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September 29, 2016 - Issue 2.39 - 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.
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Shortly before this week’s newsletter arrives in your in-box, Wells Fargo CEO John Stumpf will appear before the House of Representatives Financial Services Committee, at a hearing entitled, “Holding Wall Street Accountable: Investigating Wells Fargo’s Opening of Unauthorized Customer Accounts.” It’s anyone’s guess what to expect, but already this week the Wells Fargo board, bowing to public pressure, clawed back $41 million of Stumpf’s pay and brought in outside investigators to determine who knew what when in the “massive scam” now roiling the bank, while the State of California suspended a key business relationship with Wells. We wonder what "the tone at the top" of Wells Fargo has been and include two articles about corporate culture in the Archives below, for your perusal.

Meanwhile, the Twitter board seems to be shopping the company, the Lands’ End board has parted ways with its CEO, and tech giants Amazon, Facebook, Google, IBM, and Microsoft have come together to launch a non-profit Partnership on Artificial Intelligence to Benefit People and Society. The alliance's board is tasked with formulating best practices for a field potentially rife with moral and ethical issues, the resolution of which could affect us all.

The Hot Seat


Wells Fargo Board "Disappoints"

"As John G. Stumpf, the chief executive of Wells Fargo, prepares to face a congressional tribunal on Thursday for the second time in two weeks, questions are intensifying about the bank’s sham accounts scandal and its lethargic response to it. And late Tuesday, with the focus of the criticism spreading from the bank’s chief executive to its board, the company’s directors took action. Announcing an investigation into the bank’s sales practices, the board said Mr. Stumpf would forfeit approximately $41 million worth of stock awards, forgo his salary during the inquiry and receive no bonus for 2016….  A corporate board has many duties, but three of the most crucial are at the center of the Wells Fargo mess. One is to assess the risks inherent in the company’s business and handle them before they develop into a crisis. Another is to dispense compensation that does not encourage bad behavior. And finally, a board must monitor a company’s culture, from top to bottom. The Wells Fargo board has disappointed in all three.” NEW YORK TIMES


And There is More Fall-Out for San Francisco-Based Bank

“California, the nations largest issuer of municipal bonds, is barring Wells Fargo & Co. from underwriting state debt and handling its banking transactions after the company admitted to opening potentially millions of bogus customer accounts. The suspension, in effect immediately, will remain in place for 12 months. A ‘permanent severance’ will occur if the bank doesn’t change its practices, State Treasurer John Chiang said Wednesday.… Chiang already replaced Wells Fargo with Loop Capital for two muni deals totaling about $527 million that will be sold next week.” BLOOMBERG
 

…What Does This Teach Us about Governance?

“Oh, the blurry lines in the stately boardroom.  Last week’s Wells Fargo debacle has opened a Pandora’s box of ‘coulda, shoulda, woulda’ views about board governance. Most notably, we consider the role of the board and that of management and ask: where does one end and the other begin?” THE BOARDSPAN BLOG
 

Across the Board

Curated news and insights from the world's boardrooms.
 

Rumors of a Twitter Sale Grow Louder

“Twitter is close to tapping investment banks including Goldman Sachs to lead an auction of the company, sources told The Post. Twitter’s board of directors appears ready to ‘do the right thing’ and sell the struggling social network.... The Post reported earlier the chatter that Google and Salesforce were circling Twitter. Other rumored acquirers have included Verizon, and a possible joint bid from media mogul Peter Chernin and AT&T. ‘The stock is trading on deal talk, the turnaround is inconclusive and pressure is on the board to give shareholders an exit,’ one Twitter investor said. On Monday, that pressure intensified on reports that Twitter is getting fresh interest from prospective acquirers, including Walt Disney and Microsoft.” NEW YORK POST
 

This Could Be One of World’s Most Influential Boards

“Five tech giants announced on Wednesday that they are launching a nonprofit to ‘advance public understanding’ of artificial intelligence and to formulate ‘best practices on the challenges and opportunities within the field.’ The Partnership on Artificial Intelligence to Benefit People and Society is being formed by Amazon, Facebook, Google, IBM, and Microsoft, each of which will have a representative on the group’s 10-member board.” FORTUNE
 

Do the Political Leanings of Directors Matter?

“Corporate directors with left-leaning political views turn out to be conservative when it comes to paying the chief executive. That’s according to a new study of the connection between political views of board members and the pay packages of some 4,000 CEOs between 1998 and 2013….Corporate boards are supposed to base their decisions on what is best for shareholders, filtering out personal biases. But research suggests that political preferences color much more than ballot choices. Liberals typically dislike basing rewards on outcomes when the link between outcome and effort is unclear, the authors write, meaning that liberal boards are less likely to pay for performance.” WALL STREET JOURNAL
 

Land's End Board Parts with CEO

“Federica Marchionni was forced out as chief executive of Lands’ End Inc., capping a tumultuous 19 months on the job in which she tried to fashion broad changes at the catalog retailer that roiled employees and turned off shoppers.The former Ferrari and Dolce & Gabbana executive sought to inject more style into the maker of outdoorsy, casual clothes by adding slimmer-fits, stiletto heels and a new line of activewear. .…As losses piled up, the board became concerned that Ms. Marchionni was trying to make too many changes too quickly, the people said…. The departure leaves the company without a permanent CEO heading into the crucial holiday season. Ms. Marchionni, in a news release, said she and the board ‘agreed it is time for others to bring Lands’ End into the future.’" WALL STREET JOURNAL


More Shareholders Asking to See Board Diversity

“Investors increasingly want the biggest U.S. companies to reveal the racial and gender diversity of their boards of directors, information that most don’t disclose. This year, nine companies in the Standard & Poor’s 500—the most ever—faced official demands from shareholders that they adopt new diversity plans, according to ISS Corporate Solutions, a corporate-governance consultancy. Such initiatives have a long way to go, with only 12.8 percent of companies currently giving specific details about directors named in their annual filings, according to a report released Tuesday by researcher Equilar Inc.” BLOOMBERG

 
For Directors of Public Companies with Oversees Operations

“In recent years, compliance with the Foreign Corrupt Practices Act has become a key area of focus for boards and management.... The stakes can be enormous for companies, with penalties reaching hundreds of millions (or billions) of dollars, and they are frightening for individuals, who face the possibility of multi-year prison sentences along with substantial financial penalties. Overseeing FCPA compliance is no easy task. It is time-consuming, expensive, challenging, and essential.... Directors succeed in this task by fostering a culture of high ethical standards, by prioritizing compliance oversight, and often by personally investing time and effort in the company outside the boardroom.” LAW.COM

 
Microsoft Board Members Talk Shop (Video)

“A few years back, Microsoft began posting video interviews with members of its board of directors to provide deeper insights into their backgrounds and perspectives on board service. Today, they posted two new videos featuring Microsoft board chairman John Thompson and board member Padmasree Warrior... John talks about Microsoft’s leadership structure, the evolution of company culture and what drew him into technology over 40 years ago, while Padmasree reveals what’s surprised her over the past year at Microsoft.”  MSPOWERUSER
 

Which Type of Innovator Are You? A Quiz

“Innovators can be categorized as either challengers or defenders, and almost all are better in one area than the other whether they know it or not. Defenders optimize every opportunity to grow revenue from their existing customer base; challengers devise inventive business models and make competition obsolete. Few managers excel at both. Which is your strength as an innovator — are you a challenger or a defender?” STRATEGY+BUSINESS


From the Archives

Corporate Culture, Not Lip Service, Counts

“‘As much buzz as there is around corporate culture, nobody has looked inside institutions to see what the consequences are of having one culture versus another,” says Paola Sapienza, a professor of finance at the Kellogg School of Management. ... [He and his] research team found that companies perceived by their own employees to value ethics—but not necessarily those that advertise their ethical culture to outsiders—showed higher profits and other indicators of strong performance.” KELLOGG INSIGHT via BOARDSPAN


How Does Culture Influence Employee Behavior?

“‘Culture starts at the top,’ a businessman recently said in an interview with the Association of Certified Fraud Examiners. ‘But it doesn’t start at the top with pretty statements. Employees will see through empty rhetoric and will emulate the nature of top-management decision making … A robust “code of conduct” can be emasculated by one action of the CEO or CFO.’ The speaker was Andrew Fastow, the former CFO of Enron, who spent more than five years in federal prison. He got one thing right: Decisions may be the product of culture. But culture is the product of decisions.” THE ATLANTIC

A Seat at the Table

  • Streaming music company Spotify picks up a video-savvy board member in Ted Sarandos, chief content officer for Netflix
  • KPMG chairman and CEO Lynne Doughtie joins the board of LUNGevity Foundation, a lung cancer-focused non-profit
  • Former Open Table CEO Matthew Roberts takes a seat on the board of Snagajob, an online marketplace for hourly work
  • Charles McNerney, GM of retail technology at Microsoft, and former CISO in its online services division, joins the board of of Nativis a clinical stage bio-electronic company
  • Steve Stoute, CEO of Translation creative agency and former president of urban music at Sony Music Entertainment, becomes a member of the board of Genius, an online annotation platform, mostly used for lyrics
  • Financial information and analytics company S&P Global elects to its board Monique F. Leroux, former chair, president and CEO of Canadian financial group Desjardins Group
  • Defense contractor Raytheon elects to its board Dinesh Paliwal, chairman, president and CEO of Harman International, a design and engineering company
  • Brand management company Iconix welcomes to its board Kristen O'Hara, CMO of global media at Time Warner Inc., and Sanjay Khosla, former president of developing markets at Kraft Foods (now Mondelez International)
  • Beverage maker Dr Pepper Snapple Group appoints to the board José Gutiérrez, senior EVP and chief of staff to the chairman and CEO of AT&T
  • Michael G. Van de Ven, EVP and COO of Southwest Airlines, joins the board of financial services form Comerica
  • Cornelia Bargmann steps down from the board of British drugmaker AstraZeneca to take up a new role as president of Chan Zuckerberg Science, part of the Chan Zuckerberg Initiative
  • Everspring, a provider of online program management software enabling universities to take their curricula online, welcomes to its board Dr. Mark Kamlet, university professor of economics and public policy, and provost emeritus of Carnegie Mellon University
  • Vice chairman of Time Inc. Norman Pearlstine and journalist and film producer Jennifer 8. Lee join the board of InsideClimate News, a non-profit news organization focused on clean energy and environmental science
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