June 14, 2017

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Top Private Company Boards Named - Nordstrom Going Private?

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Wed, Jun 14, 2017

Featured Articles

2017 Private Boards of The Year Named

Blue Diamond Growers, Bush Brothers and Company, W.S. Darley & Co., Samaritan Medical Center and Diesco Ltd. excel in board governance

Five of the nation’s top private company boards were named as winners of Private Company Director, Directors and Boards and Family Business magazines’ second annual Private Company Board of the Year award. 
The winners are the boards of Blue Diamond Growers, Bush Brothers and Company, Diesco Ltd., Samaritan Medical Center and W.S. Darley & Co., all of which were honored for their exceptional work in board governance.
The award recognizes both fiduciary boards—those tasked with protecting shareholders and vote on decisions that are binding for company management, and advisory boards—more informal boards that have no binding regulatory role. Fiduciary board awards were broken down by company revenues.
The award was created to recognize those private companies who go above and beyond legal governance requirements and commit to the highest levels of governance, whether through fiduciary or advisory boards. The awards recognize the performance of the board as a whole.
Out of dozens of nominations received, 19 private companies were selected as semi-finalists, and eight boards were finalists. Because of the high quality of the finalists, the judges decided to recognize one advisory board, and four fiduciary boards at various levels of total company revenues. 
“The awardees serve companies whose revenues range from $20 million to $1.7 billion,” said Robert H. Rock, chairman of MLR Holdings LLC, the parent company of the magazines presenting the awards. “This shows that it’s not the size of the company that counts, but the company’s commitment to excellence in governance.”
The awards were presented in the following categories:
Advisory Board
Diesco, Ltd.
Based in Dominican Republic, Diesco is the largest diversified group of companies in the Caribbean Basin, with $130 million in revenues. The company was founded in 1957 by Manuel Diez Mendez. Manuel Vicente Diez Cabral is the second-generation sole owner of the business and serves as Chief Executive Officer and Chairman of Diesco Ltd.’s Advisory Board.
The company’s advisory board was formed four years ago to help guide the company’s spectacular growth. “The company got too big too soon,” Diez said. “We were under-delivering and underperforming, and needed external help to take us to the next level.”
Among the company’s governance highlights are a majority independent board members, a strategic focus that helped the business grow 150% in four years and a professionalism that attracted Goldman Sachs’ first ever investment in the Caribbean Basin.
“Our board gave us guidance on how to upgrade and invest in HR to run a more complex and larger organization, and they also provide accountability to me and the management team,” Diez said.
Fiduciary Board, Revenues under $100 million
Samaritan Medical Center
This 50-year-old family company owns and operates 18 medical office buildings in San Jose, Calif. The land the buildings are on was a former ranch, and is still owned, a century later, by members of the founding families. Four generations of ownership are involved in the business and revenues are under $20 million. 
The company’s board was formed 25 years ago, but began to professionalize when Dave Henderson, son-in-law of one of the owners, became president and began to add independent directors to the board. As Henderson said, “You reach a point in any organization, especially a family company, where you want outside perspectives, and a different kind of thinking around the board table.” The company took that idea and ran with it, modeling many public company best practices.
Among Samaritan Medical Center’s governance highlights are the creation of the board’s formal operating agreement, board makeup that evenly splits family and independent members, and three standing committees—finance, compensation and nominating—with formal charters.
“We are trying to adopt public company best practices, primarily around the concept of transparency—from operations to executive compensation,” said Samaritan chairman Richard Conniff.
Fiduciary Board, Revenues between $100-$350 million
W.S. Darley & Co.
Founded in 1908, W.S. Darley & Co is a fourth-generation family business, led by Paul Darley and an executive team that has transformed this 108-year-old company into a world leader in the firefighting industry and defense industry distribution and manufacturing. The company has recently been awarded major Department of Defense Contracts including an $85.1 million contract with the USMC in 2012. Revenues have grown from $25 million in 2003 to an estimated $220 million in 2017.
The company’s board was established in 1976, and has evolved since then with the addition of its first outside directors in 1990. Professionalization of the board picked up speed in 2008, as additional independent directors were added to enhance the skillsets and experience of the company. 
“We had a concerted effort to get the best of the best board members, very high profile people, but not to be there for lip service or to make us look good,” Darley said.
Among Darley’s governance highlights are the maintenance of an eight-member advisory board for the defense area, an increasingly diverse board, and implementation of majority vs. unanimous decision making (a difficult sell in a family business).
“The board members are all great at giving us their sincere feedback and their views on where they think we should be headed, and a pat on the back or saying they think we’re headed in the wrong direction when either is needed,” Darley said.
Fiduciary Board, Revenues between $350 million-$1 billion
Bush Brothers and Company
BUSH’S BEST® is the nation’s leading brand of bean products. Founded in 1908 by Andrew Jackson Bush, Bush Brothers & Company is headquartered in Knoxville, Tenn., and has production locations in Chestnut Hill, Tenn., and Augusta, Wis. The company, family-owned since 1908, is in its fourth generation of leadership and has 700 employees.
The Bush Brothers board was established in 1991 with an independent director majority from the start. It was designed to facilitate communication among the family branches and assist with the transition from the second to the third generation of ownership. Since then, the company has formalized all of its family and financial governance.
“I have been on 10 boards total over my career and I continue to marvel at the quality of the Bush processes [in strategic alignment, transparency and cultural fit],” said lead director Rick Searer. “This board has done the best job of taking time to ensure the board members fit.”
Bush Brothers’ governance highlights include term limits for family board members, a separate chairman, CEO and lead director, and two very successful leadership transitions.
“We built our board more or less internally and we’ve looked broadly for our independent directors, selecting executives from public companies in the food and beverage industry,” said chairman Drew Everett. “What we have tried to do is find a good cultural fit for our board and we have been intentional in developing a culture that supports our core objectives.”
Fiduciary Board, Revenues above $1 billion
Blue Diamond Growers
Headquartered in Sacramento, Calif., Blue Diamond® Growers is the world's largest almond processing and marketing company. Founded in 1910, the cooperative is owned by half of the state's almond growers who produce over 80% of the world almond supply. The California almond crop is marketed to all 50 states and more than 90 foreign countries, making almonds California's largest food export, the sixth largest U.S. food export and the number one specialty crop in America.
The Blue Diamond Board was formed at the inception of the cooperative 107 years ago, but 10 years ago, the co-op decided to reassess it’s governance structure. “The business was large, but average performing,” said independent director Don Yee. “We wanted to be not just the biggest, but the best.” 
At the time, Blue Diamond was generating $650 million in revenues. By 2016 those revenues grew to $1.7 billion, and 2017 promises even more.
Blue Diamond Grower’s governance highlights include democratic selection of inside board members (who serve some 3,000 shareholders), recruiting independent board members, and using board committees to education and groom the next generation of shareholder-leaders.
“We have a personal relationship with our shareholders,” said chairman Dan Cummings. “They’re our parents, uncles, aunts and children who will inherit the farms.”
Profiles of the winners will appear in the September issue of Private Company Director magazine. 

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Other Perspectives

Boards Can't Ignore Cyber Security

By Judy Selby

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In its new cybersecurity regulation, New York State's powerful Department of Financial Services squarely put responsibility for cybersecurity on the shoulders of directors and senior officers, requiring them to approve a mandatory cybersecurity policy and certify regulatory compliance.
And earlier this year, Yahoo revealed its general counsel resigned following an internal investigation that concluded that its recent data breach "was not properly investigated and analyzed at the time, and the company was not adequately advised with respect to the [associated] legal and business risks."  Yahoo's CEO agreed to forgo her annual bonus and equity grant because the breach took place during her tenure; and recently it was announced she’s leaving the company.

(Related article: How One Company Made Technology Expertise a Board Priority.) 

Without a doubt, accountability for cybersecurity has expanded way beyond the IT staff to the highest levels of corporate America. Today's directors and senior officers need to become educated as to cybersecurity risks and exercise documented and active, informed, and engaged oversight over cyber issues.

For private company directors, the stakes can be especially high, particularly in the M&A and IPO contexts, where poor cyber risk management can kill or devalue a deal, and the failure to appreciate and/or disclose material cyber-related risks can lead to claims of material misrepresentation or omission in registration statements and during road shows. 

(Related article: Private Companies Less Anxious About Cyber Attacks. )

Here are some recommended first steps directors and senior officers should take to satisfy their emerging responsibilities. 
Know what Questions to Ask
Consistent with their escalating cyber responsibilities, today’s directors and officers need to increase their knowledge of their entity’s cybersecurity risk profile.  Hard questions need to be asked concerning cyber issues, including the identification, location and security of mission critical and protected information, the company’s state of compliance with relevant laws and regulations, its cybersecurity programs, policies and practices, vendor management, and the potential financial impact of a security incident.
Cybersecurity should be included as an item on board meeting agendas, and serious consideration should be given to creating a formal cybersecurity committee. Since total reliance on the company’s “IT guy” or gal and general counsel for unbiased and comprehensive analysis of the company’s cyber risk profile may not be reasonable, retaining a third party cybersecurity consultant and counsel should be considered.
Directors and officers must treat the company’s cyber risks in the same manner they treat other corporate risks.  The level of risk the enterprise should mitigate, absorb, and transfer needs to be weighed.  In many cases, insurance for cyber risks may be a very wise choice.

Determine Current Cybersecurity State

It’s impossible to determine if an entity is cyber ready without first understanding its current state of cybersecurity.  This starts with a risk assessment, and then a gap analysis against its desired state. The desired state may be driven by regulation, industry standards, consumer expectations, corporate brand and reputation, and/or a multitude of other factors.  Once it ascertains the delta between the current and desired states, the company can prioritize its remedial efforts and decide on a plan to achieve its cyber readiness goals.

Prepare an Incident Response Plan

Research confirms that companies with a current and practiced Incident Response Plan (IRP) fare much better in the wake of a cybersecurity incident than unprepared companies.  Entities are urged to form a team of internal and external resources -- including legal, compliance, IT, human resources, public relations/communications, privacy, and finance -- to develop and rehearse an IRP that is well tailored to the company’s specific cyber risk profile.  The plan should be regularly reviewed and updated as necessary.  An appropriate IRP should be developed and rehearsed before a cyber incident occurs.

Employee Training and Awareness

Cyber incidents traceable to negligent and noncompliant employees continue to plague today’s enterprises.  All employees need to be educated as to the crucial role each of them plays in protecting the company’s information assets. 

In addition to providing regular, interactive and mandatory education training programs, companies should develop processes to inform employees of emerging threats and schemes that pose risk to the company.  Directors and officers should not exempt themselves from cybersecurity training and should prioritize a top-down a culture of cybersecurity readiness.




Nordstrom Family Explores Taking Retailer Private

Company board forms special review committee

[[{"fid":"958","view_mode":"default","fields":{"format":"default","field_file_image_alt_text[und][0][value]":false,"field_file_image_title_text[und][0][value]":false},"type":"media","field_deltas":{"1":{"format":"default","field_file_image_alt_text[und][0][value]":false,"field_file_image_title_text[und][0][value]":false}},"link_text":null,"attributes":{"height":320,"width":739,"style":"width: 250px; height: 108px; margin: 15px; float: left;","class":"media-element file-default","data-delta":"1"}}]]Nordstrom Inc.’s board of directors has formed a special committee as part of the Nordstrom family’s decision to explore the possibility of taking the retailer private.

The company said in a statement Thursday that members of the Nordstrom family formed a group to explore a plan that could involve family members buying 100% of Nordstrom’s outstanding shares of common stock. Members of the family group include Nordstrom’s Co-Presidents Blake Nordstrom, Peter Nordstrom, and Erik Nordstrom; President of Stores James Nordstrom; Chairman Emeritus Bruce Nordstrom; and Anne Gittinger.

A proposal has not yet been presented to the company board, and no time line was provided by the family.

The board’s special committee has retained Centerview Partners LLC to serve as its financial advisor.

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