What Directors Can Do When So Much is At Stake

Webinar
September 12, 2012
What Directors Can Do When
So Much is At Stake
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Introduction by Jim Kristie, Editor & Associate
Publisher, Directors & Boards
}  Time for questions (enter them from your
computer) during and after the presentation
}  60 Minutes
}  Presentation and supporting material will be
emailed to all participants after the webinar
} 
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Bob Holland,
Director, Lexmark
Corporation and
Carver Bank
Sarah Stewart,
Managing Director,
Boyden
Davia B. Temin,
President and CEO,
Temin and
Company
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} 
The difference, averaged over time, between
market cap and liquidation value of assets
(Fombrun)
} 
The totality of everything a company is, does,
and says, as well as what others say and think
(Temin)
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5
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Loss of customers/revenue
}  Leadership changes
}  Lower productivity/poor employee morale
}  Diminishing value/sinking stock price
}  Unhappy shareholders = lawsuits
}  Investigations + new regulations
}  Employee departures
}  Inability to attract capital and talent
} 
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The buck stops with the Board
◦  Board’s role is to protect value for shareholders
◦  Reputation is an intangible asset with tangible,
valuable byproducts
◦  Financial/accounting scandals are always viewed as
a failure of governance
◦  The Board’s response to all other reputation
damaging events is highly scrutinized by analysts,
reported in the press, and discussed in social media
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} 
} 
Eisner Amper asked directors to rank their biggest
concerns (excluding financial risk)
Top Five Answers
◦ 
◦ 
◦ 
◦ 
◦ 
Reputational risk (66%)
Regulatory compliance (59%)
IT risk (54%)
CEO succession planning (53%)
Crisis management (47%)
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} 
Within the category of reputational risk,
directors worry most about:
◦  Product quality/customer satisfaction (30%)
◦  Integrity/fraud/ethics (24%)
◦  Public perception (16%)
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} 
Director reputations are tarnished, too, and in
the aftermath of scandal, they increasingly
face:
◦  Pressure to step off other Boards
◦  Being passed over for other Board seats
◦  Disillusionment regarding Board service
◦  Possible personal liability
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1.  Put reputational risk on the board agenda
2.  Let the Board’s scrutiny be known
3.  Establish best practices to identify, prioritize,
and address reputational issues
4.  Stress test business processes and
management
5.  Review how management monitors reputation
and review results 2x per year
6.  Monitor employee and client engagement
surveys. Look for red flags
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7.  Review unedited traditional and social media,
quarterly
8.  Require preparation of a full list of reputational
risks, both predictable and black swan
9.  Review crisis plan to deal with those risks
10. Create a board crisis plan
11. Engage in crisis simulation at the board level
12. Assure that company’s proactive mission
statement is taken seriously across the
organization.
13. Make the board’s expectations around
integrity, risk, quality, strategy and excellence
clear
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14.  Enforce those expectations by holding one another
and management accountable and by taking fast,
corrective measures when needed.
15.  In crisis, be strong, visible, proactive, and assure
management is focuses on integrity and solutions
16.  In crisis, limit liability but not humanity
17.  Focus on rebuilding stakeholder trust after crisis
18.  Assure company becomes part of a solution
19.  Assure company grows more resilient and
responsible
20.  Make sure to stand in for the public, as well as
shareholders in a crisis, mandating the company
“do the right thing” under pressure
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Right mix of skills and experience
◦  First-hand knowledge of the industry
◦  Experience relevant to strategy/challenges
◦  Required and/or valuable functional expertise
◦  Expansive views from outside the company/
industry
◦  Differing perspectives
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} 
Strong evaluation skills coupled with currency
◦  Understand systems and controls
◦  Can spot red flags in financial/operating reports
◦  Can interpret data on non-financial performance
measurements
◦  Current with technology and evolving business
landscape (i.e., new media)
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} 
Character/temperament
◦  Brings a healthy skepticism
◦  Courageous; willing to act
◦  Understands the power of language and
communication
◦  Steady and calm in the face of adversity
◦  Stays focused and in the game
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} 
Underscores the need for diversity of all kinds
◦  Better chance that someone will recognize a
potential crisis
◦  Differing viewpoints that lead to deeper discussions
and better decisions
◦  More likely to have had personal experience with
any issue
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Forensic accounting
}  Chief Risk Officers
}  Government/Public Service – i.e., Louis Freeh
}  Turnaround experts
}  Highly respected CEOs – i.e., Jack Krol
}  Military Leaders
} 
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• 
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• 
In addition to changes on the management
team, scandals often drive new board
composition
Many companies add directors after a crisis
to burnish the company’s reputation
What those directors bring depends on
individual circumstances
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The Board has a major influence on
corporate reputation
}  Elevate reputation on the Board’s Agenda
}  Recognize that, sooner or later, there will
be a crisis
}  The Board’s response can be more
important than the event itself
}  Get a crisis plan in place
} 
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Sarah Stewart
Managing Director-Board Services
Boyden
1000 Gamma Drive, Suite 600
Pittsburgh, PA 15238
412-756-1000
Davia Temin
President & CEO
Temin and Company
750 Seventh Avenue, 26th Floor
New York, NY 10022
212-588-8788
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