Bringing together 35 people who collectively have held and currently hold seats on more than 40 corporate boards, introducing them to a half-dozen money managers and corporate governance experts and tossing in a few finance professors might make for a one-dimensional dinner party, but at Drexel LeBow it generates a day full of insights for improving board performance.
“It’s exclusive, invitation only and off the record,” says Ralph Walkling, Ph.D., executive director of the Center for Corporate Governance at Drexel University’s LeBow College of Business. “Nobody else puts people like this in a room, tosses out a tough question and then says, ‘Let’s talk.’”
Tough questions like should corporate boards meet with institutional investors? Is giving investors a say on executive compensation having its intended consequences? Should the board chairman be someone other than the CEO? What’s the best way to plan for a CEO succession? And just what are the keys to successful leadership?
It’s called “Directors’ Dialogue,” and the fourth annual version on April 3 – led by Bill McNabb, chairman and CEO of The Vanguard Group, and George MacKenzie Jr., the non-executive chairman of American Water Co. – produced consensus around several points, several illuminated by research at Drexel LeBow:
Boards should consider adopting formal processes to facilitate hearing from shareholders.
Struggling companies tend to do better by finding a new CEO from outside the corporation; healthy companies generally excel by finding a new CEO from within. Particularly problematic is naming a new president from outside the company as “CEO-in-waiting” to “learn the business,” because that approach attracts inferior candidates who make decisions while auditioning for the job that they wouldn’t make if they were actually doing the job.
Boards should replenish themselves by expanding their network to find people with the skills needed to complement other directors, rather than focusing on the same short list of usual suspects.
Companies with a majority of directors serving on more than two other boards perform more poorly than do corporations with “less busy” directors.
Despite the persistent stigma among large corporations that having a chairman other than the CEO is disrespectful to the CEO, there is little correlation between company performance and having one or two people fill the roles of CEO and board chairman.
“Say on Pay” requirements are beginning to fulfill their promise by leading investors and members of compensation committees to more openly share information about performance metrics used to set executive compensation. As the Center predicted more than 18 months ago, the vast majority of companies receive a very high percentage of favorable votes for “Say on Pay.”
Doug Conant, former CEO of Campbell Soup Co. and co-author of the book “Touch Points: Creating Powerful Leadership Connections in the Smallest of Moments,” told the group that “the soft stuff is the hard stuff in today’s ambiguity filled world.” His leadership advice: “Be tough-minded on standards and tender-hearted with people. Make it personal.” During his 10 years as Campbell CEO Conant sent 30,000 hand-written thank you notes to an employee base of 20,000 people, because “for employees, it’s not about just the money.” Employees want to make a living, love what they do, learn as they work and leave a legacy of improvement, Conant said. Exceptional leaders are the ones who make that possible.