Monday, October 21, 2013

A Little Something For Everyone

One area where women might have a shortage of experience, at least relative to other director candidates, would be the annual general meeting (also called the shareholder’s meeting or the proxy meeting).  A great introduction to this important part of public company performance is RR Donnelley’s 2013 Annual Meeting Handbook written this year by Craig Garner and Chris Geissinger of the San Diego offices of Latham & Watkins. The subtitle says it all: “Providing a General Overview of State and Federal Laws and Stock Exchange Rules Relating to Annual Meetings of Shareholders.”

Unlike many other “print-dominated firms” of the past, RR Donnelley has expanded and enhanced its focus to include extensive governance and financial services. 

The Handbook begins with a high-level overview of significant legislative provisions that might impact corporate filings and shareholder meetings in the current year.  First and foremost is a brief summary of The Jobs Act (which provides filing/procedural exemptions for newly-defined “emerging growth companies” – those with less than $1 billion gross revenues), followed by a summary of the significant Dodd-Frank Act provisions and the implementing SEC rules/regulations that will impact every other filer (heavily-weighted in 2013 by new compensation requirements). Finally, it describes how significant shareholder lawsuits might guide or constrain corporate actions and/or meeting activities.  

Next comes a summary of the array of requirements for annual meetings that originate in state corporate law, federal securities laws, exchange listing rules, and corporate charter and bylaw provisions.  Mandates covering proxy disclosure arrived with the Exchange Act of 1934 and subsequent SEC rulemaking.  The latest steps include the February 2008 SEC rule-making provisions “to facilitate the use of electronic shareholder forums.”

Detailed requirements of proxy materials, notice, content, voting are covered in depth in the next chapter, Federal Proxy Rules and The Proxy Statement. This chapter is a comprehensive “everything you need to know” about drafting or understanding proxy statement content. A separate section explains how the SEC regulators receive and review the material submitted in proxies, followed by comparable reviews conducted by the major listing exchanges.

The Annual Report to Shareholders is described in the next chapter as “… a different document than the proxy statement and the Annual Report on Form 10-K that public companies must file with the SEC, and is subject to much less regulation and supervision by the SEC.”

Shareholder Proposals, their content and review are covered next, describing how shareholders may submit issues for consideration in the annual meeting and the pre-conditions shareholders must meet before their proposals will be considered.  How proposals might be excluded by either the company or SEC review is well-presented.

Preparing for the Annual Meeting contains a checklist of all preliminary requirements as well as location, deadlines, order of business, content and procedures – both anticipated and unexpected.  The formal transaction of business at the annual meeting is outlined in detail along with follow-up reporting requirements.

In 2000, Section 211(a)(1) of the Delaware General Corporate Law allowed “boards of directors of Delaware companies that are authorized to select the location for their annual meeting to determine that the meeting not be held at a physical location, but instead be held solely by means of remote communication.” Thus, a new consideration relates to managing the electronic shareholder meeting processes, including concurrent or supplemental broadcasts.

If you are a new director candidate, the RR Donnelley 2013 Handbook provides an excellent introduction to everything that a board member needs to know about the shareholder meeting and supporting documentation.  If you are an experienced director, it gives a high level overview of key current issues that need to be addressed or considered in the 2013 proxy season filings. If you are a member of the senior management team of a public company, it provides guidelines as you prepare the company and its documents for the public screening of the annual shareholders’ meeting.

Analysis by Emotion

Sometimes, in the face of pure and simple numbers, researchers still have a propensity to put their hearts before their heads in the interpretation of cold, hard data.

My goal has always been to foster intellectual curiosity and enhance the analysis of corporate governance issues and resources. I try to go behind the popular (and sometimes fanatical) headlines that too often characterize corporate governance debates. In other words, to get people thinking and talking more broadly about current governance issues by tapping a variety of resources that might shed light on a given governance subject.

One such example might be The Conference Board (TCB) with its rich resource of boardroom information. We might not know about TCB if we simply assumed that the organization was only a bastion of elite, elderly corporate white hairs. By delving deeply, with an open mind, we might discover the TCB Proxy Voting Fact Sheet which analyzes the proposals submitted to public corporations during the annual proxy season, who submitted them, what subjects, who voted how, what proposals were withdrawn, and many other significant data points of value to any person trying to understand how well these once-a-year submissions work.

The reader is directed to the TCB web site, to sign in and download the 2013 report at:

The report shows, clearly, how the "proxy season" runs from January to June each year and that the bulk of proxy proposals inundate boards in May of each year. TCB tracked 2,442 Russell 3000 firms and 440 of the Standard & Poor's 500 firms which held annual general meetings where proposals were considered. Finance firms held the greatest number of meetings (601 or 24.1%), while communications firms held the fewest (37 or 1.5%) of the Russell 3000, which is known to be heavily weighted by technology firms.

A total of 1,370 proxy proposals were recorded by TCB, of which 763 (55.7%) were submitted to Russell 3000 firms and 607 (44.3%) were submitted to S&P firms.

It may surprising some to learn that individuals submitted the most proposals (over a third), followed by public pension funds and labor unions, then hedge funds, religious groups, and other stakeholders (including environmental, social and corporate governance activist groups).  

Over a third of the proposals submitted (38%) pertained to corporate governance issues - such as proposals to declassify the board (nearly all of which were submitted by the Harvard Law School Shareholder Rights Project) and proposals to split the chairman and CEO positions. Over 71% of corporate governance proposals made it to a vote.

Another 19% of all proposals submitted concerned executive compensation, with 59% making it to a vote.  Most proposals sought to require an equity retention period for executives and/or directors, followed by proposals favoring a shareholder vote on severance agreements.

Social and environmental policy issues represented about 34% of proposals submitted, while 63% of those made it to a vote. The dominant social/environmental topic was political contributions followed by environmental issues.  ONLY 2 proposals were submitted on the topic of board diversity, and 56% of the votes cast were negative.  Yet, TCB analysts managed to eke out the following conclusion which implied far more support than indicated by the actual, factual evidence:

"Among social and environmental policy proposals, the topic with the highest average support was on board diversity (seeking to ensure that women and minority candidates are included in the pool of nominees), with an average 35.1 percent of for votes for two voted proposals."

So much for analysis by emotion.

I Expect More of My University

I take a lot of flak because, generally, I don’t buy into the idea that quotas help us overcome bias, discrimination or prejudice in the workplace or on boards.  Anybody who knows me, however, recognizes that I have zero tolerance for bias, discrimination or prejudice and that I consider these behaviors to be archaic and a small-minded form of bullying not to be tolerated. It does not matter if the target is women, African-Americans, Latin-Americans or people of different religious backgrounds.  In my book, there simply is no excuse for this behavior in a modern society.

So, it really hit me hard to read, this weekend, about a review authorized by UCLA Chancellor Gene D. Block in 2012, to determine if allegations of racial bias and discrimination by faculty were valid and if existing university policies were adequate to address these problems.  The findings were that “university policies…. were vague and insufficient,” that “procedures for addressing such complaints were practically nonexistent,” and that UCLA had “failed to adequately record, investigate, or provide for disciplinary sanctions for incidents which, if substantiated, would constitute violations of university nondiscrimination policy."

It hit me hard because this is the university of Jackie Robinson and John Wooden.  We have no excuse for this behavior on the part of our faculty leadership. We have no excuse for tolerating this treatment of our fellow students or faculty.  This is unacceptable.

Do we need quotas to fix this problem?  Do we really need yet another “diversity officer” on top of all of the other so-called diversity officers that already exist within the university structure? Do we really need more policies and procedures?  More sensitivity training?

What we really need is a little more light on the offenders.  If there are faculty members at UCLA who do not value their peers because they might be slightly different, we need those faculty members to leave.  They must understand that the university system has the final say on the credentials and choices of valuable professionals. It is not the job of faculty members to dispute those decisions, secretly, through behaviors that potentially mistreat or denigrate their peers as human beings.  It is one thing to disagree with a person, to debate and to discuss divergent perspectives or views.  It is entirely something else to suggest that one person is superior to another because of some token external trait.

If a faculty member behaves in a biased, prejudicial, or discriminatory manner, the channels of review at UCLA should be clear, crisp and brutal in their rejection of that individual’s behavior up to and including rejecting of that individual as a member of the UCLA family.  How can we make this any clearer?  There are Faculty Senates, Departmental leadership structures, and channels into the Chancellor’s office that SHOULD have provided diverse faculty members with the process to correct these behaviors. If those institutions failed to protect those diverse faculty members then they have failed us all as students and alumni/ae.  Adding one more layer of diversity officers on top of that slag heap will not make it smell any better.

Chancellor Block gets credit for at least conducting a high-powered review.  His predecessor chancellors deserve the stigma of allowing this bullying to fester.  The real need is for UCLA’s faculty to stand up and do the right thing, rather than delegate or dump the responsibility for fair treatment and respect on someone else’s doorstep.  The UCLA faculty know who is behaving in this manner.  

What is missing is the courage to call the bully out.  What is missing is backbone.  I expect more of my university.

Friday, October 4, 2013

Falling Walls Lab LA 2013

UCLA hosted a very creative event last night, the culmination of several months’ work in collaboration with The Falling Walls Foundation of Berlin, Germany. The event was a series of 3 minute pitches by 14 creative candidates, selected from 50 for the LA competition.  Three finalists were chosen by a jury of six talented and diverse professionals. The finalists will compete as a group of 100 in a global pitch-off to select the “Falling Walls Young Innovator of the Year” in Berlin, November 8 and 9, 2013.


The Falling Walls Lab Los Angeles is the work of the UCLA Office of Research, (led by James S. Economou, M.D., Ph.D) together with the Falling Walls Foundation (led by Anne Lorenz, Head of Programme), with the support of A.T. Kearney and KWS Saat.

The Los Angeles Lab winners were:

3rd place - Jerrid Matthews with a phone app to guage UV exposure toward anticipating skin cancer risk
2nd place – David Hsieh with a novel approach to treating early stage cancer mutations
1st place – Kevin McFarland with a digital assessment application for results-based education

These three will have their expenses paid to join other candidates from other qualifying labs in Sao Paulo, Brazil; Moscow, Russia; Johannesburg, South Africa and London, UK.  Los Angeles Lab is the only US representative.

This was a quality pitching experience. Not only were the candidates well coached in their presentations, but they were very professional during the Q&A as well.

Some of the candidates were at the very early concept design stages: Robert Hughes working on no-fault coercion as an alternative to penalties in the law; Panagiota Kaltsa’s idea for a social-media whistleblower app to flag instances of governmental corruption; and Nidhi Taneja’s reward-based app to incentivize people to make better healthcare choices. A couple of the candidates spoke about research ideas that were still in the labs, suggesting intriguing approaches to major contemporary problems.  Among these were Yitong Zhao’s work enhancing algal biofuel productivity; Marcus Roper’s idea of tapping the wisdom of mold as a mathematical solution to traffic congestion; Seth Dorfman’s work with space plasmas; and third-place winner David Hsieh’s strategy to eliminate cancer cell mutation processes. Some candidates have business entities in progress or operation.  These would include Eric Curry’s Pets, a pet care service provider; Christopher Girdwood’s Recovery Pledge Inc.; Samuel Hampsher’s CO2 based geothermal system at GreenfireEnergy; second place winner Jerrid Mathews’ UV Guardian for personal sun exposure monitoring; and first place winner Kevin McFarland’s SmartestK12 providing digital student assessments. Two candidate have a product idea that might be ready for prime-time at major US ports – Jeffrey Bell’s solar-driven particulate air filter system and Eipe Koshy’s water-borne wind powered vessels.

The “neat thing” about the ideas presented at last night’s event is that they all have real world value and potential.  The candidates were selected because their ideas potentially are “disruptive” – just as the Fall of the Berlin Wall on 9 November 1989 realigned the world as we knew it. In like manner, today’s Falling Walls Foundation will change the world of tomorrow by “building and promoting interdisciplinary connections between excellent academics, entrepreneurs and professional from all fields” and from all over the globe.

Thursday, October 3, 2013

On the Horns of a Dilemma

Once again, I find myself on the horns of a dilemma. On the one hand, I'm talking with uber-enthusiastic women with extensive financial expertise about their desire to bring more women into the angel and venture capital space (seed the supply side) to invest in promising women-owned businesses (grow the demand side). It is easy to conclude that, if anyone can accomplish the former goal, these are the women who could do just that.

On the other hand, I look at the businesses that today's women are building, and I must conclude that there is a sizable disconnect between what is being presented for investment and what would be considered worthy by the investment community. This is true of women investors, not just men. We can create all the women angel investor pools that money can buy, but if we do not also create a viable pool of profitable women enterprises, we will continue to see the tiny percentages everywhere.

By way of an example, I spoke to a group of well-educated women entrepreneurs, asking them "What businesses would you consider building?". Their answers were: "I don't know," "Something meaningful," or " A business for babies."

It was not my place, at that occasion, to critique or challenge their opinions. However, if we are serious about building women-owned enterprises, worthy of investments with expected returns, then we need to do a better job of bringing economic realities to the current generation of business-potential young women. Maybe even to their older sisters, as well. What would that better business education look like?

There would be five core competency courses:

Problem - Solution analysis
Customer - Revenue nexus
Team building
Executing up to scale
Returns to investors - the "end game"

Problem - Solution Analysis

Out of the gate, we need a course to get potential women entrepreneurs to think about how the Problem and the Solution uniquely define the product and customer. The Problem is the pain, ache, dilemma, barrier, obstacle or significant need which you feel personally, as an entrepreneur, and which a large enough cohort of peers also feel intensely. "A business for babies" is not a clear problem statement.  Women argue they have a host of problems raising kids, but the challenge is to hone in, laser-like, on the specific real-world problem amenable to a solution with a significant revenue-potential and which has not been developed by competitors in the marketplace. "Something for babies" is simply a heart-felt statement and lifestyle wish. It is not the foundation for a business.

A computer game to correct early childhood "lazy eye" is a potential business. Blankets or cushions designed to reduce the risk of crib deaths is a promising entrepreneurial area. This first class would teach women how to think more concretely and define clearer problem-solution sets.

Customer - Revenue Analysis

The second course would address the Customer - Revenue nexus. Who is willing to pay how much for your entrepreneurial solution? What are all of the component costs to produce your solution - from fabrication to marketing to delivery plus your compensation and that of your employees?

Parents buy products and services, not babies. Customer profiles must focus on who has the need that is so clear and pressing as to justify paying for this solution as opposed to any other option in the marketplace - including the "do nothing" alternative.

Too often, a woman entrepreneur will tell me, "I don't want to just make money. I just want to do something meaningful." Where do women get the idea that poverty is "meaningful?" Have they ever experienced life without an income? How did they determine, in fact, that scrimping between food stamps was a state to which they might actually aspire?

The arrogance of "I don't need money" comes from a scenario where someone else is feeding and clothing them and putting a roof over their head. It is not pretty being somebody else's charity case.

"Meaningful" is being able to stand on your own two feet, earn a reasonable income that compensates for the value you bring forth. "Meaningful" employment includes reasonably competitive compensation so that you and your families can put "meaningful" food on the able and pay rent or mortgages for "meaningful" housing. "Meaningful," in business, is being able to earn a return, over and above what is required to give all input elements their appropriate, fair and reasonable returns.

Making a profit is not original sin. It is generating some return that can be used to grow the business, serve additional customers, and compensate more employees for their productivity. Profits make R&D possible, which allows for the creation of new and innovative solutions to more problems.

The concept of "meaningful" typically bandied about by some women entrepreneurs, today, simply suggests their lack of experience with the realities of the business marketplace.  It is a conversation about a "foreign country." They need to immerse themselves in that culture to better understand its breadth and depth.

Team Building

The third course would be Team Building. Ninety percent of all women businesses are sole proprietorships - one woman shows. Women need more experience working together in order to recognize the difference between effective, successful teams and failing teams.  Too many women-owned businesses continue to be "lifestyle" or "hobby businesses" - activities for women who need something to occupy their time and attention.

Women need to learn focused collaboration. Not the wine-glass-in-hand networking or the tie-dyed-t-shirt advocacy or awareness-demanding events that dominate women's agendas. Those are social exercises that hold little value and convey little knowledge.

Women have to learn how to build a partnership of two or a team of three, then grow further by consciously tapping the valuable and unique expertise that surrounds them. Women need to guide the ship of their business idea by fully utilizing the talents of a crew dedicated to the same strategic journey.  When differences of opinion arise, women entrepreneurs have to navigate the diverse views into a course correction or strategic business pivot. They cannot simply slam Susie's reputation, then take their dolls and go home a huff.

Execute to Scale - Growth Strategies

The fourth course for women business entrepreneurs must help women Execute to Scale. This teaches entrepreneurs how to grow their business, capture the rewards of economies of scale and scope. Women need to learn to execute incremental growth plans, through new customer acquisition, new product development, or other beat-the-competition innovations.

It's not enough to keep the Lemonade Stand as a small monopoly on the corner. Women-owned businesses need to envision a much larger journey to financial and economic success.

Returns on Investment - The End Game

The fifth course would prompt women-owned businesses to contemplate their desired End Game. What is the destination: a buy-out, an IPO or assimilation into a larger entity? Quo vadis? Whither? Why and how will she navigate this ship to its ultimate destination? How will she measure success?

If she has no concrete ambition, then why would any investor (male or female) put time, money, or effort forward for her benefit? Aren't there scores of other more worthy, more competitive, and even hungrier entrepreneurs at every turn?

Women who have acquired this knowledge - whether in the school of hard knocks or by more traditional training - merit the attention of angel and venture investors because these are the women building enduring, successful enterprises for tomorrow's economy - and as the inspiration for the next generation of young women leaders in business.

Chicken or Egg?

It is not a chicken vs. an egg dilemma. Angels don't have to come before entrepreneurs or vice versa. They both have to happen in tandem if we want to see real growth in net new business formation. While we work, on the one hand, to increase the number of new women as angel capital investors, we also need to ensure there is an adequate pool of quality, viable, investment-eligible women-owned businesses ready for funding.