Risk, talent management and retention, governance reform, and strategy are the four items that Amelia Fawcett says sometimes prevent her from a sound night’s sleep. Joining Fawcett on a panel devoted to the question, “What’s keeping the chairman up at night,” hosted this morning by the New England chapter of the NACD was Michael Ruettgers, lead director of Raytheon, chairman of Wolfson Microelectronics, and former chairman of EMC. Ruettgers cited cash, budgets, compensation, and strategy as causing his sleeplessness.
Bob Pozen, chairman of MFS Investment Management and former vice chair of Fidelity, suggested that what’s needed is a re-examination of board structure in the aftermath of the financial crisis. “Some of the most distinguished people serving on boards–take Citigroup, for example–didn’t have a clue about what was going to happen” He suggested that most bank boards are simply too large and that corporations should be monitored by “the smallest board necessary.”
Fawcett, now chairman of Pensions First Group and Guardian Media Group, which publishes the Guardian and Observer newspapers in the U.K., and a director of State Street Corp., pointed out issues tend to get lost when a board has upwards of 17 or 18 members. What’s needed, she suggested, is “diversity of thought and experience. That’s diversity with a small ‘d.’ Those [financial] institutions whose boards were diverse tended to fair better because of the wide body of expertise.”
Pozen also questioned the wisdom of mandatory retirement for directors, calling it “wrong.” Directors age 60 and older have both the experience and the time needed to devote to board service.
Noting that “two out of three deals fail,” a director in the audience asked what the board’s role should be after a merger or acquisition? Ruettgers, who served as chairman of EMC, a data storage company that grew largely by aggressively pursuing an M&A strategy, said the board set up a separate acquisitions committee to review some smaller deals that didn’t need to rise up to the full board level. The board’s role, too, Ruettgers suggested is to compel management to put together a process for integration that can be monitored.
Governance reform, whether legislated or mandated by the Securities and Exchange Commission, looms large. Say on pay, proxy access, broker vote, and the separation of the chairman and CEO role are all up for debate. Drawing from her U.K. experience where “almost nothing is legislated,” Fawcett noted that these issues are addressed on a “comply or explain basis.” Posen predicted that hedge funds would become more active users of these procedural changes. “This opens the door to activist shareholders,” he said.