November 15, 2017

In This Issue

McDonald's Executive Relishes Private Boards - Governance Success Recipe - SurveyMonkey Adds Another Woman Director

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Wed, Nov 15, 2017

Featured Articles

McDonald’s Veteran Relishes Private Boards

Andrew McKenna, chairman emeritus, offers tips for private company directors. 

Private companies shouldn’t just try to emulate public boards — they should be even better.

That’s advice from Andrew McKenna, the chairman emeritus of McDonald’s Corporation who served as the fast-food chain’s non-executive chairman from 2004 to 2016. He’s also chairman emeritus of Schwarz Supply Source, a printer, converter, producer and distributor of packaging and promotional materials. And over the years he’s served on many civic, community and philanthropic boards.

“If you have a capable board of solid independent directors with sufficient diversity, and the company is a well-run company, it’s going to just enhance the whole organization,” McKenna says.

“In many respects, I find private company boards can even be more effective than public company boards,” McKenna notes. Public company boards must answer to regulatory agencies as much as to company shareholders. Since private companies are subject to fewer government regulations, their directors have more time to focus on strategy, succession and talent development, he explains.

At Schwarz, he appreciated the discipline inherent in board governance, as well as “the advantage of having people I could come to and say, ‘Hey, how would you handle this?’”

There is one area where a board’s expertise is essential, ­McKenna notes.

“I think maybe the single most important thing that any board does is pick the right CEO,” he advises. He knows this from experience. At McDonald’s, two CEOs were felled by illness within seven months, requiring emergency succession planning. (See related article on McDonald’s.)

Help for family businesses

Independent boards’ objectivity can help family business members manage their disagreements, he says, “if there’s a generational difference in strategy or philosophy or what have you.”

He recalls a family he knows who wrestled with a decision without the help of a board. Two brothers occupied the top two spots in the company.  “A would-be acquirer came along, and there was a difference of opinion among the brothers as to what to do,” McKenna says. One brother wanted to continue to grow the business; the other viewed the offer as an opportunity to cash out.

The brothers engaged a mediator. “The only solution they were able to come to was to sell the business, much to the dismay of one of the brothers,” McKenna says. An independent board might have led them to the same conclusion, he notes, “but they would have had a better view of the issue.”

McKenna says he had advised the family to form a board, but his suggestion was rebuffed. The brother who opposed the sale later told him, “We never had the opportunity to really talk about it in an open setting with people who understood the business.”  The business was sold more for emotional reasons than economic reasons, McKenna says.

   

McDonald’s Lost  Two  CEOs In  One  Year

Strong board & succession plans are the special sauce for weathering tragedy

Succession planning is a process, not a one-time event. After a new CEO is named, the board must begin immediately to consider who that person’s successor will be. To understand why, consider what happened at McDonald’s Corp. in 2004.

On April 19, 2004, McDonald’s chairman and CEO, Jim Cantalupo, died unexpectedly of a heart attack at age 60. Cantalupo, who had been on the job for just 16 months, died while attending a convention of McDonald’s owner-operators.

Less than six hours after Cantalupo’s death, according to news reports, the McDonald’s board was ready to name his successor. (It helped that many of the directors were together in Orlando for the convention.) Charlie Bell, 43, the company’s president and COO, was promoted to CEO. Andrew McKenna, who had been the board’s presiding director, was named non-executive chairman.

Bell, an Australian, had started his McDonald’s career as a part-time crew member in Sydney and rose through the ranks. “We had our eyes on this Australian as a very, very strong candidate,” McKenna explains. Cantalupo’s death had been a shock, but the transition looked to be smooth.

But the very next month, Bell was diagnosed with colon cancer. On Nov. 22, 2004, he announced he was stepping down to battle the disease. He died on Jan. 17, 2005, at age 44.

Once again, McDonald’s drew upon its deep bench to name a new leader. “We had two or three people who were at the stage where they should be considered” as potential future CEOs, McKenna says. “We had to accelerate that [process].”

At the same time that Bell announced his resignation, McDonald’s announced vice chairman Jim Skinner, a 33-year company veteran, would immediately assume the CEO’s post. Skinner retired in June 2012.

“An independent board can be very helpful in encouraging management to have an appropriate succession plan,” McKenna says. “And that’s the most vital single thing we do as a board.”

— Barbara Spector

 
   
   

Most business leaders who initially object to a board become “converts,” McKenna says. He describes a company whose founder opposed his son’s decision to create a board. “He fought it and fought it,” but now that the founder has seen how the board can help,  “it’s like it was his idea.”

How to build a board

McKenna offers tips on building a board.

•          Look for a cross section of skills. “It’s important to have a pretty good mixture of competencies and backgrounds,” McKenna says. “Obviously, you want capable people, you want people who will bring something to the party, you want people who will function independently.”

•          Beware of conflicts of interest. “You’ve got to be very selective in the people you pick to serve on the board,” he says. “They shouldn’t be serving because they’re friends of yours or your neighbor or what have you. They should be people with talent.”

•          Embrace diversity. Private companies should nominate a diverse slate of directors. “I’m a great believer in diversity of boards,” McKenna says. In addition to gender and racial diversity, he advocates diversity of talents.

“Let the board function as a board,” McKenna urges. He offers an example of a CEO who had assembled a solid board, “except he thought of the board as an applause society, there to cheer him on.”

The directors opposed an acquisition the CEO had planned. “It wasn’t a good fit for the company and was a major cultural disconnect,” McKenna says.  “He begged the board to do it, but the board did not support him.”  The CEO decided to take his board’s advice. A year later, the company he had wanted to acquire had a new leader with a different philosophy, and the deal made more sense.

The CEO “acquired that same company for less than half of what he would have acquired it for the year before, and he was able to understand the issue and the cultural differences, and make a few changes along the way,” McKenna says.

A reputation booster

Financial institutions and other funders look favorably on companies with strong boards.

“In the case of my own company,” McKenna notes, “we were negotiating with a major, major company for a very significant piece of business, and they wanted to know about our governance. And I was very pleased to be able to say, ‘We’ve got a board, and here are the talents and here are the people.’  We wound up getting the business. I think [the board] was one of the bricks in the building that helped us get there.”

Directors can give advice to polish a company’s image, ­McKenna says. “I know very well a story of a private company, well run, with a CEO whose outside image was not good,” although the business was strong.

The CEO, whose company was located in a small community, seated a board.  A director pointed out that the CEO did not play a role in the community. At the director’s urging, the CEO got involved, and good feelings reverberated through the workforce.

Director evaluations

McKenna opposes director term limits. “Sometimes really good directors become victims of the term,” he says.

Honest director evaluations are an effective way to get rid of underperforming directors, McKenna advises. “In one board I served on, we had to ask a director to leave — the evaluation was so poor that it left no argument,” he explains.

“I do agree that there needs to be some understanding that board refreshment is vital,” McKenna says. “If you have an understanding, and you ask the board to enforce it themselves, it’s amazing how it works.”

One example, he says, is a director retiring from McDonald’s board this year. “He’s a terrific director, but he served for 19 years. And he said, ‘I think if I don’t move on, it’s not a good example.’ That kind of thinking provokes others to think the same way.” 

 

 


Click here for the full article.

Governance Success Recipe: Independent voices, innovative compensation & an eye on the future

Creating the best private company board comes down to making room for independent voices, innovative compensation ideas and a clear view to the future, says Cheryl Mayberry McKissack, CEO of Nia Enterprises, who sits on public and private boards.

“The first thing you have to ask yourself is do you believe in governance,” stresses McKissack, director for the Donnelley Foundation and Founders First Capital Partners, LLC.

“I think everyone wants to improve the business and be successful,” she notes, adding that good governance can get you there. “It’s hard sometimes to pull back and put in energy to set up a governance process,” she explains, so you have to think of it as a process.

When it comes to setting up a governance structure, identifying a company’s biggest priorities should be the first step. Then, she says, you should look for board members with the skillsets that can help fulfill those priorities.

And get to know prospective directors well before you bring them on, she advises. That means meeting with them two or three times at least, and also bringing in family members, if applicable, to meet with them. This provides comfort to the director and to the company owners, she adds.

Independent voices

Trusting independent board members can be hardest in a family business. Finding the balance between family and board voices is difficult, but critical if a family business wants to succeed, says McKissack.

There is no “secret sauce” when it comes to finding that balance, she notes, “but what I have found works well are the [boards] that give the non-family members an equal voice.” Directors, she adds, want to feel as though they really have “a seat and a voice at the table.”

That’s one of the top things McKissack looks for when she’s considering taking on board positions with family owned companies.

“There are some nuances,” she maintains, but she wants to know the family will listen to her and respect her experience, in order to move the company forward.

She recommends appointing non-family members as chairs for certain committees and giving them leadership positions.

How can you, as a family-owned and private business, stay true to your roots while welcoming in experience from the outside?

Whether you are going to give non-family members and family members a 50/50 voice, or have one outweigh the other, she notes, “there needs to be a mutual respect.”

Innovative compensation

Certainly not all private boards have the kind of money to pay as much as a public board. If private boards are looking to include non-family members with experience on a public board, they may want to think beyond just pay.

For example, one of the private companies McKissack served on provided her, as well as the other members of the company, a certain amount of money to donate to charities of her choice. While this was in lieu of pay, it provided her an opportunity to give back and help drive the company’s mission, she stresses. 

Another incentive could be as simple as showing interest in what the independent director is passionate about. Offering to sponsor a table at an event they hold, or taking the time to really get to know them can prove very effective, she advises.

Looking at the future

Often, private companies don’t take the time to look towards the future as much as public companies. Taking some time to hone in on what your company wants and where you want to be can really identify the strengths that make it clear where you will go, McKissack says.

Take a few days every year, she continues, “and go on a retreat, get outside the office and find a place where board members can get together and talk about where the company is going.”

One of the things private company management and directors should discuss is how to oversee risk, specifically related to cybersecurity. Cyber breaches are a key issue and it’s not a matter of if but when, she stresses. “You will be hacked at some point.”

Companies need to have a process and guidelines, she points out, and there are key questions that need to be answered: How will you keep the business functioning? How will you communicate with customers? Taking the time to consider the future will give companies a leg up when something unforeseen happens, she points out. 


Click here for the full article.
 
 

DIRECTOR APPOINTMENTS

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Other Perspectives

SurveyMonkey Adds Another Woman Director

Former Yahoo! President appointed to online polling company board

By Barbara Wenger

SurveyMonkey continues its governance journey with yet another high-level women board appointment.

Susan Decker, who was Yahoo!’s president and serves on the boards of Berkshire Hathaway Corp., Costco Wholesale Corp., Vail Resorts and Vox Media, was appointed to the online polling company’s board of directors.

Earlier this year, SurveyMonkey appointed Tennis star Serena Williams to its board. Williams has been vocal about her desire to promote diversity.

In 2015, Facebook COO Sheryl Sandberg joined SurveyMonkey’s board. Her late husband was the CEO of the firm for six years before he died unexpectedly.

With the appointment of Decker, that bring the number of women to four among ten total directors.

Decker spent nearly a decade at Yahoo! serving at CFO and then president. Before Yahoo!, she was with Donaldson, Lufkin & Jenrette, where she was recognized by Institutional Investor magazine as a top-rated analyst for ten consecutive years. She is also CEO and co-founder of newly launched social networking app Raftr.

“Sue is an experienced leader, an entrepreneur and a renowned advisor to some of the brightest executives in the world across a myriad of industries,” said Zander Lurie, SurveyMonkey’s CEO. “She was pivotal in the transformation of several high-profile companies and has deep experience in strategy, finance and operations, which will be invaluable to SurveyMonkey in our journey.”

 
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