There is no substitute for a culture of integrity in organizations. Compliance alone with the law is not enough. History shows that those who make a practice of skating close to the edge always wind up going over the line. A higher bar of ethics performance is necessary. That bar needs to be set and monitored in the boardroom.  ~J. Richard Finlay writing in The Globe and Mail.

Sound governance is not some abstract ideal or utopian pipe dream. Nor does it occur by accident or through sudden outbreaks of altruism. It happens when leaders lead with integrity, when directors actually direct and when stakeholders demand the highest level of ethics and accountability.  ~ J. Richard Finlay in testimony before the Standing Committee on Banking, Commerce and the Economy, Senate of Canada.

The Finlay Centre for Corporate & Public Governance is the longest continuously cited voice on modern governance standards. Our work over the course of four decades helped to build the new paradigm of ethics and accountability by which many corporations and public institutions are judged today.

The Finlay Centre was founded by J. Richard Finlay, one of the world’s most prescient voices for sound boardroom practices, sanity in CEO pay and the ethical responsibilities of trusted leaders. He coined the term stakeholder capitalism in the 1980s.

We pioneered the attributes of environmental responsibility, social purposefulness and successful governance decades before the arrival of ESG. Today we are trying to rebuild the trust that many dubious ESG practices have shattered. 


We were the first to predict seismic boardroom flashpoints and downfalls and played key roles in regulatory milestones and reforms.

We’re working to advance the agenda of the new boardroom and public institution of today: diversity at the table; ethics that shine through a culture of integrity; the next chapter in stakeholder capitalism; and leadership that stands as an unrelenting champion for all stakeholders.

Our landmark work in creating what we called a culture of integrity and the ethical practices of trusted organizations has been praised, recognized and replicated around the world.


Our rich institutional memory, combined with a record of innovative thinking for tomorrow’s challenges, provide umatached resources to corporate and public sector players.

Trust is the asset that is unseen until it is shattered.  When crisis hits, we know a thing or two about how to rebuild trust— especially in turbulent times.

We’re still one of the world’s most recognized voices on CEO pay and the role of boards as compensation credibility gatekeepers. Somebody has to be.

Nardelli, Not Marconi

Robert Nardelli, who managed to shrink the value of Home Depot shares when he headed that company (while managing a masterfully opposite result when it came to his own compensation of two hundred-plus million) is embarking on a somewhat similar mission at Chrysler. The Wall Street Journal reports:

“Chrysler LLC is laying out plans to nearly halve the number of models in its product line and significantly reduce the number of dealers selling its cars, company officials told dealers in meetings recently”.

Guglielmo Marconi, on the other hand, widely regarded as the developer of the radiotelegraph, was the creator of dozens of inventions, the holder of countless patents and a (co)winner of the Nobel Prize. In December 1902, he oversaw the first reported transatlantic transmission from Glace Bay, Nova Scotia to Cornwall, England. The story only gets bigger from there.

But if Marconi had been a follower of the Nardelli school of shrinking assets, what started out spanning  the Atlantic would probably have ended with a wireless invention whose signals traveled no further than a driveway.

Outrage of the Week: Home Depot’s Board Still Snubs Shareholders

outrage 12.jpgThe company became a world-class symbol of bloated CEO pay and disengaged directors —none even bothered to show up at the 2006 annual meeting. But indignation over ex-Home Depot CEO Bob Nardelli’s $200 million plus retirement package, combined with a profit slump of 30 percent in Q1 of this year, were evidently not enough to prompt a majority of Home Depot’s shareholders to support resolutions that would give them even a consultative say on CEO pay and split the positions of CEO and board chair. In both cases, management and the board opposed the moves, which goes a long way toward explaining why the proxy measures were voted down at this week’s annual meeting. For all the changes in corporate governance and SEC rules in recent years that purport to empower investors, management and directors still maintain a strong grip on the proxy process and on the outcome of any proposals. The resolution regarding CEO compensation was only intended to create an advisory mechanism and would have been non-binding on the board, but even this was viewed as too threatening to entrenched interests by the company’s Atlanta-based Politburo, otherwise known as the Home Depot board of directors.

To his credit, the company’s new CEO, Frank Blake, apologized to shareholders for the excesses and arrogance of the Nardelli era. That was nice. And most directors actually attended the 2007 AGM. But a better demonstration of the importance of investors in the Home Depot equation would have been to actually treat them like (a) adults and (b) the real owners of the company by giving them a say on CEO pay. The fact is, however, any company whose board still does not understand the concept that real accountability means a CEO should report to the board —period— and not head the board he reports to, is unlikely to understand the indispensable role that sound governance plays in improving performance and avoiding the kinds of mishaps that were synonymous with Mr. Nardelli’s leadership.

As we have observed on these pages previously, Home Depot has many problems. Undervaluing investors, employees and customers has been consistently among them. We think that needs to change if the company’s financial performance and reputation are to avoid further setback, which is why the actions of Home Depot’s board in launching a campaign to defeat shareholder empowering measures, like say on pay and improved corporate governance, are the Outrage of the Week.

Floyd and Me on Nardelli’s Costly Goodbye

Floyd Norris has added a heretofore unexplored slant on Home Depot’s bungling of its expensive parting with former CEO Robert Nardelli by suggesting it was Lowe’s, HD’s chief competitor, and not Home Depot’s investors (and certainly not its employees), who benefited most from Nardelli’s tenure. And for that privilege, they will now pay out $210 million more, on top of the tens of millions paid to this icon of CEO excess over the past five years. It is a strange commentary on the quality of corporate governance in America, and the directors of Home Depot in particular, when you consider that the board has done more for its rival than for its own stakeholders. And, as I revealed in my posting here, this is a board that pays itself very well indeed with other people’s money.I added the following comment to the posting on Floyd’s New York Times blog.

Home Depot’s board offered a compensation package of more than $245 million to CEO Bob Nardelli over five years, according to the Times, during which period the company’s share value continued to plummet. His $210 million severance comes on top of this. It was a failed strategy one presumes from the changes announced this week. Is it just me or does that seem like a lot of money for the privilege of failing? I say this fully acknowledging that the Home Depot pay fiasco is symptomatic of the wider disease of excessive CEO pay abuse, which I long ago dubbed the “mad cow disease of the North American boardroom”.

Nardelli’s autocratic domination of the company’s annual general meeting, where he routinely cut off shareholders’ questions after one minute and ended the meeting after half an hour, and which not a single member of the board bothered to attend, was an event that would bring a smile to Kim Jong-il.

This was the clearest illustration of a CEO and a board who forgot to whom and for what they are accountable. Add to this the low marks the company receives for customer service and recent revelations that it routinely backdated stock option dates for the past 19 years, and the only reasonable conclusion is that Home Depot and its board are indeed in need of serious renovation. Nardelli’s exit is only part of the solution.

The second shoe in the form of board resignations is what investors need to hear next.

Outrage of the Week: Home Depot’s Oblivious Board

outrage 12.jpgFew companies have become so emblematic of the continuing affliction of self-aggrandizing CEOs and slumbering boards. Bob Nardelli, who by several accounts has already been compensated to the tune of $245 million during his five year tenure as CEO, will now receive a further $210 million. Just for leaving. All that was missing from Mr. Nardelli’s departure was the accompaniment of the June Taylor dancers and Jackie Gleason shouting and away we go!

Anyone viewing Mr. Nardelli’s despotic performance at the last annual meeting –an annual meeting at which not a single director other than Nardelli showed up– could have little doubt that this was a board, and a CEO, who had forgotten to whom and for what they are accountable. Mr. Nardelli’s exit addresses only part of the problem with this company. The directors who awarded these princely sums in the first place for a strategy that did not work, who lost the confidence of the investing public, and who then had to pay out more than $200 million dollars again to get out of the mess, need to bear ultimate responsibility.

This is a board that seems to reflect little of the real world around it and appears more content indulging in its own cozy emoluments. Each director is paid a handsome retainer of $130,000 annually. Then there are the additional payments for members and chairs of committees. But that’s not enough. On top of the retainer, directors at this company need another incentive just to show up. Accordingly, and with the generosity that is only evident when dispensing other people’s money, these directors award themselves a further $2,000 for each meeting they attend. Perhaps this helps to explain a boardroom culture that is prepared to pay a CEO millions to take on the job but feels it has to offer tens of millions more annually for him to actually show up and do something.

Board members also participate in a stock option plan, the kind of plan IBM recently eliminated for directors because the company finally recognized that they are incompatible with modern governance principles. Stock options have become something of a curse for this board. First, there is the way they were used to boost Mr. Nardelli’s compensation package. Second, there is the astonishing fact, brought to light last December, that stock option dates had been manipulated routinely over the past 19 years in order to obtain greater advantage for those exercising them. Two years’ backdating might be chalked up to bad judgment –not an inconsequential vice, by any means, but one that nevertheless occurs in corporate America and elsewhere. And there may well be consequences for those involved. But two decades of backdating can only be viewed as the product of a corporate culture of willful deception and lack of accountability. In that, the entire governance structure of a company must be viewed as suspect. One heretofore overlooked fact is that, of the company’s 10 independent directors, five were on the board during the period of options backdating, which apparently lasted until 2001. Two sat on the board even before the backdating of options began in 1981.

There are those, of course, who wonder why such a big deal is made about any CEO pay package. They can’t be spending much time in or near the organizations whose employees see such a growing disconnect between the standards set for a privileged few by the board and those imposed upon workers on the floor. They don’t think about factors like morale, or fairness or leadership that eludes respect and the extent to which these affect the performance, growth and, ultimately, the earnings of a company. And I don’t suppose the defenders of Nardelli’s pay even give a second thought to the significance of the fact that the company he led continues to be at the bottom in terms of customer service, and far below its nearest competitor, Lowes, or that it seems to have developed a unique capacity to alienate customers as any quick sampling of opinions on the Internet will reveal. Others still are not particularly bothered by options backdating, viewing it as an innocent mistake. Funny that they always inure to the benefit of some other party, usually the party making these so-called mistakes.

All these things diminish respect for capitalism, which, from my perspective of some thirty years of first-hand involvement in it,  is an economic system that needs its guardians of principle and champions of responsibility as much as it needs its hedge fund managers and free enterprise tycoons. The surest way to bring about the overreach and inefficiencies of government intervention is for the laissez-faire advocates of business to continue to cling to the increasingly discredited notion that no amount is too much to pay a CEO.  The consequences of the erosion of confidence in capitalism and esteem for its leaders are too important to be left to such short-sighted thinking or to dysfunctional boards –which brings us back to Mr. Nardelli and the board of directors, for it is this board that is the fundamental cause of the company’s difficulties.

Composed mainly of past and current CEOs, boards have had a vested interest in perpetuating a flawed compensation system that has been very good to them. This is a board that boasts of its independence from management –so independent it acceded to Mr. Nardelli’s instructions that no director appear at the last annual meeting. But the most obvious qualification for these directors seems to be that they be connected to each other by way of friendship and past company experiences. I will be exploring this further in a future piece.

For its Annual 2006 year end awards, Finlay ON Governance inaugurated what it called the Home Despot Award for the board and CEO who displayed uncommon obliviousness to the growing discontent of shareholders and customers. The winner of that award demonstrated its blindness to reality by overly compensating an autocratic CEO who had lost the confidence of many stakeholders and alienated other key constituencies, and continued to do so again when it rewarded an exiting Bob Nardelli with more than $210 million for that privilege. These are just a few of the many reasons why the actions of Home Depot’s board are the Outrage of the Week.

Nardelli’s Exit Only Part of Solution at Home Depot

The departure of Bob Nardelli, who, along with his board, was the winner of the Finlay ON Governance 2006 Home Despot award for obliviousness to the growing discontent of shareholders and customers, is only a partial solution to the crisis at Home Depot.

The question now is what about the board that caused the situation to drag on for so long and permitted the company to become the object of widespread ridicule and animosity. A good beginning would be the resignation of the Home Depot directors who couldn’t be bothered to show up at the last annual meeting. Oh, you say that was the entire board?

What a pity.