The Next Generation of Directors
from Summer 1999
by Joseph S. Coyle
One of the most critical responsibilities facing any corporate board is to identify future members—directors who can help a company ride the accelerating rate of change. We believe that the 10 men and women profiled on the following pages are just such people. It is no coincidence that, outside their own industries, all are relative unknowns. That is part of the point. Fresh faces are what many companies need most. Even more important, each of these people is skilled in one or more of three indispensable areas: technology, finance, and globalization. The ability to predict and master the continual dizzying advances in technology, restructure whenever and wherever needed, and grab every opportunity thrown your way by the world’s vanishing borders is key to making it in the next millennium.
The corporate board of the future has no room for passengers. Directors, and especially new ones, we believe, will have to work harder than ever. They’ll be under unprecedented pressure, as activists, institutional investors, and others hold the soles of their feet ever closer to the fires of accountability. Says John Nash, vice chairman of the Center for Board Leadership, a Washington, D.C. think tank: “Shareholders are demanding that directors possess the core competencies needed to fulfill their fiduciary responsibilities.”
So where does a company—whether it’s looking to fill a vacancy or just starting out—find such paragons?
To get the answer, Corporate Board Member quizzed 20 business school academics, executive recruiters, and top executives for their recommendations of untapped boardroom talent. Arbitrarily, we tried to limit ourselves to people who currently hold no more than one outside directorship on the board of a U.S. public company—and to those still in their 40s (there’s one exception, a fiftysomething).
This left some 50 people whose talents and career paths we then matched against the skills and dedication summarized above that we and our experts had identified as crucial.
Not surprisingly, those we interviewed listed operations or line experience as a board member’s most desirable characteristic. In other words, the best directors are those who’ve been there, done that. Particularly valued are people who have led their own company through the same dark valleys and up the same peaks that now challenge you—in short, CEOs. Dennis Carey, a vice chairman at executive search firm Spencer Stuart, takes this suggestion even further. He believes a board should include between two and four outside directors who are active CEOs.
But there are a couple of big downsides to this approach. For one, companies tend to pursue the heads of Fortune 500 companies, individuals who already are stretched thin on extracurricular activities. Moreover, some CEOs won’t even consider such offers. GE’s Jack Welch, for example, refuses to sit on outside boards.
Another familiar recruitment route: retired CEOs. But there may be fewer retirees available than one might think. “They’re having more fun going into venture capital and private-equity firms,” says Jay Lorsch, professor of human relations at Harvard Business School. Besides, a CEO more than five years out of the cockpit has begun to lose his connectedness, both to technology and worthwhile global contacts.
Meanwhile, not everyone insists on having CEOs on the board. Warns David Nygren, who heads Mercer Consulting’s global performance and development practice in San Francisco: “Being head of an organization does not itself make a great board member because the two often require different competencies.” As Nygren sees it, a CEO rules whereas a director governs. “Governing is about extending authority through policy rather than directly running a company, which is something that should be left to the executives.”
And what do CEOs themselves say? Roger Kenny, managing partner of Boardroom Consultants, a New York City search firm, cites a survey that asked chief executives, “Who is your best director, and why?” The top choice: chief financial officers of other companies. “CFOs make great directors,” says Kenny. “They can ask the right questions of auditors, and they’re accustomed to speaking their minds at the board meetings of their own companies. And, usually, they can devote a lot more time to directorships than their CEOs can.”
If you still want to shoot for a big-name CEO on your board, by all means try. In fact, the smaller and more entrepreneurial you are, the better your chances, says Ram Charan, a veteran consultant on governance issues and author of Boards at Work: How Corporate Boards Create Competitive Advantage Jossey-Bass; 1998). Small ambitious outfits, he says, “offer a tremendous opportunity for learning”—and for getting rich, since pay is often in stock. In general though, Charan recommends trying to find younger board members, “up-and-comers who are running business units of large corporations.” This also should provide the opportunity to diversify the race, gender, and even sexual preference of your board.
Our 10 candidates signal the first real wave of baby boomers into the boardroom. Given this generation’s propensity for doing things their way, does this invasion signal widespread shakeups? Says Paul Lapides, a professor at the Corporate Governance Center at the Michael J. Coles College of Business at Kennesaw State University, Georgia: “One of the great things about boomers is that they don’t feel the same pressure of the Depression-era generation that ‘I have to be right.’ In general, they are more open to discussion and to the possibility of there being more than one answer. I think they will do great.”
Nigel W. Morris
Age: 40
Title: President and COO of Capital One Financial Corp.
Current public boards: Capital One, Covance Inc.
Call him the internationalist. After emigrating from England in 1985, Nigel Morris was so much at home in the United States that he took that all-American standby, the credit card, and ran with it. Along with his partner, CEO Richard Fairbank, 48, Morris turned Capital One into one of the country’s leading issuers of Visa and MasterCard plastic.
Now Morris is globe-hopping again, or at least his card business is. Capital One is already making bold new forays into Europe. Morris and Fairbank are credited with revolutionizing the business by pioneering teaser rates and creating a mass-customization marketing approach, testing up to 6,000 product variations a year. Although the name Capital One still may not be as ubiquitous as American Express, Dennis Carey, a vice chairman of Spencer Stuart maintains, “Morris is one of those guys who’s keeping American Express awake at night. Have no doubt about it.”
Morris’s other edge? A former social worker, he is revered by employees who talk about his “social vision.” This philosophy is evident in the company’s community involvement and in the treatment of its 11,000 workers worldwide. Capital One ranks No. 41 on <i>Fortune</i>’s list of the 100 best U.S. companies to work for. Morris’s taste in boards on which he’d like to serve runs toward smaller groups—Capital One has seven directors—as well as ones that oversee companies that are technology based and, not surprising, “more international.”
Kevin W. Sharer
Age: 51
Title: President and COO of Amgen Inc.
Current public boards: Amgen, Unocal
It’s not hard to understand that a man with the bearing to be an executive officer on a nuclear submarine might have some skills that translate well in the boardroom. Indeed, since graduating from Annapolis with a degree in aeronautical engineering, Kevin Sharer has been on a highly focused ascent through management ranks in a variety of technology-based industries. From management consultancy McKinsey & Co. to General Electric, MCI, and now Amgen, his “take the hill” mentality has been noted by all.
On the principle that one can also learn from military defeats, he keeps a painting of General Custer on one wall of his office. “General manager and strategist” is the way Sharer describes his strengths, which add up to that hard-to-find mix of hands-on and blue sky.
As a potential board member, Sharer favors companies that are at what he calls “an interesting stage of development, with enough scope and scale to be effective players in their industries” and which could use his management/strategy expertise to move to the next level. He wouldn’t limit himself to computer and software companies but would look for situations where technology plays an important operations role. Consumer goods? No. Publishing per se? No. Publishing with major tech ambitions? Maybe.
Scott Mednick
Age: 43
Title: Chairman of Xceed Inc.
Current public boards: Xceed
Scott Mednick has an artist’s vision—literally. Four of his graphic designs are on display in the permanent collection of the Library of Congress, and he is past president of the Art Directors Club of Los Angeles.
But you won’t find Mednick’s current work turning yellow in magazines or gathering dust in museums. As chairman and chief strategic officer of Xceed, Mednick helps companies design knockout websites. You can therefore count marketing savvy and technological know-how among his strengths. “E-commerce growth will be so fast it will make all our heads spin,” says Mednick. Networking colossus MCI Worldcom and postage meter kingpin Pitney Bowes are among Xceed’s clients.
Mednick also understands the issues surrounding startups and IPOs. In 1995, he founded THINK New Ideas, a consulting firm that helps companies conduct e-commerce, and helped take it public. Under Mednick, THINK’s revenues increased from $17 million to $50 million in less than two years.
Mednick says he would be interested in serving on boards of “aggressive companies looking to create a future environment, not just solve current problems,” such as a firm going public or entering a merger (he’s been involved in a dozen deals already). As he puts it, “I’ve been an entrepreneur all my life. I’d be useless at Ford.”
Peter Langerman
Age: 43
Title: CEO of Franklin Mutual Advisers
Current public boards: Sunbeam
You have to listen to institutional investors more than ever these days, so you might as well put a mutual fund CEO who knows what he is talking about on your board. Peter Langerman is that and much more. As a value investor, he is so adept that some have called him the next Michael Price, the scourge of lackluster performers. Langerman has used his skills in a number of boardrooms, helping to turn around troubled companies.
And he’s dealt just as effectively with internal strife: He recently stepped down as chairman of Sunbeam after a term that began with the ouster of “Chain Saw Al” Dunlap. Previously, he helped restructure such companies as Hexcel, a manufacturer of plastics and composite materials, alloy maker Metalurg, and Zenith Laboratories, a generic drug firm, all of which had severe financial and legal problems.
Investing in and working with such outfits confers invaluable experience. “Particularly with distressed firms, you have to peel through all sorts of complicated issues,” Langerman says, “and you’ve got to pay an unusual amount of attention to liabilities in valuing a company, not just its assets.”
Before taking on a directorship, he says, “I have to ask if it is in the best interest of our fund shareholders as well. That can be a high hurdle.”
David J.S. Flaschen
Age: 43
Title: President and CEO of Thomson Financial Services
Current public boards: None
David Flaschen perches in the catbird seat. He runs a technology-driven company with a significant presence on the World Wide Web, he’s in the fast-growing financial services industry, he’s got a strong M&A background, and he operates internationally. Thomson Financial Services is a leading financial information provider whose 7,000 employees serve customers in 40 offices around the world.
Since joining TFS in 1997, Flaschen has tripled the size of an internal investing fund that allows employees to explore ideas outside of the constraints of the company’s quarterly operating budget. “Ideas don’t only come once a budget calendar, so why hold them to one?” he says. One result of that approach: TFS was the first to offer real-time stock quotes on its website (http://rtq. thomsoninvest.net).
Flaschen has seen TFS through some 20 acquisitions, largely information technology companies, that have helped him shift his own company’s focus from simply making products to providing the kind of service that customers want.
The boards Flaschen joins must share his philosophy on leadership: “You’ve got to give employees empowerment, access to capital, and entrepreneurial rewards, and you’ve got to lead by influence. Command and control leadership is a thing of the past, unless you’re in the military.”
Maria Sastre
Age: 43
Title: Vice President/Latin America for United Airlines
Current public boards: Darden Restaurants Inc.
Real growth in the new millennium will come primarily in the service sector, so managers with a background in providing service will be especially valuable. As head of United Airlines’ Latin American division, which sprawls over 15 cities in 13 countries, Maria Sastre has a lot of customers to keep happy. The evidence of her skill: No detail is too trivial. In addition to overseeing the installation of marble showers in the airline’s Miami facilities, a perk for first- and business-class customers who have arrived on overnight flights, she also hired the stars of the Food Network TV show “Too Hot Tamales” to create an in-flight menu that is more in line with the palate of the airline’s Mexican and Central American customers.
She’s no stranger to change, particularly in the form of companywide restructurings. “I worked for Eastern through three of them, then Continental, and now United, where we turned ourselves into an employee-owned company,” Sastre says.
She also serves as a director of the company that runs the national Olive Garden chain of Italian restaurants, an operation she considers surprisingly similar to the airline industry. “Both are front-line businesses with high customer volumes, and both have a need to retain those customers and to increase the yield from each one.”
Also experienced in the technical and financial sides of her business, Sastre thinks a good starting point for a board’s strategic plan is to have a commitment to enhance service—and to provide the resources to do so.
Ann Livermore
Age: 40
Title: Vice President and CEO of Enterprise Computing and Solutions division, Hewlett-Packard
Current public boards: None
Ann Livermore might be the dream director of the future: She’s got a background in support services, she’s got technological expertise, and she runs a 44,000-employee organization for a company that generates more than half of its revenues overseas.
Livermore runs Hewlett-Packard’s enterprise computing business. HP’s largest division ($15 billion in annual revenues) is sure to grow in importance now that the company has decided to spin off its measuring and testing segments. Indeed, Livermore is leading Hewlett-Packard, which currently makes a broad array of technology hardware, full-throttle into the Internet era. “What the Web has done for data, it is now starting to do for services,” she has said. “Online services for banks, computing services across the ’Net, inventory services along the supply chain, and the consumer fields of banking and finance all provide huge potential for growth.”
When it comes to directorships at companies other than HP, Livermore believes she’s best suited for the boards of large corporations outside of technology, such as the privately held UPS, where she currently serves. As she puts it, “I like taking what has worked in the computer industry and seeing how it works elsewhere.”
Carl Fields
Age: 48
Title: Vice President of Marketing for Monterey Mushrooms
Current public boards: None
Carl Fields knows how to capitalize on serendipity. While developing a proposed product line for his company, Monterey Mushrooms, Fields sliced a batch of frozen mushrooms, which he then unveiled to a test group. “Their reaction was ‘Oh great! Presliced mushrooms!’ I told them that wasn’t the idea. The idea was supposed to be frozen mushrooms,” Fields recalls. “But they didn’t want frozen mushrooms. They wanted sliced mushrooms.”
Fields knew he was onto something hot and pushed his company into offering the new product. “Nothing like it had been done before,” he says. “I consider myself the father of sliced mushrooms.”
But don’t let the fungi fool you. Fields’ true interest is in growth industries, and he has the foresight and intuition that boardrooms need. He has seen Monterey through many acquisitions, including farms, cannery operations, and other facilities in the United States and Europe.
“I also have a quantitative background,” he says, “since my degree is in mathematics. When it comes to growth-oriented business, you have to be intuitive. Others may be focused on the immediate, but you have to see problems that will emerge down the road.”
Fields believes he would be most effective working as a director of a company facing transition. “Businesses see where they want to go, but there’s always a gap. The challenge is in closing that gap. I think that’s where I can offer the most.”
William J. Rouhana Jr.
Age: 46
Title: Chairman and CEO of WinStar Communications
Current public boards: WinStar
As CEO of WinStar, which touts itself as “the new phone company,” Bill Rouhana helped create the broadband wireless industry. In 1994, he led WinStar’s purchase of the largest block of radio spectrum ever by a U.S. company. In 1996, he steered WinStar into post-deregulation competition for local phone service. The company, which provides phone, high-speed data, and Internet access services, will enter the first of what will eventually be 50 overseas markets later this year.
Rouhana has plenty of expertise in managing telecom firms. He has bought, sold, or arranged financing for nearly two dozen companies, serving at many of them as a director or officer. However, he sees himself as a general problem-solver rather than an advocate of any particular technology. “I was searching for a solution to the problem of getting bandwidth to where people actually are,” he explains. “I didn’t know it was going to be wireless.”
He also brings a legal background to the table. He went to Georgetown University Law Center and was in private practice for seven years. “In regulated businesses, many people feel your law department is your R&D department,” he observes. Rouhana currently serves on the boards of several nonprofits and says he would be attracted to corporations that “make a material impact on the way we live”—companies involved in developing new medical technologies, say, or alternative energy sources.
Eileen Rudden
Age: 48
Title: Senior Vice President of Lotus Communications’ Product Division
Current public boards: None
Eileen Rudden is the kind of person you want on your side when you’re facing major expansion in the high-tech market. She’s the first to tell you that success starts with a leading-edge product or service. Under her direction, the Lotus Notes and Domino web browser programs have grown from a modest four million users a decade ago to an astounding 40 million today. But she is also a self-described evangelist of global market positioning.
“My expertise is in strategic planning,” she says. “Businesses want to become e-businesses, but growth is often happening so fast that it’s hard to keep up with the changes and maintain a clear perspective on long-term development.”
Rudden, the mother of three boys, thrives in an industry where there are few women, a reminder of the time she spent earning an MBA at Harvard Business School in the 1970s. Rudden is critical of the archetypal male-dominated boardroom. “I think any forward-thinking company would see it as an extra advantage to have someone who has all the expertise needed to serve on a board and who is also a woman.”
Her interests are directed at industries with strong parallels to the high-tech world. These include not only media and entertainment, but medical and pharmaceutical companies that, she says, share many of the same growth characteristics. Whatever the business, “it’s important to be able to bring informed people into the decision-making process,” Rudden says.
