8/17/23 – Issue 8.30 – Your weekly news on all things board. 

Last week, the Wall Street Journal reported that the first lawsuits against companies for their diversity initiatives were hitting the courts. What would be the outcome? This week, we got an answer.  A federal court dismissed a lawsuit claiming that Starbucks set unlawful minority hiring goals and vendor incentives. The dismissal does not bode well for other, similar legal challenges where activists are attempting to roll back company policies designed to increase diversity in the workforce. At the same time, nearly half of employees surveyed in a recent Harris Poll say that ESG initiatives in the workplace lack sincerity. Both of these things are reminders that even as companies win in court against activists, the board still needs to keep their eyes open to the reality of ESG in their organizations.

In other news, is “Founder Syndrome” a problem, and are boards the solution?; How independent directors bring an unbiased perspective to the boardroom; and 2023 proxy filings shed some light on 4 key trends in board compensation. 

In the Spotlight

Starbucks Prevails in Legal Challenge to Its Diversity Policies
Federal court dismisses lawsuit as frivolous

“A federal court dismissed a lawsuit accusing Starbucks executives and directors of violating their fiduciary duty to shareholders by supporting corporate diversity policies. The Friday morning decision in Spokane, Wash., is a setback for one of a handful of lawsuits that legal activists have filed in an effort to unwind companies’ policies aimed at increasing the proportion of women and members of racial or ethnic minority groups in their workforces and contracting corps.” THE WALL STREET JOURNAL

Starbucks Investor Loses Diversity Challenge

The NCCPR holds around $6000 in in Starbucks stock

“The National Center for Public Policy Research (NCPPR) sued in August 2022 over Starbucks' setting hiring goals for Black and other people of color, awarding contracts to ‘diverse’ suppliers and advertisers, and tying executive pay to diversity. The nonprofit…said those policies require the company to make race-based decisions that violate federal and state civil rights laws…Starbucks' attorney Gregory Watts argued at the hearing that NCPPR has condemned the ‘evils’ perpetrated by ‘woke’ corporate America, and that the group has made demands of many other corporations, including JPMorgan Chase and American Airlines Group Inc…Chief U.S. District Judge Stanley Bastian in Spokane, Washington, rejected the allegations at a hearing in the case on Friday, saying the lawsuit centered on public policy questions that are for lawmakers and corporations, not courts, to decide. ’If the plaintiff doesn't want to be invested in 'woke' corporate America, perhaps it should seek other investment opportunities rather than wasting this court's time,’ he said.” REUTERS

Employees Doubt Corporate Claims of ESG Progress 

New survey paints a grim picture of employee confidence in ESG initiatives

“Corporate directors often say they crave complete and unfiltered information about the companies they oversee. To that end, board members even visit company sites to chat directly with employees and gather intel on how well an organization is executing a strategy, and see for themselves the challenges workers are experiencing…A new survey by the Harris Poll and the Center for Sustainable Business at the University of Pittsburgh might save some travel time for directors curious about what workers really think of their company’s climate change efforts.…It finds that 43% of employees think short-term focus, lack of investor interest and leadership that is apathetic towards sustainability is a challenge for their company. And only about one-third of workers say their companies have made ‘significant strides’ toward hitting environmental goals. Perhaps most alarming? The line ‘Our leaders don’t believe in sustainability’ resonated with 40% of respondents.” FORTUNE

From Boardspan this Week:

Agile Boards of Directors: A Fad or the Future?

While some Agile principles work for boards, some are better left alone

"Born in the software industry, the Agile philosophy quickly moved beyond it, laying the foundation for a revolutionary approach to project management and product developments…Sitting at the apex of the organization, the board of directors creates a framework for executive action, guiding the CEO and other managers who run the business on a daily basis. The board appoints senior executives, defines their pay and evaluates their performance…Directors are expected to take into account the interests of all stakeholders – shareholders, employees, customers, suppliers, etc. – in a way that serves the company itself and ensures its sustainable development. Unlike Agile product development teams, directors should not rush to appease any particular stakeholder but strive to ensure harmony…While some Agile principles may be counterproductive and even risky in the boardroom, others could enhance directors’ effectiveness. Our research shows that good boards have been using such principles for decades…” INSEAD via BOARDSPAN

Across the Board

Strong Boards: An Antidote to Founder Syndrome
A strong leader’s assets can sometimes become organizational liabilities

“These founders are tremendous assets to their organizations. So the question is: When and why do these assets become organizational liabilities? Often the most influential trigger is found within the structure of the organization itself—specifically, the board of directors. It usually begins with the board’s origin story. Far too many boards have only a cursory understanding of their role in leading and governing their organization…It is at this moment that the seeds are planted for founder syndrome, not because of the founder but because of the relatively thoughtless structure built around them. Organizations can continue on for decades, adding more ducklings all along the way, often hand selected by the lead duck (founder).” STANFORD SOCIAL INNOVATION REVIEW

Independent Directors Are Steering the Governance Wheel

Independent directors are critical for bringing fresh ideas and unbiased perspectives to the boardroom

"Corporate governance is crucial for the smooth and efficient functioning of a business, and the driving force behind this governance is the board of directors (referred to as ‘the Board’). However, the Board faces numerous challenges when making executive decisions, particularly when it comes to balancing the interests of various stakeholders in the company. To address this issue and, amongst other things, represent the interests of various stakeholders including the minority shareholders, the Companies Act, 2013 (‘the Act’) introduced the concept of independent directors and the requirement that at least one-third of the total directors in every public listed company are independent directors and it also laid down requirements for their appointment and code of conduct to be adhered to by the independent directors.” THE NATIONAL LAW REVIEW

4 Key Trends in Board Compensation from 2023 Proxy Filings

Boards are customizing the pay mix to reflect expected contributions 

“With the onset of ‘The Great Resignation,’ the focus of many compensation committees has been attracting, retaining and motivating key executive talent to guide companies through economic uncertainty. Independent director compensation, however, is now on the minds of many board members as companies begin to adapt to a cooling labor market and consider their go-forward pay strategies…One of the most notable trends in board compensation is that companies are customizing director pay mix. It has historically been common for board members to be compensated through an annual cash retainer, annual equity retainer (whether in stock options or full value grants), and a variety of committee and meeting fees.” GRANT THORNTON

Opinion: Planes, Trains, and Corporate Governance

If a company is struggling from a service perspective, the board must be part of the solution

“I have long argued that the skills-based composition of a corporate board is critically important to proper board function. In addition to obvious independence from management, a wide range of talents that are tailored to the business of the corporation is vital to effective management monitoring. A recent set of travel experiences, oddly enough, drove this point home to me in an unexpected way. With travel resuming at the end of the pandemic, I found myself, after a long pause, subject to the will of the travel industry. What struck me was the significant deterioration in reasonable and basic customer service at some of those companies.” DIRECTORS & BOARDS

PGA Tour Chief Admits Mistakes in LIV Deal

Jay Monahan speaks out for the first time since his medical leave

“Monahan said he has spent recent weeks communicating with players to explain the deal and why the Tour is stronger than ever after ending its fight with LIV. ‘That conflict posed an existential risk,’ Monahan said. Monahan said the rollout of the agreement on June 6 was ‘ineffective’ and that he regretted not telling players about it beforehand. He repeated multiple times that he would have to regain the trust of Tour golfers, who have said the same. ‘I acknowledge my role in the ineffective rollout,’ Monahan said. ‘Over my two-and-a-half years as deputy commissioner, my six-and-a-half years as commissioner of the PGA Tour, I feel like I have gained the trust of the players. I understand this is a setback.’” THE WALL STREET JOURNAL

CEO of Walmart International to Retire

Walmart International sees a Female CEO-to-Female CEO transition

“Walmart Inc. on Wednesday said that Judith McKenna, president and chief executive of Walmart International, has decided to retire after 27 years at the big-box retailer. Starting on Sept. 11, Kath McLay, CEO of Sam’s Club U.S., will replace McKenna in that role, with Chris Nicholas becoming the president and CEO of Sam’s Club U.S. McKenna will stay on at the company until Jan. 31 to help with the leadership transition.” MARKET WATCH

Kraft Heinz Names New CEO

North American President Carlos Abrams-Rivera will take over Jan 1.

“Kraft Heinz’s North American president will become CEO of the food giant next year, the company announced Monday. Carlos Abrams-Rivera will take the reins Jan. 1 from Miguel Patricio, who has led Kraft Heinz since 2019. Patricio took over as chief executive as Kraft Heinz struggled with slumping sales, write-downs on a handful of its iconic brands and investor scrutiny over its business model. Under Patricio’s leadership, the company has tried to revive iconic brands such as Oscar Mayer and Maxwell House for younger consumers and grow its away-from-home business, with new products such as a customizable sauce dispenser for restaurants. But demand for its products has fallen in recent months as higher prices push away budget-conscious consumers and its competitors spend more on promotions.” CNBC

Fox’s Chief Legal Officer is Leaving 

Many question how Viet Dinh handled the Dominion defamation suit, other legal actions

“Fox Corp.’s top lawyer and a close aide to Rupert and Lachlan Murdoch is stepping down in the company’s biggest management shift since its $787.5 million settlement of defamation claims by Dominion Voting Systems. Viet Dinh, Fox’s chief legal and policy officer, will depart that role on Dec. 31 and become a special adviser to the company, the company announced on Friday. As part of his separation agreement, Dinh will receive a $23 million lump-sum payment. He will also be paid $2.5 million a year as an adviser under a two-year contract…Fox didn’t state a reason for Dinh’s departure, but people familiar with the matter, while stressing the parting was amicable, said it was largely due to unhappiness over his handling of the Dominion case and its outcome — the largest payout ever in a media defamation case.” FORTUNE

Seat at the Table

• Discover Financial Services welcomes to its board Michael Shepherd, former Chairman and CEO of BancWest Corporation

• Food and beverage brand J.M. Smucker elects to its board Tarang Amin, Chairman and CEO of e.l.f. Beauty; and Mercedes Abramo, Deputy Chief Commercial Officer of luxury goods retailer Cartier

• Whirlpool Corporation appoints to its board Rudy Wilson, President of Global Consumer Brands at SC Johnson

• Dollar Tree elects to its board Diane Randolph, former Chief Information Officer of Ulta Beauty

• Pharmaceutical solutions firm AmerisourceBergen adds to its board Werner Baumann, former Chairman, CEO and Chief Sustainability Officer at Bayer AG; and Lauren Tyler, Executive Vice President and Global Head of Human Resources at J.P. Morgan Asset and Wealth Management

• 3M welcomes to its board Audrey Choi, former Chief Sustainability Officer and Chief Marketing Officer at Morgan Stanley

• Tenet Healthcare elects to its board Roy Blunt, former U.S. Senator

• Neurocrine Biosciences appoints to its board Christine Poon, former Company Group Chair in the Pharmaceuticals Group of Johnson & Johnson

• IO Biotech adds to its board Heidi Hunter, former President of Cardinal Health

About Boardspan
Boardspan is the leading provider of digital governance solutions for boards across all sectors. Our cloud-based assessments, benchmarking analytics and governance education programs complement our board search and advisory services to deliver a holistic approach to governance. Boards of all sizes and stages rely on Boardspan to deliver analytics, insights and outcomes that improve their effectiveness and performance. Clients include KKR, The Kellogg Foundation, Ingersoll Rand, Farfetch, McAfee, Beyond Meat, Box, e.l.f. Beauty, Satellite Healthcare and the U.S. Olympic & Paralympic Committee.