Direct News: October 2002

The best and worst of boards; Regulation overdrive; Golden hellos vary widely; Safe haven status secure; Two exceptional qualities defined.

The best and worst of boards

In the 1990s there was a widely-held view that company performance was the only criteria and that excessive attention to conformance of regulations was merely a distraction. Now, no one is quite so sure. Nowhere has this change of attitude become more apparent than in the latest results from Business Week's annual US survey of best and worst boards. "There are already signs that boards are starting to demand more of their directors. Headhunters report spiking demand for independent directors – curmudgeons who will act as watchdogs, not lapdogs," says Business Week. So how does the magazine determine a "worst" board? Well, Tyson Foods Inc is a good example. There are 10 insiders on the 15-member board including founder Don Tyson's son. Five of the insiders are Tyson consultants and seven have extensive side deals with the company.

Regulation overdrive

In Australia, the conformance/performance arguments continue. At a recent Melbourne business forum Commonwealth Bank chairman John Ralph made the point that if share prices go up or down, it has more to do with cycles in the stockmarket and not necessarily a failure in corporate governance or lack of disclosure. The shareholders of Coles Myer and AMP may take a different view. However, Ralph is right in his assertion that additional regulatory burdens need to be avoided. No amount of black letter corporate law can protect investors from fraud.

Golden hellos vary widely

CEOs received an average golden hello of more than $15 million each, not counting base salary, performance bonuses, benefits or the value of stock options, according to the new report – Golden Hellos – by Paul Hodgson, Senior Research Associate in CEO compensation for The Corporate Library. Golden hellos – payments to get new CEOs to come on board – can range from the infamous, $45,000,000 paid to Gary Wendt by Conseco, down to the relatively insignificant, $150,000 awarded to Steve Odland when he joined Autozone. "If executives are compensated in full for unpaid and unearned short and long-term incentives regardless of whether the performance targets or service requirements have been met, then the incentive and retentive purposes of these payments are completely undermined," says the report. "Surely this is neither in the interests of companies themselves nor of stockholders."

Safe haven status secure

US Fund managers maintain that Australia will retain its "safe haven" status if the major economies of the US, Japan and Europe continue to struggle, according to a survey of major US institutional investors released by Orient Capital. However the findings of this report show that the effects of a global recovery on investment in Australian equities will see investors chasing higher growth potential in other Asian countries. "Global market forces are dictating US investor perceptions for the coming 12 months with capital flows being decided on whether a global economic recovery occurs," said Orient Capital CEO Frank Sufferini, who conducted the survey. He said respondents to the survey are evenly split in terms of their asset allocations into Australia over the next 12 months.

"Investors who believed that there would be little or no change in global markets or expected further deterioration in global economies would maintain or slightly increase their investments into Australia, highlighting our safe haven status in the Asia Pacific region." Sufferini said.

Two exceptional qualities defined

John Fairfax Holdings CEO Fred Hilmer entertained members and their guests when he spoke on "Leadership challenges in the 21st century", at an AICD luncheon in Sydney on Tuesday 24 September. He defined leadership as getting people to act or believe in ways in which they otherwise would not. Leadership is not just about seeing thing happening, but changing the pace of activity by making people think differently. A person, who has the ability to change people, must have these five qualities:

1. brains

2. energy

3. determination

4. the trust of your colleagues

5. ethical position

Hilmer said most senior business people have the first three qualities. It is the last two qualities which set true leaders apart. Possession of the last two qualities is the leadership challenge of the next century, he said.

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