attraction to eleemosynary boards. 

Fourth, shortages of women in the leadership candidate pool may also be due to women's selection of industry categories in which they work (there are just so many clothing and perfume companies on whose boards women may serve), or their propensity to start small businesses and to keep them small, and on their lack of experience forming entrepreneurial boards themselves for their own enterprises. 

Diversity in the top tier corporate boardroom, internationally, is becoming a “Hot Topic” issue.  Getting named to such a position is the pinnacle of a career.  What we need to see now is more women building their own entrepreneurial, for-profit boards in the full range of industry categories; more women acquiring experience presenting business issues within corporate structure to corporate boards and in corporate deliberative forums; and more women taking on the mantle of leadership of business departments, subsidiaries, global partnerships and corporations themselves.  This is the experience and expertise for which boards – literally around the world – are searching.