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Patricia Lenkov is the Founder and CEO of Agility Executive Search. A well known name in New York executive search firm circles, Ms. Lenkov also served in the Board of Directors Practice at Spencer Stuart and spent six and a half years with Heidrick & Struggles where she conducted C-level... More
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Agility Executive Search
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Agility Executive Search Blog
  • Say on what??

    The US has recently proposed new legislation that would provide shareholders with a vote on top executive compensation in all public companies. While I am in full agreement with the idea of change and better oversight by the stakeholders of an organization, I do have a few concerns with this proposal.

    The “say on pay” proposal comes as a result of the perceived excessive compensation that CEOs and other senior executives have received in spite of often times poor company performance. It is also designed to align executive compensation with the long-term success of the organization thereby curtailing the short-term risk taking that certain compensation structures seem to promote. But here’s the hitch, shareholder voting, according to the proposed legislation is non-binding. So in fact, the board of directors will still have the final say on executive pay.

    The thinking is that if shareholders object to certain pay practices they will be able to voice their opinions and the board will take this into account when making their final decision. It is hoped that this will in turn lead to better communication and interaction between a company and its shareholders.

    The question that needs to be asked however is why try to impose these types of controls on existing boards of directors? Why not simply look at board composition and improve who is actually sitting on the board and ultimately making these decisions?

    This legislation does not go to the heart of the matter, which is actually the composition and homogeneity of boards that ultimately precedes these problematic compensation decisions. Companies need boards that consist of a variety of individuals who are independent in their thinking and not afraid to question the status quo. The tendency towards group-think must be addressed and directors must be motivated and free to ask difficult questions and dissent if necessary.

    If shareholders were to have faith in the boards of the companies in which they invest “say on pay" would be somewhat of a moot point.  

      
    Tags: Say on Pay, Corporate Governance
    Jul 26 01:53 pm | Link | Comment!
  • Amazing.com?

    Several weeks ago Amazon.com announced surprising growth in earnings for its first quarter on stronger than expected sales. Net sales increased by 18% over last year’s first quarter and net income increased an impressive 24%. Can we start calling the company Amazing.com? Does the company’s board of directors have any role in these better than expected results?

     As in most cases, the present success can be attributed to any number of factors, however a simple analysis of Amazon’s board indicates several elements that are advantageous and ought to be emulated in other companies.
    Firstly, of the three board committees two are standard: the Audit Committee as well as the Nominating and Governance Committee. However, the third committee, the Leadership Development and Compensation Committee is uncommon phrasing to say the least.  Most, if not all publicly traded companies have a Compensation Committee unquestionably. However, it is unusual that the Compensation Committee have leadership development as part of its mandate. Specific to this initiative, Amazon states:
    The Committee monitors and periodically assesses the Company's programs and practices for ensuring the continuity of capable management, including succession plans for executive officers.
     
    How nice that an implicit component of any Board’s work is actually stated explicitly and that the importance of succession planning is acknowledged.
    Another facet of understanding a board and its functioning is how long the Directors have served together. While longer tenure implies a deeper understanding of the company, it also implies increasing familiarity and even friendship amongst the group. This tends to discourage independent thinking and objectivity. While Amazon.com was founded only fifteen years ago in 1994, almost half of the current directors have been on the board for five years or less. This denotes new ideas and autonomy are presumably being brought into the boardroom.
     
    Interestingly, Amazon.com board’s is not populated by CEOs or even retired CEOs. There are several venture capitalists, a number of senior level business executives from varied industries, an eminent scientist and representation from the non-profit sector. The idea that active CEOs may not have the time to adequately serve on boards other than their own may have come into play in structuring the Amazon board (or it may simply be a lucky coincidence).
     
    Finally, governance best practices dictate that the Chair and CEO roles be separate. The debate on this matter has been longstanding but it is generally accepted that the objectivity of the board and independence from management is enhanced by separating the roles of Chairman and CEO. In the case of Amazon.com, Jeff Bezos is Chairman and CEO. He also happens to own 25% of the company. While this structure may not be optimal, stakeholders may take comfort in the company’s results as well as the aforementioned board highlights and anticipate that these positives prevail.

    Disclosure: no positions

    Tags: AMZN, Board of Directors, Corporate Governance
    Jul 22 11:01 am | Link | Comment!
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