February 28, 2017

In This Issue

Preparing for the Board Meeting - Staying Private Until Armageddon - Nominate Your Board

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Tue, Feb 28, 2017

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Preparing for the Board Meeting

What you do between and before board meetings will increase the effectiveness of the private company board

We’ve all heard the quote: “Failing to prepare is preparing to fail,” which is often misattributed to Benjamin Franklin, but seems to come from UCLA’s legendary basketball coach John Wooden.  How should a private company ensure that the board meeting provides maximum value to the company’s ownership, management and board members?  It’s all in the preparation—and the communication that goes on with board members between the meetings.
At the Private Company Governance Summit 2016, three speakers offered their advice:  Dennis Chookaszian, the retired Chairman and CEO of CNA Insurance Companies, who has also served on 12 public company boards and 50 private company boards; Anne Eiting Klamar, a physician by training, who ran her family owned company for 15 years as CEO before becoming Chair; and Eileen C. McDonnell, Chair and CEO of Penn Mutual, the second oldest life insurance company in the US.
In This Article:
Anne Eiting Klamar, M.D., Chairperson, Midmark Corporation
Eileen C. McDonnell, Chairman and Chief Executive Officer, Penn Mutual
Dennis Chookaszian, Retired Chairman and CEO, CNA Insurance Companies
In preparing a board meeting agenda and supporting materials for directors, a good starting point is to review what the board should be focused on. That is, a board’s agenda and pre-meeting materials should be relevant to the board’s role.  According to Dennis Chookaszian, “Boards oftentimes haven’t answered the question:  why do we have a board?  What’s the purpose of the board?  You have your charter, and this is the question of what are the rights and decisions reserved for the shareholders.  Then your bylaws, which are the rights and decisions reserved to the directors. And then, your authorization procedures, which are reserved for management.  If you think about it like that, you can focus on the decisions you want the board to make, versus those you want owners and management to make, and then you start placing decisions in the appropriate place.”
“I spend a lot of time thinking about the culture of the board,” says Anne Eiting Klamar, Chairperson of Midmark Corporation.  “How do we maximize the effectiveness of the board when they come together, so there’s a safe environment, with collegiality, but where it’s safe to disagree and bring their best to the boardroom.  I want to make sure that our board culture gives us enough room to discuss, but also to get to where we need to land.”
Chookaszian also recommends an upfront discussion on the technological and logistical aspects of the board meeting.  Are cellphones on or off?  Do you use a board portal, and if so, is it okay to check email and browse the web?  Are there breaks, or do directors leave and return to the meeting as they wish?  “I’m on one board with 24 members, due to the integration of a merger.  The meetings run 4 to 5 hours without a break.  It’s like the US Congress, with directors coming and going, cell phones ringing.  That’s at the extreme of ‘anything goes.’  And other boards I’m on are on the other side, with no phones, and no interruptions.  And both styles can work, if they’re agreed up front.”
Setting the Agenda
The agenda for a board meeting should be set by the chairman or lead director, in concert with the CEO, and should be calibrated to the number of board meetings per year, the decisions which need to be made, and the amount of communication that occurs between board meetings.  Klamar’s board meets four times a year; Eileen McDonnell’s meets 5-6 times a year, with teleconferences in between if, for example, an acquisition is being contemplated.
For Klamar, the agenda revolves around the board meeting schedule, which begins the evening before with three committee meetings and a board dinner, followed the next day by a two hour educational session on the company, “because I believe board members need to be educated on our business,” with the remainder of the day devoted to the full board session.
“We give some expectations of the time to be spent on each topic,” adds McDonell.  “We’re not black and white about it.  But we are mindful of rightsizing the problems and issues, because not all problems are created equal.  Through chairs of committees, or lead directors, are you setting up a timeline that works?”
“Generally board meetings start on time, though they don’t always end on time,” notes Chookaszian.  “The policy I like to follow is—the time frame is the timeframe, and if you’ve run out of time you say, okay, we’ll carry this over to another meeting offline.  If you don’t do that, it gets exceedingly irritating to your board members.”
One way to manage the board’s agenda and time is to limit the number of PowerPoint slides used for each topic.  “One board I’m on, it’s death by PowerPoint,” adds Chookaszian.  “On boards I run, you only get three slides, with only a couple of bullet points. There’s not more than that on any topic we want to get across.  You can send as much material as you want in advance. And the board members will generally read them.  You’re discussing, not being presented to.”
Klamar tries to limit board presentations to six slides to an hour.  “That’s all you get, but we put a lot in the appendices, and the board members can read them or not read them.  I’m on the Board of Trustees of a university, and for one of our board meetings, we received 1,129 pages of reading the week before the board meeting.  So I’m really sensitive about giving our board members enough information to keep them engaged, but to keep that information flying at a pretty high level as well.”
The Preparation Process
Eileen McDonnell has been reinventing Penn Mutual’s governance process over the past few years, with the aid of her lead director Bob Rock (disclosure:  Bob is the Chairman of Private Company Director’s parent company).  “Bob and I spend a lot of time before and after our board meetings to ensure that our independent directors—we have only two insiders—are covering the materials proscribed to us by regulatory agencies as well as focusing on what our board wants to focus on.”
As a result, McDonnell rebuilt the board meeting preparation process (see illustration) around committee self-evaluations, the company’s charter, establishing meeting topics and agendas, preparation of materials, dry runs and pre-meeting calls.  Draft materials are distributed to management.  Then 10-12 days before the board meeting, dry runs are conducted, and the agenda and executive summary is finalized.  8-10 days prior to the meeting, draft materials are posted to the company’s board portal, a pre-meeting call with committee chairs is scheduled to review the agenda, materials and commentary, and then one week before the meeting itself, the final agenda and materials are posted to the board portal.  “During the dry runs, the Corporate Secretary creates the executive summary for the chairs of the various committees, and pre-calls with those chairs are conducted without my presence,” says McDonnell.  
Klamar pairs management presenters, especially younger presenters, with a board member who mentors them.  “They share their slides with this board member, and have a call with them prior to the board meeting.  Every presenter who goes into the boardroom knows that someone in there is in their corner.  And that’s really helped a lot, because the board wants to function as a team, and there’s one board member who is going to make sure that there’s that connection between board and management.”
Klamar is also cognizant, though, of the value of her board members’ time between meetings.  “I  have three sitting CEOs on my board.  They’re running companies and raising families.  We would never reach out to them and say ‘Do you have an hour for me to throw this at you?’  We do that as little as possible.  Other board members who are closer to retirement or have retired, we use their time a little more liberally.”
Between Meetings
That’s not to say that these board chairs don’t use the time between meetings to communicate regularly with their board members.  “The biggest mistake I made was not staying close enough to my board, not checking in frequently enough,” says Chookaszian.  “You can’t check in too frequently.”
Chookaszian finds what he calls ‘flash reports’ to be useful.  “On some boards, it’s a quick monthly one-pager, with revenues, expenses, profit and key performance indicators.   On operating boards, you might need this daily—daily occupancy rates in hotels, for example.  But the information and its frequency needs to be designed around its importance to the board.”
Klamar engages in ongoing communications with her board, from posting relevant articles to her board portal, to occasional in-person visits with board members.  “We have a lot of touchpoints.  It’s an ongoing conversation, not just a quarterly meeting.”
McDonnell is working through the proper balance of real-time information provided to board members.  Her predecessor but together a special note to the board, during the summer time period when the executive team is holding its annual planning off-sites.  “It gives us the opportunity to present headlines around sales, profits, trends and the impact of any news on the business.  This summer, I’m scheduling one-on-one meeting with each board member, to get an update on how I’m doing, the team is doing and how they feel the board is performing.”

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Staying Private ‘Until Armageddon’

The story of how Turtle & Hughes is staying private but embracing outside board members

How and why one of the largest electrical distributors in the country introduced independent directors to its board was the topic that engaged the Private Company Governance Summit 2016 attendees as a luncheon keynote during the full day of presentations on Thursday, May 12.
The company under examination was Turtle & Hughes Inc., a family business that also has the distinction of being one of the largest women-owned companies, not only in the New York area, where the company is based, but, indeed, in the United States. It supplies products and services to buildings all over the world, including the new Freedom Tower in lower Manhattan and, in a fun fact shared with the PCGS crowd, Turtle & Hughes has been lighting the Rockefeller Center Christmas Tree since 1936.
Jayne Millard is chief executive officer of Turtle & Hughes. Her great grandfather founded the company in 1923 but it was her great grandmother who ran it for 45 years — “with an iron fist,” Millard said. “I am happy to say that I came from a very strong gene pool that has served me well in my life.” The company’s fourth-generation CEO took the reins from her mother about seven years ago. Its revenues were $300 million then and are now at the $600 million level.
Millard took center stage at the PCGS program when she was interviewed by Julia Klein, another accomplished woman CEO of a private company, C.H. Briggs Co., a distributor of specialty building products headquartered in Reading, Pa. Rounding out the discussion of how Turtle & Hughes opened up its board to outsiders was Kathryn Swintek, a former investment banker who is now a managing partner with the Golden Seeds organization, which specializes in funding early stage women-owned and managed companies. Swintek was one of the early outsiders selected for the Turtle & Hughes board. 
Julia Klein began at the beginning, asking Millard when the company first started thinking about adding outsiders to the board. “About 15 years ago,” Millard answered. It was her father, she says, whose concern was “to see the company succeed to the next generation and beyond” who began to “think about removing himself and other family members from the board and adding external board members.” (Her mother put it more expressively when she indicted her wish for Turtle & Hughes to be privately held “until Armageddon.”)
Millard explained that Turtle & Hughes is more complex than simply being a distributer. It has three separate operating divisions: the traditional distribution/engineering business, a consulting company, and what she described as a “supply chain” company. “All have very different business models, with a certain amount of complexity and requiring their own level of expertise from the board,” she noted. She said she is heartened to have “a dynamic talent pool” of board members to draw from for guidance in leading these multiple operations.
When Klein turned to Swintek to ask what attracted her to consider joining the Turtle & Hughes board, it was the company’s three business lines that were seen as an opportunity to have an impact. Coming out of a large corporate background as she did, Swintek admited that “there is a tendency for people to operate in silos.” She said she saw a compelling chance to help Millard and the leadership team “drive forward the conversation about integration” and help foster “more sharing, trust, and participation” across the operating units. Swintek put emphasis on “the leverage you can get — one plus one equaling five, never mind two!”
Of course, also essential to Swintek’s decision to join the board were the talent and character of Jayne Millard and her leadership team. “When I met the other board members and the executive team I could feel a high integrity and commitment to excellence, which is very important to me,” Swintek said. “The company had a long and successful history. I could feel that Jayne had a real passion to carry on the family business and take it to the generations beyond.” Swintek admitted to a personal appeal to Turtle & Hughes: “Because I do have a strong and genuine interest in diversity and leadership, the generations of female leaders at the company resonated with me. We often talk about women taking on the tough assignments — Jayne’s great grandmother ran the business during the Great Depression.”
Sourcing new board members is always a challenge, and can be a fraught endeavor if you don’t get it right. Klein rightly sensed that the audience wanted to know how Millard and Swintek met. The answer was straight out of an old school governance manual — networking. “It was through a women’s leadership network that I was introduced to Kathryn,” Millard says.
“I asked Kathryn to join my board because I knew I needed more women in the room,” Millard stated. “I do believe that women can add tremendous value.” Swintek is one of two women on the six-member Turtle & Hughes board. Millard is happy with that gender diversity at the board level but she would like to see greater gender parity in the company’s executive ranks. “It is a very male dominated industry we operate in,” she explained. “We have a challenge. We are constantly sourcing a very specific type of employee — one with an electrical engineering background. We have strong push to source female candidates, and are getting better at it.”
Millard highlighted several of the other board members: “a gentleman who owns a successful engineering company, an attorney who also is an ex-governor of New Jersey, and an energy/utility person,” noting that “everyone brings an expertise to the table.” Pressed again by Klein on how the board influences her leadership of the company, Millard said, “They certainly influence my strategy. A lot of our conversations revolve around sales. We’re a very sales-driven culture. All of my board members put salesmen’s hats on at one point or another. We tend to have a dynamic dialogue about how we grow the business, how we manage that growth — which can be challenging — and how we want to diversify the business.”
Swintek chimed in that since she has been on the board the company has made three acquisitions, adding, “That’s been a big part of the deliberations in the boardroom — assessing the strategic value in making these acquisitions and then the post-acquisition integration plans, both what was intended to be and how the integration is being carried forward.” From her board member’s perspective in looking at future in-demand skill sets for the Turtle & Hughes board, Swintek identified two areas of expertise that will become “increasingly valuable”: “firsthand experience with cutting-edge human resource policy” and “more hardcore technology experience and skills.”
In wrapping up the discussion, Klein addressed a subject that is a crucial duty of any CEO and board member — ensuring succession. It was a subject much on Millard’s mind. None of the fifth-generation family members “are fully baked yet and won’t be for probably another decade or so,” she explained. What that means for Turtle & Hughes is that for the first time in the company’s 93-year history it may have a non-family professional manager at the helm. “The question then becomes, how do we preserve the family business culture, heritage, legacy, and core values of the family and the company?” Millard asked. “That’s my next challenge.” A challenge for which she will undoubtedly be gratified to turn to a board of outside experts to help her navigate. 


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