'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) WTW on board oversight of human capital: As noted by WTW (Willis Towers Watson) in this article posted on its website on Oct. 3, "Why boards are focused on human capital governance and risk ":

? ? ? ? ? ? ? ? ? ?"Boards of directors are increasingly prioritizing their role in the oversight and governance of human capital.?They’re focusing on developments in labor markets, skill shortages, succession planning, retention, employee wellbeing and costs. And they’re watching new technologies such as AI, quantum computing and geopolitical risks. They view these efforts as critical to effective business judgment and necessary to company strategy and creating competitive advantage."

? ? ? ? ? ? ? ? ? WTW?discusses in the article six "actions that effective boards should take?regarding human capital governance." Below are four of them:

? ? ? ? ? ? ? ? ? ? ?"1. Lead holistic and strategic human capital discussions: Effective boards are broad in their discussions of human capital without getting bogged down by an overwhelming amount of data or narrow topics that have caught media attention.?They review human capital updates and scorecards from management,?asking key questions around context – such as historical trends and market benchmarks. They ask about connections to business priorities and whether there are material data gaps and what would it take to close them. They ensure management receives tangible and actionable feedback from the board. They encourage executives to vet materials cross-functionally in the organization and the C-suite before board and committee meetings.

? ? ? ? ? ? ? ? ? ? ? ?2. Create clear accountabilities of the board’s and committees’ roles in oversight and governance of human capital: Effective boards clarify the board’s role versus management’s role and what human capital issues are dealt with at the committee level versus with the full board. Committee and board charters reflect these accountabilities, with formulated processes for the board’s and management’s partnership. Effective charters include a meaningful level of detail covered regularly at the committee level while focusing full board deliberations on the most strategic human capital matters as appropriate. They also define accountabilities across committees for overlapping areas with audit and risk committees (for example, human capital disclosure, human impact on cyber risks and broader human capital risks). ?

? ? ? ? ? ? ? ? ? ? ? ?5. Make time for the CHRO to meet regularly with the board: Effective boards conduct one-on-one conversations with the CHRO, allowing for candid discussion about the organization’s people strategy. These conversations reinforce the partnership between the board and management in advancing the company’s talent strategy. Board members recognize that such conversations can be important complements to attendance at formal meetings to ensure the right conversations are happening in the right forum at the right time.

? ? ? ? ? ? ? ? ? ? ? ?6. Always remember that the board’s role is governance and oversight, not management and execution: Effective board members understand the business-judgment rule presumes that directors make good-faith judgments in material corporate decisions in the best interests of the stakeholders to whom they owe fiduciary duties. Such legal protection to directors stems from the core principle that separation of roles between management and the board is a core tenet of effective corporate governance....."

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? ? ? ? ? ? ? (ii) the benefits of age diversity on boards: Below is from this FT article last Wednesday, "Age matters when it comes to boards ", with reference to this report in October by AllianceBernstein, "The Case for Multigenerational Corporate Boards ", which inter alia notes that "5% of directors at the S&P 500 companies are under the age of 50, with nearly 70 per cent of directors from the 'baby boomer' generation":

? ? ? ? ? ? ? ? ? ? "In the drive for more diverse boardrooms, one factor often gets overlooked: age. A new report from Bernstein has revealed that just 5 per cent of directors within the S&P 500 companies are under the age of 50, with nearly 70 per cent of directors representing the baby boomer generation alone.?

? ? ? ? ? ? ? ? ? ? "It is understandable that those with the time and inclination to serve on boards tend to be in the latter stages of their careers and perhaps after they have finished their time as an executive. But this overlooks a critical point: multigenerational boards make better business sense. Bringing in a wider range of ages offers fresh perspectives that drive stronger operating performance,?build resilience and strengthen succession planning.?

? ? ? ? ? ? ? ? ? ?"The authors of the report, Bob Herr and Luke Pryor, cite research from the University of New Hampshire that found that the presence of directors from Generation X (those born between 1965 and 1980) on boards was correlated with better financial outcomes, which they measured by return on assets and price to book..... “Directors need the right mix of skills and experience to provide effective guidance and oversight. That often comes with time. But there’s a point at which boards may become too monolithic,” say Herr and Pryor. “We’ve yet to see any regulation or governance codes that address this issue.”

? ? ? ? ? ? ? ? ? ? "Boards have long leaned towards older generations, favouring candidates with extensive executive experience and established records. There is also often a bias towards the familiar, reinforcing closed recruitment practices and limiting boardroom opportunities for younger professionals who may be outside established networks. But a board that spans generations is also likely to be more reflective of the broader diversity of today’s workforce and consumer base, enabling companies to better navigate fast-changing markets and complex business challenges.?

? ? ? ? ? ? ? ? ? ? ?"As cyber security and artificial intelligence dominate boardroom discussions, younger candidates are increasingly being brought into the?fold, either as internal experts or external non-executive directors.?“When boards think, ‘do we have the right suite of skills among us?’, it is often people of a different, younger generation that are being brought in on these topics,” says Pavita Cooper, who works with boards and executive teams on corporate culture and building inclusivity......."

? ? ? ? ? ? ? (iii) the pros (and some cons) of the 'CEO lifer':?Last Monday, coincidently two different business news publications, the FT and Fortune, featured articles on "CEO lifers", ie., CEOs who have spent the bulk of their careers at the company at which they eventually became CEO,?some even rising from the position of intern. Among them: GM's?Mary Barra; Dave McKay at RBC; Walmart’s Doug McMillon; and HP's Enrique Lores. ?Below is from the FT article, "From intern to CEO: does it pay to be a company lifer? ":

? ? ? ? ? ? ? ? ? "......Elliott Hill......started at Nike as an intern. The appointment (as CEO)?is?a vote of confidence in the “CEO lifer”, a small cohort of top executives including General Motors’ Mary Barra; Dave McKay at Canadian bank RBC; and Walmart’s Doug McMillon, who have risen through the ranks of their companies over the course of many years......

? ? ? ? ? ? ? ? ? "Company lifers can bring substantial advantages to a business,?says Claudius Hildebrand, co-author of "The Life Cycle of a CEO " and consultant at Spencer Stuart, the executive search firm. “They foster continuity and enhance morale, as employees see clear pathways for their progression, which cultivates loyalty.” They have established relationships with shareholders, financiers and customers. The risk, however, is that executives who have spent their whole career in one company may have tunnel vision?and stifle innovation due to a lack of exposure to outside ideas and influences......

? ? ? ? ? ? ? ? ? "Monika Hamori, associate professor of human resource management at IE Business School, says there are some instances where leaders with external experience may be more useful than those who grew up in the organisation.?These might include “companies needing deep strategic changes, a turnaround, [or] companies in fast-changing industries”. However,?businesses that do appoint an outsider who lacks company-specific experience can underestimate the impact of disruption. At times, these hires can destabilise the top management team and risk “bringing routines and knowledge that used to work well in another organisation but may be a complete failure in a new company context”, adds Hamori......

? ? ? ? ? ? ? ? ? "The most common amount of time internal CEO appointments had worked at their company was between six and 10 years, according to Altrata. Among the largest US companies, 20 per cent of chief executives had spent more than 21 years at their company,?while 7 per cent in the UK had been there that long. One per cent of S&P 500 CEOs had worked at the same company for more than 41 years. “In the US, there is a substantial number of CEOs who were in the organisation for 30 years before they assumed the CEO position,” says Maya Imberg at Altrata. Most of these people would have held many different roles within their company, giving them a breadth of experience that external hires may lack. Hill, for example, has worked in more than a dozen roles at Nike, from a member of the sales team specialising in sports graphics to vice-president of global retail.

? ? ? ? ? ? ? ? ?"The world’s largest [companies] are enormous, often have products that are very different, have multiple brand names [and are in] multiple countries,” says Kimberly Whitler, associate professor of business administration at the University of Virginia’s Darden School of Business. “Understanding the complexity of such an organisation is best if you have extensive experience in different geographies and functions.” Duncan Wanblad, chief executive of Anglo American,?who has worked for the mining group for more than 30 years, points to his own experiences in “a variety of roles, and in different countries”....He adds: “Diverse experience is critical [for a leader], yes, but it is absolutely possible to obtain this in one company.”.......But CEO lifers argue that staying in a company accrues social capital and helps executives acquire the skills to navigate an organisation....."

? ? ? ? ? ? ? ? As mentioned, coincidently Fortune also published last Monday this article?on the same topic, "Nike's CEO climbed from intern to the corner office. Here are 11 Fortune 500 CEOs who did the same—and how long it took ":

? ? ? ? ? ? ? ? "Fortune?compiled a list of current Fortune 500 executives who’ve spent their careers at the same company.?It took these CEOs, on average, a little over 33 years to climb from the most junior position to CEO.?Many held strategy and operations roles along the way, as well as tech roles. Many also led high-visibility projects, oversaw company-wide transformations and M&A deals, and sought out new ways to streamline business processes." ?

? ? ? ? ? ? ? ? ?These are CEOs on the Fortune list, which also describes, in each case, his/her rise to the position of CEO and how long it took:

? ? ? ? ? ? ? ? ? ? ? ? Bob Iger, Walt Disney?CEO?

? ? ? ? ? ? ? ? ? ? ? ? Rodney McMullen,?Kroger?CEO?

? ? ? ? ? ? ? ? ? ? ? ? Mary Barra, General Motors?CEO

? ? ? ? ? ? ? ? ? ? ? ? Enrique Lores, HP?CEO?

? ? ? ? ? ? ? ? ? ? ? ? John Stankey, AT&T?CEO

? ? ? ? ? ? ? ? ? ? ? ? Arvind Krishna,?IBM?CEO

? ? ? ? ? ? ? ? ? ? ? ? Bob Jordan, Southwest Airlines?CEO

? ? ? ? ? ? ? ? ? ? ? ? Raj Subramaniam, FedEx?CEO

? ? ? ? ? ? ? ? ? ? ? ? Ron Vachris, Costco?CEO

? ? ? ? ? ? ? ? ? ? ? ? Elliott Hill, Nike?CEO.

? ? ? ? ? ? ? ? ? ? As regards HP?CEO Enrique Lores, note this Fortune article on Monday, "How HP’s CEO rose from intern to the corner office: ‘I was changing jobs almost every 2 years’ ", describing his journey from intern to CEO (joining the company in 1989 and being named CEO 35 years later in 2024).

? ? ? ? ? ? ? (iv) ADM's public disclosure of accounting issues requiring a restatement of financial statements/ADM adds AT&T's General Counsel to its board/press releases of the day: earlier this year, NYSE-listed, giant agricultural firm Archer-Daniels-Midland Company (ADM) put its CFO on "administrative leave" pending an investigation by the audit committee and outside counsel?of the company's accounting practices, later sacking him and appointing a new CFO (see item (v) from April 23/24, and item (iv)(b) from July11/24). Accounting issues again at ADM, as reported yesterday?in this WSJ article. "ADM Discloses More Accounting Issues, Cuts Profit Outlook ", and this FT article, "ADM calls off investor webcast after new confusion over its accounts’ reliability " (see also this Accounting Today blog post yesterday, "ADM still struggles with accounting, months after scandal ", and yesterday's Fortune CFO Daily Newsletter, "ADM’s multiple accounting errors and SEC probe are ‘highly concerning’ to investors "). Below is from ADM's preliminary Q3/24 earnings press release ?on Monday?disclosing the accounting issue and restatement:

? ? ? ? ? ? ? ? ? ?"........Restatement: Following ongoing dialogue with the staff of the United States Securities and Exchange Commission, the Company will amend the Company’s fiscal year 2023 Form 10-K (the “FY2023 Form 10-K”) and Form 10-Q for the first and second quarters of 2024?(collectively, the “Q1 and Q2 2024 Form 10-Qs”)?to restate the segment information disclosure (Note 17 included in the FY 2023 Form 10-K and Note 13 included in the Q1 and Q2 2024 Form 10-Qs) included in those filings. These restatements are not expected to result in any material impact on ADM’s Consolidated Statements of Earnings,?Consolidated Statements of Comprehensive Income (Loss), Consolidated Balance Sheets, Consolidated Statements of Cash Flow or Consolidated Statements of Shareholders’ Equity as of and for the periods presented. The restated filings will include corrections for newly identified errors related to intersegment sales (described below), will reflect the previously-corrected errors, and will provide disclosures applicable to restated segment information......

? ? ? ? ? ? ? ? ?"ADM is working to complete these restatements as soon as reasonably practicable. The determination to restate previously issued financial statements was made by the Company's Board of Directors, in consultation with management and the Company's independent registered public accounting firm. ADM is evaluating its remediation measures and is continuing to focus on implementing enhancements to its internal controls to remediate its previously identified material weakness,?taking action to enhance its integrity and accuracy within internal controls and financial reporting related to intersegment sales. Among other things, the design and documentation of the execution of pricing and measurement and reporting controls for segment disclosure purposes and projected financial information used in impairment analyses have been enhanced, and testing of these controls will continue throughout the balance of the year. Further, training for relevant personnel on the measurement of intersegment sales and application of relevant accounting guidance to intersegment sales has been provided and remains ongoing."

? ? ? ? ? ? ? ? Interesting to note that yesterday ADM?announced yesterday in this press release ?that its board had added as an independent, outside director AT&T's?current General Counsel,?as follows:

? ? ? ? ? ? ? ? "ADM’s Board of Directors today announced that it has elected AT&T Inc. Senior Executive Vice President and General Counsel David R. McAtee II as its newest member. McAtee has served as AT&T’s worldwide General Counsel since 2015......McAtee brings nearly a decade of experience advancing?all legal matters at AT&T, including governance, M&A, strategic planning, finance, supply chain, government regulation, compliance, data security and shareholder engagement. He serves as a trusted advisor to AT&T’s executive leaders and board of directors across a variety of complex operational and strategic issues as the company has adapted to a rapidly evolving technological landscape and positioned itself for continued organic growth."

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