To create long-term value, corporate boards must focus on managing talent, strategy, and risk. But they also have to satisfy their shareholders, who often have competing demands. Activists, for example, might press for short-term profits, while index funds and other long-term shareholders are more concerned with the company's longevity. Drawing on years of work with boards, top executives, and the investment community and on interviews with the heads of public and private companies and investment firms, the authors offer a playbook for managing stakeholder relationships productively. They argue that regular, open communication is key; whether aligned with or hostile to the board's long-term objectives, investors often have valuable information about a company and its competitors and can be a source of fresh ideas. The authors provide guidance on how and when to meet with investors, how to get useful feedback, how to understand what each type of investor is looking for, and how to anticipate and ward off activist attacks. Although the advice is directed at board members, the insights will be valuable to CEOs, other members of the senior management team, and large shareholders as well.
Every leader knows the importance of the first hundred days or the first year in office--the period during which one must assess and diagnose, formulate a vision and a strategy, and achieve early wins. And guidance abounds for how CEOs in their final months on the job should approach their main responsibility: helping develop and select a successor and then smoothly handing over power. But little attention has been paid to the time between those stages. How can CEOs make the most of the middle years of their tenure? The authors conducted detailed interviews with high-performing former CEOs, asking, among other things, how their priorities, mindsets, and approaches evolved in their second act. Five themes emerged as essential to success. Leaders should keep raising the company's level of ambition, attack silos and broken processes, rejuvenate talent, build mechanisms for dissent and disruptive ideas, and spend their accumulated leadership capital on bold long-term moves. Beyond these specifics, the authors say, CEOs often benefit from viewing their tenure as a series of chapters rather than an undivided span.
Although people drive every organization's success, research shows that most CEOs undervalue their HR function and their chief human resources officer (CHRO). No wonder, then, that managing human capital is a top challenge for companies. To address it, say the authors, CEOs must redefine and elevate the CHRO role. They should spell out their expectations in a new written contract, focusing on three contributions that the CHRO, as an expert on talent (both in-house and at the competition), should be making: predicting the outcomes of strategically deploying human resources, diagnosing people-related problems that are hurting the company's performance, and prescribing actions on the people side that will create value. Administrative tasks, such as managing benefits, might be delegated to others. And the CHRO should be assessed by actions that deliver revenue, margin, brand recognition, or market share. With a new mandate from the CEO, and with appropriate business training, the CHRO can contribute to the organization just as powerfully as the CFO can. Indeed, the CEO should partner with the CHRO and the CFO in what the authors call a G3--a triumvirate to steer the company. Although reshaping the HR function could take three years or more, the authors' experience with companies such as GE and BlackRock suggests that it's well worth the effort.
Who would want to join the audit committee of a board of directors? Wouldn't that just mean slogging through the minutiae of Sarbanes-Oxley compliance? Not anymore. Audit teams have pretty much mastered SOX compliance; they're now turning their attention to the meaty problems of increasing business value. To do that, say Northeastern University professor Sherman, Korn/Ferry's Carey, and Sprint CFO Brust, audit teams need a broader range of expertise. Four areas in particular cry out for new blood. Someone, the authors argue, needs to decipher financial guesstimates. GM reported a $3 billion loss in the second quarter of 2006, which it adjusted to a $1 billion profit. Why was that? Things might have gone differently last winter if the company's audit committee had explored the assumptions that GM's managers had used to come up with those kinds of disparate figures. Second, someone needs to keep an eye on M&A performance. Managers today have unprecedented discretion in determining estimates of an acquisition's fair market value, but such calculations clearly warrant greater scrutiny, since fully half of all mergers and acquisitions consistently fail to live up to expectations. Third, someone has to objectively analyze the myriad new risks facing businesses today. Imagine how altered the current economic climate might be if audit committees at Merrill Lynch or Lehman Brothers had recommended limiting their investments in mortgage-backed securities. Last, someone has to make sense of the difference between accounting standards used in Europe and those used in the United States and understand how those standards cloud companies' abilities to reward executives and accurately assess their own performance relative to rivals'.
The announcement in January of the merger between America Online and Time Warner marked the convergence of the two most important business trends of the last five years--the rise of the Internet and the resurgence of mergers and acquisitions. M&A activity is at a fever pitch, spurred in large part by the breathtaking influx of capital into the Internet space. And all signs indicate the trend will only accelerate. Against this background, an impressive group of experienced deal makers came together to share their experiences of what makes mergers work. They were assembled in Scottsdale, Arizona, under the auspices of the M&A Group, a professional society formed in 1999 for CEOs interested in M&A as a business strategy. Participants included top executives from Internet start-ups like Teligent; venture capital firms like Baroda Ventures; financial institutions like Merrill Lynch and PricewaterhouseCoopers; and major corporations like Allstate, Tyco International, SmithKline Beecham, Rohm and Haas, VF, Crown Cork & Seal, and Hughes Space and Communications. The spirited and surprisingly frank discussion cut a wide swath, considering issues such as whether most mergers fail to pan out as well as expected, how to increase the odds of success, the nuts and bolts of the integration process, the trade-offs between acquiring a company and growing from within, the importance of cultural issues, and why anyone would want to be on the board of a merged company.