Home Depot CEO Hangs Up Apron
January 3, 2007 | Filed Under Governance, In the News
Home Depot CEO Robert Nardelli resigned this morning.
CEOs come and go, but this turn of events is notable because of the lack of a compliance cloud, such as allegations of options backdating. (That issue was examined by Home Depot, but the time period of concern pre-dated Mr. Nardelli’s tenure.)
But Mr. Nardelli had come under scrutiny in governance circles, such as in this op-ed piece in Directorship that talked of the need for Mr. Nardelli to consider a pay cut:
The background is that Nardelli was under pressure from unions and other activist shareholders over his $200 million-plus pay package at a time when the company’s stock had not performed well. Sensing the imminent attack at the annual shareholder meeting, Nardelli discouraged other directors from attending, and they did not come. He ran roughshod over activists in a tightly controlled meeting, and the rest, as they say, is history.
Some of the pressure on Mr. Nardelli was exerted by Relational Investors, which holds 13 million HD shares and sought to meet with Mr. Nardelli. That request was refused. Relational then communicated a desire to have a special committee of the board established to examine the strategic direction of the company.
Somehow when I think of “activist shareholders,” I think of one of the first, Evelyn Y. Davis:
That may be easier for board members to ignore. However, when an “activist shareholder” has 13 million shares rather than 13, it’s probably time to listen.
Update: The WSJ Law Blog notes that new CEO Frank Blake is a highly-credentialed lawyer. (But please Mr. Lattman, giving Mr. Blake the dog-tag in the headline is beneath you.) And also good coverage by the NY Times; as well as an interview with Mr. Nardelli where he talked about the ill-fated 2006 shareholders meeting (apparently less than an hour).
HP: The GC Takes One For the Team
December 19, 2006 | Filed Under On The Dock, Governance
Being a GC can be a great job. And as ex-HP GC Ann Baskins has learned, at times it’s an extremely difficult one.
Sue Reisinger of Corporate Counsel magazine gives a very close look at the twists and turns Ms. Baskins’ role in the director leak saga. The entire article is worth a close reading.
Beginning like the first page of a novel by Dickens, Ms. Reisinger lets us know quickly who is going to take a large part of the blame:
While Baskins sat quietly, former HP Chairwoman Patricia Dunn and CEO Mark Hurd told the committee that Baskins was to blame for the mess. They said that she had given them bad legal advice, and that she knew about and permitted the use of “pretexting” — using false pretenses to obtain personal information about others. Even Baskins’ longtime friend and HP’s outside counsel, Larry Sonsini of Wilson Sonsini Goodrich & Rosati, told Congress: “I think the record has become quite clear that who was in charge [of the spying] was the HP internal legal department. They took the responsibility on, rightly or wrongly.”
So much for teamwork, which is tough to expect when you have to go through this:
(Credit: Chuck Kennedy/MCT)
A reaction from a quoted-but-anonymous GC caught my eye:
One GC who has overseen investigations for his Fortune 500 media company says that beyond the legal and the ethical issues, Baskins failed to ask the crucial question: “How will all this affect the company if it shows up on page one of The New York Times?”
Bingo. That’s a line I’ve used in every compliance training I’ve ever performed. (Note: just insert name of local paper; the Times doesn’t resonate everywhere west of the Hudson.)
At the hearing, Congress couldn’t resist the opportunity to manufacture sound bites, either. Why don’t they spend more time on issues that are truly in the national interest? Like steroids in baseball?
In fact, Congress is engaged in some pretexting itself; CEO Mark Hurd still find himself under scrutiny for stock sales at the time things were starting to unravel.
As the position of GC becomes more high-profile, risks can accompany rewards. Prof. Peter Henning has written recently about some of these GC-specific risks.
(Update: Or a GC can get thrown under the train; Amtrak has fired five and appointed a new GC.)
Blue Ribbon Red Flag?
November 30, 2006 | Filed Under Regulation, Governance
The Wall Street Journal is providing a preview this morning of an interim report from the Committee on Capital Markets Regulation. The New York Times also gives it a once-over.
The full report is here (danger: 152 page pdf). The three page press release is here for those of us who preferred Cliff’s Notes to Canterbury Tales.
The punch line: excessive regulation and transactional costs are making U.S. companies less competitive in global capital markets.
You think?
Sarbanes-Oxley reform is mentioned, although some say that issue is too hot of a political potato. (Or is it potatoe?)
This nugget warmed my heart (from the WSJ):
The report’s overarching theme is a change in regulatory philosophy. The revised philosophy is one based more on general principles than prescriptive rules, more aware of costs as well as benefits of new rules and less intrusive. It lauds Britain’s Financial Services Authority, which uses “principles”-based regulation and oversees all British financial firms, in comparison with the U.S.’s multiple federal and state banking and securities regulators.
The Wired GC studied philosophy and is a big fan of principles over rules. Why?
– You can never have enough rules.
Many members of Congress, and most regulators I have met, prefer rules. Rules need regs and regs need interpretive guidance and all that needs lawyers inside of government to legislate and promulgate. Then lawyers outside of government are needed to postulate and navigate.
A great example is the aforementioned Sarbanes-Oxley, largely a knee-jerk reaction to notorious financial shenanigans like Enron and WorldCom. But much of what happened in those cases was already actionable under current law. The business community (99%+ of whom try to do the right thing) gets punished for the misdeeds of the errant few.
If nothing else, the Committee report reminds people that it isn’t Fortress America any longer. Companies can go private, or organize or raise capital under laws of more market-friendly jurisdictions. Don’t think for a minute that many members of the Committee (with a heavy New York tilt) aren’t aware of the acsendancy of London as a premiere world capital market. Hence the mention of Britain’s FSA.
Former Goldman CEO and current Treasury Secretary Henry M. Paulson Jr., while not a member of the Committee, has already made these issues a priority.
The report, according to the New York Times, gets it right on the issue of corporate prosecutions:
The report calls on the Justice Department to change its policy on corporate prosecutions. That approach is contained in a memorandum by Larry Thompson, who was deputy attorney general when the corporate scandals erupted. At the moment, prosecutors, in determining whether to bring criminal charges against a company, are permitted to consider whether the company waived lawyer-client privileges to aid the government’s investigation and whether the company is paying defense costs for current or former executives facing criminal charges.
Instead, the report said, the Justice Department should prohibit prosecutors from seeking waivers of lawyer-client privilege or the denial of legal fees for company officials.
Abusing privilege waivers, now there’s a real crime.
Lawyers on the 22 member Committee included Ira Millstein of Weil Gotshal and Thomas Russo, chief legal officer of Lehman Brothers.
The Committee also utilized a Legal Advisory Group:
– John Bostelman, Sullivan & Cromwell
– Adam Chinn, Wachtell Lipton
– Kris Heinzelman, Cravath
– Leslie Silverman, Cleary Gottlieb
– Jeffrey Small, Davis Polk
At least the Committee was able to find seven lawyers who really want reform…
(Update 1 Dec 06): Walter Olson agrees that it’s London Calling. Soon-to-be Gov. Spitzer says of the status quo: worked for me.
HP Loses a GC
September 28, 2006 | Filed Under Governance, In the News
The Wall Street Journal reported first this morning that general counsel Ann Baskins has resigned. The New York Times picked up the story as well. This comes the very day of expected congressional testimony from HP CEO Mark Hurd and former board chair Patricia Dunn. The Journal reprinted a portion of a letter from lawyers for Ms. Baskins to the committee informing them of her intention to take the Fifth:
“Please understand, however, that Ms. Baskins very much wants to testify and discuss these matters,” her lawyers said in a letter to the House Energy and Commerce Committee. “Were she to do so, we are firmly convinced that the Subcommittee would recognize that she acted legally and ethically at all times. Given the current environment, however, Ms. Baskins simply has no choice.”
The full press release from HP is here. Rather curt, but understandably so.
I have avoided commenting on the HP imbroglio since I don’t like to dissect the legal work of a given corporation without knowing all the facts. Suffice to say that a valid governance concern (boardroom leaks to the press) developed its own inertia that apparently wasn’t adequately controlled over time.
One emerging lesson seems to be that everything comes out in the press eventually and that has to be weighed when examining options. What is possible may not be wise. What is legal may not be right. And I know that some alleged conduct of HP is of dubious legality.
The phrase “the cure is worse than the disease” seems somewhat apt here.
The Times Runs the Option
July 30, 2006 | Filed Under Governance, In the News
The New York Times takes a different tack in the stock options pricing imbroglio today and goes after noted Silicon Valley lawyer Larry Sonsini.
It’s hard for a lawyer to take seriously an article that begins like this:
Larry W. Sonsini, Silicon Valley’s most feared and sought-after lawyer, dresses in fine Italian suits even as the rest of the Valley — other high-priced attorneys included — ply their trades in chinos and blue Oxford shirts. He is soft-spoken and restrained, sometimes eerily quiet, in contrast to the brash and kinetic entrepreneurs and financiers who otherwise dominate the landscape.
John Grisham and Scott Turow, watch your back.
At the end of the day, it’s an interesting recounting of Mr. Sonsini’s formidable career, but makes the leap of logic to assume that because some of his clients are facing scrutiny, he must share (somehow) responsibility. Indeed, the writer notes:
… so deep is his understanding of the issues that management is facing that it is often difficult to tell where his legal advice ends and his business counsel begins.
That’s a sign of responsibility? To me that’s a sign of a lawyer I’d like to work with.
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