IECG Newsletter, Issue 2, October 2016
- Message From the Executive Director
- Recent Happenings
- Upcoming Programs
- Corporate Governance Focus
- Member Spotlight
- Upcoming Event
- Contact Us
Welcome to this quarter’s edition of the IECG newsletter. My two classes in corporate governance have not had any problems finding news in the Wall Street Journal and other publications about issues with CEO compensation, board-of-director activity or other governance aspects. In fact, for the past several weeks, federal authorities have been looking into issues of top Wall Street financial institutions.
One IECG advisory board member, Marc Hodak, a compensation expert, was quoted in Bloomberg on September 14:
“Companies tend to forget that an incentive to perform is identical to an incentive to cheat” when coupled with lax controls, unrealistic quotas, or a weak ethical culture, says Marc Hodak, an adjunct professor of business ethics at NYU’s Stern School of Business and managing director of Hodak Value Advisors.
“Every large organization in the world has got these land mines of perverse incentives,” said Hodak. “It’s just a matter of degree to which of these things are allowed to run amok” because of those three factors.
Of other major problems stemming from “incentive to perform,” one big one is that the onerous regulatory agency known as the Consumer Financial Protection Bureau is probably now untouchable thanks to the shenanigans on Wall Street. Texas Congressman Jeb Hensarling, chairman of the House Financial Services Committee, recently introduced his American Financial Choice Act, which would significantly change how the CFPB is managed. Not only is that act perhaps dead in the water presently, the CFPB will probably continue to be one of the most unaccountable agencies in government, and it is due to the unethical and perhaps illegal activities of supposedly good financial institutions that have made this possible.
Executive Director, Institute for Excellence in Corporate Governance
CEO Survey – Private Company Governance Research Under Way
By Don Springer
Chairman and CEO, The Colton Group, Inc.
Institute for Excellence in Corporate Governance Advisory Board Member
CEO Survey — Private Company Governance was developed for the purpose of collecting market data from CEOs of private companies about their present understanding and implementation of corporate governance. In addition to basic metrics (ownership, size, industry and more), the survey asks if governance is formal or informal, proactive or reactive, and a host of other questions about strategy, risk, compliance and operations.
Dr. Suresh Radhakrishnan, IECG research director and Constantine Konstans Distinguished Professor of Accounting at the Naveen Jindal School of Management, poses the questions, “Is there a gap in what private company investors perceive as the need for governance and what is practiced? Is it any different from that of public enterprises? Our private company governance initiative is directed toward the thought leaders in this arena.”
How do companies define corporate governance? How do they implement governance? What is the value of good governance? What is a model for good governance?
The answers to these questions depend on where a private company finds itself in the company life-cycle. Is it a startup, a high-growth company, a mature company or a company in distress? The answers are further complicated by the types of companies, their ownership structure, the types of historical funding and their size.
These are the questions and complications that the institute’s Advisory Committee on Private Company Governance intend to clarify and answer. Besides Radhakrishnan, the committee is comprised of IECG Advisory Board members Dennis Cagan, Michael Grant, Mark Sinclair and Don Springer; and additional business executives with significant private company experience — Joe Dwyer, Brad Oates, Chuck May and Doug Milbauer.
As a directional guide, the advisory committee is using the definition of Excellence in Corporate Governance previously developed by the institute. That definition defines the key elements required to thoughtfully and proactively focus on strategy, risk, operations and compliance for the benefit of all stakeholders. Those key elements are people, processes, resources and culture. The advisory committee set its objective to define and model excellence in private-company governance through the right mix and use of these elements.
The survey has been approved by the UT Dallas Institutional Review Board and is being distributed to the marketplace, directly and through sponsoring organizations. The results will provide a view of private governance practice in the market today and highlight specific needs for further education and support. In October, a luncheon is planned to share survey results and reinforce the value of private-company governance.
While market-data collection continues through the survey, the advisory committee is making progress on developing an initial normative model of corporate governance for private companies. The completed model will yield a dashboard that can be used by companies and auditors for governance assessment. This model will continue to be revised and enhanced through ongoing academic research and changing market data.
These 2016 efforts will set the foundation for further research and market-data collection, yielding thought leadership on private-company governance. The information will be shared through future events, workshops, publications and assessment tools. With private-governance certification programs, the institute also can offer an advisor database and advisory services to the marketplace.
These multiyear initiatives will result in thought leadership on the value, assessment and implementation of excellence in corporate governance for owners, CEOs, and boards of private companies.
IECG Offering Executive Certificate in Nonprofit Governance
By Gregg Ballew
CFA, CIMA, Senior Vice President, Westwood Holdings Group
Institute for Excellence in Corporate Governance Advisory Board Member
Are you a member of the board of directors of a nonprofit organization and wondering how your board can increase its impact on the community it serves? Are you thinking about forming a nonprofit organization and have a long list of questions about the role of a board of directors? Has a friend asked you to join a nonprofit board and caused you to think about ways to prepare to be an effective board member from day one? If any of these questions are yours, the Executive Certificate in Nonprofit Governance program, offered by the Institute for Excellence in Corporate Governance at UT Dallas, may provide answers to your questions.
The Institute for Excellence in Corporate Governance has an excellent track record in providing resources to for-profit boards. The institute has discovered demand for board resources in the nonprofit sector of our community as well. The institute launched its first three-day nonprofit board governance program in the spring of 2015, and it has held two additional programs since then. The next class is scheduled to begin on November 17.
What can you expect from signing up? First, you will be equipped with a soup-to-nuts, A-to-Z overview of nonprofit board responsibilities, best practices and fresh ideas that you can put to work immediately. Second, you will meet other people who share your passion for being a great board member. Finally, you will get a glimpse of the impact that UT Dallas is having in our region based on the quality of both programs and faculty members who participate in the program.
Thought Leadership — CEgO Risk
By Mark Sinclair
CPA, CMA, Partner, Whitley Penn LLP
Institute for Excellence in Corporate Governance Advisory Board Chairman
To run a company you have to be confident and comfortable in the role, be surrounded by a competent and qualified executive team, and have a clear strategy and vision for success. If you have all of those components, what could go wrong?
The communication style of the CEO can have a major impact on success, and it often has consequences that may be unintended. The confidence and vision of the CEO can come across so strong that they impact the behaviors of the executive team, often in a very unfortunate and negative way. Team members may be afraid to tell the CEO what they are thinking if it is not 100 percent consistent with the CEO’s vision/direction, and/or they hide the truth to avoid what they fear will be negative consequences for them individually. Sometimes it is, in fact, a CEO ego problem, but sometimes it is a perceived CEO ego problem that is not the intention or desire of the CEO.
Over the years, I have seen multiple accounting frauds where the records were altered by someone for the sole purpose of not showing underperformance due to fear of the CEO reaction. And I have had multiple conversations with CEOs during which I told them that they were not always aware of activities or concerns of their team because people were afraid to communicate bad news because of the way he might react.
The same holds true at the board level when the CEO sets the agenda and runs the meeting with the expectation that the rest of the board will understand and agree with the positions he is presenting. Consensus is important, and he appreciates the positive votes that validate his positions. A “controller CEO” is one of the “dysfunctional personality types” that lead to reduced board effectiveness as outlined in Richard LeBlanc and James Gillies’s book Inside the Board Room: How Boards Really Work and the Coming Revolution in Corporate Governance (Mississauga, Ontario: John Wiley & Sons, Ltd.: 2005).
Lesson? Confidence and vision are needed. In fact, they are critical to success. But creating a positive environment of openness to feedback, ideas and suggestions is equally important. People watch how the boss acts, and they act accordingly. Success is rarely a one-person show.
CEO and Executive Chairman of the Board of DHISCO
Toni is CEO and executive chairman of the board of DHISCO, a hospitality technology company connecting 100,000-plus hotel’s rooms and rates to travelers worldwide.
Toni also served on the board of directors of Support.com (NASDAQ: SPRT), a cloud-based technology services company and as the chairman of Nom/Gov committee and on the compensation committee.
Toni most recently served as CEO for LockIN, an early stage paradigm-busting software-as-a-service e-Learning company. An entrepreneur and intraprenuer, she was also 10-year chairman of the board of Resolvity, a privately held intelligent interactive-voice-response company.
Toni was CEO of CAS Partners/Riverstone, where she integrated the acquisition of seven disparate property management services companies in the multi-family real estate market for more than 170,000 apartment units in 31 states with 5,300 employees.
Toni holds a Bachelor of Business Administration degree from Boise State University and is a member of the WomenCorporateDirectors Foundation. She is an investor in Texas Women Ventures and serves on the TWV Portfolio Advisory Board. She established the Tyson Johnson Memorial for Another Solution, Inc.; dedicated to fighting the disease of addiction.
CFO of Six Pillars Partners
Joe focuses on small to medium-size companies with less than $150 million revenue. This is centered on operationally improving companies by working with ownership, management, employees and customers on identifying market opportunities, internal control and system improvements, day-to-day operations and customer relationships.
Joe financially led Quik-to-Fix Food Products, which became part of Holly Farms and Tyson Foods; Sun Mark, which became part of SunGlass Hut; and Geo-Marine, which became part of Versar.
Joe also previously served as chairman of the Plano Chamber of Commerce and on many nonprofit boards.
Joe holds a BBA from The University of Texas at El Paso, an MBA from The University of Texas at Austin and is a certified public accountant.
The Board Dynamics Breakfast discusses future trends.