After several tumultuous months that culminated in a shareholder revolt, Travis Kalanick stepped down Tuesday as chief executive of the ride-hailing giant Uber.Kalanick, who helped founded Uber in 2009 and established it as Silicon Valley’s highest flying start-up, will stay on Uber’s board of directors, a company official confirmed. He was asked to resign in a letter from five major shareholders.
Board veteran Betsy Atkins has some excellent advice for Uber. The third edition of her book Behind Boardroom Doors was published this month.
Build internal career networks. At Volvo Car AB, where I serve on the board, we’ve launched a regular program where I have the opportunity to meet with senior and mid-level women executives on personal career development. We work with these execs to build on their strengths, clarify their career aspirations, and offer advice on advancement. This is a new program, but it is already proving a success in energizing and motivating the paths of these current and future female leaders.
Make mentoring personal. On the board of Schneider Electric, I make it a point to directly mentor a number of women on the company’s senior executive team. Women in management find it tremendously helpful to have someone in the boardroom take a personal interest in their career strategy and development. At Uber, new board member Ariana Huffington will be in an ideal position to put her mentoring and career savvy to work in helping rising women execs rebuild the company. The key is a regular ongoing program of mentoring and support.
Go beyond mentoring. The tech industry, in particular has too few role models for rising female talents. The mentoring aid above is helpful… but why not go one better? Companies can ask their Male and Female Execs (and Board Members) to either mentor or sponsor their Female Execs. There is a big difference between mentoring which is periodic advising and coaching and sponsoring where you take ownership for introducing and more actively helping sponsor an individual for their next step up in their career. Women who are already senior managers or board members can kick mentoring up a notch by “sponsoring” women hi-pots. Take personal ownership of career coaching for your top talents. Give them advice, introduce them to the people they need to sharpen their skills, and introduce their names at strategic moments.Recognize the women making a difference.
When I served as chair of the board’s compensation committee at tech firm Polycom, we were active in the annual recognition event for sales staff. I noted that women were leaders in sales, making up less than 10 percent of the sales force, but were 34 percent of our “President’s Circle” top sales performers. Making an added effort to celebrate (and promote) this talent is crucial in sending the message that sales is not just a “guy thing” in the company.
While Uber’s woes make the news, they can also serve as a spark for making the support and advancement of women in your company a boardroom mission.
An important analysis of the corrupt corporate culture that led to widespread fraud.
Hambek began to see things that shouldn’t have been happening: bankers persuading customers to take out large loans and then immediately repay part of them so that the banker could get credit for the bigger loan, for instance.
[There is] a lawsuit unfolding in Delaware Chancery Court…that involves the former chief executive of United and a prime figure in the Bridgegate scandal that has dogged Gov. Chris Christie of New Jersey. The facts of the case reflect a similar disdain for United’s shareholders by the corporate board members who are supposed to serve them.
At the heart of the lawsuit is the refusal by United’s directors to retrieve any of the $28.6 million received by Jeffery A. Smisek, United’s former chief executive, when he was defenestrated in 2015 amid a federal corruption investigation….In a litigation demand, [The City of Tamarac, Fla., Firefighters Pension Trust Fund] requested that the company’s board claw back the severance pay given to the executives who took part in the bribery scandal. By doing so, United’s board would correct its breach of fiduciary duty and prevent “the unjust enrichment” of company executives.
Seems fair enough. But United’s board has refused. Its justification for not recouping the pay is, well, pretty rich.
In a letter to the pension fund, a lawyer for United explained that it would harm the company to give the board “unfettered discretion to recoup compensation” in cases involving wrongdoing. “Where such discretion is out of step with industry norms,” the letter said, it would “make it difficult for United to recruit and retain top talent, particularly at the senior management level.”
In other words, clawing back severance awarded to executives amid a bribery investigation is not industry practice. And if United pursued such a recovery, the airline would be an outlier and unable to hire good people.
Shareholders need more power to curb director pay if companies are to rebuild public trust. That’s the conclusion of the Institute of Directors (IoD), which has been calling upon the next government to give investors a greater say over executive pay at Britain’s biggest companies.Right now shareholders have a binding vote on the company’s future pay policy every three years. However, the IoD believes it’s time to strengthen their hand. It has suggested that if 30 per cent or more investors oppose the plans, then companies should revisit their pay policy and give shareholders another vote.
PwC’s Strategy& released its annual CEO Success Study on Sunday, May 14, 2017. This year’s study explores the rise in the number of CEOs at the world’s 2,500 largest companies who were dismissed from their posts due to ethical lapses.
As companies like FOX, United, Wells Fargo, Yahoo and VW are scrutinized for corporate wrongdoing, the study found that the share of CEOs forced out of their jobs due to a scandal increased globally– with a notably dramatic increase at companies in the U.S. and Canada. Specifically, the report found:
- Forced turnovers due to ethical lapses rose from 3.9 percent of all successions in 2007–11 to 5.3 percent in 2012–16 — a 36 percent increase. On a regional basis, the share of all successions attributable to ethical lapses rose sharply in the U.S. and Canada (from 1.6 percent of all successions in 2007–11 to 3.3 percent in 2012–16), in Western Europe (from 4.2 percent to 5.9 percent), and in the BRIC countries (from 3.6 percent to 8.8 percent).
- In the U.S. and Canada, forced turnovers for ethical lapses at these companies increased from 1.6 percent of all successions in 2007–11 to 3.3 percent in 2012–16 — a 102 percent increase
- The share of incoming women CEOs increased globally to 3.6 percent, rebounding from the previous year’s low point of 2.8 percent
Per-Ola Karlsson, DeAnne Aguirre, Kristin Rivera, and Gary L. Neilson, who prepared the report, identified increased public scrutiny and pressure, the rapidity and influence of digital-era feedback, and post-financial crisis regulatory requirements as primary factors in the increase of CEO departures for ethical concerns. The report does not examine the impact of an ethics-based departure on compensation or the correlation between board or shareholder composition and likelihood of such a termination.
In an interview, the authors explained their definition of “ethical lapse” and discussed the impact of social media and the difference between US/Canada CEOs and those in other countries.
What constitutes an ethical lapse for purposes of this study?
An ethical lapse might include fraud, bribery, insider trading, environmental disasters, inflated resumes, and sexual indiscretions. In the context of dismissals, we define an ethical lapse as a scandal or improper conduct by the CEO or other employees that results in the removal of the CEO.
It should be noted that in many cases, even though the CEO was ultimately held responsible, it was other employees who committed ethical lapses.
Are CEOs replaced for ethical lapses most likely to be insiders or those brought in from outside?
We found that there was no statistical difference in the dismissal rate for ethical lapses between insiders and outsiders. We did find that CEOs forced out of office for ethical lapses had longer median tenures than CEOs forced out for other reasons (6.5 years compared to 4.8). One possible explanation is that companies with long-serving CEOs tend to be those that have been achieving above-average financial results, and thus may attract less shareholder and media scrutiny than companies that have been performing poorly. Another is that when an organization’s leadership is static, employees may begin to see ethical lapses as normal, and allegations of misconduct are less likely to be raised, investigated, or acted on.
How has social media put pressure on boards to replace CEOs?
Today, social media plays a large role in not only disseminating negative or embarrassing information about a company, but also allows customers and other parties to directly voice their displeasure to the company and its executives. Often times, the social media backlash becomes a story in itself beyond the negative or embarrassing information which puts extra pressure on boards who may feel they need to implement change in order to take the company out of the negative spotlight.
How does the US compare to other countries in the rates and reasons for CEO dismissal?
In 2016, The U.S./Canada has a CEO turnover rate of 14.2% compared to 15.3% in Western Europe, 15.5% in Japan, and 14.9% globally. Removing, M&A 29% of turnovers in the U.S./Canada were forced compared to 38% in Western Europe, 13% in Japan, and 29% globally. Historically the U.S./Canada has had a lower CEO turnover rate than other regions which is likely due to the fact that companies in the U.S./Canada have more developed governance and succession practices.
In addition, we note in the study this year that companies in the U.S./Canada have the lowest incidence of ethical lapses. Similar to the point about governance and succession practices, companies in the U.S./Canada tend to have more stringent regulation and internal controls than other regions.
What did your study show about women CEOs?
Globally, companies appointed 12 women CEOs in 2016—3.6 percent of the incoming class. This marks a return of the slow-moving trend towards greater diversity—and a recovery from 2015’s recent low point of 2.8 percent.
The share of incoming women CEOs was highest in the U.S. and Canada—rebounding to 5.7% after falling for the previous three years.
We stand by our belief that as much as a third of incoming CEOs around the world will be female. Some of the trends we cited in the 2014 study that supported this findings were: increasing amounts of women on boards, increasing women undergraduates and MBAs, and changing social norms.
What role does shareholder pressure play in replacement of CEOs?
Boards have become much more independent and very infrequently in a position of deferring to the imperial CEO of yesterday. They listen. They listen to shareholders, regulators, other managers. Shareholders don’t want distractions. Our analysis has shown forced CEO turnovers (for ethical lapses or other reasons) are hugely expensive. We found that, on average, forced turnovers cause a hit of $1.8 billion in shareholder value compared to planned transitions. So, by getting ahead of problems, even when they happen, Boards have the incentive to deal with…. ideally in a “planned” way, even if the change wasn’t part of the individual CEO’s plans!
Cindy A. Schipani, University of Michigan, writes on the Harvard Law School Forum on Corporate Governance and Financial Reform:
One would have hoped these SOX-created independent watchdogs [independent directors] would reduce the incidents of securities fraud and result in better governance. Yet, our analysis of the number of class action settlements for claims of financial fraud for settlements greater than $10 million shows no significant decrease since the adoption of SOX. We presume that settlements of over $10 million indicate serious concern of the board evidencing the viability of the suit. The dollar amount for analysis was chosen to reduce the incidence of strike suits in our data. Thus, the lack of a significant decrease in these claims seems to indicate that it may have been unreasonable to expect independent directors — who almost by definition are not privy to the day-to-day affairs of the firm—to have enough incentives or information to ferret out complex, and likely hidden, fraud.
Moreover, and perhaps even more troubling, our data also shows that independent directors themselves are not necessarily immune from the temptations of financial fraud, particularly with the gains to be had from backdating stock options. SOX’s reliance on them may simply have transferred oversight responsibilities from compromised executives to compromised and ill-informed board members.
An alternative approach to the SOX mandates would have been to empower the shareholders directly and enable them to exercise a greater degree of direct oversight over the managers.
This supports our view that no director can be truly “independent” unless elected through a robust nomination system that includes proxy access and a majority voting requirement — as well as a robust system for enforcing fiduciary obligation in voting institutional shares in the interest of beneficial holders.
Brazil’s mining company Vale SA on Wednesday said Aberdeen Asset Management PLC, on behalf of minority shareholders, nominated Isabella Saboya to join the company’s board.
Vale said in a securities filing that Sandra Guerra was also nominated by the minority shareholders as a substitute board member for Saboya in the election scheduled for April 20, 2017.
A report on Wells Fargo’s (WFC) fake-accounts scandal commissioned by the bank’s independent directors is far less critical of the company’s board than two studies issued last week by influential shareholder advisory firms. Instead, the 113-page analysis released Monday of how employees working to meet the San Francisco-based bank’s ambitious sales targets created more than 2 million unauthorized credit card and savings accounts over a five-year period lays much of the blame with former CEO John Stumpf and former community banking chief Carrie Tolstedt.
According to the report board “members believe they were misinformed” (note use of the passive voice, a telling indicator of a failure to accept responsibility). ISS sees it differently:
A report days earlier from Institutional Shareholder Services, the most influential shareholder advisory firm in the U.S., was less forgiving of the board. The firm recommended that investors vote against 12 of Wells Fargo’s 15 directors, including the four members who oversaw the investigation.
Members of two board subcommittees “failed over a number of years” to provide sufficient risk oversight at the scandal-plagued lender, the ISS report said, and the board overall failed to implement an “effective risk management oversight process in a timely way” that could have spared the bank’s reputation.
In our view, the compensation plan alone, rewarding the number of transactions instead of the quality of transactions, is sufficient reason to replace the entire board.
Companies are increasingly electing women to their boards, but the number still pales in comparison to male representation at public corporations. According to the Equilar Gender Diversity Index, 15.1% of Russell 3000 director seats were held by women at the end of 2016, an increase from 13.9% in 2015. However, in 2016, men accounted for 96.3% of the non-executive board chair positions in the Russell 3000, vs. 3.7% for women. This statistic clearly illustrates the gender disparity among board leadership positions, particularly with board chairs, as Equilar noted in a recent study.
Furthermore, there is pay gap between men and women when it comes to the top positions on these boards. A separate Equilar study looked at the median board fees for non-executive board chair positions for the same group of companies—the Russell 3000—and found a gap in pay between males and females across percentile ranges. At the median, female chairs received $234,934 in total compensation as disclosed in the director compensation table of proxy statements filed for fiscal year 2015, more than $10,000 below the median for men at $245,143. This difference was notably smaller at the middle of the study sample. At the 25th and 75th percentiles, male board chairs earned approximately $30,000 and $46,000 more, respectively.