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Archive for the ‘Corporate Governance’ Category

CFO’s & Cyber Risk: Protecting Your Performance…& Shareholders

May 2nd, 2014 Comments off

As a CFO, I can’t help but be a bit shocked at the recent article on CFO.com “CFO’s Disregarding Cyber Risks”.  In my position, and more in relation to my past positions, my involvement with IT-related activities typically centered on the ongoing assessments of our ERP platforms, annual budgets, necessary capex, and the standard operational issues. I can honestly say that cyber risks were really not part of our ongoing concerns, nor was the topic ever tabled by the rest of the senior leadership team or the Board. We also weren’t planning in an environment where billion dollar breaches were being reported in the press.

Fast forward a few years and it’s hard not to take note, and initiate an elevated level of planning, in the face of the Target breach that occurred just prior to the Holiday shopping season. I don’t care what industry you work in, any CFO should take note of a company which, in a single Quarter, revises their earnings estimates down by 25%, or approximately $250 million. How about a revision in revenue estimates that takes the topline down by almost $1 billion….in a single Quarter! Even more importantly, at the time of the revisions, the company was unable to assess the potential impact of the breach beyond the current Quarter. That event by itself should have every CFO looking over their shoulder and considering the proverbial “what if”. Evidently not…

In the recent article on CFO.com, which drew 600 responses, CFO’s ranked data privacy only 12th on their list of corporate risks. In comparison, data privacy ranked 26th on their list in 2013. While the level of importance is rising, it’s still not being given the proper level of attention. At the top of their list was legal and regulatory shifts. In hindsight, I would love to have someone provide me an example where legal or regulatory changes resulted in an immediate and material revision to earnings or revenues. These are typically changes that are discussed over extended periods and phased in, thus allowing the company and shareholders to digest the resulting changes in how the company reports its results. This is in stark contrast to waking up and realizing you’ve just compromised the privacy for 70 million of your customers in the most critical shopping time of the year.

What was also concerning about the article is that 57% of the respondents weren’t analyzing whether they had enough cyber insurance coverage or weren’t undertaking additional key activities to sufficiently mitigate the risk of cyber risk. This was not only happening at the senior leadership level, but at the Board level as well. While the public and general investing community is aware of the breaches that are reported in the press, I know I have taken an entirely different approach to my personal cyber security as a result of the work I see our team doing across a wide spectrum of industries and with companies that are very recognizable to us all.

As a CFO, if you want to ensure that all of your costs saving initiatives and EBIT performance aren’t compromised, the investment in a security solution will pale in comparison if you do encounter a significant breach…

Thanks for reading…

Jeffrey Ishmael

Have You Overstayed Your Board Seat Welcome…?

February 26th, 2013 Comments off

For those that know me, I am a fiercely competitive individual and that competitiveness extends to not only my cycling, but to a different degree, the office. Depending on the environment and who I am dealing with, my competitiveness will be adjusted accordingly. The satisfaction I have gotten from my career has been the derivative of the environments I have hired into and being able to let that competitiveness play out in the form of driving improved financial results at all levels, thus improving the financial health of the company. Over the last few years the scope of my involvement broadened as pursued my first Board seats, both of which were with non-profits. Both were equally enjoyable and had satisfying missions.

One of those Boards, the Orange County Marathon Foundation, was dedicated to the organization and execution of the OC Kid’s Run, which is a peripheral event to the Orange County Marathon. The Board already had a strong line-up, but I was asked to participate on the Board and very quickly was asked to be the Treasurer, a nomination I gladly accepted. I decided to participate since there was a strong initiative to increase participation, address sponsorships, and a few other key items. Seemed like a perfect strategic fit for what I had essentially done at a corporate level in the past. I spent my first few Board meetings getting to know the broader team, as well as the past challenges they had to deal with in the past. Very quickly I found that it was a very capable crew. Yes, there were a few contributions I made, but I also came to realize that it really wasn’t the standard “restructuring” I was used to, nor was there really a need for any intensive financial planning. The expenses that the team was dealing with were almost entirely variable with the runner count for the event.

Now let’s rewind to that whole “Performance” thing that drives me in my personal life. Essentially the Board really only needed an accountant or bookkeeper to count the debits and credits. I also really started to question my contribution to the Board and whether I was adding value to the seat I was occupying at each Board meeting. It took a bit of time to admit, but I arrived at the decision to discontinue my involvement with the Board because I knew there was somebody else out there that would deliver much more value than I was, which ultimately, would benefit the kids that much more. With such a capable team behind the Foundation, I didn’t want to hold onto my seat strictly for the sake of having a placeholder on the resume.

Whether non-profit or your standard corporation, it’s the duty of Board members to ensure that they are delivering value and helping the team drive a higher level of performance that might not be there in their absence. If that is not the case then perhaps they should be rethinking their position on the Board. I received some feedback that suggested I should hold my seat until I found another Board, but that certainly wouldn’t have been appropriate, or fair, to the Foundation Board. I know that as I continue my networking efforts I will find that next Board opportunity that will allow me to leverage my experience and deliver the value I expect to.  Have you overstayed your Board seat welcome…?

Thanks for reading…

Jeffrey Ishmael

Cyber & Network Security: “I See Said The Blind Man…”

October 31st, 2012 Comments off

After joining my latest company, I’ve found myself exposed to a group of brilliant individuals who have a laser focused fascination for cyber security and every subtlety tied to it. For those that know my background, the natural question is how did I get pulled into this one? After my tours of duty with Quiksilver & DC Shoes, Schneider Electric, Pacific Sunwear, and investment banking, the security industry is a bit out of my realm. But then again, I wasn’t brought in for my security expertise, but for my ability to drive financial performance and create a foundation for the rest of this group to prosper.

However, it has been eye opening experience working with this group. Although all the companies I’ve worked with had extensive IT departments, as well as a focus on “network security”, this is a whole different level. Literally, on my first day with this team, I took immediate actions to tighten down my own personal information after reading a few articles that were forwarded to me. One article in particular discussed a journalist who literally had his identity wiped clean, including family pictures kept online, after his accounts were hacked. Unbelievable.

The more noticeable hindsight to me as I was discussing other companies with our team is that I don’t recall EVER receiving an email where the file was password protected. Now keep in mind that I’ve worked for a number of different public companies, as well as equity research at an investment bank, and I have NEVER received a password encrypted file. Maybe a password so I couldn’t alter the structure, but not to actually open the file. Even in my own previous approach, my idea of “locking things down” was to send any forecast or financial info out in PDF so it couldn’t be modified. I’m pretty much chuckling at that approach now in comparison to what the daily MO is here.

What is even more interesting is the approach that most corporate IT departments are taking with regards to internet access, the opening of unfamiliar links, the lack of ongoing security training, and the relative absence of putting any significant effort into this area. Most companies may not offer that much for a targeted attack, but the subsequent cost and loss of productivity is an entirely different matter. I know I’m looking forward to the continued immersion & learning about this industry. For myself, the obvious phrase that came to mind was “I see said the blind man…”, but I think I’m still relatively blind on the security front.

Thanks for reading…

Jeffrey Ishmael

FEI/Woodruff Saywer Panel: Securing Your First Board of Directors Seat

February 11th, 2010 Comments off

            Last night I had the chance to attend another great FEI dinner for what has been a great 2010 season. Although the events have all been memorable this year, last night provided another opportunity to revisit the topic of securing your first Board of Directors seat. It was a repeat of the panel hosted earlier in the year by Woodruff-Sawyer, which also happens to be a sponsore of the Orange County Chapter of FEI.  Also a good opportunity to catch-up with Ron Pakhouz and Jared Pelissier and hear about their great start to this year and the new clients they’ve been signing.

            For the panel last night, we were also fortunate enough to have the same high-caliber panel, which include Paul Folino (Chairman of Emulex), Priya Huskins (D&O expert extraordinare of Woodruff-Saywer), and Bruce Lachenauer, who specializes in Board member recruitment. I’m not going to go into a full overview of the panel, since much of what was discussed at the earlier one was repeated here. However, below are some of the key takeaway points by the panel members last night.

 

– More HR positions relative to the Comp committee.

– 40% of current new Board members are brand new vs. 16% previously.

– Last 4-months Board activity is up 40%.

– Large increase due to need for financial expertise.

            A. 25% are CFO’s

            B. 25% are from Audit firms

            C. 25% are from Investment Banks.

            D. 25% from other functions.

– “The days of the Generalist on the board are dissipating…” – Folino

– Develop a Board that has broad-based strengths and can contribute to all areas… – Folino

– Regardless of your functional area of expertise, you better be able to have a valuable point of view/position on all Board issues – Priya Huskins

– What can you do to make yourself a more attractive Board candidate? – Bruce Lachenauer

– There is no on-the-job training for a Board…you need to hit the ground running – Lachenauer

– How do you leverage Private or Non-Profit Board experience to Public? Typically there are Public individuals sitting on the former. – Folino

– I can’t think of a better time for individuals to be looking for Board seats than now. – Folino

– It’s not just about D&O insurance, it’s about the conduct leading up to questionable events and the quality of due diligence. – Lachenauer

– It moves beyond more than just the financial risk, but the risk to your personal reputation – Folino

– There’s an absolute need to scrutinize your fellow Board members & their reputations – Huskins

– What are the opportunities to interview the Executive Team of the company before making a decision? – Lachenauer

– I can’t imagine not having someone w/ a strong legal background on the Board when it comes to M&A activities. – Folino

– Participating as a Board members vs Advisors involves a much higher level of accountability. – Huskins

– This is the first year that Brokers will not be able to cast votes for Board members, which may create a very interesting environment for Board retention. – Huskins

– The Nominating Committee is now usually headed up by an outside Director as opposed to the CEO. – Folino

Woodruff-Sawyer Board Panel: Conclusion

October 7th, 2009 Comments off

            In my conclusion of summarizing the Woodruff-Sawyer panel discussion on Board of Directors seat appointments, the final discussion point of the panel addressed the three key areas of Board consideration. These areas included Board dynamics, the management process & interaction with the Board, as well as the levels of protection afforded to Board members in carrying out their respective duties.  As discussed in my previous post, Bruce Lachenauer of Spencer Stuart had commented that it can be as difficult to remove yourself from the Board as it is getting the position in the first place. With this consideration in mind, great care must be taken by the candidate in assessing their offer.

 

            The panel spent good time discussing the considerations of Board dynamics. Some of the points that they touched on included;

Ø  Knowing what the views/perceptions are by Sr. Staff of the Board.

Ø  How the actions between Board members would be characterized.

Ø  What is the level of interaction between the Board and management?

Ø  What role does the Board play in corporate risk management?

Ø  What involvement does the Board have in the development of corporate strategy?

            Folino also commented that potential Board members should also be afforded the opportunity to engage and interview company executives in order to gain the appropriate insights on management styles, identify any concerns about corporate structure, or any other challenges a new Board member might have to deal with.   Additional considerations, outside of the management and member dynamics, might include;

Ø  Knowing the selection & interview process for new Board members.

Ø  Knowing the timing, frequency, and average agenda for meetings.

Ø  The nature of your ideal involvement with the Board.

Ø  Structure of Board meetings and conference calls.

Ø  Travel considerations for Board meetings and impact on current schedule.

           

            The final portion of the conversation touched on the compensation levels afforded to Board members, which will obviously vary according to the complexity and size of the organization. While Lachenauer commented that the average retainer is up over 50%, the level of compensation is still not commensurate with the level of work and risk for Board members, which has increases substantially in recent years. While there is typically a cash retainer, this is not the only level of compensation.  Lachenauer cited that the average cash retainer is approximately $75k. There is also typically an equity element, which is usually in the form of RSU’s. The level granted will also vary according to the size of the organization and will usually be higher for the smaller entities.

 

            I know as I start down this path to secure a Board position, which I am targeting for inside of the next 12-18 months, this was a very informative panel discussion to attend. For my colleagues out there who have experience sitting on a Board, I’d also welcome the feedback and know how your experiences compare to what I’ve outlined over the last few days.

 

Thanks for reading . . . .

 

Jeffrey Ishmael

Woodruff-Sawyer Board Panel: Part II

October 6th, 2009 Comments off

            Last week I gave an overview of the Woodruff-Sawyer panel discussion that I attended, which focused on the process of Board of Directors seat selection and the considerations to pursuing such a position.  I had previously left off at the considerations and value of sitting on the Board for an external organization.  As Bruce Lachenauer had discussed during the panel, sitting on the Board for an outside organization brings great perspectives to the company you work for if you are functional executive. However, in consideration to this pursuit, there are a number of considerations.

Ø  If you are seriously looking at such an endeavor, it’s ideal to start front-loading that effort with your existing company, President, or legal counsel to ensure there won’t be any issues with such an engagement.

Ø  Typically, any external Board appointments need to be run through your internal Board, regardless if you are a sitting member or not.

Ø  Preliminary support from your President or CEO is crucial in such an effort. 

            Paul Folino, Chairman of Emulex Corporation, also discussed the merits of sitting on a Non-Profit Board. Folino felt that this was a great way to get the feet wet with Board participation, while also giving something back to the community. However, as Folino cautioned, “don’t expect that the work load of a Non-Profit will be less than that of a standard corporate Board”.  This was also endorsed by one of the members of the audience, who also had extensive Non-Profit Board participation.

 

            With regards to the selection process, Lachenauer did not feel that a separate resume was warranted for the process. In his view, he has to do as much, if not more, due diligence for Board selections than a standard executive search. If the resume is more an overview of candidate’s background then it will lack the details that are often the important selling points in presenting a candidate for consideration. The accomplishments are critical and will need to be shared, and therefore, should not be excluded from the resume. Further comments by Lachenauer included:

Ø  The selection process is intended to find a candidate that will be entering into a long-term relationship & participation on the Board. As difficult as the interview process can be, it’s just as difficult to leave the Board, which puts a heavier emphasis on the long-term views.

Ø  Board members are not going to find you…you need to find them. 

            As a response to a question regarding whether an individual should pursue a Board seat for a public or private company, Folino commented that “there should be no consideration to Public or Private, but that it should come down to your background and the experience that you will bring to the table”.  Tomorrow I’ll wrap up my notes on the panel discussion with an overview of the key areas to consider with respect to choosing a Board, the management of risk in such an appointment, and additional considerations before accepting an offer.

 

Thanks for reading . . . .

 

Jeffrey Ishmael

Woodruff-Sawyer Board Panel: Part I

October 1st, 2009 Comments off

                As mentioned yesterday,  I had the opportunity to attend a panel discussion on the considerations to accepting a Board of Directors position. The panel was sponsored by Woodruff-Sawyer and led by Paul Folino, who is the Chairman of Emulex Corporation. The panel was also rounded out by Priya Cheria Huskins, Esq. and Bruce Lachenaur. Priya is a Partner at WS and is considered a leading expert in D&O liability risk and corporate governance. Bruce is a Partner with Spencer Stuart, which is a leading executive search and consulting firm and leads their Board Services Practice. It’s worth noting that Spencer Stuart is active on a very high percentage of all Board related searches nationally.

 

            As an individual who has had extensive interaction with Boards and presentations to, I have not previously sat on a Board and have initiated this as a goal to achieve within the next year. To my benefit, one of the opening stats that Lachenauer touched on was the shift in Board compensation from being more internally focused to having a higher degree of outside influence. It was mentioned that the trend has almost reversed and the current ratio is approximately 3:1 with regards to external Board members. This bodes well for those looking to become involved with outside companies. However, as a result of the current climate, it has also become more difficult to secure that first time Board seat. Recent statistics show that only 16% of Board appointments were first-time appointees versus the historical figure of 40%. Consistent with the trend for outside influence, there is an increasing demand for a Chairman that is independent of the company and can bring unique perspectives.

 

            The panel also discussed the aspect of Committees, as well as the make-up of individuals that should sit on those committees, as well as the Board. Lachenauer commented that the most difficult committee spot to fill has been that of the compensation since this has become such a contentious area of the previous few years. With the contentious nature of the business environment in mind, in all areas, Paul Folino commented that he “can’t imagine having a Board make-up that does not include strong legal counsel”. Folino also commented, in response to a question, that age is really a non-issue with respect to the Board. That all considerations are based on the experience that one brings to the Board, and in some cases to the detriment of the Company, Board age limits can result in the loss of immense expertise and experience.

 

            There was an extensive amount of information that was shared during the panel and I look forward to summarizing my notes in future postings. The additional areas will include the considerations to sitting on an outside Board and strategizing that with your current company, the search & interview process, compensation levels, as well as what dynamics to consider in choosing what Board you will commit your time to.

 

Thanks for reading . . . .

 

Jeffrey Ishmael