Tag Archives: CEO

CEO turnover and succession planning

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HandShake

Selecting a new CEO is one of the board’s most important responsibilities and represents a critical moment in a company’s history. A smooth transition is necessary to maintain the confidence of stakeholders. This is why a well defined succession plan is needed.

The annual study, by Booz & Company, on CEO turnover among the largest 2 500 public companies revealed that in 2012, 15% of CEOs left office. This is the second-highest rate of CEO turnover since 2000. With this rate rising, companies are becoming more proactive about the CEO succession process. The amount of planned successions reached 72% in 2012, the highest in the 13 years history of the study and forced turnovers represented 19%, their second-lowest share ever. This indicates that companies take a more thoughtful approach to transitions and to ensure they put in place new leaders who will best serve the company for years to come. These new CEOs are for the most part familiar faces. Indeed, 71% were people already working in the company when they became CEO. This represents a significant decrease from previous years with an average share of insiders of 80%.

Interestingly, in planned successions, the share of insiders has dropped from an average of 82% between 2009 and 2011 to 70% in 2012. With careful and thoughtful plans, it seems that companies feel stable enough to take a bit of a risk on an unknown leader. Moreover, these risks were reduced since 56% of the outsiders came from the same industry as their new company.

Also, 81% of the new CEOs were from the same country as the company’s headquarters and 95% were men. The proportion of women reaching a CEO position has risen from an average of 3 % over the last 3 years to 5% in 2012, but still remains a tiny share.

Regarding the apprenticeship model, (the outgoing CEO remains or becomes chairman of the board and can “apprentice” the incoming CEO), this happened in 29% of turnovers in 2012. In this case, the share of an insider named CEO reached 92%. Companies in Brazil, Russia, and India had the highest increase in turnover rates between 2007 and 2012 (15.4% to 23.9%) and the highest increase in share of planned turnovers (8.8% to 15.5%). The telecom and utilities industries had the highest turnover rates in 2012 (both at 24%), closely followed by energy (21%). The lowest turnover rate was in the consumer discretionary industry with 9%.

> Read the full study by Booz & Company

Everyday Governance: “in-camera sessions”

When a board decides to discuss private matters like management, employee negotiations, law enforcement matters, reviewing the functioning of the Board… They have an “in-camera session”, this refers to a closed meeting of the board where only board members and possibly specifically chosen others may attend. All non board members and management such as the CEO, are “recused”, this means removed from participation in a decision on a matter because of a conflict of interest or a position.

This allows the board to discuss freely about some topics which could be difficult if the people concerned were present, especially when it concerns their performance. This provides an opportunity for the board to share their views, discuss results and develop recommendations for the future of the company. Except for the absence of some individuals, the session unfolds like an open session. There is an agenda and the same decision making process.

Note that in-camera sessions should be held regularly, for instance 15 minutes at the end of each board meeting; otherwise it may put a lot of stress on the management since they will suspect that a special request for a private session is to talk about them.

10 important topics for board of directors in 2013

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The havard law school forum gave ten good topics that board of directors should consider for the next years 2013.

“A fog of uncertainty hangs over U.S. public companies as 2013 approaches. The looming fiscal cliff, increased regulatory burdens, the ongoing European debt crisis, growing Middle East unrest and slowing global growth are just a few of the uncertainties companies will have to navigate as they chart a course for the coming year. Here is our list of hot topics for the boardroom in 2013:

1.Oversee strategic planning amid fiscal and economic uncertainty as America approaches the fiscal cliff

2. Assess the impact of mobile technology and social media on the company’s business plans

3. Address cybersecurity

4. Oversee the management of reputational risk

5. Set appropriate executive compensation as shareholders increasingly voice dissatisfaction with pay practices

6. Assess the impact of health care reform on the company’s benefit plans and cost structure

7. Ensure appropriate board composition in light of changing marketplace dynamics and increasing calls for diversity

8. Monitor the company’s need for, and ability to retain, key talent

9. Prepare for more government regulation

10. Manage information overload “

 

Read more: Top 10 Topics for Directors in 2013

Major Differences Between Roles of Direction and Management

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In this article, we will remind the principal differences between the boards of directors and the management of the company.

Source: Guide Pratique de Médiatisation du Gouvernement D’Entreprise

DIRECTORS

MANAGERS
Decision-Making Required to determine the future of the organization and protect its assets and reputation. They also need to consider how their decisions relate to stakeholders and the regulatory framework. More concerned with implementing board decisions and policies.
Duties,Responsibilities They have the ultimate responsibility for the company’s long-term prosperity. Directors are normally required by law to apply skill and care in exercising their duty to the company and are subject to fiduciary duties. They can be personally liable if they are in breach of their duties or act improperly. They can be held responsible sometimes for the company’s acts. Not usually bound by directional responsibilities.
Relationship withShareholders Shareholders can remove them from office. In addition, a company’s directors are accountable to the shareholders. Appointed and dismissed usually by directors or management; they seldom have any legal requirement to be held to account.
Leadership Provide the intrinsic leadership and direction at the top of the organization. Day-to-day leadership is in the hands of the CEO; managers act on the director’s behalf.
Ethics, Values Play a key role in determing the company’s values and ethical positions. Must carry out the ethos, taking direction from the board.
CompanyAdministration Responsible for the company’s administration. Related duties associated with the company’s administration can be delegated to management, but this does not relieve the directors of their ultimate responsibility.
Statutory Provisions In many countries, there are numerous statutory provisions that can create offenses of strict liability under which directors may face penalties if the company fails to comply. These statutory provisions do not usually affect managers.

Peter Hadekel: Montreal startup develops governance tool

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This article come from Thegazette, write by Peter Hadekel

MONTREAL — Better corporate governance has become a top objective of just about every publicly traded company. Boards of directors are more scrutinized than ever before by analysts, shareholders and regulators.

Amid an outbreak of corporate fraud over the last decade, legislative changes have placed a lot more responsibility and accountability on the shoulders of directors.

Now, a small Montreal startup has identified a way to help boards work more efficiently and with greater transparency

The business, known as Leading Boards, started four years ago under entrepreneur Jean-Marc Félio after he had served as director of a non-profit organization.

At the time, the organization needed to distribute a number of documents to directors and Félio realized that a digital system for sharing and archiving documents would make sense.

He spent a couple of years developing a software program with an information-technology specialist and then took eight months testing the product with a range of small, medium and large enterprises.

At the end of 2010, Leading Boards began to commercialize the system and has signed 60 clients so far — many of them either publicly traded firms or non-profit institutions.

The system is a secure “board portal” that reduces or eliminates printouts and multiple copies of documents. It can eliminate courier service costs and reduce meeting preparation time, Félio says.

“Just look at the amount of paper that is sent to the board of a large company — it’s the equivalent of about two telephone books every month.”

Directors often find they need to consult a corporate document of some kind only to find that it’s not at hand and they need to have it sent. They get another set of the same binders when they come to a board meeting.

That wastes even more money. Document costs can run to more than $15,000 a year for a single committee of seven directors.

Leading Boards puts together a complete archive of documents ranging from agendas and minutes of meetings to financial statements, directors’ committee reports and corporate policy statements.

The system has been developed with the practical needs of directors in mind. “You get powerful search engines, information sharing, quick, easy access,” Félio says. Agendas are interactive and directors can write personal or shared notes in a “Post-it” style.

Perhaps the biggest gain is increased transparency. The system can be set up to allow different levels of access, whether by shareholders, regulators or fellow directors.

It’s best suited for iPads and tablets, he says.

Félio worked in film and television and taught communications at the university level before taking the entrepreneurial plunge. He financed the startup out of his own pocket but recently got an additional investment from an angel investor to help him develop the market.

Leading Boards is not the only player in this game. Two other software providers — BoardBook and BoardVantage — service the market for Fortune 500 companies in the U.S.

But Félio hopes to capitalize on the market in Canada for smaller, listed companies that need to save time and money on governance and compliance.

Among clients that have recently signed up are two publicly traded mining companies in Quebec: Argex Titane Inc. and St-Georges Platinum & Base Metal Ltd. Both companies said they expect the software package will wind up improving board governance.

The trilingual nature of the software package, offering English, French and Spanish capabilities, will open up new avenues of growth in Europe and Latin America, as well the Middle East and North Africa, Félio believes. He is already in discussions with a firm about a joint venture to sell the product in France.

The company hosts the web-based system for clients who pay an annual service fee. It has about half a million dollars in annual revenue so far and six employees, expecting to double in size every year.

Among the non-profit or public organizations using the system is Montreal’s Palais des congrès, he said. Expressions of interest have come from a number of other provincial agencies.

5 elements which can disturb the progression of boards

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The definition of board effectiveness has shifted dramatically over the past decade. In the aftermath of the global financial crisis and numerous corporate scandals, a director now confronts not only complex oversight accountability, but also personal risk and liability.

To be truly effective, a board needs directors who can work as a group to clearly define their role and mission, and in specialized individual roles, such as succession planning, acquisitions and capital allocation.

 

Here, we will see five elements that tend to hinder the progression of boards toward self-actualization and high performance.

If your board present some disrupters, see on the list if you recognize some symptom enumerate.

 

 

  • Lack of clarity on the roles of individual directors and the board as a whole. Role ambiguity slows decision-making and causes unnecessary director conflicts.

 

  • Poor process management hinders effective board preparation, meeting management, and communications. This results in indecisiveness and a lack of urgency on critical challenges facing the organization.

 

  • Lack of alignment and agreement on company strategy causes disinterest among board members, who then simply default to tackling regulatory and compliance issues. Poor strategic alignment also hampers a board’s ability to prioritize issues and set their near-term agendas. This often causes board disruption and sends damaging signals to financial markets.

 

  • Poor team dynamics fracture boards and lead to power struggles. Like any effective working group, a board should be comprised of professional peers who respect and work well with each other.

 

  • Board composition is a serious impediment, if not done right. Today’s challenges require new perspectives and skills. But boards often lack the ability to objectively evaluate their makeup to determine if they have the right people and skills at the table.

 

You must be careful with this element, because they can affect your board if you don’t take them in account and if you don’t take the good measure.

 

This article is extract from A More Effective Board of Directors

Say On Pay = New tool of Social Responsibility?

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“If it makes good sense to tie compensation of top executives to the financial performance of their firms, it is also wise to gauge that compensation in relation to other corporate performance factors,” says Peter Madsen.

But, what is «Say on pay»? Is it an answer to the compensation issue? Or just another practice to pay more the CEO?

 

As an example, in 1991, President Clinton wanted to permit companies to write off executive compensation amounts of more than $1 million only if executives hit specified performance goals.

In a 2011 paper titled Killing Conscience: The Unintended Behavioral Consequences of ‘Pay for Performance,’ Stout offers three reasons to explain why the Clinton administration’s revisions to the Internal Revenue Code (I.R.C. Section 162(m)) didn’t work.

First, incentive schemes frame social context in a fashion that encourages people to conclude purely selfish behaviour is both appropriate and expected. As a result, pay-for-performance rules “crowd out” concern for others’ welfare and for ethical rules, making the assumption of selfish opportunism a self-fulfilling prophecy.

Second, the possibility of reaping large personal rewards from incentive schemes tempts people to cut ethical and legal corners, and for a variety of reasons, once an individual succumbs to temptation, future lapses become more likely.  The result can be a downward spiral into opportunistic and unlawful behaviour.

Third, industries and firms that emphasize incentive pay tend to attract individuals who, even if they are not « psychopathic », nevertheless are more inclined to selfish behaviour than the average.

It isn’t easy, however, to find companies that specifically state that the compensation of their executives is tied to more than financial performance. PepsiCo, for example, has established Performance with Purpose, a global initiative that makes an effort to deliver sustainable growth by investing in a healthier future for people and our planet. However, the company is cautious about linking executive compensation to the results of this program.

Aron Cramer, President and CEO of BSR, a CSR consulting firm that works with a global network of nearly 300 member companies, believes that financial performance is inevitably linked to social and environmental performance.

Cramer’s emphasis on rewards rather than incentives is consistent with Professor Stout’s point of view. “We should set financial compensation ex post, on the basis of the employers’ subjective satisfaction with the employees’ performance,” writes Stout.

 

Ironically, the new imperative for corporations to be socially responsible could be jeopardized by attempts to tie executive compensation more closely to corporate responsibility through pay for performance incentives. »

 

This article is an extract from: Can Say On Pay Increase Social Responsibility?

Read more: Executive compensation: Shareholders have their say

Is executive compensation fair or flawed?

Say-on-pay voting process ‘highly successful tool’, according to survey of institutional investors

Should CEO board service be limited?

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By Paul Hodgson

On the Corporate Secretary.com website, Paul Hodgson wrote an interesting article on the exchange of skills and experience of a senior executive. The author ask himself a series of issues about it :

“But what about when service on other companies’ boards begins to interfere with the effective practice of an executive’s primary position? What about when the executive is a CEO?”

We have already talking about Conflict of interest but in this case, this topic is not concerned. In fact, the eventual problem could be the CEO’ concentration level. As the author wrote “What is arguable is whether the CEOs of some of the largest companies in the world have the time to meet their increased duties.”

Read this article on the Corporate Secretary Website

In CAMERA Board Session… Why?

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One of the most delicate topics in governance is the ability to discuss freely any contentious agenda items. As the Board and committees are intended to oversee the management and the executive team in place, it may be difficult in their presence to address openly certain subjects during a meeting. This may be even more difficult when discussing and evaluating their performance.

The governance practice “in-camera session” is designed to help board to manage these delicate situations.  Note that in-camera session if started should be held at every meeting, otherwise it will stress too much the CEO and the management since they will suspect that a request for a private session is to talk about them.

A definition of what constitutes an in-camera session is  when directors meet on their own, without management or any other non-Board member present.

The legal term is “recused,” which means to disqualify someone from participation in a decision on grounds that they cannot, because of a particular interest or position, objectively discuss the matter.

Currently accepted principles of good governance provide that all boards and committees should regularly hold scheduled in camera sessions for board members only.

We find several references to this practice to hold a session of 15 minutes or less at the end of CA with only directors. It’s providing them with the opportunity to talk about more sensitive elements or simply get together as a team. In Camera session provide:

• an opportunity for the board to discuss particularly sensitive matters within the jurisdiction of the board (such as litigation, work relations, management/CEO’s performance )

• an opportunity for the board to discuss sensitive internal board governance matters, attendance, evaluation, leadership

• an opportunity for the board to review the performance and compensation of the president, discuss the attitude of one director, etc.

In conclusion, in–camera sessions are a very valuable tool allowing full and open debate on different topics strictly between board members and without any possible interference.

 

Board Evaluation: What areas of operation are evaluated regularly or annually?

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“74% of Board members are very satisfied with their own understanding of the role of the board, but only 24% were very satisfied with their colleague’s understanding of the role of the board.”
Source: Nonprofit Governance Index 2002

The need for credible high quality independent evaluations has increased, many companies are engaged in evaluating their own performances.

The board of directors should periodically assess its performance as a collegial body as well as the   performance of its individual directors. Many boards undertake this evaluation exercise annually.
If done well, appraisals help boards: become more effective by clarifying the individual and collective responsibilities, improve the working relationship with managers, keep an appropriate balance of power between the board and the CEO and take a developmental perspective.

The six steps of the evaluation process

  1. Determining the Purpose of Environmental Assessment
  2. Establishing an evaluation structure
  3. Preparing the assessment concept
  4. Collecting information
  5. Analyzing information
  6. Actions and Implementation

This allows judging if the board had fulfilled its missions and checked the quality of materials and processes that influence its performance.

Evaluation should focus on 3 goals:

  • Evaluate on the operational procedures of the board
  • Check in the major questions has been properly prepared and negotiated
  • Measure the actual contribution of each director Board’s work through his or her competence and involvement in discussions.

To evaluate boards, the most appropriate tools are the questionnaires.
The questionnaire might be uses daily or annually.

-          Once a year, the Board should dedicate one of the points on its agenda to a debate concerning its operation.

-          Most of time, the meeting questionnaire is more concerned with orders of day.
For example, how Well Has the Board Conducted Itself?

The questionnaire should be anonymous and board members should know what will happen with the information once collected. Therefore, access to individual evaluation reports should be limited to administrator to which they relate, generally  the President.
The advantage of using a Board portal like Leading Boards ensures total anonymity for each director and interprets results automatically.

Example for the annual self-assessment:

 

 

 

 

 

Example for the meeting self-assessment:

The Board of Directors & Compliance: 4 Ideas for Improving the Effectiveness of & Reducing the Risk to Directors

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By Stuart M. ALTMAN for www.corporatecomplianceinsights.com

“A number of high profile corporate scandals at some large and supposedly sophisticated companies have, if nothing else, driven home the fact that no matter how strong you think your corporate compliance and ethics program is, the risk of failure is still there. This month I want to look at this issue from the standpoint of the board of directors.

Right now, there are a number of very concerned directors asking themselves whether they have done all they could, or should, have to prevent this and what are the ongoing risks, not only to the company, but to them personally. True, directors should always be thinking about the institutional risk to the company, but nothing motivates effectiveness like the risk of personal liability.

Ordinarily directors are protected by the business judgment rule which provides that well informed decisions of directors taken after due consideration and in good faith will not be attacked by a court because the decisions turned out wrong. In cases of compliance failures – whether issues of foreign bribery, cartel activity or environmental hazards, to name a few – the issue for a board is usually one of omission. Rarely has a board approved such activity. Rather, the issue is whether it has done everything possible to avoid such conduct. Here are four ideas that can help strengthen the effectiveness of the board in these situations and thus, limit risk.

Training

Interestingly, in many companies directors do not necessarily receive the same compliance training that employees do. Directors may claim they are too constrained by time, or that they, of course, know this material already. Perhaps they do, but even if the directors are compliance experts shouldn’t they know how the employees are trained? How do you measure the effectiveness of a program you have opted out of? In short, directors should go through, at a minimum, the same training employees receive.

But that is not enough. Directors need specialized training, not just in the nuts and bolts that line employees receive but also in the issues at the center of compliance and ethics. Directors need to be focused on the big picture of why a company has a compliance program. They need to know what questions their compliance professionals should be asking, and if directors don’t see this happening, they need to act quickly.

Moreover, at least some of this training should be external to the company. Even if management is well intentioned, it is vital that directors get an occasional different perspective on compliance from that which prevails in the company.

Structure

A long discourse of the various pros and cons of possible compliance structures would fill several of these columns. There is an active professional debate out there as to whether or not the chief compliance officer should be separate from the general counsel? Should both ethics and compliance roles be rolled into one position? Where does internal audit fit in? I won’t attempt to evaluate these debates here. Indeed, there may be no one right answer. But the way in which your company structures these roles is vital to your governance and your ability to address compliance and ethics.

Boards of directors should be intimately involved in planning for these issues. Directors should regularly review the existing structure and make sure they are comfortable with it and it is serving the company’s interests. Whatever the specific structure chosen, those primarily responsible for compliance must have direct access to the board or a compliance committee. Given this dictate, you can decide what works for your company. Is your organization hierarchical in nature? Are managers expected to closely follow superiors with little questioning? If so, asking a GC who reports directly to the CEO to also serve as CCO and report to the board may place him or her in an unworkable position. If the CFO uses internal audit as a personal resource how comfortable can the board be that the head of IA would bypass that CFO if the situation called for it? On the other hand, where a company operates in a matrix environment with multiple reporting lines standard, such dual roles and reporting may come naturally.

Seek Advice

Most boards of directors do not have separate counsel from the entity they serve. Directors typically rely on the general counsel and regular outside counsel to do their job except in the rare situation such as the need for a special committee and counsel thereto. In general, most boards do not need regular and continuing counsel involved in every decision they make. But that does not mean such outside advice may not be useful some of the time…”

To read the complete article : www.corporatecomplianceinsights.com