The GC as Chairman: Lawyer as Lightning Rod
April 22, 2008 | Filed Under GC as CEO Springboard, Governance
As Ed Thornton notes in Legal Week, the appointment of UBS GC Peter Kurer as chairman has again stirred the debate as to whether this is a trend, or a good idea.
Given the small sample size represented by these appointments, those who point to the experience of Charles Prince at Citigroup aren’t gaining much by the comparison. Interestingly, these same commentators often fail to note the legal background of Goldman Sachs CEO Lloyd Blankfein, who seems to be doing quite well, thank you.
The amount of criticism has forced Mr. Kurer to respond (as reported in the Times Online) even framing some shareholder attacks as “discriminatory” against lawyers:
“People should judge me on actions and not concepts,” he said, denying that his lack of management experience was an impediment to running an organisation of 85,000 people.
Certain London law firm lawyers have also rallied to Mr. Kurer’s defense.
Many companies that turn to a CEO or chairman with a legal background may be highly regulated (Duke Power) depend upon IP and also regulated (Pfizer), or are in some kind of market challenge/turnaround situation (Home Depot/UBS). Some may be successful, some not so much.
Just as a legal background surely isn’t a guarantee of a CEO or board chair slot, it shouldn’t be a road block, either.
Consider also that rarely was the predecessor CEO/chairman in these situations a lawyer. But for some reason perpetuating non-lawyer leadership as a status quo is considered prudent.
Lawyers of the corporate world unite!
Law Firm Governance from the Inside Out
February 28, 2008 | Filed Under Law Firm Trends, Governance
Some firms are starting to recognize that a focus on the marketplace (i.e., client wants and needs) isn’t something that should be relegated to the time left over after a typical managing partner’s day. Especially when the days run long, with a demanding focus on things like hiring, compensation, development and mediating inevitable conflicts (both legal and personal).
Canada’s Financial Post notes that the Gowlings firm has adopted a rather novel way to ensure that client interests don’t get the short shrift.
It has split managing partner duties into internal and external groups, each of whom are on an executive committee with the firm CEO and COO. This committee then answers directly the firm board of trustees, akin to a corporate board of directors.
According to Scott Jolliffe, CEO of Gowlings:
The external-facing group is headed by Jane Steinberg and her committee consists of the leaders of the various practice groups and those in charge of marketing them, which is an added twist on the governance model.
“We’re making a statement to ourselves and the world that managing the external side of our business is just as important as managing the internal side of our business,” he says.
At first blush, this would appear to add to complexity, but there’s a method behind it:
While a second management group for the external side of the business arguably adds another layer of bureaucracy, Mr. Jolliffe stresses that it will allow the firm to better serve and respond to those who pay the bills. “I think it will distinguish us in the marketplace,” Mr. Jolliffe says. “It’s quite unique. We’re pretty enthused about it.”
The picture of large law firms is drawn in good measure by the focus of the legal press on sexy things like starting associate salaries and rising profits-per-partner. This can leave the the client feeling a bit left out. Or like the meat in the sandwich.
Anything that serves as a reminder of the reason there are law firms in the first place deserves at least two cheers.
Dust Off That D&O Policy
November 28, 2007 | Filed Under Litigation, Governance
Whenever the business press writes about D&O insurance, I could always count on getting a call from a covered person. Or one who thought they were.
An example is this article from the Globe & Mail in Canada. While the focus is on lawsuits brought by the former Nortel Networks CEO and CFO, who are seeking coverage for defense from civil enforcement actions, there is also mention of lower-level officers who are struggling against mounting legal bills.
Consider former Nortel assistant controller MaryAnne Poland, who had her defense cost coverage terminated 10 months after leaving Nortel in 2005:
According to a motion filed by Ms. Poland in a New York district court earlier this month, Nortel was allegedly urged by its U.S. adviser to cut off legal payments to its ousted officials as a gesture of co-operation with the Washington-based staff of the SEC. Weeks after Ms. Poland dismissed her lawyer, her motion says, she and her three children and husband were detained by U.S. customs officials for an hour and a half before boarding a flight for a Florida holiday.
More officers are going to read these stories closely and start asking questions. While nearly all company bylaws require the purchase of D&O insurance to cover officers and directors against defined legal costs and liability, the reality of growing pressure from regulators pursuing enforcement actions makes it expedient for the “new regime” at the company to turn off the faucet before a determination of liability outside the scope of coverage.
One result? Individual D&O policies, according to Barry Reiter, a partner with Bennett Jones LLP:
As a result of the uncertainty, a growing number of executives are demanding individual D&O insurance contracts with their employers. Mr. Reiter estimates that today about 50 per cent of public company officials are protected by individual contracts.
A prudent practice for the public-company GC would involve seeking counsel on D&O coverage issues from experts other than the policy broker. They are sometimes known for explaining coverage broadly before policy inception or renewal.
But when the government knocks on the door, the same broker is not always so good about returning calls.
Draft Resignation Letter, Place in Top Drawer Overnight
November 2, 2007 | Filed Under Governance
Two current reminders of the power (and danger) of the printed word. Particularly when delivered in haste.
First up is former HP director Tom Perkins, who tells CBS News on this Sunday’s 60 minutes that he shouldn’t have bailed out as quickly.
Referring to the meeting at which he resigned in a huff, Perkins says, “I was angry. There’s no question. It was 90 minutes of very intense debate. I would say I was emotional more than angry, although that’s maybe the same thing.”
Then today we hear about the goings on at Affiliated Computer Services, which had a private equity buy-out falter, and resulted in a bruising conflict between 5 outside directors and CEO Darwin Deason. As the New York Times reports:
Five directors resigned in protest of the chairman’s efforts to take over the company, writing a heated letter that accused him of trying “to subvert the process in order to prevent superior alternatives to your proposal from being consummated.”
The Wall Street Journal has copies of the CEO letter and the board letter. (And now, as I am writing this; the board lawsuit; plus exhibits).
Not so great for the companies involved; good for the lawyers, though. Check out those exhibits; you wonder if some of them should have been held in draft for a day or two.
Rating the Raters
September 5, 2007 | Filed Under Governance
Who is watching those who watch (and rate) corporations on governance practices?
Stanford Professor Jeffrey Pfeffer is one, and he writes about the governance ratings rage in Business 2.0 (which Time, Inc. has unfortunately decided to shutter). It’s a big business: one of the leading companies, Institutional Shareholder Services, has 601 employees in nine countries, and was acquired by RiskMetrics for an amount north of $500 million.
Professor Pfeffer (say that three times fast) raises a concern about one aspect of the process:
The first is a kind of “check the box” mentality that has arisen from the process of evaluating boards. ISS has some 65 rules and guidelines - that the board chair and the CEO be different people, for example - and companies that enlist ISS’s services are often tempted to simply conform to these guidelines to raise their scores.
Ask someone who has worked through thorny governance issues, and you may discover this: often the core challenges revolve around interpersonal relationships (board/CEO or CEO/C-level executives), the flow of timely information, and interpreting lofty goals in concrete terms. Voluminous policies and practices can help, but don’t guarantee that personnel won’t be tempted by short-term pressures to make the wrong long-term decisions.
Ratings can bring a needed focus on governance. But right after covering all the bases with your program, you still need to focus on the daily dance of doing the right thing.
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