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Your board of directors in a different light.

Care for another prophecy for the new year? Yes-men corporate boards are out. Young, active boards are in. At least that's what the Minneapolis-based retailer Dayton Hudson Corp. believes, and the company is considered an innovator in the hot area of corporate governance.

"Governance is sort of our issue now," admits Treasurer and Vice President Karol D. Emmerich. "We've written some great pieces on it."

What makes Dayton Hudson a leader? For one, the company recently revised its term limits for corporate board members to three years each with mandatory retirement after 15 years or at the age of 68. Until recently, Dayton Hudson's directors served one-year terms. But the takeover binge of recent years forced the firm to re-examine its policy on term limits. To ensure some continuity on the board, the company began laddering the lengths of terms for each of three classes of five directors.

"Having a one-year term is very difficult," Emmerich explains.

"When the raiders were well financed, all they had to do was launch a proxy fight against your board and, if you had 100 percent of your board members up for election each year, they could convince the arbitrageur, who then owned most of the stock, that they ought to elect a new board consisting of the LBO firms or takeover individuals and their friends and families. Some of that happened to us in 1987."

Another new governance concept from Dayton Hudson is its insistence that its directors be at the peak of their careers when serving with Dayton Hudson. If they're not, the company just may ask them to resign their posts.

"We look for board members who are successful in their careers so they don't rely heavily on their Dayton Hudson position for income or prestige," Chairman and CEO Kenneth A. Macke explains in "Directorship" magazine. "It's no accident that |our~ board is relatively young." Indeed, according to the firm's latest proxy, the average age of the directors is a little over 54, with the youngest director at age 40.

"Most of our directors are either CEOs or COOs and therefore are actively involved in their businesses on a daily basis," Treasurer Emmerich adds. "For our corporation, that's the perspective we want. Now, I wouldn't say that's necessarily appropriate for every corporation. Some firms function very well with retirees as directors, for instance. But we feel that's not appropriate for us."

Dayton Hudson enforces its policy by asking directors to tender their resignations when their primary jobs change, so the board can evaluate whether a particular director is still a good fit for the board.

That's unusual, says Robert Heidrick. co-founder of Heidrick Partners, an executive search firm in Chicago. Based on a survey by Heidrick, just one out of five companies polled has a formal evaluation program of any kind for its directors. When asked how board members should be measured the CEOs who Heidrick surveyed rank the most valuable qualities in this order: the contributions a board member makes to board discussions, the quality of his or her counsel, and how well the member knows the company. Heidrick also surveyed portfolio managers and, while the managers agree with the CEOs on the first and second criteria for a good director, they say the third most important characteristic is preparation and homework.

Heidrick Partners also found that 36.7 percent of the portfolio managers it surveyed think companies aren't generous enough with information about their directors and boards--even though 45 percent of those managers make investment recommendations that are influenced by the makeup of a board.

A final layer in what is becoming a powerful corporate board structure at Dayton Hudson: In addition to taking time at year's end to objectively evaluate its own successes and failures, the retailer's board annually reviews Chairman and CEO Macke's performance, judging him on such tangibles as whether the company met its financial goals and such intangibles as how well Macke has helped the board do its job. (Macke and the president of Dayton Hudson, Stephen F. Watson, are the only two inside directors on the board, per a dictum set forth in the late 1960s by the grandsons of the company's founder.)

Even with all that board scrutiny, the CEO stands a firm believer in partnerships between corporate executives and their boards of directors: "When Dayton Hudson was threatened by a hostile takeover ..., I consulted with board members by conference call almost every day at the peak of the crisis. Some directors had been through takeover battles before. Their guidance was very valuable during the entire takeover threat."


Fishing for more investors in your firm? Donald W. Mitchell, managing partner of Mitchell and Company, told "Investor Relations Update" that both sell-side and buy-side analysts look at four "barometers" when making their investment decisions:

* The way the CEO and other senior executives come across in meetings with analysts. "Analysts are very good at sniffing out the better and weaker managements," says Mitchell.

* What the company does that benefits investors.

* The results of the last five major actions the company took. "Companies that have done well get more leeway," Mitchell explains, "while the analysts are skeptical of companies that didn't manage the projects effectively."

* And, of course, recent stock performance.
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Title Annotation:Business Talk; corporate governance at Dayton Hudson Corp
Author:Couch, Robin L.
Publication:Financial Executive
Date:Jan 1, 1993
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