Groupon founder and CEO Andrew Mason (left), at his company’s IPO at Nasdaq on Nov. 4.

“The mix of directors should change as the company is going public, in most situations,” observes Bob Damon, president, North America, at Korn/Ferry International. “When companies are private-equity-backed, those firms have seats on the board. Then, when going public, the board shifts focus on the skill set directors can bring to get the board more in line with the threeto five-year strategy of the company.”

Directors must bear in mind that their time commitment will increase following an IPO because of the governance and reporting requirements of a public company, and as they become accustomed to working in the new environment. “Like any sports team, you have to get your rhythm right, which may come later as the years go on,” says Damon.

In the year leading up to its IPO, Groupon elected Starbucks CEO and Chairman Howard Schultz to its board, led by executive chairman and company co-founder Eric Lefkofsky. Five members are independent. Ted Leonsis, vice chairman emeritus of AOL, leads the audit committee; New Enterprise Associates Managing General Partner Peter Barris chairs the compensation committee; and Groupon co-founder Brad Keywell chairs the nominating and governance committee.

Ralph Whitworth

“We believe that Ralph will bring a constructive voice and a track record of value creation into the boardroom,” said Ray Lane, HP’s executive chairman of the board. “We look forward to benefitting from his perspective and experience.”

The California State Teachers’ Retirement System (CalSTRS) issued a statement applauding Whitworth’s appointment. The pension fund is a longterm investor in HP, owning 9.58 million shares valued at $255 million as of Oct. 31. Whitworth is a longtime advisor to CalSTRS.

“The Whitworth appointment is a serious first step towards allaying investors’ concerns about Hewlett-Packard’s governance, board composition and recent performance,” said CalSTRS Corporate Governance Director Anne Sheehan. “The addition of a large, credible shareholder will bring a valuable perspective to the board’s deliberations, and send a strong, positive message to Hewlett- Packard shareholders that this iconic California company is serious about making positive changes in its leadership practices.”

The San Francisco Chronicle reported that HP’s appointment of Whitworth is an effort to assuage investors who sold stock amid a growth slowdown in the months before Meg Whitman replaced Léo Apotheker as chief executive officer in September. “It’s definitely a positive development for the company,” Brian Marshall, an analyst at ISI Group in San Francisco, told The Chronicle. “The board needs help, and Ralph has the background to help them.”

Apple Names Non-Executive Chairman, Adds Iger to Board
Apple Co-Lead Director Arthur D. Levinson has been promoted to non-executive chairman of the board, while Walt Disney President and CEO Robert A. Iger will join the board, the technology giant announced. Levinson is chairman of Genentech and a director at Roche, Amyris and NGM Biopharmaceuticals. Iger is a board member of the US-China Business Council and a member of the President’s Export Council.

“Art has made enormous contributions to Apple since he joined the board in 2000,” said Tim Cook, Apple’s CEO. “He has been our longest-serving co-lead director, and his insight and leadership are incredibly valuable to Apple, our employees and our shareholders. Bob and I have gotten to know one another very well over the past few years, and on behalf of the entire board, we think he is going to make an extraordinary addition to our already very strong board.”

Schoewe Joins GM Board
Former Walmart CFO Thomas M. Schoewe has been elected to the General Motors board of directors. Schoewe served as CFO of Black & Decker before joining Walmart, and has served as CFO and controller of Beatrice Consumer Durables. He is a director at KKR Management, Northrop Grumman and PulteGroup. “We’re fortunate to have Tom join GM’s board of directors. He brings a wealth of business planning, financial experience and proven leadership, gained over more than 35 years at leading consumer-facing companies,” said Dan Akerson, GM chairman and CEO. “We’re eager to begin leveraging his expertise as we work to profitably grow GM’s business globally.”

Executives Move Up at SunTrust
SunTrust CEO Bill Rogers will take over the chairman role as of Jan. 1, 2012, succeeding the retiring James M. Wells III, according to a company news release. The announcement “concludes a long-planned succession process that began with our smooth transition of CEO responsibilities to Bill Rogers in June 2011,” noted Wells. “Bill is a seasoned and highly effective leader, with a deep understanding of our company and the industry. I can attest that he lives the values and mission of Sun- Trust in every interaction.”

Former Penn State President Resigns Board Posts
The fallout from the Penn State scandal continues for former university president Graham Spanier, who resigned his seat on the U.S. Steel board of directors. The Department of Defense accepted his resignation from the board of advisors of its Naval Postgraduate School, Bloomberg Businessweek reports. Spanier had been a board member at U.S. Steel since 2008, having served on the Pittsburgh-based steelmaker’s audit and corporate governance and public policy committees. As a board member, he had the highest total compensation last year at $191,000. U.S. Steel CEO John Surma is vice chair of Penn State’s board of trustees, which ousted Spanier and football coach Joe Paterno in November. The trustees say Spanier and Paterno failed to act after an assistant coach was accused of sexually abusing a young boy in a campus shower in 2002.

SEC Receives 334 Whistleblower Tips In Seven Weeks
Whistleblowers assisting the Securities and Exchange Commission in civil investigations against Bank of New York Mellon and State Street Bank over allegations that the two banks overcharged clients for currency trades are among the first filing claims under the Dodd-Frank Act whistleblower program, The Wall Street Journal reports. Former BNY Mellon currency trader Grant Wilson and former State Street currency employees Peter Cera and Ryan Gagne have filed claims related to the investigation, for which they provided emails and other internal documents. In the seven weeks since the whistleblower rules went into effect (offering plentiful bounties for those who tip off the SEC on alleged securities fraud), the SEC has received 334 tips. Former SEC Assistant Chief Litigation Counsel of the Division of Enforcement Jordan Thomas told the Journal that the majority of tips have been useful. “Some relate to senior people at large financial firms and other corporations, typically hard targets for the SEC to successfully bring enforcement actions against,” said Thomas.

Director Pay Rises 6 Percent
Median total director compensation at Fortune 500 firms increased 6 percent, to $212,512 in 2010 from $200,698 in 2009, according to an analysis by the professional services company Towers Watson released in November. Although directors received nearly 10 percent in compensation raises annually prior to the financial crisis, this is a marked increase from 2009’s 1 percent raise.

The report links the compensation bump to the increase in the value of equity awards, which have been growing since 2006. Equity award values increased 9 percent in 2010 and made up 54 percent of director pay, with the other 46 percent in cash. 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 Towers Watson.

“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 instead to compensate directors with fixed service retainers. Only 36 percent of companies paid meeting fees in 2010, down from 40 percent in 2009 and 62 percent in 2004.

Gallagher Named SEC Commissioner
Daniel M. Gallagher, former commissioner counsel and deputy director of the Securities and Exchange Commission Division of Trading and Markets, has been sworn in as the SEC’s newest commissioner. Gallagher had served as a partner with Wilmer- Hale following his previous SEC employment, and was appointed to the new position by President Barack Obama. He is credited with playing key roles in the SEC’s response to the financial crisis, credit rating agencies and credit default swaps.

The SEC has five commissioners, each appointed to five-year terms, and expiring on a staggered basis every June 5. No more than three commissioners may be members of the same political party.

A Test for Fraud Literacy
Financial Executives International has teamed up with the Center for Audit Quality, the Institute of Internal Auditors and the National Association of Corporate Directors on a new anti-fraud quiz. Board directors have grown increasingly watchful of how company management deals with reports of fraud. Said NACD board member Peter Clapman: “There are going to be incidents that occur on an ongoing basis within a company that the board of directors should know about and can find ways to know about. How the management deals with those situations—how the board of directors in effect directs if they have any concerns about how management is dealing with these issues about tone at the top—that’s something that the board of directors is in a unique position to enforce.”

SEC to Hedge Funds: Increase Disclosure
Hedge funds with more than $1.5 billion in assets must report detailed investment and borrowing information within two months after the close of a quarter privately to regulators, under a new Securities and Exchange Commission rule. The rule is intended to highlight the “lessons about the importance of monitoring and reducing the possibility that a sudden shock or failure of a financial institution will cascade through the entire financial system,” explained SEC Chairwoman Mary Schapiro. All but the country’s largest hedge funds will be allowed a six-month delay for the initial report.

Political Spending Disclosures Increasing, Demanded
Among the S&P 100, 55 firms now disclose direct political spending and assign oversight to the board, finds a new study from the Center for Political Accountability, which also noted that 43 firms release information on indirect political spending. The top 10 companies identified for transparency included Colgate-Palmolive, Exelon, International Business Machines, Merck, Johnson & Johnson, Pfizer, United Parcel Service, Dell, Wells Fargo and EMC.

CalSTRS recently put into place a policy calling for boards to require management to disclose political spending annually to shareholders. CalSTRS Investment Committee Chair Harry Keiley noted that shareholder proposals requesting this disclosure doubled from 2009 to 2010, to 89 of the fund’s portfolio companies.

Directors Report Uncertainty On Risk Plans
Only 19 percent of directors feel their board has effective plans to monitor risk exposure, with 57 percent noting they would like their board to increase its risk focus, finds a new PricewaterhouseCoopers survey of 834 U.S. company directors. In addition, 38 percent of directors wanted to spend more time on IT, with 46 percent believing their board’s ability to oversee its strategic use as less than effective.

CEOs Paid $1 in Salary
Larry Ellison, Oracle

John Mackey, Whole Foods Markets

Larry Page, Google

Richard Kinder, Kinder Morgan

Richard Fairbank, Capital One

Robert R. McEwen, U.S. Gold

Strauss Zelnick, Take Two Interactive

Source: Forbes.com

America’s 5 Highest-Paid CEOs
John Hammergren, McKesson
Compensation: $131.2 million, Net income: $1.2 billion

Ralph Lauren, Polo Ralph Lauren
Compensation: $66.7 million, Net income: $630 million

Michael Fascitelli, Vornado Realty
Compensation: $64.4 million, Net income: $830 million

Robert Iger, Walt Disney Co.
Compensation: $53.3 million, Net income: $4.55 billion

George Paz, Express Scripts
Compensation: $51.5 million, Net income: $1.29 billion

Source: Compiled by Forbes from CompuStat ExecuComp and SEC filings data. Includes salary, bonuses, perks and the value of exercised stock options, through Sept. 6, 2011.

Judy Warner

A year ago, when fraud investigator Harry Markopolos spoke at the Directorship 100 Forum, he told our audience that he was working on “billion-dollar-and-up” cases that involve the C-suite. These cases, he said, are “big. They’re unbelievable, but that’s what I do for a living.” Markopolos, best known for his relentless efforts to blow the whistle on Bernard Madoff’s Ponzi scheme, is true to his word. He is now part of a group whose work is reported to have led to separate civil lawsuits by the Justice Department and the New York and Massachusetts state attorneys general alleging that two leading financial services firms systematically over-charged investors on billions of dollars of currency trades. The whistleblower group can seek a share of as much as 25 percent of any recovery the states obtain in many of the cases.

Our cover story, “The Whistleblowing Business,” explores the serious implications to corporate boards and officers of the new whistleblowing regime. It features interviews with the Securities and Exchange Commission’s first chief operating officer, Jeff Heslop, and Wachtell Lipton partner David M. Murphy, who has defended corporations in whistleblowing cases. The centerpiece of our coverage is an excerpt from a recently issued report by the RAND Institute for Civil Justice and its Center for Corporate Ethics and Governance. In addition to offering bounties, the report concludes, the most contentious aspect of the new rules is that they do not require a corporate insider to first make use of his or her company’s internal reporting channels as a prerequisite for access to the SEC and any potential award under Dodd-Frank.

The underlying theme of each of these important stories is trust. The SEC’s new bounty program for whistleblowers shows that trust is key to effective employee programs. In his comments on information technology, NACD President and CEO Ken Daly focuses on the “i” in IT, which must be trustworthy above all. I think everyone in the boardroom would agree, Schmidt was right.

Associated Press

News Corp. has appointed U.K. attorney Anthony Grabiner to head an internal investigation. Grabiner is non-executive chairman of the privately owned clothing retailer Arcadia Group. Perkins told reporters he would “personally make damn sure” that the probe would be independent. News Corp. said it also has hired Sard Verbinnen & Co. to help with investor relations and the Glover Park Group—the powerful D.C.-based lobbying group managed by Clinton White House notables Dee Dee Myers, Joe Lockhart and Susan Brophy—to assist with policy. The board has retained the law firm Debevoise & Plimpton to advise it on the crisis.

Meanwhile, shareholders involved in a class-action suit against News Corp. have expanded their allegations in light of the scandal. The plaintiffs accuse the publishing billionaire and the board of having knowledge of the unethical information-gathering techniques. The original suit was filed in March in Delaware’s Court of Chancery following News Corp.’s purchase of the TV film and production company Shine Group—which is owned by daughter Elisabeth Murdoch—a move shareholders assert had no strategic value and was simply a nepotistic deal. News Corp. also dropped its bid for control of British Sky Broadcasting Group under pressure from lawmakers in relation to the hacking scandal. In addition to the shareholder class action, News Corp. executives face investigation by law enforcement and market regulators in the U.K. and the U.S.; experts suggest a raft of additional legal action could be likely.

For Jobs, The Day Arrives; Cook Steps Up As CEO
While on his third medical leave, Apple cofounder Steve Jobs resigned from the CEO position Aug. 24, and will remain chairman. As widely expected, current COO Tim Cook took the reins as chief executive. In a letter of resignation, Jobs recommended the company follow its previously established succession plan for Cook’s promotion. “I have always said if there ever came a day when I could no longer meet my duties and expectations as Apple’s CEO, I would be the first to let you know. Unfortunately, that day has come,” he wrote to the board. The Wall Street Journal reported that some Apple directors had discussed succession plans informally with executive recruiters in the weeks leading up to Jobs’ resignation. “For individuals to hold these conversations outside of the official scope of the board is rare at a company where board members have been handpicked by Jobs,” one source told the newspaper.

Two Heads Better Than One
Richard Branson’s Virgin Group has restructured top management as it plans to move from a defensive position designed for the recession to a period of expansion. Stephen Murphy, chief executive since 2004 and a 17-year Virgin veteran, will step into an advisory position and be replaced by two co-chief executives— David Baxby, head of both Virgin Asia-Pacific and the aviation business, and Josh Bayliss, general counsel. The move is part of a long-term plan devised by Murphy and Virgin Group Chairman Peter Norris. Though the cochief arrangement has drawn criticism at other companies, Virgin says it is appropriate for a group that is more a manager of assets than an operating firm.

Google Probed, Again
Though Google has faced M&A antitrust probes in the past, federal regulators have expanded their inquiries to examine the company’s web search success. The Federal Trade Commission is expected to subpoena the Internet giant to glean more information about whether Google search results are unfairly biased to boost its own services. The inquiry is expected to be as precedential as the 1990s Justice Department lawsuit against Microsoft. The Associated Press reported that Google’s quarterly lobbying expenses surpassed $2 million for the first time during the second quarter as it pleaded its case to lawmakers and regulators— a 54 percent increase over the same period a year ago.

FDIC Expands Clawbacks
The Federal Deposit Insurance Corp. has established a new executive compensation clawback rule for failed banks, allowing the agency to recover up to two years of pay if the executive is deemed to have been “substantially responsible” for the failure. The new “substantially responsible” clause means the rules are more aggressive than the business judgment rule, placing the burden of proof on executives to show that they exercised “the degree of skill and care required by the position.”

CFO/CEO Pay Gap Widens
While CFO pay in general has been rising to pre-financial crisis levels, one study shows the pay gap between CFOs and CEOs to be widening, at least among middle market companies. Accounting firm BDO found that the gulf was largely due to changes in CEO pay-for-performance compensation structures. Middle market CFOs typically earn between 55 percent and 60 percent of their chief executive’s pay. Last year, though, they earned only 40 percent on average. BDO studied 600 public companies with annual revenues ranging from $25 million to $1 billion for its results.

An analysis of 55 proxy statements for non-financial services companies with median revenues of $10 billion by Compensation Advisory Partners found that movement in pay among CFOs and CEOs was, on average, directionally similar. However, CAP’s analysis revealed that over the last three years CFO actual total direct compensation was generally 30-35 percent of CEO actual total direct compensation.

Ousted Director Wants Tighter London Listing Rules
London’s ERNC mining giant boardroom coup victim Sir Richard Sykes is calling for the Financial Services Authority to strengthen its governance listing standards following his ouster. Sykes was allegedly removed from the board, along with fellow independent director Ken Olisa, after the founding shareholders felt the two were excessively interfering. Sykes has urged regulators to institute a standard whereby a minimum of 25 percent of a company’s shares must be listed in order to avoid executive shareowners using their votes to control the board.

Beware the ‘Distort and Short’
Convicted con man Barry Minkow was sent back to prison for five years for involvement in a scam that cost homebuilder Lennar Corp. some $580 million in lost stock value. Minkow, who admitted to being part of a scheme, used his high-profile status and access to national media in 2009 to issue press releases, send emails and post YouTube videos claiming Lennar was beset by faulty accounting, misappropriation of corporate funds and other wrongdoing. Minkow’s scheme—the opposite of a “pump and dump”—was to “distort and short,” betting that Lennar’s stock would go down while at the same time releasing negative reports on the company.

SEC Warns on Reverse Mergers
Having suspended trading in more than a dozen reverse merger companies, the Securities and Exchange Commission cautioned investors about purchasing shares in companies that enter U.S. markets through so-called “reverse mergers” or backdoor listings. The bulletin warns of the potential risks of investing in such companies, and identifies some of the recent enforcement actions that the SEC has brought against a number of listed reverse-merger companies, including many Chinabased companies that became domestic issuers through the reverse-merger process. A reverse merger is often perceived to be a quicker and cheaper method of going public than a traditional IPO.

A Haven for Good Governance?
Established in the aftermath of the global financial crisis, Singapore’s Corporate Governance Council is recommending changes to regulate director independence and board oversight. The Council for the city-state has called for more directors who are not employees, family members of executives, or who have served on the board for more than nine years. “Good corporate governance plays an important role in ensuring the effective functioning of Singapore’s capital markets,” a council member was quoted as saying.

Top Priorities of Directors

1. Strategic planning 72.1%
2. Corporate performance and valuation 40.6%
3. Risk and crisis oversight 27.1%
4. Executive talent management 25.8%
5. CEO succession 25%

Source: NACD 2011 Public Company Governance Survey

William B. Chandler III

The process of choosing Chandler’s successor got underway in May when the Delaware Judicial Nominating Commission, chaired by Andre G. Bouchard, managing partner at Bouchard Margules & Friedlander, issued a public notice soliciting candidates. The court is required by the state constitution to be bipartisan, and all candidates must be Delaware residents. Following interviews, the JNC would refer any finalists to Gov. Jack Markell, who would then recommend one candidate to the state Senate for approval.

The 60-year-old Chandler, the subject of a cover story in NACD Directorship (December 2010/January 2011), notified the Delaware governor in April he planned to resign to seek opportunities in the private sector. His last day on the court was expected to be June 17.

Franklin, Hockaday to Co-Chair BRC on Lead Directors
A group of more than 20 corporate directors and governance thought leaders convened this spring to initiate the 2011 Report of the NACD Blue Ribbon Commission on the Lead Director. Hosted by the NACD, the commissioners will leverage their years of experience to develop recommendations that will define and clarify the role of the lead director in the boardroom. The commission is co-chaired by Barbara Hackman Franklin, former U.S. Secretary of Commerce, and currently a director for Aetna and the Dow Chemical Company and chairman of the board for NACD; and Irvine Hockaday, director for Ford Motor Company, Estée Lauder and Crown Media Holdings. Holly Gregory, corporate partner at Weil, Gotshal & Manges, will serve as governance counsel to the commission.

“As boards rise in accountability and visibility, the role of the lead director has become increasingly important. Lead directors play a critical role in ensuring independence of thought and oversight, and help build consensus in the decision-making process,” said Ken Daly, president and CEO of NACD. “The diversity and depth of experience represented on this year’s commission provide a unique opportunity to study leading practices for the lead director position.”

The new commissioners will meet once more in June as they continue to collaborate on their recommendations. The report is scheduled for release at the NACD Annual Board Leadership Conference on October 2-4 in Washington, D.C.

Delaware VC Cuts Plaintiff Lawyer Fee
What did shareholder plaintiffs lawyers achieve in their litigation over an abandoned tender offer for shares of Sauer-Danfoss? Not much, according to a recent decision by Delaware Vice Chancellor J. Travis Laster. In fact, Laster found that the plaintiffs lawyers did so little of value that he slashed their fee request by 95 percent and awarded them just $75,000 of the $790,000 they asked for, according to Morris James’ Delaware Business Litigation Report. Wrote Laster: “Plaintiffs never engaged in meaningful litigation activity.”

Heidrick Study Finds Number of Directorships in Decline
New director appointments decreased 22 percent from 2009 to 2010, according to the new Heidrick & Struggles Board Monitor Fortune 500 quarterly trend report, with 279 new directors at the studied companies in 2010, down from 356 in 2009. In addition, only one-third of these appointees had non-CEO or –CFO backgrounds, reflecting the growing post-Dodd-Frank disclosure requirements. “The ongoing economic uncertainty is causing companies to lean towards those with top-job experience when they do make an appointment,” said Bonnie Gwin, the leadership advisory firm’s vice chairman and head of the North American Board Practice. Average director age remained at 57, and female placements increased slightly from 17.9 percent to 19.3 percent.

Outside CEOs Cost More, Perform Worse
CEOs promoted from within are more cost-effective and outperform their external counterparts, according to a study conducted by The Kelley School of Business at Indiana University in conjunction with A.T. Kearney, that examined 36 companies that had promoted internally between 1988 and 2007. It compared their performance with other S&P 500 companies that had chosen external candidates. The study found that none of the external CEOs’ companies performed better than the 36 identified companies, and the external CEOs commanded salaries that were 65 percent higher than those of CEOs recruited from within.

Transocean Execs Donate Safety Bonuses to Victims’ Families
After sparking public ire by rewarding executives with safety bonuses, five Transocean senior executives will donate $250,000 collectively to a fund for the families of victims of last year’s Deepwater Horizon explosion in the Gulf of Mexico. Transocean had given safety bonuses because the company had reached two-thirds of its safety target, despite the deaths of 11 workers in the explosion and the subsequent massive oil spill. Overall, the five executives received about $900,000 in incentive bonuses; 25 percent of the bonus equation is determined by safety performance. Transocean reported that 2010 was its “best year in safety performance.”

Judge Orders Borders Bonus Plan Changes
Bankrupt bookseller Borders Group was ordered by U.S. Bankruptcy Judge Martin Glenn to revise its executive bonus plan after the lawyer representing unsecured creditors, Bruce Buechler, notified the judge that the plan rewarded executives for staying with the company though its bankruptcy. The plan had proposed giving the top five executives $4.9 million if unsecured creditors were paid at least $95 million, and a $1.8 million bonus if creditors received $73 million. Glenn instructed the retailer to include a provision that would apply if less than $73 million were returned to creditors.

Basel Establishes Criteria for Globally Essential Banks
The Basel Committee on Banking has established criteria designating banks that must maintain extra capital reserves because they are essential to global financial stability. The international regulatory committee did not compile a list of firms that these rules would affect. Banks will be evaluated based on “size, interconnectedness, substitutability, global activity and complexity,” said the committee’s secretary general, Stefan Walter, who noted that the Basel committee would monitor hedge funds, money market mutual funds and other securitization structures to help prevent another financial crisis.

Class Actions Lose, Arbitrators Win in Supreme Court Ruling
In a ruling expected to provide businesses with significant protections against class-action lawsuits, the Supreme Court ruled that state laws couldn’t override contract clauses that require customers to present complaints to private arbitrators individually. The case in question, AT&T Mobility v. Concepcion, fought over a $30.22 sales tax charge on phones that AT&T had advertised as “free.” The ruling makes arbitration clauses more attractive to companies in consumer contracts, and is expected to apply to employers in employee contracts under the Federal Arbitration Act of 2001.

Geronzi Resigns, Faces Ruling
Cesare Geronzi resigned as chairman of Italian insurer Assicurazioni Generali after the board threatened a vote of no confidence. He was awarded a payoff of 16.6 million euros ($24.3 million) upon leaving Europe’s No.3 insurer, according to Reuters. The controversial Italian financier has in succession chaired three of the country’s most important financial institutions: Capitalia; Mediobanca, which is Generali’s top shareholder; and Generali itself. Separately, a Rome court is due to rule on whether Geronzi contributed to the 2003 bankruptcy of Italian food group Cirio. Prosecutors are seeking an eight-year sentence for Geronzi, who has denied any wrongdoing.

Wall Street Banker Pay Falling
An unnamed Wall Street paymaster told The Wall Street Journal recently that the median banker pretax salary is currently $1.6 million, down from $2.2 million before the financial crisis hit. The pre-crisis pay was approximately 60 percent cash payments, with bankers taking home about $700,000 a year after taxes. Now, however, more bankers receive deferred compensation rewards, which brings their median aftertax take-home pay to about $380,000.

Director Shortage
Despite median director compensation increasing from $45,000 in 2001 to $119,500 in 2010, Canadian companies are having increasing difficulty finding directors to fill their boards. Spencer Stuart found “a definite increase in the number of first-timers joining boards,” said Andrew MacDougall, president of Spencer Stuart Canada. Over the past three years, almost 25 percent of all directors appointed were joining their first board. One-third of the newly appointed directors in 2010 were from the United States—the highest proportion since Spencer Stuart began tracking Canadian directorship trends. In addition, female board members increased to 20 percent in 2010, from 13 percent in 2009.

Top Paid CEOs in 2010
1. Philippe P. Dauman – Viacom
2. Lawrence J. Ellison – Oracle
3. Leslie Moonves – CBS
4. Martin E. Franklin – Jarden
5. Michael White – DirecTV
6. John F. Lundgren – Stanley Black & Decker
7. Richard C. Adkerson – Freeport-McMoRan Copper & Gold
8. Robert A. Iger – Disney
9. Donald J. Stebbins – Visteon
10. Jeffrey L. Bewkes – Time Warner
11. Alan Mulally – Ford Motor
12. Brian L. Roberts – Comcast
13. John H. Hammergren – McKesson
14. Samuel J. Palmisano – IBM
15. David M. Cote – Honeywell
16. Laurence D. Fink – BlackRock
17. James Dimon – JPMorgan Chase
18. David N. Farr – Emerson Electric
19. Thomas M. Ryan – CVS Caremark
20. Rex W. Tillerson – ExxonMobil
Source: The Wall Street Journal Survey of CEO Compensation

Corporate Reputations
Best:
1. Google
2. Johnson & Johnson
3. 3M Company
4. Berkshire Hathaway
5. Apple
6. Intel Corporation
7. Kraft Foods
8. Amazon.com
9. General Mills
10. The Walt Disney Company

Worst:
11. AIG
12. BP
13. Goldman Sachs
14. Citigroup
15. Chrysler
16. Bank of America
17. General Motors
18. ExxonMobil
19. JPMorgan Chase
20. Delta Airlines
Source: 2011 Harris Interactive

The overall NACD Board Confidence Index (BCI) rose to 64.9 in Q1 2011, showing a slight improvement over last quarter’s overall index of 64.4. This score reflects the fact that directors continue to exhibit feelings of restrained optimism, a trend that began emerging last winter. While directors no longer show the hesitancy seen in the autumn of 2010, current business conditions have not yet improved to a point as to encourage outright enthusiasm.

When asked to characterize the current state of the economy compared to one year ago, directors registered a confidence index of 73 in Q1 2011. This compares to a level of 69 in Q4 2010. Taking a shorter timeframe and looking at changes in conditions from the previous quarter, as opposed to the previous year, directors also felt more confident, although to a lesser degree—61 in Q1 2011 versus 59 in the previous quarter. Despite this growing confidence, directors’ optimism about the progress made during the past year and past quarter is tempered by a slight decline in expectations of future economic conditions.

With proxy season on the horizon, the Securities and Exchange Commission is yet to finalize rules regarding shareholder voting and transparency, proxy access or new whistleblower programs. This uncertainty about the future corporate environment is reflected in boardroom index data. It appears as though these concerns may be relatively short-lived, however. Looking ahead, directors are less confident about the future in the short run, as opposed to a year out. Boardroom expectations for the next quarter dropped to 57 from 60 in Q4 2010. Expectations for the next year dropped to 69 from 71 the previous quarter.

The survey also asked respondents several questions regarding the hiring practices of their primary company. In Q1 2011, 48 percent of directors responded that their hiring remained the same, while a third said their companies’ hiring practices resulted in a net gain. Looking forward, just 8.6 percent indicated their companies planned to reduce the workforce in the next quarter—more than half responded that their hiring practices would remain the same. —Kate Iannelli

BP Chief Bob Dudley Apologizes for Gulf Oil Spill
In his first public address to oil industry executives since becoming BP chief executive, Bob Dudley apologized in London for the 2010 Gulf of Mexico disaster that caused the biggest offshore oil spill in history and killed 11 people. Touting his record since taking the top job, Dudley said that BP would not sign contracts with drillers whose rigs do not meet BP standards “and there are a number of cases where we have either turned away rigs or are negotiating for modifications which could bring the rig up to our standards.” The London Telegraph reported that the past year’s events have affected compensation at the company. While two of BP’s most senior directors “have taken bonus payments for their work in the year of the Gulf of Mexico oil spill,” the newspaper notes, “Dudley waived his reward.”

Dudley believes the entire industry needs to change to prevent another deepwater oil spill on the scale of the one BP suffered a year ago. The New York Times pointed out that his comments “were in sharp contrast to the statements of other senior oil executives who said their companies would have designed wells differently” from BP’s ill-fated Macondo well. They assert that the accident would not have occurred had rig workers and their supervisors conducted adequate testing, followed industry procedures and been properly trained.

Americans Want Less Corporate Political Influence
Major corporations should have less influence on politics, say 62 percent of respondents to a recent Gallup poll. This is down from 68 percent of respondents who wanted less corporate involvement in 2008, but a marked increase from 52 percent 10 years ago. Twenty-four percent of respondents want about the same level of influence, while 12 percent want to see influence increase. An equal number of respondents want influence levels to stay consistent in 2011 as compared with 2008, a decrease from 36 percent in 2001. Democrats were more likely to call for less influence (73%) than Republicans (49%).

Shareholders Seek More Disclosure on Succession
Pressure is building on publicly traded companies to give details about their succession planning, as evidenced by an increase in the number of shareholder proposals asking boards to disclose such details. The situation can be especially troublesome at a company such as Ford Motors, whose recent success appears to be closely tied to 65-year-old President and CEO Alan Mulally. “Given that his employment agreement has no formal term,” the Detroit Free Press reported, “it’s only natural that investors have been asking questions about Ford’s succession plan, which remains private.”

Gupta Resigns Board Positions
Potential jurors in the insider-trading trial of Galleon Group founder Raj Rajaratnam, now underway, were questioned about whether their feelings about Wall Street executives and the financial crisis in the United States would affect their ability to fairly consider the evidence at trial, The Wall Street Journal reports. Rajaratnam is charged with making improper trades at his hedge fund based on alleged tips about publicly traded firms obtained from company insiders. U.S. District Judge Richard Holwell made available a copy of the questions he will ask potential jurors to determine if they might be biased. One section will focus on their experiences as investors and their views on insider-trading laws. Federal prosecutors have said former Goldman Sachs Group and Procter & Gamble Co. director Rajat Gupta was an unindicted co-conspirator who shared inside information with Rajaratnam. The SEC promptly filed a civil administrative action against Gupta for allegedly tipping off Rajaratnam when Gupta was a member of Goldman Sach’s and P&G’s boards.

More Companies Consider Risk in Compensation Decisions
Risk management has become more prominent in financial firms’ overall performance goals and compensation decisions, with a new Deloitte survey finding that 37 percent of institutions have placed more weight on risk. Companies plan to continue integrating risk management in incentive compensation, with 64 percent of firms looking to balance the emphasis on shortterm versus long-term incentives. Fifty-seven percent of companies paid incentives in company stock and 52 percent deferred payouts based on future performance.

The “Navigating in a Changed World,” survey, which queried chief risk officers at 131 financial institutions worldwide, also found that four out of five institutions require that a portion of the annual incentive be tied to overall corporate results, but less than one-third matched senior executive payout timings to the risk term at hand.

“While we saw an uptick in risk-based compensation practices, it was mostly at the senior management level,” said Deloitte’s Edward Hida, who edited the report. “It is even more important that financial institutions take risk management into account in performance evaluations and incentive compensation across the organization.”

More Auditor Changes Seen
With companies looking to save money wherever possible after the recent financial crisis, more companies are changing auditing firms and taking more time to make their choice. The Big Four—Deloitte, Ernst & Young, KPMG and PwC—still cover more than 90 percent of the market capitalization of U.S. public companies. Recent major auditor switches have occurred at Apple and Tyson Foods. Apple exercised a new policy of reviewing its auditor every five years, with an option to change firms after 12 years of being a client at the same firm.

Bribery Act Delayed Indefinitely
Following businesses’ concern about ambiguities in a new anti-bribery law, the British government has delayed its implementation. The law has been compared to the Foreign Corrupt Practices Act in the United States, but would be more restrictive, banning bribes between private businessmen, in addition to foreign officials. The law also would be enforceable even if the offender did not realize a transaction was a bribe. The pending rule currently has no limits on fines and would increase the maximum bribery penalty to 10 years in prison. Scheduled to take effect in April, the law was delayed pending government guidance on corporate compliance.

CFOs Expected to Do More More
CFOs are being called upon to evaluate corporate strategy and information technology plans, among others. An Accenture survey found that 43 percent of CFOs had assumed information technology roles in the past 18 months, while 41 percent got more involved in business development and 39 percent in human resources planning. Eighty percent of senior finance executives reported an expansion of responsibilities. The study surveyed 1,054 senior finance executives across North and South America, Asia and Europe.

Some CEOs Getting Higher-Value Health Plans
Companies appear to be offering executives high-value health care plans, an issue of growing importance in light of Apple CEO Steve Jobs’ health concerns and subsequent speculations on how it will affect the company. In both 2009 and 2010, 32 Fortune 100 companies reportedly paid for their CEOs to have extensive executive physicals, which include collecting a medical history, blood tests, X-rays, eye exams and nutrition counseling at Baltimore’s Johns Hopkins Hospital. Companies such as McCormick & Co. are offering free preventative care and encouraging gym membership, according to The Baltimore Sun.

Wall Street Lawyers Help SEC Funding Campaign
Forty-one Wall Street securities lawyers and professionals appealed to Congress to allow the SEC to become a “self-budgeting” agency, meaning it would set its own annual budget. A provision to make the agency self-budgeting was removed from the Dodd-Frank Act in the final hours, with some senators still wary of fully trusting the SEC without the regular performance review required by budget evaluations.

Fed Works to Define Systemically Important Nonbanks
The Federal Reserve is working to utilize powers it was given under the Dodd-Frank Act to establish terms to identify those financial firms that are not banks and risky enough to necessitate additional regulatory measures. Under the proposed rules, a firm would be considered systemically important if 85 percent or more of its revenue was related to activities that are financial in nature, have at least $50 billion in assets or already are designated by regulators as systemically important.

Top and Bottom
For its annual 50 most admired companies overall, Fortune asked businesspeople to vote for the companies that they admired most from any industry. Here are the top 10:

1. Apple
2. Google
3. Berkshire Hathaway
4. Southwest Airlines
5. Procter & Gamble
6. Coca-Cola
7. Amazon.com
8. FedEx
9. Microsoft
10. McDonald’s

Least Admired

1. Kirin Holdings
2. Carlsberg
3. Asahi Breweries
4. Heineken
5. China South Industries Group
6. Dongfeng Motor
7. Pernod Ricard
8. China FAW Group
9. Shanghai Automotive
10. AbitibiBowater

“Wall Street engineers must get ahead of what comes down the pike,” said Becky Quick, co-anchor of CNBC’s “Squawk Box,” who introduced Hu. Quick noted that SEC Chair Mary L. Schapiro tapped the University of Texas professor 13 months ago to head the first new division created by the Commission in 37 years because she had “identified someone that first started warning us about derivatives.”

Hu’s remarks focused on his “decoupling” concept as well as the importance of the Dodd-Frank Act, which he labeled the “most comprehensive change in generations… representing a new era for corporations and boards that introduces new challenges and opportunities. It is important to get the balance between corporate governance and financial innovation right.”

Less than two weeks after Hu addressed the NACD audience, his resignation was announced by SEC Chair Mary Schapiro. No replacement was immediately named and Hu told Bloomberg News the decision to depart was “completely my own. This seemed like a very natural point in terms of having accomplished the very basic goals” of setting up a new division, he said. Hu’s unit was created through the merger of separate SEC units that conducted economic analysis and identified emerging financial risks. He hired people who previously worked at hedge funds and on Wall Street, adding to an SEC staff primarily made up of securities lawyers. “I am deeply grateful to Henry for the great start that he has given the division, and for his valued judgment on a wide range of important substantive issues,” Schapiro said in the SEC’s statement. Hu told Bloomberg he looks forward “to going back to what I have loved for 20 years, which is research.”

Sugar Joins Apple Board
Apple Inc. has appointed Ronald D. Sugar, former chairman and CEO of Northrop Grumman Corp., as its board’s audit and finance committee chairman. The appointment expands the board to seven members, including Apple CEO Steve Jobs, Intuit Inc. Chairman Bill Campbell and former U.S. Vice President Al Gore.

Gender Differences Noted in Board Decision-Making
Greater board diversity may help improve the public’s trust in corporate boards after the financial crisis, perhaps in part because there are strong differences in opinion between how men and women directors view certain issues. A study conducted by Heidrick & Struggles, WomenCorporateDirectors and Dr. Boris Groysberg of Harvard Business School found that 65 percent of women and 35 percent of men believe increased boardroom diversity would be beneficial. However, only half of both groups believed that their board was adequately advancing diversity. Female directors were also more critical of their board’s performance and competitive compensation practices, but had greater faith that executive compensation and proxy access regulations would have positive effects.

Rise Seen in Third-Party Litigation Funding
Investors are looking to court battles as a new way to earn profits, by supporting medical malpractice claims, divorces and class action lawsuits and retaining a portion of the winnings, The New York Times reports. A review by the newspaper and the Center for Public Integrity found that while funds from banks, hedge funds or private investors make it possible for those with minimal financial resources to take their cases to court, investors can also become too involved in the court proceedings; interest paid to the investor could eventually total more than the winnings.

Director Comp Steady
Director compensation has remained relatively constant this year, according to a survey of board compensation practices of 600 mid-market public companies by the accounting firm BDO. The annual study found that directors had a median compensation increase of just two percent. Last year’s study predicted that compensation would normalize as the current economic situation and boards’ reactions to it shifted. The stability of director pay this year “can be attributed to the survival mode that a lot of companies are in, a lot of them are just holding the line,” said Randy Ramirez, Northeast practice leader for the Compensation and Benefits Practice at BDO. “They’re not trying to push the envelope.”

FedEx Giving 1.5 Percent of Profits
FedEx designates about 1.5 percent of its pretax profits for corporate giving, compared with the average 0.9 percent, a fact that CEO Frederick W. Smith said in a recent interview with The New York Times pays off for those they help as well as for shareholders. “It’s good business to be a good corporate citizen,” said Smith. “People absolutely make business decisions toward companies that have good corporate responsibility records.”

CalPERS to End ‘Focus List’
The California Public Employees’ Retirement System (CalPERS) has decided to change its method of pursuing companies that it feels are underperforming or have poor corporate governance practices. Previously, CalPERS released an annual “Focus List,” spotlighting companies that were unwilling to make improvements in corporate governance. Because a Wilshire Consulting study found that the firms CalPERS worked with privately to make changes outperformed the ones named on the publicly released Focus List, CalPERS has decided to dedicate more effort to private collaboration.

M&A on Track for Biggest Year Since 2007
The increase in mergers and acquisitions will continue in 2011, with global M&A deals expected to reach $3.04 trillion, according to a report from Thomson Reuters and Freeman Consulting Services, based on interviews with 150 executives. Although the numbers are unimpressive when compared to pre-recession figures, it would be the biggest year for M&A since 2007, when deals reached $4.28 trillion. Deals are expected to finish out this year at $2.23 trillion, an increase of 12.6 percent from the recent low achieved in 2009.

Moving On Up
The number of public company directors being promoted to CEO has significantly increased, a new study from Heidrick & Struggles finds. Between July 2009 and mid-October, 2010, 13 Fortune 1,000 companies named their own directors as permanent CEOs, and three were named interim CEOs. Four directors were named to the CEO position in the previous year.

To Thwart Poaching, Google Raises Salaries
Google bumped all 20,000 employees’ salaries up by 10 percent and promised a $1,000 holiday cash bonus, according to an internal email from CEO Eric Schmidt that was sent to Business Insider by an employee, who later was fired for the leak (and will not be receiving the salary increase or bonus). The move, which is expected to cost the internet giant around $1 billion a year, is described by analysts as an attempt to retain employees being wooed by Facebook and other competitors.

Director Quits Metha Energy Over Governance Issues
David P. Meachin resigned from the board of Metha Energy Solutions because of “disagreements with the company in relation to corporate governance matters,” according to the company’s 8-K filing to the SEC reporting his resignation, filed on November 9. Meachin’s resignation letter, dated October 11, specifies that he “lost confidence in Jesper Toft’s role as the CEO of the company based on his performance.”

CEOs More Confident
CEOs feel positive about the economic outlook for the next six months, according to a quarterly study on CEO confidence from the Young Presidents’ Organization. Only 12 percent of CEOs surveyed felt that economic conditions would worsen, while nearly half of executives were optimistic. CEOs also reported more frequently that their companies are planning on hiring; one in four had hiring plans this quarter, while only one in three did in the previous study. Sixty percent believed sales would increase over the next year.

Pressure to Donate
Sixty percent of business leaders surveyed feel pressure to contribute to political efforts, finds a poll conducted by Zogby International, commissioned by the Committee for Economic Development. Business leaders also reported concern about undisclosed donations to third-party political organizations, with 77 percent believing that companies should disclose all political spending. Half of the respondents familiar with the Supreme Court’s Citizens United decision in January to allow unlimited and undisclosed political spending disagreed with the ruling.

Fewer New Directors Are Also CEOs
Only 26 percent of new directors are active CEOs, compared with 53 percent 10 years ago, according to the latest edition of Spencer Stuart’s annual board study. The report finds that boards are more independent now, with a ratio of 3:1 outside to inside directors when the firm began its studies, to 5:1 today. Diversity has become more important to boards, with 44 percent seeking women and 47 percent reporting looking for minorities. In contrast, only 21 percent of new directors this year are female, and 12 percent are minorities.

McChrystal Joins JetBlue Board
JetBlue Airways has appointed retired General Stanley A. McChrystal to its board of directors. McChrystal is a 34-year U.S. Army veteran who most recently commanded the U.S. and NATO security mission in Afghanistan. McChrystal retired from the Army shortly after a Rolling Stone article earlier this year portrayed him in a light that “does not meet the standard that should be set by a commanding general,” said President Barack Obama at the time. JetBlue Corporate Secretary James Hnat cited McChrystal’s “depth of experience and the track record of leadership” as reasons for his appointment.

Total Realized Comp for CEOs Falls
Annual compensation rates for executives edged up 1.6 percent in 2009, while total realized compensation — which adjusts for changes in value realized on stock options and other vested equity income — slipped 0.3 percent, according to a recent report from The Corporate Library.

The results indicate a continued increase in base salaries and a modest increase in the number of bonuses that were handed out last year. Meanwhile, the category of all other compensation, in which companies typically disclose CEO perks, fell 18 percent from 2008, due in large part to fewer CEOs receiving tax reimbursements for certain perks.

Who’s Tops In CEO Pay
The Wall Street Journal released findings from consulting firm Hay Group on the top 10 most highly compensated CEOs in 2009:

• Liberty Media’s Gregory B. Maffei – $87,095,900
• Oracle’s Lawrence J. Ellison – $68,649,800
• Occidental Petroleum’s Ray R. Irani – $52,181,400
• Yahoo’s Carol Bartz – $44,613,900
• CBS’s Leslie Moonves – $38,932,700
• Viacom’s Philippe P. Dauman – $33,728,900
• Thermo Fisher Scientific’s Marc N. Casper – $33,048,200
• Boston Scientific’s J. Raymond Elliott – $32,102,500
• Polo Ralph Lauren’s Ralph Lauren – $27,024,300
• McKesson’s John H. Hammergren – $24,464,800

Here are some ideas:

Give shareholders control–in theory this happens at annual general meetings (AGMs). In practice the process stultifies the content and the exercise is often an empty formality. The AGM could be webcast and votes cast remotely after hearing the arguments for and against each issue. Chat rooms could allow shareholders to communicate with each other and the board on issues.

Life is a beta test–instinctively, when we make mistakes, we feel embarrassed. We shouldn’t.  A board that truly values innovation or creativity should be out pushing the boundaries of what is possible and failing a little from time to time.

Don’t be evil–Google’s founders wrote, before their IPO, “We believe strongly that in the long term, we will be better served–as shareholders and in all other ways – by a company that does good things for the world even if we forego some short term gains.” Wow!

Elegant organisation of data – When you type a search into Google you get back a simple list of relevant sources of the information sought. There is no clutter, no distracting graphic, and the sources are ranked in order of likely importance. Why aren’t board papers presented like that? Why don’t corporate boards report to their shareholders like that?

Meritocracy wins–In boardrooms, it is often the sad case that directors are selected because of what they have done in the past and with insufficient real analysis of what they will provide to the board in the future. On Google data is realtime; imagine if we could constitute boards that had access to the best expertise on any topic, instantly, as required. How would that affect quality of data, independence of thought and speed of reaction?

Better searching of previous information–With Google a board could call up such board governance data instantly and use it to support decisions. A system for tracking and reporting dividends and share purchases or sales when annual tax returns are being drawn up would remove the potential for errors and inaccurate reporting of dates, quantities and assessable imposts. Shareholders do not want impersonal reports that are delivered months after the end of the financial year; companies can close of their accounts faster and shareholders expect faster reporting with greater customisation.

The impact of the Google mentality upon regulators and judiciary is also apparent; these institutions are using sophisticated search and tracking to catch inconsistencies in reporting and recording data. The ability to cross check and match large data sets will change the corporate compliance and reporting environment.

Love it or loathe it, the ‘Googlisation’ of corporate boardrooms will have an effect on directors that may be as profound as the effect of globalisation of business.

Julie Garland McLellan is a practising company director with experience on a range of boards including public listed, non-profit and government sector organisations. She is also a boardroom consultant and the author of Dilemmas, Dilemmas, a book of practical case studies for company directors. Julie will be presenting at the NACD conference in Washington on the topic of “Digital Directorship.”

Pay Alignment
Farient Advisors Founder and Executive Chair Robin A. Ferracone offers in-depth research into fair compensation practices in her new book, Fair Pay, Fair Play: Aligning Executive Performance and Pay (Jossey-Bass, 2010). This is a book compensation committee chairs could love. It provides data by industry and company as well as case studies, while offering insight into director pay levels, how directors should approach pay issues and prognostications for pay. Ferracone’s research led her to the conclusion that “shareholders weren’t concerned so much with the level of executive pay, but rather, with the alignment of performance and pay.” Fair or aligned pay is both “sensitive” to company performance over time and “reasonable,”relative to the relevant market for executive talent and for the performance delivered.

In addition to aligned pay, Ferracone emphasizes the need for directors to be on the “company’s page when carrying out their pay oversight responsibilities.” When considering pay, directors sometimes attempt to apply models from companies they work with that operate in different industries. However, Ferracone cautions, those models “may or may not be applicable to the company on whose board they sit.” To better equip directors on the subject of executive pay, Ferracone’s statistical database looks at whether pay is aligned with performance. By speaking to compensation committee chairs, CEOs, heads of human resources and shareholder advisors, she is able to bring research on alignment to a specific company level.

In many cases, poorly performing companies continue to dole out big paychecks, Ferracone says, because in troubled times “boards are jittery and in the mood for buying some ‘insurance’ to retain their top talent.” She concludes that the retention issue is “generally overblown, particularly for the CEO.”

Mattel Chairman and CEO Robert A. Eckert, who is quoted in the book, put the question into perspective, asking directors: “How many of your top fifty people have left in the last three years? If nobody has left in the past three years, why do you think they’re all going to leave now? So I think the retention argument is a weak one and is frequently abused.”

When assessing performance, Ferracone urges directors to set goals. She believes that with conventional goal setting, a company sets targets in accordance with its budget and those may not necessarily be in line with shareholder interests. “If the budget is down from the prior year, shareholders likely won’t be rewarded by down performance, even if it is good performance relative to competitors or general economic conditions,” Ferracone says. “I support a goal setting methodology—at least for earning above-target incentive awards—that requires long-term and sustainable improvements in performance. Threshold goals should be motivational, but maximum goals should be shareholder accretive.”

Analyzing Risk
The authors of Surviving and Thriving in Uncertainty: Creating the Risk Intelligent Enterprise (Wiley Books, 2010), Frederick Funston and Stephen Wagner delve into why and how boards can help companies become more risk intelligent.

“It became pretty clear to us that there was quite a bit of focus on protecting existing assets, but very little focus on management and oversight of risk for building value for the company,” Wagner says. Funston was managing partner of governance and risk oversight services at Deloitte & Touche LLP while Wagner was the managing partner of Deloitte LLP’s Center for Corporate Governance. Over the past two years, the authors’ vision of the book has evolved, adjusting to the precariousness of the global economy after the crash of Wall Street in 2008. “Turbulent times give rise to high levels of uncertainty,” Wagner notes. “We realized it was the perfect opportunity to talk to boards about their role in risk oversight.”

Crises are going to happen, but Funston says that once-in-a-lifetime crises appear to be occurring about every three to four years. The team began to look at why such crises occur in an effort to illuminate how directors might better approach risk oversight both to avoid loss and also to create gain. Funston advises boards to become more involved in the oversight of risk as it relates to strategy. “Boards are starting to get too involved in operational details and compliance at the expense of competitiveness,” Funston says.

Don’t Be Left Behind
The way of doing business is in flux, as technology makes communication instant and consumers are increasingly able to “pull” what they want when they want it. As Google and Netflix have so ably demonstrated, harnessing the benefits of the power of pull can result in more efficient business practices. In The Power of Pull: How Small Moves, Smartly Made, Can Set Big Things in Motion (Basic Books, 2010) by John Hagel III, John Seely Brown and Lang Davison, write about two challenges: “Making sense of the changes around us and making progress in an increasingly unfamiliar world.”

The authors, all executives at the Deloitte Center for the Edge, advise even successful executives to understand what they describe as the “big shift.” Methods of communication and conducting business that did not exist just 15 years ago are making an enormous impact on consumer consumption today. The authors reason that businesses—and the executives running them who don’t embrace the shift—are trapped in “push” mode. “Push programs represent a top-down approach to dictating activities…variances from the plan aredeeply suspect and great effortsare made to eliminate them,”they point out.

Poisonous procedures and rigid programs end up hindering productivity and the overall bottom line. In order to embrace these changes, a new paradigm, aptly called “pull,” is intended to evoke a thought process to discover that current methods of doing business are “profoundly shifting, generating a set of dynamics that is shaping everything else.” As the world evolves, so too must those living in it.

What makes this book compelling is the story of how others have realized or embraced the tenets of pull. The authors relate SAP CEO Shai Agassi’s thought process as he “challenged SAP to rethink crucial aspects of how it did things in general, and innovation in particular.” The chief executive’s decision to offer SAP’s software for free and charge for IT services was unheard of at the time, but delivered a significant return, helping to reshape the software industry. The authors believe the process of “pulling from the top” allows companies to free the talents and resources from institutional boundaries—and from old ways of doing business.

The sophistication of the perpetrators behind these and similar incidents has propelled the data security issue beyond the IT realm into the boardroom. Directors and officers must now make it their business to understand what information their com-pany holds, where it is located and how it is protected. Boards need to analyze the potential impact a breach could have on the organization, be part of the effort to design and implement a far-reaching program to prevent breaches and prepare the organization to respond properly if one occurs.

Navigating the Regulatory Environment
Responding to regulatory changes can be among the most complex pieces of the puzzle. Numerous federal and state regulations pertaining to data privacy and security have been enacted and more are in the pipeline. For companies that don’t keep pace with the fast-moving regulatory environment, it’s a minefield of rules that could erupt in fines, penalties—and substantial liability for your organization and its management. A sampling of recent regulatory standards follows:

• The Health Information Technology for Economic and Clinical Health Act
  A provision to the economic stimulus bill, the HITECH Act expands the privacy and security regulations of the Health Insurance Portability and Accountability Act (HIPAA) beyond the healthcare industry and health insurers to any business performing activities involving Protected Healthcare Information

• Payment Card Industry Data Security Standard
  Created by credit card associations to combat fraud, PCI-DSS requires all those in a card transaction stream, including merchants, processors, and acquiring banks, to implement controls to protect credit card data.

• The Federal Trade Commission (FTC) Red Flags Rule
  This rule requires creditors to implement a program that identifies and detects warning signs of identity theft before extending credit to customers.

• Massachusetts 201 CMR 17
  Some 45 states currently require companies to notify those affected by a data breach as soon as practicable. Massachusetts enacted the most sweeping state mandate to date, requiring any businesses handling personal information of state residents to proactively develop, execute and maintain a program to protect this information.

More than a Policy
Since traditional insurance typically does not respond to data security and privacy events, boards need to be proactive in ensuring that a comprehensive approach to mitigating breach exposures includes insurance.

Privacy and security liability insurance should expressly address both first-party and third-party costs associated with a breach incident. It should be underwritten by a carrier with relevant experience in the line and in-house IT specialists who speak the language of your company’s own data security team. Other important facets to look for in coverage include:

• A broad definition of “covered information,” including not only the personal and private information of individuals but confidential corporate data;

• Coverage for legal liability damages and defense costs, as well as regulatory actions, fines and penalties (as permissible by law); and

• Coverage for the myriad costs a company will incur to manage an incident. Also ask about coverage to notify victims in those few states that do not currently have breach notification laws; while not required, the gesture can create goodwill and keep incidents from escalating.

Once a proper plan and insurance are in place, sound corporate governance requires that you stay closely attuned to data security risk. If the data security issue is not handled properly, the stakes can be high, including directors, officers and corporate liability, exorbitant fines and penalties and damage to your company’s reputation. With policies and procedures to prevent and respond to incidents, broad-based insurance and ongoing monitoring of the risk and regulatory environment, your board can be confident that this governance duty is prudently addressed.

Mark Camillo is vice president of professional liability at Chartis. The views and opinions expressed herein are those of the author and do not necessarily reflect those of Chartis Inc. or its subsidiaries, business units or affiliates.

Hence, the Nifty Fifty of our era—Directorship’s “Best Performing, Best Governed Companies in the Fortune 500.” We took on the challenge of identifying those spectacular companies whose leadership both in the market and the boardroom is worthy of emulation. We then listed them based on raw data and weighted them for various disparities in size, sector, and circumstance, including overall economic stress factors that have prevailed, board director qualifications, and a new factor, limited outside board memberships by the CEO. We feel that CEO time is the most valuable commodity for the shareholder.

Of the total, we recognized one company in the 50 that managed to succeed against challeges beyond anyone’s expectations—that company is Goldman Sachs, and its chief executive, Lloyd Blankfein, is our CEO of the Year for 2009. The top 50 were chosen from the Fortune 500 based on measures of size, shareholder return, admiration, and corporate governance. Private companies, foreign companies, and companies that have a CEO appointed after the end of 2008 were not considered.

The top 50 were then reranked based on the above criteria. (Since return to shareholders is such a critical measure, it was weighted at 2X the other measures). Because we believe both performance and corporate governance are more difficult to achieve in the large-company setting, we felt a special premium should be placed on the largest. Finally, we brought the entire list to our Advisory Council for review and comment and noted the additional qualitative factors aforementioned.

What we came up with was a list—the only list that has attempted to place performance and governance together in one calculation —of great companies by anyone’s measure. In future years, with even more data and more measures, we hope to refine, if not improve, the methodology. Our conclusion: governance and performance are merely two sides of the same coin.

SOURCE: 1 Fortune 500 2009 rank based on revenue 2 Three-year average annual return to shareholders (June 30, 2006 to June 30, 2009) 3 Based on Fortune’s 2009 ranking of World’s Most Admired Companies 4 Based on RiskMetric’s Corporate Governance Quotient plus a bonus for ranking on CRO’s Corporate Citizenship rankings

Such is the case with the iconic business duos presented here. These eight famous pairings—one of them infamous for its failure in the final act—present a spectrum of the unique qualities and dynamic teamwork necessary for the effective management of extremely innovative, complex organizations. A variety of top-tier combinations reveal several variations on the theme that two heads are better than one: some, like Richard Sears and Julius Rosenwald, were marriages of necessity; others, such as Sanjay Jha and Greg Brown, co-CEOs of Motorola, were partnered in hopes of salvaging an ailing organization; still others, like Warren Buffett and Charlie Munger, seemed fated to cohabitate in the same corporate host.

The delicate balance required for a successful top-level tandem power structure is no easy achievement, as evidenced by a string of dissolutions; keeping two big personalities in harmony requires a set of unique personality traits on both sides. “It all depends on how they behave and if they can keep their egos in check,” says Harvard Business School Professor Joseph Bower, author of The CEO Within. “It works remarkably well if you also have strong board members who are able to make it work.” The challenge, as Bower sees it, is living up to the age-old adage of “diversity in counsel, unity in command”: however many leaders a company has, it has to move forward decisively. But while having a single visionary at the helm is often just what a company requires, the breadth of experience and wisdom offered by a pair of equally guided leaders can also have its advantages. “As long as there is cooperation, a pair will bring greater assets than can come from one person’s intellect,” adds Bower.

“Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”  – Warren Buffett, chairman and CEO, Berkshire Hathaway

Today’s activist shareholders urge boards and CEOs to seek a second opinion or appoint a devil’s advocate that can result in what some believe is a bifurcated structure, as evidenced by the recent push for splitting the roles of CEO and chairman. One of the common arguments for not splitting the roles is that it creates confusion about exactly who is in charge. Another is that it hinders the company’s leadership to communicate with one, clear voice. Yet another is that the two get in each other’s way, one reining in the other, forcing a compromised and dulled strategy. However, great business duos learn to sidestep these traps and work together for the greater good of the organization. They improve each other’s ideas without watering them down. They move in concert without stepping on each other’s toes.

The question of what is the optimal executive leadership structure is one the board must answer and be answerable for (though many of the following examples took place before the boardroom had the significance it has today); a director could not find a better starting place from which to view the issue than by looking at the following examples of tandem business success.

“Communication is the cornerstone,” says Belmont University Prof. Jeff Cornwall, who studies business organizational structure. “Successful partners are able to feel comfortable tackling difficult issues without being afraid of hurting each other’s feelings.” Certainly, when addressing high-impact challenges on a day-to-day basis, the best pairings have had a tendency to avoid sugarcoating the issues at hand, and a no-nonsense approach is also required. Says Cornwall, “Partners must have a similar work ethic, and they should have similar values, but not necessarily similar personalities.” Such advice, along with the examples offered below, affirms John Rockefeller’s maxim that friendship founded on business is preferable to business based on friendship. With such an appropriately sober attitude in mind—and with the implicit advice offered by history’s great duos—one should move confidently in building a capable leadership team.

Warren Buffett and Charlie Munger: Berkshire Hathaway
The partnership between Warren Buffett and Charlie Munger has been well documented throughout the pair’s 50-year professional relationship, but for traders, investors, and general profit-seekers at large, their formula for success remains elusive. In their leading roles at Berkshire Hathaway, the two have led investors (and themselves) to steady returns virtually unparalleled in the investment community. Their methods, as the two attest, are deceptively simple, yet their successes have been without peer.

Buffett and Munger are unified in their ability to generate profit for investors in their funds, and the two men share similar investing values that revolve around the simple tactic of targeting undervalued assets and obtaining them. As Chairman and CEO Buffett put it in last year’s letter to shareholders, “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” However, the individuals behind Berkshire’s success have demonstrated their unique characters, even as they have waged a common investment crusade. Buffett, with his tireless, common-sense approach to investing, his emphasis on wise governance, and his seemingly infinite humor and wisdom, is the prototype for would-be fund kings. His annual shareholder letters offer up world-class insight into the methods by which steady returns are generated, all tinged with the folksy warmth that is no small part of the man’s appeal.

Many TARP recipients are now scrambling to pay back their share of the $700 billion bailout to escape further government meddling. Some banks are believed to be under an undisclosed regulatory sanction that requires them to revamp their boards and focus on risk and liquidity management. Since Bank of America signed on to TARP, four directors have resigned from its board and been replaced, likely with government input.

Recently, Citigroup reshuffled its senior executives, including the removal of CFO Edward Kelly—changes made while under pressure from the Treasury and after discussions between regulators and Citigroup Chairman Richard Parsons. Citi’s chief accountant, John Gerspach, is now the bank’s fifth CFO in five years. Citi also replaced four members of its board since signing on to TARP. Only three of AIG’s original 11-member board remain in place.

“You can at least see an attempt to make government regulators happier,” reflects Jaidev Iyer, managing director of the Global Association of Risk Professionals. “But there is a difference between making changes to appease regulators and making fundamental changes to your board and governance practices.”

“The government is working behind the scenes—but they will get their money back,” assures Simmons, who believes many of the casualties of the financial crisis will need to revamp their boards whether the government says to or not. Says Simmons: “The market is going to demand it.”

Chrysler named five new directors to its board: George F. J. Gosbee, chairman and president of Tristone Capital; Douglas Steenland, former CEO of Northwest Airlines; Scott Stuart, a founding partner of Sageview Capital; Ronald L. Thompson, chairman of the board of trustees for Teachers Insurance and Annuity Association; and Stephen Wolf, chairman of R.R. Donnelley & Sons.

American International Group’s annual meeting resulted in the re-election of Dennis Dammerman, former vice chairman of the board of General Electric; George Miles, CEO of WQED Multimedia; Suzanne Nora Johnson, former vice chairman of Goldman Sachs; and Morris Offit, chairman of Offit Capital Advisors. Liddy said he will step down as CEO as soon as a replacement is found.

Ken C. Hicks has been named Foot Locker’s new CEO. Hicks will succeed Matthew D. Serra, who has been the company’s CEO since March 2001. Serra will continue as the company’s chairman until his planned retirement next year.

Trex Company named Richard E. Posey to its board. Posey has served as chief executive of Moen Inc., a faucet manufacturer, and Hamilton Beach/Proctor Silex.

Bank of America revamped its board by electing four new directors: Susan Bies, William Boardman, Paul Jones, and Donald Powell. Bies previously served on the SEC’s advisory committee. Boardman served as chairman of Visa International until his retirement in 2005. Jones is currently an attorney at law firm Balch & Bingham. Powell is a director of Stone Energy.

Biogen Idec confirmed two of billionaire activist Carl Icahn’s picks to its board: Richard Mulligan, a professor of genetics at Harvard Medical School and director of the Harvard Gene Therapy Initiative; and Alex Denner, a managing director at Icahn Partners.

Jeff Huber, senior vice president of engineering at Google, has joined Electronic Arts’ board. Huber was in charge of technology development for Google’s AdWords and AdSense, as well as Google Apps. Prior to Google, he served in a number of management roles at eBay and Excite@Home.

David L. Calhoun has been named to Boeing’s board. Calhoun is CEO of The Nielsen Company. Prior to his work at Nielsen, Calhoun spent more than 25 years at General Electric.

Sonoa Systems named Tsvi Gal to its board. Gal is a general partner at Exigen Capital and previously served as Deutsche Bank’s Investment Bank and Assessment Management’s CTO.

Anne Egger has been appointed to Optical Sciences’ board. Egger has been working with Electro-Optic Sciences as a consultant since her retirement earlier this year.

Michael Gelmon and Cory Gelmon have been named to Safeguard Security Holdings’ board. Michael Gelmon has replaced Tom Montgomery as chairman of the firm and Cory Gelmon has been elected director and appointed new CFO.

Best Buy’s Brad Anderson will retire as the company’s CEO. Brian Dunn is believed to be Anderson’s successor. Dunn currently serves as the company’s president and COO.

E*Trade Financial named Kenneth C. Griffin, founder and CEO of Citadel Investment, to its board. Griffin currently sits on the Advisory Council for Chicago 2016, working to bring the 2016 Olympic Games to the Windy City.

George E. Minnich has been appointed to Kaman’s board. Minnich retired as senior vice president and CFO of ITT in 2007.

MarineMax appointed Russell J. Knittel to its board. Knittel has been executive vice president of Synaptics since 2007, and CFO  since 2001.

Ray Powers has been appointed to MediaG3’s board. He served as COO and executive vice president of International Communications, a wholesale carrier that owned nearly 460 wireless transmission sites in the U.S.

Robert Half International appointed Barbara J. Novogradac to its board. Novogradac is currently president of Novogradac Investment Company, a private real estate investment company.

FedEx elected Susan C. Schwab, U.S. Trade Representative from 2006 to 2009, to its board. Schwab is currently a professor at the University of Maryland’s School of Public Policy.

Qualys CEO Philippe Courtot has been elected to Tech-America’s board. Courtot served on the board of the Cyber Security Industry Alliance (CSIA). He previously was chairman and CEO of Signio, an electronic payment start-up that he repositioned to become a significant e-commerce player.

James K. Brewington has been named to Sonus Network’s board. Brewington retired as president of Developing Markets at Lucent Technologies in 2007.

Boston Scientific CEO James Tobin will leave the medical-device maker. Tobin will be succeeded by Raymond Elliott, the former CEO of orthopedics maker Zimmer Holdings.

ScanSafe, a provider of Software as a Service web security, appointed Bernard Liautaud to its board. Liautaud was founder and CEO of Business Objects, an enterprise software company.

John McCartney was elected to Covance’s board. McCartney currently serves as chairman of the board of A.M. Castle, a provider of products, services, and supply chain solutions. McCartney previously served as president and COO of U.S. Robotics.

George E. Minnich has been named to Kaman’s board. He retired as chief financial officer from ITT in 2007.

In keeping with our Dynamic Duos cover, I wanted to relate an anecdote that Cab Woodward, Hal Geneen and Rand Araskog’s right-hand man at the famed ITT, once told me: “The best CEO in business is ABC Broadcasting’s Tom Murphy and Dan Burke.” The singular verb was intentional. Murph, as his friends call him, would have added: “Although our form is corporate, our attitude is partnership,” if his close friend, Warren Buffett, had not said it first. Incidentally, Buffett was offered a seat on Tom’s board back in the Capital Cities days, but he declined. Today, Murphy is a Berkshire Hathaway director, which is Buffett-style poetic justice.

Murphy and his longtime partner, alter ego, sounding board, and co-CEO, Burke, singularly built Cap Cities into the dominant and most profitable broadcaster in America, prior to its merging with ABC and later with Michael Eisner’s Disney. Just to add to business lore, that deal was consummated at Allen & Co’s. Sun Valley media fest.
Tom’s philosophy was based on three well-defined and vigorously applied tenets: fiscal responsibility, lean decentralized management, and a corporate conscience. Burke, the president of Cap Cities/ABC, was also big on morale. He is known for saying: “I’ve never met anyone who tired of compliments.”

Free may not be the most profitable way to do business, but it may soon be the only way.

Free-for-All

Chris Anderson just ruined our day. If you are familiar with his recent book, Free: The Future of a Radical Price, you may think I am referring to anyone who owns, runs, or works for a media company. I don’t mean that. I mean all of us. Media is just the first to get whacked. And Google is just the first salvo. Free says what we already know: We like certain things, we like them more when they are cheap, and we like them most when they are free. We will even spend precious time finding free.

What does this mean for boards? If you are involved in the digital world, it means outright giving things away and looking for new ways to transact or get paid. The problem is that in many cases it is not clear that these new ways even exist yet. If you are selling something tangible, you may get paid for it, but the shipping, service, or global logistics will soon be free. Whither the margins in that scenario?

Fear and Loathing on the Shuttle (Our Fear, Their Loathing)

Recently, a woman dressed for casual success—crushed velour jacket, Louis Vuitton bag slung artfully over her shoulder—waltzed into the first-class line of the TSA checkpoint. All of the business mortals on the coach line were shuttling to New York or Washington. As I looked around, I saw a noticeable expression on the faces of the bystanders watching while she undid her handbag and removed three trays on which to place her baubles and valuables: Loathing. Zhou Enlai was supposed to have informed Henry Kissinger, when asked about the impact of the French Revolution, “It is too early too tell.” It is not too early to tell the impact of the Crisis of 2008.

Then…on a recent afternoon I returned home on a flight from New York and noticed a Massachusetts Congressman sitting in the next row. It was one of those unbearably humid August days. He was working his way through a sandwich he had bought at the airport concession and was steeped in paperwork. Congressmen spend their time on the TSA line just as we do. They suffer the outrages and the humblings of modern air travel. Their flights get cancelled. Only they have to fly to their home districts most weekends. So should we wonder what they felt when the automotive executives came hat in hand via Air-GM, Ford, and Chrysler to ask the Honorable Henry Waxman for a government bailout? They were probably thinking about the soggy sandwiches and irritable flight attendants in their own immediate future.