How the ‘Pivot’ and ‘Naysayers’ Help You Refine Your Ideas

Alexandra Wilkis Wilson brought the extraordinary story of how she and best friend Alexis Maybank  founded Gilt Groupe and built a billion dollar business based on their passion for fashion to a breakfast meeting of the Chicago Chapter of  85 Broads.

Her New York Times best-selling book, “By Invitation Only:  How We Built Gilt and Changed the Way Millions Shop,” which she co-authored with best friend and co-founder of Gilt Groupe, Alexis Maybank is a how-to for would-be entrepreneurs.

She offered the sound advice of someone who seems to have found balance in what was a dizzying tale of bringing exclusivity and excitement of sample sales to a young, internet-savvy luxury fashion clientele, growing  Gilt to a 5 million member online shopping destination.

Janet Hanson, the founder and CEO of 85 Broads, praised the young women’s ability to “cultivate relationships, take calculated risks and execute their game-changing, visionary ideas.  The key takeaway is that one needs to have an entrepreneurial spirit and indomitable will to succeed no matter what path you’re on.”

In the morning discussion she provided insight to the advice in the book.  She believes the best leaders are confident with humility.  “You can have a great idea, but be ready to pivot depending on what the market is telling you.”

Naysayers are important, Wilson says. Listen to negative feedback, but put it into context.  “We cross-checked the negative feedback with the reasons we thought the idea would be a smashing success.  And usually the feedback helped us to refine our pitch. In getting the best decision, plan or proposition, the friction and doubt cast by contrarians are usually critical to vetting all potential angles and counterpoints before moving forward.”  Negative reactions to their idea prepared them for meetings with future brand partners and investors.

Chairmen’s Pointers for Communicating with CEO

“The CEO-chair relationship in my view only develops over time, with many opportunities for one-on-one , in-person meetings,” says Harry Pearce, the independent chairman of MDU Resources and director of Marriott.  Peter Browning also noted the importance of the executive’s style in director-CEO communication.

The critical element is that both parties need to be committed to the dialogue.

When AgendaWeek asked me for my advice, I noted the bias for open, clear and consistent communication with the CEO.  Many insights of the board are communicated to the CEO through the Chair-CEO relationship.  Strong board chairs are astute listeners who are able to bring to the CEO any questions or concerns.

“Ultimately, steady and open communication is crucial to establishing a relationship of trust and confidence between the board and CEO,” writes Browning, lead director at Nucor and Acuity Brands and director of Lowe’s Companies and Enpro Industries.  “Closer collaboration allows directors to spend their time more efficiently and be better shareholder advocates.”

Read full article here. .

How Leaders Like Fred Steingraber Are Creating “Leadocracy”

Geoff Smart, the best-selling author of “Who,” believes that our highly dysfunctional government is “not a problem without a solution.”

After being asked to assist John Hickenlooper, the newly elected governor of Colorado in recruiting talented leaders for his cabinet, Smart concluded that there were too few great leaders in government as well as “forces keeping our greatest leaders out of government.”

While it would be natural for Smart, the founder of the leadership firm ghSMART, to conclude that getting more great leaders in government was the solution, he was pleased to find that such a movement was already underway.  It took Smart to name it, “Leadocracy,” which he says means “government by society’s greatest leaders” and he found a shining example in Fred Steingraber.

The three As of Leadership are Analyzing, Allocating and Aligning, three things that Steingraber did when he took over as President of the Village of Kenilworth.

Like many communities, Kenilworth was in trouble—three consecutive years of deficits. “Great leaders start by analyzing the needs and priorities of their constituent group,” according to Smart. Before becoming president, Steingraber led a strategy study of the town. Not only did he convince the village to do a needs analysis and quality survey but to gather benchmark data from other communities as well, helping them to evaluate their own costs, services provided, productivity and the like.

Smart calls Steingraber “possibly the most overqualified government leader I have ever met. He had served as CEO and Chairman of A.T. Kearney, the international management consulting firm.  Under Fred’s leadership, the company achieved massive success.  He grew the firm from $30 million when he took over to $1.5 billion when he left.”

Steingraber has had just as dramatic impact on Kenilworth, trading deficits for surpluses, engaging in strategic partnerships with other communities and improving communication between village management and the residents.

Steingraber’s private sector success created jobs, notes Smart. “The number of employees under Fred’s leadership grew from two hundred to 6,500. Amazing! Bravo! Imagine all the tax revenue that his firm and the taxpaying employees generated for their countries, states and municipalities.  In addition, he has served on twelve corporate boards, four advisory boards, and over twenty not-for-profit boards.”

Steingraber also has been an advocate for boards taking the initiative in restoring confidence to our capitalistic system. Fred and I co-authored the Corporate Finance Review article, “What Boards Need to Do to Preserve Their Relevance and Provide Value in the World of the New Normal.”

 

 

Boards Should Tell Us Which Derivatives Are Being Used to Manage Risk. . .Or,Tell Us Why Not

Richard L. Sandor, recognized as the “father of the financial futures markets” for his work creating futures contracts on currencies, Treasury bonds and mortgage securities, has a simple proposition for boards of directors.  When a futures market exists for products your company makes, or supplies your company buys, or the currency or interest rate risk your company faces – does your management team use those futures markets to quantify or control risk?

If not, a board is simply speculating – betting that the price of fuel, or metal, or money, is going to move in a certain direction. A decision not to use available risk-management tools to hedge commercial or financial risks is a decision to speculate, says Sandor. Speaking to a hometown crowd gathered June 20 at the Chicago Council on Global Affairs to mark the publication of his book, “Good Derivatives:  A Story of Financial and Environmental Innovation,” cited the role of fuel hedging by Southwest Airline as a major factor in outdoing those airlines that left themselves – and their shareholders – exposed to the volatility of world oil markets despite the existence of highly-liquid, well-regulated futures markets where they could have transferred the risk of rising fuel costs to other parties and thereby prevented or reduced financial losses.

One result of the financial crisis is that the word ‘derivatives’ is now applied indiscriminately, blanketing contracts traded on regulated futures exchanges with the same opprobrium heaped on the too-clever financial instruments that Wall Street engineered to trade among themselves and their biggest clients. The former are risk mitigation tools linked to underlying commercial activity in metal mining, agriculture, financial services and a host of other business activities. The future price of any of these useful contracts is determined in a transparent process that balances supply and demand factors. What we saw in the financial meltdown were financial products that were opaque and which offered no counter-party guarantees because they were traded “over the counter”, between sophisticated firms that supposedly knew what they were doing, instead of being traded on regulated exchanges that utilized an independent central clearinghouse to monitor the financial status of market participants and ensure timely payment by both sellers and buyers of futures contracts.

What about the management of companies in using hedging devices such as derivatives? Sandor suggests that the board develop an understanding of available derivatives markets and hold management accountable if they don’t find a way to utilize derivatives to manage the risks inherent in their respective businesses. At the same time, boards need to inform shareholders how the governance process intended to serve as the shareholders’ fiduciary representatives encompasses the use of available hedging and risk-transfer tools, or provides the rationale for foregoing such protection and accepting exposure to volatility in the cost of financing and other inputs.

If Americans don’t “get derivatives,” the Chinese do. Sandor’s firm, Environmental Financial Products, specializes in inventing, designing and developing new financial markets.  Sandor serves as a distinguished professor of environment finance at the Guanghua School of Management at Peking University.

Perhaps Boards Need Fewer Famous and Iconic Board Members

In its account of the verdict in the conviction of Rajat Gupta, the former head of McKinsey & Co, and a former director of Goldman Sachs and Procter & Gamble for securities fraud and conspiracy to share confidential information, the Wall Street Journal noted,  Gupta was “once one of America’s most-respected corporate directors, was motivated not by quick profits but rather a lifestyle where inside tips are the currency of friendships and elite business relationships.”
The government’s prosecution of such an iconic leader, says that such an insider mentality and breach of responsibility will not be tolerated. He was a figure of trust. His conviction emphasizes the importance of board members who are trustworthy and behave ethically.  Directorships are not honorariums to be awarded to those who have been successful in business or government. If there is a separate set of rules for the elite and famous, then average investors have no reason to invest. That’s why trust is so critical. Shareholders must trust that all investors will be treated fairly.  Ethical behavior by directors and management is critical to the operations of the free market.

 

Congratulations Chicago Fed, Terry Savage and MoneySmart Week


The Chicago Fed kicked off MoneySmart Week and celebrated the 10th year of what has grown from a week of financial literacy events in Chicago to a national program with partners such as Visa and the American Library Council.
Terry Savage, Sun-Times columnist, who wrote the book on financial literacy, recalled the first meetings at the Fed with the idea of connecting people who needed financial advice with the information that a host of financial service companies could provide.
As she noted, it wasn’t just the concept of a program of partner, but rather the Fed’s leadership under Fed President Michael Moskow and now Charlie Evans that supported and advanced the program.  The turnout at the Chicago Fed today in kicking off a 10th year was a testament to the importance of the topic and the Fed’s ongoing support and expansion of the program.
Alejo Torres, Chicago Fed’s Senior Outreach Manager, recognized the many partners that have contributed to the program over the years.  In reviewing the history, Fed Public Affairs VP Doug Tillett explained, “It’s the power of connecting people to resources they need.”
As Chicago City Treasurer Stephanie Neeley and United Way CEO Wendy DuBoe CEO of the United Way concurred, improving financial literacy is needed now more than ever!

Saving the Economy with Candor, Compromise and Equity for All

Taking inspiration from George Washington’s Farewell Address, Paul Schott Stevens, President and CEO of Investment Company Institute addressed the issue of our troubling economic situation and our national security.

He laid out the cost of our staggering indebtedness, fourth only to Japan, Iceland and Greece brought about by a 30 year practice in Washington of using the national debt to avoid saying no to anyone. Whoever takes office in January of 2013 will be presiding over a country whose debt is 103 percent of GDP. With interest payments on the debt soon to exceed the Defense Department’s budget, Admiral Mike Mullen, former chairman of the Joint Chiefs of Staff,  said that the debt is the biggest risk to our economy and national security.

How do we move from “kicking the can down the road” or ignoring our plight to address our debt and put the U.S. back on a sound financial footing for prosperity and growth?

Stevens gave us three principles: candor, compromise and an equitable solution in the broadest sense.

Candor is first, says Stevens because “A great nation is honest with itself about its priorities.” That is, take the debt seriously and deal with it. The most promising solutions to our fiscal problems are multi-faceted and require compromise, something we must insist that our representatives do. Finally, solutions must be equitable in the broadest sense, meaning that budget cuts alone or tax increases alone can solve the problem, but a combination of the two.

Avoiding Distraction, Focusing on Delivering Value

John W. Rogers, Jr., the founder of Ariel Investments and director of the Aon, Exelon and McDonald’s corporate boards, offered practical leadership for corporate directors at the Directors Roundtable at Katten Muchin on Wednesday, February 29, 2012.

Activist investors have become a factor in today’s boardrooms, Rogers said.  “It’s important that boards don’t become distracted by activist investors,” Rogers said.  “That’s the challenge. For that reason, it’s important for boards to become knowledgeable about all shareholder concerns.  Directors should understand all shareholder issues, in addition to activist investors.  They can become knowledgeable by reading and understanding the issues that buy-side and sell-side analysts raise. I have seen activist investors become quite destructive when not properly addressed.”

While Rogers is well known for founding Ariel Investments 29 years ago, the former basketball star from Princeton University has the distinction of beating Michael Jordan one-on-one.  The YouTube video has garnered more than five million views.

Tell Your Story on Compensation

As the leading provider of executive compensation data, Equilar knows compensation.  In an ongoing effort to keep directors informed, Equilar brought concrete examples of how smart companies are going beyond SEC rules and ISS pronouncements to “tell their story” on compensation.

In the webinar, “Anticipating and Addressing Potential Negative Recommendations,” Andrew Comstock presented examples from Harsco, Staples and Starbucks and other companies to show the critical value of communicating how the board is handling compensation.

Additional charts, headlining the practices the board is undertaking, the key is showing how the board is proactive in addressing compensation issues.  “Your Board of Directors took steps during fiscal 2011 to strengthen its policies and practices regarding executive education,” was the way Headwater outlined the steps they took.

Most interesting was the way CalSTRS and BlackRock described their “opportunities for discussion.” Instead of a one-size-fits all, BlackRock said it would provide a “fair, respectful and in particular, open minded airing of views” and that it is “willing to support unconventional approaches as long as they can be expected to serve the interests of long-term shareholders.”  CalSTRs “believesthat there is an opportunity for the marketplace, issuers and shareholders to work together in the developent of a realized pay model.”

In this changing world of governance, engaging in the issues in a meaningful way brings great value.

Insight into the 2012 Proxy Season

Given the changing landscape in corporate governance, Winston & Strawn held its fourth eLunch program to help clients understand the 2012 proxy season. (All sessions are available on the law firm’s website.)
Having analyzed 50 proxy statements filed by Large Accelerated Filers from mid-November 2011 until mid-January 2012, the legal team of Chris Edwards, Mike Melbinger, Erik Lundgren, Oscar David and Karen Weber were able to offer real insight into how to best handle some of the most challenging issues boards are facing from ISS recommendations to say-on-pay responsiveness, board risk oversight, proxy access and reporting on the company’s political spending and lobbyist. By providing examples of how companies are handling these issues, they gave other companies insight into how they can better manage the 2012 proxy season.
The themes of the firm’s advice fell broadly into three categories—stand by your principles, communicate clearly and often and don’t procrastinate—know what your issues are and be proactive in addressing them.
Melbinger, whose compensation blog, is widely viewed as the best in the business, noted that he has blogged about the requirement for companies to report on how they addressed the shareholder advisory say-on-pay vote.  There is not a defined response, but the board must address how they considered shareholder input, even if it was to ignore the advice the shareholders were giving.Shareholder interest in compensation doesn’t end with management.  This year, there are several proposals asking for Say on Board pay.
Today, shareholders are clearly part of the governance conversation and companies must respond.