Taking the lead

Perspectives from Ernst & Young alumni serving on leading corporate boards.

It may not come as a surprise that nearly 200 Ernst & Young LLP alumni serve in the C-suites of Fortune 1000 companies. But did you know that nearly as many serve on the boards of the Fortune 1000? That’s not to mention the hundreds of mid-size organizations and literally thousands of not-for-profit, civic, religious and other boards to which our alumni extend their time and talents.

For this issue of Connect, we convened a panel of five alumni who serve on leading boards to ask them about what it means to serve. What issues are they seeing? What have they learned? And what advice do they have for their fellow (or soon-to-be) alumni who may have an interest in board service?

Our panelists, who were chosen to represent a wide range of industries and board experience, included Jan Babiak, Denny Beresford, Karin Hirtler-Garvey, Walter Morris Jr. and Mike Goldstein. They spent nearly four hours gathered around a table in the Presidents’ Room at New York City’s Harvard Club. Mark Manoff, Ernst & Young’s Americas Vice Chair — Accounts, facilitated.

Throughout the session, they debated the hot topics facing boards, including increasing regulation and the evolving role of the board with regard to strategy. They discussed the mounting pressure to bring both business acumen and diversity to boards. And they talked about the increasing importance of succession planning — both for boards and management. While there was no shortage of opinions expressed, one message came through loud and clear: these board members are deeply committed to the organizations and shareholders they serve, as well as to the role they play in guiding their organizations into the future.

Dennis "Denny" Beresford
“Until joining a board, I don’t think I ever fully appreciated the many complexities of running a business. I’ve enjoyed every moment.”
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Regulation time

All of our panelists agreed that increased oversight and regulation are changing boards’ routines, often for the better. “Seven years ago, we didn’t have risk committees, we didn’t have board training, we didn’t have formal board self-assessments,” says Karin Hirt-ler-Garvey. She claims board meetings that used to last a morning now require up to a day and a half. Denny Beresford goes a step further, saying that increased regulation is creating a sense of “defensiveness” among boards. “You read the list of risks in a compa-ny’s 10-K, and it covers every risk imaginable in the world,” he notes. “As always, we as board members must focus on what’s most important.” Jan Babiak, who spent her last 19 years with the firm in Europe, brings a different perspective on regulation. “The US approach to regulation is much more rules- versus principles-based, and governance requirements are different,” she comments. “I find that you just don’t have the same hue and cry in other parts of the world that you do here.” Walter Morris, Jr. sees a silver lining to the regulatory cloud: while he admits the new rules can be challenging,“I think they force every company to say, ‘Wait a minute, do we have the right board? Do we have the right management team?’ And I think that has really improved things.”

Strategic moves

When it comes to board involvement in corporate strategy, our alumni panel bristles at the notion of serving as a rubber stamp for management. However, they made it clear that the degree of board participation in strategy-setting varies widely, depending on cir-cumstances. Over the past two years or so, Beresford reports a “quite different” situation for three of the boards he currently serves or previously served.

For one company, it was “clear that management was taking the lead” in setting strategy (while keeping the board involved and getting buy-in). Beresford calls the second case “a joint effort,” with the board and management “kind of going back and forth” on the strategy. In the third instance, Beresford notes that the board felt management should be doing more in terms of setting strategy. Consequently, the board became proactive in helping the company develop an initial strategy.

When it comes to setting strategy, our panelists caution about guiding versus interfering. “There is a danger that a very active board, especially with a lot of participants who know the industry, will start micromanaging and cause more harm than good,” says Michael Goldstein. “My approach is ‘noses in, fingers out,’” adds Babiak. “I agree it’s a fine line,” says Hirtler-Garvey, “but ultimately, you’ve got to be sure that management owns the strategy.”

Jan Babiak
“Board members are not placed in a position of competing with each other. This creates the most collaborative environment I’ve ever experienced or seen in a company setting.”
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A diversity of opinion

Another hot topic facing boards today is diversity. “If you put 10 CEOs together in a room, as near as I can tell, you have 9 redundancies,” says Babiak. “I start from the standpoint of having true diversity in terms of what you’re trying to achieve.” She points to the composition of one of her former boards, Logica, a UK-based high-tech firm that was acquired recently, as a great example of “functional” diversity. “We had a hardware manufacturer, a software developer, the CEO of a high-tech company, a big retailer who uses lots of technology, a banker, a telecommunications provider and myself, an accountant who happens to know IT.” This group included French, German, Italian, Indian, UK and US nationals. So rather than saying we need a woman or a person of color on our board, I come at it from the standpoint, let’s diversify everything about the board and all these other things will follow through.”

Former Toys “R” Us CEO and board chair Goldstein also appreciates a diverse board. However, he feels strongly that every board member must possess strong business acumen and add value. “There’s plenty of rich and diverse talent out there — it’s a matter of making the effort to find it,” he says.

Morris is encouraged that business, in general, is recognizing the need for more diversity on boards. “I see progress,” he says. “I see certain firms coming together to talk about it, executive search firms holding forums on it and so forth.” However, Morris believes that a “disconnect” exists in the methods of sourcing and identifying potential board members. “We’re looking for nontraditional people using traditional methods. That’s a problem.”

Mark Manoff, our normally neutral moderator, also weighed in: “I’m pretty passionate about this,” he told the panel. What Manoff espouses isn’t just more diversity, but more diversity of thought. “I’ve found that when you include someone from a different organi-zation or a different culture, the richness of the discussion is far better than I ever would have expected — it’s incredibly additive,” he states. Manoff believes there’s much that organizations, and boards in particular, can learn from this.

Is that seat taken?

Despite slightly differing viewpoints on diversity on boards, our panelists agree they see a shift in the way that board members are hired and recruited. “Fast fading,” they say, are the days of hiring a board member on the basis that he or she is a “good person” or simply hails from a prestigious company. This shift comes as investors increasingly evaluate whether boards are actively renewing themselves and including directors with diverse backgrounds, skill sets and expertise connected to the company’s strategic goals and market challenges.

According to Hirtler-Garvey, the recruiting conversation is evolving. “On the boards I’m on,” she says, “if we have a seat coming open we now ask ourselves, ‘What are we looking for? Do we want a 25-year-old dot-com person, or someone in the IT space, or someone geographically different?’ We try to figure out what kind of person and skill set we’re missing and what we need.”

A passion to serve

Perhaps the common thread connecting our panel is the reason they serve. To a person, they are passionate about the visions, missions and shareholders of the organizations they represent. They take pride in their ability to contribute and make a difference. And they savor the opportunity to expand their knowledge. “For me,” says Goldstein, “it’s all about the shareholder.” Goldstein takes great satisfaction in the fact that, this past year, three companies on whose boards he served were sold — all with excellent shareholder returns. “The sales weren’t easy decisions and some board members weren’t crazy about essentially dissolving their seats,” he says, “but in the end it’s not doing what’s best for the board members, but what’s best for the shareholder.”

Walter H. Morris, Jr.
“As a board member, I can play a more active role in influencing some of the issues around the housing capital markets, something I’m highly committed to and passionate about. It’s very exciting.”
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Whether it’s a question of dispositions or acquisitions, Hirtler-Garvey says you must start with shareholder value. “You have to think long term and may need to make a tough decision now,” she notes, “but you start with shareholder value either way.” Babiak concurs that representing the shareholder has got to be “job one.” However, she cautions, that may mean different things in different organizations. “It’s got to include the basics of understanding the strategy and influencing it, challenging things and sometimes being a catalyst for change.”

“A real-world MBA”

While contributing to their organizations’ success seems to provide the greatest reward to our panelists, there are certainly side bene-fits. There’s compensation and a certain amount of prestige. The big payoff, however, is the learning. “I tell my students it’s like going back to school and getting a real-world MBA,” notes Beresford. “In board meetings,” says Babiak, “I get to draw on all of my various career experiences and most importantly, there are 10 other people in the room whose life long experiences I’m learning from.” For Morris, a relative newcomer to board service, the learning is exciting. However, the sheer magnitude of it took him a bit by surprise. “I thought I knew the government-sponsored enterprise space, and I’d done numerous projects with Fannie Mae and Freddie Mac. However, I’m finding the Federal Home Loan banks are very unique and distinct. I’m learning something new almost every day,” he says.

So you want to serve on a board?

It’s safe to say the members of our alumni panel count their board service as some of the most interesting, challenging and rewarding time of their careers. It’s not surprising then, that they highly encourage their fellow Ernst & Young alumni (and soon-to-be alumni) to consider serving as well. However, they caution that landing that first board appointment can be elusive. And that getting appointed to a board often requires a considerable amount of planning, networking, self-marketing and just plain hard work. Babiak, who lectures on the subject, advises those interested in board service to start positioning themselves early. She claims she started planning to “go portfolio” while in her thirties. “While I was with the firm, I started thinking about what I needed to do over the next decade of my career to position myself for this,” she states. Babiak especially encourages sitting CEOs and CFOs to get on their first outside board now (which she says is critical to future board appointments), rather than waiting until they “have the time” later.

Karin Hirtler-Garvey
“A big role for a board member to play is to be that sounding board, to be available at any time for a CEO to just say, ‘I want to ask you a question,’ or ‘I want to vent … just listen to me for a while.’ That’s really gratifying.”
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While Ernst & Young alumni have experiences relevant to board service, one of the biggest mistakes Babiak sees alumni make is positioning themselves as accountants rather than as business professionals. She recently worked with two alumni, modifying their “weak” bios into strong ones that “talked about all the things these people had done from a business leadership standpoint.” Both of these individuals are now “medium-listed” for board positions.

“You really have to network and be very strategic about it,” is Goldstein’s advice. He recalls methodically preparing his lists of whom he knew and how he was going to make it happen. Goldstein recalls how a fellow member of a prestigious not-for-profit board was instrumental in obtaining Goldstein’s initial interview at Toys “R” Us. All of which raises another point: not-for-profits can serve as a “terrific pathway to corporate boards,” says Hirtler-Garvey. Morris, who currently sits on the board of a large not-for-profit, agrees that not-for-profit board service can be a great door-opener. “Many of the issues facing private and public corporations aren’t really that different, so it’s great experience,” he notes.

Michael Goldstein
“A board member’s job is to challenge the status quo. I also believe strongly in peer evaluation of other board members. Great boards should only have great people.”
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Despite his sterling reputation in the field of corporate governance, Beresford recalls that “the offers weren’t exactly rolling in” when he first took an interest in board service. For Beresford, it was a combination of search firms, which he feels are essential to anyone seeking a board position, and savvy self-marketing. “Whatever credentials you add during your career are going to help,” he says, “whether it’s in your position or public speaking or writing or whatever ... the more you develop yourself, the better you become known. It’s just building your credentials over time.”

Worth the leap

Perhaps Hirtler-Garvey best sums up the quest for board service: “You have to approach getting on a corporate board like it’s a second job. It takes discipline. It takes making calls and meeting with people. It requires you to bring all the acumen you bring to your day job to make the leap to this second job.” While they might not see eye-to-eye on every aspect of every issue, our esteemed panel of Ernst & Young alumni all agree that the leap toward board service is well worth taking.

As stated at the outset, our Connect board and governance panel represents just a tiny fraction of the myriad of Ernst & Young alumni serving on boards. And whether they sit on the board of General Motors (like former Ernst & Young LLP Chairman Phil Laskawy) or the local Girl Scout Council, these special alumni demonstrate integrity and respect, have the courage to lead, and are committed to building relationships based on doing the right thing. That is, they reflect the values that make Ernst & Young great. We are greatly appreciative of and take deep pride in our many alumni board members. They make our Ernst & Young alumni family that much stronger.

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Dennis “Denny” Beresford

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Current boards:

• Doosan Infracore International
• Legg Mason
• Public Company Accounting Oversight Board (PCAOB) — Standing Advisory Group
• National Association of Corporate Directors

Former boards:

• Financial Accounting Standards Board (Chair)
• MCI (WorldCom)
• Kimberly-Clark
• Fannie Mae
• National Service Industries

Current position:

• Executive Professor of Accounting, J.M. Tull School of Accounting at the University of Georgia

Awards/distinguished service:

• Directorship’s “100 Most Important People in Corporate Governance” (2007, 2008, 2009)
• Inaugural inductee of the Financial Executive Institute’s International Hall of Fame (2006)
• Accounting Hall of Fame and AICPA Gold Medal (2004)
• One of the “125 Most Impactful Individuals in Accounting for the Past 125 Years” chosen by the AICPA’s Journal of Accountancy (2012)

Despite my 26 years with Ernst & Young LLP, and another 10 years as the Chair of the FASB, my first corporate board experience was a bit of an eye-opener. I found the level of expertise, management ability and just plain smarts that my fellow board members brought to the table, frankly, a little intimidating. Sure, I could quote GAAP backwards and forwards. But compared to my board-mates’ levels of entrepreneurial, marketing and management skills, I felt way over my head.

Now, having served six boards over the past 10 years, I’ve come to realize that you don’t have to be an expert on every subject to make a meaningful contribution as a board member. In fact, a key ingredient a board member must bring to the table is a certain amount of skepticism and a willingness to challenge things if they don’t make sense. Early in my board service, I risked posing a question I thought might be routine. Afterward, I was surprised when one of the board’s long-standing members thanked me for doing so, saying he was never really clear on the issue. The longer I serve on boards, the less embarrassed I am to ask the same questions more than once, if necessary. That’s what makes a board strong. And you can’t be intimidated.

Despite a very enjoyable and challenging career at Ernst & Young and at the FASB, I’ve found my years serving on boards to be some of the most interesting and rewarding of my life. To be honest, I don’t find good corporate governance to be all that difficult. As I tell my students, my success as a board member is not due to any great intelligence. It’s about perseverance, always doing the right thing, asking the right questions and making sure you’re clear on issues before you act. What’s so hard about that?

 

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Jan Babiak

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Current boards:

• Walgreens Co.
• Bank of Montreal
• The Council of the Institute of Chartered Accountants in England and Wales

Former boards:

• Logica plc (Audit Committee Chair)

Previous position:

• Managing Partner, Regulatory and Public Policy; Northern Europe, Middle East, India and Africa, Ernst & Young
• Managing Partner, Technology Security and Risk Services; Northern Europe, Middle East, India and Africa, Ernst & Youngli>

Awards/distinguished service:

• Founder and Co-Chair of the Tennessee Chapter of Women Corporate Directors
• Past Board Member, Women’s Leadership Board of Harvard’s Kennedy School of Government
• Recipient of the “Lifetime Achievement Award” from Women in Business and Finance (2007)
• The Confederation of British Industry’s “First Woman of Technology” (2005)

After spending more than 28 years at Ernst & Young, I felt it was time to start looking at my next potential career. I considered start-ing my own social media company, perhaps doing something in government, and board service (or as they say in the UK, where I spent my last 19 years with the firm, “going portfolio”). Thinking that a board portfolio would give me the most freedom to choose where and with whom I worked, I started talking with people, getting as much advice as I could. Interestingly, 38 of the 40 sitting board members I interviewed told me they did not think board service was for me. They felt I was better suited to stay in an “″in-charge” executive role and would find board service frustrating. While their collective wisdom was, on the whole, very valuable, to my relief, my first board experience made it clear that they were wrong about me, at least on this point.

Actually, one of the things I enjoy most about board service is the advisory nature of the role. I also greatly appreciate the collegial nature of boards (at least the ones I serve). Board members are not placed in a position of competing for their next role, for fair remu-neration, or for the resources needed to deliver their business-unit results. It’s very politically and personally agenda-free. I find it quite refreshing to work with a group of people who truly seem to have only the best interest of the organization and its shareholders at heart.

I think it’s key for those considering going portfolio to carefully establish criteria for the boards on which they might serve. Once your name gets in the hat, you’ll have opportunities. But you have to be careful not to jump too soon and fill your dance card with organizations about which you’re really not that passionate.

Finally, I think every board member shares, as McKinsey puts it, an “obligation to dissent.” It’s a board member’s responsibility to know the issues, be prepared to speak up and, where necessary, to disagree but without being disagreeable. I find boards provide a healthy and respectful environment for doing just that, if you do your due diligence and join the right boards.

 

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Walter H. Morris, Jr

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Current boards:

• Federal Home Loan Banks (Audit Committee)

Current position:

• Senior Managing Director, Brock Capital Group

Former boards:

• Board of Governors of the Mortgage Bankers Association of America
• Harvard Alumni Association (Past president)
• Operation Hope (Director emeritus)

Previous position:

• Executive Vice President and Chief Lending Officer, Fidelity Federal Bank
• President and CEO, First Interstate Mortgage Company
• Principal, First Interstate Capital Markets Ltd.
• Vice President, Continental Illinois Bank and Trust Company
• Assistant Vice President, Morgan Guaranty Trust Company of New York

Awards/distinguished service:

• 2011 Harvard Alumni Association Service Award
• Member, Greater Washington Alumni Council

Prior to my career at Ernst & Young, I was in the banking business for more than 20 years. That includes serving as CEO of one of the nation’s top 20 mortgage companies. However, in the short time since joining the Federal Home Loan Banks — Office of Finance (OF) board, I’ve discovered an extensive body of knowledge to be learned, especially pertaining to housing finance and the secondary mortgage markets. As one of five independent members of the OF board, I work with 16 other board members, 12 of whom are bank presidents. So despite having what I thought was a better-than-average understanding of banking and finance, I’ve had to step up my knowledge of the Home Loan Bank system — and I’m still learning.

After serving for many years in advisory roles at Ernst & Young, I was used to making recommendations to management or to boards. As a board member, I’m now expected to take action on those recommendations. I refer to it as “life after working with our clients.″” And it feels very different walking in these shoes. However, I take comfort in the collective wisdom represented by the board I serve on and feel our board moves very well together. We bring different levels of experience and our own unique perspectives, but we’re firmly united behind the vision and mission of the Federal Home Loan Banks.

I’m highly passionate about the Federal Home Loan Banks’ mission to provide financial products and services that assist and enhance the financing of housing and community lending. Many people are not aware that, while a cooperative, the Federal Home Loan Banks (along with their member financial institutions) represent the largest collective source of home mortgage and community credit in the United States. To be involved at an OF policy-setting level that supports these organizations is extremely interesting and wonderfully rewarding.

 

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Karin Hirtler-Garvey

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Current boards:

• Aéropostale, Inc. (Non-executive Chairman)
• Medley Capital Corporation (Compensation Committee Chair)
• Western World Insurance Company (Audit Committee Chair)
• USAA Federal Savings Bank

Former boards:

• Residential Capital, LLC (Audit Committee Chair)

Previous position:

• Chief Risk Executive, Ally Financial
• Multiple leadership roles at Bank of America
• Multiple mid-level roles in both risk and finance at J.P. Morgan & Co.

Awards/distinguished service:

• 2011 Harvard Alumni Association Service Award
• Member, Greater Washington Alumni Council

I enjoy business and problem-solving. So for me, board service is a great way to keep my head in the game. It’s also a great way to give back. You amass a body of knowledge over your career. If you can use that knowledge to help an organization — if you can say, “Been there, done that” or “Here’s an easier way of getting from point A to point B” — well, that’s very rewarding.

To me, a good board member finds the delicate balance between showing empathy on one hand and tough-mindedness on the other. Everything isn’t black and white. It comes down to listening very carefully and then knowing when to speak and when to sit back and be more supportive. I believe that this results in being a more effective board member, compared to someone who either dominates the conversation or worse, doesn’t say anything at all.

When evaluating a board opportunity, I don’t focus on market cap or public versus private. It’s more important to me that I’m on the board of a company run by highly ethical people, where I’m really proud to be associated with that company and how they conduct themselves and where I can add value. I also don’t avoid a company that’s going through lots of change or facing a particularly difficult challenge. I’m definitely not focused on smooth sailing — smooth sailing can be boring.

 

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Michael Goldstein

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Current boards:

• Pacific Sunwear of California Inc. (Audit Committee Chair)
• Israel Discount Bank of New York (Non-executive Chairman)

Former boards:

• Toys “R” Us Inc. (Chair)
• Charming Shoppes Inc. (Chair)
• Medco Health Solutions, Inc. (Lead Director and Audit Committee)
• Martha Stewart Living Omnimedia Inc. (Lead Director)
• MultiPlan, Inc. (Audit Committee Chair)
• More than 10 other public and private boards

Current position:

• Advisor, Jeffries, Inc.

Previous position:

• CEO, Toys “R” Us Inc.
• Senior Executive Vice President — Operations and Finance, Lerner Stores Corporation

Awards/distinguished service:

• Appointed by President George W. Bush to serve on the Advisory Committee for Trade Policy and Negotiations from 2003–2004
• Inductee of the Toy Industry Hall of Fame
• Chairman of the Northside Center for Child Development (New York)
• Recipient of the Haskins Gold Medal for highest score on the CPA exam in the State of New York

After my four-year run as CEO of Toys “R” Us, and then chairing its board of directors for another three years, many people just assume I’m anxious to serve on another toy company or retail board. Even though I’ve served on a few over the years, I now much prefer serving on boards outside of my past industry experience. It’s much more interesting for me, but, more importantly, I believe diversity makes for a better, stronger board.

For example, when I joined the board of Medco Health Solutions in 2004, I knew very little about health care. Fortunately, others on the board did. What I brought, however, were the experience and perspective of a former CEO, financial accounting skills and expe-rience working with lots of companies and industries. Likewise, when I was asked to join a bank board, I knew little about banking. However, they had a serious accounting issue. As chair of the audit committee, I helped put in place the needed controls. So while it’s necessary to have some industry experience on the board, I hold firmly that a diversity of industry experience is equally important.

For me, a good board member does his or her homework and doesn’t hesitate to challenge management and other board members in strategic decision-making. I fear that some large corporate boards are more interested in collegiality than in challenging the status quo. My philosophy is, I’m working for the shareholders, not for a board seat. As long as I feel I can do that, and make a meaningful contribution to the organization, I’ll continue serving on boards. It’s educationally challenging, it keeps you current and, based on my 70 years of life experience, I am convinced it keeps you young.

 

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About our facilitator, Mark Manoff

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Mark Manoff is Ernst & Young’s Americas Vice Chair — Accounts. Mark joined the firm in 1978 and was appointed to his current position in 2011. He has extensive experience serving multinational companies in several industry sectors. Mark has served in National Planning and Client Services, as Metropolitan New York Managing Partner and, most recently, as Vice Chair and Northeast Managing Partner.

Among the many strategic initiatives he has helped drive is the formation of the Americas Relationship Management Office RMO). Through various activities spearheaded by the RMO, and in concert with the resources discussed in this article, the firm intends to enhance and expand its relationships with key stakeholders and professionals across the Americas.

 

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