About Gene Kim

I've been researching high-performing technology organizations since 1999. I'm the multiple award-winning CTO, Tripwire founder, co-author of The DevOps Handbook, The Phoenix Project, and Visible Ops. I'm an DevOps Researcher, Theory of Constraints Jonah, a certified IS auditor and a rabid UX fan.

I am passionate about IT operations, security and compliance, and how IT organizations successfully transform from "good to great."

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Tuesday
Jun082010

Talk: NACD Director Professionalism: Board Excellence: Trends, Responsibilities and Strategy

Director Professionalism
National Association Of Corporate Directors
Philadelphia, PA
June 8-9, 2010

I'm here for two days taking a course called Director Professionalism. It's fascinating hearing how the era of regulatory compliance is affecting corporate directors.  Great curriculum here. I'll post some thoughts and analysis later.

But for now, I'll be posting just the raw talk notes.

Course description at https://secure.nacdonline.org/source/meetings/meetingshome.cfm?sID=DP

Attendees: about 75

"The only time you see so many bankers and lawyers besides during an IPO process is during bankruptcy proceedings.  Both create feeding frenzies." (Cathy Staples) 
TODO: add this quote to The Goal

  • Class choices during workshops
    • Audit issues: Comcast board, breakfast opportunity 
    • Private company breakfast:
    • Advanced finance
    • Intermediate finance: goal is to ask good questions to keep board and management accountable
  • Demographics
    • Top roles
      • Outside direcor
      • C-level exec
      • Board chair
      • CEO
    • 56% public, 47% private, 16% family-owned, 51% non-profit
    • How long?  (37% prepping for first, 19% 0-3 years, 29% 4-10 years, 15% >10% years)
    • What committees? (52% audit, 52% compensation, 48% nominating/governance, 24% finance, 33% strategic planning)
  • Board Excellence: Trends, Responsibilities, and Strategy
    Robert Galford, Director and Chair Compensation Committee, Forrester Research; Managing Partner, Center for Leading Organizations

Board Excellence: Trends, Responsibilities, and Strategy

Robert Galford, Director and Chair Compensation Committee, Forrester Research; Managing Partner, Center for Leading Organizations 

  • Agenda
    • Current environment
    • NACD Leading the Way
    • Board Leadership and Structure
    • Focusing on Strategy
  • The current environment
    • Q: what do boards do now?  (group table exercise)
      • compensation issues
      • performance metrics
      • ERM to head off companies imploding overnight
        • governance systems
        • succession planning
      • new regulatory need for proxy statements
        • you can tell from language in proxy statements stating "why are they on the board" who is going to be replaced
      • regulatory and compliance issues
        • for companies operating in many countries, "breaking someone one's rules somewhere"
        • justification of CEO and chairman separation (or not)
        • named lead director
      • scenario planing
      • board self-evaluation
      • shareholder activism issues inhibit long-term planning (e.g., say on pay, proxy statements, etc.)
        • average shareholder tenure is only 7 months?  (i.e., how much do they really care about long-term planning?)
      • leadership
      • board composition ("makeup of the board")
      • transparency
    • Boards can be reactive or proactive
    • The time is right for boards to show leadership
    • Enterprise Risk Management
      • 13K followers of BP on Twitter
      • Rogue parady group called @BPGlobalPR has 130K followers, all created in three weeks (TODO: Twitter and @BPGlobalPR makes NACD!)
  • NACD Board Priorities
    • Adapt to a changing environment
      • proxy access
      • say-on-pay (shareholders have right to speak on board pay policies)
      • majority voting (who votes, who is around to vote, and how many votes needed to get affirmative carry?)
      • Future SEC regulations?
        • Inside the sausage factory: "there's a reason why you should eat sweet Italian sausage, not spicy Italian sausage."
    • Demonstrate leadership
      • Considered leaders in governance structures
        • Microsoft: had say-on-pay before required
        • HealthSouth: despite tarnish tarnish, now proxy policies on reimbursements
        • Prudential Financial
        • Coca-Cola: risk assessment/management
      • Avoid "being the perfect lawyer", allowing creativeness vs. "you can't do that"
    • Build your board
      • Are the people with the right wisdom and expertise on the board?
      • Nom/Gov committee should ensure board has appropriate skills to match company's strategy
      • Discuss resources necessary for long-term growth
      • SEC proxy disclosure enhancements on board composition
      • 10-Ks will be read: "amazing how many underpaid college undergrads will find who are employed in DC.  do not underestimate. they will be read, and maybe used to create a damaging narrative"
    • Understand risk governance
      • Are the expected risks commensurate with expected rewards? (aka book: Taleb's Black Swan)
      • Determine the appropriate risk appetite
      • Is risk management system appropriate given the company's business model and strategy?
      • TODO: NACD Blue Ribbon report on Risk/Governance report
    • Pay for performance
      • Effective executive pay packages begin with
        • Pay philosophy
        • Clearly articulated performance criteria
      • Transparency is key to shareowner approval
    • Discussion
      • Problem: many peopled expressed that they were dinged by Risk Metrics for irrational reason: "forces us to do wrong thing for the right reason"
      • Problem: lots of time spent on CEO succession: very difficult to have transparent discussion on this topic
      • Problem: Expert who attends 150 board meetings/year: Board often thirsting for more visibility into strategy
    • Poll: what is most challenging priority
      • 47%: Adapt to changing environment
      • 16%: Demonstrating leadership
      • 4%: Building your board (<-- surprising because of Lake Woebegone effect)
      • 20%: Understanding risk governance
      • 13%: Pay for performance
  • Key Agreed Principles
    • Describe areas of current consensus
    • Recognize areas where consensus is not yet developed
    • Support flexibility and continued development
    • Reject "box ticking"
  • Key principles
    • composition
    • transparency
    • competency/commitment
    • accountability/objectivity
    • independent board leadership
    • integrity, ethics, responsibility
    • information, agenda, strategy (<--- strategy)
    • protection against entrenchment
    • shareholder input in director selection
    • shareholder communication
  • Principle 1: board responsibility for governance
    • "ensure that mission and systems are established so that the company's activities are conducted in ethical and legal manner"
    • select, evaluate, compensate the CEO and other managers
    • help shape company's strategic plans: identify competitive advantages and oversee risk
      • This is management's job, but board has role: "We don't have to answer the questions, just have to ask the right questions"
    • Review, approve and monitor management's business plans and performance against financial goals
    • Review and approve material transactions not in the ordinary course of business
    • Provide informal advice to top management outside of board meetings
    • Monitor critical alignments: of strategy, risk, controls, compliance, incentives and people
  • Poll: top areas where board should be focused
    • 45%: "help shape the company strategic plans:" (Peter Drucker: what is our business and what should it be?)
    • 35%: Monitoring critical alignments of strategy risk, controls, compliance, incentives and people
    • Discussion
      • What are good metrics to report on their performance when board isn't competent to comprehend 
        • Cost of sales and marketing, cash flow, return on investment, EBITA, shareholder price
      • Discipline around board calendar: safe, process, discipline
      • How to balance board aggressiveness: causes some distress: if board doesn't help set strategy, are we abdicating responsibility
  • Focus on strategy, NACD Public Company Governance Survey (October 2009)
    • Strategic planning
    • Corporate performance
    • Financial oversight
    • CEO evaluation
    • CEO Succession
    • Billboard charts:
      • "Risk was #9, up from #14. Certain to be in top 5 this year."
  • What is strategy?  It's the allocation of risks and resources such that entity achieves as sustainable competitive advantage as possible
  • Who is responsible?
    • Strategy development
      • Board role, CEO role/board role
    • Example: Progressive UK: aquisition failed: some demanding that board chairman and CEO resign.
  • Poll: where are you getting information?
    • 35%: I get 100% of info from company
    • 56%: I get 75% of info from company
    • 9%: I get 50% of info from company
    • 0%: I get 25% of info from company
    • TODO: "everyone should have Google search of their company.  Technology makes this a board requirement."
      • Look at Facebook to find "what is it like to work at company X?"
      • Look at Monster.com job ads
  • Poll: whre are you getting outside info
    • 57%: access non-company issue reports
    • 68%: talk freq w/non-exec staff
    • 24%: attend numerous company events
    • 11%: Interface, interact, or use company products or services on a regular basis 
      • TODO: like TV show "Undercover Boss": have CEO go undercover, pickup trash, serve Slurpees: make plea for undercover directors
  • Strategy Organization
    • Nominating/Governance, Audit, Compensation

 

 

 

TODO: guy on board of ICANN is here (global domain name serving)

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