Tag Archives: corp gov

CEO turnover and succession planning

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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

What should Frank do?

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Here, this is a good study case about a current problematic on a boardroom… a Powerful CEO and useless board. Published by Julie Garland McLellan in www.mclellan.com.au

The case studies are based upon real life; they focus on complex and challenging boardroom issues which can be resolved in a variety of ways. There is often no single ‘correct’ answer; just an answer that is more likely to work given the circumstances and personalities of the case.

 

Although these are real cases the names and some circumstances have been altered to ensure anonymity. Each potential solution to the case study has different pros and cons for the individuals and companies concerned. Every month this newsletter presents an issue and several responses.

 

Consider: Which response would you choose and why?

 

Frank has been recently elected to a board position with a NFP, which is quite large with 500 employees and $70m in assets. The board has a strong CEO, who seems to do what she wants. In the past the board was relatively weak and the CEO needed to use her expertise without relying on theirs. The board could have been described as ‘light weight’ in regard to governance and corporate knowledge. One board member, for example, is a microbiologist with great critical thinking but no understanding of how to run a company. This led to a culture where the CEO would respond to board queries by asserting that the matter of interest was “an operational issue” and for board members to rationalise her response by accepting that the CEO “has it under control”.

 

The board recognised its weakness and sought out some new company directors with governance training and corporate understanding; hence Frank’s invitation to stand for election. Frank is encountering opposition in asking critical questions of the CEO and trying to probe for information, because the board says the business is under the CEO’s control.

 

He is concerned the board has a weak Chairman who does not support the board in taking effective control or oversight. He is seriously considering if he should stay and try to improve matters slowly or if he should leave as he truly feels the board is dangerously negligent. However, he likes a challenge, believes in the objectives of the NFP, and feels that his fellow directors are honest and well intentioned.

 

What should Frank do?

 

Here, you have three different expert answers: click here

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.

Increase the number of women on corporate boards? Some business women gave advices…

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Here, you can read some advice from business women about How Can We Increase the Number of Women on Corporate Boards?

business-woman-400

Adele Gulfo, Pfizer, Regional President, Latin America

“Before we see a trend-break in the percentage of women in the boardroom, we need to solve the “leaky pipeline” that diminishes the potential talent pool. Start by encouraging women to find “sponsors,” not “mentors.” Simply put, mentors help you personally, acting as a coach and helping with decisions or challenges. But sponsors have significant influence inside an organization and advocate on your behalf, especially when high profile assignments are being discussed and names considered. Getting more women on boards begins with getting more women in mission-critical P&L roles. And sponsorship is critical to opening doors to these jobs.”

Grace Lieblein, Vice President, Global Purchasing and Supply Chain, General Motors

“If you look on boards, one of the primary reasons we are not seeing more women joining them is that typically they are looking for candidates who either have board experience or are leading large operations. We are locked in a kind of vicious circle: Because there aren’t many women on boards today and also not enough women in CEO or in key positions, they aren’t seen as natural candidates for joining boards.”

Ilene H. Lang, President and Chief Executive Officer, Catalyst

“Let’s talk about what’s not holding women back. It’s not lack of CEO experience. Almost half of F500 board seats in 2011 are occupied by directors without CEO experience. And it’s not a supply problem with respect to board-ready women. If you look at only one potential source of directors—current Executive Officers of F500 companies—you will find over 700 women, enough to fill every board seat that comes available in the next year (with women to spare). When you consider that boards often seek directors with international expertise, and you add women in top leadership positions at companies in just four countries (Australia, Canada, Great Britain, and Israel), your pool expands to over 2,000 women.

“So why the lack of progress? Men join boards every year at a higher rate than women. When Catalyst analyzed new appointments to F500 board seats from 2009 to 2011, we found that men filled 81 percent of the new seats! Thus, women’s appointments to boards have only been sufficient to maintain the status quo, rather than move the needle.”

Liz Mohn, Vice-Chairwoman, Bertelsmann Foundation

“For many women it remains difficult to have it all: career, children, partner, and household. And major decisions on all those issues often come to the fore between the ages of 30 and 40—the “rush hour” of life. For many people, especially mothers, rush hour is all day. A woman’s work is never done, as they say. It is here that employers must play a role. They must move away from office time towards flexible working hours and focus on results. By doing so, organizations and their leaders can serve to encourage women.”

Rossana Fuentes Berain, Editorial Vice President, Grupo Editorial Expansión

“A major initiative is needed to bridge the gender gap and use it as one of the variables to measure a country’s competitiveness. What is the path for achieving it? Education, mentoring, and support in the careers of women must be a priority to improve conditions for diversity in the business world, and make way for a generation that has been prepared and is ready. There are no excuses.”

Susan Segal, President and CEO, Americas Society and Council of the Americas

“One of the key reasons is an unwillingness to take a risk. Existing CEOs, boards, and headhunters appear unwilling to take the risk to incorporate new people and different perspectives—so the easy path is just more of the same: same pool of candidates, same process, and same ideas.

“Women must also take some responsibility for the current dilemma. They must promote themselves better and proactively find mentors willing to fight for them inside and outside of their companies. Women also need to network more effectively and aggressively, while standing up for their goals and ideas.”

 

His article is extract from: How Can We Increase the Number of Women on Corporate Boards?

 

What is the purpose of a board?

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“The purpose of the board is to do governance, the process carried out by a group of people to ensure the health and effectiveness of the corporation.

 

It doesn’t matter what type or size of organization. It doesn’t matter if you’re young or emerging or highly sophisticated. The board does governance at its meetings. In fact, the only time that governance happens is when the board convenes at its meetings.

 

What are the elements of governance, the processes of ensuring the health and effectiveness of the corporation? These are things like defining values, mission, vision, and overall direction – and adhering to same. These are things like defining the rules of governance, e.g., bylaws, policies, recruitment and election of board members. Defining the performance expectations of board members. Hiring, appraising, and setting compensation for the executive director. So what do you talk about at your board meetings? (…)

 

The board may talk about information provided by staff. And it’s up to the staff to put together the right information, to explain trends and their potential implications. (…)

 

Board meetings require intentional design and good facilitation. Board meetings should be a gathering of wise and experienced people who talk about important things. Sometimes the board makes decisions. Sometimes the board learns and explores through conversation, preparing to make decisions in the future. Definitely, board members ask strategic questions, even cage-rattling questions. Board members probe to ensure that they are drawing on information that is accurate, insightful, and useful. (…)

 

How about these questions for periodic board meeting agendas?

1.            How is our adaptive capacity?

2.            How are we foreseeing the unforeseeable?

3.            How effectively do we recognize, anticipate, prepare for and respond to different       situations?

4.            How effectively do we anticipate unintended consequences?

5.            What might have once been inconceivable – but now seems as if it might become       inevitable?

6.            What is of concern that, if we don’t address it, can become alarming?”

 

This article is extract from: What Do You Talk about at Your Board Meetings?

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.

E-Governance: Boards of directors now turn to board portal to work smarter, safer and… greener !

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Published in 20/20, the Canadian Manufacturers and Exporters (CME) magazine.

A recent Deloitte study indicates technology is getting more and more popular in boardrooms. For a long time, directors were resistant to changes

If, nowadays, laptops and tablets are commonly used by directors in many companies, the major change is really the emergence of board portals. It’s more than a “tech trend’’ — it’s about governance.

Among the tough new regulations that have appeared in recent years, the Sarbanes-Oxley regulation started a new era for companies (public or private), governmental agencies, and even non-profit organizations. Their directors now all face the same challenge and have to perform their duties in a productive and safe environment. Forget time and distance, they have to be available and up-to-date with the organization’s documentation to make accurate decisions when needed, and sometimes — most of the time — fast. They are advisors and also decision-makers.

To address this new paradigm, board portals have ­recently appeared in the boardrooms of companies among the Fortune 500. A few American competitors actually share their same “sweet-pot’’ — the international financial centers like New York, London and Singapore — but ignore the balance of the market.

Leading Boards, a Canadian company based in Montreal, provides a powerful, easy-to-use and secure board portal to meet the needs of an untapped market in Canada and abroad, especially in emerging countries. Leading Boards realized that not only the Fortune 500 but also medium-sized companies and junior public companies were in need of tools like board portals to better equip their boards and committees.

Leading Boards designed a priced multi-language unique board portal to address that market. And the demand is growing with companies always looking to be one step ahead.

“It’s more an investment than a cost,” says CEO Jean-Marc Felio. “With the introduction of the iPad version, directors are browsing in archives with the keyword search tool. They are a lot more efficient for the benefit of all.”

Argex Titanium has recently decided to have their audit committee and board of directors work with a board portal, and chose Leading Boards.

“At Argex, we have directors and committee members in different cities and even different countries,” explains Robert Guilbault, chairman of Argex Titanium. “Leading Boards helps them work, collaborate, and prepare their meetings wherever they are, anytime they want. It’s easy-to-use, available on iPad, and bilingual. Leading Boards was a natural answer to our needs, and comes with great training and support service.’’

The board portal also makes life easier to newly ­appointed directors who can, at their leisure, have access to the “memory” of the company and become familiar with past issues, decisions, and documents, and be well prepared to take decisions on current situations.

Last but not least, Leading Boards brings a “paperless’’ solution to boards and committees which helps control their financial impact as well as their ecological impact. A green ­solution turns out to be an investment that will carry its own returns.

After a year of commercialization and several hundred users later, Leading Boards entered into a partnership with Canadian Manufacturers & Exporters (CME) and now equips the CME board of directors and its audit committee as well.

“This partnership enables CME to provide our members ­preferred prices with Canada’s best software for the ­management of boards and committees,” says CME President & CEO, Jayson Myers.

To learn more about Leading Boards or to ask for a live demo, call 1-855-404 5377
or visit its website: www.leadingboards.com

Source: 2020magazine

Smaller boards for better governance

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How small boards can be more efficient than bigger? What is the impact on the daily governance?

Robert Pozen, a Harvard Business School lecturer and former general counsel for Fidelity Mutual Funds, try to give an answer.

 

 

Mr. Pozen says « its high-functioning boards, not legislation, which leads to better governance. He went on to note there do too many “social loafers” on boards who are investing too little time understand the issues of the company they are supposed to be serving. »

 

« The problem with 14 or 18 directors is social loafing. If you’re part of that big of a board the thinking of many is, ‘well, someone else will take care of it.’ If you don’t feel that responsibility it is a very bad dynamic, » says Mr. Pozen.

Some board portal accessories as pool and debates can allows you to create a better dynamic on your board.

 

He thinks they should be no more than six directors on a board, along with the CEO, and that they should meet more than six times a year spending two to three days a month on board business. They should also be paid more for the extra work.

 

They should also be no mandatory retirement age for board directors as many are retired executives who still have a lot to contribute after they leave their companies.

 

“When you have executive sessions, people actually talk about what the problems of the company are. I think it’s a good idea to have executive sessions before every meeting. On a larger scale it suggests what is really important in governance is not so much all of these rules, but what you have as the culture of the board and how the peers view themselves,” says Mr. Pozen.

 

The average for financial services boards around the world is 14 members of which only three have financial experience.

 

This article is extract from: Why good governance can come from smaller boards

Monitoring board and management, a new way or an old concept?

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Monitors include the board of directors, the general counsel, and an internal and external auditor.

 

The primary purpose of a corporate governance system is to reduce agency costs within an organization. Agency costs occur when the individuals managing or working in an organization take self-interested actions to make themselves better off, with the cost of these actions borne by shareholders.

Agency costs can manifest themselves in countless ways.

-        inappropriate use of corporate assets for personal purposes

-        the bribery of a purchasing agent to facilitate a product sale

-        the manipulation of financial results to boost the size of a bonus

-        trading on the basis of material non-public information

-        the acquisition of a non-strategic asset to increase managerial domain

-        the failure to train a successor to increase the perception of one’s value to the organization.

 

Time has shown individuals to be extremely creative in devising new ways to profit from the abuse of their organizational position.

To reduce agency costs, companies hire monitors to oversee various activities. These monitors are paid by the organization, but their responsibilities are (largely) non-managerial. They are not expected to develop or implement the corporate strategy, they do not have direct responsibility for profit generation, nor do they control or allocate company assets.

Rather, their job is to safeguard assets, monitor for illicit activity, and discourage management

from excessive risk taking. Though difficult to measure, the success of these efforts will manifest itself through an improvement in operating. Performance, corporate value, and risk levels when agency costs are reduced in the system.

 

What is the appropriate compensation structure for these individuals?

 

Compensation design for corporate monitors is complicated.

On the one hand, the objectives of a corporate monitor are to detect and mitigate agency problems. Success is defined as the prevention of errors, while failure is defined as the allowance of errors. This suggests that monitors should be paid largely on a fixed-salary basis, with failure to detect malfeasance punishable by a substantial decrease in salary or outright termination from the firm. A fixed salary discourages variations in outcomes and encourages risk minimization. From this viewpoint, corporate monitors should receive little to no incentive compensation.

On the other hand, an entirely fixed compensation system might not provide sufficient incentive for vigilant monitoring. With little incentive to “perform,” monitors might grow lax in their oversight. A corporation might also not be able to attract the best monitors. From this viewpoint, the corporation should include variable compensation elements to encourage effective oversight, or to attract highly qualified individuals. (…)

The potential downside from imposing compensation risk on monitors is that they might be co-opted by the very executives and employees they are expected to oversee. With their compensation tied to corporate performance, they have an incentive to turn a blind eye when management operates in grey areas (such as questionable sales practices, earnings management, insider stock sales, etc.), the detection of which would threaten their own bonus.

Furthermore, the question arises as to what form the variable compensation should take (cash or equity) and what performance targets should be used (stock price, operating, or other financial and nonfinancial metrics). (…)

Sources: Fixed or Contingent: How Should “Governance Monitors” Be Paid?