Jan, 2009

Best of the best

Rising stars of governance
Rising star

By Anna Snider
Judges in the inaugural Corporate Secretary Magazine Awards set out to identify the best newcomer to a governance or compliance role. There were many outstanding candidates, and the ultimate decision was a difficult one, leading the panel to choose joint winners — Douglas Chia, senior counsel and assistant corporate secretary at Johnson & Johnson, and Laura Lonsdale, ombudsman at Tyco International.

Honorable mentions for the award sponsored by TMF went to CA’s Alan Srulowitz, Freescale’s Larry Parsons and MHI Hospitality’s Julia Farr Connolly.
Chia and Lonsdale excelled in relatively short periods in key positions and with strong mentors. Neither had set out for the compliance field when in law school, but they were tapped for the roles. ‘I didn’t even know such a job existed when I was in law school,’ says Chia, who has a JD from Georgetown. ‘I went to law school wanting to be a prosecutor of white-collar criminals.’

Like many in compliance, both winners got their grounding in demanding jobs at major law firms. From 1997 to 2004, Chia worked both in Hong Kong and New York for Clifford Chance and Simpson Thacher & Bartlett handling securities offerings and cross-border deals. Lonsdale did a stint on the corporate law team of Gunderson Dettmer. (She will be featured in depth in additional awards coverage in the February edition of the magazine.)

Though Chia says he and his wife loved living in Hong Kong, he grew bored of the work and decided to go in house to Tyco, in the aftermath of its accounting and governance failures, where he focused on rebuilding the governance and compliance structures as an assistant general counsel. After two years there, he moved to Johnson & Johnson where his set of responsibilities includes corporate governance, securities regulation, public company disclosure and Sarbanes-Oxley compliance.

Since then, Chia has become a familiar figure on industry panels and corporate law working groups, and made a mark with his perceptive, lively and often funny input. ‘Doug is energetic, insightful and has a real passion for finding solutions, as opposed to lamenting problems,’ says Susan Ellen Wolf, corporate secretary and vice president-corporate governance and associate general counsel at Schering-Plough.

It is clear the compliance role fits him, and he is even encouraging others in this somewhat obscure career path. ‘I definitely tell law students and younger law firm associates to think about corporate governance as a specialty and the corporate secretarial practice as a career path,’ he says. ‘I especially encourage members of minority groups to consider the corporate secretarial career path as it’s one way to distinguish yourself from other corporate lawyers and it has become a real growth area for corporate law departments.’

He has become a bit of an organizer in the New Jersey corporate law community, and beyond. Some of this work includes organizing experts locally to update lawyers on new issues, filing comment letters to the SEC on industry issues, working with Broadridge to address flaws in e-proxy delivery, and participating in investor forums on ‘say on pay’.

This is a mantle he says he inherited from Mike Ullmann, Johnson & Johnson’s former corporate
secretary who hired him. ‘He was really the one who introduced me to the broader corporate secretary community and encouraged me to get involved,’ Chia says. ‘From there, the networking, organizing and speaking came pretty naturally to me since those are the kinds of activities I have always gravitated to since my days as a student.’

In his undergraduate days at Dartmouth, Chia was both junior and senior class president, and says he enjoyed student assembly, serving on committees with deans and professors, and representing students to the board of trustees. ‘The lessons I learned and the skills I developed through those activities proved to be invaluable when I eventually entered the workforce years later,’ he says.

Chia is a member of both the Association of Corporate Counsel (ACC) and the Society of Corporate Secretaries & Governance Professionals (SCSGP), getting different things out of both. ‘The ACC exposes me to the broader practice of a general counsel or corporate generalist, while the Society focuses me on the corporate governance and securities practice in a way that the ACC is not able to,’ he says. ‘The two memberships have complemented each other very well and I highly recommend both organizations to my counterparts.’

The lawyer says he looks for role models in those he meets through his association with the SCSGP, particularly practical consensus-builders. ‘On a more general level, the public figures that I look to as role models would include Colin Powell and Barack Obama, again for the way they carry themselves in extreme pressure situations and try to focus on practical solutions over political ones,’ he says. ‘On a personal level, any father who is able to raise good-natured, well-adjusted and intellectually curious kids is a role model in my mind. I’ve got four of my own (twins age 5 and twins age 1), and am trying the best I can.’

Anyone who has seen the list of responsibilities of those in compliance-oriented jobs knows they are pressure-filled. Chia says he is deeply reliant on Johnson & Johnson’s corporate secretary, Steve Rosenberg, and the team of professionals in the office of the corporate secretary, Linda Piscadlo, Linda King, Laura Giacino and Cathy Skurka. ‘I’d be lost and floundering around without them,’ he says.

Leading the responsibility race
Most innovative CSR policy disclosure

By Carolyn Iglesias
It should come as no surprise that Gap, which includes such brands as Banana Republic, Old Navy and Piperlime, won the first Corporate Secretary Magazine Award for ‘Most innovative CSR policy disclosure’. Over the years, this specialty retailer of clothing, accessories and personal care products has won recognition and awards for its social responsibility reporting, sustainability practices and business ethics. But it takes far more than beautifully written CSR reports or social responsibility pages on the corporate website to earn this level of acclaim. It takes an unwavering corporate commitment to instill and monitor socially responsible practices among employees and business partners, and to initiate remedial action if necessary.

‘We believe we should go beyond the basics of ethical business practices and embrace our responsibility to people and to the planet,’ says the company on its website. ‘Social responsibility is fundamental to who we are and how we operate as a company.’

‘Gap’s social responsibility approach focuses on three main areas that are most integral to our business: the ethical sourcing of our products, giving back to the communities impacted by our operations and lessening our impact on the environment,’ explains Geoffrey Geist, manager of strategy and communications, global responsibility. He previously served as the company’s vendor compliance officer for North America. ‘I’ve primarily focused on ethical sourcing, working with the vendors and factories that produce our goods in order to improve conditions for workers over the long term,’ explains Geist.

Taking responsibility for others
According to Geist, the cornerstone of Gap’s social responsibility program is the company’s commitment to the ethical production of its garments. However, the fact that Gap doesn’t own the factories which make its garments creates challenges. In 1996 Gap became one of the first companies in their industry to establish a code of vendor conduct. Based on internationally accepted labor standards, the six-page code details Gap’s expectations for the factories it does business with as well as for the company’s subsidiaries, divisions, affiliates and agents.

Not only does Gap’s code of vendor conduct address such key areas as compliance with local laws and the implementation of sound environmental practices and policies, it also lays out very detailed requirements for labor and for safe and healthy working conditions. Besides agreeing to abide by the code, factories that work with Gap must develop ‘monitoring systems’ to assess and ensure their compliance. Gap also conducts its own monitoring through an internal global team. Factories found to violate the code may face termination or be required to take corrective action. While any violation of the code creates concern, the company pays special attention to serious situations such as forced or child labor or to frequent violations in the area of health and safety.

Kellie McElhaney, co-faculty director, center for responsible business, adjunct assistant professor and John C Whitehead distinguished faculty fellow in corporate responsibility, Haas School of Business at Berkeley, says Gap is quick to act and comes clean if they discover a situation that violates their code of conduct. ‘This is a company that takes their commitment to social responsibility very seriously, tells the truth and tells it fast, which is a strategy that we don’t see much of any more,’ says McElhaney.

‘Gap has a very in-depth corporate responsibility strategy. It’s very much focused on their scariest question which is the factory conditions in which their clothes are made,’ continues McElhaney. ‘I think that’s the strength of their strategy.’

It’s not just about the good things
‘A lot of companies deal with different things in the area of corporate social responsibility,’ adds McElhaney. ‘What I think is different about Gap is that they focus on where they’re most vulnerable.’

The company has an internal team of more than 80 people around the world who are dedicated to working with the factories that make their products. Geist, a company employee for more than 10 years, says the most significant change he has observed has been the ‘evolution from a compliance/regulatory-oriented group to one that combines compliance with an increased focus on capacity building and management training. … It has been an important shift to empower factory owners themselves to take ownership of the improvements in working conditions. While we maintain a comprehensive code of vendor conduct with each of the factories we contract with, our role has increasingly been as a consultant, providing guidance to factories on how to address the root causes of issues in their facilities before they become compliance violations.’

Geist says that one challenge faced by Gap and others in their industry is ‘creating a culture of compliance’ that instills a sense of ownership in factory management. ‘I’ve seen firsthand that factories that improve working conditions and treat their workers with dignity and respect frequently have less employee turnover, which leads to longer-tenured workers who produce higher quality work more consistently,’ comments Geist. ‘Improved working conditions have an impact on the bottom line.’

Geist anticipates Gap will continue to work toward building the internal capacity of vendors and factories. ‘Our experience is that when we help to improve things like management systems within factories we help to effect positive, long-term change for factory workers.’

Another way Gap effects positive change is by investing in the communities where they do business. In India, for example, the company recently launched a program called Personal Advancement and Career Enhancement (PACE). ‘This program seeks to improve the lives of female garment workers through education and life skills training,’ explains Geist.

‘Over the past decade, I’ve seen the evolution of Gap’s social responsibility program and believe that we are helping to lead the industry toward increased awareness of supply chain issues and, ultimately, better working conditions for garment workers around the world,’ he concludes.

In taking home the award for best CSR disclosure, which was supported by Jenner & Block, Gap beat out some very strong competition in the form of American Electric Power, Ford Motor Company, Johnson & Johnson and Motorola.

A lifetime of achievement
Lifetime achievement

By Janine Armin
Ira Millstein, respected pedagogue, consummate attorney and revered thought leader, was picked by his peers to win the ‘Lifetime achievement award in corporate governance’ sponsored by Georgeson. A senior partner at Weil, Gotshal & Manges, he is widely praised for being a trailblazer in the corporate governance realm. An advocate for improving corporate governance through dialogue and consensus-building, he helped launch Yale’s corporate governance center (renamed in his honor as the Millstein Center for Corporate Governance and Performance in 2006), not so experienced practitioners in the fields of business, public policy, academia and governance could be lectured to, but so they could converse with their peers and generate thoughtful discussion.

As senior associate dean for corporate governance and Eugene Williams Jr visiting professor in competitive enterprise and strategy at the Yale School of Management, Millstein continues to inflect his attuned approach to governance, built on a lifetime of experience. ‘All the companies I represented, the speeches I made and the contacts I have all over the world led me to believe that it would be wonderful to have one place, without a bias and without any necessary agenda, where people could come and discuss the most important issues in corporate governance and conceivably come up with either recommendations or principles to improve the system,’ he explains.

Millstein has witnessed the positive effects of providing a forum for discussion firsthand, for example, through the formation of industry membership groups and thought papers that emerged as a result of the Millstein Center’s convening power. ‘We have established a forum for independent chairs of mutual funds and one for independent chairs of corporate boards. Roundtables for each group have provided an opportunity to share ideas and experiences, and to potentially create a set of best practices. Additional gatherings of industry experts have also resulted in a series of policy papers on various topics including how rating agencies factor governance into their ratings, the integrity of proxy voting and board-shareholder communication around the issue of executive compensation,’ he says.

His knowledge of antitrust, government regulation and corporate governance matters was generated during an expansive and diverse career which includes being a board member and former chairman of the Board of Overseers of the Albert Einstein College of Medicine, chairman emeritus of the Private Sector Advisory Group of the World Bank/Organisation for Economic Cooperation and Development (OECD) Global Corporate Governance Forum and a board member of the National Association of Corporate Directors (NACD), and having counseled over 50 boards of directors of profit and not-for-profit corporations. He also served as chairman of the
New York State Commission on Public Authority Reform, as a fellow of the faculty of government at Harvard University’s JFK School of Government and as co-chaired the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees.

With such extensive credentials, it’s no small wonder that accolades for both his professional skill and personal character are just as abundant. ‘Ira’s contributions in terms of education, and in bringing [governance] to the attention of the stakeholders in American capitalism, is second to none,’ says Kenneth Daly, president and CEO of NACD. ‘I view him as a personal friend and I think he’s just a spectacular person.’

Putting the tone at the top
Millstein’s dedication to impressing the critical role of the board of directors in corporate governance has enhanced the awareness of this area among US companies. ‘He is Mr Corporate Governance as far as being the leading expert on what really works in the boardroom,’ comments Daly. ‘He has a passion for boards and for making them as effective and as productive as possible and his opinions are steeped in years of experience and in practiced patience.’ Millstein has witnessed the positive effects of increased governance discussion in the formulation of strong ideas on the subject that have emerged from the Millstein Center. ‘We have some very concrete reports that have come out on ratings agencies, on communications, on independent directors,’ he says.

Although in recent years there has been much debate about the need for governance reform, the essential rules have stuck. Millstein’s work as chairman of the OECD Business Sector Advisory Group – which led to a report that evolved into the OECD Principles of Corporate Governance – helped define many of the basic rules companies around the world follow today.

Yet the reams of material written on corporate governance have created a ‘cottage industry’, observes Millstein. ‘There’s no dearth of information on what directors ought to be doing,’ he adds, such as ‘adhering to the ‘Key agreed principles’ recently released. As for whether directors are taking cues from the information on offer, he observes, ‘I think they’re aware of almost everything, the question is whether they’re doing it.’

‘In the case of the latest financial meltdown,’ notes Millstein, ‘it’s clear that some of the best boards in the world made up of very good people just weren’t getting the job done – not paying attention to, or asking the right questions about, the risks these companies were undertaking. The question at this point in history is what are the lessons learned and how do boards behave differently going forward?

Certain company roles could come to the fore to expedite this transition and to help boards do better. ‘I think that the general counsel and the corporate secretary are at the cutting edge of getting it done within a corporation,’ says Millstein. ‘Groups like NACD, the International Corporate Governance Network, Council of Institutional Investors and the Business Roundtable will also play a strong role as resources for boards,’ he adds. But in order to make sure good governance becomes a value system truly endemic to corporations, according to Millstein, the onus is on everyone to take the lead.

Other nominees for the lifetime achievement award are also making leaps and bounds in terms of encouraging governance awareness, including Warren Batts from the University of Chicago, Dennis Beresford from the University of Georgia, Peter Clapman from Governance for Owners USA, Robert Monks from The Corporate Library, Stephen Norman from American Express and Larry Sonsini from Wilson Sonsini Goodrich & Rosati.

Top of the director education class
Best approach to board member induction and training

By Betsy Pisik
When the board of directors of UnitedHealth Group decided to expand by five new members in less than three years, the company did something cutting edge: it compiled a handbook; a large handbook.

Everything the new directors needed to know about UnitedHealth’s myriad business activities and board policies was contained between leather covers of the 2.5-inch thick book.

There are key SEC filings, UnitedHealth bylaws, biographies and contact information for all directors and executives, press clippings, summaries of important board policies, outstanding issues, business overviews, legal histories, governance questions and more.

‘It’s a pretty big binder,’ laughs secretary to the board Dannette Smith, adding ‘it’s all in there, down to their payment schedule.’

The handbook itself may not be that revolutionary, but each director’s additional customized training has vaulted way beyond the educational efforts during the early years of this decade. The company has also set up an online directors’ portal for the board that allows them to download detailed information, and it is considering the addition of a starting a chatroom where the directors can informally discuss issues.

A steep learning curve
UnitedHealth’s coaching and seminars are expected to last most of a director’s first year. This training represents the company’s and the directors’ expectations for its soon-to-be 10-member board: preparedness, familiarity, and above all, responsibility.

All the directors are independent, except for CEO Stephen Hemsley.

‘Our director orientation program is in depth,’ says Smith. For example, governance is ‘an area where a lot of boards are interested in getting up to speed, but you have some very busy people and you have challenging time commitments.’ Doing it in connection with the board meeting will make scheduling easier, she adds.

Minneapolis-based UnitedHealth is a diversified corporation of six related businesses comprising Medicare and Medicaid services, prescription refills, insurance provider and health savings accounts. This means UnitedHealth is about twice the size of its nearest insurance competitors, and subject to banking regulations as well as those governing healthcare.

The complicated nature of the business and the efforts highlighted above were in part responsible for the company winning the 2008 Corporate Secretary Magazine Award for ‘Best approach to board member induction and training’. The company beat out an impressive selection of shortlisted companies to take home the top prize: El Paso Corporation, Manitowoc, Sprint Nextel and Time Warner. The award was sponsored by Wells Fargo.

One of the more interesting elements of the board training program was its design and implementation by the National Association of Corporate Directors (NACD), which worked with the company to target its specific needs and build a custom training module.

The training program is not just for new arrivals. Longtime directors, some of whom have served on the board since the mid-1980s, also participated, and were encouraged to use the online education program in their non-service hours.

The classes ‘give [the board] a customized training in a setting where they might not have gotten that same level of education,’ says Smith.

‘It’s not unusual for a new director to need a year or more to really get familiar with the company and the governance issues,’ explains Smith, adding that the healthcare sector is increasingly dynamic. ‘We just didn’t want to wait that long.’
 
Showing others the way
David Smith, president of the Society of Corporate Secretaries and Governance Professionals, says that he is hearing about more companies who are following the same path as UnitedHealth’s intensive training.

He says it is encouraging to hear about large public companies choosing to customize their tutorials on director responsibilities or legal questions. ‘For a lot of companies, it’s a matter of time, expense and if you’re [large enough] it can be more company specific,’ he explains. ‘You can also relate it to your products and problems in service or distribution or other challenges [specific to your company].’

Both Smiths say the customized training gets new and old directors up to speed more quickly than traditional guidebook-based programs.

In order to get the three new members of the UnitedHealth board up to speed – and refresh the longer-serving directors, some of whom have more than 25 years with the healthcare giant – the company hosts seminars of interest to board members. The new directors have also been meeting senior officials at Minneapolis headquarters for one-on-one discussions.

‘Make no assumptions,’ David Smith says. ‘Every company is different. The culture is different, the management is different, the problems are different. You can’t assume that someone who is a director of GE can go to ExxonMobil and need the same materials.’

He adds, ‘the binder is a good way to indoctrinate a new director. By the time they have been introduced to the bylaws, executive team, directors’ backgrounds, corporate history, industry overview and more, that would lead to a fairly thick notebook. But it has to be distilled and succinct so that it is not overwhelming.’

Painting a complete compensation picture
Most effective compensation disclosure

By Carolyn Iglesias
As shareholders become increasingly vocal about executive pay, General Electric Company (GE) has been earning high marks – and a Corporate Secretary Magazine Award – for ‘Most effective compensation disclosure’. Clear and straightforward communications are helping to set GE apart.

‘As I track companies who try to do a good job of disclosing compensation both for executives and directors, I often point to GE as the model in terms of the clarity with which they present the information,’ says Charles Tharp, executive vice president of policy at The Center on Executive Compensation. ‘Their narrative is very clear. ... While there’s an awful lot of information there I find it very readable.’ Tharp says GE’s compensation structure for its top five executives is ‘very much focused on the overall corporation’ and ‘developed in a way that is incredibly friendly for shareholders.’ In the compensation committee charter, he says, ‘It is just so clear what [they] are responsible for and what they look at.’

Clarity and simplicity are at the heart of GE’s executive compensation program, not just its communications. ‘Our Compensation Discussion & Analysis (CD&A) is really very simple and concise and that is a reflection of our underlying compensation program,’ explains Chris Pereira, corporate and securities counsel at GE. ‘We started off with a program that is not very complex compared to [those of] other companies. So summarizing our policies from that standpoint was probably easier compared to the task that some of my other colleagues had to face.’

Uncomplicated pay means easy disclosure
Pereira says GE’s compensation programs are purposely designed in a ‘simple and transparent manner’ that is understandable to shareholders. ‘That simplicity, in our view, is critical to driving performance,’ Pereira says. As detailed in the company’s proxy, compensation programs at GE emphasize ‘consistent performance’ not just for the current year but for ‘sustained periods of time.’ They also provide ‘future pay opportunities versus current pay’ (striving for a balance between cash and equity compensation); have a ‘discretionary nature’, which includes both qualitative and quantitative factors; and reflect an executive’s contributions to GE’s overall performance as a company instead of focusing on an executive’s individual function or business.

‘We don’t have rigid tables or graphs [in the CD&A] because one of the key components of our executive compensation program is that it’s discretionary,’ comments Pereira. ‘So the structure is very simple and the format is very narrative, which is a reflection of the discretionary nature of the program.’ Overall, Pereira says that GE is ‘very much focused’ on qualitative performance metrics. ‘We don’t think that just focusing on quantitative performance measurements is the right incentive to build shareholder value in the long term.’ 

Pereira adds that GE’s CD&A tries to reconcile compensation with the true economic value realized in executive performance. The compensation disclosure regarding the company’s chairman and CEO is the most detailed since shareholders typically have a keen interest in understanding how a CEO is compensated.

‘What makes our compensation disclosure different is that we see compensation as part of leadership development,’ observes Pereira. In fact, even the name of GE’s compensation committee, the management development and compensation committee, reflects that overall philosophy.

Open dialogue on performance metrics
Developing leaders is so important at GE that the company decided to provide shareholders with more information about how they use executive compensation as a tool for leadership development. To supplement the compensation disclosure required in the proxy, GE included a letter from its management development and compensation committee chairman, Ralph Larsen, in the company’s 2007 annual report.

Larsen’s shareholder letter mentions the various types of compensation GE uses to reward executives for ‘recent and long-term performance.’ It also lets shareholders know that ‘as executives rise within GE, an increasing percentage of their total compensation is at risk meaning it is contingent on reaching targets based on things like solid increases in revenues, returns, earnings per share and cash flow.’ The letter makes it clear that GE purposely structures annual incentive compensation or bonuses to focus performance on longer term contributions. ‘We don’t want to encourage our people to chase short-term trends or take excessive risks to create a single period of good results,’ writes Larsen. ‘That’s why these bonuses are linked to previous years, taking into account not just what an executive did this year, but also their performance and bonus in prior years.’

Although GE typically doesn’t offer employment contracts or golden parachutes, their executive compensation programs are helping the company to recruit, develop and retain leaders. Fulfilling work experiences combined with training and rewards keep voluntary turnover low in the executive ranks. In fact, the company’s 189 most senior executives have an average tenure of over 20 years.

Beyond the usual planning to fine-tune compensation programs and disclosure practices, GE monitors the market and evaluates the regulatory landscape. These days, Pereira and his peers at other companies are looking at the additional regulation that the Troubled Asset Relief Program (TARP) imposes in terms of executive compensation. He says, ‘Even the companies that are not subject to those new regulations are taking a close look and considering: Are there components of it that we should incorporate into our compensation program and subsequent disclosure? … What makes sense? What are good ideas?’

Peer assessment is important and although they may not be in GE’s peer group, four other companies made the shortlist for compensation disclosure. They are Allstate, MBIA, MDU Resources and Schering-Plough. The presentation was sponsored by the Altman Group.

‘We intend to keep our best practices and make sure that they remain best practices,’ says Pereira. ‘You certainly have to be very quick on your feet and really monitor the market and developments now.’

‘We will obviously keep on monitoring and try to continuously improve what we are doing,’ he concludes.

Braving the storm
Corporate secretary of the year

By Brendan Sheehan
Coping with scandal, and being part of the team tasked with improving things, is never easy. But it is something at which Dannette Smith has excelled at over past year or two as secretary to the board at UnitedHealth Group. So much so that she took home the award for ‘Corporate secretary of the year’, sponsored by CSC, at the Corporate Secretary Magazine Awards. She was in good company given the excellent nominees for the award: Winn-Dixie’s Larry Appel, Chevron’s Lydia Beebe, MetroPCS Communications’ Mark Stachiw and Kraft Foods’ Carol Ward.

It would be useful to give a little background as to why Smith took home the honor. In 2006 a group of investors brought a suit against UnitedHealth, complaining that the company’s options program for senior executives violated securities laws. This was at the height of the options backdating scandal.

William McGuire, UnitedHealth’s former CEO, who stepped down in 2006, agreed as a result of the suit to reimburse shareholders in the amount of $30 million after an internal investigation concluded many of his option awards were probably backdated.

While the internal investigation and subsequent problems it uncovered were a problem for the company, Smith and others in senior management realized that out of great challenge can come great improvement. They viewed the situation as a prime opportunity to improve governance standards throughout the company. Furthermore, while some problems were uncovered, they discovered that many sound procedures also existed.

‘We had some interesting times with the investigation related to option pricing practices but this really gave us an opportunity to review all our governance policies and practices,’ says Smith.

The rebuilding phase resulted in a number of significant changes. ‘We looked around at what others were doing and developed a good idea of where leading governance practices were going,’ Smith explains. The company very quickly took steps to implement a majority vote standard for director elections, declassified the board and overhauled executive compensation.

Time for a talk
One element that puts UnitedHealth at the top of the governance heap is its close, constant communication with shareholders. Communication cannot be restricted merely to proxy season, notes Smith: ‘That time of year is intense with thousands of companies reaching out to investors and releasing information. It is very difficult to get your message across with any clarity. For that reason we started talking with investors throughout the year.

‘We sent the CEO and CFO to meet with the Council of Institutional Investors (CII) – [of which Smith is an active member] – to discuss potential governance changes. We engaged in open dialogue with a number of investors and found the feedback to be extremely useful.’ Smith took this engagement further, approaching major institutional investor CalSTRS for help. UnitedHealth was in the process of changing the way it compensated its executives and directors, in the face of relatively new disclosure rules from the SEC: compensation discussion and analysis (CD&A). ‘We went to CalSTRS and asked if they would be prepared to help us with the CD&A. This went as far as providing them with an advance copy of the report, which they reviewed and provided some very constructive feedback. And we listened.’

Such action raises concerns about fair disclosure under Reg FD so CalSTRS had to sign a confidentiality agreement and not take action on any information it gathered. UnitedHealth redacted some actual dollar amounts and focused more on strategy and language.

Smith was also involved in forming a nominating advisory committee, comprising four long-term shareholders and a senior member of the medical community. The board was formed following a report from WilmerHale, which evaluated a number of areas including board composition. ‘When the company made a commitment to add five new board members by 2009, we formed the advisory committee to help us make sure we were getting exactly the right people,’ says Smith.

‘We wanted shareholders and other stakeholders to be involved in the selection of the new directors. They evaluated the board and identified some skill sets or experience levels they felt were missing. They then helped to identify what characteristics a new board candidate should have,’ says Smith. The committee has been invaluable to the board in selecting new directors. ‘We talk to them about new directors, about service limits on other boards (currently this stands at four), implementation of a mandatory retirement age (there isn’t one) and other important board composition principles.’

Many of the improvements and changes that have taken place at UnitedHealth derive from the internal investigation conducted during 2006 and also a benchmarking study commissioned by Smith in which the company’s governance practices were evaluated against the Fortune 25. ‘We picked the board topic of best corporate governance practices and it turned out that we did not rank very well at all. This proved to be a very useful starting point and led to a lot of excellent conversations,’ says Smith.

It has certainly been a busy few years for Smith, but she has no intention of resting on her laurels. ‘One thing we are examining is creating a shareholder bill of rights, that would increase engagement and input from investors.’

Apart from talking with others in her field, Smith highlights the CII, the Society of Corporate Secretaries and Governance Professionals and the National Association of Corporate Directors as particularly useful sources of information on governance, compliance and risk management topics.

While no one at UnitedHealth thinks that they have reached the end of the governance road, they are enjoying the recognition. ‘Stephen Hemsley, our CEO, was very excited to get independent, external validation of all the hard work and good practices that have been implemented over the past few years, and there is no doubt that this award will help our relationships [with external stakeholders].’