RSR Partners – Board and Executive Search

Brad McLane

We live in a multi-channel world where, as consumers, we wield more control over the messages we receive; and even more control over how we respond. Consumers interact with companies at a myriad of touch points: Apps, Tweets, WOM, good “old-fashioned” websites; our smartphones, iPads (and soon, Kindle Fires) combine with stalwart channels — direct marketing (even, dare I suggest, direct mail), call centers, advertising (on air, online, out-of-home), in-store (visual and sales person interaction) to create a fabric of critical touch points for the consumer. Every interaction has an impact on how consumers think and feel about a company and its brands.

Inconsistency across channels can change a consumer’s perception of the brand after years of loyalty. Conversely, community-building marketing programs deployed across all points of consumer interaction can cement loyalty, facilitate product or service improvements, and ensure consistency of brand experience in the marketplace. We are moving from “vector” communications to “woven” interactions. The brand message is not just “beamed” from headquarters, but is truly controlled by the consumer and how she or he adds to or reacts to it.

This changes the dynamics of the talent pool and where one finds the talent. “Classic CPG academies” have their roots in brand building via efficient mass media. This is not going away, but it is not the “go to” marketing tool of the future. This is a much harder job now. So, where do we find this talent? We are seeing a bit of a pendulum swing towards marketers with intensive digital media skills. Media agency experience is a real strength and foundation for much of this, they are not the quants in the closet down the hall anymore. Analytical skills gained through traditional CRM provide significant insight and value. Additionally, bringing in the sensibilities of “client management” from the account side of an agency is valuable. Finally, traditional “PR/communications” skills have even more strategic credence.

The Chief Community Officer is a much more holistic role than simply growing up in brand management as the “conductor of the orchestra” while aspiring to be the Chief Marketing Officer.

As exponentially challenging as this role is, think what happens without it. The world is talking about you and you are totally clueless or, even worse, no one is even bothering to talk about you. The linear CMO is dead, long live the multi-dimensional CCO? Let’s see, but I can tell you now that is where our clients are asking us to go.

Brad McLane is a Managing Director and Co-Head in RSR Partners Marketing, Consumer and Hospitality Practices. He also heads the firm’s Chicago office. The company specializes in recruiting directors for corporate boards. The company was formed in 1993 by Russell S. Reynolds, Jr., Founder and Former CEO of Russell Reynolds Associates

Russ Reynolds on Highly Effective Leadership

The first characteristic of any leader is to put other people’s interests ahead of his or her own. By this I mean you have to wake up in the morning and worry about doing “the right thing”. This means doing the right thing for your customers, your employees, and your stockholders.

Leaders of good public companies think about long-term results rather than quarterly earnings. They look people in the eye and are good listeners. They want to know what other people think. Leaders get out of their own office, and into the offices of their customers, suppliers, and investors. They lead to serve others, not themselves. A true leader makes sure other people are paid well before he thinks of himself. Excessive compensation is a sign of greed, not leadership. In my opinion, leaders put their families and their family’s well-being ahead of their business interests when realistically possible.

Leaders have confidence. They have to appear to be self-assured without being arrogant. They should be well-dressed, neat, clean, and well put together. They should have nice clothes but not be extravagant. Leaders must be able to express themselves in public speaking. If they are not good at it, they should take courses and get coaching.

Leaders should also be altruistic. Well-run companies should be good citizens of the community, their country and the world, by supporting worthwhile causes charitably, and encouraging their people to do the same thing. They should get involved politically, regardless of party affiliation, to express their views as part of a democracy. Having a faith is also helpful.

In addition to the above, leaders have to work harder, be well prepared for meetings, know more about their client than the client knows, and set an example for everyone else around them, which they want to follow. In other words, being a leader is not always easy and it is not always fun. Leaders are supportive of their people, their predecessors, and their successors. They are positive. While being realistic, great leaders motivate people by seeing the good and the positive in what they are doing. All of us spend most of our lives working in an office. It should be fun, enjoyable, and rewarding, and good leaders make that happen.

BY BARRETT J. STEPHENS
June 2010

The financial crisis has left public confidence towards corporate boards at an all-time low.Transparency, executive compensation, board independence and accountability are, once again, at the forefront of public debate. In light of these developments, the SEC has proposed revising its proxy access rules to enable large-company shareholders with at least one percent ownership to list their own director candidates on the proxy ballot. On its face, it is easy to argue how this amendment would strengthen the accountability of directors to shareholders. As Sarbanes-Oxley illustrated, however, corporate governance regulation is governed by the law of unintended consequences. We believe that this proposed regulation will have a significant unforeseen impact on board culture and director succession that can be detrimental to the shareholders it seeks to benefit. As outside owners, shareholders are rarely exposed to the nuances of board culture and the impact of individual personality on overall board effectiveness. In our work advising hundreds of boards, we have found that the best boards have a unique identity and chemistry that saturate their work. A great board is created when everyone knows their responsibilities, holds each other accountable and is mutually committed to the long-term success of the company and its stakeholders. The required balance among the group of openness, commitment, trust, and equality is difficult to achieve and easy to lose. Increasing the ability of shareholders to rearrange the board, with no consideration of the effect such changes would have on boardroom culture, will only hamper a board’s functioning. What’s more, making board elections more like political elections will make the boardroom susceptible to the same short-term thinking and vote-getting mentality that we too often see in our elected officials.

But if the amendment’s unintended consequences are cause for concern, its underlying purpose—to make boards more accountable—is beyond question. Responsible boards will see the SEC’s action as one more reason to recommit themselves to excellence. Having relevant industry and functional experts on the board is necessary, as is matching the make-up and expertise of the board to corporate strategy. In over 30 years of working with corporate boards, however, we have found that the most common reason for a board to underperform is its inability to remove ineffective or disruptive directors and replace them with individuals who have the time, interest and expertise to make an impact. Boards tend to procrastinate when deciding if and when a director should be asked to resign. A board that debates management, strategy and operations with vigor will suddenly become sheepish when it comes time to address a fellow director’s underperformance. The board either ignores the issue and waits for it to resolve itself or goes to the other extreme, conducting a 360 degree peer review to formally expose a problem and hiring an outside firm to help handle the project’s sensitivities.

The fate of Lehman Brothers makes for a good example of the perils of inaction. Its board was chronically ineffective in dealing with director succession and refused to create a governance framework with the necessary banking, risk management and regulatory experience. When Lehman declared bankruptcy in September 2008, five of its directors were between the ages of 73 and 80 and had served for an average of almost 16 years. While a director’s age and tenure does not determine his or her effectiveness, when combined with other signs it can indicate that the board may not be adjusting its perspective to keep pace with the rapidly changing business landscape. We will never know if having different directors would have saved Lehman. But we can be fairly certain that under the new SEC regulations, Lehman’s shareholders would have performed the boardroom housecleaning that Lehman itself refused to do.

Both regulators and activist shareholders will continue to become more involved in proxy elections until boards do a better job recognizing and removing underperforming directors. In addition, as many companies have changed their strategic outlook to adjust to the new economy, boards need to reassess whether they have the requisite industry and functional expertise to help guide their companies and management teams to meet their new challenges and opportunities. If an assessment and gap analysis reveals areas where the board needs strengthening, the Nominating and Governance Committees will need to start building a director succession roadmap and pipeline immediately, to address the issue before discontent shareholders decide to take matters into their own hands.

In all likelihood, the implementation of these new rules will take place with next year’s proxy season. Boards therefore must make an honest review of their performance a top priority today. Even the most activist of shareholders, after all, is unlikely to launch a campaign against a responsive board that is fulfilling its responsibilities with diligence and care.

Barrett J. Stephens is a Managing Director at RSR Partners. RSR Partners is the leading board recruiting boutique founded by Russell S. Reynolds, Jr.

BY BARRETT J. STEPHENS
June 2009

A new trend has emerged in the nominating process of public company boards. Boards of Directors are moving away from a reactionary and intermittent nominating process towards a more continuous, anticipatory and inclusive inventorying process. Part of this trend is a result of the unintended consequences of Sarbanes Oxley when it helped destroy cronyism and promote independence in the boardroom. The other part stems from the surge of activist shareholder proxy initiatives and the demands for more transparency and access to director nominations.

Until the 1980s, corporate governance in the United States was very different from our post-Sox environment. Senior executives held only modest stock and options in their companies and were more focused on traditional performance measures such as sales or earnings growth. Boards of Directors were predominately comprised of white male, elder statesmen who had direct experience with the company including suppliers, bankers, lawyers, advertising executives and consultants. They were known well by management and were seen as trusted advisors and friends. Over the course of the 1980s, however, the LBO onslaught caused the corporate governance paradigm to change. Boards of Directors were forced to take a much more active role in the oversight of the company. In order to prevent hostile takeovers, boards implemented new compensation plans for management that became more lucrative through equity incentives in an effort to create more economic value for the company. A transition also occurred in the composition of the board as more outside CEOs and senior executives were recruited to boards to bolster companies’ intellectual capital and alleviate shareholders’ fears about objective oversight.

While the impact of Sarbanes Oxley and the Exchange’s listing requirements have been over communicated, the strains on the Nominating Committees have not. Due to the increased time commitments, the perception of conflicts and personal liability, and more focus on compliance than strategy, the pool of experienced, available and interested potential board members has significantly decreased. We have witnessed during this year’s proxy season the greatest departure of CEOs from their outside board obligations. CEOs today are now sitting on only one outside board compared to two boards a decade earlier. As a result, the timing to identify, assess and select a board member with the requisite expertise and personality has dramatically increased.

In parallel, activist shareholders continue to want increased transparency and access to the Director nominating process as they want to propose their own candidates to ensure that the company and the shareholder interests are aligned. As most boards view the  nominating process as highly confidential and clandestine, shareholders are unaware of when their company is searching for a new director until the public announcement of their selection is made. Therefore, any suggestions from shareholders, especially around proxy season, always come too late.

While corporations will never allow a completely democratic process or “town hall” type vote, many companies have taken proactive steps to make the process more inclusive and alleviate some of the pressure created by activist shareholders. Many companies in the Fortune 500 now regularly include director candidate ideas from shareholders along with those from the board, management and their search firms. Companies like Dell have created a form on their website that allows shareholders to submit director recommendations. Citigroup has even gone so far as to post the director specification on their website to help promote ideas and transparency. These actions create a level playing field for the origination of an idea and allow him/her to be judged based upon the merits of their candidacy.

Nominating Committees are becoming more engaged in a continuous process of assessing, inventorying and prioritizing candidate ideas for immediate and future board needs. Due to the increased time commitments of board members and the need for independent objectivity, Nominating Committees and CEOs are more routinely turning to outside firms to help them with the prioritization process. Firms like ours are acting more like  consultants than search professionals and are given the responsibility to build out, assess and rank candidates in an array of categories including sitting CEO, diversity and financial expert. This relationship enables the board to better prepare for director retirements or necessary board realignment due to a change in strategy or culture. The Nominating Committee can turn to this prioritized list and avoid a lengthy search process. This is a significant shift in the way companies think about governance as they are now forced to think and act more proactively. As companies continue to engage in a war for global talent, boards will need to leverage all possible sources to compete for the limited number of interested and available directors candidates in the marketplace.

The perception that our existing corporate governance structure has not performed better during the current credit crisis and than it did during the collapse of Enron and WorldCom will continue to fuel the fire for more regulation and corporate governance reform. As a result, this new nominating process will continue to take hold throughout much of the economy as it appears to bridge some of the tension between activist shareholders and management and the ever increasing need for directors than can and want to make a difference.

Barrett J. Stephens is a Managing Director in RSR Partners Board Service Practice. The company specializes in recruiting directors for corporate boards. The company was formed in 1993 by Russell S. Reynolds, Jr., Founder and Former CEO of Russell Reynolds Associates.

BY BARRETT J. STEPHEN
February 2004

The Disney board proved once again that it is #1 when it comes to a lack of succession planning. In 1994, the Disney board was exposed when President, Frank Wells died in a helicopter crash, and CEO, Michael Eisner underwent open-heart surgery. Because of the lack of a true succession plan, Michael Ovitz was tapped as Eisner’s potential successor that resulted in tremendous internal turmoil.

Ten years later, Disney still does not have an apparent succession plan in place. If it does, the company has a strange way of showing it. George Mitchell, who is one of our countries great mediators, now, has the unalienable task of appeasing shareholder protest and fending off a hostile takeover from Comcast. While Roy Disney and Stanley Gold argue that Eisner’s departure would boast Disney’s share price and restore investor confidence, Comcast might improve its purchase position unless the new CEO is a slam-dunk. A marquee name is needed to allay concerns about company performance. At this point, the shareholders will view an internal successor as a half-hearted cosmetic change and a continuation of the previous regime. Therefore, the board must look for new blood.

Since Disney is now in a crisis management succession situation, the search committee of the board needs to do six things immediately.

1.) Decide at the next board meeting to replace Eisner.
2.) Develop specific criteria for the new CEO.
3.) Hire a search firm and build a candidate list.
4.) Confidentially communicate intentions to largest shareholders.
5.) Publicly announce that Disney’s succession plan will be revealed in 60 days.
6.) Choose successor that will restore investor confidence and long-term performance.

Every company should have at least two different types of succession plans: a gradual integration and a backup emergency plan. Disney appears to have reached a point where they need their emergency succession plan. This type of plan usually goes into effect when something suddenly undermines the CEO’s ability to run a company. Getting hit by a milk truck or a vote of no confidence from your largest shareholders would certainly qualify. The board’s action of separating the Chairman/CEO position was a way to buy time so they could take the necessary time to search for Eisner’s successor. However, shareholder protest has forced them to expedite the process.

At their upcoming board meeting, the directors should decide to replace Eisner and form a search committee. The board should also choose a search firm to assist their efforts in developing outside candidates. The search committee will define and agree upon the necessary skills, experience, and character of a CEO candidate. Disney should already have a highly sophisticated system in place for evaluating internal candidates. The lead internal candidates will then be judged against a slate of external candidates. While the board has agreed to meet with the public pension funds to discuss company performance and strategy, George Mitchell should confidentially inform them of the board’s intentions to replace Mr. Eisner. It is imperative that Disney’s succession plan includes protecting the company’s 8 Sound Shore Drive l Greenwich, CT 06830 (203) 618-7000 l  www.rsrpartners.com culture, mission, and long-term strategy. However, the most important question is who will be running Disney in the near future.

The Disney brand is synonymous with clean wholesome family entertainment. The company has the power to influence our culture’s values and sense of humanity. Therefore, Disney’s CEO of the future cannot be narcissistic or iconoclastic. This individual will come from the new bread of emerging CEOs that embody leadership with a sense of humility. The board needs to be looking for someone who can balance the strategic growth and performance with the image conscious nature of the company.

Disney could choose to go in various directions depending upon the board’s priorities. While it is important to focus the search on the entertainment industry, the board should also look at proven leaders who understand the intricacies of building a brand. Regardless of Mr. Eisner’s future at Disney, the board must ensure that it has developed a thoughtful and effective succession plan. If in fact the company has one, it appears the board needs to dust it off and put it into action.

Barrett J. Stephens is a Managing Director in RSR Partners Board Service Practice. The company specializes in recruiting directors for corporate boards. The company was formed in 1993 by Russell S. Reynolds, Jr., Founder and Former CEO of Russell Reynolds Associates.