Boot camps for boards: Sessions energize even the sleepiest directors, helping bosses avert shareholder lawsuits and watchdog scrutiny. (Corporate Governance).
Some people don't care, but we do," says Cynthia Richson, SWIB's director of corporate governance. "It comes down to this: Those companies with the higher standards will be the ones getting our money.
As the nation's ninth largest pension fund, with $67 billion in assets, SWIB is so serious about raising the bar that last September it co-sponsored the University of Wisconsin--Madison's first Directors' Summit. The investment board, known as a shareholder activist, is concerned that directors may not be up to the job and may need a better understanding of their duties to shareholders. "We decided to co-sponsor the Directors' Summit because we think higher standards enhance shareholder value and improve overall return on investment," says Richson.
Responding to nudges by academic and institutional investors to pay greater attention to corporate governance practices, more CEOs are attending such seminars. The UW--Madison seminar is one of about a dozen such programs that have sprung up over the past 10 years at premier business and law schools, including Harvard, Stanford, and the University of Chicago. They immerse executives in intensive sessions that define a board's responsibilities to shareholders. The latest to emerge will be from the University of Delaware, which starts its corporate governance conference in April.
"Do some CEOs need a kick in the pants when it comes to sending their directors to corporate governance conferences? Sure," says Charles Elson, director of the Center for Corporate Governance at the University of Delaware. "These programs make sense; they create stronger boards, and that means stronger companies."
Steven B. Engle, chairman, president, and CEO of La Jolla Pharmaceutical Corp., agrees. His biopharmaceutical company in San Diego has heavy institutional ownership that includes SWIB's 12 percent stake.
"Being at these [seminars] is our way of saying we view this as a very serious issue," says Engle, who attended the UW-Madison program. "They present a great opportunity to get people together to talk, to make sure boards are as good as they can be."
Governance conferences reflect important issues both CEOs and directors face. At the UW-Madison conference, for example, industry notables gathered to discuss topics such as the need for more independent boards, CEO compensation, succession, liability and financial risk management, the institutional investor's view of value creation, and even whether companies should now have a corporate governance officer.
Being on top of such issues is a major reason for attending, says Robert Nugent, chairman, president, and CEO of Jack in the Box Inc., which operates or franchises nearly 1,800 restaurants in 16 states. "The takeaway from the [Stanford University] conference was that corporate governance is not a fad," Nugent says. "It's an important trend, and one that responsible board members and CEOs should be in tune with."
Nugent also had a personal reason for attending. "I had this vision that I would be at an annual shareholder meeting one of these days, and someone would ask me one of those [corporate governance] questions, and I don't like to be on the defensive. I always want to be ahead of the curve and in tune with current thinking."
Questions Nugent wanted to be prepared for? "'How do I know that the board is really looking out for my interests?' I can answer by saying that we continually update and implement 'best practices' to assure that shareholders' interests come first," he says. "We have written evaluations of board effectiveness on an annual basis, and twice each year our outside directors meet without management present."
John Charters, president and CEO of Qwest Cyber.Solutions, owned by Qwest Communications International in Denver, was invited to go to Stanford's program by North Western Corp., a $5 billion utilities holding company in Sioux Falls, SD. Charters serves as a member of the audit committee on that company's board. North Western paid for his expenses and the conference fee. That's no small cost: At $3,000 to $5,500 per person, conference fees cause some CEOs to grumble.
"Yes, it was a lot of money to go, but companies ought to invest in ensuring board members are up to speed in the latest trends and issues," Charters says.
These seminars, sometimes called boot camps because of their avowed level of intensity, typically run over two days and feature high-powered speakers and topics. Attendees are CEOs, other corporate officers, and board members. Venture capitalists and institutional investors also attend. Corporation names range from the Fortune 100 to mid-cap firms and even a few early-stage, pre-IPOs. Seating is usually limited to a few hundred.
While boot camps usually focus on the latest governance trends, some are specifically geared toward director training and certification, which is a misnomer because there aren't any officially sanctioned governmental or industry certification programs available. The "certification" status some programs provide after attendance, however, may help lower premium rates on directors' and officers' liability insurance.
Trying to increase attendance at governance programs is Institutional Shareholder Services (ISS), the largest proxy advisory firm in the United States. ISS analysts research and recommend votes for 20,000 shareholder meetings each year for its more than 700 clients.
Later this year, ISS will launch a product called the Corporate Governance Quotient, which will rate companies from zero to 100 on how well they follow governance practices. One category in particular will deal with continuing education programs for directors.
"Some CEOs love us and some hate us," says Patrick McGurn, vice president of corporate programs for ISS, of his company's watchdog role. "But our clients want to see a basic corporate governance structure in place. They want to know that there is board independence, competency in the boardroom, and accountability of top management." So far, ISS has accredited 10 programs, including UW-Madison's, and it hopes the new ratings will spur attendance.
One program that focuses solely on director duties and responsibilities is the Director and Training Certification seminar sponsored by the Anderson School of Management at University of California-Los Angeles. Produced in cooperation with NASDAQ and the National Venture Capital Association, the two-day program looks at the responsibilities facing directors and officers, especially at newly public companies. Organizers say it is designed to "reduce the frequency and severity of shareholder litigation." It was limited to 50 executives; the fee for last year's program was $3,500.
But it's the broader conferences that seem to attract media and CEO attention. "We send a lot of checks back when we max out on attendance," says Joseph A. Grundfest, a W.A. Franke professor of law and business at Stanford Law School and a former SEC commissioner. Grundfest shepherds Stanford's eight-year-old executive education program; he believes strongly that boot camps boost awareness of corporate governance procedures by both CEOs and directors. "One of the most important functions of the board is to monitor the performance of the CEO, and when he or she is not doing the job, knowing when to replace the CEO," he says.
Harvard Business School gets credit for starting the whole seminar idea. "I'm not sure we were the first, but we saw a need early on to get directors to think more about how to carry out their duties in a more effective way," says Jay W. Lorsch, former senior associate dean of Harvard Business School and now the chairman of Harvard's Executive Education program, which runs boot camps twice a year.
He doesn't like the term boot camp, but says the programs do produce energetic discussions, using real-life case studies and "what if" scenarios.
One approach Harvard and other programs encourage is strong executive leadership. "I think too many CEOs view their boards as a necessary evil," says John Quelch, senior associate dean at Harvard Business School and active in the executive education program. "Statutes force CEOs to spend time working with directors, rather than [the CEO] wanting to spend time with them.
"The more excited your board members are, the more you'll get out of them," he suggests. "In a sense, you as the CEO need to market the importance of your company, and make it exciting and intellectually stimulating. You do that, and your directors will give you more."
Growing interest in corporate governance semina stems, in part, from the fact that traditional busine schools do not deal with the subject, some experts say.
"At many colleges and universities, you might find on one graduate-level course on board responsibilities and duties," says Paul Lapides, director and co-founder of the Corporate Governance Center at Kennesaw State University, just outside Atlanta.
Kennesaw's executive education program, which began in 1995 as a seminar, differs from most boot camps. The format of the custom-tailored program for corporations and special-interest groups works well, says Lapides, because it allows the center to bring together academics and experts from many parts of the business school. "At some point in the future, it will be much more common to learn about board issues as part of the business education process," Lapides asserts. "I think most professors really don't know much about it."
Choosing a Program
Elson of the University of Delaware says picking program depends on the director's experience as a board member. "If you haven't been exposed to a lot of corporate governance theory, you should probably go to one that's broad in scope, covering a lot of issues," he suggests. "And if you're a director on, say, an audit committee, you probably want to go to one that's narrow in the topic that fits your needs."
The Directors' Summit at UW-Madison, for example, focuses on the responsibility and accountability of the board and management to shareholders, as well as how to enhance shareholder value. "[Corporate governance programs] should be designed to be a positive environment where you have good interaction with the players in the investment community and have a chance to speak up yourself," says Ted Beck, a UW-Madison associate dean who is responsible for the Summit.
And if you're only going because it might lower your insurance premiums? "If you're only going to get a discount, you're probably not worth insuring, anyway," Elson quips. "The whole point is to create a more informed director."
|Printer friendly Cite/link Email Feedback|
|Author:||Harris, Michael T.|
|Publication:||Chief Executive (U.S.)|
|Date:||Jan 1, 2002|
|Previous Article:||All set to lobby. (Public Policy).|
|Next Article:||Economics for Dummies.|