In times of Board stress, it is possible to rent one or more directors to do your heavy lifting.  Hence, “Special Purpose Directors.”

Typically, if there is a possible conflict of interest to be resolved, or if there is a pending derivative suit against the board brought by a stockholder, or if a forensic investigation is called for, standing directors may be ill-suited, too conflicted, or too time-constrained, to undertake the fiduciary duty of investigating and deciding on proper corporate action. In these instances it is growing more common to retain one or more completely independent directors to undertake the intense task.

(Note that if there is no apparent conflict involving the board or controlling stockholder, as in the case of a possible company sale to an independent third party, boards typically form their own special committee from existing members and are advised by independent outside sources.  But if there is an odor of possible conflict of interest suffered by the whole board or a substantial portion of the board, it is not unusual to recruit outside.)

The test for independence in such circumstances is very strict, beyond the definition of independence typical of SEC or Exchange situations; and, the actual appearance of independence on the part of the new directors, in fulfilling their duty, also will be examined for any taint of bias even after they are elected.

Speaking of elections, a board needs to be sure that it has the power under charter and by-laws to expand the board without a shareholder meeting (pretty critical for public companies), or it may need to ask one or more directors to step down and make room within a board size cap.  And it is wise to provide a mechanism to make sure that a specially named director steps down when the dust settles; holding a resignation subject to board acceptance is one easy method.

Finally, compensation must be addressed.  Serving as a special director is more like a full-time job in intense situations, and generally cash compensation well beyond the typical board stipend is in order; equity can be considered although in some circumstances it may create a hint of self-interest.


Random Thoughts in a Random Time

My wife must be wealthier than I thought.  In one day last week, she received mailed notices that she had been pre-approved for loans from five sources, for a total of $520,000.

I received no pre-approvals.  What am I missing?

I now commute to downtown Boston by commuter rail.  First time not driving in many decades.  Boston traffic must be slowing growth here; imagine the growth on top of what is already happening if Boston were a livable city?

Yesterday late afternoon, walking back from a meeting in the new Waterfront district, I came upon an outdoor yoga lesson on a vast lawn.  I counted one instructor and about 180 exercise-ers.  Could not see clearly the end of the long expanse of bodies.

The 8:11 commuter rail train at Wellesley Farms is interesting; if you are a woman there you are over 90% likely to be blonde, unless you are Asian in which case your hair is black.  Since only 5% of older people are naturally blonde, there are a lot of well-cared-for women standing on the Wellesley platform sporting their dye jobs.

Did you know that a greatly disproportionate percentage of women Senators and CEOs are blonde?  Just sayin’.

By the time the 8:11 arrives at a newly minted stop, called Boston Landing for no particular reason, the train is swamped with millennials.  Where do they live?  No housing is visible.  A year ago there wasn’t even a stop.  Who are these people?

Next stop is Landsdowne Street.  It used to be Yawkey before the old guy was defrocked of his street designation.  Many of the millennials depart but even more pile on.  Who ARE these people?

Next stop is Back Bay.  Exit virtually all millennials, filing past my seat and whacking my head with their back-packs.  Who the HELL are these people and what are they doing in the Back Bay?

South Station, downtown last stop.  All exit.  I am the only person with a suit and tie.  I feel self-righteous, judgmental and old.

I am reading my poetry these days in poetry clubs in Cambridge.  Young crowd.  We are admonished to give “trigger warnings” if we are about to recite something that might give someone offense.  I am constrained by this admonition to not read a significant number of poems in my book.  Never realized before how offensive I actually am.

This concept of a “trigger warning” is new to me.  When I was in my 20’s I got offended all the time.  I responded by yelling back or sulking, depending upon the size of the perp.

Like the rabbit said, “that’s all, folks.”  Next post is about the law….

Kennedy, Lennon and Ortiz

We all, I have found, have deaths of people with which we deeply identify although they are neither family nor friend.

In the 60s, a decade notable for  major shootings, it was Jack Kennedy for me.  I sat on the curbstone in Harvard Square and could not stop crying.  I was not alone in both acts.

When John Lennon was shot in 1980, a senior associate working with me was almost functionally destroyed.  When I questioned his reaction, as Lennon was after all “just a singer, although a very successful one,” I increased his hurt by not recognizing the meaning of Lennon in this associate’s life and indeed, he stated, for his entire generation.

My 16 year old son doesn’t read newspapers but the last two mornings I have found him buried in the interior pages of the Boston Globe.  It is all about David Ortiz.  My son played Little League avidly (with great enthusiasm if not great skill), helped me haunt Fenway (a member of whatever the junior club was called at the time, he knew the game and team so well that they had him introduced from the mound once and on a couple of occasions was on camera live on the field reading the line-ups), and actually met Big Papi at a Little League field in Newton (Ortiz’ nephew was on a team playing on an adjacent field and the guy was totally charming and signed everything that could actually take a line of ink).

Turns out that Ortiz is his Kennedy, his Lennon.  He is obsessed about Papi’s health, the perps, the hospitals, the nightclub in the DR.  He listed all the famous people who reportedly expressed sorrow over the shooting.  “Even Rudy Giuliani.  At least he got ONE thing right,” my son intoned, although I am not even sure how he came to possess a  critical view on the Mayor of America; much of the world gets its news these days from sources that do not get thrown onto your front porch.

Diversity on Boards of Directors.

Recently, NBC News online reported that General Motors for the first time had a board of directors which contained more women than men; this after 110 years of corporate existence.

What is the status of board diversity?  Thought you’d never ask.  My article in InHouse, a newspaper for inside corporate general counsel, published just days ago, reports holistically on the status of diversity and inclusion on boards both here and overseas and contains a general discussion of the problems in achieving desired inclusiveness.


And let me know what you think.  The goal of true inclusive board representation remains an aspiration even after so many years of attention.  Remarkable!

Be a Big Brother NOW

Big Brothers Big Sisters needs YOU to volunteer.  We are particularly working right now on finding 30 male Big Brothers in the next 30 days to mentor kids in Waltham.  You do not need to live IN Waltham to do this of course.  We are responding to an appeal from the Mayor of Waltham to help out his town’s kids.

Here is a link introducing just one of the kids we are trying to place.  Our shopping list of kids is extensive and we will match Bigs appropriately.

If you are interested in meeting Eduardo, or some other boy from Waltham or even if you are interested in meeting a boy from a town nearer to you, please just let me know directly:   

Or just tell that to our office by responding through the BBBS link above.

Your reward is that you will no longer have to pay to receive these blogs. … I have just been told that my blogs are free.  Such a deal!  How about a nice bottle of wine?


Boards, Digital Disruption, Ethics and Society

This second post discusses two issues raised from the audience in the Q&A with the excellent NACD panel discussing Board best practices relating to the digital disruption that the new economy inexorably will require for company survival and profitability, goals central to the mission of directors.

This is an age where businesses are being held accountable for the impact they have on society; examples include most recently Facebook, Google, energy companies, opiate manufacturers.  The panel had the task of educating directors on their duties to engage and advance actions of digital disruption; otherwise, their companies will suffer greatly.  In light of this awareness, two questions rose from the floor.

The first question was mine: in this context, should Boards today consider the proposition advanced by Professor Yuval Harari, in his current best-selling book 21 Lessons for the 21st Century, which suggests that the convergence of AI and big data and the digital revolution is anti-democratic and contributes to a growing wealth gap, as those in control of AI and data pull ahead and create a super-wealthy, controlling elite?

The second question, from a member of the Bentley faculty (I believe) working in corporate governance, asked if Boards today should be considering personal privacy and other ethical considerations while undertaking strategic planning.

One director answered the first question, albeit only partially: she would not want to be on a Board where the company did not consider the impact of technology on the jobs of its employees.

One director answered the second question also, to the effect that Boards had a duty to evaluate risk in its strategy (presumably suggesting that violations of privacy or other rights created company risk).

Now let me speculate, and I admit I come at the following from an arguably biased starting point (and indeed was one of the two people raising this type of issue).

First, I found it telling that, although there was much panel interchange on almost every other question, each of these two questions was answered, after a pause by the panel, by one person offering an answer to fill the void.  No one else wanted to touch these issues, it seemed.

Second, after the second question the next speaker started his own question, which was admittedly more in tune with the prior discussions, with a phrase something like “getting back down to earth….”  I got the sense that the speaker was put off by broader speculation about societal and ethical ramifications of the technological revolution which the panel was explaining how to implement effectively; he needed nuts and bolts information to get on with the task.

If I am correct and neither paranoid nor argumentative, this wonderful panel (and it was indeed great) embodies the problem raised.  We move forward with progress, driving business efficiency, better service to customers and consumers, higher productivity and profits– I do not argue with these goals.  But consideration of long-term societal and ethical costs are the business of philosophers and social futurists, and not today’s Boards.

I hope I am wrong, but if companies do not consider these issues now, strategically and to some degree in concert as part of a general awareness, then by the time that technology, AI, big data and the integration of society into the new technological order is complete, that is the time when the insights of the philosophers and social futurists will be, by definition, too late.

Boards and Digital Disruption

This is the first of two posts concerning the NACD-New England symposium held this morning, discussing the role of Boards in managing digital disruption.  The first addresses major points for Board consideration recommended by the panel.  The second will discuss certain societal and ethical issues not fully explored by the panel.

PANEL: Led by James Cash, ex Harvard BSchool professor and leading board member. CEO of Iron Mountain Bill Meany.  Noted Board members Pamela Craig and Ann Fudge.

WHAT IS IT? Digital disruption is use of AI, internet, big data and social media in a business in strategic planning, marketing, operations, customer/client interface; everywhere.

MAJOR THEME: Digital transformation is irresistible and if your company does not pay full attention, you will be left behind.  Digital disruption of your business model should be part of your strategic planning.  Once planned, step back and let management, led by younger tech-savvy people who are well-compensated for leading digitization of your business, implement.  This differs from prior practice where strategy was devised first, and technology entered the effort only at the end when it came to implementation.

SELECTED TAKE-AWAYS: Boards must be brave and empower the new technology even if directors expect that the stock price will take a (interin) hit and that shareholders may not understand.  Particularly important to note in that these changes are both expensive and some are bound to fail.  One major benefit is that now companies can hear from their customers or consumers and get vital input as to how to craft their deliverables, not a line of communication previously available; Boards should be sure that this benefit is realized. Mixed thinking about which committee owns the task of driving/understanding digital disruption, it depends on the industry and the company: audit? ERM? Cyber Committee? Tech Committee? Address Board education and include tech-savvy board members.  Be sure digital disruption permeates all operations (no silos).

CATCH PHRASE: “Disrupt or be disrupted.”


Invitation to my Webcast

You are invited to join my June 13 (7:30 EDT) webcast on which I will read from, and discuss, poetry from my first book, Messing Around With Words.   I am pretty excited about publishing the book, which I have written over many years.  I do hope you can join me for a fun half hour or so, you can pose questions and I will try to explain what a business lawyer thinks he is doing writing poems. Here is the link to sign up. 

Cyber Security: Think Again

The art for corporate cyber security is not to prevent people from breaking in; it is to prevent them from breaking out with what they came for.

Boards of directors should not obsess about the technology; they should think about the behavior of human beings.

The best way to protect corporate information is to think about access; as doing business will in the future involve substantial exposure to electronic storage of data, how should you think about cordoning information off so that the wrong people do not have access in the first place?

These were among the issues highlighted by an expert cyber panel at this Tuesday morning’s conference in Waltham sponsored by the New England Chapter of the National Association of Corporate Directors.  Speakers included Matt Moynahan, CEO, Force Point (the second largest cyber security company in the world); Retired Coast Guard Rear Admiral Mary Landry (formerly a White House Advisor and now a Corporate Board Member); Special Agent David Farrell of the Counterintelligence Branch of the Boston Office of the FBI; and Tom Reagan with Marsh Financial (the New York Office where they advise and insure companies against cyber risk).

What should directors do?  Mostly, they should think.  Do not get buried in the details of a report from your IT Department; it does not matter how many emails have been reviewed and how many phishing efforts have been caught by electronic defenses.  Bad people will get into your system.  Have you thought about what you most want to protect, and have you thought about which people might have access to it, and have you asked company management to report on the steps they have taken to prevent insiders and outsiders from being able to reach and export this information?

A sobering takeaway:  According to Moynahan, in spite of the billions spent on cyber security, hackers enjoy 95% success for breaking in, and 80% of data breaches are caused by one’s own employees either through malice or their credentials being stolen and utilized for entry.

I had the pleasure of moderating this panel discussion, and will be pleased to receive your comments on cyber security and the role of the board of directors.

Tesla and Delaware Law

There is pending litigation, just argued orally before the Delaware Chancery Court, wherein a stockholder is challenging the grant to Elon Musk of a compensation package arguable worth up to $55 Billion over ten years.  The huge number is based on shares of stock issuable in the future on the condition that Tesla meets certain performance goals.  The complaint was that the Board compensation committee was hopelessly enamored with Musk and that the stockholder vote approving the package was passed by a majority of shareholders present (not a majority of the total number of shares issued).

The narrow legal ground is whether this was such a cozy deal that the bottom-line result, approved in the manner that it was, nonetheless is subject to judicial revue under what is called the “entire fairness” test.  The grant of compensation under Delaware law is not subject to specific statutory procedures requiring higher standards of adoption; the company argues that the entire fairness test cannot be made subject, as to compensation of the CEO, to the same standards applied under the legislature’s specific standards that the lawmakers made express only as to different actions (eg acquisitions and the like).

What IS the scope of board power in setting comp?  IF there is no special standard for voting on that issue, as there is for acquisitions, and if there is no breach of the duty of loyalty (eg the people taking the vote are not the beneficiaries of that vote), all that seems left is a claim of corporate waste. That is a hard hill to climb in Delaware, whose regulatory scheme is premised on the freedom of directors to direct (thereby attracting as clients so many major corporations which choose to form themselves under Delaware state law).  If the stockholders object, they can vote out the directors.  If the rating agencies find the vote objectionable, they can negatively recommend re-election.

This case feels like the Chancery will decide and that it will get appealed up to the Delaware Supreme Court.