Generals Hugh Shelton and Stanley McChrystal

Their career highlights speak volumes: Shelton, who has served in Vietnam, Haiti, Kosovo and the Gulf War, was commander in chief of the United States Special Operations Command (units include Delta Force, Seal Team 6 and Army rangers), which focuses on major covert and clandestine missions, and was chairman of the Joint Chiefs of Staff under Presidents Clinton and Bush. McChrystal served as commander, United States Army Central in Camp Doha, Kuwait. He led the Joint Special Operations Command and later directed all NATO forces in Afghanistan. His successes include the capture of Saddam Hussein and the death of Al Qaeda’s Abu Musab al-Zarqawi.

No board has a corner on crisis management skills. And yet, having this degree of experience on hand assures whatever threats lurk ahead for a company, they will be seen as just another skirmish on the road to victory.

Jeff Cunningham is managing director and senior advisor to NACD. He is nationally known for his views on boards and corporate governance. Prior to starting Directorship magazine, he was publisher of Forbes and managing partner of the U.K. private equity firm Schroders. He has served as an independent board chair or director of 10 public companies.

Ed Breen

Breen was brought into Tyco in 2002 after the debacle of former CEO Dennis Kozlowski* (now memorialized for throwing a lavish $2 million Sardinian birthday party for his wife) to resuscitate the company that became the poster child for corporate excess. Breen’s low key and affable demeanor belie a razor-sharp focus. One of his first moves as CEO was to ask the entire board to resign—no simple task as they had just hired him. He patiently convinced them this was both the honorable and the right thing to do to set the stage for investors to take a second look at Tyco. He divested businesses, changed managers and downsized for further streamlining. He evinces a modesty that is both genuine and impressive: he parks in the employee lot and eats in the company cafeteria. Breen walks the talk.

*Kozlowski, currently serving a 25-year sentence in Marcy, N.Y., is eligible for parole in early 2014.

Jeff Cunningham is managing director and senior advisor to NACD. He is nationally known for his views on boards and corporate governance. Prior to starting Directorship magazine, he was publisher of Forbes and managing partner of the U.K. private equity firm Schroders. He has served as an independent board chair or director of 10 public companies.

Jeff Cunningham

Here are some examples from the letter:

The U.S. legal system: “Actions against big companies, justified or not, have the potential to deliver large payoffs. This lack of balance and fairness too often results in outrageous claims.”

Dealing with regulation: “Our ability to compete may be hampered in some instances but actually helped in others. For example, the cost and complexity of all the recent regulations, ironically, could create greater barriers for new entrants and new competitors.”

Mistakes: “Unfortunately, we make mistakes. And unfortunately, and infrequently, sometimes someone in our company knowingly does something wrong. And when it does happen, we take immediate and firm action.”

Regulation: “The Durbin amendment is a terrible mistake— price fixing at its worst. It is arbitrary and discriminatory.”

Bank failure: “Banks should pay for the failure of banks.”

Group think: “We need to beware backward-looking models and ‘group think’ and suspect of what will happen when all market participants essentially are using the same models.”

Optimism about the future: “I remain, perhaps naively, optimistic. As Winston Churchill once said, ‘You can always count on Americans to do the right thing—after they’ve tried everything else.’”

Jeff Cunningham is managing director and senior advisor to NACD. He is nationally known for his views on boards and corporate governance. Prior to starting Directorship magazine, he was publisher of Forbes and managing partner of the U.K. private equity firm Schroders. He has served as an independent board chair or director of 10 public companies.

Reuters

In driving Apple where no tech company has gone before, Jobs employs a very simple paradigm: he carefully guards those few people in the organization who, like himself, possess unerring creative skill, whether dealing with products, people or systems, and he nurtures them and their ideas. Then he looks to a larger but still select group of problem solvers who enjoy finding the challenges in the new products and working them out. Finally, there is that faceless class of critics that gets a kick out of tearing things apart; Jobs lets them go to work to toughen the idea to meet the market. The key in the development of a new business idea is to make sure the process is staged in that order. Don’t bring in the critics too early; they can be idea killers.

Jeffrey M. Cunningham is a frequent speaker and writer on governance topics and the boardroom. He is managing director and senior advisor to NACD and has served as a director or chairman of 10 public company boards.

Jeff Cunningham

Dodd-Frank has made experience the equal of expertise. It’s not, so don’t fall into that trap. That’s just another mechanism the plaintiff bar can use to assess liability against a board because it proudly claimed deep experience in its disclosures. Boards must go further.

Experience is a dwindling asset, while expertise is renewable. At a recent roundtable I moderated with Mary Pat McCarthy of KPMG, Alex Mandl, former president of AT&T, and today a director at Dell, was asked about the shelf life of a director’s technology knowledge. His answer: six months. Even directors with outstanding experience can rapidly lose their edge without continuous learning.

Where does that leave us? With the development of a new tool that will do for boards what Crotonville does for GE: I call it “Think Week”—a concept originally designed by Bill Gates to set aside time to think about how to take Microsoft into the future. For the board, Think Week is a time when directors and managers, experts and customers can meet to review the business, the models, the risks, and most importantly, assess qualifications and expertise on the board, then benchmark results against the peer group. What makes this any different than typical board sessions? More interactive, more time to absorb, more of a learning environment and more personal. With Think Week, the proxy statement won’t only be referring to the directors’ pasts, but how they are preparing for the future.

Jeff Cunningham is managing director and senior advisor to NACD. He is nationally known for his views on boards and corporate governance. Prior to starting Directorship magazine, he was publisher of Forbes and managing partner of the U.K. private equity firm Schroders. He has served as an independent board chair or director of 10 public companies.

Jeff Cunningham

within budget guidelines, but failed to recognize the small print about having to pay those funds back. So, states will now have to raise taxes, cut services including pensions that belong to state and municipal union employees, or both. Think CalPERS and the New York state pension fund, which happens to be one of the most aggressive lead plaintiffs suing directors. Note also, litigation settlements with a state pension lead plaintiff are 10 times higher than without. These institutions enjoy legal clout, strong local popularity (think home Court advantage) and now they have say on pay. If they see huge bonuses for CEOs it promises more hardcore media shellacking not to mention say-on-pay votes that will be caustic if not consequential. It is a reason to be doubly sure pay for performance is provable beyond a doubt.

Jeff Cunningham is managing director and senior advisor to NACD. He is nationally known for his views on boards and corporate governance. Prior to starting Directorship magazine, he was publisher of Forbes and managing partner of the U.K. private equity firm Schroders. He has served as an independent board chair or director of 10 public companies.

Jeffrey M. Cunningham

What to do? Media training helps. Peggy Foran, general counsel of Prudential, calls it being a “camera-ready” board director. It is part of every committee chair’s arsenal or, if not, will be part of the opposition’s. There are ample resources for this and NACD can help, so add this small item to your otherwise rarely used crisis plan.

The time for preparation is before battle.

Jeff Cunningham is managing director and senior advisor to NACD. He is nationally known for his views on boards and corporate governance. Prior to starting Directorship magazine, he was publisher of Forbes and managing partner of the U.K. private equity firm Schroders. He has served as an independent board chair or director of 10 public companies.

Jeff Cunningham

justification to demean the work done by a director who has served ably for many terms. I have seen boards take on the task of weeding out, and some do it well, while others butcher the job. Here is a quick primer. Once a director whose time has come has been identified by a majority of the board or significant shareholders, the lead director or nominating and governance committee chair should approach the director unofficially and state the facts plainly, noting both appreciation and reality; saying in effect, “Your board colleagues want to thank you for your service and welcome your retirement after this term, and we would be very pleased to hold a farewell for you where we can recognize your accomplishments on behalf of the company.” Quietly, privately and simply.

Jeff Cunningham is managing director and senior advisor to NACD. He is nationally known for his views on boards and corporate governance. Prior to starting Directorship magazine, he was publisher of Forbes and managing partner of the U.K. private equity firm Schroders. He has served as an independent board chair or director of 10 public companies.

In Hurd’s case the company had to earn back shareholder respect after recent fiascos, and it meant little tolerance for governance shenanigans. That led to Hurd’s termination, despite brilliant performance and two major acquisitions in the works. Until now, I could not imagine a board taking this drastic a step at such a sensitive time.

Irani was a darling of Wall Street. Analysts rarely evinced any concern over his Olympian compensation (the LA Times reported that he earned $460 million in 2006). So why did shareholders finally prevail on the board? The company may have been turned around during Irani’s tenure, but his boom years simply mirrored booms in the oil patch, and while shareholders felt he was very competent, he was still a hired-gun accountable to the board, and not the founder of a dynasty like Warren Buffett or Bill Gates, or his own predecessor, Dr. Armand Hammer, that his compensation reflected. It’s not all that complicated. The shareholder has the right of review, the board sets the tone, and the temperature drops precipitously if a CEO fails to heed it.

Shuttle Diplomacy in the C-Suite

During my board career, I served as a lead director and knew a number of distinguished ones. One memorable story that exemplified lead directorship was at a Fortune 100 company, and the issue was a succession plan that fell apart, with plenty of responsibility on both sides.

The CEO, who had run the company successfully for years, was an old-fashioned hands-on charismatic ruler who had come up through the organization the hard way. His successor was a brilliant but faceless operating guy, who was a world-class delegator to his staff of highly skilled technicians. While they were a two-man team, it worked brilliantly, but as the big day drew closer, the difference in styles began to rankle as it became clear the old style would be tossed out as soon as the new nameplate went on the CEO’s door. It led to an impasse, which over a few weeks became an unbridgeable rupture. In that period, the lead director stepped in and saved the day. Although he was running a very significant company himself, the lead director took a week off to mediate between the two, who by now had stopped talking to one another. During the week he was there, he practiced Henry Kissinger like ‘shuttle diplomacy’ between the two men’s offices until he calmed the waters, got the two talking to each other again, and rebuilt the management team’s confidence in the succession plan.

Few things of major proportion happen at the board level that are not soaked in angst or crisis. It is just the nature of our world that boards don’t deal with easy issues. That is why appointing a lead director (or non-executive chair) is first about intelligence, commitment and courage, and secondarily about expertise and credentials.

Jeffrey M. Cunningham is a frequent speaker and writer on governance topics and the boardroom. He is managing director and senior advisor to NACD and has served as a director or chairman of 10 public company boards.

The views expressed in this column are strictly the author’s and do not necessarily reflect the views of NACD Directorship.

More than the rise in housing values should get credit, of course; much recognition is due to the magnificent leadership of Mayors Ed Koch, Rudy Guiliani and Mike Bloomberg. But while their leadership was unequivocably a major factor, without the liquidity, securitization and rising property values, this would not have been. Next time you are strolling down 42nd Street and Broadway, or seeking out the gentrified village that is now Harlem, remember to also thank the mortgage-backed industry for its role in fixing the unfixable.

Jeffrey M. Cunningham is a frequent speaker and writer on governance topics and the boardroom. He is chairman, CEO and editorial director of Directorship and has served on 10 public company boards in all capacities, including as chairman of four.

The main constituents for Salomon then, as they are now for Bank of America as it ponders its own urgent succession, were regulators, politicians, the media, investors, and employees, including management.

As the story goes, Gutfreund called Buffett the morning after more damaging news broke regarding the illegal trading practices of Paul Mozer, and asked Buffett to step in. Buffett agreed to take on the role of CEO at $1 per year, perhaps out of concern for his investment as well as his friendship at the time with Gutfreund, and some angst about the American economy.

Buffett sent a clear message–to employees: “We want people to get rich through the firm and not off the firm. If you damage the reputation of the firm, I will be ruthless.” And to regulators: Before Buffett had a chance to formally accept the offer to the board, he received a call from Treasury that Salomon was going to be dropped from bidding at auction. Buffett placed a call to the Treasury Secretary and said if so, then he was out, and the domino effect on the bond trading industry would be palpable and disastrous. Treasury called off the witch-hunt.

The Bank of America board is dealing with a succession scenario that has some remarkable similarities. The selection of a new chief will either enhance the company’s stature in the minds of regulators, investors, and employees or may undermine it. The problem is that few of the constituencies will agree on the same choice. Team players argue for someone who knows the culture and can lead the firm but carry out the tradition. Others argue for an outsider with stature and political pedigree, someone who can calm the regulatory waters. No one wants Bank of America to fail. But everyone wants to win their way and with their “guy.” Who is right?

There really is only one choice. As Buffett proved, what is needed is the right character, experience, otherwise known as …Leadership. We rally around a leader who makes it clear that his or her selection is in the company’s and the nation’s best interests.  Warren, are you interested?

Bob Pozen, chairman of MFS Investment Management and former vice chair of Fidelity, suggested that what’s needed is a re-examination of board structure in the aftermath of the financial crisis. “Some of the most distinguished people serving on boards–take Citigroup, for example–didn’t have a clue about what was going to happen” He suggested that most bank boards are simply too large and that corporations should be monitored by “the smallest board necessary.”

Fawcett, now chairman of Pensions First Group and Guardian Media Group, which publishes the Guardian and Observer newspapers in the U.K., and a director of State Street Corp., pointed out issues tend to get lost when a board has upwards of 17 or 18 members. What’s needed, she suggested, is “diversity of thought and experience. That’s diversity with a small ‘d.’ Those [financial] institutions whose boards were diverse tended to fair better because of the wide body of expertise.”

Pozen also questioned the wisdom of mandatory retirement for directors, calling it “wrong.” Directors age 60 and older  have both the experience and the time needed to devote to board service.

Noting that “two out of three deals fail,” a director in the audience asked what the board’s role should be after a merger or acquisition?  Ruettgers, who served as chairman of EMC, a data storage company that grew largely by aggressively pursuing an M&A strategy, said the board set up a separate acquisitions committee to review some smaller deals that didn’t need to rise up to the full board level. The board’s role, too, Ruettgers suggested is to compel management to put together a process for integration that can be monitored.

Governance reform, whether legislated or mandated by the Securities and Exchange Commission, looms large. Say on pay, proxy access, broker vote, and the separation of the chairman and CEO role are all up for debate. Drawing from her U.K. experience where “almost nothing is legislated,” Fawcett noted that these issues are addressed on a “comply or explain basis.” Posen predicted that hedge funds would become more active users of these procedural changes. “This opens the door to activist shareholders,” he said.

I met the late senator from the great state of Massachusetts, brother of JFK and RFK, the good shepherd of healthcare and many other populist issues, who could not have been more perfectly formed than if sent by central casting, on the shuttle from Washington to Boston. He was an indefatigable legislator and as he slumped in the aisle seat and dropped what can only be charitably described as a week’s worth of reading material between us, I realized where his heart was at all times: in the legislative chamber and at his work desk among his ever present papers.

But at first, I did not look up, so did not know, that this was Senator Kennedy doing all the shuffling and paper rustling. His seat was adjacent to a charming, attractive woman whom he spent a good deal of time whispering to and generally making the kind of banter one associates with special people in our lives. It turned out to be his wife, Victoria Reggie Kennedy.

It was the flight attendant moving down the rows offering drinks that finally caused me to look up and recognize. I had not acknowledged him up to that time and really did not want to intrude, but when she held out the beverages, I lowered the middle tray between us, and asked was this all right. He smiled broadly as only a Kennedy can, and offered a warm grasping handshake, and introduced himself, “Hi, I’m Ted Kennedy.”

I was not entirely sure whether to say anything (“yes, I know”) or try to say something clever or appeal to his political interests. Instead in a fit of eloquence, I said, “I’m Jeff Cunningham.” To which he asked, “Are you from Boston?” I said that I was from the North Shore and he said he had sailed not far from my home when he was a teenager. The folks behind us started to listen and he turned around and introduced himself, and then Vicki; his effect was so magnetic his charm entirely contagious, I thought the plane would break into a rendition of “ich bin ein Democrat.”

All the time, he was smiling, gregarious, happy, gesturing, talking at full volume, eyes twinkling. This was his métier: People, stories, banter. It did not get any better. The woman behind us said that she raised chickens – in the suburbs. For reasons we cannot know with certainty, this tickled the Senator’s fancy and he marveled, “You raise chickens?” She again said “yes.” “Why?” and of course, like out of a Woody Allen movie, she loved the eggs. He turned to his wife and said, “Vicki, she raises chickens.” Vicki, in turn, gave him a look like, “We are so not going there,” knowing that he had a tendency to do just the thing she feared most.

He and I began talking business, he brought up the subject, asking me what I do. I said that I was an investor, and at the time, in a negotiation with Wainwright Bank. He said he went to Milton with one of the Wainwright sons. He then gave me that smile that said, “I would much rather chat. But I have to get through some homework.” He put on his reading spectacles, went back to his papers, spoke in whispers to his wife about political comings and goings and she, giving knowing glances and supportive sounds, and he, steadfast in his work, an air of patrician energy and vitality.

We landed shortly after, and he again offered a hearty shake and that smile which simply beckoned good fellowship. He gathered his reams of paper, and made off waving and hollering warm goodbyes. It was then that I understood. Ted Kennedy was the late great Senator from the state of Massachusetts.