'THE DAILY CORPORATE GOVERNANCE REPORT’ (for public company boards, the C-suite and GCs)

? ? ?Please see the items below with the related links (NOTE: access to link content may be metered, require a no-charge registration or require a paid digital subscription)

? ? ? ? ? ? ?(i)?the role of chairman and the increasingly common practice of the transitioning a retiring CEO to executive chair/former Aetna CEO on the role of executive chair: ? ?

? ? ? ? ? ? ? ? ?(a) As noted in this Aug. 29?Fortune?article, "Promoting your ex-CEO to executive chairman is a recipe for trouble. So why are so many companies making that mistake?",?64 of the Fortune 500 companies have an executive chair?who transitioned to that position from CEO, including at such major companies as?Nike, FedEx, Visa, Honeywell,?and?Southwest Airlines. Below are excerpts from the article (Note that the article begins with a brief recap of the recent CEO succession fiasco at Disney. For a fascinating inside look at that saga, see this featureCNBC story, "Disney’s wildest ride: Iger, Chapek and the making of an epic succession mess"):

? ? ? ? ? ? ? ? ? ?".....(T)he “executive chairman” phenomenon is an increasingly popular element of leadership succession. Whether that’s a good thing is far from clear.....Today 64 of the Fortune 500 have an executive chair, including major firms such as?Nike, FedEx, Visa, Honeywell,?and?Southwest Airlines.?

? ? ? ? ? ? ? ?? ??"Why this trend? Good question....(O)n average, the model doesn’t work well. Four years ago,?Spencer Stuart examined the performance of companies with an executive chair vs. those without one, measured by growth of shareholder returns within each company’s peer group;?recently the firm updated the study?to see if today’s weaker economy had altered the results. It didn’t. “In both time periods, companies with an executive chair underperformed those without one,” says Jason Baumgarten, head of?Spencer Stuart’s global CEO and boards practice,?who was one of the researchers......

? ? ? ? ? ? ? ??? "That result shouldn’t be surprising.?Most new CEOs want to make changes, and?“it is very difficult to have the former CEO sitting in the room,”?says Julie Daum, who leads?Spencer Stuart’s North American board practice. Paralysis may follow.?Appointing an executive chair and a separate CEO also confuses employees. “Who’s the boss?” says?Noel Tichy, a management professor at the University of Michigan’s?Ross School of Business.?“No one is sure. So people revert to what we all learned as kids—if you don’t get the answer you want from Mom, go ask Dad, or vice versa.”.......

? ? ? ? ? ? ? ? ???"Little wonder that?institutional investors such as pension funds and mutual funds, which own most of the shares in U.S. companies, don’t like executive chairs.?“They see it as somebody clinging on or inhibiting change,”?says Daum. ISS Governance, which advises institutional investors about how to vote on shareholder proposals at companies’ annual meetings, feels the same.......With all those forces pushing against the concept of the executive chair,?you have to wonder why companies increasingly use it.?“What is the problem this arrangement solves?” asks?Peter Cappelli, a management professor at the University of Pennsylvania’s?Wharton School. “If the idea is that the ex-CEO could then give the new CEO advice, why do you need an official role to make that happen? If the idea is that the ex-CEO should be telling the new CEO what to do, then why not just keep the old one on longer?”.......

? ? ? ? ? ? ? ? ???"The most common rationale for elevating the outgoing CEO to executive chair?begins with the growth of private equity firms. To run their portfolio companies, those firms often hire CEOs away from publicly traded corporations......Rather than compete with PE firms to steal sitting CEOs,?companies are increasingly promoting first-timers; 80% of new S&P 500 CEOs last year?were internal hires, the highest proportion in seven years.?Boards of directors sometimes feel these novices should be eased into the new job, and an executive chair, the thinking goes, can carry some of the burden, at least for a while.?The trouble is,?says Baumgarten, “there’s no clear financial evidence” that investors feel more comfortable about a succession if the former CEO stays on as executive chair.

? ? ? ? ? ? ? ? ? ???"A different rationale, never voiced publicly, is a response to the outgoing CEO’s power within the organization. “If the outgoing CEO wants to continue [with] a compensation package that is closer to that of a CEO than an on-demand consultant, it’s hard to do that without a more formal role,”?says Baumgarten.?The departing chief may also hold leverage if the board wants them to make unpleasant changes, such as firing a high-level executive or cutting costs, before handing over the CEO title.?Creating an executive chair position, says Baumgarten, may be?“practically important for a peaceful transfer of power.”........

? ? ? ? ? ? ? ? ? ??"The future of the executive chair position will be shaped by a three-way tussle among institutional investors, nervous boards of directors, and powerful outgoing CEOs.?Baumgarten predicts a continuation of the retiring-upward trend, “especially as the sense of macro uncertainty plays out.” What shouldn’t be in doubt in any succession is the true meaning of that seemingly bland title.?“When you’re executive chair, the buck stops with you,”?says Charles Elson, a corporate governance expert who has served on multiple boards. “It’s a title change with little meaning. You’re still running the show. Period.”

? ? ? ? ? ? ? ? ? The role of chairman is discussed further, with reference to the above article, in two successive?Fortune CEO Daily Newsletters, this one on?Sept. 7?"Shock resignations of CEOs Dave Clark and Roz Brewer reveal the risks of appointing an executive chair", and this one on Sept. 8, "An executive chair leads to corporate confusion: ‘Two people cannot occupy the same space and make the same decisions’", the latter featuring the thoughts?of?former?Aetna?CEO Ron Williams on the role from a LinkedIn post of his in response to the Fortune article. Below is from the first Newsletter:

? ? ? ? ? ? ? ? ? "......Walgreen’s CEO Roz Brewer.....stepped down?after just three years on the job.?Neither Brewer nor the company provided much detail..... But all signs point to strategic differences with the company’s former CEO and current “executive chair” Stefano Pessina.

? ? ? ? ? ? ? ? ??"Which raises the question: What is an “executive chair”? I’ve long been an advocate of independent board chairs as a means of providing accountability for the CEO.?But if that chair is also an “executive,” then is the CEO really “chief”? And if the executive chair is a former CEO, does the new one really have freedom to pursue change?

? ? ? ? ? ? ? ? ??"Fortune’s Geoff Colvin did a deep dive into this issue last month, which you can read?here. Some takeaways: The executive chair position is on the rise—up 50% over the last decade.?Today, 64 companies in the Fortune 500 have someone in the job, including?Nike, FedEx, Visa, Honeywell and?Southwest. Most of them—54 of the 64, and all those just mentioned—are also past CEOs.

? ? ? ? ? ? ? ? ? ?"Given the complexity of these companies, I get the desire for an orderly transition. Six months to a year of overlap between an old and new CEO may make some sense. That’s what Mastercard’s Ajay Banga, J&J’s Alex Gorsky, and IBM’s Ginni Rometty did. But beyond that, it quickly becomes cumbersome. Colvin cites a Spencer Stuart study showing companies with executive chairs significantly underperform those without.?And that should be no surprise.?In today’s rapidly moving world, having clear lines of authority helps companies navigate change. Having two bosses doesn’t....."

? ? ? ? ? ? ? ? ? ?Below is from the second Newsletter:?

? ? ? ? ? ? ? ? ? ".....?(S)ome feedback.?I received a lot of responses to?my post?on ex-CEOs becoming executive chairs—and not one favored the idea. A sampling: .......?And here is what former Aetna CEO Ron Williams posted on LinkedIn in response:

? ? ? ? ? ? ? ? ? "I have been a CEO, chairman and CEO, executive chairman, independent chairman, and lead director and board member. My view? The executive chairman role should be time limited. In my case I concluded that two people cannot occupy the same space and make the same decisions.”

? ? ? ? ? ? ? ? ?(b) As noted above, in response to the Fortune article discussed in (a) above on the role of executive chair, former?Aetna?CEO Ron Williams expressed his views on the subject in this LinkedIn post. Here is the complete post:

? ? ? ? ? ? ? ? ? ? ? "As Fortune's?Geoff Colvin wrote in late August, “promoting your ex-CEO to executive chairman might be a recipe for trouble." CEO?Alan Murray?added to the discussion this morning in his CEO Daily newsletter.?Alan references?the August 29 article, including a study showing that companies with executive chairs significantly underperform those without. He concludes: “In today’s rapidly moving world, having clear lines of authority helps companies navigate change. Having two bosses doesn’t.”

?

? ? ? ? ? ? ? ? ? ? ?"I have been a CEO, chairman and CEO, executive chairman, independent chairman, and lead director and board member. My view? The executive chairman role should be time limited. In my case I concluded that two people cannot occupy the same space and make the same decisions.?The executive chairman role can create an imbalance between the board and the CEO, and the executive chairman has the opportunity to color the board’s view, for better or worse.?

? ? ? ? ? ? ? ? ? ?"Plenty of questions can arise.?Does the CEO work for the board or for the executive chairman? ?If while serving as executive chairman you disagree with the strategic initiatives of the new CEO, is it because your initiatives and legacy are being scrapped or is it because you sincerely disagree? ?If you disagree but say nothing to avoid being viewed as protecting your initiatives, are you serving a useful purpose??When the executive chairman continues to function as if he or she were the CEO, it takes a strong board and a lead director who understands the business and can provide the board's perspective appropriately.?

? ? ? ? ? ? ? ? ?"The best approach for an exiting CEO and chairman is to serve for a brief period of transition – typically less than one year – and then turn over the keys and get off the stage. While there are rare exceptions -- founders, or key pivotal executives, who might have a unique perspective that adds value to the board --?it is my view that boards should be cautious about putting people in roles that can create organizational or governance confusion."

? ? ? ? ? ? ? (ii) fallout from?the?resignation of BP's CEO for undisclosed office relationship: renewed focus on?executive?office relationships and the vetting process for appointing a CEO: On Sept. 12,?BP?announced in this?press release?the resignation of its?CEO, Bernard Looney, over undisclosed personal relationships with workplace colleagues (see item (iv) from Sept. 13/23). This has put the spotlight on CEO and other executive office relationships, as well as the board due diligence process when appointing a new CEO, as discussed in a number of FT articles over the last few days.?

? ? ? ? ? ? ? ? ? ? (a) Below is from?this?FT?article last Friday, "Boards tighten the rules on executives’ office romances",?inter alia quoting?Johnny Taylor, independent director at NYSE-listed, logistics company?XPO, Inc.:

? ? ? ? ? ? ? ? ? ? ? ? "Johnny Taylor, independent director at logistics company?XPO, said a “hot topic” at a gathering of board members in New York this week.....was Bernard Looney’s abrupt resignation as BP chief executive.?Looney’s departure over the non-disclosure of past relationships with colleagues has returned boards’ focus to the reputational risks raised by romantic and sexual relationships at work, particularly when they involve the chief executive.?

? ? ? ? ? ? ? ? ? ? ? ? ? "Boards are increasingly?“distinguishing between what’s acceptable for the average employee and what will be acceptable for executives, in particular CEOs and members of the C-suite”,?said Taylor, who is chief executive of the US Society for Human Resource Management (SHRM).?Directors now habitually ask candidates for chief executive roles?“Have you been, or are you currently, in a relationship with someone who works here? If so, then you have to disclose it and then we as a business can go in [to the executive appointment] eyes wide open”,?he added........

? ? ? ? ? ? ? ? ? ? ? ? ? "Taylor said it was the threat of wider reputational damage as much as the legal risk that was driving boards to ban chief executives from starting new relationships with colleagues once in office. Boards were “not asking [chief executives] to take a vow of celibacy”,?he said. Instead, they were saying:?“There are 335mn people in America, and if [the company] has 50,000 employees, 50,000 are off limits.”........“People date at work and only a few of those people are ever going to become CEOs,”?said Taylor. But for that rarefied few, he added, directors’ attitudes are tightening. “Anything that calls into question or compromises the company’s reputation and goodwill is unacceptable.”

? ? ? ? ? ? ? ? ? ? ? ?See also this Bloomberg article last Friday, "Return to Office Brings CEO Relationships Back to the Forefront", also with reference to the BP affair.

? ? ? ? ? ? ? ? ? ? (b) Below is from this FT article on Saturday, "Sex, lies and magical thinking about CEO behaviour":

? ? ? ? ? ? ? ? ? ? ? ? ?"........Many employers now have much stricter rules on everything from sexual relationships to teasing and bullying, often extending to incidents outside the workplace. That shift recognises the fact that poorly handled workplace relationships, whether sexual or not, can create a culture of favouritism that silences people and saps productivity. This goes all the way to the top.?

? ? ? ? ? ? ? ? ? ? ? ? ?"Last year, fully half of the forced CEO departures among the 3,000 largest US companies were due to personal misconduct, up from 14 per cent in 2017, according to the Conference Board. The shift has caused some qualms. “How much should your employer be able to dive in and control your personal life?” asks Alison Taylor, a New York University professor who studies business ethics. “We’ve all tolerated [bad behaviour] for years but the correction opens up a lot of questions.”?

? ? ? ? ? ? ? ? ? ? ? ? ? "Two senior executives in different industries volunteered to me this week that they thought the ousting of Looney was due to a new wave of Anglo-American puritanism that we will one day regret. A talented CEO who was positioning BP to lead the energy transition should not have been felled by an active personal life, they said. That misses the point. Looney lost his job not because of sex but because of lies. The probe that prompted his departure marked at least the third time that the company had talked to him about personal relationships at work......

? ? ? ? ? ? ? ? ? ? ? ? ? "The first probe was opened after a complaint came in last year. The board concluded that the CEO, who had spent his entire career at the oil group and was single for almost all of that time, had not violated company policy. Without knowing the details, it is hard to judge whether that was the right call. But BP’s board did a wise thing: it asked Looney for written formal assurances that there were no further relationships or other matters that he needed to disclose. When another complaint came in with new details, Looney was sunk......"

? ? ? ? ? ? ? ? ? ? (c) Below is form this FT?article last Friday,?"BP chair rules himself out as next chief executive"?:

? ? ? ? ? ? ? ? ??? ".......A second major shareholder questioned whether the board had conducted sufficient due diligence when selecting Looney to run the company in the second half of 2019.? The nature of Looney’s resignation?“raises questions around BP’s ethics and culture?.?.?.?we are left wondering how it could still happen in companies of that size,”?the shareholder said.?“The real question we have is?.?.?.?how come the board was not stricter”.?

? ? ? ? ? ? ? ? ? ? ?"Looney is not the first BP chief executive to resign under strained circumstances over personal relationships. Lord John Browne resigned in 2007 after lying to a court over how he met his partner.?BP said there was a?“rigorous and thorough appointment process”?when Looney was selected to be chief executive in 2019. That included?“a thorough due diligence process pre-appointment, vetting of open-source data and interviews with Bernard”........

? ? ? ? ? ? ? ? ??"The first major shareholder said he understood that Looney had disclosed information about some past relationships to the board in 2019. “As long as the board was happy he made full disclosure. They did all that they could do,”?the investor said. “He was a good CEO for the business so I wouldn’t give the board a hard time for putting him in that position.”?

? ? ? ? ? ? ? ? ? ?"One person familiar with the CEO selection process said in the years prior to Looney’s appointment, the board and top BP executives viewed his romantic life and relationships as private and not the domain of the company.?He married in 2017 and was divorced by the time he became chief executive in February 2020.?Three people familiar with Looney’s appointment said any misgivings about him because of his personal relationships with colleagues were outweighed by his record at the company."

? ? ? ? ? ? ? ? ? ? (d) And below is from this FT article from last Friday, "How Bernard Looney’s career at BP unravelled":

? ? ? ? ? ? ? ? ? ? ? ? "......As is common in the appointment of senior executives, BP’s board discussed some of Looney’s past relationships during the CEO selection process. It concluded that there had been nothing inappropriate, that there was no suggestion of abuse of power, and that this personal history would not hinder his ability to do the top job, people familiar with process said.?

? ? ? ? ? ? ? ? ? ? ? ?"Others were less confident his romantic life would not present future problems.“We always knew it would come back to bite him,” said one person who has worked with Looney. “It was a question of when.” Industry executives and investors have raised questions about whether the board conducted the right level of due diligence when appointing Looney as CEO.....

? ? ? ? ? ? ? ? ? ? ? "(S)hareholders and current and former BP employees have been left asking exactly what happened: the company’s statement failed to address many questions, such as whether Looney’s conduct or the relationships he hid from the board were deemed appropriate for a person in his position. BP has not said whether any of the relationships occurred while Looney was in the top job. “The problem for any company is it’s just such a bad look,” said one veteran oil industry analyst. “For the public it risks looking like the company in question just doesn’t care.”

? ? ? ? ? ? ?? (iii)?some?words of wisdom?from Warren Buffett?(best quotes over his 93 years of life): Warren Buffett, the?"Oracle of?Omaha"?turned 93 (!)?on Aug. 30,?and in?celebration,?Fortune?published this article, "From ‘swimming naked’ to the ‘manic-depressive’ market to the billionaires whose inner jerk came out, here are Warren Buffett’s best quotes from the past 93 years." The quotes are divided into two main sections, "On investing", which includes 8 quotes, and "On life and relationships", which includes 11 quotes. Below is from the latter section:

? ? ? ? ? ? ? ? ????“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”

? ? ? ? ? ? ? ? ? ? ?“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”

? ? ? ? ? ? ? ? ? ? ??“By far the best investment you can make is in yourself.”?

? ? ? ? ? ? ? ? ? ? ? ? “Being given unconditional love is the greatest benefit you can ever get.”

? ? ? ? ? ? ? ? ? ? ? ? ?“Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.”

? ? ? ? ? ? ? ? ? ? ? ? ?“What we learn from history is that people don’t learn from history.”

? ? ? ? ? ? ? ? ? ? ? ? ? “Of the billionaires I have known, money just brings out the basic traits in them. If they were jerks before they had money, they are simply jerks with a billion dollars.”

? ? ? ? ? ? ? ? ? ? ? ? ?“You only have to do a very few things right in your life so long as you don’t do too many things wrong.”

? ? ? ? ? ? ? ? ? ? ? “Time is the friend of the wonderful company, the enemy of the mediocre.”

? ? ? ? ? ? ? ? ? ? ? “You want to associate with people who are the kind of person you’d like to be. You’ll move in that direction. And the most important person by far in that respect is your spouse. Marry the right person. I’m serious about that. It will make [a bigger] difference in your life. It will change your aspirations, all kinds of things.”

? ? ? ? ? ? ? ? ? ? ? ? “If you get to my age in life and nobody thinks well of you, I don’t care how big your bank account is, your life is a disaster.”

? ? ? ? ? ? ? (iv) press releases of the day:?

? ? ? ? ? ? ? ? ? ?(a) BP plc announced today in this press release the appointment of an interim CFO, as follows:

? ? ? ? ? ? ? ? ? ? ? ? "bp today announced that Kate Thomson has been appointed interim chief financial officer. Her appointment follows the appointment last week of Murray Auchincloss as bp’s interim chief executive officer.?Kate is currently bp’s senior vice president, finance for production & operations, responsible for the financial stewardship of and commercial partnering with the business globally. She has been with bp for 19 years, previously holding a number of senior financial roles, including group treasurer and head of group tax....."

? ? ? ? ? ? ? ? ? ?(b)?Bausch Health Companies Inc. announced yesterday in this press release?the resignation of its CFO "to pursue another opportunity", with a formal search process find a permanent replacement having begun,?as follows:

? ? ? ? ? ? ? ? ? ? ? ? "Bausch Health Companies Inc. today announced that Tom Vadaketh, Executive Vice President, Chief Financial Officer, has resigned from his role to pursue another opportunity, and will be leaving the Company effective October 13, 2023......A formal search process to identify Mr. Vadaketh's permanent replacement has been initiated.?If a permanent replacement is not in place at the time of Mr. Vadaketh's departure, the Company intends to appoint John S. Barresi, who is currently serving as the Company's Senior Vice President, Controller and Chief Accounting Officer, to the role of interim Chief Financial Officer. Mr. Barresi has more than 15 years of experience as a corporate finance executive."

? ? ? ? ? ? ? ? ? ???(c)?Hilton Worldwide Holdings Inc.?announced yesterday in this press release the appointment of a new General Counsel, as follows:

? ? ? ? ? ? ? ? ? ? ? ? "Hilton has named Anne-Marie D’Angelo as executive vice president and general counsel, effective Sept. 15, 2023. She most recently served as chief legal and government affairs officer at Molson Coors Beverage Company and has held General Counsel and leadership roles at several public companies, including public utility company NiSource and Global Brass and Copper Holdings Inc.?

? ? ? ? ? ? ? ? ? ? ? ? "D’Angelo reports to Christopher J. Nassetta, president and CEO of Hilton, and serves as a member of the executive committee......D’Angelo succeeds general counsel Kristin Campbell who, as previously announced, retires this month after a distinguished 12-year career at Hilton and more than 35 years as a respected leader in the corporate legal community."

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