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November 5, 2015 - Issue 8 - 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.

We all know the buck stops with the board. When corporate scandals erupt, people expect the board to take action—sometimes within the board itself. That's what happened at blood-testing company Theranos, which had been vilified by the press not only for failing to disclose that many of its tests allegedly don’t actually use its breakthrough technology but also for the relevance of its board. No big surprise then that the company announced a major reorg of its governance structure, complete with a new medical advisory board. What is surprising is that Volkswagen, weeks into its growing emissions scandal, has so far failed to respond to the cries for board reform, which many say are necessary if the automaker has any hope of rewiring its corporate culture and rebuilding its credibility. One thing that seems certain: VW is among the very few boards with a falling stock price that isn’t worrying about activist investors, whose influence seems to be on the rise. Not only are we seeing more shareholder-led take-overs, but in a strange new twist, activists are being hired as consultants to companies who want to know how they think.

The Hot Seat

 

Where There's Diesel Smoke ...

“Volkswagen needs to tear up its complex corporate governance structure in the wake of the emissions scandal that knocked a further 10 per cent off its share price on Wednesday, according to investors and governance experts. They called for a radical overhaul that would involve the families, state government and sovereign wealth fund that are the carmaker’s biggest shareholders all giving up seats on its supervisory board. ‘Looking at the people on the board would be a useful starting point [for reform]. Do you need the two politicians? Do you need four or five Porsche/Piëch representatives? Could you not get somebody with better experience?' said Hans Hirt.… ‘The fundamental problem is not really the CEO or the chairman but the culture, processes and the decision-making in the supervisory board.’” FINANCIAL TIMES (paywall)

Across the Board

Curated news and insights from the world's boardrooms.


Theranos Tests New Board Structure

“The medical laboratory Theranos, facing skepticism about the accuracy of its tests, is planning to announce that it has reduced the size of its unusual board of directors, eliminating members like Henry A. Kissinger and George P. Shultz…. Skeptics have also focused on the company’s board, which with one possible exception was notably lacking in people with expertise in medical testing….Now the board of directors has been shrunk to five people from 12, and will also be called the governing board… All the members of the old board, including Mr. Kissinger, [former senator Sam] Nunn and Mr. Shultz, have become members of a newly formed board of counselors, which will still give advice to the company. Theranos has also formed another board to give medical advice." NEW YORK TIMES
 

Reign of the Activists

“For decades, corporate America rejected activist investors, accusing them of being corporate raiders out to make a quick buck. But these days, some of America’s biggest companies are trying to think more like them…. Wall Street’s biggest banks have begun to coach companies on how to deal with activists. In some cases, lawyers for activist investors have been hired away to work for the other side…. And even activist investors themselves have been hired as consultants to help coach companies through simulations of an activist attack.… An entire cottage industry has emerged in response to the growing prevalence and popularity of activism. Last year, the number of companies that were targeted by activists reached a high of 459.” NEW YORK TIMES
 

Reign of the Activists, Part II

Putting an activist on a board early avoids the costs, distractions and reputational damages risked in a potential proxy fight -- and brings behind closed doors contentious discussions about spinoffs, buybacks or asset sales. It also reflects the heightened pressure on corporate directors to show they’re acting on behalf of shareholders and willing to buck management. ‘Companies are well aware of the time, distraction and expense involved in defending against an activist proxy fight and many are looking for avenues to avoid those fights in a way that benefits both sides,’ said David Hunker, head of shareholder activism defense at JPMorgan Chase & Co. This year, companies have settled within 56 days on average after an activist demands board representation, compared with 67 days last year and 74 days in 2013.” BLOOMBERG BUSINESS
 

How Do You Figure CEO Retirement Pay?

“Last week, a report on the divide between retirement funds for CEOs and the rest of us shared a startling statistic: All together, the 100 largest CEO retirement assets are roughly equal to the retirement savings of 41 percent of U.S. families.… Yet the report, which was authored by the Institute for Policy Studies and the Center for Effective Government, also revealed another stunning figure. When you add up the 10 largest retirement funds held by white male CEOs, the total came to $1.4 billion. Doing the same tally for the 10 largest retirement funds held by female CEOs only came to $277 million.” WASHINGTON POST


The Secret to Innovative Cultures

“There’s a reason companies like Google and Facebook offer their employees so many perks, according to new research: firms that treat workers better are more innovative…. Companies with higher worker treatment scores produced more patents, and more highly cited patents. Not only that, firms with better worker treatment scores produced more relevant patents, ones that were more closely aligned with the firm’s existing expertise.” HARVARD BUSINESS REVIEW
 

5 Non-Profit Governance Gaffes To Avoid

“In 2009, the Multiple Sclerosis Society Scotland made a corker of a governance mistake when it lost one of the world’s most famous living authors, JK Rowling, as a patron. Rowling, who had supported the charity for almost a decade at that point, said a ‘longstanding and escalating’ conflict between the Scottish office of the charity and London management had damaged morale and caused staff to quit. Rowling now funds MS research directly through the Anne Rowling Regenerative Neurology Clinic, which she donated £10m to create. The lesson: If you are lucky enough to have one of the world’s richest and most famous people supporting your cause, then you should go out of your way to keep them!” THIRD FORCE NEWS


Say Professor, Won't You Join Us?

Directors from academia served on the boards of around 40% of S&P 1,500 firms over the 1998-2011 period…. We find that companies with directors from academia are associated with higher performance and … play an important governance role through their advising and monitoring functions. Specifically… the presence of academic directors is associated with higher acquisition performance, higher number of patents and citations, higher stock price informativeness, lower discretionary accruals, lower CEO compensation, and higher CEO forced turnover-performance sensitivity. SOCIAL SCIENCE RESEARCH NETWORK 

A Seat at the Table


★ Arun Sarin, former CEO of Vodaphone joins the Accenture board.★ Novatel Wireless names its board chair Sue Swenson as CEO: Swenson plans to retain both roles and also continue as chairwoman of FirstNet, a federal entity responsible for the nationwide broadband network for first responders.★ The board of McGraw-Hill Education welcomes teen and social media expert Nancy Lublin, founder of Text Crisis Line, the first free 24/7 text hotline for teens in crisis; Lublin was formerly CEO of DoSomething.org and the founder of Dress For Success.★ Carmen Chang, partner and managing director at venture firm NEA and former partner at Wilson Sonsini Goodrich & Rosati joins the board of STX Entertainment, a global film, TV, and digital media company. ★ Costco welcomes its second new director from the telecom industry in less than a month: John W. Stanton,  founder and former CEO of Western Wireless Corporation. ★ National Public Radio elects a new board chair: Roger LaMay, general manager of WXPN in Philadelphia. ★ The board of Popeyes Louisiana Kitchen welcomes director Lizanna Thomas, a lawyer and corporate governance expert who also serves on the Krispy Kremes Doughnuts board.★ A. Barry Rand, former CEO of AARP and chairman emeritus of Avis, retires from the Agilent Technologies board, on which he has served since its founding in 2000.
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