Gaze Into My Crystal Ball
from November/December 2006
What Has Been Topic A in Your Boardroom in the Past Year? What do you Think Will be Topic A in the Year to Come?
Can't stop thinkin' about tomorrow. Or as one director puts it, "Less time is spent looking through a rearview mirror, and more looking through a telescope for new opportunities."
“Topic A” has been what the press has called succession planning, but in the boardroom it’s called bench strength. People think of it as planning to replace the CEO, but that’s just one of the issues. You need to not only think about your senior management team, but are you building people to come up through your pipeline? Not only whether you’re hiring the right people, but are you training them and giving them opportunities to develop in the corporation? In the year to come I think the main topic will be the same, because of the old saying that A players with B product will be successful but B players with A product won’t be.
Pamela F. Lenehan, 54
President, Ridge Hill Consulting LLC, Needham, Massachusetts
Outside directorships: Avid Technology Inc., Spartech Corp.
Our board has been particularly concerned with the aggressiveness of the Equal Employment Opportunity Commission. Because of politics, this federal agency is without meaningful oversight, and its goal appears to be to maneuver companies into settlements involving long-term and costly “training” programs. It has taken on cases against employers that seem totally frivolous and seeks a presence on the employer’s property to ensure it a continuing stream of complainants. The cost of defending these cases can easily break the bottom line. We’ve also been concerned about how the accounting firms have turned Sarbanes-Oxley into a major for-profit enterprise. This must be the means for accountants to afford the new professional-liability premiums. Our company’s audit fees, which had been in the $350,000 range, doubled—and that did not include the Sarbanes-Oxley compliance requirements, which were at least double that $350,000 amount. Congress has stripped the CPAs of their talents as partners with business and turned them into money-draining adversaries that make the legal profession look darned appealing.
Jeffrey A. Silver, 60
Senior Partner, Gordon & Silver Ltd., Las Vegas
Riviera Holdings
Versar is small for a public company. And we pay a relatively high price for being public, especially in light of SOX and other recent regulatory requirements. We need to grow if we are to stay public. With this in mind, our board meetings have focused on how Versar can operate more efficiently so that we can establish a solid base from which to grow organically and through smart acquisitions. You have to be bigger and make enough money to take care of those regulatory costs.
Paul J. Hoeper, 60
Chairman, Versar Inc., Springfield, Virginia
Pioneer looks for oil and gas in other countries. The key topic in our boardroom in the last year has been adopting a corporate strategy that fits into what’s happening in the industry, and that boils down to allocating capital. As those who buy gasoline know, the industry is changing rapidly. For now, we have a lot of cash flow and options. So many times boards get inundated with operational details: quarterly reports, how many wells did we drill. Those are nice things to know, but you don’t need to spend much time on them. Board time is better spent discussing strategy and capital allocation, now and in the future.
Charles Ramsey, 70
Former President and CEO,
May Petroleum, Dallas
Pioneer Natural Resources
“Topic A” in all my boardrooms this past year has been growth. Barring some major catastrophe or economic downturn, I believe it will continue to be topic A in the year to come. I believe that boards will continue to push their companies to focus on product and process developments that promote period-over-period growth. However, I also think that boards, and rightly so, are increasingly concerned about longer-term strategic direction. Less time is spent looking at the world through a rearview mirror, talking about the last period’s results, and more time is spent looking through a telescope for new opportunities.
D. Van Skilling, 73
President, Skilling Enterprises, Palm Desert, California
First Advantage Corp., First American Corp., Lamson & Sessions, McData Corp., Onvia Inc.
What Changes Do You Anticipate in the Next Five Years That Will Affect the Way Directors are Expected to do Their Jobs?
What part of "global" don't you understand?
Hopefully there will be some rationalization of Sarbanes-Oxley and a recognition that smaller firms cannot afford the amount of oversight that is demanded by Section 404 [on internal controls]. I would also hope we could get back to a more rational relationship between boards, corporate executives, and the auditors. I would like to see a time where you could actually ask the auditors a question about how to do something because you valued their opinion and experience, and they would feel comfortable enough to give you an answer. That is not the case today. They’re just not very helpful. We used to be able to rely on the outside audit firm to help us get through some of the hundreds of pages of revenue-recognition guidelines, for example. But today they’re just afraid to do it, other than to offer an opinion after you’ve done something.
Richard C. Cook, 59
Senior Adviser, FOCUS Enterprises Inc., Washington, D.C.
Indus International
There will continue to be much more scrutiny of independent directors’ oversight responsibility. Others might not agree, but for the amount of responsibility directors are assuming, they should get better compensation. There is an increased expectation, and if directors aren’t paid more there will be more of a problem finding them.
Jay B. Hunt, 67
President, Development Group, San Francisco
DDi Corp.
Global competition is going to put a lot of pressure on directors to review what strategic actions to take to produce a quality product at competitive prices. There is going to have to be more capital spending and restructuring.
Joseph D. Ruffolo, 65
Founder, Ruffolo Benson LLC, Fort Wayne, Indiana
Kitty Hawk Inc., Steel Dynamics, Tower Financial Corp.
Unfortunately, I expect that our politicians’ generic ignorance of business and how free enterprise works will result in more hurdles for business. For directors, that will translate into a greater amount of time spent on nonproductive activity to protect themselves and the company.
Manuel J. Perez de la Mesa, 49
President, CEO, and Director, Pool Corp., Covington, Louisiana
American Reprographics
I fear that directors will be held to a greater level of responsibility for the outcomes of decisions made with the best available data at the time, but where 20/20 hindsight shows that another alternative might have been better. I also think that the cost of D&O insurance will rise or its availability will be limited.
Ronald R. Harder, 63
CEO, Jewelers Mutual Insurance Co., Neenah, Wisconsin
Associated Banc-Corp, Austin Mutual Insurance Co.
I think the preponderance of directors have a domestic focus and we now live in a global world. Directors will have to broaden their perspective on where and how business is done.
Anthony W. Schweiger, 64
CEO, Tomorrow Group LLC, Conshohocken, Pennsylvania
Paragon Technologies, Radian Group Inc.
I don’t expect radical changes. That has already happened, and as a result I spend a lot more time on board issues than I used to. Maybe that’s good, but in a sense it encourages looking at form rather than substance. We need to be on the defensive—always asking, “How will this appear in public?”—rather than looking at what’s in the best interest of the company.
Manuel T. Pacheco, 65
President Emeritus, University of Missouri System, Columbia
PNM Resources Inc.
