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Director’s Consortium
Fall 2010 at Chicago Booth
October 6-8, 2010
Optional Finance Day: October 5, 2010

Program Length and Tuition
3-Day Standard: $7,500; 4-Day Combo (includes Optional Finance Day): $8,700 (Does not include accommodations at local hotel.)

UCLA Anderson School of Management
Director Education & Certification Program
October 19-21, 2009

The Fletcher School Tufts University at Tufts University
Global Master of the Arts Program (GMAP)
Meet GMAP on the Road
New Delhi, India
October 27

Mumbai, India
October 29

Fall 2009 by Dartmouth’s Tuck School of Business in Boston
October 28-30, 2009
Optional Finance Day: Oct. 27, 2009
REGISTER (4-DAY) | REGISTER (3-DAY) | BROCHURE

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The Fletcher School Tufts University at Tufts University
Global Master of the Arts Program (GMAP)
Meet GMAP on the Road

New York
November 3

Washington DC
November 4

San Francisco
November 10

Los Angeles
November 12

University of Maryland Robert H. Smith School of Business
CIO Forum
November  6, 2009 Washington DC

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Winter 2010 at Stanford
March 3-5, 2010
Optional Finance Day: March 2, 2010
REGISTER NOW | BROCHURE

UCLA Anderson School of Management
Executive Program
March 6, 2010

Medical Marketing Program
March 8-12, 2010

Latino Leadership Institute
March 22-25, 2010

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University of Maryland Robert H. Smith School of Business
Directors’ Institute
April 7-9, 2010

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The six-hour roundtable consisted of four separate panels, with about 25 total participants in addition to Schapiro and the SEC’s other four commissioners. Topics addressed included the failures of ratings agencies in the months leading up to the market crash, competition issues between agencies, and potential revisions to the ratings structure.

“Clearly, the role of credit rating agencies must be an area for our intense review as we think about how to promote investor protection and market integrity, and restore confidence in our financial system,” said Schapiro in her opening remarks.

One key problem identified by some participants was the inherent structure of the current ratings system, by which agencies are paid by the firms whose debt they rate. Some argued that the SEC regulate a return to the pre-1971 system by which investors themselves paid the ratings agencies, thus avoiding a conflict of interest.

Another idea put on the table was that of establishing an individual regulator to control ratings agencies, similar to the Public Company Accounting Oversight Board (PCAOB).

One issue of fervent debate was that of the market dominance held by the “Big Three” ratings agencies—Moody’s, Standard & Poor’s, and Fitch. Sean Egan of Egan-Jones Ratings complained that the larger ratings firms were too swayed by the financial interests of the their clients.

“[Big agencies] have gravitated to the business of being paid by the issuers of securities to facilitate the sale of those securities,” said Egan. “If the SEC is in the business of protecting investors, it has to make sure that its agents are also protecting investors. We don’t have that right now.”

The roundtable includes four distinct panels:

• 10:10 a.m. — Panel One: Current NRSRO Perspectives: What Went Wrong and What Corrective Steps Is the Industry Taking?
• 11:30 a.m. — Panel Two: Competition Issues: What are Current Barriers to Entering the Credit Rating Agency Industry?
• 1:15 p.m. — Panel Three: Users’ Perspectives
• 2:45 p.m. — Panel Four: Approaches to Improve Credit Rating Agency Oversight

The roundtable will be held in Washington D.C., but is also available as a webcast.

Fletcher School GMAP July
Begins July 5. Click here for agenda.

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The Securities and Exchange Commission will hold a roundtable relating to its oversight of credit rating agencies on April 15.

The roundtable will be held at the SEC’s Washington, D.C., headquarters and will begin at 10 a.m. with opening remarks from SEC Chairman Mary L. Schapiro.

“The roundtable will thoroughly review relevant aspects of regulating credit rating agencies,” said Schapiro in a statement. “Insight from leading experts on credit rating agencies and the financial markets will assist the Commission as it continues to pursue aggressive oversight of the industry.”

Discussion topics will include issues related to recent SEC rulemaking initiatives, such as conflicts of interest, competition, and transparency. The roundtable will consist of four panels.

Roundtable participants will include leaders from investor organizations, financial services associations, credit rating agencies, and academia.

University of Chicago Booth School of Business Executive Program in Corporate Stategy
October 11 – 15
Click here for syllabus.

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Leading the DirectorshipRoundtable titled “DrivingEnterprise Innovation &Growth” at New York’sLotos Club in Decemberwas Gap International VicePresident Dr. Eric Jackson.On a personal level, Jacksonis the quintessential innovator.Prior to joining GapInternational as a consultantspecializing in enterpriseperformance management,he worked as both a psychologistand a dentist, and at one time was an internationalaward-winning choral director. This unusualblend of skills and experience made him a perfectmatch for Gap International, which has a 30-yearhistory of partnering with boards and chief executivesto help them develop more effective ways to growtheir enterprises.

Gap International makes a distinction betweeninnovative ideas, which must be collected and harvested,and the environment or culture in which theinnovative ideas either languish or flourish. “Doesthe CEO create an environment in which innovativeseeds, or ideas, are being planted and nurtured?That is the most important role the board can playwith regard to driving innovation,” Jackson said.“The innovative seed occurs at a very early stage ofthe thought process, which is at once both a very vulnerableand very critical element of innovation success.What distinguishes highly innovative companiesis how nurturing their environments are to innovativethinking. Directors should consider this characteristica vital precondition for having an innovativeorganization.

“To be innovative,” Jackson continued, “is to execute.The most important question for the board is,‘Are the conditions right for high-level, rapid executionof innovative ideas?’”

That comment spurred KayKoplovitz, the founder and formerchairman and CEO ofUSA Networks, to recall theearly days of the cable networkformed in 1977 under the auspicesof Madison Square GardenSports. “Even though itwas a private company, everyperson there felt that theyowned it and the team felt itwas important to deliverresults…Risk was somethingwe were all born to, and if youdidn’t take a risk, you weren’tbeing aggressive enough.”

In publicly traded companies,however, risk in the context of innovation islikely to be influenced by short-termism, or thedesire to keep investors happy by delivering results.How can boards best help a CEO to innovate?

William Roskin, now a senior adviser to Viacomand director of ION Media Networks, said theboard’s role is to make sure the company has theright CEO and then let them do their job. He hasworked for both Sumner Redstone, the legendaryfounder and chief executive of Viacom, and the lateSteven J. Ross, the creator of Time Warner and thecatalyst in the launch of MTV and Nickelodeon.

“Going back to 1981, Steve Ross had a way of hiringpeople who were on the payroll but who were freelancethinkers,” Roskin said. “Did Steve have avision to create what became MTV? No, but he supportedit, and he lent his support…He believed incable. And his boards had to be supportive.”

“That’s a different task in a large corporationwhere people are territorial,” Koplovitz replied.“How do you break down those barriers so thatpeople can innovate?” She cited the failed merger atParamount and Universal Studios as an example.Roskin, who was a senior executive at Time Warnerwhen it joined forces with Viacom, recalled that“what started as two warring companies werebrought together because the CEOs of both thosebusinesses worked together.”

Noting that “tone” and “sponsorship” must start atthe top, Laurence Charney, a director of MarvelEntertainment, believes in the power of creative tension.“I recall working with a young, bright colleaguewho challenged everything I said. I learnedthat both of his parents were professors who believedin creative tension. I believe that creative tensionbuilds the best products and that you have to build aculture from the top down that allows people tomake mistakes.”

At least one participant recounted how compensationplans mitigated a company’s ability to take risk.“I also tried to drive down P&L ownership for thesame reason,” said Richard Daly, CEO of BroadridgeFinancial Solutions. “I want to know who goesto bed at night and gets up in the morning thinkingabout the company. You have to be in a position tocreate a financial environment that will support thatmindset.”

Gap International has researched critical factorsthat create an environment for sustainable innovation.The company advises directors and officers tofocus on the following five factors:

Purpose—which drives energy and focus. Doesthe executive team have a clearly defined strategyand are the people in the organization connected tothe company’s purpose?

Ownership—which predicts reliability for producingresults. Is the executive team committed toand holding themselves personally responsible forachieving the company’s overall goals in addition totheir own functional/business goals?

Interdependence—which drives the quality ofexecution. Do the top leaders work collaborativelyand contribute to one another throughout the variousstages of their work?

Affinity—which impacts the speed of execution.Is the executive team connected to one another andto the CEO? Are the channels of communicationopen and is there a sense of ease and freedom intheir relationships?

Risk—which unleashes creativity. Are leaders freeto think and speak in unconventional ways? Is managementwilling to take chances and allow for failure?

“As we study innovation, it is the company’s cultureand the environment it creates that ultimatelybecome the paramount factors in running and growinga successful business,” concluded Jackson.

While not a new problem, Butera pointed out that about a year ago AIG expanded its data security discussions from the offices of the CIO and CTO to the boardroom, as it evolved into a corporate governance issue. “While the risk for a breach is there, the fear has not yet surfaced in boardrooms as much as we would have thought,” she said.

E. Norman Veasey, former chief justice of the Delaware Supreme Court, now a senior partner at Weil, Gotshal & Man¬ges, provided some measure of relief to any director losing sleep over the repercussions from breaches at TJX Cos., CVS, and others. In the area of compliance: “My advice is just to make sure that you understand exactly what management is doing; ask every question you can. The board of directors has to understand what they’re doing—understanding is a big compliance area—and do it as though you were to be grilled in a deposition about what you did to see to it that these controls were in place, that compliance was done correctly. It is, after all, the management’s responsibility.”

That is not to say that boards should sleep easy on the issue either, Veasey warned. “In the area of compliance, there is a case, Stone v. Ritter, that simply says directors who utterly fail to set up a compliance program and utterly fail to monitor the program could be liable. But directors are not expected to be perfect either in transaction or in compliance oversight.”

Everyone is at Risk

While certain industries are more vulnerable than others—think healthcare, banking, airlines, and retailers—“any company that has employees is at risk. Any company with a website is at risk,” Butera said.

Louis Lipschitz, a director at New York & Co. and other companies, suggested that the opportunity to use and share data properly requires that we take vigilant steps to ensure that the risks don’t begin to outweigh the benefits of properly using data and information. “Twenty years ago, my company was investigated by the SEC and they wanted to know how many people had access to sales information. I was able to name six people. Today, everybody in the company has access to that information…even vendors, so that they can fill orders that much faster. So while you’re measuring risk from a liability standpoint, the risk of not using that data properly is far greater.”

For Marty Evans, data is personal. The 30-year veteran of the U.S. Navy, who was the first woman to command a U.S. naval station and retired as a rear admiral in 1998, now serves on the boards of Lehman Brothers and Office Depot, among others. She has been subjected to at least three personal identity breaches that she knows of. One instance was the publication of her personal data in the Federal Register when she was being confirmed as a commissioned officer. In her role as director, data security is a growing concern, and she questions how to properly integrate IT strategy into the boardroom.

Georges Ugeux, speaking for the “less-micromanaging” camp, asked whether it’s a board issue at all. “I believe that this is part of the risk that the CEO has to assume. If we make it a board issue, I can tell you what’s going to happen. We’re going to find consultants who are going to cost a lot of money to come back and say you have to treat this. The reality is that this is the day-to-day risk of being CEO of a company. It’s up to the CEO to explain to the board how the different risks are being managed. Maybe it becomes a line item for each committee.”

Debra Perry, a director at MBIA and Conseco and former senior managing director of global ratings at Moody’s, suggested that boards or committees of boards begin to think about risk oversight by first defining the operational risks endemic to their business. “These would be the risks that can contribute to significant financial loss, a material financial loss, or to a significant disruption in liquidity—each of which could be deadly to an enterprise—I think that if you get those down and then incorporate those into some routine overview of enterprise risk management, then you’ve got the topic more or less covered.”

Board Information Security

What can board members do to reduce their own culpability? In between board meetings, is it advisable to talk about issues via email or cell phone? Veasey said no. “The ‘e’ in email stands for eternal,” he said. “Emails should primarily be used to communicate scheduling information and things like that. Any sensitive emails that would go back and forth between directors should be done very cautiously. I think it’s very good to have face-to-face meetings of directors and face-to-face meetings of committees. Even when you have a call-in to a committee meeting, it should never be done on a cellphone, always on a landline. That’s my advice.”

What about board meeting minutes? Again, some sage advice from Veasey: “Take detailed long-form minutes. Distribute copies of the minutes and make changes based upon people’s recollections. Once the minutes are approved, notes should be thrown away because they could be confusing or misleading. “If they’re bad minutes, you could have a problem like they had in Disney v. Ovitz. The reason that went to trial was because the minutes were so bad the plaintiffs were able to allege but couldn’t show that these directors had an ‘I-don’t-care’ attitude about their responsibilities in this area. So the good news in the Disney case was directors were found ultimately not to be liable. The bad news is that they had to go to 35 days of trial at great reputational risk and expense. Minutes are very important.”

AIG’s Butera said in cases of information security, it’s a matter of looking at the risks. “In terms of liability, again I come back to the fact that the risk is very real. Because we have not yet seen the large multimillion-dollar settlements in terms of litigation, directors may not yet be as fearful as the data suggest they should. In addition to bringing up the matter of data and security controls and examining various forms of protection against such breaches, I think there is an obligation on the part of directors to ask the tough questions, to make sure that the controls are in place.”