Feb, 2009

Best of the Best (part two)

Constructive dialogue
Rising star

By Anna Snider
One of the two rising stars identified by our judges in the first Corporate Secretary Magazine Awards is an ombudsman. She is Laura Lonsdale, a lawyer by training who rose through several audit and governance positions at Tyco International before taking on her current role. Our panelists tapped her together with Douglas Chia, senior counsel and assistant corporate secretary of Johnson & Johnson, whom we profiled in January, as best newcomers in a governance or compliance role, an award sponsored by CSC. Other nominees included Alan Srulowitz from CA, Larry Parsons from Freescale and Julia Farr Connolly from MHI Hospitality.

Lonsdale is just one of a few people who have held the ombudsman title at Tyco since the position was created in 2002. It’s a very visible role in the 110,000-employee company that often has Lonsdale hosting town hall-style meetings focused on ethics and compliance across the widespread global firm.

At ease
Tyco describes the corporate ombudsman as an impartial dispute resolution professional who provides independent confidential assistance to Tyco employees. That person also handles concerns offered by Tyco customers, suppliers and shareholders, as well as the general public. The position was created as part of a broad governance overhaul following the ousting of former CEO Dennis Kozlowski and other senior managers in a fraud and self-dealing scandal.

Tyco’s new governance leaders are clear on why they wanted Lonsdale in the role. ‘She has a welcoming personality that puts everyone around her at ease, allowing her to engage in a constructive dialogue with all levels of employees around the world. Laura is equally comfortable speaking with a shop-floor manager as with one of our senior directors, which makes her well-suited to her ombudsman role,’ says Matthew Tanzer, Tyco’s vice president and chief compliance counsel. ‘She gets unanimously high praise from everyone she interacts with for her collegial and friendly style. She is truly a pleasure to work with, both in her demeanor and her ability to get things done.’

Lonsdale, who had risen from senior corporate auditor to a corporate governance management role, was at first a bit hesitant about taking the post. ‘I thought it would be me listening to people’s problems all day, which potentially could be really depressing,’ she says. ‘But it is a great position and one in which I help people solve problems.’

Among her responsibilities is analyzing Tyco’s whistleblower hotline for data trends which she then takes to the audit committee and management team. At any one time she is working with human resources, legal, compliance, forensic audit and security on over 100 open cases. She is also a leader in forming Tyco’s ethical business strategies and author of the company’s quarterly ‘Integrity Bulletin’.

‘Laura is noted for having taken our ombudsman office to the next level of sophistication, with much more direct contact and interaction with our employees around the world, improved analysis of case trends and other data, innovative use of electronic polling technology to obtain input on sensitive subjects while preserving anonymity of employees and improved outreach to our business leaders,’ Tanzer says. ‘She is recognized as a rising star in our organization as well.’

In motion
Tyco’s varied, far-flung operations keep Lonsdale moving: ‘I have had the opportunity to visit sites all over the world to do trainings and conduct focus groups with employees at all levels. This proactive approach really helps to put a face on, and raise awareness of, the somewhat intimidating title of ombudsman.’

In what Lonsdale says is a rarity for a public company, the ombudsman reports directly to Tyco’s three-person audit committee at board meetings held six times a year in Bermuda. Lonsdale presents to the full audit committee, plus the CFO, general counsel and others, but can also ask for private sessions with the directors. ‘In the old Tyco, nobody reported directly to the board except for the CEO,’ she says. ‘Our new board said we need to fix this and put in direct reporting lines.’

After graduating from Boston University School of Law, Lonsdale was hired by the Lexington, Massachusetts office of the Silicon Valley-founded law firm Gunderson Dettmer in the dotcom boom and then laid off in the dotcom bust. In her subsequent job search, she met Tyco’s head of internal audit, who was casting a wide net for a large team of in-house auditors from business, accounting and legal backgrounds. Lonsdale says she was unsure about joining a company that had been in such turmoil, but she could see that its problems were isolated and Tyco still had a strong business model. ‘During my interview, they really sold me,’ she says.

Tyco’s former senior vice president for corporate governance, Eric Pillmore, says when he hired Lonsdale to join his governance group, he was extremely impressed that she had been working as a financial auditor without a financial background. ‘Audit took a chance on me and there were some very good people to learn from there,’ Lonsdale says. ‘I still consider myself a lawyer, but I can work my way through a balance sheet.’

After 15 months on Pillmore’s governance team, he recommended Lonsdale to the head of Tyco’s audit committee for ombudsman. ‘She is bright, has outstanding analytical skills, has superb interpersonal skills, is articulate, self-confident and very effective in dealing with senior leaders and board members, as well as employees that contact Tyco on the ombudsman line,’ Pillmore explains. ‘She reacts very well under pressure and is committed to do what it takes to get the job done, and with the highest quality.’

Lonsdale says she feels lucky to have landed at Tyco, particularly given the mentors she found. ‘Eric Pillmore gave me a tremendous opportunity when he hired me to work for him. I learned so much from him about governance and the business world in general. He also opened a lot of doors for me by inviting me along to senior management meetings and board meetings,’ she says. ‘I also greatly admire Tyco’s general counsel, Judy Reinsdorf. She is down to earth and approachable, yet even with her mild disposition, commands the respect of everyone in the room.’

A clear view
Best proxy statement

By Brendan Sheehan
Being the center of attention is never an easy thing. It is even more difficult when a lot of people are just waiting for you to fail. Few people look forward to reading a corporate proxy statement. They do not make for the most compelling reads and are unlikely to ever win best- seller titles, but RiskMetrics Group’s proxy statement, the first the company had issued since going public, was one of the most eagerly awaited corporate disclosures of the year.

In its inaugural proxy statement, RiskMetrics, parent company of Institutional Shareowner Services (ISS), broke new ground and put together a disclosure document that was worthy of winning ‘Best proxy statement’ at the 2008 Corporate Secretary Magazine Awards. One of the best indications of the quality of the proxy statement was the caliber of the companies that RiskMetrics beat in taking the award, several of which have long been lauded for the quality and consistency of their disclosures. The four other companies that were shortlisted for the category, which was sponsored by the Bank of New York Mellon, were JetBlue Airways, GE, Intel and El Paso Corporation.

Apart from a long list of competitors, RiskMetrics was also up against people whose governance standards or disclosure it had previously criticized. Under its ISS operation the company evaluates and issues voting recommendations on a range of governance issues at public companies both in the US and internationally.

In fact, one of the awards judging panelists, speaking under the condition of anonymity, remarked, ‘Given my past experiences with RiskMetrics and ISS, I have to admit that I really wanted to hate this proxy disclosure. When I first picked it up I went through it just itching to find something wrong with it. I think I read this proxy more carefully than any, except those which I have written myself. But despite my feelings I am forced to admit that I didn’t find anything to dislike about the proxy. It is clear, well-written and contains everything a proxy should and very little that it shouldn’t.’

Balancing act
One of the most impressive elements of the proxy statement is the balance RiskMetrics was able to strike between communication and compliance. This was one of the central themes when the company set out to compile its disclosure.

Kayla Gillan, chief administrative officer at RiskMetrics, explains, ‘One of the first things the CEO Ethan Berman said to me when I joined the company was that he wanted the proxy statement to be unlike any other that had ever been written. We wanted it to be something that the CEO, CFO, the board and executives, and in fact the entire company, could be proud of and happy to put their name to. It needed to be easy to read, intelligent, broad-based and comprehensive yet not overladen with unimportant information.’

Putting together an award-winning proxy doesn’t just happen. The first step was to have the general counsel meet with the outside legal advisers to create a legal framework that included all the elements that are required from a regulatory perspective. ‘I then took this framework and started playing with it. I began by reading proxy statements from a lot of other companies and identifying elements that worked well, and those that did not,’ explains Gillan.

Achieving that balance between legal and communication is an ongoing battle. One technique that the company used to achieve this was adopting a ‘conversational’ style of writing and a lengthy Q&A-style section. This helped the document ‘sound’ more like a real conversation and helped to minimize excessive legalese.

Understanding the investors
Apart from consulting its lawyers, RiskMetrics did not do a lot of outreach when writing the proxy statement. ‘I know a lot of companies do this but we feel that, because of the line of business we are in and the amount of daily interaction we have with investors, that we have a very good feel for what they want to see,’ says Gillan. ‘Given what we do it would be a problem if we did not understand the needs of investors. I think I have a good idea of what good disclosure and transparency look like.’

Two areas that the team at RiskMetrics felt were of particular importance were the compensation discussion and analysis (CD&A) and the description of their own governance processes. These two things, according to Gillan, are of particular interest to investors and, ‘most of all, we want to ensure the proxy contains all the things investors want to see.’

The challenges in writing a good proxy are not just internal. As Gillan cautions, ‘One of the major hurdles in putting together a proxy statement is the current state of legislation. It is very difficult under the rules to compile a proxy that is easy to read and understand. There are a lot of elements that need to be included – and in a particular format – that do not make for a good flow. The legalistic approach will be an ongoing challenge for everyone next year and readability will continue to be a major focus for us as we look to improve upon what we did in 2008.’

Forging ahead
Most effective/innovative use of technology in a governance program

By Betsy Pisik
For years, officials of public companies have toyed with electronic reports, 10Ks and proxies in an effort to cut costs, speed delivery and, increasingly, cloak their operations in a ‘green’ mantle.

There were the request-no-paper efforts of the 1990s, and, more recently, the upon-request paper version attempts. But no matter where the default position lay, the retail shareholders – who account for the emperor’s share of mailboxes – have remained stubbornly ambivalent about doing away with the glossy report itself.

Experts figure that those investors who are reasonably curious about the details of the business year read the interesting bits, skim the rest, and then throw the booklet and the 10K in the trash or the recycling bin. A great many shareholders who are passively invested, perhaps as part of a larger portfolio, may not even read that much.

The institutional investors, analysts and others interested in retrievable detail, pored over the columns and then consigned the annual report to one file cabinet and the 10K to another. Electronic versions of the 10K available from the SEC were also harvested and cached.

Into the fray
But Intel of Santa Clara, California, last year committed to the electronic version, jumping in with both feet. The effort cost approximately $30,000 for programmers and design, and saved a whopping $2 million in printing and postage, according to company officials.

That effort among others by Intel was recognized at the Corporate Secretary Magazine Awards when the company won the award for most innovative use of technology, sponsored by CT, honoring Intel for its exemplary use of technology to further its regulatory, compliance and strong governance efforts. Finalists included Citigroup, Coca-Cola Company and Exelon. Winning this category required far more than just a transition to an online proxy and annual report. Intel’s dedication to electronic communication is also evident within the 86,000-person workforce, each of whom is obligated to participate in the annual web-based refresher class on the company’s privacy, security and code-of-conduct policies, as well as department-specific knowledge such as corporate compliance.

‘We make everyone do it,’ says Doug Stewart, Intel’s senior attorney and member of its corporate compliance team. ‘It’s easier to exhort a whole group to do it, rather than harass individuals’ to get around to their annual obligation, he adds. Executives say that using standardized training makes it much easier to ‘slice and dice’ the training, which standardizes the information for all employees.

Ahead of the game
As befits a tech company, Intel has also shifted most of its routine communication with board members to email, and much of the detailed information sharing has been via a dedicated and secured website.

But it was the commitment to e-only annuals and the 10K that first caught the judges’ attention.

Intel executives say they plan to keep only the electronic version in place for 2009, and its executives strongly expect that with each passing year, more and more companies will make efforts to render the slick paper document extinct.

‘We are a leading innovator in technology and it makes sense for us to embrace tech as we go forward,’ explains Stewart. But, he insists, any company can step up its efforts to go electronic to save trouble, time and money: Just talk to vendors or to the big proxy administrators such as Computershare or Broadridge.

‘That’s a good place to start when you want to know how others are approaching this type of technology. They can point to the technologies that have achieved good results. That’s a good first step for companies that don’t have that internal expertise,’ he says.

Intel actually uploaded two versions of the report, a PDF for printing and an interactive HTML to draw shareholders and analysts in, and make it easier for them to find the information they want.

The key, says Stewart, is to hire a good web design firm. ‘We wanted to make it looked like a web page, not a PDF document that no one would read online. This is an interesting way to look at the materials, and it would make the information easier to find. We thought if we made it more interactive they would spend a little more time with it.’ In addition, everything is cross-referenced to make it easier for shareholders to bookmark, save and email.

‘We knew we wanted to make the [annual report] website look interesting, more like a Google or a Yahoo that was designed for the web, rather than just pouring a paper document onto the web, like a lot of other companies do,’ says Stewart.

They got a few complaints from shareholders, however, but not too many. And, adds Stewart, ‘Our website definitely got a higher response than it did in previous years. It was noticeably higher than it was the prior year.’ He also notes the environmental benefits of not printing a glossy annual report that can run to 100 pages, and a 10K that can top 50 pages.

With a head start
Stewart acknowledges that Intel – the world’s largest manufacturer of semiconductors and microprocessors – has some built-in advantages most widely traded companies do not: A board of directors that understands and trusts technology; shareholders who are deeply interested in the computer industry and have few reservations about downloading and saving copies to their computer files; and an implicit imperative to stay in the forefront of electronic applications.

‘We are nowhere near a paperless situation,’ says David Smith, president of the Society of Corporate Secretaries and Governance Professionals, an expert on corporate governance and innovations both failed and fruitful. ‘I wouldn’t say that, in general, board members and shareholders are alienated by technology but, you know, maybe more disinterested.’ He points out that companies have for years been trying to shift the annual proxies to electronic ballots, but the response has generally been even weaker than for paper ballots.

For the near future, Smith says, he considers Intel, which is making the utmost of advances in technology, will be the exception rather than the rule.

Mastering the puzzle
Best corporate secretary or general counsel in an M&A transaction

By Ian Sax
The year 2008 has been a tumultuous one for the audience of Corporate Secretary magazine. It’s been a tumultuous one for everyone, for that matter. But on the evening of November 11, the inaugural Corporate Secretary Magazine Awards was an opportunity to focus on achievement.

This was especially true for Transocean and the NASDAQ OMX Group, joint winners of ‘Best corporate secretary or general counsel in an M&A transaction’, sponsored by DF King. The two companies beat an impressive lineup, including General Motors’ Kimberly Hudolin, FiServ’s Charles Sprague and Honeywell’s Thomas Larkins.

We took the opportunity to speak to Ed Knight, executive vice president and general counsel at NASDAQ OMX Group and discuss a transaction that he likens to a three-dimensional game of chess.

The deal with OMX AB of Sweden closed in late February and resulted in the world’s largest exchange company. As part of the transaction, NASDAQ OMX Group became a 33.3 percent shareholder in DIFX, Dubai’s international financial exchange. Knight says negotiating different jurisdictions and regulatory regimes posed the biggest hurdles. ‘We had US regulators who were focused on what the deal meant for the future of NASDAQ. Because we were selling 19 percent of NASDAQ to an entity related to the government of Dubai, we had to go through a process called CFIUS – the Committee on Foreign Investment in the United States – where transactions involving foreign investment are investigated by a committee of twelve different government agencies on behalf of the President. We had to manage that process while obtaining approval from jurisdictions in Europe where OMX had licenses.’

In the midst of navigating around these issues, explains Knight, ‘we also had to contend with the general complexity of a transaction with many different moving pieces in terms of the structure of the offer for OMX. We had an offer, but so did Bourse Dubai, the parent company of the DIFX. So for us to be successful we had to negotiate a set of agreements with Bourse Dubai then explain them to shareholders of OMX and then execute on those transactions, which required acceptance of Bourse Dubai’s offer.’ He continues, ‘So for a moment in time, Bourse Dubai owned OMX, and they then sold it to us, and we then sold them 19 percent of NASDAQ along with a large amount of cash. We like to say, If it can be done more complicatedly, we will do it.’

NASDAQ’s adept handling of the many pieces involved in the M&A didn’t go unnoticed by experts in the field. ‘The complexity of a deal is certainly what you have to consider when considering a successful transaction, along with the legal issues involved, and NASDAQ certainly had both,’ says John Olson, a founding partner of Gibson, Dunn & Crutcher’s Washington, DC office. ‘You also have to factor in time: How tight was the schedule in which the transaction was completed? Was the deal executed on time or were there delays? Did the team get it done in a timely fashion and did they foresee problems and if not, did they address those problems quickly?’

Defining roles
To smooth the success of the merger, it was important to have a strong general counsel/corporate secretary function. As it turned out, certain aspects in the way NASDAQ defined these roles benefited the handling of the transaction. ‘The corporate secretary reports to the general counsel at NASDAQ,’ explains Knight. ‘We work together as partners in serving the board. Between us, we probably have 30 plus years experience working with the boards in question here. So there was an easy working relationship and an ability to anticipate the needs of the boards that I think was critical in laying out our strategy in general and knowing when they would want to be consulted and where their focus would be. So there wasn’t a lot of wasted effort by the legal or corporate secretary team at a time when our resources were limited and we were all very tired. There was a six hour time difference with Sweden, not to mention eleven hours with Dubai. As you often do in these situations, we worked through the night.’

From his personal experience, Knight has some good guidance for general counsel and corporate secretaries who will be engaging in mergers and acquisitions in the coming year. ‘The whole notion of risk management is front and center. The board’s role in overseeing risk management, the need for boards to act independent of management and the need to have the financial resources in terms of the ability to analyze complex financial issues, those are topics many boards are talking about now: Are the right controls in place? Are they devoting time on the correct issues? Are they too involved in compliance and not enough on strategic issues? Do they have enough resources?’

Additionally, says Knight, ‘the fact that M&A occurred in the last few years in the context of a bubble economy, at least in housing, will cause people to be much more skeptical from a financial perspective, and of financial assets in particular. I think that more critical evaluation of risk associated with leverage and financial assets will color M&A going forward.’

One thing’s for sure: much like 2008, 2009 will prove a tough year for companies. Olson foresees an altered landscape that will present challenges that, while not necessarily new, have perhaps been a bit dormant until recently: ‘I see M&A entering a new phase in several respects. The surviving entities will be looking at distressed assets and that involves expertise and diligence that hasn’t been in high use recently. Dealing with someone on the brink of insolvency, protecting against the unknown – those are skills that have not been widely in demand in boom times. To the extent enterprises are receiving funds or making use of credit facilities from the government, that adds complexity as well. If the government has a senior equity position, that’s a different position from the common equity that doesn’t have the same time horizon or preferential rights. If you’re a general counsel or corporate secretary of a company that received substantial federal assistance or guarantees, then you have to pay attention to the contractual obligations that come with that assistance while thinking about the rights of equity holders, and the board has to be advised on its obligations to both constituencies.’

According to Knight, other roles will also be increasingly impinged upon going forward. ‘I think there is no more difficult time to be a director and I think there is a great hunger out there for people to understand what are the lessons from this crisis and what boards are doing. It’s something we’re looking at internally around our listing standards.’

Getting out there
Most effective shareholder communication

By Janine Armin
Pfizer has long been heralded for its visibility at shareholder events and the highly effective channels that the company has successfully provided for contacting directors, so it comes as no surprise that it should win the award for ‘Most effective shareholder communication’, which was sponsored by Broadridge. Honorable mentions went to BorgWarner, Phillips-Van Heusen and Tenet Healthcare.

Discussing this achievement, it’s hard not to mention Pfizer’s former corporate secretary, Peggy Foran. She was with the company from 1997 through 2008, and her presence at corporate governance meetings around the globe enlivened attention on shareholder communication and other crucial corporate governance issues. Jeffrey Morgan, president and CEO of the National Investor Relations Institute, says, ‘To some degree, she was synonymous with Pfizer. She’s certainly been very instrumental in raising the entire profession.’

Admitting both Foran and her team are ‘just top notch,’ Morgan thinks Pfizer has done a great job in making shareholder communication a key focus point for companies. Regarding specific instances that established Pfizer as a bright star in the shareholder communications sphere, Morgan points to their efforts in plain English writing: ‘They were one of the early ones to really look at their shareholder communications and make it really more readable to the investor.’

A-team
Pfizer’s corporate governance team will continue to evolve and expand on Foran’s success, fueled by members like Rosemary Kenney, director of corporate governance. The main achievement in board and shareholder communications over the last two years, according to Kenney: ‘Having a face-to-face meeting with our largest investors.’ Additionally, the company has had ‘a very robust communication process with the board for several years starting with the implementation of director email boxes. We were one of the first companies to actually stick our neck out and do that. It’s a tough thing to do because once you open that portal, you get a lot of material unrelated to the board’s oversight and it’s a huge process to try to filter through what is board-related.’ Susan Rolan who has oversight of the board’s email boxes, does a great job in helping to prepare correspondence, says Kenney.

‘We have email boxes for each committee chair as well as the lead independent director and those letters are reviewed and responded to and then the board gets quarterly reports on all of the correspondence that’s come in. … It really gives the board an opportunity to get a heads up of what’s on shareholders’ minds.’ The letters tend to come from average investors, she says, who are looking to make sure the board is doing its job.

In terms of getting institutional investors engaged, Kenney adds, directors asked themselves, ‘What can we do next?’ Kenney and her colleagues were concerned that with the informational overload and many opinions that tend to circulate around governance issues, ‘it becomes difficult to get the true picture of what’s going on.’ By way of a solution, Kenney explains, ‘The board thought the best way to do that is to invite our largest investors to face-to-face meetings. And it proved to be very successful. Both sides came away feeling that it was a very good process and a positive and productive process.’

As for whether pressure was coming from shareholders, Kenney says that shareholders were already satisfied with the response to letters. The board felt strongly about ‘giving the investors the opportunity to tell the board what was on their minds,’ says Kenney, in order to facilitate the understanding on both sides.

Pfizer is also big on public appearances at investor conferences. ‘We also reach out to our institutional investors by going to meetings of the Council of Institutional Investors and the International Corporate Governance Network.’ Connie Horner, lead independent director, and Dana Mead, chair of the compensation committee, have both attended these events at various times, attests Kenney. ‘With several members of the corporate governance department attending these meetings as well, the message is that we are making ourselves available to listen to their concerns and answer questions in an informal setting,’ she says.

Building on past success
Since the company’s communication is already so well received, Kenney says Pfizer is confident in the usability of its communication channels between investors and the board. ‘We’re always looking for new ways to communicate with investors. ... The board would like to have another meeting with investors, similar to the one we had in 2007,’ notes Kenney. ‘We did in fact reach out to our largest investors again in the summer of 2008 to ask if there was an interest in having another face-to-face meeting with the board. And most of the investors said not really. We know that if we do have something to discuss, we know how to reach them, which to me is a very, very positive reaction from our institutional investors.’

Of course, should shareholders wish for more frequent meetings, Pfizer would be happy to accommodate. ‘We will go back to them in the summer of this year and ask them if they want to set up another fall meeting,’ says Kenney. ‘The fall seems to be the right time, before proxy season begins and people get very very busy. … The board really stressed to us they would like to do it again. If not annually, then bi-annually. … They found it to be very beneficial.’

Spotlight on success
Best overall governance, compliance and ethics program

By Mary Beth Kissane
Much has been said amidst the recent market meltdown of the importance of not missing the opportunities a crisis can afford. Monsanto has made the most of past problems to build a highly regarded, best-in-class corporate governance program. It was rewarded for its efforts at the Corporate Secretary Magazine Awards, winning ‘Best overall governance, compliance and ethics program’, a category that included such esteemed nominees as Pfizer, Microsoft, Exelon and The Hartford. Other recent accolades include recognition by Corporate Responsibility Officer as one of the 10 Best Corporate Citizens By Industry in 2007 (best in chemical segment), and a citation by Business Week as one of one of the 10 most influential companies in the world in December 2008.

How does Monsanto do it, and what does it do differently than other companies? According to senior vice president, secretary and general counsel David Snively, ‘As the leader in global agricultural biotechnology, our company operates in the confluence of the current spotlight of global food energy and sustainability policy review. This public spotlight necessarily raises our media and governance profile to a high level. I am pleased that our efforts in corporate governance position us to participate in that arena.’

Snively is quick to credit the entire Monsanto team with working to ensure that governance, ethics and compliance are central to Monsanto’s overall business processes and an integral part of the firm’s annual pledge. Team members include Brian Lowry, deputy general counsel, office of policy, stewardship, regulation and government; Scott Baucum, associate general counsel, business conduct; Dennis Hoerner, deputy general counsel, intellectual property and research and development; Tracy Tretiak, director of global operations and client development; Scott Partridge, deputy general counsel, international commercial strategy and litigation; Randy Mariani, deputy general counsel, global commercial and technology; executive assistant Nancy Beckey; and Alfredo Avilia, assistant general counsel. He calls out, in particular, the efforts of Nancy Hamilton, his deputy general counsel, corporate governance and mergers and acquisitions.

Monsanto’s board maintains complete independence from the company’s management, with the exception of its CEO. The company has stayed strong over the last two years, weathering the recent market trials well, and is robust financially as well as in terms of governance. Snively says while ‘everyone needs to eat,’ he also credits Monsanto’s ‘great management team for building a technological leader that performs well in hard times.’ Each board committee has a management liaison, and each has an independent chairman and presiding director. The board spends a significant amount of time on succession planning.

A growing employee base
Monsanto has 20,000 employees, and 2,000 were newly hired last year. One third of the employee body joined in the last three years, and one half joined in the last five years. Snivley says lots of acquisitions over the past five years and the addition of so much new talent makes Monsanto particularly aware that it must keep track of and develop new talent. Yet Snively has been with Monsanto for over 25 years, like most of Monsanto’s senior executives. He was previously in private practice in Indiana as a litigator with a decade of biotech and patent litigation experience, and came to work on mass tort litigation. His role has evolved over the past 25 years, and he assumed the general counsel role two years ago from his mentor of four or five years, Charles Burson.

A step beyond
One of the most fundamental elements of a good governance program is ensuring people outside the company can ‘see inside’ and are aware of what is going on. Monsanto’s board goes a step beyond normal compliance and governance requirements and engages in significant strategic outreach to major investors, meeting with the professionals who look at governance issues for their major investors. ‘We take it upon ourselves to initiate this kind of outreach and to discuss what’s on their mind generally or, if there are shareholder proposals, we’ll discuss those with investors and the proposal proponents.’ Norges Bank, Norway’s largest pension fund and a large investor, had questions on child labor practices in India and is a strong proponent of change in India. The dialogue on this issue between the company and this investor led to change in the region.

Says Anne Kvam, global head of corporate governance at Norges Bank Investment Management (NBIM), ‘NBIM believes that proper management of companies with a sound corporate governance framework is fundamental for creating shareholder value. NBIM has over the last couple of years been cooperating with Monsanto in regards to the company’s human rights/child labor
governance. We have a very constructive continuous dialogue with Monsanto. The company shares our concern regarding child labor practices in the hybrid seed sector in India and has devoted considerable resources in establishing governance structures for managing child labor in a systematic manner.’

In addition to the governance team, Monsanto has a law department that consists of 76 attorneys worldwide in global offices located in places like Singapore and Mexico. All lawyers report centrally and also to local offices. ‘We are so highly matrixed an organization that they can’t do something in Brazil without the US knowing,’ says Snively. Given Monsanto’s technological prowess in the industry, the law group can shift attorneys to different parts of the world to focus on new technologies, he adds: ‘Our legal team adds strategic value to the firm globally.’ The firm has great central corporate governance and compliance oversight. And Snively explains, the lawyers are mostly brought in as laterals, with intellectual property lawyers hired out of law school. ‘We build our own since we are developing new technologies.’ Lawyers are collocated in centers where big decisions are made, with the greatest number located in Monsanto’s St-Louis headquarters. 

 Says Snively, ‘Monsanto has created a holistic approach such that governance activities cover the whole waterfront.’

Too good to hide
Corporate governance team of the year

By Mary Beth Kissane
In keeping with its team approach, Colgate-Palmolive, the recipient of the ‘Corporate governance team of the year’ award at the Corporate Secretary Magazine Awards, highlights its company-wide approach to governance and the belief that better standards lead to better performance: ‘Governance is an ongoing commitment shared by our board of directors, our management and all Colgate people. At Colgate, we believe strongly that good corporate governance accompanies and greatly aids our long-term business success. This success has been the direct result of Colgate’s key business strategies, including its focus on core product categories and global brands, people development programs emphasizing ‘pay for performance’ and the highest business standards. Colgate’s board has been at the center of these key strategies, helping to design and implement them, and seeing that they guide the company’s operations.

Good governance is the responsibility of all Colgate people. Colgate people worldwide are committed to living our global values of caring, teamwork and continuous improvement in all aspects of our business. By managing with respect, Colgate people create an environment of open communication, teamwork and personal responsibility. A constant dedication to good governance shapes our Colgate culture and ultimately leads to good business results.’

Colgate is no stranger to accolades, having received awards from Wharton/Spencer Stuart, Corporate Board Member’s Champion Board, three nods from Business Week’s Top 10 Boards in the US in addition to getting high ratings from RiskMetrics Groups’ Institutional Shareholder Services and GovernanceMetrics. At the Corporate Secretary Magazine Awards, senior vice president, general counsel and secretary Andrew Hendry and the rest of the corporate governance team were represented by Colgate’s associate general counsel – corporate, Nina Huffman, who accepted the award, sponsored by American Stock Transfer & Trust Company, for the firm.

Circle of governance
Building an outstanding governance environment, and putting together such an effective team to oversee it is no easy task and the company works hard to maintain continuity, even when leading figures depart. The company saw a seamless transition as longtime CEO Reuben Mark retired in July of 2007, and Ian Cook took the reins and maintained the award-winning corporate culture.

A defining feature of its program is the strong relationship between corporate culture and governance at Colgate. The company’s culture includes an extreme focus on a limited number of products; empowerment, partnership and trust; training and communications; a globally focused process; stock-based pay for performance; and shared values such as caring, teamwork and continuous improvement. It’s a well-known fact that corporate culture leads to good results, which leads to good governance. And that, in turn, shapes the overall corporate environment such that the three ingredients become a virtuous circle.

Colgate’s board has embraced this ethos to great effect. In addition, the company is being governed by some central principles: small size; full involvement; ‘real’ independence; well-organized and well-planned information flow; self-evaluation and CEO evaluation; written guidelines on board procedures, and regular review of the organization’s health, all of which are detailed on the company’s website.

Although the company has been honored in the past for its governance achievements, relative to other noted companies, Colgate’s excellent program has been a bit of a secret. Yet its stand-out team enabled it to surpass the exceptional companies also nominated in the category: Baker Hughes, Chevron, Wyndham Worldwide and Sunoco. And with such a strong group covering all the bases from ethics training to shareholder communications, it was impossible not to expose Colgate as a leader in governance.