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Director’s Domain

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September 27, 2018
The era of accountability. Just about everywhere you look, cultural shifts and demands for greater corporate responsibility are remaking boards and rewriting governance standards. The CBS board, still reeling from the forced departure of CEO and chairman Les Moonves amid sexual harassment allegations, learns its lead independent and one other director are stepping down unexpectedly, even as the company names a new interim chairman. Shareholders again attack Mark Zuckerberg’s dual role as CEO and chairman of Facebook in the wake of the overnight resignation of Instagram’s CEO and CTO. The board of gun maker American Outdoor Brands, having lost its battle against a shareholder proposal, is required to produce a safety report. Michigan State University’s board of trustees is the focus of protests by students and others concerned that the trustees did not do enough to protect students from former sports team doctor and convicted sexual abuser Larry Nasser. In other news, the Merck board tears up its age-limit policy to keep CEO Kenneth Frazier on as CEO. England’s Labour Party would require workers representatives on all boards. A study of shareholder activism in the U.K. shows that companies with more female directors are less likely to be targeted. And a U.S. law firm suggests that given the increased public attention paid to sexual harassment, corporate culture, gender pay gaps, and diversity, boards should see it's time to be proactive not reactive on these issues. Hear, hear.
March 15, 2018
It’s hardly news that CEO salaries have grown handsomely in recent years. Still, with new SEC rules requiring companies to explicitly state the difference between the chief executive and median worker salaries, outsize salaries are turning heads, as media outlets point fingers at company after company stating sizable pay differentials. Our first thought: Armed with all this data, it wouldn’t be surprising to see shareholders take aim at big pay packages. Indeed, Disney shareholders this week voted for the first time ever against a proposed pay plan for CEO Bob Iger. In other news, Goldman Sachs makes public its succession plan for the top job. The SEC charges Theranos CEO Elizabeth Holmes with committing massive fraud and separately charges a former Equifax executive with insider trading based on his early knowledge of the firm’s cyberbreach. The Wynn Resorts board is sued by the State of Oregon and two directors signal their departures. On another subject: For those curious about director liability in light of recent cases of corporate misconduct, we found timely insights in this post by two legal scholars at Berkeley Law. It is a synopsis of their paper, The Hidden Power of Compliance, which examines “four mega scandals: the General Motors ignition switch failure, the Washington Mutual collapse during the financial crisis, the security breach in Yahoo, and Wells Fargo’s fake accounts fiasco. While legal and compliance personnel are at the heart of the inquiry in all cases, their interaction with the board in each setting is different, changing the liability outcome.”
February 22, 2018
The fallout from alleged sexual misconduct rattles corporate America and increases pressure on boards again this week. Ford executive Raj Nair admits to inappropriate behavior and steps down. Guess Inc. cofounder and chairman Paul Marciano takes a leave amid allegations of sexual harassment. Thomas Schumacher, the leader of Disney’s theatrical division, whose production of “Frozen” opens on Broadway today is accused of lewd behavior. The board of Wynn Resorts announces that former CEO Steve Wynn is not eligible for a reported severance package of $330 million. And a lawsuit against the Weinstein Co. prompts the board to fire the COO and complicates a potential sale of the company that had promised to remake the board as a woman-only entity. These cases and the many others that have arisen in recent months have cost corporate America money, share price, employees, and reputations, and are leading boards to take very seriously their responsibility to prevent misconduct and ensure a safe workplace. Commenters suggest that while more diverse boards are one step in the right direction, seating women and people of color on boards, alone, cannot combat entrenched cultural issues. Instead, experts suggest a 5-step approach boards should take to ensure appropriate disincentives for bad behavior are in place. In other news, the CEO of Gap Inc is out after failing to boost profits. Slack builds its board, driving speculation it is preparing for an IPO. And activist investor Nelson Peltz takes his seat on the Proctor & Gamble board.
February 08, 2018
Let this sink in: “We simply expect much more of boards of directors than ever before.” So said incoming Federal Reserve Chairman Jerome Powell in August. This week, Powell and outgoing Fed Chair Janet Yellen underscored that message as the Fed announced it is restricting Wells Fargo from growing its business until it addresses its governance shortcomings. The regulators also unofficially but unambiguously forced out four directors who had been on the bank’s board as its multiple scandals unfolded. Former Treasury Secretary Lawrence Summers jumped right in to ask why the Fed didn’t name names—and made a case for the public shaming of board members who fail in their duty as watchdogs. Others echoed the sentiment, and commentators suggested the action against Wells Fargo’s board should be seen as a warning shot over the bow of all corporate boardrooms, especially banks. Critics took aim, too, at the Wynn Resorts board which some suggest was filled with cronies of CEO Steve Wynn and failed to provide adequate oversight; Wynn stepped down this week amid allegations of sexual harassment. Canadian active wear company Lululemon also lost its CEO to unnamed behavioral issues presumed to concern employee relations. And Sheryl Sandberg’s LeanIn.org finds that the spate of CEO dismissals in the #MeToo era is scaring some men from mentoring women colleagues, even as women contend with a narrower path than men to the C-suite and, as yet another study points out, the boardroom.
September 29, 2017
Clearly, boards today face bigger challenges and more public attention than ever before. Just consider a few items from this week's news: At Equifax, the board not only said goodbye to its chairman and CEO Richard Smith and began a search for his replacement, but it is diving into an investigation of the data breach that exposed the personal information of 140 million or more people, as Congress conducts its own investigations. At Facebook, CEO Mark Zuckerberg and his board withdrew a class reclassification proposal in the face of a shareholder lawsuit and a Congressional inquiry into the company’s dissemination of “fake news;” the new classes of stock would have enabled Zuckerberg to maintain control of the social media behemoth while selling his shares. At Procter & Gamble - one of the many companies dealing with activist incursions - the fight to keep Nelson Peltz off the board has led the activist investor to launch a full-on persuasion campaign, with the former CEO and directors of Heinz, as well as shareholder advisory firm Glass Lewis, now pleading Peltz’s case in the media. On a positive note, Salesforce CEO Marc Benioff was recognized for his role in closing the gender pay gap at the company, at a cost of $6 million (and an undoubtedly huge savings in potential lawsuits and PR headaches had he not chosen to do so). In other news, a new report suggests that when sitting CEOs take on outside board appointments, they tend to be handsomely compensated and their own companies tend to perform well—but the companies on whose boards they sit do not always enjoy similar success. All of which would suggest that it's a good time for boards to apply some basic risk management principles to the board itself: Step back and consider whether you have the right people, processes, and priorities in place today to deal with whatever comes your way tomorrow.
September 14, 2017
Another week, another board facing the fall-out of a tech company’s alleged culture of sexual harassment. Times two. Media reports suggest that board members at Social Finance, a fintech startup valued at $4 billion, had been informed about accusations of sexual harassment and also of financial misrepresentations to investors long before CEO Mike Cagney offered to resign on Sunday. The New York Times presented a blunt assessment: “Companies like SoFi show how boards are incentivized to prioritize cash flow and growth over governance, said David F. Larcker, a professor at Stanford University’s Graduate School of Business who specializes in corporate governance.” Apparently a culture of sexism and workplace hostilities led the board to fire LiveOps CEO Keith Leimbach this week, as well. Both cases, which have a striking similarity to the summer's events at Uber, underscore the real costs to a company, its employees, and its investors when a company's culture takes a backseat to its growth. Melinda Gates offered up her opinion on sexism in tech this week, which we might summarize as: It’s good we’re finally talking about it, since that is the first step to changing it—and the place to start that change is with venture capital. Kudos to Gates for not just naming the problem, but working toward a solution! And, now might be a good time to have a look at the latest from the Boardspan Library: “Six Ways to Promote a Healthy Company Culture," which provides a roadmap for boards that want to assess company culture. If it wasn't obvious before, it's certainly crystal clear today that culture is an indicator of value and the board owes it to all constituents to make oversight of the company culture a priority.
August 17, 2017
Politics landed in corporate boardrooms this week, with a thud. On Monday, Merck CEO Kenneth Frazier, after talks with board members, resigned from one of President Trump’s business advisory groups to “take a stand against intolerance and extremism.” The CEOs of Intel and Under Armour soon announced their resignations from the president's council on manufacturing, too, after the president blamed “many sides” for the white supremacist violence in Charlottesville, Virginia. A comment posted Tuesday night on a New York Times article about the resignations caught our eye: “I'd imagine there are plenty of emergency board meetings going on right now with the actors deciding what to do.” It does seem “Ed from Silicon Valley" was on to something: By midday Wednesday, several more CEOs had publicly departed the presidential council, as civil rights activists pressured others. Then the members of Trump’s Strategic and Policy Forum—a separate group of high-profile executives headed by Blackstone Group CEO Steven Schwarzman—disbanded rather than find its members pressured to decide, individually, whether to stand by the president. As commentators remark, the political tensions in the country mark a new challenge for corporate leadership…. Meanwhile, Uber's directors appears to be locked in a battle for control of the company, and are firing off lawsuits, accusatory letters, and, allegedly, attempts to oust fellow directors. Wells Fargo announced that three of its longest tenured directors, including its chairman, will step down—and Betsy Duke will become the first woman board chair of a major bank. Plus, a new study of CEO pay suggests that smart bets on technological innovation tend to pay off handsomely for executives.
June 29, 2017
Another week, another firestorm thanks to a spectacular lack of decent behavior. Silicon Valley venture firm Binary Capital has been asked to exit the boards of several startups after six women came forward to accuse partner Justin Caldbeck (lead investor in GrubHub and TaskRabbit) of making inappropriate sexual advances. Knowing that a female CEO had him removed from her board years ago for unacceptable behavior makes the situation even more troubling. Meanwhile, Uber watchers accuse its board of looking the other way while the company’s leadership engaged in unethical and illegal behaviors: commentators say the board forced out CEO Travis Kalanick not because they cared about the company’s many alleged improprieties but because they worried about their investment value. And the allegations against Uber piled on with court documents claiming the board knew that the company was receiving stolen technology, and other sources reporting that Kalanick’s parting shot was to force Benchmark’s Bill Gurley off the board. Whew, that’s a lot of boardroom drama! To add insult to injury, another disappointing study was just released showing that men still have an easier time than women getting their first board seat. Now might be the time to take a deep breath and focus on how core values in the boardroom affect a company’s profitability, (see our featured article from the Boardspan Library). Executives and board members alike need to recognize that values will always have an impact. Act with integrity – or count on disaster.
March 02, 2017
“Culture starts at the top.” The adage, which applies to management and boards alike, is something the boards of Uber, Wells Fargo, and others are likely grappling with this week. Commentators are prodding Uber’s board to probe into allegations that the car-service company has fostered a culture of sexual harassment and to consider whether CEO Travis Kalanick, who was recently caught on video disparaging an Uber driver, is the right man to lead the $69 billion company. Wells Fargo’s board meanwhile slashed bonuses for the whole executive team to “reinforce accountability of the company's leadership” following last year’s sales scandal, in which more than 2 million fake accounts were created by employees trying to reach mandated quotas. Certainly allegations of widespread unethical and/or illegal behavior should prompt a board to hold executives accountable and to press for meaningful cultural change. Even better would be for boards to take a proactive stance regarding culture and accountability—and avoid the scandals all together! Some basic suggestions to help any board get in front of these issues: Commit to transparency; pursue rumors or complaints until the board is satisfied it knows the truth; refresh directors frequently enough to avoid cronyism and complacency; and regularly undertake assessments of both CEO and board. It wouldn't hurt to meditate on that old adage, either, and assure yourself that the board is setting the tone you want others to follow.

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