We Can Do Better: Here's How
from November/December 2006
In general, what are the most neglected topics —that shouldn't be neglected —in boardrooms today?
A company's culture, the people issues, for one thing. Finding the right balance between controlling risk and running scared, for another.
Partly because of Sarbanes-Oxley and Enron and WorldCom, I think boards have spent too much time focused on financial risk or fraud, or the inappropriate or inaccurate presentation of financial statements. Not that that isn’t important, but it is just one of many, many risks companies face, and not necessarily the most important. Companies need to focus on competitive risks, technological risks, regulatory risks, and actions in Washington, good or bad, that can affect them in ways they haven’t thought about. And then there’s reputation risk and branding risk. But if I had to pick one area where boards don’t spend enough time, it’s on people issues. What is the culture of the organization? Are we training people appropriately for the challenges they’re going to face? How is morale? Do people work and play well with others? The people issues frequently get shortchanged, yet the people issues are just critical in whether or not you’re going to have a successful organization.
Raymond C. Groth, 59
Adjunct Professor of Business Administration, Fuqua School
of Business, Duke University, Durham, North Carolina
CT Communications, Specialty Underwriters’ Alliance
The compensation arena hasn’t been given the direct board attention that it deserves. It seems almost completely driven by the CEO and management team, and the board comes in and basically nods its head and says, “All right, we’ll do this.” Like at Exxon, the guy walks away with $400 million that was probably due to an employment agreement devised 10 years ago by a board that probably didn’t fully examine the true implications of what it was doing. This is something that needs to be addressed.
Francis M. Ricci, 63
President and CEO,
Yes! Golf, Denver
Nevada Gold & Casinos
Here’s what needs to be discussed more: The biggest impediment to companies today is something that the authorities don’t seem to be able to curb—the short sellers’ ability to influence the companies in which they’ve taken positions.
Harvey Liebowitz, 72
President, Harvey Liebowitz Associates, New York City
Asta Funding
I think boards should be more proactive in ensuring that the assumptions made to assess the financial impact of pension obligations are more fully understood. I think boards should be more proactive in creating a work environment where more women can be both a parent and a manager. And I think boards should take a more active role in understanding the full breadth and depth of the payroll—not just understanding the compensation of the top five employees.
Christopher W. Nolan Sr., 42
Managing Director, Mergers and Acquisitions Group, Rabobank International, New York City
United-Guardian Inc.
Risk management needs to be discussed more. It’s hard sometimes to pin down what the key risks are to a company and what has been done to mitigate those risks. Companies need to understand the risks and then understand that risk is all a part of doing business. Some companies can become too risk-averse and make themselves so scared that they’re afraid to do anything.
Dennis R. Beresford, 67
Professor of Accounting, Terry College of Business, University of Georgia, Athens
Fannie Mae, Kimberly-Clark, Legg Mason
Directors of public companies have three primary roles: to ensure that the company has the right strategy, to make sure that the senior management (including the CEO) are the right people to implement the strategy, and finally to make sure the company is operating in compliance. Sometimes they have limited time, so their understanding of the business is not what it ought to be to meet shareholders’ expectations. In general, most companies and most directors of public companies address these issues, but do they do it in sufficient detail and in enough depth?
Jai P. Nagarkatti, 59
CEO and Director, Sigma-Aldrich Corp., St. Louis
A director’s role is to make sure management understands what the true competition of the company is. It’s easy for management to focus on traditional competitors, but the nature of competition changes quickly. Look at Sears 20 years ago. They were better than the other national chains, but their real competitor was this new form of retailing in the form of the Wal-Marts of the world. The more dominant you are in an industry, the less likely you are to pick up on new forms of competition. You have to keep focused on emerging competition. They say Wayne Gretzky was such a great hockey player because he was able to skate where the puck was going. That’s what we have to do as a corporation. We have to stay ahead of the power curve and identify what new forms of competition are on the horizon, and start preparing for them before they get here.
David A. Cole, 63
Chairman Emeritus, Kurt Salmon Associates, Atlanta
AMB Property Corp., PRG-Schultz International
I believe any well-regarded company is always looking ahead. In a world that is rapidly changing, with so many new products coming on the markets, with increasing competitive pressures from other companies and other countries, a company can quickly become blindsided. Directors need to encourage a forward-looking culture. I have seen such encouragement by the board lead to change in strategy or at least reevaluations of the validity of the current strategy. I have also seen it produce a more international perspective.
Craig G. Matthews, 63
Retired Vice Chairman and COO, KeySpan Corp., New York City
Hess Corp., National Fuel Gas
One of the most important issues that a board deals with is encouraging the CEO to achieve a balance between the short and long term. There’s a desire to deliver this quarter, this year, but to what extent does that compromise the long term? In order for our long-term health to be what we want, certain choices may not be the best for the short term. On the other hand, what is too much focus on the long term? Achieving that balance has been a matter of tremendous discussion on the boards I’ve been on. This is an area where boards can help counsel the CEO.
Raymond G. Viault, 62
Retired Vice Chairman, General Mills Inc., Minneapolis
Newell Rubbermaid, Safeway,
VF Corp.
It’s an essential role for the board to encourage the CEO to look beyond his or her desk, beyond where you are today, to how you want to shape the company. Problem is, that’s not necessarily what your shareholder activists are looking for. You hear people say they manage to the quarter results, and I understand that, but sometimes a very good plan doesn’t work in the short term.
Jane Scaccetti, 52
Shareholder, Drucker & Scaccetti, Philadelphia
Pep Boys-Manny, Moe & Jack
The board has a real responsibility to call for or encourage the CEO and the management team to develop a sound strategy that is forward-thinking and is a balance between reach and prudence and achievability. If that strategy is not explicit or is unbalanced, the board has to react and be forceful.
W. Ronald Dietz, 63
CEO, W.M. Putnam Co., Bloomington, Illinois
Capital One Financial Corp.
