Inside the board room by kenstonge

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July 24, 2006 • Volume 17 Number 12

The Business Newspaper for Central Massachusetts / Metrowest

INSIDE THE BOARD ROOM Worcester’s Adopt-a-Lot Page 3

Regulation and activism pose challenges, but directors find rewards STOCK PHOTO

B Y K E N N E T H J . S T. O N G E

or those experienced or well-connected enough to land a seat on the board of one of the area’s major companies, the opportunity can be very lucrative. Directors’ salaries at the area’s 10 largest public companies ranged from $10,000 to more than $150,000, with most board members earning between $50,000 and $80,000, according to their most recent proxy filings.

For their money, board members are expected to attend the roughly dozen annual board and committee meetings, and make themselves available for ad-hoc meetings over the phone or in person. Many earn other types of compensation as well, such as restricted stock or stock options. Those financial instruments help directors meet internal rules on some boards FOCUS that require directors to invest a certain amount of money in the company, so as to assure

compensation & benefits

continues on page 10

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INSIDE THE BOARD ROOM continued from cover

their own personal goals are in line with the shareholders’ interests they represent. Boards’ roles: Guidance and leadership Boards form the basis for the modern corporation, and the directors who sit on them are expected to possess the experience and ability to guide strategy, assist and oversee management in decisionmaking and represent shareholders. All boards share certain characteristics and structures mandated by the SEC and NYSE requirements. Chief among these is a majority of independent directors and the creation of three committees: • A corporate governance and nominating committee that looks for potential board members, sets governance guidelines and evaluates both upper management and the board itself;

• A compensation committee that sets the pay and performance guidelines for the CEO and other executives and reports those numbers to shareholders through the SEC; • And an audit committee that examines a company’s financial statements and the reviews work of an outside auditing firm. But boards often form additional committees or assume new roles as the demands of a company change. EMC in Hopkinton is one example. Over the last three years, the company has engaged in a major diversification effort based around purchasing software companies that complement EMC’s datastorage business. It has bought 17 companies since 2002, the latest of which is RSA Security in Bedford. EMC’s board has a separate, five-person Mergers and Acquisitions committee that reviews potential acquisitions and

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investments. The board’s evaluation and strategizing played a key role in EMC’s expansion efforts, CEO and Board Chairman Joseph M. Tucci told analysts last month. Three years earlier, he said, the “board put a three-year earnings per share goal in front of us for our compensation, and there was debate whether that was good or not.” That led to the buying spree that Tucci says is “putting this company in the right spot for the long haul.” Other times that leadership can be more direct. In 2002, Hanover Insurance Group in Worcester was in the doldrums. CEO John F. O’Brien had just resigned from then-named Allmerica Financial Corp. amid a precipitous stock market drop and massive layoffs. To fix the company, the board needed to step up and conduct an exhaustive effort to bring the company back online

The amount of time spent doing boardrelated work has roughly doubled in the last few years, says Gail Deegan, a director at both EMC Corp. in Hopkinton and The TJX Cos. in Framingham. and find the person who could oversee such a transition, says Michael P. Angelini, current chairman of the Hanover Insurance board who by day serves as chairman of Worcester law

Snapshot of area’s 10 largest boards Company

Headquarters

Annual Revenue

Employees

Members

Independent

Is CEO Chairman?

Salary range

Longest-serving member(s)

Newest member(s)

EMC Corp.

Hopkinton

$9.7 billion

26,500

Yes

$54k to $86k

Michael J. Cronin (1990): CEO, Cognition Corp.

Michael W. Brown (2005): Fmr. CFO, Microsoft Corp.

The TJX Cos.

Framingham

$16 billion

119,000

Yes

$18k to $136k

Robert F. Shapiro (1974): Partner Klingenstein Fields & Co.

Amy B. Lane (2005): Managing Director (ret.), Merrill Lynch

Hanover Insurance Group Worcester

$2.6 billion

4,100

$98k to $151k

Michael P. Angelini (1995): Chairman, Bowditch & Dewey

Neal F. Finnegan (2006): Fmr. Chmn., Citizens Bank; David J. Gallitano (2006): Pres., Tucker Inc.

Commerce Group Inc.

$1.9 billion

2,166

Yes

$45k to $117k (est.)

Arthur J. Remillard (1972): Randall V. Becker (2003): CFO Pres., CEO, Chairman (ret. Jul. 28, 2006); John Spillane (1972): Clerk; Joseph Borski (1972): CPA; Henry J. Camoose (1972): Pres., Henry J. Camoose & Sons; David R. Grenon (1972): Pres./CEO (ret.), Protector Group; John J. Kunkel (1972): Pres./Treasurer, Kunkel Buick GMC; Raymond J. Lauring (1972): Pres., Lauring Construction (ret.); Normand R. Marois (1972): Chairman Marois Bros. (ret.)

BJ's Wholesale Club Inc. Natick

$7.9 billion

20,300

$40k to $94k (est.)

Herbert J. Zarkin (1996): Chairman

Paul Danos (2004): Dean, Tuck School of Business (Dartmouth); Helen F. Peters (2004): Trustee, StreetTracks Fund

Genzyme Corp.

Cambridge

$2.7 billion

8,400

Yes

$100k to $182k (est.)

Henry E. Blair (1981): CEO, Dyax Corp.

Richard F. Syron (2006): CEO, Freddie Mac

Boston Scientific Corp.

Natick

$6.3 billion

28,000

$60k to $210k

Peter M. Nicholas (1979): Chairman and co-founder, BSX; John Abele (1979): co-founder, BSX

Kristina M. Johnson (2006): Dean, Duke School of Engineering; Nancy-Ann DeParle (2006): Senior Advisor, JP Morgan

Staples Inc.

Framingham

$16 billion

68,533

Yes

$50k

Rowland T. Moriarty (1986): Chairman, Charles River Associates; Robert C. Nakasone (1986): CEO, NAK Enterprises

Stephen F. Schuckenbrock (2006): COO, Electronic Data Systems:

Waters Corp.

Milford

$1.1 billion

4,500

Yes

$30k to $59k (est.)

Thomas P. Salice (1994): Managing Member, Sceptra Capital Partners

Michael J. Berendt (1998): Manging Director, Research Corporation Technologies

The L.S. Starrett Co.

Athol

$196 million

2,219

$45k (est.)

Douglas A. Starrett (1984): President and CEO

Stephen F. Walsh (2005): Senior VP

Webster

Source: Most recent proxy filings Notes: Companies ranked by number of Central Mass. employees. Estimates, based on retainers plus meeting fees, used where no salary information provided in proxy. 10

Worcester Business Journal • July 24, 2006

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F E AT U R E PHOTO/COURTESY

EMC Corp. Chairman and CEO Joe Tucci (center) celebrates the opening of a new software development center in Shanghai last month. The new center will expand the informationmanagement company’s global presence, part of the board’s strategy for long-term growth. firm Bowditch and Dewey. “The role of the board didn’t so much change, but we filled the gap,” Angelini says of the period from Oct. 2002 to Aug. 2003, where he and three other executives ran the company during the search for O’Brien’s eventual replacement, Frederick H. Eppinger, the CEO now credited with turning around Hanover’s troubles. Regulation has increased workload Directorships are more than going to meetings, offering advice and collecting a paycheck, says Gail Deegan, a director at both EMC and clothing retailer the TJX Cos. in Framingham. It’s complicated and can often be stressful, and that has grown truer in the post-Enron era. Increased regulation by the federal government and stock exchanges has made the job much more cumbersome, particularly for members of a company’s audit committee, who are being called on to perform greater roles in certifying finances than in the past. Most estimates place the number of hours a director spends on board-related items – from phone calls and in-face meetings to reviewing financial data and statements – as having doubled since the passage of the Sarbanes-Oxley Act in 2002. “Prior to the business scandals of 2001, the average amount of hours a board

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member could expect to put in was about 170 a year. Now it’s approaching 300 hours and that’s a huge challenge,” says Linda K Bolliger, founder and CEO of Boardroom Bound, a MD-based public service group. While that may be good for shareholders, it can mean a lot more work for directors, Deegan says. As a former CFO at Houghton-Mifflin and a director of several firms since 1989, she is often sought for directorships because of her experience and qualification as “financial expert,” which Sarb-Ox. requires of some directors. Adding to the mix of difficulties is another Sarb-Ox requirement limiting the number of directorships a current CEO may hold. The result is a shrinking supply of experienced or eligible candidates, which makes former CEOs a target audience for boards’ recruitment efforts. Taken together there is a shrunken pool of potential directors, she says. So while some see the pay as excessive, others feel that it has not kept pace . The merry-go-roud Several of the area’s largest companies have a lineage between CEOs and board members, and often the cross-fertilizing of companies’ boards can resemble a merry-go-round. continues on page 16

July 24, 2006 • Worcester Business Journal

F E AT U R E PHOTO/COURTESY

INSIDE THE BOARD ROOM continued from page 11

One example: BJ’s Wholesale Club in Natick, which this month named former TJX CEO Edmond J. “Ted” English to its board of directors. English had resigned as CEO from TJX in 2005, and was quickly replaced by then-Chairman of the Board Bernard “Ben” Cammarata, who preceded English as the company’s CEO. Since TJX bylaws forbid the CEO from serving as chairman, a lead director was named. Stepping in to fill that void? Former Hanover CEO O’Brien. Cross-sitting on boards is common in

area companies. Other examples include Waters Company in Milford, where CEO and Chairman Douglas A. Berthiaume also sits on the board of Genzyme Corp. in Cambridge, and American Express CFO Gary L. Crittenden, who has board seats at both Staples Inc. in Framingham and TJX Activism politicizes directorships Perception is everything, as the addage goes. And the aura of intra-board chumminess — the old boys’ network — is largely to blame for the burgeoning shareholders’ rights movement. Among its biggest goals:

The annual and majority election of directors and the greater scrutiny of companies’ ethical and environmental decisions. “It definitely has become more politicized, much more so than the past,” says EMC and TJX Director Deegan. She speaks from experience, EMC shareholders in May voted to declassify the board — switch to annual elections — and require a majority of voting shareholders to approve directors’ elections. Similar measures at TJX have been offered but voted down several times over the past few years. Last year TJX shareholders also rejected a proposal to adopt human rights standards for its suppliers, which would have raised the minimum age for workers to 15 from 14. Michael P. Angelini, chairman of the board at Hanover, says directorships offer the chance to learn from other executives and gain experience overseeing a large business. Staple’s shareholders last month approved a similar move to declassify its board but rejected a move that would create a majority requirement for directors’ elections. Without those changes, board members typically carry three-year terms, staggered so that the whole board is not up for election in a given year. Activists, chiefly unions, argue that such changes would make the board more responsive to its constituency – the shareholders. But boards argue that annual elections unnecessarily politicize directorships, making them more beholden to short-sighted agendas. Regardless of how one feels about the issues, shareholder activism it is likely to remain a cause for concern to board members for the foreseeable future. According to a report issued last week by Boston-based Social Investment Research Analysts Network, more than 79 companies on the S&P 100 index have special sections of their Web sites to share social and environmental policies and performance. In the last year, a dozen new companies — including Cisco Systems, General Electric and Time Warner — issued corporate social responsibility reports for the first time. Personal rewards outweigh money But with all the challenges and greater requirements, many still see board service as an honorable opportunity to serve the business community. “I enjoy the collegiality of being around smart people, and getting to see a business organization fully-exposed is a wonderful opportunity,” says Hanover’s Angelini. Adds Deegan: “I get satisfaction from something that is intellectually rigorous. I like business – I find it interesting and challenging – and I feel like I am making a difference.” Kenneth J. St. Onge can be reached at kstonge@wbjournal.com Chart material and additional research compiled by Jack Bradley, second-year graduate student in Clark University’s MBA program. He can be reached at jbradley@clarku.edu

Worcester Business Journal • July 24, 2006