New GC for HP

February 8, 2007 | Filed Under Governance, In the News 

Hewlett Packard announced that Morgan Lewis partner Michael Holston has been appointed as general counsel. HP CEO Mark Hurd highlighted key attributes of Mr. Holston:

“Mike is a first-rate lawyer, with extensive trial and government-relations experience, as well as a deep knowledge of HP and its culture,” said Hurd. “I am delighted that he has accepted this position.”

The AP story is here.

Mr. Hurd relied on Mr. Holston heavily during the director leak investigations last year. Mr. Holston (and his firm) took a front line position in the matter, and was seen as helping stabilize a very volatile situation.

Mr. Holston joined Morgan Lewis in 2005 from Drinker Biddle.

The HP GC position is one of the premiere openings in the last few years. While HP faces legal challenges on many fronts, these matters can also provide opportunity to move the company (and the legal department) forward.

Apple’s New GC: What Honeymoon?

January 23, 2007 | Filed Under Investigations, Managing, Governance 

The first 100 days of a new GC’s tenure is typically a period marked by a fresh start, a bit of a honeymoon to get settled in, and optimism about the future.

Apple announced the appointment of Donald Rosenberg last November. Late December featured the completion of a report by a special committee of the board regarding past stock option practices.

Last week, fresh off the announcement of the iPhone, Apple CEO Steven Jobs made another command performance. According to the San Francisco Chronicle, Mr. Jobs appeared (with lawyers in tow) at federal offices to talk with DOJ and SEC investigators about past stock option practices.

Quite a first 60 days for Mr. Rosenberg, given the part of the alleged focus of the government investigation: the Apple legal department. No doubt the last 40 days of Mr. Rosenberg’s fresh start will require a lot of hard work and demand no small amount of leadership.

No sign yet that changes at the US Attorney’s office in San Francisco detailed by The Recorder are slowing down the government’s investigation.

James Baker and the BP Safety Review

January 16, 2007 | Filed Under Investigations, Crisis Planning, Compliance, Governance 

Fresh off chairing the Iraq Study Group, former Secretary of State James Baker has delivered a report to BP regarding the March 2005 accident at its Texas City refinery. Fifteen people died, 170 were injured.

The complete report is here (374 pages…). BP has committed to follow its 10 recommendations (summarized here by the Wall Street Journal).

The first one is rather stark from a compliance and governance perspective:

1: The Board of Directors of BP, BP’s executive management (including its Group Chief Executive), and other members of BP’s corporate management must provide effective leadership on process safety. Those individuals must demonstrate their commitment to process safety by articulating a clear message on the importance of process safety and matching that message both with the policies they adopt and the actions they take.

And this item will haunt BP’s board and senior management for at least five more years:

9: BP’s Board should monitor the implementation of the recommendations of the panel (including the related commentary) and the ongoing process safety performance of BP’s U.S. refineries. The Board should, for a period of at least five calendar years, engage an independent monitor to report annually to the Board on BP’s progress in implementing the panel’s recommendations (including the related commentary). The Board should also report publicly on the progress of such implementation and on BP’s ongoing process safety performance.

I wrote about the BP legal response previously.

The recent announcement that BP CEO John Browne would be stepping down later this year doesn’t seem entirely unrelated. Further management changes are ruled out for the time being.

The energy business is ferociously intolerant of operating mistakes, given the volatile nature of the materials being handled. This reality drives most industry companies to obsess about safety. Better having engineers on the site sooner rather than lawyers drafting a report later.

The Lawyer as CEO is News?

January 10, 2007 | Filed Under GC as CEO Springboard, Governance 

The Wall Street Journal focused on this again today with an article entitled “When Firms Turn to Lawyers.” (temp link here).

The tone at the top of the article is apparent when writer Alan Murray starts by noting that the boards of Pfizer and Home Depot turned to lawyers to “clean up the mess” left by the prior CEO:

The folks at Pfizer insist Jeffrey Kindler’s law degree (Harvard, ‘80) had little to do with his selection as the company’s new CEO. At Home Depot, where the top job went to Frank Blake (Columbia, ‘76) — a friend and former General Electric colleague of Mr. Kindler — a spokesman says there’s a difference “between having a law degree and being a lawyer. Basically, since 1998, Frank’s been out of the lawyer mode.”

Mr. Murray also examines the challenges faced by Citigroup CEO Charles Prince.

I addressed this before in response to an earlier article also written by Mr. Murray; here’s the salient part:

But most lawyers (and any GC) has to love the characterization of Mr. Kindler’s prior Pfizer job history as having “functioned only as general counsel.”

Somehow when US CEOs for decades came from finance or marketing or engineering, those disciplines were seen as good seasoning.

Two of the major crash-and-burn business stories of the last decade involved a Harvard-McKinsey chap and a bad dancer who also was an accountant.

So can MBAs and CPAs be good CEOs?

I think we are entering a phase in business when boards are looking closely at skill sets as well as experience when choosing a CEO. Some executives-with-law-degrees have superior skill sets, and two of them are undoubtedly Messrs. Kindler and Blake. Few such executives have the requisite experience outside the legal discipline. But these two did. And I’d venture a guess that more will be ready for board consideration in the coming years.

Can lawyers make good CEOs? Sure, just give qualified ones a shot and hold them accountable for results.

At the end of the day, it’s sort of like asking whether economists can make good journalists. I’d say definitely yes.

Shareholders: The Gadfly Becomes a Raptor

January 8, 2007 | Filed Under Private Equity, Governance 

Last week we noted how governance expectations are changing with the resignation of Home Depot CEO Robert Nardelli. A prime reason was the growing pressure from an institutional shareholder who wouldn’t take no for an answer.

Now we see a further example of how things are changing. AP’s Rachel Beck reports that the gadfly-like Evelyn Davis may be supplanted by a more potentially raptor-like species. The example given is one Ken Bertsch:

Last month, he was named an executive director and head of corporate governance at Morgan Stanley Investment Management, which has $448 billion in assets under management. His move may signal the mutual funds managed by the investment firm are planning a more aggressive stance on governance issues - a big change given that mutual funds almost always passively allow management to govern the way they want.

That’s probably 448 million reasons why a phone call from Mr. Bertsch gets returned promptly.

To a significant extent, many public companies have enjoyed an almost free pass when it comes to shareholder input over the years. Mutual funds have been involved to some extent; maybe now they will get more active in corporate performance and governance matters. Why? Competition for investors from private equity and hedge funds may be part of the answer.

These newer money managers are not as patient, because their investors expect high returns for the significant fees and upside participation opportunities that these funds enjoy.

All this is a reminder to public company managers that they are stewards, not owners.

This increasing pressure may also tempt more companies to go private, as this New York Times article illustrates today. It also notes that we ought not to feel too sorry for Mr. Nardelli. His phone is already ringing from private equity headhunters.

And for visual types out there; here’s a view of what it looks like when a Raptor is locked on to your company (thanks to Lockheed Martin).

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