NACD 2015 Vol 5_r5
Published on: Mar 3, 2016
Transcripts - NACD 2015 Vol 5_r5
Voice of the Director
The first sentence of NACD’s mission statement is:“NACD
advances exemplary board leadership – for directors, by
directors.” This captures your chapter leadership’s unrelenting
pursuit to create the best peer-to-peer experiences possible.
From our chapter-wide programs to our industry and
board committee roundtables to our special events, we are
committed to creating environments where directors share
with and learn from each other.
Subject matter experts that are not directors can be important
sources of information. Accounting, advisory, consulting and
law firms all provide wonderful data, insights and venues
for directors to consider, consume and attend but we know
that directors cherish the wisdom and perspectives garnered
through real-life boardroom experience. It is the way we, as
corporate directors, build our skills and knowledge base.
It would be easy to spend all day consuming white papers,
research reports, and studies. That is useful but insufficient. The
next time you receive one of our invitations to an event,
program or roundtable consider the unique peer-to-
peer experience you will be missing if you don’t attend.
Nationally, NACD has now surpassed 16,000 members,
which means that 16,000 corporate directors are committed
to improvement though education, collaboration and
participation. The last sentence
of NACD’s mission statement
captures our commitment to
YOU, the corporate director:“Our
entire organization is focused
on meeting the needs of board
members, and supporting directors
to perform more effectively and
efficiently.”We do this better when
we are together...“for directors, by
As we return from summer, we are looking
forward to another year of programs that
cover a variety of the most challenging
issues facing directors. In early July, your
chapter board held its annual retreat,
and programming for the 2015-2016 year
was a primary area of focus. While our
Programs Chair Hoshi Printer is leading
the effort to fill our programming calendar
completely, we already have a number of
events scheduled, several of which are in
collaboration with partner organizations such as the University
of Southern California (USC) and the National Investor Relations
October 5, 2015: 2016 Executive Compensation lunch at the
October 8, 2015: Kick-off event for the new USC Family Business
Program (breakfast through mid-afternoon at The Jonathan Club)
October 16, 2015: Global Economy, Cyber Security and
Investment Implications, Camarillo
November 12, 2015: USC Corporate Directors Forum (full day
event at the California Club)
February 16, 2016: Chair’s Spotlight Lunch with Maggie
Wilderotter, Chair of Frontier Communications’Board
A number of additional programs are in the planning stages,
including events that are targeted for San Diego and Las Vegas.
Current information on upcoming programs is always available at
our website, www.southerncalifornia.nacdonline.org.
We look forward to seeing you at one or more of our upcoming
September 2015 •Vol. 5
Message From The President
David L. Rosenblum
M. Christian Mitchell
Message From The President...................................................................1
NACD Directorship 2020 with Fay Feeney...........................................2
Members in the News.................................................................................4
Recent Events ................................................................................................5
Welcome New Full Board Members.......................................................7
Newsworthy Members and Sponsors...................................................8
Inside This Edition
Voice of the Director
Voice of the Director
Big congratulations to Rafael
Pastor who recently was
appointed as Board Member of
our Southern California Chapter,
The National Association of
As a risk professional, I like to
think about how board members
can assist management with
navigating various issues. The
issue on my mind when speaking
with Rafael was the upcoming
NACD Blue Ribbon Commission
focus on the board’s role in
driving long-term value creation.
Rafael provides a thoughtful interview on sources of board member
insights and how to apply and help CEOs be more effective in a rapidly
changing landscape. I know you’ll appreciate his wisdom in driving
long-term value creation as a Director, CEO and investor.
Fay Feeney: Why does serving on boards, and now on the
NACD So Cal board, interest you?
Rafael Pastor: I’ve been fortunate to do a variety of things
professionally. Serving on boards is the culmination of
everything I’ve done before. Now I’m in a position where I
can combine and apply what I’ve seen and done in different
corporate roles and settings. Sharing that so-called“wisdom”
can be gratifying and valuable. Very importantly, I’m also
learning a lot. Every board you join and every group of people
you associate with is a new learning experience.
Serving on boards also gives me the opportunity to help bring
harmony to corporate deliberations around the three pillars of
every company: strategy, execution, and culture. Not everybody
would agree, or automatically say, that there are three pillars;
often what you would hear are two: strategy and execution. I
believe it’s equally important to focus on culture. To harmonize
those three is becoming increasingly difficult. Board members
with relevant experience and perspective can bring real value
– in helping to establish that harmony for the management
team, for the board, for the shareholders, for the employees and
for all of those who are affected by the company, including its
customers and the society in which it functions.
Serving on a board is also a form of expression, like painting
on a canvas with all the experiences and impressions you’ve
accumulated in your career. That’s an enticement for me as it
probably is for many others who join boards.
Fay Feeney: You mentioned this being the culmination of
all the things you’ve done before. How does your career
Rafael Pastor: I’m a good example, but hardly the only example,
of what I would call a non-linear career. Some people call it a
spiral career. Most people have a career like a step ladder. You
go to a good school and get good grades; then you get into a
good higher education school and get good grades; then you
get a job, then a promotion, then another promotion; and you
continue moving up the ladder vertically in one industry or
profession. This is certainly the case for many people. And it’s
great; there’s nothing wrong with it.
Then there are people like me who have a spiral – horizontally
upward – career. You’re always moving upward, but you’re
moving to the left a little and to the right a little. In my case, I
started as an attorney and then I was fortunate and got to do
what I really wanted. I became a top executive at some of the
major media and entertainment companies and also did a lot of
work internationally. Then I co-founded an investment banking
firm, and following that I ran the world’s largest for-profit CEO
In the course of my career, I served on, or participated in
the deliberations of, boards as a Chairman, member, CEO,
investment banker, and attorney. Now I have the opportunity
to apply what I’ve learned from various walks of life and dealing
with many different people in the context of the board room. As
I see it, my role and responsibility is to be a trusted advisor to the
management team and the other board members as we all try to
figure out the wisest paths forward.
Fay Feeney: Rafael, your work as a CEO and with CEOs
makes you uniquely qualified to understand the dynamic
relationship between the board and the CEO. What, in
your opinion, can board members do to enhance their
relationship with management for everyone’s benefit?
NACD Directorship 2020 with Fay Feeney
October 5, 2015: 2016 Executive Compensation,
October 8, 2015: USC Family Business Forum,
October 16, 2015: Global Economy, Cyber Security and
Investment Implications, Camarillo
November 12, 2015: USC Corporate Directors Forum,
February 16, 2016: Alliance luncheon event with National
Investor Relations Institute (NIRI) – Chairman Spotlight with
Maggie Wilderotter (Frontier Communications), Los Angeles
Rafael Pastor: To think longer term
and sometimes to make the case
that the longer term vision is worth
the short- term sacrifice. Similarly,
what board members today need
to do is help think about both the
disruptive threats to and the social
responsibility of their company in a
way that sometimes management
doesn’t have time to do or believes it
can’t afford to do.
Regarding potential disruptive
threats, boards should ask about and
anticipate what’s around the corner that may not yet be visible.
Companies cannot simply rely on current customer satisfaction
or growth or profitability. Boards should insistently probe to
make sure that whatever is currently successful is sustainable in
a world where technology and globalization are constants that
can present new competitive business models that can rip out
the very foundations of incumbent businesses.
As for social responsibility, it’s being – and will continue to be –
increasingly scrutinized. Companies are being held accountable
for it, not only by their customers and the media but also by
their employees, especially millennials. Today, young people
want to know the purposefulness of the company they work for
or are considering working for, including the company’s social
responsibility policies and practices. Where appropriate, boards
can help the management team to define and articulate these
Fay Feeney: Keeping in mind harmonizing the three pillars:
strategy, execution, and culture, what do you see as the
greatest issues for most companies?
Rafael Pastor: Boards and management are facing the
escalating challenges of both shareholder activism and income
disparity. Both of these are driven by perceived corporate
The shareholder activists, ostensibly on behalf of shareholders
(I say ostensibly because they also often have their own self-
interests), question management and board-approved decisions
for alleged wrong priorities, misguided strategies, faulty
execution, and so forth.
The income disparity challengers, ostensibly on behalf of
employees (I say ostensibly because they are often concerned
with ideology more than corporate welfare), question the
disparity between executive and rank-and-file compensation
What they both have in common is that their prohibitions and
prescriptions are usually less visible and clear than government
regulations, which companies are also increasingly subjected to.
Consequently, boards now have a responsibility to anticipate,
understand and address these challenges in a thoughtful and
Fay Feeney: How can board members help traverse such
Rafael Pastor: Different boards react in different ways but there
are a couple fundamental things that board members can do,
and are doing.
First of all, they’re obviously paying more attention to these
onslaughts. In the past these things were often thought of as
nuisances, on the fringes where they could be isolated and
marginalized. Now, these issues, both the shareholder activists
and the income disparity challengers, are front and center for
Hence, boards are becoming more proactive in anticipating
and addressing these issues. They’re engaging in more self-
examination as a board and with the management team. Also,
they are (at least the best of them) engaging in constructive
outreach and dialogue with their potential adversaries.
Sometimes they actually call them in and ask“what’s on your
mind”before an issue blows up.
Fay Feeney: Is this the best way for board members to take
responsibility? What else can they do?
Rafael Pastor: One thing I think boards need to become better
at is in communicating and justifying the why of what they and
the company do. An important factor that sometimes gets
lost in corporate discussions and communications is the“why.”
There’s a lot of attention paid to the“what”and the“how”and
the“when.”Obviously, this is essential and unavoidable. But the
why – why have we decided to do or not to do something that
we may be challenged about needs to be candidly, concisely
and compellingly explained.
I think boards are getting better at this, but it still doesn’t
happen to the degree that it should. Essentially, what’s really
happening (if you want to put the shareholder activists and the
income disparity challengers in the best light) is a movement
for democratization relating to corporate governance and board
oversight. And that’s probably here to stay.
As in any real democracy, we have to be more transparent, more
mindful of all our constituencies, and more communicative
about why we make our choices and decisions.
Thanks and welcome to Rafael Pastor, NACD So Cal’s newest
board member. We’ll look forward to you helping us create long
term value for the director community.
Directorship 2020 (cont.)
Joan E. Herman
AARP Services, Inc.
The Sable Accelerator
Kenneth A. Merchant
ACT Holdings, Inc.
Members in the News - New Board Appointments
We congratulate and celebrate these wonderful
achievements by our peers:
NACD Directorship magazine each year identifies the most
influential people in the boardroom community, including
directors, corporate governance experts, journalists,
regulators, and advisors. Promoting continued economic
growth remains a priority for policy makers and directors
alike. Therefore, our NACD Directorship 100 recognizes those
who participate in actual board work who influence how that
work is done.
Honorees and award winners will be celebrated at the
NACD Directorship 100 Gala in New York City on
December 2, 2015.
NACD B. Kenneth West Lifetime Achievement Award
NACD Directorship 100: Hall of Fame
NACD Directorship 100: Directors
Leslie Stone Heisz
Francesca Ruiz de Luzuriaga
Ronald D. Sugar
Michael D. White
NACD Directorship 100:
Governance Professionals and Institutions
NACD Directorship 100: Award Winners and Honorees in Southern California
Bonnie G. Hill
Director, California Water Service Group
Director, YUM! Brands
Ralph V. Whitworth
Principal, Relational Investors
former Chair, Hewlett-Packard
Got an idea for an NACD
So Cal Chapter Event?
Submit your ideas for
NACD membership comes with access to benefits
that arm members with the resources to make
informed decisions at the Board level.
Click to see full list of benefits
Click to join!
“Revenue Recognition Changes: Impacts Beyond Financial Statements”
What Directors Need to Know – February 24, 2015
NACD Southern California hosted a breakfast program at The California Club
on Tuesday, February 24. There were 35 members and guests in attendance
to participate in the panel discussion focused on the topic of“Revenue
Recognition Changes: Impacts Beyond Financial Statements - What
Directors Need to Know”.
The panel comprised of moderator, Joan Herman (board member of
Convergys and HealthSouth), Bala Iyer (board member of several companies
including QLogic and Power Integrations), and Dorian Redding (Partner
with EY Advisory Services). The panel discussed the implications of the new
mandated process of revenue recognition by public companies, effective in
• Revenue to be recognized when customer has control of the asset.
Change is industry-specific and will affect most sectors including
pharma, software, retail, real estate, and others.
• Change reflects move towards more principles-based than rules-based
and brings US GAAP closer to IFRS. During the transition period, be
prepared for intra and inter-company pressures as each group has its
own ideas on“principles”.
• Every contract needs to be examined for performance obligations,
transaction price and ability to recognize revenue when each
performance obligation is satisfied. (Excludes leasing, insurance, and
financial instruments contracts).
• Audit Committee needs to understand from the company:
• Effects on processes and financial reporting - request a pro forma
under new revenue recognition rules.
• Financial staff preparation for the change and whether it has
sufficient resources. Companies that have started to work
on the change find that examination and revenue impact by
each contract is both painful and time-consuming.
• How external auditors are involved in the implementation.
• Compensation Committee to understand the impact on executive
bonus compensation, in particular, and the commissions plans in
• Board should request company’s plans for:
• Changes in contract terms and conditions going forward
immediately, to reflect new policies and properly record revenue.
• Communicate with stakeholders (especially the investment
community) to prepare them for the change.
Pictured (from left to right): Dorian Redding, Joan Herman, Bala Iyer, Hoshi
Printer (NACD So Cal Chair of Programs Committee)
“Disrupted or Disruptor: Which one is your Company? – March 18, 2015
NACD Southern California hosted a lunch program at The Pacific Club on
Wednesday, March 18. There were 42 members and guests in attendance
at this sold out event to participate in the panel discussion focused on the
topic of“Disrupted or Disruptor – Which one is your Company?”The Audit
Committee Roundtable of Orange County (ACROOC) was a joint host of this
The panel consisted of three outstanding experts: Bob Zukis (Senior Director
at Genband, a 30 year retired PwC veteran and NACD So Cal board member),
Martin Giles (formerly the US Technology correspondent for The Economist
and recently appointed partner at Wing, a VC firm in the Valley), and Sean
Middleton (Founder and COO of Cognizant’s Emerging Business Accelerator).
Bob Zukis moderated the panel and engaged the audience throughout the
90 minute session.
• Stage setting by the three panelists using Gartner’s Hype Curve
indicating where the various technologies are on the spectrum. For
board members, there were a couple of mnemonics to focus on the most
disruptive technologies --“DMC”[Data, Mobile, Cloud] or“SMAC”[Social,
Mobile, Analytics, Cloud].
• Barriers are getting very low for disruptors, although scaling still remains
a formidable task, e.g. Uber and Airbnb.
• Disruption is being driven by technology influenced changes in demand
(will markets want your products or services?) and by technology
disruptions (can you produce and deliver a product or service with new
technologies that the markets want?).
• IT is no longer there to just support the business, it is becoming integral
to the business proposition and how it is delivered.
• Big difference between“privacy”and“security.” Customers want an
opportunity to take back their own data. Establish relationship with
customers so the company knows where they are and can send them
• Board members can oversee the various technologies proposed by
management and to recommend those that management has not
• Make a series of small bets to reduce the cost of failure.
• Watch for“pirates”within the Company who are not being listened
to. They are the disruptors and they will jump ship quickly if not
• About 15% of technology spending is for new technologies, the rest
is to“keep the lights on.” It takes several years (3 to 5) for technology
investments to start paying off.
• Specific ideas for board members to ensure their company is on top of
technologies that affect them:
• Be very supportive of“intrapreneurs”by having board members
talk to the disruptors.
• Couple of board members need to be disruptors themselves.
• Periodically have board meetings in Silicon Valley and arrange to
have meetings with young companies that could be disruptors.
• The single biggest disruptive factor mentioned by each of the three
• Sensors in both hardware and software, because sensors both
gather and transmit data.
• Analytics - making sense of the massive amounts of data, with not
enough scientists to cope with the analysis.
• Permanent shift in power from companies to consumers.
Pictured (from left to right): Dean Yoost (ACROOC Chairman/NACD So Cal Board
Member, Martin Giles, Sean Middleton, Bob Zukis, Hoshi Printer (NACD So Cal Chair
of Programs Committee)
“Cyber-Security Action Primer for Board Members, Without the Eye
Rolling” – April 16, 2015
NACD Southern California hosted a lunch program at The California Club
on Thursday, April 16. There were 40 members and guests in attendance
at this informative event to participate in the discussion focused on
Cyber Security. Dr. Richard Schroth and Mr. Chris Mitchell were the two
speakers. Dr. Schroth is a Board Fellow and faculty member of NACD,
and currently consults with boards (not management) on cyber issues.
Mr. Mitchell is a board member and advisor to nine companies and the
Chairman of NACD Southern California Chapter.
The 90 minute discussion was punctuated with many questions from the
audience. The framework for the conversation was the Five Principles
outlined in the NACD Handbook on Cyber-Risk Oversight. The messages
for each of the principles were conveyed through relevant real-live
examples and intensive Q&A.
• Cyber is now the fifth theater of war - besides land, sea, air, and
space - and there is an offensive component that may be emerging
in some companies.
• Make sure that policies are in place regarding cyber escalation and
use of resources that fall outside the norms of containment and
• Private Equity firms have a great interest in cyber cleanliness before
having companies in their portfolios. Valuation Protection is more
important than mere compliance.
• Digital due diligence and digital asset management are increasingly
critical components of M&A transactions.
• Companies need to protect digital assets not just inside the firewall
but also outside the firewall to include social media and CIO/CISO
should acknowledge their expanded roles.
The five NACD principles for board members are as follows:
1. Cybersecurity is an enterprise-wide risk management issue, not just
an IT issue.
2. Understand legal implications of cyber risks specific to the
3. Have adequate access to cyber expertise and provide enough time
on board agenda.
4. Management must establish framework with adequate staffing
5. Identify cyber risks to avoid, accept, mitigate, or transfer.
Recent Events (cont.)
Pictured (from left to right): Chris Mitchell (NACD So Cal Chairman), Richard
Schroth, Hoshi Printer (NACD So Cal Chair of Programs Committee), Ken Cleveland,
NACD So Cal Board Member and Event Producer
“A Price Worth Paying?” – May 18, 2015
NACD Southern California hosted a breakfast program at The California
Club on Monday, May 18. There were 35 members and guests in
attendance at this unique event, which included time for networking
and peer-to-peer exchange.
The theme of the meeting was an interactive workshop discussion of a
provocative film centered on critical board and ethical issues titled “A
Price Worth Paying?”
This 90-minute program was led by David Kistenbroker of Dechert
LLP and Professor Ken Merchant of USC Marshall School of Business.
Mr. Kistenbroker’s firm created the video case study based on real life
examples. Professor Merchant currently teaches the Ethics class (among
others) in the Accounting department of the Marshall School.
The film was shown in three parts, with vibrant discussion between the
speakers and audience occurring after each segment.
Key Issues Discussed:
• New CEO compensation and incentive packages.
• Aggressive moves by the new CEO in hiring and in acquisition.
• The stacking of board votes by the non-executive Chairman.
• Failure to perform due diligence, brushing over key signals that
would indicate further review.
• Muffling dissenting voices within the company, dismissing the
message of a whistleblower as a disgruntled employee.
• Not providing enough support to the General Counsel and Internal
Audit function to perform their task.
Pictured (from left to right): Ken Merchant, David Rosenblum, (NACD So
Cal President), David Kistenbroker, Hoshi Printer (NACD So Cal Chair of
Welcome New Full Board Members
We would like to welcome our newest NACD So Cal members:
CalOptima is a county organized health system that administers health insurance
programs for low-income children, adults, seniors and people with disabilities in
Orange County. https://www.caloptima.org
Quality Systems, Inc. (NASDAQ: QSI) and its NextGen Healthcare subsidiary develop
and market computer-based practice management and electronic health records
(EHR) solutions as well as revenue cycle management applications and connectivity
services for medical and dental group practices and hospitals throughout the U.S.
The San Manuel Band of Mission Indians is a federally recognized American Indian
tribe located near the city of Highland, Calif. San Manuel is one of several clans of
Serrano Indians, who are the indigenous people of the San Bernardino highlands,
passes, valleys and mountains who share a common language and culture. The San
Manuel reservation was established in 1891 and recognized as a sovereign nation
with the right of self-government. Since time immemorial, the San Manuel tribal
community has endured change and hardship. Amidst these challenges the tribe
continued to maintain its unique form of governance. Like other governments it
seeks to provide a better quality of life for its citizens by building infrastructure,
maintaining civil services and promoting social, economic and cultural development.
Today San Manuel tribal government oversees many governmental units including
the departments of fire, public safety, education and environment.
Wesco Aircraft is one of the world’s largest distributors and providers of
comprehensive supply chain management solutions to the global aerospace
industry and other industrial market segments. https://www.wescoair.com
Thank you for attending our events
“Board Oversight of Third Party Risk Management” by
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“Practical Advice on Board-Shareholder Engagement” by Moira Conlon, President of Financial Profiles
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“Audit Committee Excellence Series – Achieving
excellence: Role, composition and performance” by PwC
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Newsworthy Members and Sponsors
“Directors who choose to enhance their skills and acumen by becoming NACD Fellows demonstrate to company management,
shareholders, and their peers a desire to perform their fiduciary duties to the best of their abilities.”
—Ken Daly, NACD Chief Executive
*So Cal Chapter Leaders
Click Here to learn more about becoming an NACD Governance Fellow
BOARD LEADERSHIP FELLOWS
J. Michal Conaway
N. Scott Gillis
Sara Grootwassink Lewis
M. Christian Mitchell*
Welcome new sponsors
Interested in Becoming a Sponsor?
Thank you for your continued support
We appreciate the support and generosity of our sponsors, who help make our programs possible. We try to thank
our sponsors in return by highlighting them in the event invitation and introducing them at the event.
If you are interested in sponsoring an upcoming NACD So Cal chapter event, please contact Anne Ettley, chapter
administrator at email@example.com.
Questions and comments about the Newsletter? Contact Moira Conlon, Financial Profiles, Inc., firstname.lastname@example.org, 310 478 2701