Lucy P. Marcus http://blogs.reuters.com/lucy-marcus Fri, 01 Mar 2013 21:43:07 +0000 en-US hourly 1 http://wordpress.org/?v=4.2.5 Groupon’s fate hinges on the boardroom http://blogs.reuters.com/lucy-marcus/2013/03/01/groupons-fate-hinges-on-the-boardroom/ http://blogs.reuters.com/lucy-marcus/2013/03/01/groupons-fate-hinges-on-the-boardroom/#comments Fri, 01 Mar 2013 20:36:36 +0000 http://blogs.reuters.com/lucy-marcus/?p=211 Andrew Mason, the chief executive officer of Groupon, has, in his own words, been fired. His resignation letter has been described in the press as charming, but the market seemed to think it was simply about time. Shares in Groupon went up more than 10 percent following the announcement on Thursday.

Firing Mason has taken too long, and the board has a lot of work to do. Groupon, though it might not have always acted like it, is a grown-up business with an entire ecosystem that depends on it, and with that comes responsibility. I’m not just talking about the investors, I’m talking about its more than 11,000 employees in 48 countries, its global network of businesses – from mom-and-pop stores to big organizations like Expedia ‑ that depend on a reliable service that has often in the past let them down, along with the users of Groupon coupons. All of them need to know they are dealing with a company that is reliable and will honor their purchases.

The Groupon board will have to act decisively and transparently to build some goodwill and let everyone know that, although slow to act on getting rid of Mason, it takes its obligations and relationships seriously and will act fast to repair them. In a written statement, the board conceded that “our operational and financial performance has eroded the confidence of many of our supporters, both inside and outside of the company. Now our task at hand is to win back their support,” and now they have to show that they know how to do that.

What does the board and the management team need to do?

Look inward

The board took too long to part ways with Mason, and even with their inaction, Mason should have removed himself long ago, as knowing when to go shows true leadership. The writing has been on the wall, with the financial results being poor for a very long time. Groupon’s share price has lost 75 percent of its value since its initial public offering in 2011, and the stock fell 25 percent when its fourth-quarter results were released this week.

The board made some changes recently to beef up its  audit and finance expertise in the wake of a very public rebuke about its audit committee failings, but the people around the table now need to ask themselves why it took so long and how they are going to do things differently.

Decide where the company is going

Groupon expanded fast and encountered some tough times along the way. The board and the current executive team will need to take a cold, hard look at the business and decide where they want to take it. Do they want to grow? Scale back? Put Groupon up for sale? They need to do a lot of that before they recruit a new CEO, as the person they will hire will have to be able to execute on that strategy.

Bring in a new executive team

Once the directors have decided on a path, they will need a CEO who can help them get where they want to go. They may need a whole new executive team. They can’t let the temporary arrangement of Executive Chairman Eric Lefkofsky and Vice Chairman Ted Leonsis working in a newly created office of the chief executive last for too long. The board notes that it has commenced a search for a CEO. The company needs someone who will signal to the markets, and to employees, partners and customers, that they understand their concerns and are acting decisively to address it.

Groupon also needs stability. In April, it hired Kal Raman, who was promoted to chief operating officer the third COO in two years. The last thing the company needs is to get into a Yahoo-like situation, with a revolving-door group of senior executives.. Board members must agree on the person they hire and support him or her.

Groupon should look to Yahoo. That company was in a tailspin, but with the robust push of activist investor Dan Loeb, it has turned things around. Loeb gave Yahoo  a hard shove in the direction it needed to go, and that gave people enough confidence to give Yahoo some breathing room. CEO Marissa Mayer may have gotten some bad press this week, but there is no doubt that people feel as if Yahoo is back in the game.

If Groupon doesn’t move quickly and sure-footedly, it risks finding itself with someone like Loeb at its doorstep, and its destiny will not be its own – though it seems to have worked out well for Yahoo so far.

PHOTO: Groupon founder and CEO Andrew Mason attends the second day of the Allen and Company Sun Valley Conference in Sun Valley, Idaho on July 7, 2011. REUTERS/Anthony Bolante

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The boardroom mystique http://blogs.reuters.com/lucy-marcus/2013/02/22/the-boardroom-mystique/ http://blogs.reuters.com/lucy-marcus/2013/02/22/the-boardroom-mystique/#comments Fri, 22 Feb 2013 21:27:14 +0000 http://blogs.reuters.com/lucy-marcus/?p=206 On the 50th anniversary of the publication of Betty Friedan’s The Feminine Mystique I’ve started to wonder how far we’ve come in the boardroom. As I finished a conversation with a search firm that specializes in oil, gas and mining this week I questioned the level of progress.

The search firm noted that for the most part the companies it speaks with are simply not interested in having women on their boards. They don’t see the point of diversity. They say there aren’t enough women with direct experience in oil, gas and mining, and they don’t have an interest in looking outside the industry.

Some companies in these sectors are bowing to international pressure to add women, and several, such as energy industry giants Exxon Mobil, BP and Shell, have two women nonexecutives on boards with 12 to 15 people. Mining is the worst sector for gender diversity, with just 5 percent of board seats in the top 500 mining companies held by women, according to a recent report published by Women in Mining and PriceWaterhouse Coopers.

Diversity of thought, experience, knowledge, understanding, perspective and age means that a board is more capable of seeing and understanding risks and coming up with robust solutions to address them. It’s not about sticking a bunch of women on the board for the sake of optics. It is about extending the fundamental principles of good governance to the oil, gas and mining sectors. Healthy businesses need comprehensive diversity.

It is not as if the status quo were working so well. The industry is rife with governance issues, and putting the same people on the board over and over again is not going to fix that. According to the report by Women in Mining and PriceWaterhouse Coopers, profit margins are higher for mining companies with women on the board. Of the top 500 mining companies surveyed, the 18 mining companies with 25 percent or more of their board consisting of women had an average net profit margin for the 2011 financial year that was 49 percent higher than the average net profit margin for all top 500 mining companies. Their research also showed that those mining companies with female board members have a higher average profit margin overall (23 percent) than the average net profit margin for the top 100 mining companies (20 percent).

Mining giant Glencore’s board is made up of men alone. Glencore is soon to become even bigger  after its merger with Xstrata, another company with no women on the board. Glencore let it be known that it will (cue the trumpets) add a woman after it has completed its merger with Xstrata (confetti drop here). I had already heard of their intention to do this as long ago as last August, so I wonder what the delay has been. It seems that even contemplating a woman is momentous for Glencore, as a spokesman is reported to have said, “The appointment of a female board director is a significant consideration.” They have announced that they will sometime announce, and for this they are getting ink in the mainstream press, including the Telegraph.

Glencore is the same outfit whose chairman, Simon Murray, in April 2011 was not so keen on having women in his boardroom, telling the Telegraph in an interview:

Women in the boardroom? Terrific. Why not? Always welcome. But why make a special case out of it? Why tell everybody you’ve got to have X number of women in the boardroom? Women are quite as intelligent as men. They have a tendency not to be so involved quite often and they’re not so ambitious in business as men because they’ve better things to do. Quite often they like bringing up their children and all sorts of other things.

All these things have unintended consequences. Pregnant ladies have nine months off. Do you think that means that when I rush out, what I’m absolutely desperate to have is young women who are about to get married in my company, and that I really need them on board because I know they’re going to get pregnant and they’re going to go off for nine months?

That makes me think that adding one or two women to Glencore’s board isn’t going to solve the larger underlying governance issue. When an influential board chairman can make a statement like that and still remain in his very lucrative and highly public role, it says something about the company and the industry.

The mining and oil and gas sectors are rife with volatility. Examples include Bumi, a London-listed Indonesian coal company that, when it was created in 2010, was worth $3 billion. This week there was an unsuccessful attempt by Nathaniel Rothschild to clear out the current board and wrestle back control of the company. ENRC, the Kazakh mining company, has ousted independent directors and had multiple boardroom upheavals, public disputes  and ongoing questions about its corporate governance. Both have no women on their boards.

When I talked with Trevor Philips, former chairman of the UK’s Equality and Human Rights Commission (EHRC) for “In the Boardroom with Lucy Marcus,” we looked at things that can be done to bring diversity of all kinds to boards.

Philips advocates greater transparency and reporting, but we know the numbers, and we’ve known them for a long time. He also suggests instituting a version of the NFL’s Rooney rule created to address the extreme imbalance of minority candidates for head coaching and senior football operation jobs in the United States. Having women on short lists is fine unless the women are consistently not chosen, and then become tainted by the perception that they are “ever the bridesmaid, never the bride.”

I recently cleaned out an old filing cabinet, and in a file labeled “Boards/Women” I found 10- and 15-year-old reports from organizations like Catalyst, an organization that focuses on research and reports on expanding opportunities for women in business, as well as plenty of women’s groups and action committees that no longer exist. The reports focused on the benefits of adding women to boards, the way women can persuade boards to add them, calls to action by chairmen who signed up to these principles … essentially the same exact reports we see now. I also found the details of the launch of a women’s initiative I attended at the World Economic Forum meeting in 2001 – 12 years ago – with Hillary Clinton, Madeleine Albright and a room full of other accomplished women. We all pledged to get more women in attendance, so that kind of effort is not so new either.

What would Friedan, the founder of NOW, the largest organization of feminist activists in the United States, think of us? After all, that is a lot of years of talk in those files and not a lot of movement.

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The danger of a CEO’s double-dip http://blogs.reuters.com/lucy-marcus/2013/02/12/the-danger-of-a-ceos-double-dip/ http://blogs.reuters.com/lucy-marcus/2013/02/12/the-danger-of-a-ceos-double-dip/#comments Tue, 12 Feb 2013 19:16:45 +0000 http://blogs.reuters.com/lucy-marcus/?p=200 As we move into the year, companies and their leaders are under greater scrutiny than ever. In one of my meetings with institutional investors recently, someone asked whether chief executive officers should sit as independent directors on the boards of other companies. CEOs who sit on too many boards risk getting overloaded and splitting their time, energy and commitment to the extent that they do none of their jobs well. Get the balance right, though, and CEOs on outside boards can bring benefits to all the organizations with which they are involved.

An example of the thorny issues at play: While serving as CEO and chairman of Avon, Andrea Jung sat on the boards of Apple and General Electric. Her outside board commitments became a point of contention as her performance at Avon came under question. Jung stepped down as Avon’s CEO and chairman last year but continues to serve on the Apple and GE boards.

A number of other high-profile CEOs sit on the boards of well-known companies: Netflix CEO Reed Hastings sits on the board of Facebook, as does Donald Graham, CEO and chairman of the Washington Post Co. Xerox CEO and Chairman Ursula M. Burns is a director at American Express and ExxonMobil. Apple’s board has Millard Drexler, the chairman and CEO of J. Crew, and Robert Iger, president and CEO of Walt Disney. 

The debate centers around the sliding cost-benefit scale for CEOs who sit on boards other than their own. Here are some things to keep in mind while judging what’s best.

Active experience

A director  who works on the front lines of business can bring a great deal to board discussion. Who better than a sitting CEO to understand the vagaries of the economy and the challenges of trying to navigate through it?

Here’s the catch: In challenging economic times, boards that ask their CEOs to dedicate their attention solely to the companies they run are not out of line. The CEO is hired to do a job, and if his time, loyalty and paycheck are split, boards and investors wonder whether he is giving the best he has to the company. If a CEO takes up too many outside board seats, his board and investors are well within their rights to question him.

Honing skills

Sitting as an outside board director requires skills that differ from those of a chief executive. It is a light-touch, hands-on role rather than an active, hands-in role. In a recent edition of “In the Boardroom with Lucy Marcus,” I spoke with Alcatel Lucent’s CEO for the UK and Ireland, Lucy Dimes, about sitting as a non-executive director on other boards. She agreed that watching other CEOs in action as they managed their relationships with their boards was useful for building her skills. Also, taking the role of an outsider in the boardroom gave her a different perspective on her job as a CEO.

Reputation

A company having a reputation by association can be helpful, but potentially complex. For example, a company trying to demonstrate that it is focusing on its media strategy might appoint a big-name CEO from a company that is well respected in the media sector. The problem is that that the very reason the CEO is on the board could be a conflict of interest for the director. If the board ends up discussing an issue that might directly or indirectly involve the outside CEO or his company, that CEO is obliged to step out of the discussion, thus making the benefit of his appointment moot.

Also, there is the risk of “director contagion.” That’s when the actions of a director inside or outside the boardroom bring distraction or disrepute to the companies he’s advising. If the CEO sitting on a board is having trouble with the company he is running, there is a real risk that the taint could rub off on the boards on which he serves. 

Commitment

Board service done well can take a lot of time. Emergencies happen, and meetings can be called at the last minute, Board members who can’t help risk being perceived as not pulling their weight.

The key to all this is finding balance. Done right, CEOs serving as outside directors can benefit the companies they run and the companies on whose boards they sit. The challenge is ensuring that they give their best to both companies without going overboard.

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An insulated boardroom is an ineffective boardroom http://blogs.reuters.com/lucy-marcus/2013/01/15/an-insulated-boardroom-is-an-ineffective-boardroom/ http://blogs.reuters.com/lucy-marcus/2013/01/15/an-insulated-boardroom-is-an-ineffective-boardroom/#comments Tue, 15 Jan 2013 22:51:18 +0000 http://blogs.reuters.com/lucy-marcus/?p=192 “The level of ignorance seems staggering to the point of incredulity. Not only were you ignorant of what was going on, but you were out of your depth.”

Andrew Tyrie, MP, chairman of the Parliamentary Commission on Banking Standards (PCBS)

Last week senior executives of UBS testified before a British parliamentary panel about their part in the Libor-rigging scandal. What they said sent a discouraging signal that they, and others in the banking sector, are still operating as if they are out of touch and tone-deaf in a sound-proof room.

U.S. and British authorities have implicated UBS, Citibank, Deutsche Bank and Royal Bank of Scotland, among others, in fixing the Libor rate over several years. UK lawmakers, responding to a public outcry, set up the Parliamentary Commission on Banking Standards to look into the UK banking sector’s professional standards and culture; discover lessons to be learned about corporate governance, transparency and conflicts of interest; and clarify the implications for regulation and government policy.

Andrea Orcel, chief executive officer of UBS’s investment bank, told the committee that “the whole executive board and board are very focused at recovering the honor and the standing that the organization had in the past.” But that’s still putting the emphasis and focus on the wrong thing. What these institutions need to be thinking about is rebuilding trust and stability. Using phrases like “recovering the honor” sends the message that they are focused on themselves and not on the effect their actions have on those around them – their clients, the employees and the global financial system.

The global financial system has depended on “trust me” and “we’re the experts,” and an implication that the whole thing is too complicated for people outside the upper echelons of the financial services industry to understand. But now, with the Libor-rigging scandal, with JPMorgan’s London Whale and with the perceived collapse of the banking system and bank bailouts, the financial services industry has broken that trust. It has become clear that a lot of the people in the industry, – indeed, a lot of people sitting around the industry’s board tables ‑ don’t understand what is happening there, either.

It is time for financial executives to think about the changes they can make to earn back people’s trust and demonstrate that they are trustworthy and can bring stability back. A blueprint would look something like this:

Action: Enough talk. There have been plenty of mea culpas, including in last week’s PCBS hearing, and lots of talk about what the financial services industry should do and what it needs to do. UBS’s Orcel talked about the need to “reform the governance, incentive structure and the overall supervisory approach right across the global financial industry.” People have lost trust, and no one is going to believe it until they do it. The focus is now on results.

Governance: Bank boards and senior management need more people who understand what the banks are doing, understand what they need to be doing, are unafraid to ask hard questions and are able to take swift, strong action. Barclays has a new chairman and a new chief executive, and they have set out clear ideas about re-examining what happens around the board table. They are saying all the right things, but they’ll have to demonstrate that they can bring about real change.

Transparency: If banks are taking action and making changes, people need to see it happening. JPMorgan’s board voted this week to make public an internal review on the failures that led to the loss of more than $6.2 billion. That is a step in the right direction. Any time there is a question of openness, the default answer has to be “yes.”

Accountability and performance: It is earnings week for some of the biggest financial services firms. It’s being reported that Barclays and Deutsche Bank will cut investment banker pay up to 20 percent. Pay packages and bonuses need to reflect the down times as well as up. If they do not, people will know it is business as usual. Also, it was reported this week that Goldman Sachs toyed with the idea of delaying UK bonuses to take advantage of a fall in tax rates but decided against it. Even considering such a move rekindles mistrust and the feeling that banks are simply not getting the public mood.

***

Lastly, the public has a part to play in all this. It was taxpayer money that bailed out a number of these institutions around the world. We cannot be passive and hope that others will sort this out for us. We all need to be speaking up on this issue, asking the questions of the institutions that we have bailed out and holding lawmakers to account to ensure they continue to monitor the financial services industry.

People did trust the financial services sector, but it broke that trust, several times over, and it is going to be a long road back. The industry will need to prove it is willing to be action-oriented and bring about real change, have oversight that counts and be transparent and accountable. Most of all, they have to know that people are watching, and that the attention is not going away.

PHOTO: The logo of Swiss bank UBS is seen at their offices in New York December 19, 2012. UBS agreed to a $1.5 billion fine on Wednesday after admitting to fraud and bribery in a deepening scandal over the rigging of global benchmark interest rates. REUTERS/Andrew Burton

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Aesop’s year in the boardroom http://blogs.reuters.com/lucy-marcus/2012/12/18/aesops-year-in-the-boardroom/ http://blogs.reuters.com/lucy-marcus/2012/12/18/aesops-year-in-the-boardroom/#comments Tue, 18 Dec 2012 20:29:53 +0000 http://blogs.reuters.com/lucy-marcus/?p=185 Stories of boards and leadership are the Aesop’s fables of the business world. Tales of power, money, ethics, hubris and the consumers and stakeholders in the businesses that surround us serve as cautionary tales and markers for our future.

This year, we saw stories about active annual general meetings, executive compensation, the governance of newly public companies, diversity in the boardroom and much more. From Japan to Silicon Valley with Olympus, Facebook, Yahoo and HP, geography was no boundary and the themes were universal.

The volume and speed at which board-related stories are hitting the headlines are unprecedented, and the pace looks like it will increase in the coming years.

What has changed? First is transparency: The world is watching and talking. Information moves freely and quickly, so what happens in formerly dark corners of remote areas can no longer be brushed under the carpet or easily smoothed over by slick PR. The democratization of information is such that anyone has access to it and also has a means of spreading it.

Second is connectedness: From the Arab Spring to the Occupy movement and then the “Shareholder Spring,” there has been a distinct sense of interconnectedness among people and consumers. There is a greater understanding that no matter where people live, they have the same fundamental needs, wants and desires, and they deserve safe work environments and fair compensation. People care about where their goods are made, how they are made, and who makes them. Cases like the factory fire in Bangladesh serve to raise people’s awareness. Consumers are acting on the knowledge that they have a role to play, speaking out and voting with their pocketbooks.

Third is the global marketplace: Companies are increasingly selling their products where they are doing the manufacturing, which means that to many consumers, the issues are literally close to home. The world is less and less divided into producer and consumer countries. Multinational companies like Apple and Nike are selling their products to people in the same countries and communities where they are being made.

All of this is complicated by doing business in developing countries where rules and regulations might be more flexible or have lower thresholds of fairness of wages, safety, or corporate responsibility. The object is not to go to a country and do the minimum required as a business; the object is to set a global ethical standard and bring that along wherever a business goes. The case of Foxconn and Apple proves that the world is not willing to so easily let companies slide on failing to conduct their business with a global standard of ethics and fairness. Also, an increasing number of cases of corruption involve big businesses, like Walmart’s bribery scandal in Mexico, or most recently the arrest of the former CEO of SNC-Lavalin, the largest engineering firm in Canada.

Fourth is the ecosystem: Boards are no longer only responsible to investors. They are accountable to the entire organization’s ecosystem, including employees, customers, surrounding communities and investors. Understanding the ecosystem and the company’s responsibility within it must be a priority. Companies need to look not only at their returns, but at how they get them, and the cost to the communities in which they operate. BP and the Florida Gulf, Union Carbide and Bhopal, Apple and Foxconn, and, most recently, Starbucks, Google, and Amazon and the UK tax authority — all serve as examples. Corporate accountability requires more than a token gesture or nonprofit giving. It needs to be central to the business, not an add-on, afterthought or a Band-Aid.

What can boards do?

“Hear no evil, see no evil” will not work.

Boards must ask questions and demand full and complete disclosure. As board members, having our heads in the sand will not work. As soon as boards become aware of issues, they need to act swiftly and decisively.

We need to ask ourselves if our commitment goes beyond paper. Is ethical practice and holistic thinking in the DNA of the organization?

Is this kind of thinking relegated to separate CSR programs, or is there a comprehensive policy that lives and breathes beyond paper and policies?

We need to recognize that this is about every sector.

Some sectors spring to mind easily, but actually there is no sector that is unaffected: energy, pharmaceuticals, banking, technology… This applies to any company that does manufacturing, uses anything manufactured (as FoxConn proves, you are responsible for your sourcing), uses raw materials in its manufacturing (conflict minerals), does business in developing countries (fair wages, decent working conditions, bribery), and more.

We need to take a hard look at ourselves and ask, as board members and boards, are we passive or engaged? It is time for an active approach.

It is possible to take a tick-box approach and leave it to the risk register. But if we are committed to the long-term strength and viability of a company, we need to be asking hard questions and making sure we are genuinely satisfied with the answers.

Many corporate stories of last year were negative — here’s hoping that 2013 will bring some positive stories of bravery, integrity and independence of thought and deed. I look forward to bringing them to you here.

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Audit committee: The toughest job you’ll ever love http://blogs.reuters.com/lucy-marcus/2012/11/28/audit-committee-member-the-toughest-job-youll-ever-love/ http://blogs.reuters.com/lucy-marcus/2012/11/28/audit-committee-member-the-toughest-job-youll-ever-love/#comments Wed, 28 Nov 2012 20:27:40 +0000 http://blogs.reuters.com/lucy-marcus/?p=179 I’m preparing for an upcoming board audit committee meeting, and I am conscious that I am reading the briefing papers more carefully, slowly and deliberately than usual. I am always thorough, but recent events have given me pause. I am sure I am not the only member of an audit committee who, seeing the headlines about accounting that touch the boardroom, is taking extra care of late.

In April, Groupon’s audit committee made headlines because the company found some accounting discrepancies that should have been caught earlier. This followed concerns about the company’s accounting before it went public in November of 2011. The spotlight was on Groupon’s board and its audit committee, with questions about whether it had enough expertise in the room and whether all had been asking the hard questions. The committee had strong business experience ‑ among its members was Starbucks Chief Executive Officer Howard Schultz ‑ but the bigger question was whether the board had enough financial experience. Some mea culpas and a couple of new board members with weighty accounting credentials later, Groupon presses on.

This past month, Starbucks, Amazon and Google were hauled before a committee of MPs in the U.K. for accounting practices that seem to be legal, but have struck people as unsavory. Clever accounting designed to save every penny has given boards pause for thought.  The practice fulfills the brief of saving money and squeezing out every ounce of profit for a company, but just because we can do it, does it mean we should?

When we sit in audit committee meetings, or when we are discussing financial health and strategy for companies, we can’t be siloed in our thinking. We can’t have our finance hat on for part of the discussion, then swap it for another hat when we talk about marketing or corporate reputation or corporate social responsibility. Investors care about the health of the business, but the public also cares about how business is conducted. We don’t operate in a world where we can tell people not to look behind the curtain to see how the magic happens. As the old advice goes, don’t do anything you wouldn’t want reported on the front page of the New York Times, or in this case, reported by Tom Bergin of Reuters.

Last week, Hewlett-Packard accused Autonomy of poor accounting and of hiding the real figures during the due diligence of the latter company’s acquisition. This is a story still in motion, but there are a number of people and organizations that will be getting extra scrutiny in the coming weeks. Some of the questions being asked: Were Autonomy’s accounts shady? If they were, was the board aware, and more specifically, was the board’s audit committee aware? If they weren’t, why not? If they were, did they collude in some sort of a cover-up?

In the meantime, questions are being asked about the audit and accounting firms for HP as well as for Autonomy‑ for one, why didn’t the 15 different financial, accounting, and legal firms involved in HP’s acquisition of Autonomy flag any of the wrongdoing that Autonomy is accused of? As the story unravels, we’ll see who was wilfully blind or purposely misleading. It’s likely there will be months of investigations ahead.

So, back to my audit committee papers and my upcoming meeting. I just reread the line in my briefing papers from the auditors that notes: “… primary responsibility for the prevention and detection of fraud rests with management and those charged with governance …” As audit committee members, our jobs are to read the story that the numbers tell, ask tough questions and communicate with the auditors about any concerns that we or they have. I am reading my papers with care, looking out for discrepancies or things that should be there but aren’t, making notes of questions to ask. Like many of my audit committee colleagues, I will be entering the room ready to be engaged ‑ perhaps sitting a bit straighter with the echoes of audit and accounting headlines in the back of my mind.

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Should big investors be fleeing Murdoch? http://blogs.reuters.com/lucy-marcus/2012/10/17/should-big-investors-be-fleeing-murdoch/ http://blogs.reuters.com/lucy-marcus/2012/10/17/should-big-investors-be-fleeing-murdoch/#comments Wed, 17 Oct 2012 17:52:11 +0000 http://blogs.reuters.com/lucy-marcus/?p=169 Following the proceedings of the News Corp annual general meeting, one can’t help but think of the proverbial definition of insanity: doing the same thing over and over again and expecting a different result.

I’m not talking about Rupert Murdoch. He’s been doing the same thing for years and always getting the result he wanted. He comes away from yet another AGM with the dual roles of CEO and chairman firmly in hand. Also, the dual voting stock structure remains so that, though Rupert Murdoch and his family own approximately 12 percent of the shares, they hold 40 percent of the voting power. In essence, Rupert Murdoch and his family control the decisions and destiny of the company relatively unchallenged. Both Rupert Murdoch and News Corp board member Viet Dinh made abundantly clear during the board meeting that this was not going to change. Though the company has gone through the motions of appointing new independent directors, the choices suggest a not-so-subtle sense of humor: One of the new independent directors is the former president of Colombia, Alvaro Uribe, who was embroiled in a wiretapping scandal of his own.

No, what makes me think of this definition of insanity is the behavior of investors. For the past couple of years, a growing number of institutional investors have expressed concerns over Rupert Murdoch’s holding the role of CEO and chairman and the dual voting stock. Several of the largest and most well-regarded investors in the world have challenged the structure of the company and its corporate governance – and have been completely disregarded. This year California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS), joined by the Florida State Board of Administration, UK pension fund Hermes, and several other large institutions, put forward resolutions, and spoke up at the AGM about dual shares and in support of appointing an independent chairman. These suggestions were unceremoniously swatted away.

In most cases institutional investors at this level of clout and voting power would be able to have some sway. Often they are the only ones who have real power to effect change in organizations. In this case, with the dual share structure, their concerns are easily ignored with little or no negative repercussions, except for some bad press and tsk-tsking.

There is no doubt that News Corp has been profitable – the shares have risen 40 percent this year, bringing an impressive return on the institutions’ investment. But it raises a larger question about principle: If the institutions cannot effect change at News Corp, and they feel strongly about the issues they raise about corporate governance – and by extension, about ethical concerns about the organization’s behavior – what is to be done? Is it time for them to decide that principle and long-term concerns over the stability of the company trump short-term profit?

I’m reminded of a conversation I had with the Dean of St. John the Divine, the Very Rev. Jim Kowalski, for “In the Boardroom with Lucy Marcus.” I asked him if he felt the Church of England should withdraw its investment in News Corp. As he noted, “At the end of the day, someone has to be willing, we have to be willing, to stand up and say ‘I’m not going to do business like that’.” The Church of England withdrew its investment in August.

So the ball is in the court of the institutional investors. Is it time for them to vote with their feet and withdraw their money? Is it time for them to invest it instead in the dozens of companies I’ve met with in the past year whose boards are striving to be independent, responsive and responsible? Murdoch himself seems to think so, tweeting “… any shareholders with complaints should take profits and sell!”

Perhaps it is time they did just that.

PHOTO: News Corp Chairman and CEO Rupert Murdoch gestures as he speaks at the “The Economics and Politics of Immigration” Forum in Boston, Massachusetts August 14, 2012. REUTERS/Jessica Rinaldi

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Whack ’em with a board! http://blogs.reuters.com/lucy-marcus/2012/07/02/whack-em-with-a-board/ http://blogs.reuters.com/lucy-marcus/2012/07/02/whack-em-with-a-board/#comments Mon, 02 Jul 2012 19:58:15 +0000 http://blogs.reuters.com/lucy-marcus/?p=162 Boardrooms around the world are going through an extraordinary transition. There is a greater understanding of the power and responsibility of boards, and they no longer operate in a black box. The message from investors now is: We’re watching you!

The Shareholder Spring, as the recent period of shareholder activism has been dubbed, shows that investors, stakeholders, regulatory bodies, governments, and the general public are taking a greater interest in what goes on behind closed corporate doors. Ignoring this new call for transparency is futile, and will lead to accusations of being out of touch—tone-deaf in a soundproof room.

This year brought a rude awakening for boards. HP, Yahoo, News Corp., Facebook, Goldman Sachs, MF Global, AstraZeneca, Barclays, Olympus, RIMM, Kodak, and many others were in the headlines for all the wrong reasons. Boards were criticized by investors and other stakeholders on a wide range of issues, including their composition, competence, diversity, voting control, and dual stock structures. No sector is immune, no director untouchable.

Gone are the days of the rubber-stamp board. The lesson is clear: Organizations suffer greatly when independent board members don’t ask hard questions, and refuse to hold executives accountable for not just the profit margins but also the ethics of the company. A complacent board jeopardizes a company’s future.

Boards need to change, and serving on a board needs to be considered a job, not an annuity. As board members we are treated very well. We are sent manicured board papers in advance of board meetings. We are collected at the airport, transported to meetings, treated to lovely meals, and given slick and painstakingly prepared presentations. If we are not careful, we can become too comfortable, complacent, and we won’t have a fingertip feel for the organization.

The best boards have chairs and members who are truly independent and engaged, who work hard to get a complete understanding of the business their organization is in—and the one it wants to be in. As board members, we should be assessed on how well we fulfill what I call our “grounding and stargazing” responsibilities: making sure the company manages its risks prudently and operates at all times  in a responsible, legal, and ethical manner, while at the same time making sure it is ready and able to respond shrewdly to future challenges.

It is also clear from reading the stories accompanying all the recent headlines about boards behaving badly that they need to be more diverse in every way—gender, professional expertise, ethnicity, age, international perspective, and more. A truly diverse board will present more opinions from more perspectives, have fewer common assumptions (and misconceptions), and is more likely to understand the various needs of all of the company’s customers, employees, and investors.

It is critical to have the right group of people sitting around the boardroom table, but those directors will only be useful if they are allowed to operate with complete candor. Independent board members have to be comfortable asking hard questions; in fact, it needs to be clear that asking tough questions is a basic requirement. In such an environment board members can discuss a wide range of topics essential for their organization’s short- and long-term success, including sustainability, the changing workforce, innovation, infrastructure, technology, internationalization, communication, and the balance of continuity and change.

Better boards require better leaders around the table, and being a leader in the boardroom isn’t just the job of the chair or lead director—it is the responsibility of every board member. Leadership means not bowing to peer pressure or groupthink. It means not acquiescing when you are the only “obstacle” that stands between clarifying a point and breaking for lunch. It is about being the voice of caution when the rest of the board is in a state of euphoria.

Being a good leader also requires active engagement inside and outside the boardroom. When you first join aboard, get to know the people you will be working with, and the business your organization is in—its competitive landscape, its stakeholders, employees and customers, and even the communities in which it operates. Independent knowledge is power.

Showing great leadership in the boardroom also means knowing when it is time to leave. Keeping a board fresh is important, but it is a topic too often discussed in hushed tones. There is a real danger of board seats being treated like sinecures. As companies grow, boards need new faces, new ideas, new perspectives, and new expertise. As board members, it is our individual responsibility to know when to go, rather than waiting to be pushed by the nominations committee or the board chair.

There are several reasons to leave a board, including: you’ve served too long, your expertise is no longer required, you’re not pulling your weight, you’re obstructively disruptive, or your actions, inside or outside the boardroom, bring distraction or disrepute. No one wants to be the person everyone around the table feels is not contributing, and you never want the board to have to take formal action because you have outstayed your welcome. Although humbling to admit, no one is irreplaceable, and sometimes the best service you can give is to walk away.

The Shareholder Spring has been a good thing for investors, and a good thing for boards, even though many directors might not feel that way right now. It has fostered a long overdue public conversation about the role of boards and board members. A good board—one that is engaged, transparent, and accountable—is a tremendous asset to an organization. The evolving boardroom requires every board member be a great leader, from the moment we are appointed to the day we step down.

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Facebook’s board needs more than Sheryl Sandberg http://blogs.reuters.com/lucy-marcus/2012/06/26/facebooks-board-needs-more-than-sheryl-sandberg/ http://blogs.reuters.com/lucy-marcus/2012/06/26/facebooks-board-needs-more-than-sheryl-sandberg/#comments Tue, 26 Jun 2012 17:09:23 +0000 http://blogs.reuters.com/lucy-marcus/?p=149 When news emerged in May that Facebook had hired an executive search firm to look for a woman to add to its board of directors, I had hoped that with the appointment would come a great deal of diversity of thought and experience and an independent voice. Facebook has now announced that it has chosen its COO, Sheryl Sandberg, to join its board. Having Sandberg on the board is a good step, but does it address the larger shortcomings that are concerning Facebook users and investors?

Facebook has the same problems it had a month ago, and the company is still running counter to this year’s “Shareholder Spring” – a global movement toward transparency, engagement, and checks and balances on corporate boards. The newly public company lacks diversity of thought and international experience outside of the Silicon Valley bubble; and because Facebook is a controlled company, if the board takes issue with something, it doesn’t have the teeth to do much about it.

Sandberg may come on to the board with full voting rights, but her vote won’t count for much if a boardroom battle occurs, since Mark Zuckerberg holds more than 50 percent of the company’s voting shares.

As COO she may not be an independent board member, but one positive change from Sandberg’s appointment is that it brings another internal executive voice to the table. Sandberg is capable, speaks with authority and knowledge, knows Facebook inside and out, and has strong board experience. It will certainly be important that there is more than one executive voice in the boardroom.

Yet her appointment doesn’t address the wider issues that are still at play. If, as a user, you were unhappy with Facebook’s policies – be it privacy issues or inadequate information about changes to the site – or, as a stockholder, you were unhappy about a botched IPO and a lack of communication from Facebook during the weeks that followed, then Sandberg’s appointment to the board won’t make much of a difference to you.

What does Facebook still need if it is to fix these issues? It needs an outside independent director, preferably a woman with strong international experience who adds diversity of opinion, experience, skill, cultural background, and more. This is not a matter of optics – putting a woman on the board because it looks odd not to have one – but rather an issue of good governance.

The timing of the announcement is not coincidental: Wednesday, June 27, marks the end of the 40-day post-IPO quiet period, when analysts from the underwriting banks, including Morgan Stanley, Goldman Sachs, and JPMorgan, can begin offering up opinions on Facebook. Is adding Sandberg to the board going to be enough to counterbalance the concerns that investors and analysts have about the company? Unlikely.

PHOTO: Sheryl Sandberg, Facebook’s chief operating officer, speaks during Class Day ceremonies at Harvard Business School in Allston, Massachusetts, May 23, 2012. REUTERS/Brian Snyder

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Facebook versus the Shareholder Spring http://blogs.reuters.com/lucy-marcus/2012/05/17/facebook-versus-the-shareholder-spring/ http://blogs.reuters.com/lucy-marcus/2012/05/17/facebook-versus-the-shareholder-spring/#comments Thu, 17 May 2012 18:43:40 +0000 http://blogs.reuters.com/lucy-marcus/?p=134 The corporate world is emerging from several weeks of boardroom turbulence dubbed the “Shareholder Spring.” In annual meeting after annual meeting around the world, boards have been taken to task by investors and other stakeholders on a wide range of issues: remuneration, board composition, competence, diversity, voting control, dual stock, and more. In the meantime, we have also witnessed the soap opera of Yahoo’s boardroom, the rebuke to newly public Groupon’s board for its lack of oversight of accounting practices, and the public condemnation of News International’s chair – and, by extension, its board – questioning his competence to lead the organization. No sector has been immune; no director has been untouchable.

Now Facebook is about to enter the public markets. Its defiant position regarding its old-style governance is in stark contrast with the temper of the Shareholder Spring. Facebook swims against the tide of a global movement toward transparency, engagement, and checks and balances. It feels as if we’ve all stepped into a time machine and none of the past couple of years of governance lessons – including the failures of boards in the banking-sector crisis – ever happened.

Several troubling issues call into question how this company can consider itself groundbreaking, innovative or new: the concentration of power in the hands of one man, the stranglehold on voting rights, the lack of diversity in the boardroom (which in a way is inconsequential, as the Facebook board does not have much bite anyway), and above all else the flagrant disregard of the lessons of the past several years about engaged, active and independent boards contributing to strong companies. Were Facebook striving to be an innovative company built to last, it would encourage healthy dialogue and diversity in the boardroom, and equal shareholder voting rights. It would not need to lock in power, but rather earn authority through excellent performance and results. The leadership would trust that a democratic boardroom would foster greater strength and stability than dictatorship, which brings a false sense of security. That’s a lesson we can take from the Arab Spring, where dictators thought that they held real control.

Today there is euphoria, anticipation and excitement among investors. A lot of people will make money in the short term, but short-term investing is not what builds strong businesses and strong economies. The world needs durable companies that are innovative in the products and services they sell, but also distinguish themselves through responsive and responsible conduct in their corporate governance structures and business practices.

Over the years Facebook will need to grapple with many issues that affect the development of the company and the lives of its users, from growth to innovating ahead of the curve, and from privacy to social responsibility. My hope is that Mark Zuckerberg begins to see the value of ceding some of the control he holds by rule and is able to trust that he will be able to earn that control through deed. If that doesn’t happen, all eyes will be on the investors to see if at least they have learned the lessons of bad governance and the value of good.

PHOTO: The Facebook profile of founder Mark Zuckerberg on a mobile phone is seen in this photo illustration, May 16, 2012. REUTERS/Valentin Flauraud

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