Where to Find Directors for the Compensation Committee
from
September/October 2005
by Randy Myers
Back when Gerald Ford was president, Fred Foulkes, then an associate professor of business administration at Harvard Business School, wrote an article for the Harvard Business Review predicting that executives working in human resources would one day serve on corporate boards. The magazine’s editor balked at publishing it—none of the HR chiefs he knew, he said, would ever make it to the top of the corporate food chain. To get the piece into print, Foulkes had to soften his prediction: HR executives, he wrote in the revised version, had the potential to become corporate directors.
Three decades later, that potential has become fact and Foulkes is getting the last laugh. Some 111 current or former human-resources executives now serve in the boardrooms of Fortune 500 companies, according to Richard McCallister, managing director of the Chicago office of Boyden Global Executive Search. And while there’s no hard data available for smaller companies, they too seem to be cherry-picking people with HR know-how for their boards. Foulkes himself, now a professor of organizational behavior and the director of the Human Resources Policy Institute at Boston University, is one of these. He serves on the boards of two small companies: Panera Bread Co., a chain of bakery-cafés based in Richmond Heights, Missouri, and Bright Horizons Family Solutions, an operator of employer-sponsored child-care and early-education centers headquartered in Watertown, Massachusetts. Foulkes, 64, admits that his earlier prediction may have been way ahead of its time, but he likes finally being proved right.
A big driver of this trend is the need to find independent directors who have the background to serve on compensation committees. HR folks spend much of their lives on pay- and benefits-related issues. “Who would you want running your compensation committee—the CEO of a consumer-products company or a guy with 25 years in HR, compensation, and benefits who really knows his stuff?” asks McCallister. But that’s not all that HR executives can bring to the boardroom. Many have strong operational experience too. Examples:
• Cassandra Carr, 60, joined the board of the packaging, banking, and forest-products company Temple-Inland Inc. last year and that of trucking giant Yellow Corp. (now Yellow Roadway) in 1997. She serves on the compensation and audit committees at Temple-Inland and on the compensation and governance committees at Yellow Roadway. Carr was senior vice president for human resources at SBC Communications from 1994 to 1998; previously she’d spent almost 20 of her 35 years with the telecommunications company in operations before becoming senior vice president of finance and then head of the Texas division. Now a senior adviser at Public Strategies Inc., a strategic-planning and communications corporation in Austin, Texas, she closed out her tenure at SBC as senior executive vice president for external affairs.
• Joseph Parham Jr., 57, named to the computer maker Gateway’s board in January, chairs the compensation committee and serves on the nominating and governance committee. He is senior vice president of human resources at Acuity Brands Inc., a lighting and specialty-chemicals company in Atlanta. Before that he spent 25 years in a variety of positions at Polaroid, including president and chief operating officer of Polaroid Eyewear.
Once seated in the boardroom, an HR professional can be quick to demonstrate value. At his first Gateway board meeting, for example, Parham expressed reservations about a compensation policy that gave all the company’s senior vice presidents the same base compensation and bonus opportunity, regardless of whether they were in charge of administration, finance, or marketing and sales.
This, he pointed out, recognized neither the different salaries those positions command in the marketplace nor the merit of the individuals holding them. “You want to promote team play,” says Parham, “but you also need some ability to differentiate in a meaningful way those who are pulling more heavily on the rope.” Since then, he says, Gateway’s board has indicated a desire to rethink its compensation strategy.
At MB Financial, a bank holding company in Chicago, the election to the board last year of Karen May, 47, vice president of human resources for the health-care outfit Baxter International, enabled president and CEO Mitchell Feiger to move more quickly in terminating veteran executives who were no longer productive but in some cases had longtime ties to the bank and its leadership. “It’s very helpful to have a board member who can help the CEO deal with that kind of situation objectively and get past the subtle politics or paternal attitudes,” Feiger says. “It has given our board the confidence it should have to act.”
Perhaps most significant, HR-trained directors are reshaping the way compensation committees set the pay scales for CEOs and other members of top management, says Jill Kanin-Lovers, who chairs the compensation committees at a drug company, Alpharma Inc., and an executive recruiter, Heidrick & Struggles International. Explains Kanin-Lovers, 53, a former head of human resources for cosmetics maker Avon Products: “Compensation committees are delving much more deeply into the details than they did in the past.
We want to know, where did the numbers come from? How did you model the proposal? How did you select the comparative group?” She adds that boards are taking a broader view of executive compensation too, mindful of how directors of the New York Stock Exchange were accused of not paying attention to the amount they’d agreed to pay chairman and CEO Richard Grasso once he retired. “Now you’re seeing committees not wanting to look at any component of pay in isolation,” she says. “When I first started working with boards, asking about retirement plans and benefits plans was an afterthought.”
Directors with HR backgrounds are also helping boards put more teeth in the often vague concept of pay for performance. “In the past, boards would sometimes listen to stories from management about why the company didn’t hit its numbers, and let themselves be persuaded that it was out of management’s control,” says Glen Toney, 66, a retired Applied Materials executive who spent 12 of his 23 years at the company as head of human resources and has served since 1999 on the board of Andrew Corp., a communications-systems manufacturer. “Not anymore. They’re saying, ‘This is what your contract says, this is what you agreed to, and this is what we’re going to compensate you on.’”
Bill McLaughlin, CEO of Select Comfort Corp., which makes beds and mattresses, says that having had HR executive Michael Peel on the board since 2003 has benefited his company in numerous ways. Peel, 55, senior vice president of human resources and corporate services at General Mills, has helped the board become more objective in its approach to compensation and human-resources development practices, says McLaughlin. “We’re doing much more external benchmarking and analysis of both our short-term and long-term incentive programs, which has helped us manage through the adjustment of our long-term incentive program now that stock options are going to be expensed,” he says. “Mike has been very helpful to us in recruiting and a very involved partner as we’ve been evaluating our senior executives.”
Despite such praise, HR executives wouldn’t be winning accolades—or more board seats—if they were merely trading on their functional expertise. “I never think of Fred Foulkes as the HR guy on our board,” insists Panera Bread chairman and CEO Ron Shaich. “His key attribute is that he’s a strong board member and only secondarily brings his functional experience to the table. If boards become merely federations of functional disciplines, we lose the value of the board.” Foulkes contributes something else too, of course: a long view and the patience to let time prove him right.
