Much like the classic I Love Lucy episode featuring Lucy and Ethel as factory workers who become inundated by an ever-quickening conveyor belt of chocolates, directors may feel overwhelmed by the torrent of regulatory changes coming at them, said Henry Hu, the inaugural director of the Securities and Exchange Commission’s Division of Risk, Strategy and Financial Innovation, a keynote speaker the NACD Directorship 100 Forum in November.
“Wall Street engineers must get ahead of what comes down the pike,” said Becky Quick, co-anchor of CNBC’s “Squawk Box,” who introduced Hu. Quick noted that SEC Chair Mary L. Schapiro tapped the University of Texas professor 13 months ago to head the first new division created by the Commission in 37 years because she had “identified someone that first started warning us about derivatives.”
Hu’s remarks focused on his “decoupling” concept as well as the importance of the Dodd-Frank Act, which he labeled the “most comprehensive change in generations… representing a new era for corporations and boards that introduces new challenges and opportunities. It is important to get the balance between corporate governance and financial innovation right.”
Less than two weeks after Hu addressed the NACD audience, his resignation was announced by SEC Chair Mary Schapiro. No replacement was immediately named and Hu told Bloomberg News the decision to depart was “completely my own. This seemed like a very natural point in terms of having accomplished the very basic goals” of setting up a new division, he said. Hu’s unit was created through the merger of separate SEC units that conducted economic analysis and identified emerging financial risks. He hired people who previously worked at hedge funds and on Wall Street, adding to an SEC staff primarily made up of securities lawyers. “I am deeply grateful to Henry for the great start that he has given the division, and for his valued judgment on a wide range of important substantive issues,” Schapiro said in the SEC’s statement. Hu told Bloomberg he looks forward “to going back to what I have loved for 20 years, which is research.”
Sugar Joins Apple Board
Apple Inc. has appointed Ronald D. Sugar, former chairman and CEO of Northrop Grumman Corp., as its board’s audit and finance committee chairman. The appointment expands the board to seven members, including Apple CEO Steve Jobs, Intuit Inc. Chairman Bill Campbell and former U.S. Vice President Al Gore.
Gender Differences Noted in Board Decision-Making
Greater board diversity may help improve the public’s trust in corporate boards after the financial crisis, perhaps in part because there are strong differences in opinion between how men and women directors view certain issues. A study conducted by Heidrick & Struggles, WomenCorporateDirectors and Dr. Boris Groysberg of Harvard Business School found that 65 percent of women and 35 percent of men believe increased boardroom diversity would be beneficial. However, only half of both groups believed that their board was adequately advancing diversity. Female directors were also more critical of their board’s performance and competitive compensation practices, but had greater faith that executive compensation and proxy access regulations would have positive effects.
Rise Seen in Third-Party Litigation Funding
Investors are looking to court battles as a new way to earn profits, by supporting medical malpractice claims, divorces and class action lawsuits and retaining a portion of the winnings, The New York Times reports. A review by the newspaper and the Center for Public Integrity found that while funds from banks, hedge funds or private investors make it possible for those with minimal financial resources to take their cases to court, investors can also become too involved in the court proceedings; interest paid to the investor could eventually total more than the winnings.
Director Comp Steady
Director compensation has remained relatively constant this year, according to a survey of board compensation practices of 600 mid-market public companies by the accounting firm BDO. The annual study found that directors had a median compensation increase of just two percent. Last year’s study predicted that compensation would normalize as the current economic situation and boards’ reactions to it shifted. The stability of director pay this year “can be attributed to the survival mode that a lot of companies are in, a lot of them are just holding the line,” said Randy Ramirez, Northeast practice leader for the Compensation and Benefits Practice at BDO. “They’re not trying to push the envelope.”
FedEx Giving 1.5 Percent of Profits
FedEx designates about 1.5 percent of its pretax profits for corporate giving, compared with the average 0.9 percent, a fact that CEO Frederick W. Smith said in a recent interview with The New York Times pays off for those they help as well as for shareholders. “It’s good business to be a good corporate citizen,” said Smith. “People absolutely make business decisions toward companies that have good corporate responsibility records.”
CalPERS to End ‘Focus List’
The California Public Employees’ Retirement System (CalPERS) has decided to change its method of pursuing companies that it feels are underperforming or have poor corporate governance practices. Previously, CalPERS released an annual “Focus List,” spotlighting companies that were unwilling to make improvements in corporate governance. Because a Wilshire Consulting study found that the firms CalPERS worked with privately to make changes outperformed the ones named on the publicly released Focus List, CalPERS has decided to dedicate more effort to private collaboration.
M&A on Track for Biggest Year Since 2007
The increase in mergers and acquisitions will continue in 2011, with global M&A deals expected to reach $3.04 trillion, according to a report from Thomson Reuters and Freeman Consulting Services, based on interviews with 150 executives. Although the numbers are unimpressive when compared to pre-recession figures, it would be the biggest year for M&A since 2007, when deals reached $4.28 trillion. Deals are expected to finish out this year at $2.23 trillion, an increase of 12.6 percent from the recent low achieved in 2009.
Moving On Up
The number of public company directors being promoted to CEO has significantly increased, a new study from Heidrick & Struggles finds. Between July 2009 and mid-October, 2010, 13 Fortune 1,000 companies named their own directors as permanent CEOs, and three were named interim CEOs. Four directors were named to the CEO position in the previous year.
To Thwart Poaching, Google Raises Salaries
Google bumped all 20,000 employees’ salaries up by 10 percent and promised a $1,000 holiday cash bonus, according to an internal email from CEO Eric Schmidt that was sent to Business Insider by an employee, who later was fired for the leak (and will not be receiving the salary increase or bonus). The move, which is expected to cost the internet giant around $1 billion a year, is described by analysts as an attempt to retain employees being wooed by Facebook and other competitors.
Director Quits Metha Energy Over Governance Issues
David P. Meachin resigned from the board of Metha Energy Solutions because of “disagreements with the company in relation to corporate governance matters,” according to the company’s 8-K filing to the SEC reporting his resignation, filed on November 9. Meachin’s resignation letter, dated October 11, specifies that he “lost confidence in Jesper Toft’s role as the CEO of the company based on his performance.”
CEOs More Confident
CEOs feel positive about the economic outlook for the next six months, according to a quarterly study on CEO confidence from the Young Presidents’ Organization. Only 12 percent of CEOs surveyed felt that economic conditions would worsen, while nearly half of executives were optimistic. CEOs also reported more frequently that their companies are planning on hiring; one in four had hiring plans this quarter, while only one in three did in the previous study. Sixty percent believed sales would increase over the next year.
Pressure to Donate
Sixty percent of business leaders surveyed feel pressure to contribute to political efforts, finds a poll conducted by Zogby International, commissioned by the Committee for Economic Development. Business leaders also reported concern about undisclosed donations to third-party political organizations, with 77 percent believing that companies should disclose all political spending. Half of the respondents familiar with the Supreme Court’s Citizens United decision in January to allow unlimited and undisclosed political spending disagreed with the ruling.
Fewer New Directors Are Also CEOs
Only 26 percent of new directors are active CEOs, compared with 53 percent 10 years ago, according to the latest edition of Spencer Stuart’s annual board study. The report finds that boards are more independent now, with a ratio of 3:1 outside to inside directors when the firm began its studies, to 5:1 today. Diversity has become more important to boards, with 44 percent seeking women and 47 percent reporting looking for minorities. In contrast, only 21 percent of new directors this year are female, and 12 percent are minorities.
McChrystal Joins JetBlue Board
JetBlue Airways has appointed retired General Stanley A. McChrystal to its board of directors. McChrystal is a 34-year U.S. Army veteran who most recently commanded the U.S. and NATO security mission in Afghanistan. McChrystal retired from the Army shortly after a Rolling Stone article earlier this year portrayed him in a light that “does not meet the standard that should be set by a commanding general,” said President Barack Obama at the time. JetBlue Corporate Secretary James Hnat cited McChrystal’s “depth of experience and the track record of leadership” as reasons for his appointment.
Total Realized Comp for CEOs Falls
Annual compensation rates for executives edged up 1.6 percent in 2009, while total realized compensation — which adjusts for changes in value realized on stock options and other vested equity income — slipped 0.3 percent, according to a recent report from The Corporate Library.
The results indicate a continued increase in base salaries and a modest increase in the number of bonuses that were handed out last year. Meanwhile, the category of all other compensation, in which companies typically disclose CEO perks, fell 18 percent from 2008, due in large part to fewer CEOs receiving tax reimbursements for certain perks.
Who’s Tops In CEO Pay
The Wall Street Journal released findings from consulting firm Hay Group on the top 10 most highly compensated CEOs in 2009:
- Liberty Media’s Gregory B. Maffei – $87,095,900
- Oracle’s Lawrence J. Ellison – $68,649,800
- Occidental Petroleum’s Ray R. Irani – $52,181,400
- Yahoo’s Carol Bartz – $44,613,900
- CBS’s Leslie Moonves – $38,932,700
- Viacom’s Philippe P. Dauman – $33,728,900
- Thermo Fisher Scientific’s Marc N. Casper – $33,048,200
- Boston Scientific’s J. Raymond Elliott – $32,102,500
- Polo Ralph Lauren’s Ralph Lauren – $27,024,300
- McKesson’s John H. Hammergren – $24,464,800