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 Number 4-98
Issues Update focuses on governance, compliance, proxiesThe Sunbeam board calls for the resignation of company Chairman Albert Dunlap. CalPERS and other institutional investors develop governance guidelines and look to issuers to adopt many of them. Significant changes are undertaken by the New York Stock Exchange and The Nasdaq Stock Market. Major U.S. corporations take steps to strengthen their ethics and compliance programs. The SEC provides important advice on Year 2000 and "euro" conversion disclosure, shareholder proposal process and electronic dissemination of proxy materials. These are just some of the key events of 1998 that have had an impact on Corporate Secretaries and their companies this year and will continue to have an effect in 1999. They are also among key topics that will be under discussion at the Society's 21st annual Issues Update seminar, November 19-20 at the Marriott Marquis in New York. The Society's Education Committee and the National Office have put together an outstanding faculty for the seminar, which will be chaired by Carol Strickland, immediate past Chairman of the ASCS. Among panelists will be Sunbeam director and law professor Charles Elson; SEC Corporation Finance Director Brian Lane; Wall Street Journal governance writer/editor Joann Lublin; ISS President Howard Sherman; CalPERS General Counsel Kayla Gillan; Nasdaq President Alfred Berkeley; and Columbia/HCA Senior Vice President-Ethics, Compliance and Corporate Responsibility Alan Yuspeh. These guests will be joined by Society members who are experts in the issues under discussion. For attendees, Issues Update provides an excellent opportunity to network with colleagues, to learn what the SEC has in store in 1999, and to prepare for the upcoming proxy season. Participants can also find the answers to some of the key questions their companies may be facing in 1999, such as:
Brochures for Issues Update will be mailed to members and others shortly. Members can also learn more about the seminar and even register for the program on the Society's website at http://www.ascs.org. If you have questions, contact Harriet Chabrowe in the National Office at (212) 681-2009. 
FROM THE CHAIRMAN
The challenge the Society's board is undertaking this year is to find new ways to link the various levels of the Society to provide the services that will enable our members to do their jobs more effectively. Society members have a variety of reasons for joining and becoming involved in the ASCS, so the Society attempts to serve its members on many different levels. The National Office offers reference services and helps to organize educational programs. Our national committees provide advocacy for members' viewpoints and valuable networking opportunities. We develop and publish practical monographs and survey reports. The Society offers a range of programs and conferences at both the local and national levels. And, of course, members interact formally at chapter meetings and informally via phone and email contact. At our most recent National Conference in San Diego, the board took a significant step to help promote those links. The board approved creation of a new national Program Committee to be made up of program chairmen from each Society chapter. The basic idea behind the committee is to make sure that the Society offers members the most stimulating and useful programs at chapter meetings and conferences. The new committee will enable chapter leaders to share ideas about what programs have worked for their members and which speakers have been particularly effective. It will also enable the National Office to provide more effective support to the chapters. You'll read and hear more about the new committee in the future. The Program Committee is just one of the ways that the board is working to enhance the relationship between the local and national levels of the Society and among the chapters themselves. The Presidents' Council, composed of chapter presidents, held its second meeting at the National Conference and plans a third session by conference call during the fall. The productive suggestions that were put forth at the meeting and the networking that we achieved should help all of our local groups to serve our members better. While we have been working to strengthen our chapters, we also recognize that many members live and work too far away from the locations where chapters hold their meetings to attend regularly. That's too bad, because you miss one of the great opportunities that the Society offers - the chance to network with colleagues and share ideas on how to get your job done more effectively. Nevertheless, the Society has much to offer you and many other ways to help you get the information you need - new publications, seminars, reference materials, our Internet website, and regional and national conferences. We are also exploring new ways to use technology to bring information directly to members' offices, wherever they are located. I would also like to make a personal offer - as I have done at several fall conferences I have attended in the last two years. Please contact me directly (my email address is Karl.R.Barnickol@Solutia.com) to let me know what the Society should be doing to better serve you as a member. You can also send your ideas to David Smith in the National Office (dsmith@governanceprofessionals.org). When I made this request at the Pacific Northwest fall conference last September, several members suggested that the ASCS look into ways to develop a more cooperative relationship between issuers and proxy advisory services, such as ISS. The suggestion prompted the Society board to begin an initiative with ISS that we hope will improve communications and lead to better cooperation. I look forward to seeing many of you at ASCS fall conferences and other programs
throughout the year and to sharing ideas with you on how to make the Society
more effective on all levels.
What's New on the Society's Internet website (http://www.ascs.org)Nearly 4,000 members and others visit the Society's Internet website per month. There is a wealth of information posted there as well as direct links to much more. And it continues to grow and improve. Here are some of the innovations the National Office staff has added to the website recently:
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Panelists Penn Holsenbeck (Phillip Morris), Dennis Broderick (Federated Department Stores) and George Frazza (formally of Johnson & Johnson) shared ideas on "Life under the Gun: Managing Controversy" at the National Conference in San Diego. |
| The outgoing board class of 1999 received special recognition during the Annual Meeting at the National Conference. Posing with outgoing ASCS Chairman Carol Strickland (top left) are (top row) Carol Ward and Dennis Condon; (bottom row) Bob Reed, Alice Brennan and Lenore Martin. |  |
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Society members get clarification on some points made by Brian Lane following the "SEC Update" the Director of the SEC's Division of Corporation Finance presented in San Diego. Informative and entertaining, Lane will also be on the program at the Society's Issues Update seminar November 19-20. |
| Terry Gallagher of Pfizer, Inc. was honored as the eighth recipient of the Society's Distinguished Service Award for his many years of active involvement in the ASCS. Gallagher, one of the country's leading governance experts and a frequent speaker at Society conferences and seminars, is a former Society director and a past President of the New York Chapter. |  |
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Guest panelists during the Saturday morning business program included Jane Shaw, Chairman and CEO of AeroGen Incorporated, who addressed the topic of "What Directors Need to Know," and compensation expert Graef Crystal, who focused on "Evaluation and Compensation Issues." |
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Chapters that met or exceeded their membership goals in 1997-98 received certificates to recognize their acheivement during the Annual Luncheon at the National Conference. |
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The Society's outgoing and incoming chairmen, Carol Strickland and Karl Barnickol, shared the podium during the final night's festivities in San Diego. |
What does it take to be a good director? According to David Coulter, Chairman and CEO of BankAmerica Corporation, "versatility is the name of the game. And it also helps to be a speed reader and a psychic."
Coulter offered these and other reflections on the qualities of good directors during an address at the Society's National Conference in San Diego in June. He also spelled out his own recipe for a good director, which involves blending 10 key ingredients. Counting down, the list of attributes includes:
10. The ability to work and play well with others - to be collegial in the broadest sense of the word and to truly understand group dynamics.
9. The ability to be both intellectually smart and street wise. Directors have to grasp ideas quickly and have the "smarts" to sense when management is heading down the wrong path or has left something out.
8. The ability to bring a different perspective. Boards need members with different points of view and different backgrounds to help the CEO and the company become more competitive.
7. The ability to be independent, but not to the point of eccentricity. Independence should not be confused with constant nay-saying. "Devil's advocate" is not a good term to describe a director.
6. The ability to focus on strategy rather than operational details. The board should guide the overall direction of the company and not micromanage. They should not form strategy but should review it.
5. The ability to be constructive. It is often much harder to bring positive ideas to the table than to be critical.
4. Availability. Having the "Who's Who" of the business world on your board doesn't help, if they don't show up.
3. Being committed. One way to show this commitment is to own stock in the company in sufficient quantity to show a financial commitment.
2. Having integrity and guts. Good directors help the company stay aware of and away from conflict situations.
1. The ability to put the shareholder first but not to forget about employees, communities and other stakeholders.
Mixing
humor with wisdom, David Coulter got a
special assist during his remarks at the National Conference
from board expert and resident pyschic "Madame Typo." In
her "day job," Madame Typo also assists Coulter, as she
assumes the identity of BankAmerica Corporate Secretary
Cheryl Sorokin.
After the Society was founded in New York in November 1946, the word soon spread to the Midwest and Pacific Coast. By 1948, the first local chapters of the ASCS were organized in Chicago and San Francisco. Both chapters are celebrating their 50th anniversaries this year and recognizing the historic event at their respective fall conferences. At the joint meeting of the Chicago, Detroit, Milwaukee and Twin Cities Chapters at Lake Geneva, WI, participants shared a birthday cake, perused a photo album covering events of the last 50 years, and even posed for a "modern-day" picture to add to the album in the future.
The Southeastern Chapter is offering an inexpensive, practical way for members -- local and from throughout the Society -- to keep up on information about governance and SEC-related issues. The Chapter has invited Amy Goodman, who was a long-time SEC staff member and former Editor-in-Chief of Insights: The Corporate and Securities Law Advisor and the Corporate Governance Advisor, to lead a program entitled "Finding Information on Governance and SEC Issues." The program will take place on Thursday evening, October 15, starting at 6 p.m. at the Capital City Club, 7 Harris Street in Atlanta. The cost for the program and a cocktail buffet is $50. ASCS members from all chapters are invited to attend. Contact Linda Chastain in Wayne Boston's office at The Southern Company Services, Inc. at (404) 506-7147 to RSVP.
The Society's Twin Cities Chapter joined with local colleagues in the National Investor Relations Institute (NIRI) August 26-27 for a program entitled "Valuation: Fundamentals and Techniques for the IR Practitioner." The program was held at the University of St. Thomas, Minneapolis Campus, and featured sessions on finance and accounting fundamentals, the information content of financial statements, valuation techniques, and the "time value" of money.
We on the Society's National Membership Committee like to focus on numbers, and certain numbers have special meaning to us. Right now, 3,610 is very important to us and the Society, while 3,850 will take on special significance in March 1999. Those numbers represent the current membership totals for the ASCS as of August 31 (3,610) and the Membership Committee's goal for 1998-99 (3,850).
The August 31 membership total puts us 153 ahead of where we were at the same date last year. We have also increased the total of companies represented in the membership by 81 since last August 31, up to 2,504. The increases are very encouraging, but we're not satisfied, of course. That's why the National Office designed an outstanding new membership brochure and why we're off on another membership campaign. In fact, the campaign is already underway. It officially began on April 1, 1998 and will run to March 31, 1999. (This year, we went to a 12-month campaign to make membership recruitment a year-round job and to give members a longer period of time to earn campaign prizes.)
The new brochures, which were sent out to a list of prospects in mid-September, along with a letter from Society Chairman Karl Barnickol, and which will be sent to all members soon, feature three collages that illustrate the Society's key resources for members - information, education and networking. The modern look of the brochures also reflects the Society's increased use of technology to deliver services to our members.
The new brochures should make it easier for all Society members to describe the benefits of belonging to the ASCS to colleagues during our membership campaign and to earn chances to win valuable vacation prizes for themselves. Once again this year, top recruiters will be awarded special prizes. In addition, every member who recruits at least one new member will be entered into one prize drawing, and every member who recruits more than one new member will be entered into a second drawing as well.
Earning prizes is a great incentive, but it is not the only reason we hope members will take an active role in this year's campaign. A strong, growing Society benefits us all by energizing chapters and committees with new members and strengthening the impact of Society commentary to the SEC, Congress and the securities markets. As the Society grows, it becomes more valuable for all of us.
We hope you will pass along copies of the new brochure to colleagues who are not yet Society members and encourage them to join the ASCS. Please remember to write your name in the "Campaign Sponsor" box at the bottom of the tear-off application included in the brochure to ensure that you get proper credit for your recruiting efforts.
Additional copies of the brochure are available from Deborah Fox in the National Office (212-681-2014 or via email to dfox@governanceprofessionals.org).
The
Kansas City Chapter found a "regal" way to kick off the year and to
get its membership drive underway at the same time. Current chapter members
and their spouses/significant others attended a "Night at Royals Stadium"
that included a tailgate barbecue and a baseball game between the Royals and
the Toronto Blue Jays. Members were also encouraged to bring along a potential
new member from the Kansas City area, with guests attending the program free.
The event was organized by chapter membership chairman Kent Rockwell of CSC
The United States Corporation Company and chapter president Nancy Schulte of
UtiliCorp United. Several local companies also provided financial support and
needed services. The night was a rousing success, and even Slugger, the Royals'
mascot, got into the act.
The American Society of Corporate Secretaries, Inc. ("ASCS") was started in the fall of 1946 by Theodore L. "Ted" Turney, who was engaged in the new profession of persuading stockholders how to vote their shares at stockholder meetings. Actually, the idea for the ASCS was planted by Turney's friend, Irving Reynolds, a partner in a major Wall Street law firm. The Certificate of Incorporation was signed on October 30, 1946 following a preliminary meeting at the Biltmore Hotel in New York City.
The postwar boom transformed the U.S. economy and with it the corporate environment both externally and internally. These changes made more complex the duties of Corporate Secretaries and created a need for educational, networking and advocacy activities.
As we face the millennium, these are still the fundamental obligations of the ASCS to its members. The real, and perhaps only difference today, is our extensive use of technology to deliver services to our members who are working with tight budgets, limited resources and severe constraints on their time.
Unlike that of most corporate officers, the role of the Corporate Secretary is only loosely defined and is, instead, continually shaped and reshaped by the needs of his or her company. As a senior officer, the Secretary is responsible for the continued existence and well being of that artificially created "person," the corporation. In the United States, the powers of the office are derived from individual state statutes and the corporate by-laws, and key responsibilities include organizing meetings of the Board of Directors and the Annual Meeting of Shareholders and recording for posterity what transpires at these gatherings. The Secretary also maintains and preserves corporate records. Beyond these necessary tasks of corporate governance, the Secretary is the logical, central person to whom directors, officers and shareholders turn for assistance as well as guidance.
The ideal Corporate Secretary must be precise and articulate, well organized, detail-oriented, dependable, predictable-in a word, meticulous. The position also requires diplomacy, a healthy respect for tradition and appreciation for precedent. (It is no wonder that many Secretaries have law degrees or a legal background.) But the role of the Secretary is changing in today's fast-paced corporate environment, and a new characteristic is required of the contemporary Corporate Secretary-flexibility.
The Corporate Secretary's job description has become much more complex over the past 10 years. Add to this an awesome growth in information systems and communications technology, and the result is a job with expanded responsibility with information moving through the system at breakneck speed. That detail oriented, organized, dependable, meticulous executive I have described must now perform error-free at a pace that leaves precious time for review and reflection.
There have been even more challenges for the Corporate Secretary to face over the recent past. Corporations have had to deal with leveraged buyouts, increased institutional stockholder influence, shareholder proposals in the social arena, proxy contests, increased pressure on boards of directors and chief executive officers and automation. The result of meeting these issues has given the Corporate Secretary an importance and visibility he or she did not enjoy 10 or 20 years ago. The Secretary is no longer a backroom staff member, but now may be called upon to be a key strategist and spokesperson for the corporation.
Because of this new status and visibility, the position of Corporate Secretary can be a launching pad to an even broader role in the Corporation if its holder is willing to go beyond the traditional job description. That's where flexibility comes in. A special opportunity is available when there is not a clear place for an issue to rest and the Corporate Secretary is asked "to look into it."
Corporate Secretaries, after all, are the ones who help keep the lines of communications open and working between the board of directors, senior management and the shareholders (the corporate governance "triangle") and prepare management and directors to respond to shareholder questions. In my view the need to know about issues that may affect the corporation's welfare compels a Secretary to be more broadly read and aware than any other executive. At any time, the Corporate Secretary may be asked: "What are we doing about evaluating our board?" Or: "Are we prepared for the Year 2000?" Or: "How will this new Securities and Exchange Commission ruling affect us?" In many corporations the inundation of regulatory legislation and the criminal sanctions written into these laws requires a well-informed Corporate Secretary. Therein lies the opportunity. Competence, broad knowledge, visibility and access complemented by a diplomatic temperament, communication skills and flexibility give a Corporate Secretary a special place in the organization and a unique opportunity for a broader role.
Recent changes in the proxy rules which have made discussions possible between and among institutional owners on issues affecting corporate governance and performance have placed increased emphasis on dialogue, rather than confrontation, between these owners and corporate management. Corporate Secretaries are the key participants in these discussions. As boards of directors are increasingly independent and as CEO, boards and individual director evaluations are demanded by institutional owners, corporate secretaries, the ones at the center of the governance "triangle" are critical to the process.
They must ensure that communications are clear, open and regular so that an appropriate balance of interests is maintained. Failure to do so can lead to acrimony and confrontation, which serves none of the constituencies in the "triangle," and, if a trend develops where more companies agree to the demand of institutional investors to split off the chairman of the board's responsibility from that of the chief executive officer, the Corporate Secretary will have a heightened challenge as the link between the outside and inside levels of management.
The ASCS will continue to fulfill our traditional role of education, networking and advocacy of practical solutions to issues related to practice, corporate governance and regulation. In the years ahead, we will assume a higher profile in these areas as perhaps the only representative body of a broad spectrum of America's public and private companies.
Law professor and corporate director Charles Elson has some strong and controversial opinions about director independence and its relation to compensating the board with stock. He goes so far as to state that "equity creates its own evaluation" for board performance. Elson also has some strong and controversial views about the overall role of the corporate board and will share his ideas during the Society's Issues Update seminar in New York November 19-20.
According to Elson, the most important role of a corporate board of directors is to hire and fire the CEO, and the monitoring the board does is primarily to carry out that function. He also believes that the board is more likely to fire a sitting CEO and do it more quickly as a result of poor performance if its members hold a substantial amount of stock in the company.
Elson backed up his words when he was the driving force in ousting controversial Albert Dunlap as Chairman and CEO of Sunbeam in June. Dunlap had personally encouraged Elson to join Sunbeam's board, and the two men shared many views about how directors should be compensated. He will be discussing his experiences at Sunbeam and the board's role as corporate monitor as part of the opening panel at the upcoming ASCS seminar.
Elson will also focus on his strong views about the interconnection between board independence and stock-based compensation. He has voiced that opinion in numerous articles and while serving on the National Association of Corporate Directors' Commissions on Director Professionalism and on CEO Succession. Elson has also recently joined with Dennis Carey of Spencer Stuart and Sanjai Bhagat of the University of Colorado in developing a study entitled "Director Ownership, Corporate Performance and Management Turnover." In the study, the three authors attempt to provide empirical evidence to show that, given poor performance, boards will fire CEOs more quickly if the median stock holdings of directors is substantial. And as the median dollar value for director holdings goes up, the probability of the board's taking disciplinary action against a CEO in a poorly performing company increases as well.
"We believe the study demonstrates that equity ownership stimulates better monitoring on the part of the board and enhances performance," Elson says. "If that's true, then we may have to revisit the Duty of Care to reflect a basis in equity ownership. Right now, the Duty of Care is procedurally based, but these procedures as legally prescribed don't lead to better monitoring. If you have effective equity ownership in the boardroom, you won't need a legally-enforced duty. The board will take its actions for economic reasons rather than to cover itself legally. This will help get us out of this litigation-based environment, and we'll spend more time on doing the right thing for the company than on legal posturing."
In their study, Elson and his colleagues started with a sample of more than 1700 publicly-held U.S. companies of varying sizes and narrowed that down to a group of 449 companies on which they obtained individual director ownership data. They also decided to focus on median rather than total or mean ownership. "Most studies have taken the average share ownership," Elson noted. "That's easier; you don't have to read through all of the proxy statements. But it's also less accurate, since one director can have a ton of stock."
Of the 449 companies, 162 experienced CEO turnover during 1991-1997. Research concerning these companies revealed "resigned" or "no reason given" as the reason for CEO turnover in 53. According to the news articles studied, CEO turnover associated with those two reasons are more likely to be disciplinary. Further analysis of director stock holdings in those 53 companies showed, according to the authors, that "as the dollar value of the median director's holdings increases, given poor prior performance, there is an increasing probability of observing a disciplinary-type CEO turnover." The same probability for disciplinary turnover does not seem to occur, however, when the percentage holdings of median directors is considered. "The above results suggest that both company performance and the dollar value of director stock ownership are relevant in understanding CEO turnover in poorly performing companies. However, percentage ownership of directors is not helpful."
In other words - the greater the equity holdings of individual directors (at least in terms of dollars), the more quickly the board will take action to remove a CEO of a poorly performing company. And the quicker the board acts, the better it is doing its job as monitor, Elson believes.
"A lot of this stuff isn't far out," Elson says. "It's very fundamental. I laugh when people say I'm a radical. I have a Wall Street legal background; I'm a business suit kind of guy."
Elson says that expecting directors to have considerable equity holdings in the companies on whose boards they sit is not that strange or controversial. In fact, it's a return to the way things were in the past when directors were generally principals of the company - its largest shareholders who received no compensation. The growth of large public corporations owned by thousands of shareholders rather than a few led to the development of boards made up of individuals selected by management and the evolution of legal fiduciary duties to assure directors' care and loyalty. "It's time to make the agents principals again," says Elson.
What are his recommendations? Here are a few telling comments.
"I have long advocated 100% stock compensation for directors. If that forces more companies to pay 50% in stock, that's okay. Many directors need some cash in the mix to pay taxes, but you shouldn't think of that check as something you depend on for income. I get 100% stock from Sunbeam. I'm not as happy with the way things have gone there the last few months, but in the long run I have faith in the company. Having a substantial financial stake in the company is a good way to break the ties of friendship, assuring that directors represent shareholders rather than the person who appointed them. If you asked most directors how much does owning stock have an impact on doing your job, they would say, 'Very little.' But in the back of their minds I think it's got to be important."
Elson also feels that the stock should be restricted and should be granted as straight stock and not as options. "I'm a believer in straight stock. It's like the difference between owning a house and having a contract to buy a house. You have a different feeling as an owner when the hot water heater blows up. Options are also a little more removed than actual ownership, a little more ephemeral."
How much stock would he consider to be substantial?
"I would say $100,000 in dollar value per person is significant. At that level, you begin to see a difference."
Elson says he has been "harping" on these points for a while and believes his new study will provide the empirical evidence to cement acceptance of his ideas. Given his findings, he feels that in the future ownership levels will go up and there will be faster movement to replace underperforming CEOs and fewer boardroom disasters than we have seen of late.
"Equity matters," says Elson. "I think they'll print that on my gravestone."
Adapting for the Year 2000 will be only one major transition many companies may have to go through over the next year and discuss in their disclosure documents. A second major concern may be adapting computer systems and business plans to deal with conversion to a common European Union currency - the "euro"- in January 1999.
Anticipating the problem, the SEC staff issued Staff Legal Bulletin No. 6 which focuses on disclosure obligations issuers may have in connection with conversion to the euro. The Bulletin discusses companies' obligations to disclose if the euro conversion could have a material impact on their revenues, expenses or income and to assess their ability to make any required information technology updates on a timely basis and the costs associated with these updates.
The release notes that issuers should include relevant euro conversion in their MD&A disclosure, in the "description of business" item in registration statements and annual and quarterly reports, in market risk disclosures, or as an exhibit to certain contracts. In some cases, issuers might consider filing a Form 8-K if the impact of euro conversion may reach a high level of material importance.
A direct link to the Staff Legal Bulletin is provided from the "What's New" area in the Society's website.
The SEC has also recently issued new Staff Legal Bulletin No. 7 to provide information concerning the "Plain English" rule and amendments adopted by the Commission on January 22, 1998. Many of the rule's provisions regarding use of plain English in prospectuses and certain other '33 Act filings become effective on October 1, 1998. A direct link to the Staff Legal Bulletin is provided from the "What's New" area in the Society's website.
In December 1997, the Society's Nonprofit Committee provided comments to the SEC concerning the purposes and feasibility of two proposed Congressional bills to increase disclosure of corporate charitable contributions and even to put contributions to shareholder vote. The bills, HR 944 and HR 945, proposed by Rep. Paul Gillmor (R-Ohio), are still around but are currently being revised by the Congressman, according to a "legislative alert" from the Council on Foundations.
The "alert" notes that Gillmor has softened on the idea of shareholder involvement in determining where contributions should be directed - the concept that received the sharpest criticism from corporate groups such as the Society and charitable organizations - but he remains convinced that more open disclosure to shareholders about where companies donate funds is needed.
As a result, Gillmor requested that the SEC contact by phone publicly-traded companies with foundations to request a copy of their latest Form 990-PF filing. He also convened an advisory group of lawyers and academics to suggest alternative language that might be more palatable to corporations and plans to hold hearings on the measure in the House Commerce Subcommittee on Finance and Hazardous Materials.
Gillmor's revised draft proposal would call on companies to provide:
(a) annual disclosure to shareholders of charitable contributions in excess of a designated amount (to be determined by the SEC) to any nonprofit of which a director, officer, or controlling person of the company (or spouse) serves as a director or trustee; and
(b) annual disclosure, in a format to be designated by the SEC, of the aggregate value of contributions to nonprofits as well as the names of organizations to which contributions above a certain specified amount are given.
The Society's Nonprofit Committee will continue to follow developments in this area and to represent the views of members' companies before the SEC and Congress.
Another Congressman has been active on a different campaign involving corporations. CEOs at a number of members' companies have received letters from Rep. Bob Barr (R-GA) urging them to establish a regular practice of reciting the Pledge of Allegiance at every shareholder meeting. A similar request was made before both the 1997 and 1998 annual meeting season by Ralph Nader.
While Nader's letter seemed to call on the recitation as a way for American companies to show their allegiance to U.S. workers. Barr's letter calls on the recitation as a patriotic gesture. He writes that while some companies have objected that reciting the Pledge of Allegiance would be an unproductive use of time and inappropriate addition to a meeting of a multinational corporation, he and his constituents disagree. "The 12 seconds it takes to recite the Pledge of Allegiance is both a productive and an appropriate use of time, reminding all shareholders - U.S. and otherwise - of a free country that makes their profits and salaries possible," Barr wrote.
The National Office is interested to know if your CEO received a letter from Rep. Barr and whether you have chosen to respond to the Congressman. Please send this information by email to Michael Goodman. Your company's identity will be kept confidential.
The National Association of Corporate Directors (NACD) has issued a new "blue ribbon commission" report - this time on CEO succession planning. The report, which was released on July 13, examines the executive succession process in general, with specific focus on CEO succession. It includes a series of core succession principles and planning questions; focuses on the role of the board, incumbent CEO and management during the succession process; discusses candidate assessment and selection issues; and provides suggestions for succession transition and assimilation.
Noting that the Chief Executive Officer of a company represents its leadership both substantively and symbolically, the report states that the "identification and selection [of a new CEO] cannot be left to chance, corporate politics or personal friendships, but should be the result of a thorough and just process orchestrated by the corporation's board of directors in partnership with the incumbent CEO." Such a process is continuous and "requires months of strategic planning and years of forethought to ensure a smooth transition to new leadership." The succession planning process should begin, in fact, as soon as a new CEO is selected. Also fundamental, according to the report, is the concept that selecting, developing, and retaining a CEO is a board-driven collaborative process that can be shared with the incumbent CEO, but cannot result in too much deference to the CEO in the process. The process of preparing for CEO succession will probably require the efforts of several different board committees (e.g., nomination, succession, human resources), the report notes.
The report cites several questions that boards should consider as part of the succession planning process. These include: How can directors tell if the company has an effective plan in place? What are the key roles in CEO succession and who fulfills them? How can the board assess CEO candidates?
The NACD commission that authored the report was chaired by Jeffrey Sonnenfeld of the Chief Executive Leadership Institute, and included David Johnson, Chairman of Campbell Soup Company; Alfred DeCrane, retired Chairman of Texaco; Charles Elson, a law professor and corporate director; institutional investor leaders Nell Minow and Kenneth West; and other business, human resources and academic representatives. Copies of the report are available from NACD in Washington at (202) 775-0509.
The Corporate Secretary is published throughout the year as a service to members of the Society of Corporate Secretaries and Governance Professionals. Articles or statements appearing herein do not constitute legal opinion, advice or judgment and should not be relied upon as such. Inquiries regarding information contained in this newsletter should be directed to Geoff Loftus, at (212) 681-2000 or by e-mail: gloftus@governanceprofessionals.org. Inquiries regarding membership or publication orders should be addressed to:
Membership Publications Deborah Fox Olga Holmes (212) 681-2014 (212) 681-2015
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