Saturday, June 26, 2010

Vakhegula Vakhegula

Maybe you didn’t recognize that, but it means “grandmother, grandmother” in Tsonga. It describes the elder women of the rural community, Nkowankowa in South Africa, as described in the June 21, 2010 LA Times’ Column One article by Robyn Dixon: “They kick like grannies, proudly.” See: the story.

Three years ago, these amazing women stepped onto a local dirt field to play soccer in spite of the fact that “no one seemed to approve.”

“The team grew out of a ‘healthy living’ project for older women in townships and villages around the city of Tzaneen founded by Beka Ntsanwisi, a community worker and radio personality.”

Today, the women’s soccer team members have dramatically improved their health, fitness and agility thanks to the highly enjoyable physical activity. Look for the team to compete next month at the United States Adult Soccer Assn. Veterans Cup in Lancaster, Massachusetts.

Brava to the Grannies!  Brava to Beka Ntsanwisi!  Brava to all of the women who “JUST DO IT” – step out of the groupthink of conformity and have a wonderful good time doing exactly the very best that they can.  

Friday, June 25, 2010

Cause? or Effect?

The Associated Press released a snapshot of the general parameters of the conference agreement on the proposed financial regulations, today, in “Provisions of the negotiated financial reform bill.” See: the AP report, here for details.

The “negotiated settlement” that came out of the Congressional conference committee meetings will be pushed forward very quickly as the Obama Administration’s final financial regulatory legislation.  There may not be enough time for true deliberation of the final bill before Congress takes action.  Senator Dodd is trying to get this approved (1) before he leaves the Senate, (2) before Congress begins it July 4th weekend, and (3) while President Obama is meeting with his global financial partners in Toronto. 

Another outstanding summary of the financial issues can be found in The Squam Lake Report, see their website  or see the book on Amazon.com.  I wasn’t the only one impressed by the work of The Squam Lake 15 economists and finance professors from area universities  -- Ben Bernanke of the Federal Reserve also praised their analyses. See: Bernanke's comments  Their discussion of the issues constitutes a very good benchmark against which we should be evaluating the conference committee’s final financial regulatory proposals.  We may not have enough time before July 4th to evaluate the depth and breadth of these new legislative conclusions, but as a nation we will have to live with the consequences of the new regulatory mandates for a long time.

At a minimum, we need to read The Squam Report and the final proposed legislation – and do it quickly.  

Now, I also know that the minute I post this information, I will get comments such as, “where ARE the women economists and finance professors – among The Squam Lake participants?”  I checked and there were no women.  But, I commend, rather than damn, the 15 gentlemen who took the time out of their busy schedules to collaborate, discuss, deliberate, and produce this very worthy analysis.  I would also suggest to my audience that the very bright women economists and financial professors and professionals that exist at those same universities had the very same opportunity to sit down and decide if they wanted to be part of the solution to these very difficult problems:  certainly as Blanche Lincoln did, among a host of other women negotiators in the Senate.

We women have a choice of participating in the problem-solving process or of standing on the outside, waiting to be invited to the party.  We have a choice of whether to be part of The Cause!!! Or whether we will participate in Forging Effective Solutions to the problems that face us, together – men AND women – as consumers, investors and businesspeople.  The double standard may not be the one that keeps women “out” so much as the beliefs held by women that all they can do is wait to be “invited in” rather than that they too, like Lincoln, can effect change by participating in the process.  The challenge to women is to demonstrate leadership, not merely demonstrate.

Wednesday, June 23, 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.


Monday, June 21, 2010

Spain's Caja Sur

The takeover of the mutual savings bank, Caja Sur of Córdoba, Spain, by the Bank of Spain, is a powerful business case study of board governance gone awry.  The case is presented very effectively in articles by Christopher Bjork in “Spain Takes Over Ailing Bank” (May 24, 2010) and Sara Schaefer Muñoz in “Spain’s Takeover of Local Bank Ruffles Feathers” (June 4, 2010), The Wall Street Journal.

Caja Sur was founded in Córdoba by the Roman Catholic Church in 1864.  In 1995, it merged with La Caja de Ahorros Provincial de Córdoba and became a mutual savings bank under the continuing control of the Catholic Church in partnership with regional and local governments, local unions and the bank’s customers.  The Church controlled a majority of the seats on the 20-person board, including six seats held by priests and the chairmanship. At least one Caja Sur vice president was also an Andalusian regional government representative.

Caja Sur, with about €18 billion ($22.63 billion) in assets, was a dominant lender in the Córdoba region and employed 3,000 people in nearly 500 offices, most of which were located in Andalusia.

Spain has 45 cajas de ahorros (mutual benefit savings banks) which own about half of the banking financial assets of the country.  By law, 10% of the yearly profits of a Spanish caja must be spent on social or cultural projects. Caja Sur spent close to 30% of its annual income on local hospitals, child-care centers, services to support victims of domestic violence, and other funding of religious programs including a series of books on the lives of the saints.

Caja Sur also gave loans to local construction companies: Grupo PRASA SA and Grupo ÑXXI SA for second-home and resort community developments in Costa del Sol. When the real estate market tanked, Caja Sur experienced huge losses. It had one of the highest rates of nonperforming loans among Spanish banks, estimated at between 8% and 10% of its total loan portfolio. It registered a net loss of €596 million in 2009, plus a loss of €114 million in the first quarter 2010. With €13 billion ($16.35 billion) in loans, Caja Sur held 0.6% of the total assets in the Spanish financial system.

Under pressure of the Bank of Spain, Caja Sur was told to find a merger partner or be nationalized. An initial merger attempt between Caja Sur and Caja Murcia (just inland of the south eastern coast) failed. Instead, on June 2nd, Caja Murcia led a four-bank merger with Caixa Penedes, Caja Granada and Sa Nostra which resulted in a stronger regional lender with 73 billion ($89 billion) in assets, four million customers and 1,703 branches.

In August 2009, the boards of Caja Sur and Unicaja, a larger financial institution based in Málaga, Spain (Andalusia), agreed to begin merger discussions. Unicaja had been created in March 1991 through the merger of five similar institutions.  It too was chartered as a caja de ahorros.

From the beginning, merger talks involved the local Catholic Church and even advisors from the Vatican. The directors of Caja Sur allegedly blocked the merger because Unicaja could not guarantee job security to Caja Sur’s employees. By mid-May, customers began withdrawing an estimated €26 million in deposits, while local citizens marched in the streets demanding preferential treatment by Unicaja.

On May 21, merger talks fell apart. Córdoba's bishop, Demetrio Fernández, issued the announcement of the merger's failure. The Bank of Spain nationalized Caja Sur under the authority of the Fund for Orderly Bank Restructuring (FROB) which the Spanish government had created last year to provide the central bank power to take over failing institutions, including €9 billion in funds—expandable to €99 billion—to pay for the clean-up.

Caja Sur’s nationalization, requiring €800 million ($981 million) from the state's bank restructuring fund, was a faster and more substantive takeover than the first major bank collapse in Spain in March 2009. At that time, the Bank of Spain was criticized for being too slow to intervene and nationalize Caja Castilla-La Mancha. 

The concept of “mutual benefit” has been strained.  The Bank of Spain reports it will reduce the number of cajas from 45 possibly to as few as 15 by mid-2010. Where once, by law, a tithe to social investments was considered reasonable, increasing demands from the Church, the community (Córdoba's soccer team was left needing €3 million in funds), and local developers outstripped the funding capacity of deposits from the local citizens.  Highly speculative second-home and resort developments replaced more conservative investments capable of generating stable, long-term returns. 

The Córdoban stakeholders became the dominant force in the definition of Caja Sur’s strategic financial vision. And they milked the bank dry.

Friday, June 18, 2010

Calpers 3D

According to a June 18, 2010 WSJ article by Gina Chong (“Calpers Aims Director List at Increasing Board Sway”), the California Public Employees' Retirement System (Calpers) is recruiting scores of executives to have on standby, so it and others can nominate them for seats on poorly performing corporate boards of companies in which they hold shares. The Calpers plan, (3D for "Diverse Director Database") proposes to establish yet another new database along with the California State Teachers' Retirement System and the Council of Institutional Investors, a proxy advocacy group, making “scores of directors on call, pre-screened to serve on a board” available to nominating committees and others, said Anne Simpson, Calpers's head of corporate governance.

Ms. Simpson said the three groups were still working on the selection/inclusion criteria, but all the nominees will have strong credentials. In addition to expertise in management, finance and industry knowledge, boards also should have "historically underrepresented groups, including women and minorities," Calpers has said in the past.

In October 2008, Korn/Ferry, a major executive recruitment firm, assisted Calpers in its own search for a new Senior Portfolio Manager to lead their Corporate Governance efforts, the position currently held by Ms. Simpson. But, apparently Korn/Ferry isn’t good enough for Calpers. Nor, apparently, are such major search firms as Spencer Stuart, Russell Reynolds, Heidrick & Struggles, Christian & Timbers, SSA International, Catalyst, BoardroomBound or any of the other dozen others.

Those who have learned from history, remember the California Registry of Distinguished Women and Minorities (1993) that died a quiet death at California State Fullerton in 2005 due to lack of names and use.

And we note the NACD Director’s Registry, which began in 1994 and tried to tap into diversity candidates at the International Women's Forum (IWF) and the Executive Leadership Council (ELC). In May 2005, the NACD added a relationship with The Alliance for Board Diversity represented by Catalyst, The Executive Leadership Council, the Hispanic Association on Corporate Responsibility, and The Prout Group – yet another diversity board search firm. That database also was dropped in 2007, but the NACD is trying to expand its database again. Currently 275 women director candidates have volunteered their names to be included in the 3,000 total names in the NACD database.

At one point Catalyst had a database of 1,800 names of female and minority candidates, but then decided it was better to focus on studies of women directors there are at Fortune 500 firms.

In 2003, The Directors’ Council was established by eight businesswomen as a private company to would provide search and recruitment services for corporate boards to increase independence, effectiveness and diversity. Their database numbers have never been revealed.

Board Member Inc, the publishers of Corporate Board Member Magazine, maintains a comprehensive database of current directors and board chairs in addition to the top tier corporate executives: CEO, President, COO, CFO, CIO, CTO, General Counsel, and Corporate Secretary. The Director Database selects firms from those listed in the NYSE, NASDAQ, and AMEX exchanges. Approximately 53,000 officers and directors are listed, with over 60 data fields of information drawn from SEC filings, company websites, press reports, data analyst reports, and corporate officers and directors, themselves.

The Corporate Library’s Board Analyst service “offers full coverage for virtually all public companies of the S&P 500*, S&P MidCaps 400*, S&P SmallCaps 600*, Fortune 1000*, Russell 3000* and S&P/TSX 60*. You'll find information on corporate boards, directors, executive compensation, insider trading, shareholder proposals, securities class action filings and more.”

Stanford Corporate Governance Program has a director database drawn from attendees/graduates of their director training educational seminars, as does UCLA’s Director Training program, Wharton’s, University of Chicago, and probably most of the 57 US director training programs around the country.

That doesn’t include the 12,000 names of women interested in corporate director roles on the Women in the Boardroom contact list, let alone the databases from hundreds of women’s organizations focused on finance, accounting, law, technology and management leadership. And, that doesn’t even include the Institute of Directors with all its international chapters or the Canadian Institute of Corporate Directors.

Apparently, all of these databases just don’t cut it with Calpers. The real issue is this: “Maybe we don’t need one more database. Maybe we need to use the hundreds of databases we have more effectively.”

UK Financial Change

U.K. Chancellor George Osborne in the annual Mansion House announced plans to implement, by 2012, new financial regulatory policies proposed by the Conservative party.  Details were submitted to Parliament on Thursday by the Financial Secretary, Mark Hoban.

Speech by The Rt. Hon George Osborne MP at The Lord Mayor’s Dinner for Bankers & Merchants of the City of London by The Chancellor of the Exchequer (Mansion House, June 16, 2010) (See: speech)

First, the Bank of England would absorb the Financial Services Authority’s (FSA) responsibilities for oversight of banks, investment banks, building societies and insurance companies.

Second, the Bank of England would establish a new “Prudential Regulatory Authority,” a legally separate subsidiary within itself to provide macro level oversight of the economy,  anticipate threats to economic and financial stability, and take effective action as warranted.

The current head of the FSA, Hector Sants, will oversee the transition and become the first new BOE Deputy Governor for Prudential Regulation and CEO of the new entity under Chairmanship of Mervyn King, Governor of the BOE.

In addition, the BOE will establish a new Financial Policy Committee to parallel its existing Monetary Policy Committee, providing “focused regulatory oversight” of each key area.

Treasury Chief Osborne also proposed the creation of a "powerful new Consumer Protection and Markets Authority" to regulate every authorized financial firm providing services to consumers.

It is not yet clear whether the Bank of England or the new consumer protection entity would take over the Financial Services Authority’s enforcement authority, such as its recent case and fine of £33m against JP Morgan -- the largest-ever fine imposed by the FSA – for basic compliance failures over a seven-year period because the bank had not protected client money by segregating it from its own funds.

Fourth, another single agency would be responsible for tackling serious economic crime, consolidating functions currently dispersed across a number of government departments and agencies.

The Chancellor announced creation of an independent commission on the banking industry to “look at the structure of banking in the UK, the state of competition in the industry and how customers and taxpayers can be sure of the best deal.”  See: commission.

The commission is to be chaired by Sir John Vickers, former Chief Economist at the Bank of England, member of the MPC and Chair of the Office of Fair Trading. It shall report back by September 2011, including whether Britain's big banks should be split up. Also named to the commission were Martin Wolf, columnist on the Financial Times; Clare Spottiswoode, chairman of the gas regulator Ofgas; Martin Taylor, formerly chief executive of Barclays; and Bill Winters, a former executive at JP Morgan.

The proposals explicitly dissolve the tri-partite system established by Gordon Brown in 1997, where authority was divided between The Bank of England, the FSA and the U.K. Treasury, as a structure deemed incapable of timely response to the latest financial crisis.

The changes in authority would give Bank of England Governor Mervyn King a more comparable role to U.S. Federal Reserve System Chairman Ben Bernanke.  Both are responsible for setting interest rates and monitoring inflation. Financial regulatory proposals in the US also envision the creation of an entity to monitor “systemic risk” and a separate entity responsible for “consumer protections.”  The US proposals envision the elimination of the Office of Thrift Supervision. The Vicker’s commission may propose the break-up banks deemed “too big to fail,” which would contrast with the US proposals to establish a bank-funded pool to bail out such entities if needed in the event of future crises.

Saturday, June 12, 2010

Financial Reporting Council

The UK Financial Reporting Council (FRC) last month named Baroness Sarah Hogg as chair. See: http://www.frc.org.uk/about/board.cfm. The Financial Reporting Council is the UK’s independent regulator responsible for promoting high quality corporate governance and reporting to foster investment.  They just released their revisions to the UK Corporate Governance Code and soon will be coming out with a Stewardship Code for Institutional Investors.  Two enlightening paragraphs from the UK Corporate Governance Code are these:

"Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place. The responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship. The board’s actions are subject to laws, regulations and the shareholders in general meeting."

"Corporate governance is therefore about what the board of a company does and how it sets the values of the company, and is to be distinguished from the day to day operational management of the company by full-time executives."

Monday, June 7, 2010

Do I HAVE To Know Finance or Accounting?

At a number of conferences and seminars oriented to women interested in public company board roles, I often hear the question: "Do I HAVE to know finance or accounting?" 

How could we respond to this question, diplomatically?

The first answer to this question is -- if you can’t stand the heat ….

If you don’t like learning, then probably pursuing a board-oriented career isn’t your cup o’ tea. If we believe that leadership on a corporate board could be handled by people with no knowledge of the basics of financial reporting, analysis and risk-assessment, then probably we will end up with the quality of corporate boards we deserve.  If some directors on public company boards were to defer to the judgment of other directors, in the area of finance or accounting, then that means the deferring directors have only part of the competence required to represent 100% of the investors/shareholders. 

The second answer is -- it’s not rocket science ….

Pretty much everything we touch in our lives, today, requires some basic financial literacy.  If we do not have the most essential of financial skills -- as employees or employers, as managers or as parents – how can we expect to make responsible decisions about all of the money-matters we encounter throughout our lives?  Is it possible that decisions made about “interest-only” mortgages in the past 5 years, by otherwise intelligent individuals, is a mirror of our naïveté in managing our own fiscal decisions?  How hard is it to acquire a basic set of quality financial tools as part of an essential kit bag of competencies? 

The third answer is -- there are plenty of places to begin learning financial or accounting knowledge. 

Begin with your basic bookstore or online store to find introductory books on financial essentials or accounting basics.  Move forward to your community college or extension program, where you will most certainly locate courses on “financial statements for the non-financial professional.”  Attend the local events of your “Financial Women’s Professional Organizations” which include women in accounting, women in finance, women in real estate or law – all of whom MUST understand the money issues or they will not succeed.  Online, you can take webinars from the top tier accounting firms or financial advisory firms.  You can focus on COSO (from the Treadway Commission), or IFRS (from KPMG) or a host of other alphabet soups of accounting/financial acronyms.  You can link to finance and economics blogs discussing derivatives and swaps, or Basel III recommendations, leverage and capital requirements.  You can watch videos of presentations before the FCIC on credit ratings agencies.  What do you NEED to learn?

The final answer is -- yes, we most definitely need you to learn finance and accounting.

We need businesswomen who understand the fundamentals of financing their business growth -- whether it be  lending or leverage or equity.  We need women who understand the trilogy of consumption-SAVINGS-INVESTMENT, not simply the first.  We need women with the ability to translate complex GAAP gibberish into the Queen’s English of risks, rewards, rights and responsibilities of financial performance.  We need women entrepreneurs who understand that profit is not original sin, but is the surplus value created from the sweat of one’s own brow and the collaboration of powerful team-members.  We need women willing to invest in their financial education and the financial literacy of the next generation of investors.

If any of this doesn’t make sense to you (alphabet soup, especially), then that is where you start learning.  That is what you need to know about finance and accounting.  Let’s get focused on what you can learn, not on what you can avoid learning.