One of the benefits I most appreciate at Twin Cities Business is the privilege of getting to know different leadership approaches throughout Minnesota, including those involving corporate governance.
On the one hand we have Digi-Key Corp., where two individuals—owner Ron Stordahl and company architect, president and COO Mark Larson—are their own board of directors. Throughout the company’s 43-year history, their approach to corporate governance has bested that of many publicly traded-business boards, allowing Larson to build what is today the world’s sixth-largest electronic components distributor, generating $1.75 billion annual sales and employing more than 2,700 people in its home town of Thief River Falls. (Twin Cities Business inducted Larson into the Minnesota Business Hall of Fame in July; the story’s online at bit.ly/1ryLDkE.)
On the other hand we have Best Buy, where its directors stepped up to the plate during the most significant leadership crisis in the company’s 48-year history. That was in early 2012, when CEO Brian Dunn resigned during a personal conduct inquiry, and a month later, founder and then-chairman Richard Schulze stepped down and postured that he might try to lead a buyout of the company. Amid this turmoil, these board members quietly, methodically set the company on an even better course than the one it had been pursuing.
Though Best Buy’s stock eventually tanked—by Dec. 24, 2012, it had reached a new low at $11.29 a share—within 11 months, it shot up 287 percent, to $43.69 a share. And it’s the board’s actions that led to this. Specifically, it hired as Best Buy’s new CEO Hubert Joly (who immediately took the necessary steps to right what had become a listing ship), convinced Schulze to come back into the fold as chairman emeritus and added to its board two seasoned former Best Buy executives.
Whether it’s highly structured or informally managed, corporate governance is more important than ever today because of how much it affects our economy and in particular, the lives of ordinary individuals (mainly, employees). And yet all we read about is how it’s failing. I blame this not on a negative media, but on the fact that instances of poor corporate governance seem to so outnumber those that are positive.
For example, where was good corporate governance when the 449 companies in the S&P 500 index publicly listed from 2003 through 2012 used 54 percent of their earnings—$2.4 trillion—to buy back their own stock, and another 37 percent of earnings to pay for dividends? Good for investors (including executives and directors who are compensated with stock options), but as a Harvard Business Review article recently pointed out, this has been bad for reinvesting in corporate infrastructure, R&D, and higher wages and salaries for employees. Some point to this and blame corporate directors for the fact that wages are still not growing as fast as they need to before the economy will gain speed once again.
It’s getting so bad that some are recommending boards of directors be outsourced. The Stanford Law Reviewin May included a piece whose authors propose the creation of a new type of professional firm called a board service provider. Companies would hire such firms just as they hire accounting or law firms. An Aug. 16 Economist column citing this proposal described the landscape this way:
“Boards are almost exactly as they were a hundred years ago: a collection of grey eminences who meet for a few days a year to offer their wisdom. They may now include a few women and minorities. There may be a few outsiders. But the fundamentals remain the same. Board members are part-timers with neither the knowledge nor the incentives to monitor companies effectively. And they are beholden to the people they are supposed to monitor.”
All of the above helps explain why Twin Cities Business is proud to present outstanding corporate directors awards each October.
We start by inviting you and others to send us nominations. Our selection committee then reviews those nominations as well as suggestions each of us might have contributed, to develop a list of finalists. And then we conduct research on these individuals before selecting the five who you’ll read about beginning on page 48.
We first determine that each honoree meets various criteria, including what one expects in any good director—knowing their organization and its industry, attending at least 75 percent of board and committee meetings, reviewing and understanding all previously submitted materials, and demonstrating integrity and high ethical standards. But our criteria also require that each honoree:
One of our honorees this year is Best Buy director Kathy Higgins Victor, who chairs its governance committee and chaired the committee that led to the selection of Joly. She also played an integral part in devising the agreement through which Schulze (and the 18 percent of Best Buy stock he still owns) became a friend of the company once again.
“We worked across a number of tough issues and very challenging times, and she was top-notch,” says fellow director Ron James. “What you see is what you get—very thoughtful, very business-minded, wants to make sure we do the right things for the organization, always mindful that we have shareholder interests that need to be served and balanced.”
Higgins Victor and the other four honorees this year are fantastic examples of what is working well in corporate governance today. In telling their stories both in these pages and at our awards event Oct. 23, we hope to inspire others to follow in their footsteps.