Research released this quarter showed that 30 percent of directors surveyed believe there is a director on their board who should be replaced. Of those who said yes, 46 percent cited a lack of needed skills, 38 percent pointed to a lack of engagement, 34 percent said the director(s) was on the board too long, 28 percent indicated they were unprepared at meetings, and 17 percent said the director was simply too old.

Let’s face it. While there has been a lot of talk about how people will leave board service as accountability and personal liabilities increase, the truth is that there is very little director turnover. To perform at consistently high levels, boards need to be refreshed. Right now, the pressure-filled business environment is providing the perfect moment to have those difficult conversations and set policies that increase director excellence.

Looking around the boardroom, I see three practical steps that boards should consider: setting term-limits, a mandatory retirement age, and creating an effective director evaluation process.

Term Limits
Without terms limits, you could end up with someone serving on a board for 30 years. It’s difficult to believe that after three decades, a director maintains the fresh perspective and independence that made him or her an asset in the first place. That kind of comfortable tenure often leads to status quo thinking which doesn’t serve the shareholder. Conversely, the infusion of new thinking into board discussion stretches and elevates the conversation. A clear policy will de-personalize and simplify the process of ending service when a person no longer adds value.

Mandatory Retirement Age
Often senior directors have distinguished themselves as valuable and capable men and women over a lifetime of accomplishments. That’s why they’ve been at it for so long. Their compelling careers are part of what makes transitioning them out an emotionally difficult decision that gets deferred year after year. Still, I have been in more than one board meeting during which an elderly director fell asleep for an extended time and that is simply not fair to shareholders. Establish a mandatory retirement age. My recommendation is 72 years old, but the key is to define it proactively so you don’t find yourself having the discussion based on one person’s service which is uncomfortable for everyone involved.

Effective Director Evaluation
Here’s the good news. Many more boards are conducting assessments. The percentage of boards conducting full-board performance evaluations went from 33 percent in 2002 to 88 percent in 2007. Some studies suggest that number may be as high as 94 percent today. The bad news? Quality is all over the map.

Forty-six percent of directors polled in the aforementioned 2009 Q4 study, thought their board’s evaluation process was effective or very effective. More than half of the respondents viewed their process as less than effective. There’s a big difference between doing a board evaluation and doing it right. There are many excellent models to employ. In my experience, there are several key components:

• Ensure that the discussion is criteria-based, data-driven, and effectively executed. Conduct interviews using standards rooted in best practices and approved by the full board.

• Seek input that is actionable. The primary purpose of the assessment is to improve performance. Most directors are sophisticated professionals capable of putting useful feedback to work. Make sure the information you gather serves this purpose.

• Put the right person in charge. It’s difficult for the CEO to drive this conversation. Depending on the circumstance, it could be the chairperson, the lead director, or the nominating or governance committee chair. If the chair is also the CEO, it should be the lead director.

• Build a culture of trust and respect to promote candor and collegiality throughout the process.

All four of these steps move a board forward on the path to excellence, but none are easy to take. The urgency created by current regulatory pressures offers an opportunity to push through the difficult conversations and define a new standard for director performance. It’s up to us.

Stuart R. Levine, the founder, chairman and CEO of Stuart Levine & Associates, is a director of Broadridge Financial Solutions, and chairman of the governance and nominating committee and lead director for D’Addario & Company.

What if General Motors was required to disclose much more about which directors possess skills in sustainability, risk management,labor relations,marketing, and other key competencies and attributes required of the auto industry and integral to GM’s strategy?

What if American corporations assessed their boards, committees, and individual directors, and disclosed with sufficient granularity the key outcomes and processes, in order to inspire confidence in shareholders that a robust self-assessment regime was instituted and the results were acted upon? What if directors were explicitly recruited on the basis of the competencies and skills necessary to direct the company’s strategy and monitor management?

More transparency about skills and backgrounds of corporate directors might not have led us to avoid the financial crisis, but it might have alleviated some of the pressure that directors are now facing.

The answer is that things would be different. More transparency in the way of skills and backgrounds of corporate directors might not have led us to avoid the financial crisis or the collapse of the auto industry, but it might have alleviated some of the pressure that directors now find themselves under. It also might have caused boards to look more closely at their collective skill sets and fill in talent gaps, giving them a better chance at avoiding some of the problems or responding to them more adequately.

To be sure, disclosure in this area is remarkably thin. GM notes in Item 7 of its directors and corporate governance committee charter, only that it will “formally review each director’s continuation on the board every five years.” Exxon Mobil’s corporate governance guidelines, amended last October, include just one sentence under the heading “board self-evaluation,”which reads: “At least annually, the board will evaluate its performance and effectiveness.” It is not clear exactly what that means.

This is not to say that directors at these companies don’t possess the relevant competencies and skills,only that we don’t know, because we simply don’t have the necessary data. However, qualitative data suggests competencies and skills may be lacking in any number of boards. Take the area of risk management,for example. Recent director surveys revealed startling comments on the lack of required skills by some of their director peers:

• “We need a seminar on executive behavior and how to objectively evaluate risk.”
• “Is management overly optimistic?”
• “What’s the link between behavior, results, and action?”
• “For behavioral issues, are we comfortable as aboard versus holding back?”
• “How do we evaluate personalities?”
• “It’s mind boggling. We are not even at zero.We’re probably at minus 40.”
• “No comprehensive understanding at the board level.”
• “We should admit that the training is inadequate.We don’t know what we don’t know.”
• “I have more work to do [in order] to feel more competent.”
• “For risk, we can’t blame management.”
• “Risk management in the company is pretty poor.”
• “We should have had a peer appraisal.”
• “We’re not changing with the times [or] concentrating on the right issues.”

Northern Disclosure
Since 2005, the law in Canada has required the recruitment, education, and assessment of individual public company directors, on the basis of competencies and skills, and disclosure of these activities.Position descriptions are also required for key board leadership roles.

Currently, it is possible in the United States to sit on a risk committee of a public company board and not be risk-literate, or sit on a compensation committee and not possess compensation expertise. It is also possible to sit on these committees without having been recruited for these skills. Regulators do not require boards to disclose whether one or more directors possess such attributes. And the fact that a director may have significant experience—as a former CEO, for example—does not necessarily mean that he or she possesses certain specific competencies. As one director recently remarked: “I believe that our analysis focuses too much on experience and not enough on the actual skills and competencies that directors bring to the table. It may be said that experience and background are a short-cut to determination of skill, but it does not always mean the candidate possesses the skills.”

Chairman Mary Schapiro at the Securities and Exchange Commission is reported to be studying proposals for greater disclosures of the qualifications of board members,particularly those involved in assessing risks and setting executive compensation. Requiring American directors to be recruited and assessed on the basis of the competencies and skills each individual director is expected to bring to the board is probably the single greatest governance reform that Schapiro could make.

Overcoming the Obstacles
The belief that it is problematic, from a collegiality point of view, to assess individual directors is flawed, given the number of significant professions that have managed member assessments effectively,including the unpleasant task of counseling out non-performing members. The notion that assessing directors, from a legal point of view, should not happen (for example, concerns that results may be used as evidence in litigation by the plaintiffs’ bar), is not a reason, in itself, to avoid conducting director assessments. Otherwise,fields would never evolve because of litigation fear. That said, regulators should consider a safe harbor or zone of privilege to promote meaningful director review without directors looking over their shoulders,and require disclosure of the evaluation process only, not the results.

Some of the companies that do conduct board evaluations (New York Stock Exchange companies are required to conduct them each year, according to its listing standards) either do a poor job on the individual evaluations or they conduct a blanket evaluation, without assessing the abilities of individual directors. “Some of the board evaluations I’ve seen don’t even rise to the level of awful,” says Kenneth Daly, CEO of the National Association of Corporate Directors. “Essentially, they don’t evaluate how board members are adding value. Because of collegiality, they don’t want to go to somebody and say,‘Look, you’re no longer productive. You’re a dud.’ So what happens is they evaluate the overall board and not whether theyhave the right composition for the company’s strategic needs. I don’t know what good that does for figuring out problems with individuals and director criteria.”

Many corporations, including Pfizer,GM, JPMorgan Chase, DuPont, ExxonMobil, Home Depot, and Disney, don’t evaluate individual directors, according to published reports in the business media.

Evaluation Improvement
A robust evaluation compels a board to look inward and address issues related to leadership, management relationships,reporting, and oversight. The more an evaluation focuses on non-structural factors(for example, competencies, behaviors,and processes of the board; in short,how it acts or fails to act), the better. To make director assessments more effective, consider the following:

1. Robust criteria
The chairman of the board or lead director and the chair of each principal committee should be assessed against key criteria, such as a publicly disclosed position description.Individual directors should be assessed against the competencies and skills each director is expected to bring to the board.

2. Effective leadership
The chair of the nominating and governance committee, in collaboration with the board chair or lead director, should lead or oversee the director-assessment process in a manner acceptable to the board. This could start with some form of shared expectations and an annual one-on-one discussion with the board chair for the purpose of a self and peer review. Competencies, skills,contribution to teamwork, and developmental needs of the individual members should be addressed. The board chair or lead director should also be assessed on key criteria, including leadership and the ability to hold members accountable.

3. Effective follow-through
Boards should be committed to act on the results. An individual director’s peer results should not be shared with other directors,other than the chair or lead director for development and feedback purposes.

The chair of the board should discuss with each director their appraisal and what actions, if any, should be taken. The chair should report back to the board on the process and outcomes. The board and each committee should have a similar discussion on each of their assessments and fashion action plans to address shortcomings,if any, for the following year. Nominating and governance committees should consider linking director evaluation with continued director tenure and hold individual chairs responsible for implementing reforms from the previous year.

4. Effective disclosure
Lastly, reporting on director evaluation to shareholders should be disclosed in a meaningful and reasonably detailed manner to demonstrate that a strong and viable assessment program is in place and the board holds itself, its committees, its chairs, and other individual directors accountable for performance. Best practices include a disclosure of a comprehensive narrative on the process, dimensions of assessment, general outputs, action taken, and what governance improvements, if any, were made over the preceding year. Companies are even beginning to disclose some of the assessment results, scores received, and the number of directors who possess skilled and expert application in the competencies the board deems necessary to oversee the company.

A number of innovative boards have risen to the challenge and have renewed and fundamentally transformed their governance practices. The key for these boards is leadership, transparency,accountability, a commitment to have the best directors possible, and a sincere desire to be proud of their governance and to say to all of their shareholders: “Welcome—this is who we are.” More boards in the United States need to take up this challenge.Great boards don’t just happen. They are designed by great directors.

A Checklist for Assessing Director Leadership, Competencies, and Effectiveness

- THE BOARD CHAIR HAS AN EFFECTIVE PERSONAL LEADERSHIP STYLE

Sets a good example; is courteous, inclusive,sensitive, yet decisive; and establishes,inspires, and holds directors and management accountable to high standards

- THE BOARD CHAIR CARRIES OUT THE ROLE WELL

Sets agendas; ensures appropriate information is available;marshals resources and expertise;and ensures that the boundaries between board and management responsibilities are clearly understood and respected and that relationships between the board and management are conducted in a professional and constructive manner

- THE BOARD CHAIR HAS A CONSTRUCTIVE WORKING RELATIONSHIP WITH THE COMPANY’S CEO

Is supportive and collaborative, yet is independent

- THE BOARD CHAIR CONDUCTS AN EFFECTIVE DECISION-MAKING PROCESS

Ensures that, for crucial decisions, alternatives are generated, a thorough discussion and analysis ensues,relevant perspectives are brought to bear, the best decision is made, and the decision is supported

- THE BOARD CHAIR BUILDS HEALTHY BOARDROOM DYNAMICS

Relates well with directors and management,deals effectively with dissent, and works constructively towards consensus

- THE COMPETENCIES (FINANCIAL LITERACY, EXPERIENCE, SKILLS,KNOWLEDGE OF THE BUSINESS) OF ALL MEMBERS OF THE AUDIT COMMITTEE ARE APPROPRIATELY MATCHED WITH THE REQUIREMENTS OF THE COMMITTEE

All members, at a minimum, have a full understanding of how the company earns income and how these transactions impact the accounting judgments made by management

- THE FINANCIAL EXPERTISE ON THE AUDIT COMMITTEE AS A WHOLE MATCHES THE COMPANY’S FUTURE FINANCIAL OVERSIGHT NEEDS

Capital and balance sheet management,accounting, financial control and assurance, financial markets, treasury,funds management, investment banking,taxation, and risk management, as required

- INADEQUATE PERFORMANCE OR LACK OF COMMITMENT BY DIRECTORS IS PROMPTLY ADDRESSED BY THE BOARD CHAIR

Takes appropriate action, including developmental suggestions,peer remediation, member rotation or retirement, and other timely,corrective action as required

- RIGOROUS SUCCESSION PLANNING OCCURS FOR ALL MEMBERS OF THE COMMITTEE

Includes, with due consideration by the nominations committee,a formal and transparent process,identifying gaps between current member competencies and skills and committee requirements, a pool of directors possessing desirable qualifications to serve on and chair the committee,and, where appropriate, retaining a search firm to identify such a director

Richard Leblanc, a professor of corporate governance at York University, can be reached at rleblanc@yorku.ca. He is the author of the chapter, “Getting the Right Directors on Your Board,” from Boardroom Realities: Building Leaders ACross Your Board (Jossey-Bass, 2009).

There has been much discussion over the last few years about companies adopting a majority voting standard for director elections. And, there has been great progress in this area among large U.S. companies. Some observers have commented that this proactive adoption of majority voting should serve as a signal that no additional shareholder rights or mechanisms are necessary to provide greater board accountability. However, a recent study conducted by The Corporate Library finds that the proliferation of majority voting is limited to large companies, meaning, according to The Corporate Library, that calls to reform director elections should not be so easily dismissed.

Background

One of the fundamental rights shareholders have under state corporate law is the power to elect corporate directors. Influential former Delaware chancellor William Allen wrote in Blasius v. Atlas Corp. that “[t]he shareholder franchise is the ideological underpinning upon which the legitimacy of directorial power rests.” Shareholders have complained, however, that director elections do not impose meaningful accountability because board slates are chosen by the incumbent board and contested elections are exceedingly rare.

Under the corporate law of all U.S. states, the default voting threshold for director election—the one that applies unless the company provides otherwise—is a plurality. A plurality standard means that the director who receives the most votes is elected.

A company can alter its voting threshold by including a different threshold in the bylaws or, less commonly, the charter. The Corporate Library considers a company to have a “majority” voting standard for director elections if the company’s governing documents provide that directors must receive support from holders of a majority of shares voted in order to be considered legally elected.

Some companies retain a plurality standard for election but adopt a corporate governance policy requiring that a director who does not receive majority support must submit his or her resignation. Such companies are described by The Corporate Library as having a “plurality plus resignation policy.” The board has discretion to amend or repeal a corporate governance policy at any time, without shareholder concurrence.

Findings

A recent analysis of director election standards in place at U.S. companies yields a striking finding about the current state of the movement toward change in U.S. director election voting standards. Much of the discussion regarding the move away from plurality voting for directors seems to indicate that the majority voting standard is becoming the norm among U.S. companies. While this may be true for the largest companies, smaller companies are not following their lead.

Nearly half (49.5 percent) of the companies in the S&P 500 have made the switch to majority voting for director elections and another 18.4 percent have adopted the plurality-plus-resignation approach. Less than one-third (32.1 percent) of the S&P 500 companies now use the once-ubiquitous straight plurality standard (plurality without a director resignation policy). This reflects a dramatic change since last year, when more than half of the S&P 500 companies still had a plurality voting standard for director elections.

However, while this dramatic shift at large U.S. companies has garnered much attention, the straight plurality voting standard is still very common among the smaller companies included in the Russell 1000 and 3000 indices. Over half (54.5 percent) of the companies in the Russell 1000, and nearly three-quarters (74.9 percent) of the companies in the Russell 3000, still use a straight plurality voting standard for director elections.

As shown in the charts above, there is a long way to go before the straight plurality standard for director elections is no longer the norm among smaller U.S. companies. Several factors likely explain why such companies have not yet made the change to a majority voting standard:

First, the smaller companies tend to garner less attention from institutional shareholders, activists, and the media. Many of the companies that were among the first to modify their director election standards did so with much fanfare, attracting attention for being on the cutting edge of best practices in corporate governance. For example, when Pfizer first announced its groundbreaking change to a plurality-plus-resignation policy in 2005, much attention was paid to the announcement and the approach became known as the “Pfizer-style” standard for director elections. Because they are not in the spotlight, smaller companies in the U.S. might not enjoy the same kind of public relations boost from making the same changes to their governance practices.

In a similar vein, smaller companies tend to receive fewer shareholder proposals, which are the primary mechanism for pressuring companies to make changes to their director election standard. Although some companies might proactively adopt majority voting without a shareholder proposal (or a credible threat of one), others would likely wait to see if the issue is raised via a proposal before seriously considering a change. (A smaller company that analyzes the data on shareholder proposals might rationally conclude that the likelihood of facing a proposal on majority voting is rather low.)

Another explanation for the differing patterns in director election standards may lie in the ownership structure of companies of different sizes. The Corporate Library has found that companies with smaller market capitalization are much more likely to have concentrated ownership than companies with larger market capitalization. Companies with concentrated ownership are more likely to have controlling shareholders, such as families who own large blocks of shares, and are therefore less likely to be under pressure from their shareholders to adopt best practices.

Conclusion

Whatever the reason for the disparity between large and small capitalization companies’ adoption of majority voting, the fact that many U.S. companies still use a straight plurality standard should be considered when arguments are made that further change to director election procedures is unnecessary. While much progress has been made in this area, shareholders do not have a meaningful role in director elections at a large number of publicly-owned companies in the U.S.

CEO turnover fell in the third quarter of 2008, with 125 CEOs stepping down or getting forced out, compared to 134 CEOs who left their companies during the second quarter of this year.

So far in 2008, 448 CEOs stepped down or were removed at U.S. public companies, compared to 637 for all of 2007, according to data from Liberum Research, which tracks changes in C-suite executives.

Despite the recent firings of high-profile chief executives at some large financial institutions, the revolving door to the corner office has slowed. “The numbers have been very surprising,” says Richard Jacovitz, senior vice president of Liberum Research. He believes that some companies are hesitant to make a change at the top as they deal with uncertainty in the economy. “Our take is that companies have been focusing on cutting expenses and maintaining top management to help execute cuts,” he says.

Executives down the hall from the CEO are also more likely to keep their jobs than they have been in the past. Only 653 C-suite executives—including CFOs, CMOs, COOs, and others—left their companies during the third quarter in 2008, compared to 904 who either resigned, were promoted, or fired, during the second quarter.

However, don’t start planning that office makeover just yet. Jacovitz expects executive turnover to pick up again in the new year: “As the financial crisis begins to bite and ultimately turn into a real recession, I do expect we will see executive turnover jump precipitously.”

Among the changes, Olson details:

• The Securities and Exchange Commission (SEC) in August approved amendments to the definition of “independent director” under the NASDAQ Stock Market Rules, which have gone into effect.
• The New York Stock Exchange (NYSE) filed rule changes with the SEC to amend two of its director independence tests; these rules do not require SEC approval and went into effect on Sept. 11.
• Also in August, the SEC announced the settlement of an enforcement action involving a former director who failed to disclose a business relationship with the auditor of three companies on whose boards he served, thereby causing the companies to violate the federal securities laws.

In light of these changes, Olson recommends that companies:

1. Listed on the NYSE with categorical independence standards, amend these categorical standards to reflect the rule amendments.
2. Revise company D&O questionnaires to reflect the rule amendments.
3. Remind directors and officers of the importance of submitting complete and accurate D&O questionnaires.
4. Remind directors of the need to bring to the company’s attention any changes that might impact the director’s independence, and sending quarterly notices to directors, as part of board packages or otherwise, to remind them of the need to inform the company of any changes that may affect their independence.

The UK’s Shareholder Executive was opened in 2003 as a model to guide the government’s performance as a shareowner. According to GPW, its expanding portfolio of 29 companies range from British Energy to Northern Rock. The agency advises UK officials on topics ranging from governance and strategy to board appointments and remuneration.

The UK Treasury has built this model into its bailout plan. As a result, rules for banks it’s buying into and tasks such as appointing independent non-executive directors and forming dividend policies are built into the model.

U.S. Treasury Secretary Henry Paulson has noted that while stock purchases have been a welcomed action, the plan he announced on Tuesday gives the government limited rights to vote shares or appoint directors.

The question has come up before. Sovereign wealth funds in Asia and the Middle East, which took large stakes in some of the financial sector’s largest firms, have been watched closely for signs of how active or passive they will be as owners and whether or not they would ever put national interests ahead of their interest as shareholders.

The International Corporate Governance Network’s March statement called on state shareowners (sovereign wealth funds etc.) to secure value through responsible approaches to share ownership, including communication between investee companies on strategy and governance and considered voting at general meetings, according to GPW.

The bottomline: empower state owners without muddling the process with politics.

Goldman announced that it was going with Lakshmi Mittal, the chairman and CEO of ArcelorMittal S.A., the world’s largest and most global steel producer. “He has a keen understanding of the global economy, having operated in virtually every corner of the world,” said Lloyd C. Blankfein, chairman and CEO of Goldman. As the bank continues to expand worldwide, that keen understanding will be invaluable as the board charts the company’s course.

Goldman’s board selection is just one of the most recent examples of a trend that is reshaping both the composition and the culture of American boards. There is a movement underway to diversify boards that adds a strategic context to the traditional diversification goals of gender and race. Boards are looking to add members with global business experience or, better yet, directors who were raised, educated, and trained outside of the United States.

This trend reflects the idea that the board should be more in touch with the markets where they conduct business and with the customers that live there. Large U.S. companies now generate a greater portion of their revenues from outside the United States than ever before. For example, Jeffrey Immelt, CEO of General Electric, says that the company will derive 60 percent of sales outside the U.S. by 2012, up from about 55 percent expected this year. Moreover, the company’s overseas business is growing at twice the pace of its U.S. operations.

GE’s global ambitions are reflected in the directors it has named to its board. In addition to those directors born or raised outside the United States—such as Claudio X. Gonzalez, who was born in Mexico, Sir William Castell of the United Kingdom, and Andrea Jung who, while born in Canada, is fluent in Mandarin—the company has sought individuals whose business experience and knowledge identifies them as the new class of “globalists.” The board also counts as members A.G. Lafley, CEO of Procter & Gamble, and Sam Nunn, a former Congressman who is considered such an expert on international affairs that Georgia Tech, where he is now a professor, named its School of International Affairs after him. “Companies like General Electric, PepsiCo., Procter & Gamble, Citigroup, State Street, and others understand that they need a board that reflects their business practices,” says George Davis, U.S. co-managing partner at Egon Zehnder International, a global executive search firm. “The more enlightened companies with global businesses are approaching their boards differently, and are looking to put more global expertise and knowledge of international markets on the board.” And it’s not just large companies that are building global boards; medium sized companies are also looking for global diversity, he adds.

Rita Foley, a director at Dresser Rand and PetSmart, says the globalization of the boardroom is imperative. “More and more revenue is coming from outside the U.S. Our role is to poke and steer strategy and that means a key role for globalization. If we are going to be effective global competitors, than it is going to take a global board.”

According to Davis, the S&P 500 now derives 42 percent of its revenues outside the United States, but only six percent of the directors of those companies are from foreign countries. “There is a mismatch here,” he says. More surprising is that some of the largest companies haven’t diversified at all. In fact, nine of the 30 Dow Jones Industrials have all U.S.-born directors. “We have to be sure that we are not myopic with our lens,” says Davis.

Strategic business decisions should determine when and how any board approaches efforts to globalize. “As soon as you have a clear strategic intent to operate beyond your domestic borders, that’s the time to add directors to your board from those geographies where you’re going,” says Richard Hossack, head of the governance practice for Delta Organization & Leadership, a part of Oliver Wyman. “This isn’t really that different than if you were a start-up board: you need to be thinking about [candidates] who can build strategic alliances and who understand financing, manufacturing, government relations…and it’s not enough to parachute in a couple of new directors,” he says. “You have to play a role as a global director, so you need to act like a global director. Hold board meetings in these new territories and make sure you meet local government officials and key customers, tour the facilities, and meet employees.”

Building One BRIC at a Time

Yet adding board members from foreign countries is no easy task. First, there is the practical aspect of having someone from the other side of the globe attend board meetings and correspond from thousands of miles away and over several time zones. Then there are difficulties finding qualified individuals in locales where the board doesn’t have as much knowledge, not to mention the cultural and language barriers that exist. (See “From Brazil to Dubai.”)

The most desirable global directors are from the so-called BRIC emerging markets: Brazil, Russia, India, and China. Some of these countries have a greater supply of potential directors than others. Justus O’Brien, co-managing partner of North American Board Services at Egon Zehnder, says that it can be more difficult to find qualified directors in China, while in India there is a much larger supply of qualified candidates.

“It’s not as mysterious as it may sound to build a global board. It’s not that different than building any great board.” –Justus O’Brien, Egon Zehnder

“It’s not as mysterious as it may sound to build a global board. It’s not that different than building any great board,” O’Brien told directors attending Directorship’s Global Boards Forum in New York in September. “What is needed is simply a clear-eyed assessment of the current and future needs of the business.” Underlying that assessment should be a plan for board transitions, such as the addition of newly promoted inside directors, or the scheduled retirements of current directors. A more diverse board also offers some assurance that “cultural group think” is broken, O’Brien says. Many corporations, including Alcoa, have adopted the Business Roundtable’s “Principles of Corporate Governance,” which includes a plan for the departure and replacement of directors that stipulates a mandatory retirement age and term limits.

The due diligence that must be performed on potential board members from around the world can also be more challenging, since boards typically know less about the individuals or don’t know people who can vouch for them. “The due diligence process needs to include a deep legal and background check,” says O’Brien.

How do you define global experience? In the past, boards might have sought out international experience by putting together an advisory board. If a company was considering moving into two or three large markets, it might have created an advisory board with individuals who had knowledge of these markets, but were not necessarily board-caliber business leaders. That has changed. “Globalism in the board room is at a strategic level. It’s not about marketing,” says Davis.

It’s true that boards are seeking foreign nationals, but that is not the only aspect of building a global board. Companies are adding Americans that have run large divisions in Europe, Asia, or South America. They are also adding individuals who are internationalists. That means they have a keen understanding of the global economy, not just one region of it.

“The reality is that all significant businesses are operating in the global economy,” says William George, a professor at Harvard Business School and a director at Goldman Sachs, ExxonMobil, and Novartis. “It’s extremely important to have people on the board who have a deep understanding of different global cultures and how they do business there.”

One example of the perspective that global members can provide is that the U.S. accounting system is currently in the process of shifting to an international standard. Mary Pat McCarthy, U.S. vice chair at KPMG and director of KPMG’s Audit Committee Institute, says that global members who have been working with the International Financial Reporting System (IFRS) can provide some insight on its positives and negatives. “Creating a global board is an enabler to competing in the worldwide economy,” she says.

The Board Field Trip

Not surprisingly, large foreign companies with businesses in the United States are looking to put Americans on their boards. Harvard’s George was the first person from a non-German speaking country to gain a board seat at Novartis, headquartered in Switzerland. When he joined the board and it listed on the New York Stock Exchange, it also changed its official business language from German to English. “They were making a statement that they wanted to be a global company, and the U.S. is a very important market,” says George. Novartis has since added fellow American Anne Fudge and Marjorie M. Yang of the United Kingdom to its board.

The language shift to English at Novartis shows just how much of an impact going global can have on a board. Not only did the language change, but there were other subtle shifts in cultural aspects of the board as well. For example, George says that when speaking German, the board used a more formal tone. They addressed each other in the German equivalent of mister, professor, or doctor and used last names. With the change to English, they began addressing each other by their first names.

“Creating a global board is an enabler to competing in the worldwide economy.”

–Mary Pat McCarthy, KPMG’s Audit Committee Institute

George admits that logistically it can be tricky to add foreign nationals to the board. Directors have to increase travel time and language remains a real barrier, but he says it is worth overcoming the logistic hurdles to bring board diversity. “That’s part of the commitment,” he says. “We are not talking about part-time board members. And they are not just calling in to the meetings. Board members are really taking the time to attend meetings.” He says that the job of director has expanded enough that board members take their roles and their time commitment very seriously. He also thinks board members should be paid commensurately for this more demanding regimen required of global boards. One technology solution that may also help global boards to communicate through different time zones are board portals, such as Diligent Boardbooks and Nasdaq’s Directors Desk, that facilitate virtual meetings in a secure environment.

Egon Zehnder’s Davis says that boards shouldn’t put too much emphasis on the logistical barriers to creating a global board. “Tactical thinking gets in the way of a global board. They get too worried about the travel, language, and cultural differences. You have to find creative ways around them.”

Occasionally, board meetings are held overseas in the home countries of one of the global members. George says there is also a trend of boards setting up trips as long as a week to visit far-flung operations or to get a better sense of what is happening in a particular country. For example, the Goldman board traveled to the Middle East and visited Saudi Arabia, Dubai, and Israel, where they met with dignitaries and politicians. The board of ExxonMobil traveled to France and Japan in recent years. And Novartis is planning a trip to Singapore. “Don’t think they are boondoggles,” says George. “These companies are very serious about globalization and the time is very well spent. Everyone is there.” He says American companies realize that they have to have a broader perspective on how these countries work. “You can’t view everything through an American lens.”

One of the reasons that the Japanese fell behind in the 1990s is that they didn’t have enough diversity in their management ranks or on the board, according to George. He thinks U.S. companies could face the same fate if they don’t learn from those mistakes. “American global companies are coming around to this way too slowly.”

Egon Zehnder’s O’Brien agrees: “Boards will find that they are lacking real global perspective. They need to diversify their cultural perspective to break the cultural group think.”

With increasing frequency, directors are crossing borders to serve on boards and facing a host of cultural differences. Boardrooms in other countries are forcing American directors to learn more than whether they are presenting their business cards appropriately. While the desire to provide effective oversight and advice tends to be universal, the road there often depends on the region of the world. Conversely, directors in the United States are finding board colleagues from different cultures may not be entirely familiar with American ways in the boardroom, either.

Alignment vs. Consensus

Bromilow’s coffee-break experience demonstrates how such an ordinary practice can differ from region to region. But there are also cultural differences in the way that directors communicate, build consensus, and socialize in and out of the boardroom.

One of the most striking differences in boardrooms is how boards reach consensus, settle disagreements, and how “lively” the discussion can get. For example, those who have been in boardrooms in the United Kingdom say that if there is no arguing going on, something is wrong. In contrast, the decibel level rarely gets high in Asian boardrooms. Stephen Mader, vice chairman and managing director of board services at executive recruitment firm Korn/Ferry International, likens boardroom interaction in countries such as Japan and China to that of a jury. “With enormous patience, the Japanese and Chinese work toward consensus without heated debate,” he adds. “Consensus can take a long time; they can drive at it without losing their minds,” Mader says. Directors tend to work together with a considerable amount of patience and want all members to agree on a given strategy.

“You’ll never land in Munich and beat your suitcase to the baggage claim. In Rome, your bag might get there two days later.” —Stephen Mader, Korn/Ferry

In the United States, where debate is prized, discussion and consensus building resemble the U.K. model: opposing points of view are welcome and discussions can become heated. Often, arriving at a consensus can take much time, effort, and patience, qualities some experts believe Americans lack. Mader says American boardrooms tend to follow a process that often begins as an alignment and results in a majority consensus.

Americans are also adept at not taking disagreements personally. An adversary during one argument may be an ally in another. “An American director can be in the minority about how to best optimize strategy,” says Mader. “However, given that the majority wholeheartedly believes differently, you are more likely to support the less preferable strategy, and will strive to make it work, regardless of whether that would have been your first choice. That’s American consensus.”

Regulatory regimes can also affect the culture of the boardroom. For example, the passage of Sarbanes-Oxley in the United States has led to a regimented, process-oriented mindset in many boardrooms. Due to the litigious climate in the United States, American boards typically are more careful to dot I’s and cross T’s, and that tactical awareness has only been heightened during the financial crisis. Boards outside of the United States are generally more freewheeling in conversation and in their approach to the agenda.

George L. Davis, a consultant at Egon Zehnder International, sees the international arena as less restricted. “Americans usually find the lack of government regulation a breath of fresh air,” he says. “There’s more room for strategic debates that might not occur in a heavily regulated American boardroom setting.”

The way a boardroom is structured reflects how business operates in different countries. According to Bromilow, who has worked extensively in South America, directors are culled from a small percentage of the population. “In Brazil or Venezuela, you can have a much narrower group of people in the boardroom,” she says. “In some cases, relationships are there before you get on a board. Board members went to school together or are related,” she says. “In fact, that relationship might be a predeterminant for getting onto a board.” She adds that even public companies in these countries tend to be owned by one or more families.

“You have the added dynamic of family members on the board, even if they do not wield economic control,” she says. “Family members can add a really interesting dynamic in the boardroom. You’re very conscious of who is and who is not family, and in many instances, family members do not always think or vote alike.”

One reality that doesn’t vary from region to region is how much of the real work of the board gets done outside the boardroom. “There are meetings outside of meetings during social events. During coffee, lunch, or dinner, real work gets done,” says Bromilow.

There are also stark contrasts in the way board meetings are conducted. “In the U.S. culture, it almost seems like you’re supposed to say something, regardless of whether or not you have something to say,” says Bromilow. “In Japan, by comparison, their culture focuses more on appearances and not ‘looking bad’ in front of everyone else.” The result is that directors tend to remain quiet until they have an important point to make.

In Germany, Mader says the conduct of meetings tends to be more structured, as compared to Italy. Mader likens the differences between doing business in Germany and Italy to waiting for your luggage at the airport baggage claim area: “You’ll never land in Munich and beat your suitcase to the baggage claim. In Rome, your bag might get there two days later.”

Entertaining is perceived differently on an international spectrum. After a laborious day of meetings, don’t expect to be offered a drink in Dubai. “If you didn’t know, you’d be surprised to find at the end of the day that you can’t get a drink in most parts of the Middle East,” says Edward S. Knight, who as general counsel at Nasdaq OMX Group travels extensively. “Expect kosher offerings in Israel and a vegetarian menu in India.”

Ernst & Young CEO Jim Turley advises anyone embarking on business abroad to do his or her homework. Turley’s assistant routinely compiles notes on customs for every country he will visit. “In six or seven pages, you get a summary of the do’s and don’ts of that particular country,” he says. “As important as the proverbial business card exchange in Japan, or what hand gestures not to make while in Brazil, understanding the little nuances can make all the difference.” Just learning a few phrases in the local language, for example, can be a sign of respect and well worth the effort.

Former U.S. Treasury Secretary Robert Rubin has been named senior counselor at Citigroup. Rubin also served as Citi’s onetime interim chairman, according to The Wall Street Journal.

Rubin was the object of scrutiny when he served as a high-profile director at Citigroup, after losses in the billions due amid the mortgage and credit crises. He was reported to have made approximately a yearly salary of $17 million, including salary, bonus, and stock, according to WSJ.

Citigroup has also eliminated the executive committee, which acted for the board of directors between meetings. The company’s existing nomination-and-governance committee will assume the responsibility to take control of board responsibilities between meetings.

The number of women on a company’s board is directly connected to the future number of women in its senior management ranks, according to Catalyst’s “Advancing Women Leaders: The Connection Between Women Board Directors and Women Corporate Officers.”

The New York-based advocacy group  says this “compelling predictor shows a way to increase the number of women in leadership.” Its new findings also support earlier research that found a correlation between financial performance and gender diversity.

That analysis revealed that Fortune 500 companies with the largest representation of women board directors and corporate officers achieve, on average, higher financial performance.

Women in corporate leadership can also send a critical message to people entering the workforce. “Women leaders are role models to early- and mid-career women and, simply by being there at the top, encourage pipeline women to aspire to senior positions. They see that their skills will be valued and rewarded,” said Catalyst President Ilene H. Lang.

Catalyst says its latest research “shows a clear and positive link” between the percentage of women board directors in the past and the percentage of women corporate officers in the future:

• Companies with 30 percent women board directors in 2001 had, on average, 45 percent more women corporate officers by 2006, compared to companies with no women board members.

• Companies with the lowest percentages of women board directors in 2001 had, on average, 26 percent fewer corporate officers than those with the highest five years later.

• Companies with two or more women members on a company’s board in 2001 had 25 percent more women corporate officers by 2006 than companies with one woman board member in 2001.

Furthermore, the presence of women on boards had a stronger impact on the growth of women in line positions than in staff positions. Line experience is necessary for advancement into CEO and top leadership positions, and Catalyst’s annual censuses show that women are historically underrepresented in these roles.

The latest research demonstrates the important contribution that women board directors play in making sure women get this critical experience.

“A gender diverse board signals the right tone at the top and the importance that a company places on creating a successful work environment for all employees,” said Lang. “Moreover, this study shows that what’s good for women is good for business. Simply put, more women on corporate boards correlate with more women in the C-suite and better financial performance – a real win/win for companies, shareholders, and talented women seeking companies that support their advancement.”

]]> http://www.directorship.com/exec-pipeline-key-to-diverse-boards/feed/ 0 http://www.directorship.com/inbev-moves-to-oust-a-b-board/ http://www.directorship.com/inbev-moves-to-oust-a-b-board/#comments Thu, 01 Jan 1970 00:00:00 +0000 Joseph McCafferty http://www.directorship.com/?p=2493 InBev will up the pressure on Anheuser-Busch today with a plan to replace the American brewer’s board of directors that rejected InBev’s $46.3-billion takeover offer.

Belgium-based InBev said in a statement posted to its website that it would file a preliminary consent solicitation statement with the Securities and Exchange Commission today that would lead to Anheuser shareholders voting on the board’s future.

InBev said it wanted to give shareholders a voice in its proposed takeover of the Budweiser and Michelob brewer in the face of the board’s unwillingness to talk.

InBev, maker of Stella Artois, Beck’s and Brahma, also announced its own proposed board, which includes Adolphus Busch IV, an uncle of the current chief executive of Anheuser.

InBev was also asking Anheuser shareholders to repeal any change to Anheuser’s bylaws that might be made after June 26.

The SEC filing follows InBev’s legal action launched last month at the Delaware Chancery Court in which it sought clarification that Anheuser shareholders could remove all 13 board members without cause.

In addition to Busch, InBev’s nominated directors include:

• Marjorie L. Bowen, a former managing director of Houlihan Lokey Howard &
Zukin.

• G. Peter D’Aloia, the former senior vice president and CFO of Trane Inc.

• Ronald W. Dollens, former president and CEO of Guidant Corp.

• James E. Healey, former CFO of Nabisco Group Holdings

• John N. Lilly, former CEO of The Pillsbury Company

• Allan Z. Loren, former chairman and CEO of Dun & Bradstreet

• Ernest Mario, the former CEO of Glaxo Holdings

• Henry A. McKinnell, former chairman and CEO of Pfizer

• Paul M. Meister, CEO and co-founder of Liberty Lane Partners, LLC, a private investment firm and former CFO of Fisher Scientific International

• William T. Vinson, former chief counsel of Lockheed Martin

• Lawrence Keith Wimbush, adjunct professor of law at Thomas Cooley Law
School and former co-practice leader in the legal specialist group of Korn/Ferry International

• Larry D. Yost, former chairman and CEO of ArvinMeritor

]]> http://www.directorship.com/inbev-moves-to-oust-a-b-board/feed/ 0 http://www.directorship.com/carpenter-moore-ranks-#1-in-do-survey/ http://www.directorship.com/carpenter-moore-ranks-#1-in-do-survey/#comments Thu, 01 Jan 1970 00:00:00 +0000 Joseph McCafferty http://www.directorship.com/?p=3458 Carpenter Moore has been ranked the No. 1 directors and officers (D&O) insurance broker for public companies and William Gallagher Associates has been named the No. 1 D&O insurance broker for private companies. This year’s 2007 Towers Perrin’s Directors and Officers Liability Survey included responses from a record 2,927 U.S. participants.

According to the report, the leading brokers by ownership were as follows:

Private Insurer Sector:

1. William Gallagher Associates – 32 percent
2. Woodruff-Sawyer & Company – 31 percent
3. ABD Insurance and Financial Services – 21 percent
4. Armfield Harrison & Thomas – 13 percent

Public Insurer Sector:

1. Carpenter Moore – 31 percent
2. Woodruff-Sawyer Company – 30 percent
3. William Gallagher Associates – 20 percent
4. ABD Insurance and Financial Services – 12 percent

Nonprofit Insurer Sector:

1. Armfield Harrison & Thomas – 61 percent
2. ABD Insurance and Financial Services – 26 percent
3. William Gallagher Associates – 5 percent

The D&O broker rankings saw changes from 2006’s survey. Woodruff-Sawyer ranked number three in 2006, and now ranks number one with a 707 policy count and 24 percent of policies written.

William Gallagher Associates retained its number two ranking with a total of 656 policies and 22 percent of survey participants.

Armfield Harrison & Thomas retained its spot at number three with 650 policies representing 22 percent of participants. ABD Insurance, ranked first last year, is now in fourth position with 454 policies and 19 percent of participants.

The survey profiled companies on the basis of the following characteristics:

• Size, as represented by total assets and revenue
• Business class
• Ownership
• Number of full-time employees
• Number of board members
• International operations

]]> http://www.directorship.com/carpenter-moore-ranks-#1-in-do-survey/feed/ 0 http://www.directorship.com/wal-mart-shareholders-just-say-no/ http://www.directorship.com/wal-mart-shareholders-just-say-no/#comments Thu, 01 Jan 1970 00:00:00 +0000 Joseph McCafferty http://www.directorship.com/?p=3678 All seven shareholder proposals were voted down at Wal-Mart Stores annual meeting on Friday.The measures included a request for greater recognition of gender identity issues, a proposal that executive compensation be tied more closely to the company’s performance, and the establishment of a human rights committee.

But executives said they prefer to do it their way. “Your Wal-Mart can help promote an economically friendly environment” and also address diversity in the employee base, said Wal-Mart CEO H. Lee Scott.

That also goes for the future, Scott said, pledging that Wal-Mart plans to be sensitive to an aging global population that in many cases will live on a fixed income.

The increased demand for energy and globalization are also matters to contend with, Scott said. “And I am confident that Wal-Mart will continue to transform and succeed.”Wal-Mart shares are up 24 percent since the year began and the best performers on the 30-member Dow Jones Industrial Average.

Elected to Wal-Mart’s board were Gregory B. Penner, the 38-year-old son-in-law of Wal-Mart Chairman S. Robson Walton who has served on the board for 30 years, 16 of those as chairman, which could portends a changing of the guard at the world’s largest retailer, The Wall Street Journal reported last week.

Also expected elected was Arne Sorenson, chief financial officer of Marriott International.

]]> http://www.directorship.com/wal-mart-shareholders-just-say-no/feed/ 0 http://www.directorship.com/rockefellers-renew-call-for-independence/ http://www.directorship.com/rockefellers-renew-call-for-independence/#comments Thu, 01 Jan 1970 00:00:00 +0000 Joseph McCafferty http://www.directorship.com/?p=3066 Does ExxonMobil need an independent chair?

That’s the crux of proxy item number five on its shareholder ballot to be voted at its annual meeting next month and the thrust of some of the current criticism lodged against the oil company’s board by descendants of John D. Rockefeller Jr., the founder of Exxon and Mobil progenitor, Standard Oil.

Writing a commentary in the Financial Times this morning, Rockefeller’s great-great-grandson, Peter O’Neill, and great-granddaughter, Neva Rockefeller Goodwin, argue in favor of a yes vote.

To make their case, O’Neill and Goodwin write on behalf of “70 other Rockefeller family members” arguing that “the role of the board is to provide independent oversight of the chief executive and the management team. Under the leadership of an independent chairman, the board should provide strategy direction and represent the best interests of the shareholders.”

The heirs note that both the Council of Institutional Investors and the Conference Board’s Commission on Public Trust and Private Enterprise favor the splitting of the two roles. RiskMetrics Group, Glass Lewis and Proxy Governance as well as CalPERS are advising ExxonMobil shareholders to vote for the proxy.

The Rockefellers have kept their opinions private, and call their decision to speak out against ExxonMobil’s current management and board as “not an easy decision.”

“We did so after nearly five years of patient and ultimately unsuccessful efforts, working behind the scenes to have an open, two-way dialogue with the company.”  

Yahoo’s full board of 10 director seats come up for re-election to one-year terms at that meeting The main purpose of unseating Yahoo’s entire board would be to remove Yahoo’s anti-takeover measure, called a shareholders right plan or ‘poison pill’.

Any shareholder who wants to run candidates against Yahoo’s nominees for the board will be able to put their names forth to Yahoo’s corporate secretary by the close of business on May 15.

]]> http://www.directorship.com/yahoo-sets-date-for-agm/feed/ 0 http://www.directorship.com/rockefellers-want-change-at-exxon/ http://www.directorship.com/rockefellers-want-change-at-exxon/#comments Thu, 01 Jan 1970 00:00:00 +0000 Joseph McCafferty http://www.directorship.com/?p=2406 An independent chairman and a greater role for the board of directors at Exxon Mobil are among the changes being sought by the Rockefeller family, the longest continuous shareholder in the oil company.

Descendents of oil baron John D. Rockefeller have scheduled a press conference for tomorrow in New York, according to a report in the Financial Times. 

Family shareholders are concerned about the oil company’s direction underChief Executive Rex Tillerson and support a bid to split hisjob, and name an independent chairman to the board. They have sponsoredfour shareholder proposals this year that raise a range ofconcerns about Tillerson’s failure to address the future ofenergy and related industry hurdles, they said.

The family is also pushing for a bigger role for Exxon’sboard of directors. The family’s stake in the company was notimmediately known, according to a spokesman.

Rockefeller founded the Standard Oil Co in 1870, which wasa precursor to Exxon Mobil. Exxon Mobil is the world’s largestpublicly traded oil company based on market capitalization.

“The board believes that the most effective leadershipstructure for Exxon Mobil Corporation at the present time isfor Mr. Tillerson to serve as both Chairman and CEO,” Exxonsaid in response to the proposal for an independent director inits annual proxy statement.

]]> http://www.directorship.com/rockefellers-want-change-at-exxon/feed/ 0 http://www.directorship.com/board-action-murdoch-zell-join-ap/ http://www.directorship.com/board-action-murdoch-zell-join-ap/#comments Thu, 01 Jan 1970 00:00:00 +0000 Joseph McCafferty http://www.directorship.com/?p=2332 The Associated Press.]]> Four incumbents and three new members—including Samuel Zell, chairman and CEO of the Tribune Co. and News Corp. Chairman Rupert Murdoch– were yesterday elected to the board of directors of The Associated Press.

The new members are Donna J. Barrett, president and chief executive officer of Community Newspaper Holdings; Craig A. Dubow, chairman, president and chief executive officer of Gannett Co.; and Zell. Barrett and Zell will serve three-year terms, while Dubow was elected to a one-year term to fill an unexpired vacancy.

Re-elected to three-year terms are William Dean Singleton, who is vice chairman and chief executive officer of MediaNews Group and chairman of the AP board; Jon K. Rust, publisher of the Southeast Missourian and co-president of Rust Communications; Michael E. Reed, chief executive officer of GateHouse Media, and Victor F. Ganzi, president and chief executive officer of Hearst Corp.

Douglas H. McCorkindale, former chairman, president and chief executive officer of Gannett, is retiring from the board after serving five years as a director. Jay Smith, president of Cox Newspapers, is also retiring after serving five years. Dennis FitzSimons, former chairman of Tribune Company, resigned from the board.

Rupert Murdoch, chairman and chief executive officer of News Corporation, will fill the vacancy created by Smith’s retirement until the next election of directors.

The elected term of H. Graham Woodlief, vice president of Media General Inc., expired, and he was reappointed to a two-year term. David Westin, president of ABC News, was reappointed to a three-year term, and Bruce Reese, president and chief executive officer of Bonneville International Corp., was reappointed to a one-year term.

The Associated Press board has 18 directors elected by AP members at their annual meeting, in staggered classes of six each year. These directors are elected to three-year terms and are eligible to serve up to a total of nine years. The board can also appoint up to six additional directors if it chooses. These seats are sometimes filled by former elected directors who first joined the board to fill unexpired terms and end their elected service with one or two years of eligibility remaining.

A deferred compensation program designed to retain top talent and reward longevity means the outgoing CEO of Target has accumulated more than $140 million in deferred benefits over his four decades at the discount retailer, according to a filing with U.S. securities regulators.

Robert Ulrich, who began working at what is now the second largest discount retailer after Wal-Mart 41 years ago, will reach Target’s mandatory retirement age of 65 this month, is slated to retire as chief executive on May 1.

Ulrich will remain chairman of the board. Gregg Steinhafel, who joined Target in 1979 and is now its president, will succeed him as CEO.

In a regulatory filing, Target said Ulrich received much of his compensation in the mid-1980s and into the 1990s, amassing $140.79 million in accumulated savings, earnings and supplemental pension benefits, it said. The total represents money held in a combination of two plans. One of the plans was frozen to new deferrals in 1996.

A proxy battle between Wattles Capital Management and Circuit City heated up yesterday when the shareholders group delivered a letter to the electronics retailers board of directors calling for the ouster of Chairman and CEO Philip Schoonover.

Wattles, which owns a 6.5% stake in Circuit City,  in February nominated a slate of five directors. In its most recent letter, it behooves the existing board to take seriously any acquisition offer. Circuit City’s board turned down in 2003 an offer of $8 per share and more recently in 2005 declined a per share offer of $17. Shares of Circuit City today are trading at under $5.

Circuit City has issued no public comment. Its annual shareholders meeting is scheduled for June 26. 

Among those directors is John Lechleiter, who is slatedto become the company’s CEO next week, according to Reuters.

CalPERS said that Lechleiter,Alfred Gilman, and Karen Horn are accountable for a weak stock price and badcorporate governance policies, according to Reuters.

“It was on their watch thatEli Lilly experienced severe stock underperformance, poor corporate governancepractices, and was unresponsive to shareowners,” said Russell Read, CalPERS‘ chiefinvestment officer , said in a statement.