Bob Shanks

Ford Motor Company has announced the retirement of CFO Lewis Booth, who will be succeeded by Bob Shanks, current company vice president and controller. Shanks has held a variety of leadership positions at the company, including controller for The Americas and CFO of the Mazda Motor Corporation. “Bob is a terrific leader,” CEO Alan Mulally said. “He has been a wonderful partner to the leadership team in the implementation and institutionalization of the One Ford plan. His deep experience in finance, combined with his global perspective will allow us to continue to deliver an exciting profitably growing Ford.”

Former Honeywell International COO of the Defense and Space Business Dean M. Flatt has been elected to the Curtiss-Wright board of directors, the engineering company announced. Flatt has also served as president of Honeywell’s Aerospace Electronics Systems Business. He is currently a board member at Ducommun, Industrial Container Services and JF Lehman & Company.

Inge G. Thulin

Inge G. Thulin, 3M COO, has been promoted to company director and CEO, succeeding the retiring George W. Buckley, according to a company statement. Thulin is former executive vice president of International Operations for the company, and is currently a member of The Toro Company board of directors. Vance D. Coffman, lead director said, “Inge is a proven leader with a terrific blend of strategic, business and analytical skills, and an excellent record of delivering both sales growth and operational efficiency in a wide range of global businesses. His strengths will serve 3M well and ensure that the company remains on a strong growth track driven by innovation for many years to come.”

Charles G. "Chip" McClure

DTE Energy has named Charles G. “Chip” McClure, chairman and CEO of Meritor, to the board of directors, the diversified energy company announced in a statement. McClure is former CEO and director of Federal-Mogul and former CEO and director at Detroit Diesel. “We are delighted that Chip has agreed to join our board of directors,” said Gerard M. Anderson, DTE Energy chairman and CEO. “His proven business leadership, his experience with various corporate boards and his leadership in the community will make him a valuable addition to the board.”

Retailer Aeropostale has appointed current Director and Chairman of the Audit Committee Karin Hirtler-Garvey chairman of the board, according to a company news release. Hirtler-Garvey is former chief risk executive at Ally Financial and previously has held a number of senior management positions at Bank of America. She is a director at Medley Capital, USAA Federal Savings Bank and Western World Insurance. The company also named Janet E. Grove, retired Macys vice chairman and current Safeway director, to the board.

David T. Seaton

David T. Seaton, Fluor CEO, will take on the additional role of company chairman, completing retiring Chairman and CEO Alan L. Boeckmann’s succession plan, the company announced. Seaton is a director at The Mosaic Company and the American Petroleum Institute. “Alan’s contributions to Fluor’s board over the last decade are innumerable. He helped the company achieve unprecedented levels of success across all business metrics during both stable and unstable economic conditions,” said Peter J. Fluor, the company’s lead independent director. “The board is fully confident that David will help Fluor achieve great accomplishments in the future, just like other great Fluor leaders have done in the past.”

Micron Technology has appointed D. Mark Durcan CEO and director, and Robert E. Switz chairman, following the sudden death of longtime Chairman and CEO Steven R. Appleton in an airplane accident Feb. 3. Durcan has served as COO since 2007 and was previously the company’s chief technology officer. Switz is currently on the Micron board, and is former chairman and CEO of ADC Telecommunications.

Kazuo Hirai

Sony has appointed Kazuo Hirai, currently executive deputy president, to be successor to current CEO Howard Stringer, who will remain as chairman of the board. Hirai is also expected to be appointed to the board at the shareholders meeting in June. “Kaz is a globally focused executive for whom technology and the cloud are familiar territory, content is highly valued, and digital transformation is second nature. I believe his tough-mindedness and leadership skills will be of great benefit to the company and its customers in the months and years ahead,” Stringer said in a statement.

PerkinElmer has appointed Atlas Venture Partner Peter Barrett to the board of directors. Barrett previously was co-founder and chief business officer at Celera Genomics, and held senior management positions at PerkinElmer in the 1980s and 1990s. “We are very excited to have Peter joining our board,” said Robert F. Friel, chairman and CEO of PerkinElmer. “Peter brings decades of deep industry experience and knowledge of life sciences and analytical instrumentation, gained in his international leadership positions, as well as from his expertise as a leading investor in scientific enterprises.”

Evelyn Follit

Evelyn Follit, head of Follit Associates consulting practice and former RadioShack CIO, has been named to the TECO Energy board of directors, the energy-related holding company has announced. Follit is also a director at Bealls and Winn-Dixie Stores. TECO Energy Executive Chairman Sherrill Hudson said, “Evelyn is a proven leader, with decades of experience in corporate technology and strategy, and she is an excellent addition to our board.”

DineEquity, parent company of Applebee’s Neighborhood Grill & Bar and IHOP Restaurants, has named Choice Hotels International CEO Stephen P. Joyce to the board, according to a company statement. Joyce has also served in a number of executive leadership positions at Marriott International.

Former National City Corporation Chairman and CEO Peter E. Raskind will join the Capital One Financial board of directors, the financial holding company announced in a statement. Raskind, who will join the board’s audit and risk committee, is currently a consultant to banks and private equity bank investors, and has previously served as a director at United Community Banks, Visa USA, Visa International and Inovant.

Zein Abdalla, CEO of PepsiCo Europe, has been elected to The TJX Companies board of directors, according to a news release from the apparel and home fashions retailer. Abdalla has served in a variety of leadership positions at PepsiCo, including general manager of the company’s European Beverage Business. In addition, the company has promoted current Executive Vice President Scott Goldenberg to the additional role of company CFO. Goldenberg has also held the company’s corporate controller and senior vice president, director of finance positions at Marmaxx.

Corning Incorporated has appointed retired Dow Corning Chairman and CEO Stephanie A. Burns to the board of directors and its corporate relations committee. Burns is also a director at GlaxoSmithKline and was appointed by President Obama to the President’s Export Council.

Martin J. Barrington

Altria Group CEO and Chairman Michael Szymanczyk has announced he will retire in May, to be succeeded by current Vice Chairman and Director Martin J. Barrington. Barrington also serves as the company’s chief compliance officer, and has previously served as executive vice president, general counsel and senior vice president for Phillip Morris International.

Frank J. Petrilli has been named chairman of the E*TRADE Financial board of directors, allowing current CEO Steven Freiberg to pass on the interim chairman role he had held since the departure of Robert Druskin in May 2011. Petrilli most recently was CEO of Surge Trading and is former CEO of Nexxar Group. “A seasoned veteran and well-recognized leader in our industry, Frank’s experience makes him an ideal addition to our Board. In addition to his in-depth understanding of both securities brokerage and consumer banking businesses, Frank has a proven record of leading successful growth in the retail investing segment,” said Freiberg in a statement.

JDS Uniphase CEO and Director Thomas H. Waechter is joining the Altera board of directors, the programmable solutions creator announced in a statement. Waechter also formerly held a number of executive positions, including chief operating officer, at Harris Stratex Networks. “Tom’s diverse business and management experience is a strong addition to Altera as we enter a new era of silicon convergence with our programmable solutions,” said John Daane, Altera’s Chairman and CEO.

Symantec has appointed Starbucks Chief Information Officer and Executive Vice President of Digital Ventures Stephen Gillett to the board of directors, according to a company news release. Gillett was named last year’s “Chief of the Year” by InformationWeek, and previously held senior technology leadership positions with Corbis, Yahoo! and CNET Networks. “Gillett’s enthusiasm and forward thinking will add a unique perspective to help drive Symantec strategy,” said Enrique Salem, Symantec CEO. “We look forward to benefiting from his innovative technology experience that is directly relevant to Symantec’s vision of helping people work and play freely in a connected world.”

Edward C. White, Owens-Illinois CFO has announced his retirement, and the company has named current President of O-I Asia Pacific Operations Stephen P. Bramlage, Jr. as his successor. Bramlage has also served as company treasurer and general manager of O-I New Zealand. CEO and Chairman Al Stroucken said in a statement, “Steve has served as a member of my leadership team for the last year and is very familiar with our global strategies, as well as the financial intricacies of the company. We are greatly indebted to Ed and we appreciate his contribution to O-I. We look forward to an orderly transition of responsibilities from Ed to Steve during the second quarter.”

Booz & Company Senior Executive Advisor Marc E. Robinson has been elected to the Minerals Technologies board of directors, the company announced in a statement. Robinson has previously held the company group chairman of the consumer segment position at Johnson & Johnson. “We are very pleased to have someone of Marc Robinson’s caliber join our Board of Directors,” said Joseph C. Muscari, chairman and CEO. “He has a uniquely diversified business background as a Fortune 100 officer-level executive with leadership roles in marketing, sales, technology and general management.”

M.D.C. Holdings has appointed Raymond T. Baker, president, founder and co-director of Gold Crown Management, to the board. Baker is also a member of the board of directors at Alpine Banks of Colorado and Steele Street State Bank & Trust.

Gerald L. Storch, current Toys”R”Us chairman and CEO, has been elected to the Bristol-Myers Squibb board of directors, according to a company statement. Storch is also former vice chairman of Target and partner at McKinsey & Company. “We are thrilled to have a person of Jerry’s caliber, an industry leader with an excellent track record of success in branding and positioning a global franchise for growth, on our board of directors,” said Lamberto Andreotti, Bristol-Myers Squibb CEO.

John Mulligan

Target has named current Senior Vice President of Finance John Mulligan to the CFO role, replacing retiring CFO Doug Scovanner effective April 1. Mulligan has also held leadership positions in the company’s Target.com and Human Resources segments. He is also currently a member of the finance committee for Habitat for Humanity. “John brings significant financial experience and strategic perspective to this new role,” said Gregg Steinhafel, chairman and CEO. “I am confident that he will sustain the financial discipline and stewardship Target has enjoyed during Doug’s tenure and believe John’s strong leadership and record of performance make him a valuable addition to our Target executive team.”

The California Public Employees’ Retirement System (CalPERS) has re-elected Rob Feckner president and George Diehr vice president, the pension fund announced in a news release. Feckner was first elected to the fund’s board in 1998, and chairs the governance committee. Previously, he was president of the California School Employees Association. Diehr is on the faculty of the College of Business Administration at California State University, San Marcos. He chairs the investment and the benefits and program administration committees. “I want to thank my fellow board members for their support and trust in me to lead this organization,” said Feckner. “We have made great strides in the last year to strengthen our transparency, accountability and ethics that will enhance our ability to provide the retirement and health security that public employees deserve.”

BlackBerry maker Research In Motion (RIM) Co-CEOs Mike Lazaridis and Jim Balsillie are stepping down from their positions, with Chief Operating Officer for Product and Sales Thorsten Heins taking on the position, according to a company statement. Heins joined the company as senior vice president for hardware engineering, and previously worked at Siemens Communication Group. Lazaridis will transition to vice chairman of the board and chair of its new innovation committee, while Balsillie will remain a member of the board. “Thorsten has demonstrated throughout his tenure at RIM that he has the right mix of leadership, relevant industry experience and skills to take the company forward. We have been impressed with his operational skills at both RIM and Siemens,” said Lazaridis.

Mary Ann Casati and Lorraine Twohill have been named to the board of directors at Williams-Sonoma. Casati is a co-founding partner of Circle Financial Group, and a former member of the J. Crew Group board. Twohill is head of Google’s global marketing division. “We are excited to have Mary Ann and Lorraine join our board,” said Adrian Bellamy, chairman of the board. “These two individuals each bring a unique perspective and expertise that we believe will help shape the success of our company.”

Celgene has elected Richard W. Barker, former director general of the Association of the British Pharmaceutical Industry, to the board of directors, the biopharmaceutical company announced. Barker is also former CEO of Chiron Diagnostics, general manager of IBM’s Worldwide Healthcare Solutions divsion and leader of McKinsey & Company’s European healthcare practice. “As we continue to expand our global reach, Dr. Barker’s international perspective will enhance our ability to navigate through an increasingly dynamic healthcare landscape and provide patients access to our innovative therapies,” said Robert J. Hugin, Celgene’s chairman and CEO.

José E. Almeida

Covidien has elected current CEO José E. Almeida to the additional position of chairman of the board, the healthcare products company announced in a statement. Almeida has also served as the president of the company’s Medical Devices business segment, and joined the company in 1995 as director of Manufacturing and Corporate Engineering. “Joe has done an outstanding job leading the organization since becoming president and CEO last July,” said Timothy M. Donahue, lead director. “His drive to create long-term shareholder value and his vast knowledge of the global healthcare marketplace significantly enhance the company’s already strong prospects for sustained growth and progress.”

Jack L. Stahl has been appointed to the Saks board of directors and its audit committee, the retailer announced in a statement. Stahl is former CEO of Revlon, and served in a number of financial leadership roles at The Coca-Cola Company, including CFO and COO. Currently, Stahl is also a member of the Dr. Pepper Snapple Group, Coty and Delhaize Group boards of directors. Stephen I. Sadove, chairman and CEO of Saks, commented, “We are extremely pleased that Jack Stahl will join our board of directors. His exceptional finance, leadership, operations, and strategic business background will make him an outstanding contributor to our board.”

BJ’s Wholesale Club CEO Laura J. Sen has been named to the rue21 board of directors, expanding the board to seven members, according to a news release from the specialty apparel retailer. Sen is also a director at BJ’s, where she previously served as COO. Bob Fisch, rue21 CEO and chairman, stated: “I am delighted to welcome Laura Sen to our board. Laura has a proven track record in retail merchandising and operations, and we look forward to benefiting from her strategic leadership in critical areas important to the continued growth of our business.”

Sealed Air has elected Richard L. Wambold, former Pactiv/Reynolds Foodservice and Consumer Products CEO, to the board. Wambold has previously served as chairman and CEO of Pactiv, and currently is a board member at Cooper Tire and Rubber and Precision Castparts.

OM Group has named former Advanced Energy CEO Hans-Georg Betz a director, the company announced in a statement. Betz was formerly founder and CEO of West Steag Partners.

Diane Greene, co-founder and former CEO at VMware, has been named to the Google board of directors and audit committee, BusinessWeek reports. Greene, who is also a director at Intuit, expands the board to ten members. She co-founded VMware in 1998 and sold the company to EMC Corp. in 2004, who then spun the company off in 2007 but maintained a majority ownership. “Diane is a special person who combines a sharp business acumen with a brilliant technical mind,” Executive Chairman Eric Schmidt said. “We know she will be a great contributor and we are grateful to have her insight.”

Retired EQT Corporation Chairman and CEO Murry S. Gerber has been named to the Halliburton board of directors, according to a company statement. Before joining the regional gas distribution company, Gerber was CEO of Coral Energy, a Shell subsidiary. “Murry brings a lifetime of energy industry success to the Halliburton board,” said David J. Lesar, Halliburton chairman and CEO. “His leadership, his experience in the Marcellus shale and unconventionals, as well as his intimate knowledge of international oil companies will be valuable in the coming years. We are glad he has chosen to add his talents to our diverse and multifaceted board.” Gerber resigned from his position as director at EQT on Jan. 5, and the company has since elected Kenneth M. Burke and Margaret K. Dorman to the board. Burke is a retired Ernst & Young National Energy director and partner-in-charge of the Houston Energy Services Group. Dorman is former CFO of Smith International, and has also held financial leadership roles at Landmark Graphics.

Lisa Palmer

Regency Centers CFO Bruce Johnson has announced his retirement, with current Senior Vice President of Capital Markets Lisa Palmer stepping in as his successor. Palmer has led the capital markets and investor relations team for over 10 years. “Lisa is not only a gifted financial professional, she also knows the shopping center business and is ingrained with Regency’s special culture. In her 15 years with Regency Lisa has amassed impressive skills from her key roles in capital markets, investor relations, and with our institutional partners. It was an easy and natural decision for me after learning of Bruce’s decision to select Lisa as Regency’s next CFO,” said Martin “Hap” Stein, Jr., Regency Centers chairman and CEO.

Madison Square Garden Sports President Scott O’Neil has been appointed to the Hain Celestial Group board of directors. Previously, O’Neil was senior vice president for the National Basketball Association. His appointment brings the number of Hain Celestial directors to nine.

Mark Weinberger

Ernst & Young has named Mark Weinberger, current head of the Ernst & Young global tax practice, to the global chairman and CEO position, according to a company statement. Weinberger will succeed current global chairman and CEO Jim Turley, who will retire in June. Previously, Weinberger served as the head of the company’s Americas tax division, and was a member of the Americas Executive and U.S. Operating Committee. “Mark is an outstanding professional who has demonstrated strong leadership within and outside our firm, and serves an active role with many of our largest clients. Importantly, Mark has a regulatory mindset which will ensure Ernst & Young maintains strong connections with the many audit regulators and other officials with whom we engage globally. I look forward to working with Mark through a productive transition and am confident he will be an outstanding leader for Ernst & Young who will take our organization to even greater levels of success,” said Turley.

Acxiom Corporation has appointed Warren C. Jenson CFO, the marketing services and technology developer has announced. Jenson has previously served in the CFO role at Electronic Arts, Amazon.com, Delta Air Lines and NBC. He is also a director at Digital Globe and MarkMonitor. “Acxiom is undergoing a significant transformation and Warren joining our team is part of our commitment to lead the way towards more effective marketing practices,” said Scott Howe, Acxiom CEO. “Warren’s ability to transform companies at important inflection points in their evolution will be instrumental in our push to drive innovation, build a strong partner ecosystem and advance our client-focused culture.”

Urban Outfitters CEO and Director Glen T. Senk has resigned effective immediately, with Chairman Richard A. Hayne stepping in to the chief executive role, according to a statement from the retailer. Hayne is an Urban Outfitters co-founder, and has served as chairman since the company was incorporated in 1976. A spokesperson for the Board stated that “the entire Board is pleased to name Dick as the company’s CEO. He brings over 40 years of retail experience and strong leadership. Hayne has been instrumental in the company’s historical success and we are extremely fortunate to have an executive of Dick’s tenure and caliber in place and prepared to lead the company’s continued growth.”

Patrick J. O’Leary, SPX CFO, will retire after the second quarter 2012 operating results are reported, and the board has appointed Jeremy W. Smeltser as CFO successor, the company announced in a news release. Smeltser is currently CFO of SPX’s Flow Technology segment, and is the company’s former vice president of finance and investor relations head.

Former Liz Claiborne CFO Andrew Warren has been appointed CFO of Discovery Communications, the media company announced in a statement. He has also served in a number of leadership positions at General Electric, including senior operations leader for the GE Audit Staff and CFO of the NBC Universal Television Group. “Having worked extensively with Andy at NBC Universal, I know firsthand what an effective and strategic leader he is, how knowledgeable and passionate he is about the media business, and what a great addition he will be to our already strong senior management team,” said David Zaslav, President and CEO of Discovery Communications.

Laura A. Sugg, an independent consultant with 29 years of oil and gas industry experience, has been named to the Denbury Resources board of directors. Sugg is also a director at The Williams Companies and Williams Partners, and is a former Mariner Energy and Huber Energy board member. Previously, she served as president of the Australasia Division of ConocoPhillips. Wieland Wettstein, chairman of the board, said, “I am very pleased to announce the appointment of Laura to our board. Her diverse experience and accomplishments make her an outstanding addition and will complement the skills and experience of our board. I look forward to the leadership and perspectives that Laura will bring to the Board as we continue to grow and execute our strategy.”

Yahoo! has appointed former PayPal President Scott Thompson as CEO and director, effective Jan. 9, according to a company statement. Thompson succeeds interim CEO Tim Morse, who stepped in after the company fired Carol Bartz and who will resume his previous role as CFO. Thompson has also served as executive vice president of technology solutions at Inovant and chief information officer at Barclays Global Investors. “Scott brings to Yahoo! a proven record of building on a solid foundation of existing assets and resources to reignite innovation and drive growth, precisely the formula we need at Yahoo!,” said Roy Bostock, chairman of the Yahoo! board. “His deep understanding of online businesses combined with his team building and operational capabilities will restore the energy, focus, and momentum necessary to grow the core business and deliver increased value for our shareholders. The search committee and the entire board concluded that he is the right leader to return the core business to a path of robust growth and industry-leading innovation.”

Peter Hess

Advent Software President Peter Hess will succeed current CEO and company Founder Stephanie DiMarco, who will remain on the board of directors and as an advisor, the company announced. Hess was previously executive vice president and general manager of the company’s largest business group, and was responsible for Advent’s international operations. DiMarco said, “In Pete Hess, we have an outstanding leader for Advent’s future. He has a proven track record of building exceptional teams, executing successful strategies, and delivering innovative solutions that our clients can count on.”

ViroPharma has appointed Julie H. McHugh, Endo Pharmaceuticals CEO, to the board. McHugh is former Nora Therapeutics CEO and company group chairman for Johnson & Johnson’s Worldwide Virology Business Unit.

Michael R. Odell

Michael R. Odell has been elected to the board of directors at Meritage Homes. Odell, who will join Meritage’s audit, executive compensation and nominating/governance committees, is CEO of The Pep Boys. He is former executive vice president and general manager of Sears retail and specialty stores.

Former PepsiCo Executive Vice President of Global Operations Richard A. Goodman has joined the board of directors at Western Union, the payment services company announced in a statement. Goodman will join the board’s audit committee, and becomes the company’s tenth director. “The addition of Richard Goodman to Western Union’s board of directors brings a global executive with strong financial credentials and accomplishments as our company continues to accelerate the delivery of its products and services to new customers,” said Jack M. Greenberg, chairman of the board of Western Union. “We are looking forward to his advice and counsel in the coming years and anticipate that he will make a valuable contribution to Western Union’s business.”

Albert Morrison III

Fulton Financial has appointed Burnham Holdings CEO and Chairman Albert Morrison III to the board of directors. Morrison is also a member of the regional advisory board at Highmark, and is former chairman, treasurer and a current director at the Lancaster Alliance. “As a long time CEO of a public company, Mr. Morrison brings financial, acquisition and human resources skills to our board,” said R. Scott Smith, Jr., chairman and chief executive officer. “He also brings significant knowledge of our markets.”

Broadcom Corp., a global innovation leader in semiconductor solutions for wired and wireless communications, has appointed Robert Finocchio, Jr., to its board and assigned to the audit committee.  Finocchio has more than 30 years of operating experience in software, Internet and infrastructure markets. In addition to becoming a member of Broadcom’s board of directors, he serves on the board of Echelon Corp. Finocchio has held senior roles at a range of industry-leading companies including chairman, CEO and president of Informix Corp. and president of 3Com Systems. He is also chair of the board of trustees at Santa Clara University and Dean’s Executive Professor at the university’s Leavey School of Business.

Thomas I. Morgan

Baker & Taylor Chairman and CEO Thomas I. Morgan has been elected to the board of directors at Rayonier, the forest products company announced in a news release. Morgan has previously served on the company’s board from 2004 to 2008, and is former CEO of Hughes Supply and Enfo Trust. He is currently a director at Tech Data. “Tom is a proven leader with broad experience across many diverse businesses,” said Lee M. Thomas, chairman of the board of Rayonier. “He knows Rayonier and our mission well, and we are delighted to have Tom rejoin our board.”

World Fuel Services has named former IBM Senior Vice President of Marketing Abby F. Kohnstamm to the board, according to a company news release. Kohnstamm is also president and founder of Abby F. Kohnstamm & Associates, and has previously held a number of senior marketing positions at American Express. She is currently a director at Tiffany & Co. “Abby brings to our board a wealth of experience in global marketing and the strategic use of technology in business. She joins us at an exciting period of growth and transformation at World Fuel and we could not be more pleased,” said Paul H. Stebbins, executive chairman of the board of directors.

R. Brian Hanson

ION Geophysical President R. Brian Hanson has added the CEO role to his title, succeeding Robert P. Peebler, who has transitioned to company chairman. Hanson joined the company in 2006 as CFO.

Synovus Financial has elected current CEO Kessel D. Stelling to succeed retiring Chairman of the Board Richard E. Anthony, according to a news release from the financial services company. Stelling has served with the company since March 2006, and was previously company COO, CEO of Bank of North Georgia and regional CEO for Synovus’ metro Atlanta market. “We have faced significant challenges over the past several years, but I believe we are emerging as a stronger company. I am confident that under Kessel’s leadership, Synovus will have sustained profitability and future success,” said Anthony.

Robert Bradway

Amgen COO Robert Bradway will be promoted to CEO following the retirement of current Chairman and CEO Kevin W. Sharer effective May 23, 2012, the therapeutics developer announced in a statement. Sharer will remain as chairman through the end of 2012, at which time he will retire from the board, with Bradway expected to assume the chairmanship as well. Bradway has also served as company CFO, prior to which he worked at Morgan Stanley for 19 years. Vance Coffman, chairman of the board’s governance and nominating committee said, “The board thanks Kevin Sharer for his service in leading Amgen over the past decade. During that time Amgen grew significantly in every dimension and is well positioned for the future. Amgen’s core mission to serve patients remains our bedrock. The board is excited to have a talented executive in Bob Bradway as the fourth CEO in our company’s history.”

Donald T. Misheff

Donald T. Misheff, Northeast Ohio managing partner at Ernst & Young, has been elected to the FirstEnergy board of directors. Misheff is chairman of the board of the Firestone Country Club and the Cuyahoga Community College Foundation. He previously served on the BioEnterprise board. “Don’s vast financial and corporate governance experience, together with his extensive service to community organizations and business development groups in our region, make him a strong addition to our board,” said George Smart, chairman of FirstEnergy’s board.

Boeing has promoted North American Vice President of Sales Kevin Schemm to the CFO role, after he closed a record-breaking 737 MAX order from Southwest Airlines. Schemm will succeed the retiring Ray Ferrari effective Feb. 1, 2012.

GenSpring Family Office of Phoenix Chairman Richard Dozer has been appointed to the Apollo Group board of directors, according to a statement from the private education provider. Dozer is also a director at Blue Cross Blue Shield of Arizona, Meridian Bank, Swift Transportation and Viad. “We are very pleased to welcome Rich to the board,” said John Sperling, executive chairman of the board of Apollo Group. “Rich brings a wealth of senior management, leadership, operations and accounting expertise to Apollo Group, along with deep roots in the Arizona business community.”

EnPro Industries has elected B. Bernard Burns, Jr. to the board, filling a vacancy created by the retirement of Don DeFosset. Burns is co-founder and managing director at McGuire Woods Capital Group and Red Iron Partners. “We are very grateful to Don for the service he has provided EnPro since he joined the board in 2008,” said Gordon Harnett, chairman. “We appreciate his counsel and wish him well in the future. At the same time, we welcome Bernard and look forward to working with him. He brings an appreciation of our corporate strategies and experience in industrial markets that we are confident will prove valuable to EnPro’s growth.”

Richard M. Daley

The Coca-Cola Company has elected Richard M. Daley, former Chicago mayor and current Katten Muchin Rosenman of counsel, to the board of directors, the beverage company announced in a statement. Daley is also managing principal at Tur Partners, and a senior advisor to JPMorgan Chase. “Mr. Daley brings significant public policy expertise and experience in creating sustainable growth opportunities for businesses and communities to our company,” said Muhtar Kent, chairman and CEO of The Coca-Cola Company. “His experience and insights will be invaluable as we continue to work to grow our business and invest in the fabric of the communities we serve.”

Peter Volanakis, retired Corning COO and director, will join the SPX board, according to a news release from the manufacturing firm. Volanakis has also served as a director of Dow Corning, and is currently on the board of The Vanguard Group and Avantor. “Pete Volanakis brings to SPX a wealth of experience and accomplishment in the areas of international operations, innovation and corporate development derived from his 28-year tenure with Corning,” said Christopher J. Kearney, Chairman and CEO of SPX. “As we continue to expand our business globally, we are confident that his skills, insights and guidance will be valuable assets and make a meaningful contribution to SPX’s long-term growth and success.”

Jeffrey Leiden

Vertex Pharmaceuticals Director Jeffrey Leiden will become the company’s next CEO upon the transition of current CEO Matthew Emmens from chairman and CEO to executive chairman through May 2012, when he will retire but remain as a director. Leiden is managing director at Clarus Ventures and former Abbott Laboratories COO.

KBR has named Jack B. Moore as the newest member of the engineering, construction and services company’s board, according to a company statement. Moore is chairman and CEO of Cameron International. “Jack is an incredibly qualified executive whose leadership and international industry experience will make an immediate and positive impact to our board,” said William P. Utt, chairman and CEO of KBR.

Hearsay Social CEO Clara Shih has been elected to the Starbucks board of directors, the coffee chain announced in a statement. Shih has been named one of FORTUNE’S Most Powerful Women Entrepreneurs of 2011, and has held technology, product and marketing positions at Google, Microsoft and Salesforce.com. She is author of The New York Times bestseller “The Facebook Era: Tapping Social Networks to Market, Sell, and Innovate.” “Clara is a true technology leader and will bring fresh insight to our strong and forward-thinking Board,” said Howard Schultz, chairman and CEO of Starbucks. “We could not be more thrilled about the social-media expertise and ideas Clara will bring to our business as we continue to amplify the online experience and interactions Starbucks has with our customers, partners and communities.”

Marriott International will promote COO Arne Sorenson to the CEO role when J.W. Marriott, Jr., current chairman and CEO, transitions to executive chairman of the board, the hotel chain announced in a statement. Sorenson, who will become the company’s third CEO, joined the company in 1996 and has also served as CFO and maintained oversight of the company’s European operations. Marriott said, “As we approach the 85th birthday of our company in 2012 and I proudly celebrate my 60th year of service, I decided to recommend to the board that Arne Sorenson take over the CEO responsibilities. I have been so fortunate to have worked with some of the most talented people in the world over the past six decades. It’s amazing to me what we have accomplished over the years together, from a small root beer stand in Washington, D.C. to a global lodging powerhouse with operations in more than 70 countries.”

Current Pfizer CEO Ian Read has been elected chairman of the board, succeeding George Lorch, who will become lead independent director, the pharmaceutical company announced in a statement. Also joining the board will be Marc Tessier-Lavigne and Helen Hobbs. “Over the past year, Ian has clearly demonstrated the leadership and vision necessary to drive Pfizer’s strategies and achieve the company’s objectives in the continued challenging industry and macroeconomic environment,” stated Lorch. “His broad experience at Pfizer and his deep understanding of the vital role that the pharmaceutical industry plays in advancing global health and in the global economy make Ian the right person for the chairmanship. We are fortunate to have someone of Ian Read’s caliber lead Pfizer.”

Steven D. Black, former JPMorgan Chase vice chairman and former JPMorgan Chase Investment Bank co-CEO, will join the NASDAQ OMX Group board of directors, the exchange announced in a statement. Before joining JPMorgan Chase in 2000 as head of the Global Equities business, he held a number of positions at Citigroup. “We are elated Mr. Black has joined our board of directors,” said H. Furlong Baldwin, chairman, NASDAQ OMX. “Mr. Black brings a wealth of invaluable experience and a history of achievement and success in the financial services industry.”

John F. Meier

Applied Industrial Technologies has named former Libbey Chairman and CEO John F. Meier as independent chairman of the board, according to a company news release. Meier has been a member of the Applied board of directors since 2005, and is also former lead director at Cooper Tire & Rubber Company.

Rob Burgess, former Macromedia CEO and current Adobe and IMRIS board member, will join the NVIDIA board of directors. He is also former CEO of Alias Research and held a variety of executive positions at Silicon Graphics.

StarTek has appointed Jack Plating as the newest member of the board of directors, the customer experience provider announced. Plating is former Verizon Wireless COO, prior to which he served as president of the Verizon Wireless South Area region. “Jack will make significant contributions to StarTek and our Board,” said Ed Zschau, StarTek’s chairman of the board. “He has spent his career in the telecommunications industry, he has had extensive experience overseeing call center operations, and he has had repeated success growing companies and increasing their profitability. We are pleased that someone of his stature and accomplishments is joining our board of directors.”

Helen McCluskey

The Warnaco Group has elected COO Helen McCluskey CEO and director, succeeding the retiring Joe Gromek. McCluskey has also served as the group president of the company’s Intimate Apparel and Swimwear brands. She was previously group president of the Moderate Women’s Sportswear division at Liz Claiborne.

Harvard School of Public Health Professor of Health Economics Katherine Baicker will join the Eli Lilly board of directors, the pharmaceutical company announced in a news release. Baicker, who is also a research associate at the National Bureau of Economic Research, will also join the board’s public policy and compliance committee. “I am very pleased to welcome Kate Baicker to the Lilly board. Her experience and expertise will surely benefit Lilly shareholders and the patients we serve,” commented John Lechleiter, Lilly chairman and CEO. “Kate is a leading researcher in the fields of health economics, public economics and labor economics. As a valued advisor to numerous healthcare-related commissions and committees, her expertise in healthcare policy and healthcare delivery is recognized by both academia and government.”

Doreen Woo Ho

Roland A. Hernandez

Doreen Woo Ho and Roland A. Hernandez have been elected to the U.S. Bancorp board, according to a news release from the bank parent company. Woo Ho is commissioner of the San Francisco Port Commission and has previously served as CEO of United Commercial Bank. Hernandez is founding principal and CEO of Hernandez Media Ventures, and is former chairman and CEO of Telemundo Group. “We are delighted to welcome Doreen and Roland to our Board,” said Richard K. Davis, chairman and CEO of U.S. Bancorp. “Doreen’s extensive commercial and consumer banking background, along with her first-hand experience in the California banking market, will be an excellent asset to our company. Roland’s broad retail consumer insights and extensive corporate governance experience will make him a great addition to U.S. Bancorp’s board of directors.”

Image from Images.com

The Dodd-Frank Wall Street Reform and Consumer Protection Act created Section 14A of the Securities Exchange Act of 1934, which requires most public companies to conduct a shareholder advisory vote on executive compensation not less frequently than every three years; and to allow stockholders to vote once every six years on whether the “say-on-pay” vote should occur every one, two or three years. The compensation arrangements subject to vote include those paid to the chief executive officer, the chief financial officer and the three other highest-paid executive officers.

Section 14A specifically provides that these resolutions will not overrule the board’s compensation decisions or create or imply any change to or any additional fiduciary duties for the issuer or board.

Despite disclaimers by Congress, at least 10 companies are now facing one or more derivative lawsuits following negative stockholder votes. These complaints set forth similar allegations, including claims for breach of the fiduciary duty of loyalty against the company’s current directors, claims against the recipients of the pay raises for unjust enrichment, and claims against the company’s compensation consultant for aiding and abetting breaches of fiduciary duty.

Most interesting, the complaints also allege that the “no” vote constitutes “direct and probative evidence” that the pay decisions were not in the best interests of the company’s stockholders. This allegedly overcomes the business judgment rule and shifts the burden to the defendants to prove that the challenged compensation decisions were made in good faith and in the stockholders’ best interests.

It may seem difficult to understand how a nonbinding stockholder vote that, by its terms, was not to overrule the board’s compensation decisions or impose any new or enhanced fiduciary duties, could alone be sufficient to defeat the business judgment rule. One federal court, however, has found the argument persuasive, at least at the motion-to-dismiss stage. In NECA-IBEW Pension Fund v. Cox, Cincinnati Bell shareholders brought suit after the directors, inter alia, granted $4 million in bonuses, plus $4.5 million in salary to the CEO, in the same year that the company incurred a “$61.3 million decline in net income, a drop in earnings per share from $.37 to $.09, [and] a reduction in share price from $3.45 to $2.80.” Sixty-six percent of the voting shareholders voted against the plan. The court recognized that the negative vote was not binding nor should it alter the directors’ fiduciary duties, but nonetheless held that, under Ohio law, the business judgment rule did not apply because the factual allegations raised “a plausible claim that the multimillion dollar bonuses approved by the directors in a time of the company’s declining financial performance violated Cincinnati Bell’s pay-for-performance compensation policy and were not in the best interests of … [the] shareholders and therefore constituted an abuse of discretion and/or bad faith.”

As the business judgment rule “imposes a burden of proof, not a burden of pleading,” it may be that the plaintiffs are ultimately unable to prove the directors acted with “a deliberate intent to cause injury” or “reckless disregard for the best interests of the corporation” at trial, but their allegations were sufficient at the pleading stage.

The Georgia Superior Court reached the opposite conclusion in Teamsters Local 237 Additional Security Benefit Fund v. McCarthy et al. There, the directors of Beazer Homes recommended that the shareholders approve the 2010 compensation plan, which included raises for executives in a year in which the company suffered a $34 million net loss and a 17 percent decline in share price. The shareholders rejected the recommendation.

The complaint alleged, inter alia, that by approving the plan, recommending that the shareholders approve the plan and failing to rescind the plan after the negative vote, the directors breached their fiduciary duties to the company.

The court disagreed, holding under Delaware law that neither the negative vote nor the directors’ decision not to rescind the plan rebutted the business judgment rule. The directors could not have considered the results of the February 2011 vote when they approved and recommended the plan in 2010. As such, the vote failed to cast doubt that the directors acted on an informed basis, in good faith and in the company’s best interests a year earlier. “Hindsight second-guessing and Monday morning quarterbacking of the sort [the stockholders] urge are fundamentally inconsistent with the business judgment analysis,” the Georgia court wrote.

Even prior to this uncertainty, other suits had settled, encouraging more suits. In March 2011, KeyCorp, after being sued under a similar provision found in the Troubled Asset Relief Program (TARP), agreed to make changes to its compensation practices and to pay $1.75 million to the plaintiffs’ law firms. Recently, perhaps as a consequence of the unfavorable decision received in the Ohio federal court, Cincinnati Bell announced that it had reached a settlement in another lawsuit, pending in Ohio state court, involving its compensation plan.

In light of these varying outcomes, companies should recognize that they could be targets of similar litigation and take steps that may reduce the risk of such suits.

Know your constituents. Prior to any vote, consider: Have significant institutional investors previously indicated that they are unhappy with the company’s compensation practices or decisions? Have any of these same institutions voted “no” at other companies or filed suit, and if so, why? Are there aspects of the company’s recent performance that could be characterized (rightly or wrongly) as “disappointing”? Can the company take steps by way of additional communication, disclosure or the like, to address these risk factors proactively and render a positive vote more likely?

Be prepared. If there is genuine risk of a “no” vote, have a plan. Will the compensation committee revisit a rejected decision and adjust it, or will only prospective adjustments be considered? What are the ramifications (accounting and otherwise) of a retroactive adjustment? As a matter of good corporate housekeeping, the minutes of compensation committee and board meetings should capture and accurately convey the rationale for any action or nonaction that is taken in light of a negative vote.

Review your disclosures. Consider explaining what is meant by “pay for performance.” The plaintiffs’ bar often seeks to use the company’s Compensation Discussion & Analysis to support their claims, usually relying upon language that the company has a pay-for-performance policy. This argument is based on the latent ambiguity in terms that may not be defined or described in detail in the CD&A. Companies should consider explaining whether “pay for performance” means that pay is based solely upon total shareholder return, or whether it takes into account other considerations. Disclosing what goes into executive compensation decisions can provide defense counsel with more robust disclosures to rely upon, including in seeking to have claims dismissed at the outset.

Potential Impact on Compensation Advisors
The plaintiffs’ bar is also pursuing “aiding and abetting” claims against compensation advisors. As a result, companies should review whether, and to what extent, they have indemnification obligations, whether such obligations are insured, and what impact a lawsuit might have on their relationship with their advisor.

Roger A. Lane is a partner in law firm Foley & Lardner’s Securities Enforcement & Litigation Practice. He can be reached at rlane@foley.com. Courtney Worcester is senior counsel in the Boston office of Foley & Lardner. Her practice focuses on complex commercial litigation involving corporations, venture capital and private equity firms, financial institutions and their directors and officers. She can be reached at cworcester@foley.com.

Bloomberg High Frequency Trading
January 19, 2012 – New York, NY

Center for Capital Markets Competitiveness – The Volcker Rule: Measuring the Impact on Business event and a Regulatory Engagement: Corporate Treasurer Fly-in
January 24 – Washington, DC

Bloomberg Sovereign Debt Conference
January 24 – New York, NY

The Conference Board – Diversity and Inclusion New Leaders Academy
January 31-February 1, 2012 – Munich

Bloomberg China Conference
February 1 – New York, NY

Society of Corporate Secretaries & Governance Professionals – Essentials Seminar 2012
February 1-3, 2012 – Orlando, FL

Money Market Fund Reform
February 8, 2012 – Washington, DC

NACD’s Quarterly Environment Update
February 9, 2012 – Online

The Conference Board – Talent Management Strategies Conference
February 9-10, 2012 – New York, NY
February 29-March 1, 2012 – San Diego, CA

NACD – When an Activist Investor Comes Calling
February 15, 2012 – Atlanta, GA

Bloomberg Portfolio Manager Mash-up
February 16, 2012 – New York, NY

The Conference Board – Employee Health Care Conference
March 1-2, 2012 – New York, NY
March 29-30, 2012 – San Diego, CA

NACD Director Professionalism – The Master Class
March 12-13, 2012 – Scottsdale, AZ
April 26-27, 2012 – Charlotte, NC
August 20-12, 2012 – Laguna Beach, CA
December 5-6, 2012 – Naples, FL

NACD – Navigating Challenges Faced By a Private Company Chairman
March 21, 2012 – Atlanta, GA

Bloomberg Sovereign Debt Conference
March 22, 2012 – Frankfurt, Germany

The Conference Board – Executive Coaching Conference
March 27-28, 2012 – New York, NY

6th Annual Capital Markets Summit
March 28, 2012 – Washington, DC

National Association of Manufacturers 2012 Annual Public Affairs Conference
April 1-3, 2012 – Aventura, FL

Council of Institutional Investors – 2012 Spring Meeting
April 1-3, 2012 – Washington, DC

The Conference Board – Diversity & Inclusion Management Seminars
April 4-5, 2012- New York, NY

Bloomberg Doha Conference
April 16-17, 2012 – Doha, Qatar

The Conference Board – Social Media in HR Seminar
April 17-18, 2012 – New York, NY

NACD – The Roles and Challenges of the Lead Director
April 18, 2012 – Atlanta, GA

The Conference Board – Women’s Leadership Conference
April 19-20, 2012 – New York, NY

NACD Director Professionalism
April 23-24, 2012 – Charlotte, NC
August 16-17, 2012 – Dana Point, CA
November 29-30, 2012 – Washington, DC

Bloomberg Latin America Investing Conference
April 26, 2012 – New York, NY

Bloomberg Washington Summit
May 1, 2012 – Washington, DC

The Conference Board – Executive Compensation Conference
May 8-9, 2012 – Chicago, IL
June 5-6, 2012 – New York, NY

Bloomberg Canada Economic Summit
May 8, 2012 – Toronto, Canada

Bloomberg Enterprise Technology Summit
May 10, 2012 – New York, NY

The Conference Board – Corporate Political Spending
May 15, 2012 – Washington, DC

The Conference Board – Business Ethics and Compliance Conference
May 16-17, 2012 – Chicago, IL

The Conference Board – Leadership Development Conference
May 17-18, 2012 – New York, NY
June 7-8, 2012 – San Diego, CA

Bloomberg Ireland Economic Summit
May 17, 2012 – Dublin, Ireland

National Association of Manufacturing Summit
June 6-7, 2012 – Washington, DC

Bloomberg State & Municipal Finance
June 7, 2012 – Chicago, IL

Bloomberg Asset Management Summit
June 14, 2012 – Boston, MA

Stanford Rock Center for Corporate Governance – 18th Annual Directors’ College 2012
June 24-26, 2012 – Stanford Law School

The Conference Board – Corporate Diversity and Inclusion Conference
June 27-28, 2012 – Chicago, IL

Society of Corporate Secretaries & Governance Professionals 2012 National Conference
July 11-14 – Washington, DC

Stanford Rock Center for Corporate Governance – Fiduciary College 2012
July 23-25, 2012 – Stanford Law School

Council of Institutional Investors – 2012 Fall Meeting
October 3-5, 2012 – Seattle, WA

NACD Board Leadership Conference 2012
October 14-16, 2012
National Harbor, MD

Thomas J. Saporito

Even as lead directors’ influence and impact has grown, there has been surprisingly little public discussion about what is required of these key board leaders, the qualities they must possess to be effective, and how they should be selected.  Given the bearing lead directors have on board and CEO effectiveness, their requirements for success deserve thorough consideration.

First, let’s look at the evolution of the relatively new role of the lead director. It was created in the post Sarbanes-Oxley era as a compromise for lawmakers who wanted to crack down on corporate misconduct without requiring companies to split the CEO and chairman roles. While some governance advocates believed the lead director arrangement to be less effective than leadership by independent chairmen, heightened regulatory accountability has transformed it into far more than a figurehead.

In February 2010, the Securities and Exchange Commission began requiring companies to include a discussion regarding board leadership structure in their proxy statements. A board must disclose whether it has chosen to combine or separate the CEO and chairman positions, and if it has a lead director or not. The board must also state why it believes its chosen leadership structure is the most appropriate one for the company. This requirement has prompted many boards to expand lead directors’ duties.

Most lead directors I know believe their true mandate is to ensure the internal workings of the board and its relationship with the CEO are operating as effectively as possible. While a board is a legal structure, organized around various governing functions, it is also a constellation of people with different styles, personalities, biases, and agendas. It is, in a way, its own social system, and lead directors must understand that and manage it as such. This is an amorphous directive, especially when tensions are running high in an uncertain business climate that has caused many companies to falter.

Effective lead directors are brokers between the board and the CEO; in a sense, they represent the voice of the board and the voice of the CEO to the board. This dual responsibility can be arduous, and requires an executive with a unique skill set. While each board will have specific needs for their lead director, effective ones fulfill three overarching duties: They promote consensus among board members, become a trusted advisor to the CEO, and create alignment between directors and the CEO. These responsibilities are not black and white. Subtlety, nuance, and human behavior all powerfully impact the interactions between board members and the relationship between the CEO and the board. To manage these forces and steer things in the right direction, an effective lead director must consistently employ good judgment, keen insight, and deep wisdom.

Bring board members to a consensus point of view on important issues
Board members often view key issues like strategy, CEO compensation and CEO effectiveness through different lenses. These are powerful people in their own right, and their varying points of view can cause disagreements that derail decision-making. The lead director must prevent these progress impediments by synthesizing and consolidating different views, representing these opinions fairly and accurately in whatever situation requires intervention, and uniting board members in a common voice. Here is where judgment is crucial. Effective lead directors see what is important, what makes a difference, and what is practical, and this skill helps them guide conversations toward useful dialogue. Securing directors’ trust is equally essential.

“You never want to let an individual director or the board as a whole be surprised,” said Walt D’Alessio, who serves as lead director for Exelon Corporation and non-executive chairman for Independence Blue Cross. “You have to constantly take the temperature of board members on all different kinds of issues, get to know them personally, and build trust with them.” By finding schisms on their boards and healing them, lead directors ensure issues that could spiral out of control don’t ever reach that point.

Interpret the CEO’s needs and expectations, incorporating a psychological perspective
External pressures cause some CEOs to become guarded in their conversations and resistant to vital board feedback. As the key figure connecting the board to the CEO, the lead director is responsible for ensuring an open line of communication. According to RHR International’s own research, 50 percent of CEOs view the lead director as the board representative to whom they can speak most honestly about performance or important decisions. They must build deep trust with the CEO so he or she feels safe in discussing needs and problems, and develop the insight to see beyond the obvious and intuit any concerns the CEO may be holding back.

“Lead directors are problem-solvers, deeply analytical, and effective at asking good questions,” said Freeman Hrabowski, a director who sits on the boards of Constellation Energy and McCormick & Company. Finally, good lead directors maintain an objective clarity that allows them to keep emotions – theirs, other directors’, and the CEO’s – in check and promote rational discussion around unpopular or difficult issues.

Foster a platform of partnership between the board and the CEO
CEOs and boards must work together in a balanced environment that includes not only board oversight, but collaboration – and the lead director is the engineer of this healthy balance. If a board member gets more involved than is necessary in certain situations, the lead director often steps in to ensure this director is part of the management process, but not dominating it. Similarly, if CEOs bristle at input from directors, the lead director must guide them away from their emotional reaction to a place of productive discussion around issues. Successfully managing these interactions and maintaining a constructive relationship between board and CEO requires a lead director who has wisdom developed through years of boardroom interactions. They analyze and carefully apply lessons learned through past triumphs and failures to current challenges.

The Selection Non-Process
What all these requirements have in common is that they are somewhat intangible. And this is why there is no easily-defined process for identifying and selecting a good lead director. Of course, a formal process does exist: The board’s governance committee orchestrates lead director selection, which is natural given that group’s work around director selection and performance. However, both Hrabowski and D’Alessio agreed that as much or more happens informally than formally when choosing a lead director. One person (though sometimes more) naturally emerges as the trusted person who can step into this critical role.

Contrary to popular belief, pirate crews selected their captain, not the other way around. Each member of the crew had a say and a captain could be replaced at any time they were thought to become ineffective. While lead directors cannot be replaced at any time, their selection format is similar. There is no magic formula or management book that defines the process; it evolves differently for each organization, in a very informal way.  The best way for a board to inject rigor into lead director selection is to actively assess directors’ abilities against the requirements and behavioral qualities listed above. D’Alessio also stressed that the CEO’s input, while not the deciding factor, is very important to consider when choosing a person who will be responsible for facilitating trust and communications between the C-suite and the board.

Dr. Thomas J. Saporito is chairman and chief executive officer of RHR International, a global firm committed to the development of top management leadership.

Francis G.X. Pileggi

Top Five Cases from 2011
We begin with the top five cases on corporate and commercial law from Delaware for 2011 and we are glad to see that at least four of them have some support from the bench as these were the cases that four Vice Chancellors highlighted as important decisions in a recent panel presentation that they presented in New York City in early November 2011.  Those cases were the following:  In Re: OPENLANE Shareholders Litigation; In Re: Smurfit Stone Container Corp. Shareholder Litigation; In Re: Southern Peru Copper Corp. Shareholder Litigation and Air Products and Chemicals, Inc. v. Airgas Inc., and Kahn v. Kolberg Kravis Roberts & Co., L.P.

This article originally appeared on the Delaware Corporate & Commercial Litigation Blog.

In Re: OPENLANE Shareholders Litigation. In what many commentators referred to as a “sign and consent” transaction, in which the majority shareholders and the board of directors had sufficient control to provide the statutorily required consent, the Court of Chancery determined that the Revlon standard was satisfied and fiduciary duties were not breached notwithstanding the Omnicare case and even without customary safeguards such as a fairness opinion. See fuller summary here.

Kevin F. Brady

In Re: Smurfit Stone Container Corp. Shareholder Litigation. The Court of Chancery denied a motion for preliminary injunction and determined that the Revlon standard applied to a merger for which the consideration was split roughly evenly between cash and stock. See fuller summary here.

In Re: Southern Peru Copper Corp. Shareholder Litigation. In what may be the largest award granted in the Court of Chancery’s venerable history, a judgment was entered for $1.2 billion (later amended to $1.3 billion) for breach of fiduciary duties in connection with an interested transaction. With interest, the total is expected to be $2 billion.  The Court later awarded attorneys’ fees of 15 percent which amounts to $300 million in this derivative action. See fuller summary here.

Air Products and Chemicals, Inc. v. Airgas Inc. This magnum opus of over 150-pages in length will be the focus of scholarly analysis for many years to come. For purposes of this short blurb, it ended a year long takeover battle between two determined companies, with the Court of Chancery ruling, among other things, that the target company was not required to pull its poison pill when the board determined that the offer for the company was too low. See fuller summary here.

Kahn v. Kolberg Kravis Roberts & Co., L.P.  This Delaware Supreme Court decision reversed and remanded an opinion by the Court of Chancery interpreting “a Brophy claim as explained in Pfeiffer.”  The issue before the Court was whether a stockholder had to show that the company had suffered actual harm before  bringing  abreach of loyalty claim that a fiduciary improperly used the company’s material, non-public information (a Brophy claim).  The Supreme Court rejected that part of the Chancery’s decision in Pfeiffer v. Toll which requires a showing of actual harm to the company.  See fuller summary here.

We also selected the following additional noteworthy cases:

Shareholder Litigation

In Re: John Q. Hammons Hotels, Inc. Shareholder Litigation.  Despite the application of the entire fairness standard, the Court concluded that the merger price was entirely fair, the process leading to the transaction was fair, that there was no breach of fiduciary duty, and therefore no claims for aiding and abetting fiduciary duty.  See fuller summary here.

Reis v. Hazelett Strip-Casting Corp.  The Court applied an entire fairness analysis and held that the attempt to cash out minority shareholders via a reverse split was neither the result of a fair process nor did it involve a fair price.  See fuller summary here.

In re: Del Monte Foods Co. Shareholders Litigation. This first of three rulings enjoined a shareholder vote on a premium LBO transaction and the buyers’ deal protection devices.  The Court also held that the advice that the target board received from a financial advisor (who also did work on the deal for the bidder) was so conflicted as to give rise to a likelihood of a breach of fiduciary duty and the Court indicated that the financial advisory firm could face monetary damages due to aiding and abetting the potential breach.  See fuller summary here.

In re: Massey Energy Company Derivative and Class Action Litigation.  The Court declined to enjoin a proposed merger.  The Court noted that the derivative claims that the plaintiffs argued were not being fairly valued as part of the merger, would become assets of the surviving corporation.  The Court reasoned in part that the shareholders should decide for themselves whether to exchange their status as Massey stockholders for a chance to receive value from a third party in an arms-length merger.  See fuller summary here.

Frank v. Elgamal.  This decision exemplifies the different approach taken by different members of the Court in connection with an application for interim fees in a class action.  (Compare the different approach in the Del Monte case.)  See fuller summary here.

Krieger v. Wesco Financial Corp.  This decision determined that holders of common stock were not entitled to appraisal rights under Section 262 when they had the option of electing to receive consideration in the form of publicly traded shares of the acquiring company.  See fuller summary here.

In re: The Goldman Sachs Group, Inc. Shareholder Litigation.  In this first corporate opinion by Vice Chancellor Glasscock, the Court dismissed a derivative action brought against Goldman’s current and former directors based on a failure to make a pre-suit demand.  At issue was Goldman’s allegedly excessive compensation structure.  See fuller summary here.

Contested Director Elections
Genger v. TR Investors, LLC.  In this opinion, the Delaware Supreme Court addresses electronic discovery issues and contested elections for directors involving DGCL Section 225. See fuller summary here.

Johnston v. Pedersen.  This opinion determined that directors breached their fiduciary duties when issuing additional stock and as a result were not entitled to vote in connection with the removal of the incumbent board and the election of the new directors.  See fuller summary here.

Section 220 Cases
King v. VeriFone Holdings, Inc. This Delaware Supreme Court ruling reversed a Chancery decision that found a lack of proper purpose in a suit by a shareholder seeking books and records pursuant to Section 220.  Delaware’s High Court explained that it remains preferable to file Section 220 suits for books and records prior to filing a derivative suit, but holding that such a chronology is not, per se, a fatal flaw in a Section 220 action.  See fuller summary here.

Espinoza v. Hewlett Packard Co. This affirmance of Chancery’s denial of a §220 claim was based on the requested report to the board being protected by the attorney/client privilege.  (This is one of several decisions in this matter.) See fuller summary here.

Graulich v. Dell., Inc.  This is a Section 220 case in which Chancery denied a request for books and records due to the underlying claims being barred by a previous release and due to the shareholder not owning the shares during the period of time for which he was requesting documents.  See fuller summary here.

Alternative Entity Cases

CML V, LLC v. Bax.  This Delaware Supreme Court decision determined that creditors of an insolvent LLC are not given standing by the Delaware LLC Act to pursue derivative claims unlike the analogous situation in the corporate context.  See fuller summary here.

Sanders v. Ohmite Holding, LLC.  This decision clarified the rights of a member of an LLC that demanded books and records of an LLC.  The Court determined that pursuant to Section 18-305 of the Delaware LLC Act a member may seek records for a period prior to becoming a member of the LLC.  See fuller summary here.

Achaian, Inc. v. Leemon Family LLC.  This opinion addressed the transferability of interests of a member of an LLC and specifically whether one member of a Delaware LLC may assign its entire membership interests, including voting rights, to another existing member, notwithstanding the provision in an agreement that requires the consent of all members upon the admission of a new member.  See fuller summary here.

Jurisdictional or Procedural Issues
Central Mortgage Co. v. Morgan Stanley Mortgage Capital Holdings LLC.  In this decision, a Delaware Supreme Court determined that Delaware would not follow the standards for a motion to dismiss under Rule 12(b)(6) announced by the U.S. Supreme Court in the Twombly or Iqbal opinions.  See fuller summary here.

Hamilton Partners, LP v. Englard.  This decision addressed the issue of personal jurisdiction over directors and interlocking entities, as well as demand futility in the context of a double derivative shareholders suit.  (Although this was decided at the end of 2010, it was important enough to include in this list as it was issued after our deadline for our compilation last year). See fuller summary here.

Encite LLC v. Soni.  This decision rejected a request for an extension of a deadline for submitting expert reports because the Court did not approve an amendment to the Scheduling Order.  See fuller summary here.

Whittington v. Dragon Group.  In this latest iteration of multiple decisions in this long-running saga, the Court examines the doctrine of claim preclusion, issue preclusion and judicial estoppel.  See fuller summary here.

In re: K-Sea Transportation Partners, L.P. Unitholders Litigation.  This decision provides a useful recitation of the standard used in Chancery for deciding whether to grant a motion to expedite proceedings, and it also reviews language in a limited partnership agreement which arguably was an effective waiver of traditional fiduciary duties as allowed by the LP statute.  See fuller summary here.

Sagarra Inversiones, S.L. v. Cemento Portland Valderrivas, S.A.  This ruling determined that the standard of “irreparable harm” granting injunctive relief was not satisfied based on the financial condition of the defendant which was “not poor enough” to convince the Court that a money judgment would not make the plaintiff whole.  (This is one of several decisions in this matter.) See fuller summary here.

ASDC Holdings LLC v. The Richard J. Malauf 2008 All Smiles Grantor Retained Annuity Trust.  This decision discussed the enforceability of forum selection clauses and in particular when those clauses will be enforced despite a related case being filed first in another forum.  See fuller summary here.

Gerber v. ECE Holdings LLC.  This decision discusses the difference between a motion to supplement and a motion to amend a complaint.  See fuller summary here.

Advancement
Fuhlendorf v. Isilon Systems, Inc.  This decision addresses the advancement of fees incurred by officers and directors sued in connection with their corporate roles.  The specific issue in this case was whether the corporation should pay for all of the costs of a Special Master appointed to review the interim application for fees.  The case also discusses the common procedure employed to review disputed monthly legal bills in advancement cases.  See fuller summary here.

Receiver or Dissolution
Pope Investments LLC v. Benda Pharmaceutical Inc.  This decision rejected the application for the appointment of a receiver on the grounds that while the plaintiff demonstrated that the defendant was insolvent, the plaintiff failed to show that “special circumstances existed which would warrant the appointment of a receiver.”  See fuller summary here.

Stephen Mizel Roth IRA v. Laurus U.S. Fund, L.P.  This decision rejected a request to dissolve a limited partnership and refused to appoint a receiver in the context of an investment fund that was in liquidation mode but was not dissolved, nor was it winding-up as that term is used in the statute.  See fuller summary here.

Legal Ethics
BAE Systems Information and Electronics Systems Integration, Inc. v. Lockheed Martin Corp.  This opinion addresses Delaware Lawyers’ Rule of Professional Conduct 3.4(b) and discusses those situations in which a fact witness may be compensated for the “lost time” away from his “day job” suffered while testifying.  See fuller summary here.

Judy v. Preferred Communications Systems, Inc.  This decision addresses the issue of legal ethics involved in determining whether an attorney may assert a retaining lien over the documents of a former or delinquent client.   See fuller summary here.

Common Law v. Statutory Claims
Overdrive, Inc. v. Baker & Taylor, Inc.  In this last formal decision  by Chancellor Chandler, the Court discussed how the Delaware Uniform Trade Secrets Act displaces conflicting tort and other common law claims that are grounded in the same facts which would support the statutory misappropriation of trade secret claims.  See fuller summary here.

Damages for Breach of Agreement to Negotiate in Good Faith
PharmAthene, Inc. v. SIGA Technologies, Inc.. This Court of Chancery decision awarded damages for breach of a contractual obligation to negotiate in good faith and fashioned an equitable remedy that required the sharing of profits from the production of a product that the defendant failed to negotiate the license of in good faith. There are several decisions involving contract law by the Court of Chancery in this matter, the most recent ruling denying a motion for reargument. See fuller summary of the most recent decision here.

Postscript
On a final note, the last week of 2011 saw the sudden and sad passing of one of the nation’s foremost experts on alternative entities, Professor Larry Ribstein, who was often cited in opinions of the Delaware Courts. He coined the word “uncorporations” to refer to alternative entities and was the author of many treatises, law review articles and other publications on uncorporations, jurisdictional competition, the business of law firms and related topics involving the intersections of law and business. He was an iconic figure in the law, and the legal profession is better because of his many contributions.

New directors should concentrate on three questions to prepare for the (almost) inevitable crisis.

1. What should a director do in advance to be as prepared as possible?
2. When the crisis arrives, what are the proper questions to ask and steps to take to minimize the impact on the corporation, the shareholders and the directors themselves?
3. What conflicts will emerge that may make coping with the crisis even more difficult? Answers to the second and third are situation-dependent, but thoughtful preparation will pay real dividends.

The Stock Market

Preparing for a crisis will help mitigate its impact. Yet, many boards do little or nothing to prepare, and hence, when the crisis arrives, they start from a defensive and disorganized base. This is particularly untoward, because, in many crisis situations, the company’s responses in the first 24-48 hours will be very important to managing the situation successfully. Directors should be educated on the principal laws which affect their businesses, they understand the nuances of their Directors & Officers liability insurance policy, and they should assemble and “drill” with a core crisis management team. Crisis plans should include, as a minimum, succession planning for illness or death of senior executives (including discussion of appropriate disclosure) depending upon the company, product recall and accounting or financial fraud or possible foreign corrupt practices. Plans to cope with physical, bio- and cyberterrorism should be addressed as well.

Planning for a crisis should be a key part of a company’s risk management process. Prudence suggests a 360-degree view of risks, which should be developed by a group of current and former directors, key executives and operating personnel, working outside the normal chain of command. This group, a “Risk Assessment Committee,” should evaluate risks based on probability and consequence, and should report to the board regularly on areas in which risk mitigation needs to be strengthened. The group’s work should be coordinated with any external enterprise risk management activities and with internal risk management efforts, a crisis will occur when a risk, whether or not anticipated, materializes.

Crises often have ramifications for the on-going operations of the business including but certainly not limited to access to capital markets and retention of key employees. While some of the preparatory work should be delegated to appropriate committees, the full board, at each regular meeting, should address the aforementioned questions in an appropriate sequence. External resources, including counsel, forensic accountants, security consultants and crisis communications support, will need to be involved to provide briefing materials and contingency plans. Screening and selecting these specialized advisors in advance is critical—they will provide major inputs when the crisis arrives. Internal crisis management teams also may be involved. (These teams usually are organized into functional areas such as IT, HS&E and physical security.)

What to do when the crisis arrives? The first step should be to select a leader of the crisis response effort. That leader may be the lead director (or chairman) or the chairman of a major board committee. The leader should supplement the core crisis response team as necessary. The team usually will involve top management, unless there is some evidence of a potential conflict, e.g., financial fraud. The team should include a small group of independent directors, appropriate technical advisors and communications support. To the maximum extent possible, the crisis management activity should be separated from the on-going business, to reduce disruption to employees, suppliers and customers.

It is very important for the board to take initial control of the crisis management process, both to avoid conflicts and to keep management focused on the company’s operations. If it becomes clear that the crisis can be appropriately handled by management without conflict of interest or diverting attention from operations, the board may reassign lead responsibility back to management.

After the team is assembled, the next step may well be to issue a statement regarding the company’s position and/or taking responsibility for the consequences of the crisis event. Simultaneously, the team should start fact-finding, to identify what is known, what is uncertain, and what consequences are likely to result. In the case of senior management health issues, the process may be relatively straightforward; in the case of product recall, illegal payments, or financial fraud, the process may require extensive fact-finding over a period of months and may involve coordination with regulators. (The question of notification of regulators—how much to report and when—is a complicated one, the answer to which will depend on facts and circumstances.) In many situations, fact-finding is a very slow process, requiring reviews of emails, written correspondence, etc. What is thought to be true often turns out to be false and vice versa. It is important that the company inform its outside auditors and its lenders in a timely but appropriate way. The auditors will need to consider interim filings, control opinions and the consequences of forensic work to be done by an independent firm if necessary.  And, to the extent that the company’s loan documents have representations about material adverse events or litigation, or financial covenants and/or capital markets access may be affected, and lenders and investors may need to be informed.

Directors should anticipate that crises arise with little or no warning, and, at the onset (and perhaps for some time), they will receive little and imperfect information. Pressured decision-making often will be required, without much analytical support. (Note the contrast to the regular board process, with thick binders, detailed presentations and carefully vetted management recommendations.)

The full board should be kept well-informed on a regular basis, but its focus should continue to be to monitor company performance. In the early stages of a crisis, much is likely to be unknown. “Murphy’s Law” seems to apply more often than not, in that new information which emerges is more likely to be negative than positive—unearthed email files may contain all kinds of bad news, and disgruntled employees may emerge with all kinds of stories.

As the crisis develops, certain conflicts are inevitable—and directors should be prepared for them.

First, management will want to take charge of the crisis response, and the internal general counsel will want to take responsibility for oversight of any investigation. Depending on the nature of the crisis, these efforts generally should be rebuffed. Management’s attention should be directed to improving the company’s operations, and unexpected conflicts may emerge which cause management some embarrassment or worse.

Second, legal counsel, whether the company’s lead outside firm or special counsel (choice of which itself is a topic to be addressed), often will advise to disclose as little as it permissible, and to avoid speculation or assertion about unknowns. Crisis communications teams, on the other hand, generally will favor fuller disclosure, and even acceptance of responsibility, in an attempt to “get in front of the problem.” Although there is no perfect balance, directors often will find themselves pulled in opposite directions. Directors need to think through both of these conflicts carefully, for the sakes of the corporation and shareholders they represent, as they focus on their decisions.

In summary, get ready, prepare for your calendar to be torn apart by unrelenting demands for meetings, and expect lots of finger-pointing and conflicting expert advice.

Herbert S. “Pug” Winokur Jr. is chairman and CEO of Capricorn Holdings, Inc., a private investment firm. He has served on a number of public and private for-profit and nonprofit boards, and has attended more than 300 public company board meetings.

This commentary was originally published by the authors as a PDF and sent via email from Weil Gotshal & Manges.

All corporate governance participants—boards, executive officers, shareholders, proxy advisors, regulators and politicians—have both an interest and a role to play in rebuilding trust in the corporations that are the engine of our economy. In our annual reflection, we offer thoughts on how, without the need for regulatory intervention, boards and shareholders can seize the opportunity to rebuild trust and, by doing so, help resolve some of the tensions that are stalling our economic recovery.

Part I – Opportunities for the Board to Rebuild Trust

1. Focus on the long-term. Boards carry out their fiduciary duties in the face of pressures from the market and short-term traders for immediate results, pressures that too often undermine the long-term planning and investment required for a sustainable enterprise. While management must focus on the day-to-day operations of the company, the board has the ability and responsibility to look forward and consider what is in the best interests of the corporation and its shareholders over a time horizon notably longer than the quarter at hand. The board should bring its objectivity and judgment to issues ranging from dividend policy, strategic direction, risk and executive compensation to corporate social responsibility and ethical culture. When coupled with a clearly articulated strategy, the board’s commitment to the long-term should help a company withstand undue short-term pressures. This requires effective disclosure of board decisions and policies and concerted efforts at shareholder relations and communications, both areas where boards often could focus more attention.

2. Redefine board priorities. The part-time nature of director service combined with ever-expanding expectations about the board’s role and increasing regulatory mandates may lead to an unfocused and overly long board agenda. Boards should delegate to board committees, corporate management and advisors those matters that do not require the attention of the full board so that the board can focus on key priorities. Defining board priorities is the board’s task, one that should be undertaken in an informed manner with advice from management and counsel but not be delegated to them. We suggest that boards consider an 80/20 rule: Approximately 80 percent of board time should be spent on those issues that are reserved by law to the board, that will benefit from the exercise of fiduciary judgment or as to which management has inherent conflicts, such as corporate strategy and the major risks to that strategy, material transactions, management performance and succession, and executive compensation. The board should also reserve “quality time” for matters of its own performance and composition. This is a simplified list and of course every board will need to work it out based on its own challenges and characteristics, but the key is to maintain significant time for the significant and difficult issues. Leading the effort of redefining board priorities and ensuring sufficient agenda time for priority matters are roles for the board’s independent leader – either a separate independent chair or a lead director. We note that the number of companies with separate independent chairs is continuing to rise, and it is now well-accepted that public companies should either have an independent chair or have a lead director with a role that is defined to include a number of tasks that would otherwise typically fall to a board chair.

3.  Apply objectivity and “backbone” to fiduciary judgments. Directors must decide for themselves what is in the best interests of the company. Clearly, management has a view that it will advocate, but the board needs to test the underlying assumptions and come to its own conclusion. While undue deference to management is not appropriate, neither is abdication of fiduciary decisions to shareholders. Fiduciary decision-making cannot be abdicated, even if a majority of shareholders have a definite preference on an issue. This may pose challenges when significant shareholders have strongly held views, or when a proxy advisor takes a stance and in effect serves to coordinate support for that stance among its client shareholders. The bottom line is that directors need to be willing to do what they believe is right, even if doing so jeopardizes re-election.

4. Listen to and communicate with (“engage”) shareholders. Success in withstanding pressures for actions that the board does not believe are in the company’s best interest depends on the board’s ability to communicate effectively with shareholders. The starting point is knowing who your significant shareholders are and what concerns them. (It helps to maintain open channels of communication with the persons who have voting and investing authority, and these roles are often split in large institutional investors.)

Encouraging feedback generates goodwill and can elicit good ideas. Obtaining a preview of concerns also provides opportunity to avoid acrimony by working through issues in advance. Directors should listen hard to what shareholders have to say and consider any disconnects between the views of shareholders and the board, for example, where a management proposal or a director receives a negative (or not overwhelmingly positive) vote at the annual meeting. Boards should work with management to ensure that board decisions are adequately explained to investors, regulators and other users of corporate information. Disclosure documents should be reviewed with a critical eye towards enhancing understandability and slashing boilerplate. Communication with shareholders(and employees) will become even more critical once the SEC adopts new disclosure requirements relating to internal pay equity and pay-for-performance as required by the Dodd-Frank Act of 2010.

5. Be self-critical. If shareholders are to give boards the time and space to take the long view, and generally defer to and support their judgments, they need assurance that boards will bring objectivity and backbone to judgments about the board’s own effectiveness. Re-nomination decisions need to be based on an active assessment of director performance and whether the director continues to be a strong fit. All directors need to have skill sets that continue to be not only relevant but necessary to the evolving direction of the company’s business and be engaged in board and committee activities at a high level.

Board “refreshment” mechanisms such as age limits and term limits should be carefully considered. While they can help to assure compositional change, they are imperfect substitutes for active assessment of individual performance, and they may set an inappropriate expectation of long tenure. Similarly, the annual self-evaluation of the board and its committees provides an opportunity for reflection about areas for improvement. This should not be allowed to become a rote exercise. Consider changing up the methodology from time to time, for example, by every several years taking a deeper dive through an interview method rather than relying on paper questionnaires. No matter what method is used to gather viewpoints from directors, every year the evaluation should result in a focused board discussion of areas for improvement.

6. Pay special attention to “hot button” issues. Boards should make decisions about “hot button” issues in the best interests of the company and persuasively communicate the reasons for those decisions. Proactively discuss any anticipated negative feedback from the proxy advisory firms on relevant issues. The issues requiring special attention will depend on the company, but for most companies will include strategic direction, risk oversight, executive compensation, proxy access, board composition, succession, board leadership, political contributions disclosure, corporate social responsibility and structural defenses.

• Corporate Responsibility. The 2012 presidential election year is likely to bring heightened attention to issues related to corporate responsibility generally and to corporate political power in particular. In 2011, both the number of social and environmental proposals brought by shareholders and the support for these proposals increased. Boards should be prepared for particular scrutiny of their oversight of corporate political spending and should be sensitive to that issue. In addition to calls for greater disclosure of board policies and decisions with respect to political spending, boards should expect calls for greater disclosure regarding corporate impact on natural resources, with an emphasis on water and air quality and supply chain sustainability. Boards should ensure that these topics receive appropriate attention on the board agenda and should keep tabs generally on public sentiment as it relates to the company and issues of corporate responsibility generally. This is an area where the board may be particularly well positioned to assess the general environment and advise management.
• Executive Compensation. Say on pay acted as a “release valve” allowing shareholders to let off steam in 2011, resulting in fewer “withhold” and “against” campaigns targeting individual directors in elections. It will still be high on the shareholder agenda in 2012. To bolster support in the coming year, boards and compensation committees should recognize that many shareholders are looking for them to demonstrate restraint. Expect pay for performance to continue as the primary factor in obtaining shareholder approval, with shareholder sensitivity to pay levels relative to peers and pay increases out of proportion to performance trends. Consider the shareholder perspective on (and public perception of) the company’s executive compensation program and related disclosures, including, how the program matches up the new ISS guidelines (given its influence). Don’t just read a final draft of the proxy statement – advocate early that it explain the company’s compensation philosophy, and the alignment between pay and performance in clear and understandable terms. Finally, be willing and available to follow-up with key shareholders to discuss the board’s approach to say on pay. Boards of companies that failed to receive a majority vote in favor of executive compensation or received a high proportion of negative votes (even though receiving a majority vote in favor) should identify the primary shareholder concerns and take a hard look at whether changes are called for, based on fiduciary judgment.
• Majority Voting. Boards should expect a concerted effort from shareholders to extend majority voting to the remainder of the S&P 500 and beyond to the next tier of companies in 2012. Boards at companies that have not yet adopted a majority voting standard, or a director resignation policy in the event a director fails to receive a majority of the votes, should be prepared to address this issue with shareholders.
• Proxy Access. 2012 is the first year in which shareholders may bring proposals seeking bylaw changes to allow proxy access for shareholder nominations of director candidates in competition with the board’s own nominees. (Any adopted bylaw changes will not be applicable until the next year.). While public pension funds and union funds are expected to bring a relatively focused set of proposals concentrating on high-profile companies that have had significant governance, compliance or performance issues, individual shareholders involved in the U.S. Proxy Exchange (USPX) and the Norwegian Pension Fund Global (NPFG) have already submitted a dozen or more proposals. The non-binding USPX proposals generally ask that the board adopt a bylaw to permit proxy access for director nominees from shareholders that have held continuously for two years percent of the company’s eligible securities and/or any party of 100 shareholders each of whom satisfy the basic SEC Rule 14a-8(b) eligibility standards (holding a $2,000 stake for one year). The NPFG’s proposals are reportedly binding proposals and also have a low threshold, requiring that a shareholder hold a minimum of 1% of company stock for year. Boards should follow developments in this area closely. Maintaining strong relationships with significant shareholders and understanding and, as appropriate, addressing their concerns continues to be the best preparation for a potential proxy access proposal.
• “Vote No” Campaigns. Boards may see an up-tick in the number of campaigns against directors up for re-election. ISS has a fairly long list of circumstances that will cause it to recommend voting against a director in an uncontested election. In addition, “vote no” campaigns may target compensation committee members at companies where shareholders and proxy advisors deem the committee and board unresponsive to the 2011 say on pay vote even where the proposal “passed”. Boards should review ISS’ recently revised policies early to understand where vulnerabilities may lie so that they can take appropriate action, including, if necessary, targeted shareholder outreach.

Part II – Opportunities for Shareholders to Rebuild Trust

1. Focus on the long-term. Shareholders should give the board and management freedom to make decisions over a long-term time horizon. Focusing on the long-term is particularly critical during a downturn. While plowing resources into R&D and other job creation and growth strategies may restrain the bottom line in the near-term, such investments are necessary to reap rewards for the company and its shareholders—and society—later on. Shareholders may need to evaluate their own decision-making structures and ensure that they are not rewarding high-risk behaviors, whether through direct investments or through the monies they invest through other entities.

2. Refine shareholder priorities and reduce “noise.” Boards of public companies are bombarded with a wide array of viewpoints about corporate governance and social and environmental issues. Institutional shareholders should identify the two or three issues (in addition to return on investment) that are most important to them and then clearly and consistently articulate their views. Laundry lists of concerns should be prioritized to ensure that the board can hear and focus on the things that are most important to shareholders. These priorities can also help shareholders to ground their approach to voting analysis (see below).

3. Vote responsibly. With power comes responsibility. Where shareholders do not have the resources to become informed on an issue on a company-specific basis, it makes sense for them to generally defer to the board’s recommendations. We note that many may consider this heresy, but presumably most shareholders have invested in a company because of faith in the direction that the board and management are taking the company. Alternatively, they are investing because the company has been included in an index that the shareholder invests in, deferring to the judgment of others. Deference to board recommendations in most instances would allow shareholders to focus scarce voting analytic resources on companies where a significant performance or other red flag issue is apparent. In such instances, shareholders should apply their resources to becoming well informed prior to voting.

4. Delegate and/or rely on others responsibly. A corollary of the admonition to “vote responsibly” is to delegate or rely on others responsibly. When choosing advisors to assist with voting analysis and recommendations, do so on an informed basis after performing due diligence as to their capabilities. Consider whether they have the resources to provide informed and tailored advice specific to portfolio companies or are unduly reliant on a set of fairly rigid voting guidelines. The more reliant they are on junior seasonal workers who turn over every year, the less likely that they are able to provide rigorous, sophisticated and tailored analysis. If you are having the advisor tailor policies specifically to your specifications, consider using a performance screen and instructing the advisor that so long as the company is performing well and there are no significant red flags (and mere failure to adopt a particular governance policy favored by the advisor shouldn’t count as a red flag), to vote as the board recommends.

5. Speak up, but be willing to listen. Shareholders should share their concerns with boards and should also provide feedback when requested. Shareholders should also be prepared to listen to what boards have to say – communication is a two-way street. Communication can take various forms, from formal meetings conducted in accordance with Regulation FD, to posts on Twitter or other social media tools. Remember in communicating with a board that other shareholders may have different—and even conflicting—views. Also recognize that some means of communicating lack nuance. An example is the up-or-down vote on say on pay resolutions which provides shareholders with an imperfect forum in which to let the board know how it is doing on compensation and, indirectly, on performance generally. Follow up with concrete suggestions and give the board the opportunity to respond. Recognize that it takes time to make significant modifications to a company’s compensation program. Also, remember that while shareholder views about appropriate compensation should be considered, executive compensation is fundamentally the board’s responsibility.

6. Carefully consider private ordering options. Shareholder proposals relating to proxy access—whether by way of precatory resolution or binding bylaw amendment—should include meaningful ownership thresholds and other qualifications to ensure that director elections proceed in an orderly manner and are not hijacked by special interest groups. Proxy access should be viewed as a last-resort mechanism. Engagement with the company’s nominating committee on board composition should always be the preferred course.

Ira M. Millstein is a senior partner at the international law firm Weil, Gotshal & Manges LLP, where, in addition to practicing in the areas of government regulation and antitrust law, he has counseled numerous boards on issues of corporate governance. Holly J. Gregory is a partner in corporate governance at Weil, Gotshal.

Deciding to be Acquired
For most technology companies, pursuing an IPO may not be the most effective manner to address their principal business concerns. A company may be in a stage of its life cycle where its founders and/or investors seek immediate liquidity or improvement in the company’s supply and distribution capacity or where management has concluded that its future success demands access to the type of infrastructure that is typical in a large corporation and that they are unwilling to build their own infrastructure if it means diluting the founders. While an IPO may provide liquidity for founders and investors, it is not likely to immediately adequately address a company’s on-going concerns and the building of a new infrastructure may indeed be dilutive for the founders. Other factors such as the continued volatility of the IPO market, costs associated with a public offering and the daunting focus on quarterly financial performance for reporting companies are reasons why most successful companies and their founders pursue an alternative exit strategy.

Donald P. Clark

A company may be an attractive acquisition candidate if it has a product or service that is critically acclaimed in trade journals, is a strategic fit with a buyer’s products and infrastructure and has a strong development team in a mission-critical area. For example, in October 2010, Nordstrom acquired HauteLook, a provider of online private sale marketplace for approximately $270 million. In July 2010, The Walt Disney Company acquired Playdom, a developer of online social gaming software for $573.2 million plus an earnout amount of up to $200 million. These acquisitions are characteristic of the type of deals strategic buyers are looking for. Each of the buyers picked up valuable intellectual property in an emerging area based on the premise that the respective buyer’s infrastructure was infinitely superior to that of seller’s and that this competitive advantage couple with other synergies would unlock value in the acquired business post-closing.

Once a decision to be acquired has been made, a seller should consider positioning itself to be acquired. Ideally, a seller should demonstrate consistent revenue and earnings growth as well as its ownership of key intellectual property used in its business. The early engagement of qualified legal counsel and an investment banker can provide a seller the ability to address value-enhancing factors and can sometimes lead to an improved valuation.

Deal Issues
Once a seller has gone through the presale preparation, the marketing process, has identified a suitor and preliminary due diligence, seller must negotiate terms of the transaction having identified the buyer’s primary concerns and structuring ways to address those concerns while not diluting the value of the deal for seller’s shareholders. A buyer’s focus tends to be on paying no more than seller’s value, structuring the acquisition to obtain the most desirable tax and accounting results, and ensuring that key personnel stay with the acquired business going forward. Seller’s shareholders, on the other hand, are generally focused on (a) obtaining the highest possible price, (b) receiving payment in a liquid and possibly tax-free manner, (c) limiting their personal liabilities for indemnities and (d) reducing the amount of consideration to be held in escrow as security for indemnifications given to buyer under the definitive agreement. These conflicting concerns will need to be managed when negotiating the acquisition structure, the valuation and pricing of seller’s assets, the indemnities and escrows and when addressing intellectual property issues that are disclosed during the due diligence period.

Glenn Nieves

Acquisition Structure
A seller and buyer must decide between acquisition structure alternatives that will have varied impact on their key business considerations. The three acquisition structure alternatives are stock purchases, mergers and asset purchases.

In a stock purchase, buyer may purchase all of seller’s outstanding stock from seller’s shareholders. This type of transaction tends to be simpler for a buyer because title to the seller’s assets is transferred with the ownership of the seller and fewer third party consents are generally required in order to close the deal. There are significant drawbacks to using this structure, such as the fact that a buyer would also acquire all of seller’s liabilities and that, unlike a merger, applicable law does not provide a means of cashing out large numbers of dissenting shares under a stock purchase.

A merger offers flexibility in structuring a transaction in a way that is tax-free to seller’s shareholders. There are three types of mergers: straight merger, forward triangular merger and reverse triangular merger. In a forward triangular merger, the seller’s liabilities are isolated in the newly formed subsidiary of the buyer and, as such, do not put the remainder of buyer’s assets or business at risk. That being said, a reverse triangular merger is a common structure that is used when a buyer is concerned that non-assignable contracts or licenses will equate to extortion of additional consideration by third parties who have contracted with seller. With the assistance of competent tax counsel, the parties may be able to have a merger transaction qualify as a tax-free reorganization under the Internal Revenue Code provided, among other things, that the buyer continues seller’s business in some form and the seller’s shareholders do not sell back their buyer shares received in the merger to buyer. The qualification for a tax-free reorganization is available to the parties regardless of the acquisition structure they use, provided that the requirements for tax-free status (which vary depending on the actual acquisition structure that is used) are met.

After considering a stock purchase or a merger, a buyer may decide to acquire a seller’s assets rather than merger with seller if it wants to avoid unrelated seller liabilities and attain a step-up in basis of the acquired assets for tax purposes. While attractive for the foregoing reasons, an asset purchase may prove to be more costly because of consents and assignments that may be required in order to close the deal.

Valuation and Pricing Issues
Company valuation is a highly subjective area. In the M&A context, valuation of a seller can be contentious due to the fact that you have a buyer who generally is focused on paying a fair value for the seller while a seller and its shareholders may be concerned with attaining the highest purchase price. Buyer’s tend to use four methods to identify a reasonable seller valuation:

• Market value of stocks of comparable, publicly traded companies in seller’s industry
• Deal value of comparable transactions
• Multiples of seller’s earnings or EBITDA
• Discounted cash flow analysis whereby a buyer assigns value in today’s dollars to the cash flow to be generated by seller’s future operations

Each one of these valuation methods poses risks and concerns for each of the parties.

If the purchase price components include stock of a buyer which is a publicly traded company, buyer must address certain market risks, such as the possibility of a significant fall or rise in buyer’s stock price between signing and closing, when determining how to express the purchase price. One way of addressing this concern is to price the deal subject to a collar. A collar is a range of buyer’s stock prices within which there is an agreed-upon pricing method. A profitable seller may also want to negotiate a purchase price adjustment to address the possibility of an increase in its working capital from the signing date to the closing date. A buyer may agree to a two-way purchase price adjustment meaning that if seller’s working capital declines between signing and closing then the buyer would be entitled to a purchase price reduction based on the amount the working capital decreased.

Indemnities and Escrows
One of the biggest concerns that a buyer has in acquiring a high-technology company is the risk of infringement by seller on a third-party’s intellectual property rights. A second concern is data protection. These concerns fortify a buyer’s desire for strong indemnification provisions and the elimination of baskets. When addressing specific intellectual property indemnification concerns, a buyer should focus its diligence on pending claims that are attributed to technology that is unique to seller’s business. This is so because of the reality that high technology companies routinely face third party claims relating to basic technologies that are used by virtually all participants in that space. In most circumstances, the parties agree that it is inappropriate for buyer to make claims for every dollar of liability that is discovered after the closing. The parties generally agree that seller’s breaches must cause a certain threshold of damages (basket) before buyer has any right to indemnification. The real negotiating points come down to whether recoverable damages will be limited to a cap or whether buyer can recover all damages or just those in excess of the basket. Lastly, the parties will have to reach consensus on what portion of the deal consideration will be held in escrow as security for the seller’s indemnification obligations and for how long.

Intellectual Property Issues
Due to the nature of the assets being acquired, a thorough investigation of a seller’s intellectual property is necessary in order to discover risks, evaluate risk and allocate risks in the definitive agreement. A successful IP due diligence should (a) confirm the ownership and sufficiency of seller’s intellectual property that is used in the business (and address joint ownership issues), (b) understand and evaluate infringement issues surrounding the intellectual property being used in the business, (c) provide a thorough understanding of restrictive covenants and royalty obligations that may surround seller’s intellectual property and (d) highlight any source code issues.

Once a company and its shareholders have decided to seek an exit strategy, it should involve its investment banker and legal counsel early on. Doing so provides a seller’s deal team the opportunity to address and plan for issues discussed herein and a host of others that will likely arise when negotiating with a buyer. Going through with the sale of a business is one of the most challenging experiences an entrepreneur or investor will go through in their business lives, but there is a huge reward that awaits those who prepare and set objectives before they enter into negotiations with a buyer and pursue their exit strategy.

Donald P. Clark and Glenn Nieves are corporate attorneys at Clark & Trevithick PLC in Los Angeles specializing in mergers and acquisitions. They may be reached at (213) 629-5700 or by email at DClark@ClarkTrev.com or GNieves@ClarkTrev.com.

“Our investigation reveals that there were few lines the executives were willing to cross to win the contract,” said SEC Enforcement Director Robert Khuzami in a conference call on the charges this morning, noting that Siemens executives allegedly approved up to $100 million in illegal bribes.

Recipients of those bribes allegedly included two presidents and cabinet ministers in two Argentinian administrations between 1996 to 2007. Of the funds used in the bribery scheme, approximately $31.3 million were made after March 2001, when Siemens became a U.S. issuer.

“One of the most critical functions of law enforcement is to communicate that businesses are not fools or dupes for obeying the law, we want to reward those companies that refuse to pay bribes. The best way to do that is to root out their competitors that are,” said Khuzami. “Business should flow to the company with the best product and the best price, not the best bribe. Corruption erodes public trust and the transparency of our commercial markets, and undermines corporate governance.”

Siemens, as a company, previously faced similar charges and paid $1.6 billion to resolve them with the SEC, U.S. Department of Justice and the Office of the Prosecutor General in Munich. Lanny A. Breuer, U.S. Department of Justice assistant attorney general for the DoJ’s criminal division, noted the value of Siemens’ assistance in bringing charges against the individual former executives. “It absolutely should be said that Siemens was remarkably cooperative and helpful throughout our investigation,” said Breuer. “Foreign bribery and corruption undermine fair market competition and create instability.”

The individuals charged in this case, according to an SEC press release, are:

• Uriel Sharef  – A former managing board member at Siemens from July 2000 to December 2007. He met in the United States with payment intermediaries and agreed to pay $27 million in bribes to Argentine officials in connection with the DNI contract.
• Ulrich Bock – Former commercial head of major projects for Siemens Business Services (SBS) from October 1995 to 2001. As the officer responsible for the DNI contract, he authorized bribe payments to Argentine government officials.
• Stephan Signer – Replaced Bock as commercial head of major projects for SBS and later became head of business operations and finance at Siemens IT Solutions and Services. He authorized the payment of bribes to government officials in Argentina.
• Herbert Steffen – CEO of Siemens Argentina from 1983 to 1989 and again in 1991, and group president of Siemens Transportation Systems from 1996 to 2003. Due to his longstanding connections in Argentina and Latin America, Steffen was recruited by Sharef and met directly with Argentine officials and offered bribe payments on behalf of Siemens.
• Andres Truppel – CFO of Siemens Argentina from 1996 to 2002. He regularly communicated with Argentine government officials regarding illicit bribe payments and participated in U.S.-based meetings where bribes were negotiated and promised.
• Carlos Sergi – A former board member of Siemens Argentina and a business consultant for Siemens Argentina. His primary role was to serve as a payment intermediary between Siemens and Argentine government officials in connection with the DNI contract.
• Bernd Regendantz – CFO of SBS from February 2002 to 2004. He authorized two bribe payments totaling approximately $10 million on Siemens’ behalf.

Only 53 percent of management teams recommended annual votes, and 42 percent recommended the maximum triennial votes citing the need for extra time to evaluate the programs, review shareholder input and implement changes.

At the time of GMI’s study, 40 percent of companies had not yet decided which voting frequency to use, 10 percent adopted a triennial policy, 50 percent adopted a annual schedule and only 0.37 percent chose biennial.

“The fact that the management of 42% of companies recommended that the Say on Pay vote take place every three years stands in stark contrast to how 72% of shareholders voted on the issue,” said Greg Ruel, Research Associate at GMI, in a statement on the report’s findings.  “That gap shows a real disconnect between how management and boards believe companies should be run and the way shareholders want their companies to be run. We’ll be watching closely to see which policies the remaining 40% decide to adopt.”

The Dodd-Frank Act requires companies poll shareholders at least every six years on whether they want to vote on compensation plans every one, two or three years, or abstain. GMI’s study looks at Annaly Capital Management as a case study, where the board opted to institute a triennial voting policy though the annual option received over 70 percent of non-binding shareholder votes. Almost three-quarters of the company’s investors approved the compensation packages.

GMI analyzed the results of say on frequency votes at 2,176 companies in the Russell 3000, of which 907 companies recommended triennial votes. About half of those 907 companies have not yet announced the official voting frequency, while 23 percent confirmed the triennial policy and 29 percent implemented annual votes. Less than one percent of these companies chose a biennial policy.

For more on the GMI say on pay voting frequency study, please click here.

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The most ominous sign of this new approach can be seen in the highly public ethics investigation of the now former general counsel of the Securities and Exchange Commission (SEC). You may remember the basic story line from the many news reports: highly respected attorney returns to the SEC at the request of the chairwoman; he discloses to the chairwoman that he that he inherited Madoff-related proceeds from his mother’s estate; when he realizes he could become involved in formulating a compensation formula for Madoff victims, he makes additional internal disclosures, including to the SEC chief ethics officer, who approves his continued participation in the matter. Further criticism of his role in setting the compensation formula prompts an investigation by the SEC Inspector General, who alleges that the SEC Commissioners approved the compensation formula without knowledge of the general counsel’s conflict. Concluding that the former general counsel participated materially in a matter in which he had a financial interest, the Inspector General refers the matter to the Department of Justice. While the Department of Justice ultimately declines to investigate, the damage is done.

We’re not trying to guess at the “rights” and “wrongs” in this situation–we’ll leave that to the process of law. Still, it’s hard not to pause at the view from 10,000 feet (courtesy of news reports): a renowned public servant heeds the call to leave the private sector to return to government; was the first to identify the (controversial) financial relationship; discloses the relationship to seven separate senior SEC officials (none of whom identified a conflict); submits the matter to internal ethical review which clears him to participate in the work in controversy, and still ends up the subject of a Department of Justice (DOJ) review. One might fairly ask, “What else was he supposed to have done?”

This scenario ought to send more than a few chills up board member spines. Not because we’re certain of the facts. We aren’t. Not because conflicts standards for federal employees—which can have criminal penalties in certain instances—are going to be applied to the corporate sector. They’re not. And not because the DOJ is going to assert jurisdiction over conflicts of interest matters in private companies. It’s not. Rather, it’s because of what this mess might be telling us about how standards for conflicts review might be evolving, what might be driving this evolution, and about how boards ought to be responding.

The concern is with the “hot button” nature invariably associated with financial conflicts of interest. It’s exacerbated by the current “corporate accountability environment,” in which regulators are more willing than before to hold individual officers and directors responsible for corporate wrongdoing, in which a distinctly more personal face is being placed on allegations of organizational misconduct. We’re seeing it in any number of places—the SEC’s focus on personal liability in Foreign Corrupt Practices Act (FCPA) investigations; the IRS holding officers strictly liable for the company’s failure to “pay over” tax withholding payments; “responsible corporate officer doctrine” prosecutions by the DOJ and the Food & Drug Administration; and the Department of Health and Human Services’ right to exclude from the Medicare program key employees of a company convicted of a criminal violation—regardless of whether they knew of the problematic conduct. In an environment in which “finger-pointing” is more frequently the order of the day, the “bulls-eye” of scrutiny is increasingly being pasted on the backs of corporate leadership—temptingly so in situations involving allegations of self dealing and conflict of interest. And don’t be distracted by the fact that the current controversy is in essence an “inside government” matter; corporate governance regulators are likely to be closely following the story, wondering how the issue may apply to their own jurisdictions.

The SEC controversy hints of a higher standard of conduct of all parties to the conflicts review process. Didn’t see how that contract or relationship could constitute a conflict? Well, think again. Isn’t it enough to have told my board chair? My CEO?  Maybe not. But the compliance officer knew about it and told me I could stay involved “in the deal”! Not so fast. If, as the former SEC general counsel alleges, seven separate conflicts disclosures wasn’t enough to foreclose DOJ investigation, one wonders what would suffice. Seventy times seven?

A more realistic response to this development would involve the following steps:

1. Instill the board and key executives with an appreciation for the “corporate accountability” environment, and how it might be incited by conflicts of interest-related issues. Remind them that the purpose of a good conflicts of interest policy is not only to protect the organization and its governance decision-making process, but also to protect as possible the reputation of its officers and directors from avoidable conflicts of interest allegations.
2. Improve the diligence applied in the director nomination process. Closer attention should be applied to identifying candidates’ relationships that might be prone to conflict problems were they appointed to the board.
3. Challenge individual directors—as well as governance committee members—to view more broadly the conflicts implications of financial and even personal relations. Even if you don’t see the potential for conflict, take another look. How would the press see it? A corporate constituent? A regulator (you know, like maybe the SEC Inspector General). When in doubt, disclose.
4. Confirm the process by which disclosures are to be made—who is the party to whom questions on the appropriateness of disclosure are to be made; to whom/what body is the disclosure to be addressed, and whom/what body is the actual arbiter of a disclosure?
5. Assure the absolute independence of the conflicts review process; there’s no sense in compounding the problem by tolerating a conflict of interest involving those charged with the responsibility of reviewing the disclosure.
6. Make sure there are objective criteria available for the conflicts arbiters to use in determining whether a disclosure constitutes a conflict and, if it does, whether the conflict can be effectively managed.
7. Review for effectiveness and legal consistency the details of how conflicts affect the process of meeting quorum, supermajority voting requirements, participation in meeting discussions and, where necessary, recusal.
8. When conducting a particular conflicts review, remember that the board is expected to act in a manner that preserves the reputation of the organization; making a “media be damned” type approach more than a little problematic.
9. Ask your D&O carrier whether the board policy contains a coverage exception for violations of the duty of loyalty.
10. Remind board members that disclosure of a conflict of interest doesn’t provide a free pass to engage in related actions that may constitute a breach of fiduciary duty.

Oh, while you’re at it, make sure the positions of general counsel and compliance officer are separated, and held by separate persons. The compliance officer shouldn’t be reporting to the general counsel, and corporate officers shouldn’t be asking their subordinates to conduct conflicts evaluations of their direct reports, unless closely supervised by independent parties.

If you think this all just a dustup between regulators, you might think again. This disclosure dispute should be viewed in the context of the larger climate of accountability. Simply put, there is broad-based public sensitivity to allegations of self-dealing by persons in positions of control and responsibility. The concern that led to the Inspector General’s DOJ referral is one that is increasingly likely to be shared by a corporate governance regulator. While sanity may have ultimately prevailed here, it did so at such a cost. So, the perception of inequity in the SEC situation should prompt a corporate officer or director to pause, recognize that the rules may indeed be changing, and encourage a boardroom review of conflicts policies and procedures. There is no downside.

Michael W. Peregrine is a partner with McDermott Will & Emery based in the firm’s Chicago office.

Of the 334 complaints received between the rules’ implementation on August 12 and September 30, 16.2 percent were allegations of market manipulation, 15.3 percent reported on corporate disclosures and financial statements, while offering fraud made up 15.6 percent of complaints. The state with the highest number of tips was California, at 34, followed by New York at 24. Complaints were also filed from international tipsters, ten from China and nine from the U.K.

The statistics were reported in the SEC’s Office of the Whistleblower’s first annually mandated report to Congress on the program’s accomplishments, awards granted and fund balances, including interest and payouts. The SEC Investor Protection Fund, which funds the award program and finances the operations of the SEC Office of the Inspector General’s suggestion program, had an ending balance of $452,788,043.74 on September 30. The Commission also posted its audited financial statements for the fund at www.sec.gov/about/secpar2011.shtml.

“As a result of the relatively recent launch of the program and the small sample size, it is too early to identify any specific trends or conclusions from the data collected to date,” the report noted. “We expect that the Annual Report for 2012 – with the benefit of a full year’s worth of data – will yield such trends and conclusions.”

When the Office of the Whistleblower receives a tip, it is triaged against other recently received reports by Office of Market Intelligence staff and assigned to an appropriate member of the Division of Enforcement, lead by Sean X. McKessy. Complaints regarding existing investigations or that would be better handled by another division or agency are forwarded to the appropriate recipient. While the investigation is ongoing, the Office of the Whistleblower is available to serve as a liaison between the whistleblower and the investigatory staff.

Whistleblowers submitting a claim that results in an action exceeding $1 million are able to apply for an award of ten to 30 percent of the sanctions. When an action may result in a whistleblower award, the SEC posts a Notice of Covered Action on its website and the whistleblower has 90 calendar days to apply for the award. In August, the SEC posted 170 Notices of Covered Action for complaints lodged over the past year. Because the 90 days allotted for the filing of award applications had not passed before the report was written, no data is available on the number of successful applications or the amount any whistleblowers may receive.

The WCI seeks to measure companies that generate real economic value—as opposed to mere GAAP accounting value. The index relies heavily on the idea of Economic Margin (EM), which measures the degree to which the company is making money in excess of its risk-adjusted capital cost. It’s expressed as a percentage of invested capital and calculated as operating cash flow minus a capital charge all divided by invested capital. Companies with positive EM (greater than zero percent) are creating wealth; those with negative EM are destroying it.

This article originally appeared in Chief Executive magazine. Click here for the article and complete ranking charts.

While no single metric is the Holy Grail in running one’s business, EM comes closer than most, as it looks at a business the way any true owner would. How effectively is every dollar invested in this business working? It’s a discipline that applies to any firm, public or private, from a local chain of dry cleaners to General Motors. Many private equity firms use some variation of EM in doing their own evaluations; it is useful to know how people whose careers depend upon it size up one’s performance. The rankings look at public companies (minus REITs) in the S&P 500, where the CEO has been running the enterprise for at least three years, in order to fairly judge a leader’s impact on the company.

St. Louis-based Express Scripts, a large pharmacy benefit manager (PBM), landed the top position in 2011, following previous years where it was ranked #57 and #47. The company rose through the ranks largely due to to its success delivering growth through acquisitions, notably the PBM business of WellPoint in 2009, while maintaining and improving profitable operations. Express Scripts has proved skillful in integrating acquisitions, something few companies are capable of getting right.

If the proposed Express Scripts merger with Medco Health goes through, it will be a game-changing deal, doubling ES market share to about 35 to 40 percent in this industry—one where scale is everything. Needless to say, there is much potential synergy on costs, once the two are combined and retail pharmacies are potentially squeezed further. [This explains why the National Community of Pharmacists Association (NCPA) has testified before a Congressional subcommittee against the merger.]

CEO George Paz points to two factors that contribute to his company’s performance: its independence from Big Pharma and its diligence in using research to drive out waste and to make medicines safe and affordable in order to optimize health outcomes. “You can look across the healthcare industry and be hard-pressed to find any sector that makes money when it saves its clients money, yet that is exactly what we do,” he says. “We offer clients innovative ways to lower prescription drug costs and, more importantly, improve health outcomes of members.”

Other firms that consistently rank among the top performers in recent years are Aflac, Apple, Autozone, Gilead Sciences and C.H. Robinson Worldwide. Mike Burdi, Applied Finance Group senior analyst, points to several common elements that these enterprises share. “Do your customers care whether you stay in business?” he asks. “It’s one thing to say that one is customerfocused; most claim to be as a matter of course. But would your customers really miss not having access to what you offer?”

Apple (#5) is a poster child for using these elements, as is Amazon.com (#87). Meanwhile, Netflix (#25) will soon find out where it stands on that front. Apple’s challenge will be to maintain its allure after the loss of Steve Jobs. “In most research on what high-capital-return companies have in common, the common thread is the ability to consistently fulfill an unmet customer need, often when the customer didn’t really realize the need was unmet,” notes Burdi. “This is equally true whether one is big cap or small cap.” – J.P. Donlon

Top 10 Wealth Creators

1. Express Scripts, CEO George Paz
2. Exelon, CEO John W. Rowe
3. Priceline.com, CEO Jeffery H. Boyd
4. Varian Medical Systems, CEO Timothy E. Guertin
5. Apple, [former] CEO Steven P. Jobs
6. Philip Morris, CEO Louis C. Camilleri
7. Halliburton, CEO David J. Lesar
8. Gilead Sciences, CEO John C. Martin, Ph.D.
9. Linear Technology, CEO Lothar Maier
10. MetroPCS, CEO Roger D. Linquist

Top 10 Wealth Destroyers

1. Monster, CEO Salvatore Iannuzzi
2. Alcoa, CEO Klaus Kleinfeld
3. Dean Foods, CEO Gregg L. Engles
4. PerkinElmer, CEO Robert F. Friel
5. Micron Technology, CEO Steven R. Appleton
6. Nasdaq OMX Group, CEO Robert Greifeld
7. Tenet Healthcare, CEO Trevor Fetter
8. Stanley Black & Decker, CEO John F. Lundgren
9. Nisource, CEO Robert C. Skaggs, Jr.
10. Electronic Arts, CEO John S. Riccitiello

Ranking CEO Wealth Creation by Drew Morris and Michael Burdi
Our ranking is based on the performance of companies in the S&P 500 Index (and their CEOs) for the three years ending on June 30, 2011. It considers reported financial results during that period and estimates for the next 12 months. Only companies whose CEOs were in their roles for the entire July 2008 through June 2011 period were ranked. Not ranked are the 13 REITs in the 2011 S&P 500.

The four components of the ranking, explained below, were developed and calculated by the Applied Finance Group (AFG), an independent equity research advisory firm, using their proprietary metrics and data. An again-proprietary weighted combination of each company’s component rankings, taking into account the industry the company is in, is used to produce an overall score: 100 is awarded to the best wealth creator; 1 to the worst. (The list itself shows these overall scores as a sequential ranking.) The component rankings are shown as letter grades with companies in the top 20 percent of each component metric receiving an A grade; the bottom 20 percent receiving an F.

Market (or Enterprise) Value/Invested Capital (MV/IC)
This measure shows the degree to which investors consider the company’s assets valuable, relative to their cost. Market value is what a buyer would have to pay to buy the company outright, that is, to purchase all of the stock and pay off all of the loans, leases and other obligations. Note that market value depends on the stock price. Invested capital is the inflationadjusted total of all of the investments in the business. It does not depend on the stock price. So by its nature, MV/IC reflects the market’s take on the value of the investments made in the business.

The Average of the Past Three Years’ Economic Margins
Economic Margin (EM) measures the degree to which the company is making money in excess of its risk-adjusted capital cost—riskier businesses get relatively higher capital costs. EM is expressed as a percentage of invested capital. It’s calculated as (Operating Cash Flow – the Capital Charge)/Invested Capital. Companies with positive EM (greater than 0 percent) are creating wealth; those with negative EM are destroying it.

EM Change
This is a 12-month forecasted EM, based on the ratio of the most recent EM to the 3-year average.

Management Quality
This AFG-proprietary measure rewards a company with positive EM for growing its asset base, and penalizes one with negative EM for doing the same thing. In other words, if a company is making money and it adds assets in such a way that it can make even more, that’s good. So is selling off a money-losing division. That said, it’s also valid that adding scale can dramatically increase profitability in a business with high fixed costs.

A Validity Check on the Ranking Method
The top 50 companies in the ranking delivered an average Total Shareholder Return (TSR) of 68.5 percent between January 2008 and June 2011 (the period covered in the reported financials). The bottom 50 companies’ TSR averaged -9.3 percent, while the S&P 500’s average was 14.9 percent (without its 14 REITs). The top 50’s median TSR was 40.7 percent; the bottom 50’s was -11.7 percent.

Total Shareholder Return

As the table above shows, the top 50 companies in the wealth creation ranking far outperformed the bottom 50 companies and the S&P 500 between July 2008 and June 2011. Note: TSR = (Change in Share Price over Period + Dividends)/Start-of-Period Share Price.

For more on Economic Margin and how companies scored, see http://www.economicmargin.com/moreinfo.htm.

The 2010 B. Kenneth West Award Winner Curtis J. Crawford (left), NACD Chair The Honorable Barbara Hackman Franklin, and the 2011 B. Kenneth West Award Winner Jon F. Hanson

Hanson and Britell treated guests to unique insights into the knowledge they have gleaned over their numerous years of corporate leadership experience throughout the two-day forum, along with numerous other C-suite and boardroom experts and advisors.

Joining Hanson onstage was HealthSouth CEO Jay Grinney in a discussion on fostering relationships between executives and directors that best benefit shareholders, moderated by George Davis, Egon Zehnder’s co-managing partner of the Global Board Practice George Davis. Hanson joined HealthSouth mere months before federal regulators began fraud investigations that resulted in five of the company’s previous CFOs pleading guilty and the firing of CEO Richard Scrushy. Today, the company has returned to prominence, benefited by Hanson and Grinney’s commitment to excellence.

“The most important thing a CEO has with a nonexecutive chair is someone who is familiar with the company, but is not a direct report that he can bounce ideas off of,” explained Hanson. The two describe themselves as having a strong chemistry; Hanson noted that Grinney is not much older than his oldest son. “We’ve never had a disagreement, we may have had differing views, but by the time we got off the phone we were on the same page,” he added.

The two have ironed out a process for communications with the full board, as well. Although Hanson is the primary contact for the board between meetings, who summarizes their ideas and concerns for Grinney, individual directors are always welcome to contact Grinney directly. “I am not the gatekeeper, nor do I want to be,” emphasized Hanson.

Grinney noted that an ideal chairman needs to have leadership skills, honesty, integrity and a clear perspective: “You need a nonexecutive chair who truly does not aspire to be CEO, that’s a key prerequisite.”

Michael Kneeland, CEO of United Rentals (left), NACD Chair The Honorable Barbara Hackman Franklin and 2011 NACD Public Company Director of the Year Jenne K. Britell

Director of the Year Britell also faced a dicey situation as a United Rentals board member in 2007, when the Delaware Courts ruled the rental equipment operator could not force Ceberus Capital Management to complete a proposed buyout of the company. The next year, she was named chairman. Britell also led the turnaround of GE Capital Mortgage Services as its CEO from 1996 to 2000.

Britell offered a glimpse into the best practices she learned from these experiences in a panel titled “Turnaround: Dealing with Distress,” one of which being the ability for challenges to unite a board. “Crisis enables faster changes,” she explained. “It forces a board to come together more quickly and more deeply when the only place you can go is up.”

Other panelists, including Levick Strategic Communications President Richard S. Levick and Blockbuster Director Gary Fernandes, noted that the important part of crisis planning is not to develop a plan for specific crises, but rather have a solid leadership structure that works both in good times and bad. “The board and senior management need to share critical values,” Britell said. “The board has a critical role to play but the buck stops with the CEO, even if there is a nonexecutive chair or lead director. They need a consensus on values more than the plan.” (For more on the D100 from the September 2011 issue of NACD Directorship, please click here.)

This year’s keynote was delivered by former U.S. Army General Stanley McChrystal, who now serves on the board of JetBlue, and shared what he learned about leadership as commander of the U.S. Forces and International Security Assistance Force in Afghanistan, and how he uses that knowledge now in the boardroom. He emphasized that a close relationship with allies is necessary for success, noting that situations where many organizations tasked with similar goals created unnecessary roadblocks. “Leadership is not a talent or a gift, it’s a choice,” he said.

Of the 300 forum attendees, a select group were also celebrating the completion of the required educational programs to become an NACD boardroom Leadership Fellow. Prospective NACD Fellows are required to have years of significant board service, and to complete a number of programs to earn the distinction. To learn more about the NACD Fellow program, please click here.

Towers Watson’s report links the compensation bump to the increase in the value of equity awards, which have been growing since 2006. The equity award values increased nine percent in 2010, and made up 54 percent of director pay, with the other 46 percent in cash. The cash compensation values also increased, by 5 percent, to an average of $89,000.

“Similar to executive pay trends, director pay levels increased in 2010, consistent with improved financial and stock performance,” said Doug Friske, global head of executive compensation consulting at the professional services company, in a statement on the findings. “These changes also reflect increased demands placed on outside directors in terms of the time commitment as well as the level of debate, discourse and discord among directors. The question is whether this trend can continue, given growing uncertainty around the sustainability of the recovery.”

In addition, more of the 464 publicly owned companies surveyed are eliminating board and committee meeting fees, opting to compensate directors with fixed service retainers instead. Only 36 percent of companies paid meeting fees in 2010, down from 40 percent in 2009 and 62 percent in 2004.

Of the 39 percent of companies with the chairman and CEO roles separated, nonexecutive board chairs received an average of $150,000 more in compensation than the average director.

Jane Stevenson

Succession planning should be a key priority for boards in order to drive sustained growth. Boards should consider steps they can take to develop a deep bench of future CEO candidates – internally and externally – both for the near term and 3-5 generations into the future.  Here’s how boards can ensure they are identifying, developing and retaining those leaders now.

1. Plan in Advance
CEO succession should not be thought of as a short-term process or an event triggered by the need to replace the incumbent CEO. Board/CEO discussions should be on-going and should address the company’s needs for the short, mid and long term. Ideally, the board should be thinking 2-3 CEO moves ahead.

2. Engage the Board
The board should fully own the CEO succession planning process and meet consistently throughout the year to discuss succession bench strength for short-, mid- and long-term needs. Look at leaders both inside and outside the company; understand who the rising stars are in your industry sector. Be involved in talent development and identify the leaders who will define the future. Ideally, boards should set up succession subcommittees to drive this process.

3. Set Up a Formal Assessment Process
Establishing a formal assessment process helps ensure standards for sustained leadership are met. Facilitated by the CEO, it also provides the board with another opportunity to evaluate priorities and needs. A formal assessment process ensures that board members have quality information with which to evaluate future leaders.

Peter Thies

4. Create a “Future CEO” Profile
The board should create CEO profiles that align with the company’s business strategy, representing the short-, mid- and long-term competencies that mirror the anticipated strategic needs of the company. Having future CEO profiles helps to ensure that the right bench strength is in place for future generations of CEOs.

5. Expand the Pipeline
The wider and deeper the pipeline of candidates is, the better. While companies should first look to develop talent internally, they should also have knowledge of top talent in the external market. An expanded pipeline of quality internal and external candidates provides more options to the board at any given time. Multiple options lower the board’s risk factor.

6. Expose the Board to the Bench
There are at least seven future CEOs in every organization. Board members should interact with the company’s highest potential leaders in a variety of settings. In addition to board presentations, high-potential leaders should interact with the board through regularly scheduled board dinners, board mentoring opportunities or rotating one-on-one/small group sessions with board members. Greater first hand exposure to the company’s top talent gives board members valuable insight into the company’s true executive pipeline.

7. Address Succession Dynamics Head On
Succession is a sensitive topic for boards and CEOs. This should not deter the process. There are straightforward ways of aligning the board and CEO on the process, avoiding “horse races” internally, engaging the incumbent CEO and productively managing expectations of all involved.

8. Talk Succession Regularly
The board should plan for a formalized annual discussion with the CEO on succession planning along with at least one mid-year update.  These sessions should keep the topic on the board’s radar as a continuing priority.

9. Manage the Transition
The handoff between incumbent and successor should be planned well in advance. Communication should be planned carefully, and all parties involved should know their role in the process.

10. Plan for Sudden Loss of Leadership
In parallel with the long-term approach described here, companies need to have an emergency CEO succession plan in place at all times.  This plan should be reviewed at least once annually, and should include multiple options for leadership.

Jane Stevenson is vice chairman of Board & CEO Services at Korn/Ferry International’s Atlanta office. Peter Thies is senior partner and industry leader in the Financial Services Leadership and Talent Consulting division at Korn/Ferry International, operating out of their New York City office.