November 3, 2016 - Issue 2.44 - 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.
While the boardroom is fairly quiet this week, there are a few things that caught our attention. For starters, we look at how much directors are paying themselves—the median salary for directors of S&P 500 companies is about a quarter of a million dollars a year, with some earning into the millions, presumably for a job very well done. Next, we are back to Wells Fargo, which is hoping to avoid litigation by settling yet another accusation of wrongdoing—this time for overcharging mortgage holders for home appraisals the bank required of those who had defaulted on loans. Meanwhile, commentators offer some advice to the bank’s board about refreshing the company culture, even as a group of senators questions why KPMG, the bank’s long-time auditor, didn’t discover signs of malfeasance. We find some rich insights on how a board can help grow a sustainable business that activists will leave alone, as well as advice from one of the best-known activist investors, Nelson Peltz. And, since we can’t help but think that now is a great moment to step back and think about the board’s role in creating responsible corporate cultures, this week we highlight “Business Ethics Begin in the Boardroom” from the Boardspan Library.

The Hot Seat

Director Pay Grows Sky-High for Some

“They don’t get nearly as much attention as CEOs, but board directors are often crucial to the functioning of a company — and, whether they’re essential leaders or unproductive chair-fillers, directors also receive hefty paychecks for the hours they spend guiding companies. The median retainer for a director at an S&P 500 company reached $240,000 last year, up 4.3 percent from 2014, according to a recent report from Equilar…. The highest-paid director at an S&P 500 company last year was Donald James, who received more than $8 million to serve as non-executive chairman of the board of Vulcan Materials Co. [The Wells Fargo board, (referenced below) was the 20th highest paid in the S&P, with total board compensation of $5,111,575 and median director pay of $346,027.]” FISCAL TIMES

Across the Board

Curated news and insights from the world's boardrooms.

Wells Fargo Offers $50 Million to Settle New Allegations

“Wells Fargo on Tuesday morning added to its growing list of black marks with a settlement offer directed at another accusation of malfeasance. This time the San Francisco-based banking giant offered to pay $50 million to settle allegations that it cheated homeowners whose mortgages were in default out of unwarranted fees that added to their financial burdens. The corporation denies any wrongdoing, but decided to settle the case to avoid further litigation… In a class-action lawsuit involving about 250,000 homeowners, the bank is accused of marking up fees on certain services, including home appraisals, that the bank orders after owners default on their mortgage loans.” CHRISTIAN SCIENCE MONITOR

Will Wells Fargo Board Take the Blame?

“As a manager, you have a choice when something blows up on your watch. You can blame your staff – or you can enhance your own leadership and processes. The board of Wells Fargo faces that same choice. In late September, the bank’s board set up a special committee to conduct its own investigation into the bank’s fake account scandal and is expected to make its findings public in the first quarter of next year. The question now is whether the board will reveal its own mistakes in that report and recommend improvements in its own oversight. Boards have more influence over the culture and operations of companies than many people realize…” FORTUNE

Should Auditor’s Have Uncovered The Scam at Wells Fargo?

"Wells Fargo & Co. isn’t the only one having to answer to Washington over its sales-practices scandal. Its longtime auditor, KPMG LLP, is getting questioned, too. In a letter to KPMG last week, Sen. Elizabeth Warren (D., Mass.) and three colleagues said the firm’s failure to uncover practices that included Wells Fargo employees opening as many as two million accounts without customers’ knowledge “raises questions about the quality of your audits.” WALL STREET JOURNAL

How to Keep Activists at Bay: Sustainable Growth

“How much more scrutiny do boards of directors face these days? By one measure, a lot more: the number of activist investor deals rose 34% between 2000 and 2014. According to Bain & Company’s analysis, activist investors are now the fastest-growing class of institutional investors—and more than 75% of their demands involve nominating or replacing directors on boards. For directors, this is simply a fact of life, and the best way for a company to avoid activist attention is simply to deliver the fundamental performance that leads to long-term value creation. A company that creates a sustainable competitive advantage, executes well and reinvests to solidify its strategy will find that its share price accurately reflects its value. And if there is no arbitrage to be had, most activists will hunt elsewhere. So how can boards ensure their company is able to grow sustainably?” HARVARD BUSINESS REVIEW

Advice from Nelson Peltz: Aim for Respectful Confrontation

“‘We just want to make sure that the entire board is active, understands what’s going on in that company and why decisions are being made. When you hear every decision has been unanimous, we like to say, you’ve got 12 directors. You probably could get rid of 11 of them if they’re all like-minded all the time and save the directors’ fees. We think good debate brings good decisions. Respectful confrontation is what we call it. And that’s something we do.’—Nelson Peltz, CEO and founding partner, Trian Fund Management”  WALL STREET JOURNAL

Viacom Board Names New Acting CEO

“Viacom, the cable network operator in search of a new leader after tumultuous changes at its board of directors, appointed Monday Robert Bakish as acting president and CEO, buying its controlling shareholders and the board some time to vet and name their preferred CEO as they consider a possible merger with CBS Corp.” USA TODAY

Chipotle Founder in Investor's Crosshairs

“Two union-affiliated shareholders in Chipotle Mexican Grill on Tuesday said they would propose replacing the company's chairman, Steve Ells, who founded Chipotle, with an independent director, piling on pressure after well-known activist Bill Ackman took a large stake in the company…. The non-binding proposal marks escalating pressure from investors who have previously challenged the formerly high-flying restaurant chain over corporate governance and executive compensation. Chipotle shares have plummeted to around $360, less than half their level in summer 2015, when they flirted with $750 before a series of food-borne illnesses at company restaurants.…The California Public Employees' Retirement System, which holds 90,771 Chipotle shares, indicated the proposal is in line with its governance principles. ‘As a matter of practice and in principle we support separating chairman and CEO roles consistent with the CalPERS Global Governance Principles,’ a spokeswoman said.” REUTERS

Mattel Board Seeks New CEO

"Mattel Inc.’s board has started preparing for a CEO transition, hoping to avoid the difficulties the toy maker had the last time it changed leaders. The biggest U.S. toy company hired the search firm Spencer Stuart this summer to help identify the successor to CEO Christopher Sinclair, according to people familiar with the matter. The recruiter is looking inside and outside the company for the next Mattel leader, the people said. The board’s timeline for making a transition is unclear; Mr. Sinclair has said he plans to see the company through its continuing turnaround effort. Corporations often engage with recruiting firms for long-range succession planning." WALL STREET JOURNAL

From the Archives

Business Ethics Begin In the Boardroom

"Recent years have seen a spate of business crises and corporate collapses around the world. The actions of key executives and the attitudes of their directors have come under the public spotlight…. The media focuses on companies’ social responsibilities, relations with their stakeholders, and call for more ethical business. Regulators, commentators, and business school professors push for better corporate citizenship….But business ethics are not an optional exercise in corporate citizenship, they are fundamental to the governance and management of every organization. Decisions at every level in a company have ethical implications – strategically in the boardroom, managerially throughout the organization, and operationally in each of its activities. Ethics reflect behavior in business and the behavior of business. In business, ethics involve the recognition and management of risk." EUROPEAN FINANCIAL REVIEW via BOARDSPAN

A Seat at the Table

  • Gail Goodman, former CEO and chair of online marketing tools company Constant Contact, joins the board of Shopify, a cloud-based, multi-channel commerce platform
  • Judy Bruner, former EVP and CFO of SanDisk Corp, joins the board of Rapid7, a provider of security data and analytics solutions
  • Former adidas CEO Herbert Hainer joins the board of global professional services firm Accenture
  • Josh Silverman, former president of consumer products and services at American Express and previously CEO of Skype, joins the board of the Shake Shack restaurant chain
  • Venture capitalist Marc Andreessen joins the board of office cloud communications startup Dialpad; this follows a 2012 investment by Andreesen-Horowitz
  • The nonprofit Linux Foundation which promotes open source software and collaborative development, welcomes three new board members: Nithya Ruff, director of Western Digital’s Open Source Strategy Office; Erica Brescia, co-founder and COO of Bitnami; and Jeff Garzik, co-founder of Bloq
  • InVivo Therapeutics Holdings, a biotech company focused on spinal cord injuries, appoints to its board Jeffrey Hatfield, president, CEO, and board member for Vitae Pharmaceuticals, which is being acquired by Allergan
  • Outdoor lifestyle company Quicksilver welcomes to its board Franck Riboud, former CEO and current chairman at France-based multinational food company Danone
  • Biotech company Ocera Therapeutics appoints to its board Willard Dere, M.D., professor of internal medicine at the University of Utah Health Sciences Center and former SVP in research and development at Amgen
  • Barron M. Witherspoon, SVP of corporate industry affairs for Procter & Gamble becomes chairman of the board at INROADS, a non-profit focused on development and career preparation for talented, underserved youth
  • Rice University President David Leebron is elected chairman of the board of Association of American Universities, which represents the 60 top research universities in the U.S. that together produce billions of dollars of federally funded research annually; the board represents the group to U.S. lawmakers on issues of higher education policy
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