'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) ?(more on) the role of executive chair: The fairly common practice of transitioning a retiring CEO to the position of Executive Chair continues, recent examples being?at 3M?(see item (iii) from March 12/24); AbbVie?(see item (iv)(a) from Feb. 20/24); and RTX Corp.?(formerly Raytheon)(see item (iv)(a) from Dec.19/23). The practice, however, has been the subject of a certain controversy recently, witness the following article and reports which have called into question the practice: this Fortune article,?"Promoting your ex-CEO to executive chairman is a recipe for trouble. So why are so many companies making that mistake?" (see item (i) from Sept. 29/23); this Jan. 2/24 Globe and Mail article, as to the practice in both the U.S. and Canada,"CEOs don’t retire any more – they ‘step down’ and become executive chair. Why?" (see item (ii) from Jan. 15/24); and this recent Spencer Stuart report, "When an Executive Chair Helps or Hinders Company Performance" (see item (i) from Feb.27/24).

? ? ? ? ? ? ? ? ? ?Last Wednesday Under Armour, Inc.?announced in this press release?that its Executive Chair (and founder) was replacing the CEO, and this prompted commentary on the appropriateness of the role in last Thursday's Fortune CEO Daily Newsletter, "Under Armour CEO’s shock exit is another example of the executive chair curse." Below are excerpts from the article, which also, note, refers to the recent departure "by mutual agreement" of Walgreens CEO, Rosalind Brewer?(see item (xi)(a) from Sept. 5/23):

? ? ? ? ? ? ? ? ? ?"Under Armour?announced yesterday that CEO Stephanie Linnartz is stepping down after just one year in the job and being replaced by—guess who?—founder Kevin Plank, who was her predecessor and had stayed on as executive chairman.?I can’t speak to who is better equipped to lead the brand. But I can, once again, say this: companies?need one CEO at a time.

? ? ? ? ? ? ? ? ? ? ?"It was only last September that Rosalind Brewer stepped down as CEO of Walgreens, where her predecessor Stefano Pessina had remained as executive chairman.?I’m sure both Brewer and Linnartz went into their jobs confident they had skills to handle the substantial egos of their respective bosses.?I’ll leave the gender analysis to others, but regardless of gender, human nature is what it is.?Any ex-CEO is going to feel the instinct to protect his or her legacy.?And any new CEO is going to see things that he or she?wants to change. When the two collide, who gets to make the call?......Keeping a prior CEO around as executive chairman for more than a very brief transition is a bad idea."

? ? ? ? ? ? ? (ii) (more on) the expanding role of CFO, and the trend of CFOs transitioning to CEO: Much has been written recently on the expanding role of the CFO, and the growing number of CFOs transitioning to the role of CEO (see, most recently, item (i) from last Wednesday, with reference to this report by global leadership advisory and executive search firm, Egon Zehnder,?"A Report on Shifting CFO Responsibilities"). More on this below, in this FT article last Thursday (also with reference to the Egon Zehnder?report), "Why more CFOs are becoming CEOs", as well as this Accounting Today blog post last Friday, "More CFOs transition into CEOs", the latter with reference to this Bloomberg article this January, "CFOs Are Grabbing More CEO Jobs" (see item (ii)(c) from Jan.17/24). Below is from the FT article:

? ? ? ? ? ? ? ? ? ? ?"......(T)hese days chief financial officers are also increasingly tapped for the chief executive role — from Margherita Della Valle at Vodafone to Murray Auchincloss at BP who both got the top job at a time of upheaval at their companies. As ever, when a crisis hits, call the numbers guy or gal. About a third of FTSE 100 CEOs have previously served as CFOs, data from executive search firm Heidrick & Struggles shows,?up from 21 per cent in 2019. This compares with 19 per cent in markets tracked globally by the firm. About 15 per cent of current FTSE 100 CEOs were CFOs immediately prior to becoming CEO,?versus the global average of 8 per cent. Marc Ronchetti at Halma and Chris O’Shea at Centrica are other more recent examples.....

? ? ? ? ? ? ? ? ? ? "But it is no longer just a UK phenomenon. Of the 674 companies featured in the Fortune 500 and S&P 500, 8.4 per cent of vacant CEO positions were filled by CFOs in 2023?— the highest percentage dating back to 2013, the first year of available data for the annual report by Crist Kolder Associates. In 2013, the level was 5.8 per cent. This is partly driven by the ever-expanding role of the CFO beyond the finance function. Over the past decade in particular, the role of the traditional bean counter has expanded to take in more responsibilities in everything from corporate strategy and deal activity to sustainability and data analytics.....

? ? ? ? ? ? ? ? ? ?"If they already deputise for the CEO both internally and externally,?why not go for the top job? Several chairs have said to me if their CEO was hit by a bus, it would be the CFOs who would step in. “Without a shadow of a doubt,” said one.....Crucially, CFOs are a known entity to the board, investors and the wider company. Board directors say companies seeking to hire new finance chiefs are doing so with the view that these candidates may one day fill the top job.? At a time of huge economic and geopolitical uncertainty, someone who is considered a safe pair of hands is surely no bad thing. “Everyone is guarding their reputations like never before,” said Mark Freebairn at Odgers Berndtson. 'CFOs are taking the top job more and more and will dominate chair appointments too. This says a lot about the future development of business leaders.'...."

? ? ? ? ? ? ? ? ? Below is from the Accounting Today?blog post, inter alia quoting Rich Brady, global chair of the Institute of Management Accountants:

? ? ? ? ? ? ? ? "A growing number of CEOs have been attaining the CFO job, with a record number of them reaching the top rung at the biggest companies last year. Bloomberg reported that 8.4% of S&P 500 and Fortune 500 companies promoted a CFO to CEO last year, citing data from the executive search firm Crist Kolder Associates, up from 5.8% a decade ago. Among them are Indra Nooyi of PepsiCo, Marrion Harris of Ford Credit, Chris Peterson of Newell Brands and Julie Sloat of American Electric Power.

? ? ? ? ? ? ? ? ? "CFOs bring crucial financial skills to the CEO role, but they must also learn new skills to navigate the top job at an organization, especially at a time of economic uncertainty......Increasingly, CFOs have become the right-hand person of the CEO,?he (Rich Brady, global chair of the Institute of Management Accountants) noted. "They tend to have a companywide enterprise perspective, and they also have a lot of knowledge of the financial levers for value creation in the organization," said Brady. "As a result, they have the ability to drive innovation in an organization and help manage risks, which are increasingly complex. As you look at globalization and what's going on around the world, there are a lot of risks out there that CFOs really have a strong handle on. Also, CFOs are leading in the area of digital transformation. That really allows them to?elevate up to that CEO role today, probably more than we've seen in the past.".......

? ? ? ? ? ? ? ? ? "Even without a formal title change, the role of the CFO is changing into more like a CEO. "This is really about the evolution of the CFO role," said Brady. 'Traditionally, the finance and accounting person or the CFO role was the standard capturing, recording and reporting of financial information. When I came into the field that's what we did 30 or 40 years ago, but that role of the CFO has been evolving. We're now really a business partner, a strategic partner in the organization and with the CEO, looking to help drive growth and value for the organization, because they've got that enterprise view of the organization. They understand the finance aspects and how to align your financial strategy with your overall business strategy to achieve your organizational goals and objectives. The broader picture is this change in the finance and accounting profession over the last 40 or 50 years, a lot of it brought about with technology that still is going to be driving change over the next five, 10 or 15 years.'....."

? ? ? ? ? ? ? (iii) retiring Costco CFO (after 40 years) on appointing an external successor, his role as CFO (and more): On Feb.6, Costco Wholesale Corporation?announced today in this press release?that Richard Galanti had confirmed his intention to step down as CFO effective March 15, 2024, to be replaced by Gary Millerchip,?the departing CFO of The Kroger Co.?(see item (iv)(a) from Feb.6/24). Last Tuesday, the retiring Costco CFO spoke with Bloomberg, and below are excerpts from the conversation, as reported in this Bloomberg article, "Why Costco’s CFO Stayed at the Company for 40 Years":?

? ? ? ? ? ? ? ? ? ? "Richard Galanti?is one of the longest-serving finance chiefs in the US. The 67-year-old became chief financial officer of Costco Wholesale Corporation in 1985 and has held the role ever since. As he prepares to step down on March 15 after nearly 40 years, Galanti talks about why he stuck around so long, (and) how his role has changed....

? ? ? ? ? ? ? ? ? ? ? "Your successor will be Gary Millerchip, the former CFO of Kroger. How come Costco chose an external candidate?

? ? ? ? ? ? ? ? ? ? ? ?Costco went external because while there were two logical internal possibilities, neither was prepared to commit another five to eight years to the company. I probably waited too long to retire and they were getting older. We have some great internal candidates for the future, but not yet. It’s my fault for waiting too long.

? ? ? ? ? ? ? ? ? ? ? "How much has Costco changed during your time as CFO?

? ? ? ? ? ? ? ? ? ? ? ?The underlying culture of the company hasn’t changed. It is what the founders wrote, the five things that you’re going to do, in this order: Obey the law, take care of your customers, take care of your employees, respect your suppliers — be tough, but fair. Then, reward your shareholders.

? ? ? ? ? ? ? ? ? ? ? ?"How about your role as CFO?

? ? ? ? ? ? ? ? ? ? ? ? Certainly we’ve gotten bigger and more formal. The day I arrived, there were 12 people in accounting and finance. We were a small private company losing a little money in the first few years. Today the accounting department that serves the US and Canada, which is 80% of our company, has about 520 people. And there’s maybe another 200 people in accounting in the 12 other countries where we operate. Everything’s become more automated. Of course, there’s more regulation today than before."

? ? ? ? ? ? ? (iv) CFOs on the new SEC climate disclosure rule and its challenges (particularly obtaining assurance on Scope 1 and Scope 2 emissions): Debbie Clifford?is CFO at Nasdaq-listed, engineering and construction software?company Autodesk, Inc., and Steve Soter is VP and Industry Principal at NYSE-listed, business-reporting software provider Workiva Inc.?Both (along with others) comment on the challenges of the new SEC climate disclosure rule in this WSJ article last week, "For CFOs Tackling Weakened SEC Climate Rule, Cost Challenges Persist":

? ? ? ? ? ? ? ? ? ? ?"The Securities and Exchange Commission may have dialed back the extent of its new corporate climate-disclosure rule, but finance chiefs still face plenty of challenges and costs as they prepare to comply......“I don’t think anybody looked at the rule and said, ‘Oh thank goodness, this is going to be super easy,’” said Steve Soter, vice president and industry principal at business-reporting software provider Workiva. “I?don’t think anybody’s saying that. But by comparison, it has gotten a little bit less effort-intensive.”?

? ? ? ? ? ? ? ? ? ? ??"The most challenging part of the rule for companies will likely be obtaining a high level of assurance on their Scope 1 and 2 greenhouse-gas emissions, Soter said.?Some companies’ sustainability teams aren’t used to the level of regulatory scrutiny that financial-reporting personnel are, but both teams will need to jointly own climate data under the new rules, Soter said.?The requirements could prompt companies to invest more in technology and seek consultants’ help to facilitate the review and strengthen their controls, he said. "To get all the way up to reasonable assurance, I do think that’s going to be fairly daunting for teams that are going to need to do that,” Soter said......

? ? ? ? ? ? ? ? ? ? ??"Autodesk, the San Francisco-based software company, made some nominal investments to enhance its team’s skills and capacity over the past year, making it well-positioned to comply with the new rule, Chief Financial Officer?Debbie Clifford?said.?The company will need to address certain SEC requirements, such as disclosures in its audited financial statement footnotes, she said. “Now that we have the specifics of the SEC ruling more squarely in focus, we believe that the investments we’ve already made will suffice for us as we look to comply,” Clifford said......"

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

? ? ? ? ? ? ? ? ? (a) McDonald's Corporation announced yesterday in this press release changes to the board, and that CEO would assume the combined role of CEO and Chairman, as follows:

? ? ? ? ? ? ? ? ? ? ? ? "McDonald's Corporation today announced the retirement of Enrique "Rick" Hernandez, Jr. as non-executive Chairman of the company's Board of Directors,?effective as of the date of the Company's 2024 Annual Shareholders' Meeting. Following Rick's retirement,?Chris Kempczinski?will assume the combined role of Chief Executive Officer and Chairman of the Board, and?Miles White?will assume the role of Lead Independent Director.?The Company also announced the nomination of?Mike Hsu, Chairman and Chief Executive Officer of Kimberly-Clark Corporation, as an independent director of the Board......

? ? ? ? ? ? ? ? ? ? ? "(S)aid?Rick Hernandez, McDonald's Chairman of the Board.....'Having served alongside Chris, who is now in his fifth year as CEO, I know he is uniquely placed to unify the two roles of CEO and Chairman to ensure McDonald's advances in lockstep with today's ever-changing business and social landscape'.......";

? ? ? ? ? ? ? ? ? (b) NYSE-listed Norfolk Southern Corporation announced yesterday in this press release?the appointment as its new chief operating officer the current chief transformation officer at Canadian Pacific Kansas City Ltd. (CPKC), replacing Norfolk's current chief operating officer who is departing "to pursue other opportunities", as follows (Note that Norfolk is paying CPKC $25 million to waive the new COO's non-competition agreement with CPKC):

? ? ? ? ? ? ? ? ? ? ? ? "Norfolk Southern Corporation announced Wednesday the appointment of?John Orr?as executive vice president and chief operating officer, effective immediately. Throughout his four-decade career, Orr has earned a reputation as a proven leader in applying scheduled railroading principles to drive sustainable long-term value creation. He spearheaded the turnaround of Canadian Pacific Kansas City's (CPKC)?Mexico operations.......?

? ? ? ? ? ? ? ? ? ? ? "Orr will oversee Norfolk Southern's railway operations, including safety, transportation, network planning and operations, engineering, and equipment maintenance......He will report directly to Norfolk Southern president and chief executive officer?Alan H. Shaw.?In connection with Orr's appointment,?current chief operating officer?Paul Duncan departed the company to pursue other opportunities.....Orr joins Norfolk Southern from CPKC, where he served as executive vice president and chief transformation officer, and oversaw network operations planning and design, labor relations, and regulatory affairs.....

? ? ? ? ? ? ? ? ? ? ? "As a reflection of Orr's unique set of skills and experience and his expected impact on long-term value creation, the company has entered into an agreement with CPKC that offers certain financial and commercial considerations in exchange for a waiver of his non-compete provisions. Norfolk Southern has agreed to a one-time payment to CPKC of?$25 million,?make certain commercial and operational considerations related to the Meridian Speedway and the Meridian Terminal, and abide by temporary non-solicitation and non-hire provisions regarding a short list of CPKC employees."

? ? ? ? ? ? ? ? ? ? ?Terms of the Offer Letter between the new COO and the company are summarized in the related Current Report?filed with the SEC;

? ? ? ? ? ? ? ? ?(c) Norfolk Southern Corporation?announced last Friday in this press release?the appointment of new chief compliance officer and a new chief communications officer, in both cases reporting to the Chief Legal Officer,?as follows:

? ? ? ? ? ? ? ? ? ? ?"Norfolk Southern Corporation announced Wednesday that it has appointed?Betsy Talton-Buck?as vice president and chief communications officer, and?Angie Kolar?as vice president and chief compliance officer. Both appointments are effective?April 9, 2024, and will report to Executive Vice President Corporate Affairs and Chief Legal Officer?Nabanita Nag.

? ? ? ? ? ? ? ? ? ? ?"Talton-Buck joins Norfolk Southern from Delta Air Lines, where she spent 20 years of her career and most recently served as vice president – global public relations and reputation......In a new strategic role for Norfolk Southern, Kolar will be responsible for overseeing the company's business ethics and compliance function, with a comprehensive enterprise-wide mission of driving a culture of strong oversight and controls. Kolar will serve as a key advisor to Norfolk Southern's leadership on matters of regulatory compliance and compliance culture.?With 20 years of experience at Colonial Pipeline, a company with a similar operations focus and workforce to Norfolk Southern.....";

? ? ? ? ? ? ? ? ?(d) NYSE-listed, health and wellness company Herbalife Ltd. announced yesterday in this press release?a "CFO transition", as follows:

? ? ? ? ? ? ? ? ? ? ?"Herbalife Ltd., a premier health and wellness company, community and platform, today announced the appointment of John DeSimone as Chief Financial Officer, succeeding Alex Amezquita who will remain with the Company.?Mr. DeSimone has been an executive at Herbalife for the past 17 years, including more than 8 years as CFO from 2010 – 2018 and 4 years as President and Co-President from 2018 – 2022.?Most recently, he served as a Special Advisor to the CEO......"

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