Opinion

Lucy P. Marcus

The danger of a CEO’s double-dip

Lucy P. Marcus
Feb 12, 2013 19:16 UTC

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?

Aesop’s year in the boardroom

Lucy P. Marcus
Dec 18, 2012 20:29 UTC

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.

Audit committee: The toughest job you’ll ever love

Lucy P. Marcus
Nov 28, 2012 20:27 UTC

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?

Whack ‘em with a board!

Lucy P. Marcus
Jul 2, 2012 19:58 UTC

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.

Facebook versus the Shareholder Spring

Lucy P. Marcus
May 17, 2012 18:43 UTC

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.

In the Boardroom with early-stage companies

Lucy P. Marcus
May 16, 2012 17:54 UTC

In this edition of “In the Boardroom with Lucy Marcus,” Lucy Marcus and Axel Threlfall are joined by the CEO of technology startup PeerIndex, Azeem Azhar, to talk about what the boards of early-stage companies should look like and do.

Early-stage companies anywhere in the world need to think about integrating good board principles from the start. If an entrepreneur plans to expand the business into a strong entity with real longevity, then it is more important than ever to get the foundations of that business right and build best practices into the very DNA of the company. One crucial area that will pay real dividends is ensuring that the company has a strong, committed, well-functioning board.

Even at an early stage, the discipline that comes with following the skeleton of corporate governance – having regular board meetings, putting together the documents for board meetings, having people around the table who ask challenging questions about both “grounding” and “stargazing” issues, and having independent, non-invested, non-aligned directors involved – sets important precedents for the future of fast-growth companies and helps build strong organizations for the long term. Boards composed of truly active, engaged and interested directors bring benefits, no matter the size of the organization.

RBS’s board lessons

Lucy P. Marcus
Dec 19, 2011 23:45 UTC

By Lucy P. Marcus

The views expressed are her own.

Last week the UK’s Financial Services Authority (FSA) released a report on the near collapse of Royal Bank of Scotland (RBS), the overambitious institution that took over ABN Amro and then had to be bailed out by the British government to the tune of £45 billion ($70 billion) in 2008. It is one of several financial institutions around the world that have encountered serious difficulties in the past several years, but this report is particularly edifying.

The report has harsh words for the board of RBS, and highlights some of the failures of the RBS board in a way that provides an implicit warning for board members of financial institutions. The lessons that can be gleaned from looking at the RBS case are valuable for any director serving on the board of any business.

BOARD SIZE

One of the issues that the FSA report highlights is that of a board’s size. In the case of RBS, the FSA Report points out that the sheer size of the 17 director RBS board reduced the board’s overall effectiveness. As the report notes, it was possible that the having such a large board “made it less manageable and more difficult for individual directors to contribute, hence reducing overall effectiveness.”

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