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October 27, 2016 - Issue 2.43 - Your weekly news on all things board.
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Director's Domain: News & views for today's boardroom. Brought to you by Boardspan.
Great expectations. We all have them for boards. Just count the ways critics suggest Wells Fargo’s board of directors could have done better: by acting when they first got wind of the scam; by limiting the CEO’s participation in outside boards; by fostering more turnover of board directors; by separating the role of CEO and chairman; by hiring an outsider as CEO… and so the list of failed expectations goes on. We also hoped for more from Facebook’s handling of its high-profile, Trump-supporting member—read the Wired piece below excoriating Mark Zuckerberg for suggesting that Peter Thiel’s board membership is a nod to diversity. It is hardly surprising to learn that board members themselves feel pressured by expectations—a new survey shows that 60 percent of global directors feel expectations are higher than what they can reasonably deliver. And activist investor Nelson Peltz, bemoaning the Information Age, says it’s harder to meet the expectations of being a good director when you’re inundated just before a board meeting with email and last-minute documents. So, what’s a director to do? Well, avoid complacency, get ahead of the issues affecting your board, stay informed, speak up, and use the best governance tools available to ensure that your board is as effective and efficient as possible. It may not be easy to meet today’s high expectations, but, surely, you don’t want to embrace the alternative.

The Hot Seat
 

CEOs on Outside Boards: What's Wrong with This Picture?

 “For [his board seats at Target and Chevron, former Wells Fargo CEO John Stumpf] was being paid something like $650,000 per year. The interesting question is, why was he on those boards at all? Wasn’t being the CEO and on the board at one of America’s biggest banks a full-time job? After all, he was paid $19.3 million in both 2015 and 2014. You would not have thought he needed a side job to make ends meet… According to the National Association of Corporate Directors (NACD) a sitting director should do a minimum of 200 hours of work on a board every year. ... Mr. Stumpf should have been doing at least 500 hours of work for Chevron and Target – about 12.5 weeks, or three months. Do you think he actually spent this much time on these roles, given his full time job at Wells Fargo? This also means that Mr. Stumpf only had nine months to actually work as CEO of Wells Fargo. Maybe that was why he was so unaware of the unethical behavior at the company he led? Why would a board think it is acceptable for a CEO to work only three-fourths of the year?” FORBES
 

Congress Still Eying Bank's Leadership

“A month after blasting Wells Fargo’s then-CEO John Stumpf for what she called his ‘gutless leadership’ following the bank’s phony accounts scandal, Sen. Elizabeth Warren has questions about his replacement. In a letter Thursday to Wells Fargo chairman Steven Sanger, the Massachusetts senator said it’s not clear if the bank’s board of directors had properly addressed whether new CEO Tim Sloan ‘knew about or played any role in the scandal.’ After Stumpf’s ouster from Wells, the financial giant named Sloan, a 29-year veteran of the bank, to replace him…. Warren made it clear that she believes the 63-year-old Stumpf was getting off easy in leaving Wells following the sham account scandal, saying in a tweet last week that a bank CEO ‘should not be able to oversee a massive fraud and simply walk away to enjoy his millions in retirement.’” CBS NEWS
 

Who Else Is Investigating Wells Fargo? It’s A Long List!

“Since reaching a $185 million settlement over aggressive sales practices in September, state and federal agencies have lined up to launch their own investigations of the San Francisco-based bank, which has its biggest employee hub in Charlotte.  Customers and employees around the country have also been filing their own lawsuits, adding to the fallout that has already cost former CEO John Stumpf his job. Here’s a look at the various probes involving the bank [including the Justice Department, the Securities and Exchange Commission, House and Senate Banking Committees, various states, private lawsuits and more].” CHARLOTTE OBSERVER


Corporate Responsibility Committee Chair Resigns From Outside Role

“Federico Pena, a member of Wells Fargo’s board of directors and chairman of its corporate responsibility committee, has resigned from an advisory position with Vestar Capital Partners, a private equity firm.” REUTERS

Across the Board

Curated news and insights from the world's boardrooms.


Want Governance Reform? Change How Directors Get Seats

“Despite years of evidence that a policy coming from the very top was driving illegal and abusive practices at Wells Fargo, the bank’s directors were notable mainly in their passivity. They did not act in 2013, when the Los Angeles Times reported that bank employees were opening phony accounts to meet unrealistic sales quotas. They did not act in September, when Wells Fargo agreed to pay a $187.5 million fine and admitted to creating more than 2 million fake accounts. Only after CEO John Stumpf was excoriated in congressional hearings did they decide to claw back some of his compensation. Still, they never fired him — he resigned on his own. Where do such directors come from? In U.S. companies they are typically chosen by shareholders, but in a system so rigged that it may be the closest Western analog to a Soviet election…” BLOOMBERG


Zuckerberg Blasted for Defending Trump-Supporting Director

"Last week, Facebook Chairman and CEO Mark Zuckerberg defended billionaire Peter Thiel's board seat at the social media company with an argument that it was important to maintain diversity, including differences of political opinion. Wired responded ferociously in a piece title No, Facebook, ‘Diversity’ Doesn’t Explain Your Support of Thiel: "The problem is that Zuckerberg can’t simply take the word ‘diversity’ and try to make it mean something it doesn’t. ‘Diversity’ has become a loaded term in Silicon Valley, where the tech industry is overwhelmingly white and male, especially at the top. Thiel represents the status quo and Trump something even worse: an active effort to undermine and roll back the progress made by women and people of color in the US. For an industry that pays lip service to promoting diversity, Thiel and Trump stand for the opposite…. Thiel didn’t just donate more than one million dollars to Trump’s presidential campaign; he did so after a number of women accused Trump of sexual assault. This from a guy who in the 1990s co-authored a book called the The Diversity Myth that claims rape culture is ‘mythical.’” WIRED


Survey: Boards Feel the Pressure of High Expectations

“Board directors are feeling pressure from unrealistic expectations and shaky prospects for future economic growth, according to a new survey…. Sixty percent of directors see a disconnect between the expectations placed on boards and what board members can actually do to accomplish strategic objectives. Of the 60%, a quarter believes the expectations ‘far exceeded reality.’” CFO MAGAZINE
 

… Dive Deeper By Reading The Survey Itself

“The growing demands on corporate boards are transforming boardrooms globally, with directors taking on a more strategic, dynamic and responsive role to help steer their companies through a hypercompetitive and volatile business environment. Economic and political uncertainties make long-term planning more difficult. The proliferation of cyber attacks — and their consequences for business in financial losses and reputational damage — increases the scope of risk oversight. A rise in institutional and activist shareholder activity requires boards to identify vulnerabilities in board renewal and performance and, in some cases, establish protocols for engagement. And all of these demands have pushed issues around board composition and diversity to the fore, as boards cannot afford to have directors around the table who aren’t delivering value.” WOMEN CORPORATE DIRECTORS
 

Meet The Best CEOs in the World

“There are so many reasons for leaders to focus on the short term: slow growth, shareholder activism, political turmoil—to name just a few. Yet some CEOs still manage to train their sights on the long term and deliver strong performance over many years. Our 2016 list of top performers reveals who they are….On average, the world’s 100 best CEOs have been on the job for 17 years—and have generated a 2,091% overall return on their stock (adjusted for exchange-rate effects), or a 20.2% annual return.” HARVARD BUSINESS REVIEW
 

Ousted: Chairman of One of India’s Largest Companies

“The agenda for Monday’s extraordinary board meeting at India’s largest conglomerate contained little hint of what was to come. Tata Sons Ltd. directors were summoned to the group’s fabled Bombay House headquarters to discuss the sale of assets, its moribund U.K. steel business and the group’s legal wrangles with Japan’s NTT Docomo Inc., according to a person with knowledge of the events. But once the meeting started in the wood-paneled boardroom on the fourth floor, it took a different turn. Under a portrait of the formidable J R D Tata, the board wrested back chairmanship of the steel-to-software business empire for 78-year-old Ratan Tata, ousting his protege Cyrus Mistry, 48, in a coup that stunned India’s business community.” BLOOMBERG
 

Are Boards Suffering from Info-Overload?

“In an earlier era, [investor Nelson Peltz of Trian Fund Management] said, directors would receive a FedEx package containing paper documents supplying them with the information needed in advance of upcoming board meetings. With the advent of email, PCs and iPads, directors get many more pages of documents in electronic form than they can possibly sift through before the meetings, he said. So management spends much of the meeting explaining key facts and issues that board members must consider. ‘So the board meeting becomes a show and tell,’ Mr. Peltz said. He said his firm does its best to counter the trend, conducting extensive research that allows its board representatives to come to meetings ready to put forward their arguments forcefully. ‘We think good debate brings good decisions,’ he said.” WALL STREET JOURNAL
 

Why Non-Profit Boards Can Be Tricky

“One of the mysteries of life is why do otherwise reasonable and smart people leave their thinking caps at the door when they enter a not-for-profit organization’s board meeting?  It’s always been curious to me that seemingly smart people, people who have worked in major corporations and clearly know the difference between appropriate and inappropriate choices, tend to treat the NGO as a child who needs parental advice and not as a successful, contributing member of the community.” MIAMI HERALD
 

Opposition to Samsung’s Candidate for Vice Chairman

“A South Korean investment advisory firm is recommending shareholders of Samsung Electronics Co. vote against the nomination of Vice Chairman Jay Y. Lee to the company’s board of directors, in what may be the first opposition to the heir-apparent’s ascension. Sustinvest Inc., a Seoul-based proxy advisory firm, said in a letter to shareholders that Lee isn’t qualified to be on the board because he benefited from “inter-affiliate” transactions at the Samsung group. Such transactions are common among South Korea’s conglomerates but have come under increasing scrutiny because they are viewed as profiting insiders.” BLOOMBERG
 

SEC Approves New Rules for Contested Board Elections

“Dissidents competing to join a company’s board of directors would get a boost for their campaigns under a proposal approved Wednesday by the U.S. Securities and Exchange Commission. The SEC’s proposal, which passed on a 2-1 vote, would require companies to give shareholders a single ballot listing all candidates in a contested board election. The SEC would have to take public comments on the proposal and vote on it a second time before the new rule could take effect. Currently, voters typically receive two sets of ballots, each featuring a rival slate of board candidates.” WALL STREET JOURNAL

From the Archives

How Well Run Boards Make Decisions

In the aftermath of seismic debacles like those that toppled Enron and WorldCom—as well as several noteworthy but more modest tremors, such as Disney’s estimated $140 million payout to dismissed president Michael Ovitz—corporate boards have been shaken up and made over. They have more independent directors these days, and nearly all of them (up from roughly a third just a few years ago) have appointed lead or presiding directors to help ensure the board’s vigilance in company affairs. Corporations now disclose directors’ salaries and the names of committee members on their Web sites as well as in SEC documents. Sarbanes-Oxley legislation requires boards to maintain an audit committee consisting entirely of independent directors. Researchers have found that most of the changes are for the good: Along with other increasingly common board features—the existence of independent nominating committees, for instance, and requirements that directors own company stock—they have a positive effect on company performance." HARVARD BUSINESS REVIEW via BOARDSPAN

A Seat at the Table

  • Boardspan is pleased to highlight the appointment of Doreen Woo Ho, a board member of US Bank and former banking executive herself, to the board of Hercules Capital, a specialty finance company serving venture growth, pre-IPO and M&A stage companies. We were delighted to advise Hercules Capital on this placement. We offer our hearty congratulations to Doreen and to all others who are assuming new board seats:
  • Mary Pat McCarthy, former vice chair of KPMG, joins the board of cybersecurity company Palo Alto Networks
  • MetLife Inc., the largest U.S. life insurer, elects to its board David Herzog, former CFO of American International Group (AIG)
  • Susan Swain, co-CEO of the public affairs TV network C-Span, joins the board of Discovery Communications, home of The Discovery Channel, Animal Planet and more
  • TableSafe, a pay-at-the-table platform for restaurant credit card systems, appoints to its board George Overholser, one of the founding management members of Capital One and current CEO of Third Sector Capital Partners, and William (Bill) Ruckelshaus, previous president and CEO of Blucora, the provider of Internet-related services formerly named InfoSpace
  • The Nemours Foundation, a non-profit organization focusing on children’s health, welcomes four new members to its board: James S. Hunt, retired EVP and CFO of The Walt Disney Company; Dr. Linda D. Norman, dean of the Vanderbilt University School of Nursing; Marc Probst, VP and CIP of Intermountain Healthcare; and Dr. Valerie Montgomery Rice, president and dean of the Morehouse School of Medicine
  • CryoLife, Inc., which makes medical devices for cardiac surgery, appoints to its board James W. Bullock, CEO of Zyga Technology, a medical technology company focused on conditions of the lumbar spine
  • Ski resort operator Vail Resorts appoints to its board Michele Romanow, co-founder of several technology start-up companies, including SnapSaves, which was purchased by Groupon; Romanow was also a member of the board of directors of Whistler Blackcomb Holdings, which Vail acquired earlier this month
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