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How to Hold Government Accountable: The Board of Boards

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Remember the S&L RTC, the failure of 1600 banks in the 90’s, Enron, Tyco, and WorldCom and now the subprime debacle?

You would expect that with all the focus on corporate governance, billions spent on Sarbanes Oxley, the new regulatory and accounting reforms, we could have prevented the last and most catastrophic
financial disaster.

NOT

Even with all these new reforms, we just experienced the worst financial meltdown since the Great Depression. With the passage of Dodd/Frank and other regulatory reforms, the result has been more controls, more reporting, more laws to keep the lawyers and politicians pontificating and well fed for decades.

It’s estimated that Sarbanes Oxley cost American business billions of dollars, restricted business
expansion (IPO’S down) and moved businesses to other countries (UK, China, etc.) If we did a cost
benefit analysis, we’d be challenged to show the “cure” was worth the cost. After its tenth anniversary, no one has been prosecuted under Sarbanes Oxley!

Who are the benefactors of these destructive financial scenarios?

Politicians who want to demonize businesses and gain more power and votes by promoting regulatory
reform. They deflect attention from their own complicity (Even though Freddie Mac and Fannie Mae
enabled the subprime debacle and both were involved in major corporate governance scandals, neither
were touched by regulatory reform, and squeeze more campaign funds from the businesses they
demonize. Who else benefits? Accountants, attorneys, compliance officers, consultants, and
governance experts (there’s actually a list of 100 most influential (Rock Stars) of Governance. The media who can raise ratings by capitalizing on their predictable script- catch the greedy business guys, force business to testify before a kangaroo court of politicians, show those affected employees who lost their pensions or jobs, shareholders who lost value, then the big one: encourage voters to support a bailout for the sins of politicians and the fat cats. This enables the politicians to gain more power, businesses with clout to carve out their niche and service providers to charge large fees. Great game for top end players.

Who loses?

American taxpayers, employees, small business, shareholders and just the little people lose big-time. Average people who pay the bills for the FDIC, taxes and more worthless regulation. Honest businesses and small banks pay the price for more regulation and paperwork, shareholders lose their retirement, and employees are laid off. Despite all the tough rhetoric, no big bank CEO was prosecuted for the recent financial meltdown.

This scenario happens every 10-15 years no matter which party is in power. So what is the solution?

The Board of Boards

Christopher Cox, our former head of the SEC made a profound statement. He said that the federal government is not subject to the same corporate governance principles they insist public companies adhere to under penalty of law. What are these basic principles of governance?

Transparency-Sarbanes Oxley, full disclosure and shareholder rights all focus on telling the truth in a simple way so those affected can understand the issues. Public companies must file public documents signed by public accounting firms, CEOs and directors must sign documents, and full disclosure is important.

On the other hand, does anyone understand government accounting? Do we know the numbers? Does
anyone understand the reports of the GAO? The CEO and CFO of a public company would be fired if
they displayed this lack of transparency to public shareholders.

Stewardship-The main duty of a director is to act as a fiduciary steward of the assets entrusted by shareholders. Who in the federal government is a faithful steward of our precious assets and taxes? Social Security and Medicare are going under and the federal debt is expanding exponentially without any consideration of the effect on future generations. We may lose our country because of a lack of basic stewardship by our government leaders.

Accountability-in a public company the board, CEO, CFO and others are held strictly accountable. Directors, CEO’s and CFO’s are fired, fined and put into prison. No one has been fired in the government. In fact, the chief enablers of the subprime fiasco and failure of Freddie Mac and Fannie Mae, Barney Frank and Chris Dodd are not being held accountable. In fact they are presenting themselves as the champions of reform who are going after the greedy businessman. It’s like having Madoff promoting Madoff Jewish Fund Raising Reform!

So there is no transparency, stewardship or accountability in our government. Every few years because of this dysfunctionality, there’s a financial meltdown, a bailout from taxpayers, more regulation, politicians and regulators return to law firms and public companies and the government continues without any corporate governance. Everyone gets more power and money while the average citizen gets screwed.

So what’s the answer? The Board of Boards

Every major organization needs the thoughtful, accountable oversight of a Board of Directors. The
government oversees our economy. Who oversees the government? No one. We need a Board of
Boards to oversee the largest organization with the most impact on all of us. We are the investors,
customers and victims of USA Inc.

Let’s create a Board of Boards to oversee the government and report to us- the voters, taxpayers and stakeholders. The BOBS must be apolitical and have no official power or authority or it becomes just another worthless commission.

How do we keep the BOBS above the politics?

Make it a bully pulpit board, not an official agency that meets monthly for two hours on television to disclose and report on government transparency, stewardship and accountability. Televise the meeting during prime time so average voters can see the meeting.

Pick directors with credible reputations who have no skin in the game. (Like America Idol picks judges) No political voting so this group can be totally independent and diverse.
Possible candidates: Warren Buffett, Boone Pickens, Jack Welch, Bill Gates, Andy Grove, Rick Warren, Donald Trump, Jesse Jackson, Bill O Reilly, Tom Brokaw, Sarah Palin, Elliot Spitzer, Newt Gingrich, Bill Clinton, Joe Scarborough etc. In short, a mix of leaders from business, political, media, spiritual, philosophy, etc. who have credibility, different backgrounds and diverse opinions.

BOBS would discuss the issues and performance of the President, Cabinet, Judiciary, regulators, and the wisdom of legislation or key issues and give their opinions and final vote every month. They would also pinpoint who is accountable and cut through the noise, complexity and BS to make their observations and recommendations. Politicians would be called in to report. No subpoenas. If they don’t show up, the BOBS would fill in the blanks.

The American people need to see how corporate governance really works- then they can vote on the
issues, values, players and allocation of resources every month based on the two hour televised meeting of the Board of Boards. Just like American Idol. The BOBS discusses and votes, then the people vote by phone or text.

America needs and deserves a Board of Boards because government checks and balances are
dysfunctional, information is distorted and we only get to vote once every four years. We have all the processes, information sources, regulations, laws, etc. in place. We just need to apply basic corporate governance to our government.

The Board of Boards will be the most popular reality show on television. More importantly, we will raise the level of understanding and discourse and marshal the power of public opinion.

If we do not apply good governance to USA Inc., the United States will become further polarized,
ungovernable and continue to decline as a world power.

Larry Cabaldon
Boardroom Performance Group
BoardroomPerformanceGroup.com

How to Mobilize the Board to Exceed Regulatory Requirements

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By Larry Cabaldon, Boardroom Performance Group
Publications & Resources
July/August 2010
Regulatory Changes & Restructuring
 
Banks are under pressure. In 2009,140 FDIC insured banks failed. Through April 30, 62 banks have failed. According to the American Banker 2,200 informal and formal enforcement actions were issue in 2009, more than double those in 2008.

Enforcement actions are inflammatory public announcements that aggressively question the board’s ability to oversee the bank and mandate immediate improvements in asset quality, capital, earnings and compliance, etc.

Boards panic. Directors did not sign up for this. Since the bank’s inception, the board relied on the CEO, his team, outside advisors and the regulators to run the bank and provide oversight. Suddenly the friendly regulators become adversarial. The directors start to question each other, the CEO, the executive team and advisors. The board, mainly, non-bankers, is overwhelmed by regulatory pressure and complex, “siloed” solutions from the executive team, and bank advisors. The CEO and his team are placed under extreme pressure. The bank is expected to mount an aggressive response to the EA, but, in the boardroom, trust, communication and the ability to effectively respond is at an all time low.

What is the Board to Do?

First, the chairman has the awesome responsibility to focus the team, raise the level of performance of everyone in the boardroom, create harmony, build trust and drive everyone to achieve major objectives. Directors must also step up their involvement.

The CEO must provide information for board decision making, execute and coordinate with the executive team, outside advisors and regulators. Working with the board, the CEO is the key resource in the boardroom. Bank executives must also perform at a higher level.

Key advisors in the boardroom must support the board’s effort to strengthen performance by providing timely expertise, advice and counsel.

Here are two steps to mobilize the Board to exceed regulatory requirements:.

Strengthen Boardroom Performance Leadership

  1. Complete a performance leadership review in three weeks. Use an objective third party with no client relationship with the bank, to meet with each director and executive to discuss why the bank is failing to achieve key objectives on time. What areas need improvement? Assess the performance accountability of key players.

Use performance criteria based on subjective interviews and cross-references from all to answer these questions.  “Should we rehire the chairman, CEO, directors and executives for the next round of challenges?”

How can we reorganize committees, teams and reporting relationships to improve performance? How can I contribute?

Present the results to everyone interviewed and challenge all to raise their individual and group performance.

2. Complete a rehire process in two weeks. This recommitment to individual and group performance is a unique process that stimulates change, energy and excitement and 100% commitment to the team. If the CEO is rehired, support him 100%. If not, take quick action to fill the gap with a director, or interim CEO with a proven record of accomplishment. Use the same process with directors and other executives. The objective is to get the best talent with an aggressive, can do attitude and commitment to win.

Fast, decisive action on obvious performance and leadership weaknesses will show the regulators the board understands the issues and is taking strong action.

Execute Strategy in 90 Days

  1. Focus on achieving results in 90 days. The enforcement action will provide objectives such as raise capital, increase earnings, improve compliance, address asset quality, etc. Keep it simple. Do not over complicate or commit to long-term projects. Develop an agreed upon aggressive plan to reach four major goals in 90 days. In a crisis, speed is imperative- 90 days is equal to a year.
  2.  Hold everyone accountable. The board to make sure everything happens, the CEO to execute, the chief creditofficer to shift to workouts from sales, the CFO to cut expenses and raise capital, and bank advisors to provide timely, relevant advice.
  3. Schedule a group accountability meeting in 90 days to ensure each objective is achieved in 90 days.  Most bank boards who used this process achieved 90% of stated objectives. Celebrate the win – major changes in performance, attitude, behavior and results in 90 days. This approach has helped a number of community bank boards (including the CEO) exceed regulatory requirements. Everyone, including regulators, is impressed with decisive action, successful execution and achievement of results within 90 days. Judge by results.

When the boardroom team – the chairman, directors, CEO, executives and key advisors – take leadership
responsibility, strengthen leadership performance and achieve major objectives in 90 days, the board will exceed regulatory expectations and the bank will survive and prosper.

Larry Cabaldon is founder and CEO of Boardroom Performance Group. He can be reached at
Larry@boardroomperformancegroup.com.

Unauthorized reproduction of all or part of this material without the express written consent of the author is strictly prohibited. All rights reserved.
© 2010 Western Independent Bankers, All Rights Reserved.

Don’t Lose the Key Executives/Directors – Conduct a Rehire

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By Larry Cabaldon, Boardroom Performance Group

Publications & Resources
November/December 2011
Mergers & Acquisitions
 
A merger, acquisition or consolidation is an excellent opportunity to strengthen your executive and board talent. Often acquirers will spend time, energy and money on the traditional areas: loan portfolio, contracts, IT, financial condition etc. but overlook the executive/board talent potential. This is a serious mistake.
 
During the ‘90s, we helped assess the executives/board on behalf of acquirers of community banks and thrifts. The largest was the merger of Security Pacific and Bank of America. We were retained at the vice chairman level to select executives for various business units that were being consolidated.
 
Here are the steps for a successful rehire process.
 
First, determine the main business objective. Is the objective to grow the business, minimize risk, maintain the business or sell as soon as possible? The objective determines the experience, skills sets and attitudes required for the leadership team.
 
Second, what kind of culture is desired? Is cost-cutting a key consideration? Is sales important or is loan restructuring? Do the executives and board need to rebuild relationships with the business community or is the bank to be closed?
 
Third, understand the leadership style of the executive leading the new entity. Is the leader a team builder, cost cutter, authoritarian or delegator? His leadership style will determine which executives and directors will fit the new entity.
 
Fourth, based on criteria developed, interview each executive as if he or she is a candidate for a job with the“new entity”.
 
After the interview, the new leader, based on the established criteria, treats each “candidate” with respectand acts as if he’s hiring a new executive. After he determines if the candidate is qualified, he describes and sells the candidate on the position. He will make an offer such as, “You will report directly to me and be responsible for sales and customer retention. I will pay you your current salary plus a 30% bonus and more if you bring in more customers. You can keep your office, your Olds ‘88 and 60% of your staff. If you are loyal to me, I will be committed to your success. Would you like to join me?”
 
Often the acquired executives are demoralized, defensive and emotionally traumatized. However, with this “rehire” process, the executives and board members are repositioned as valuable contributors who are now candidates for new positions. Candidates have a choice if they are offered a position. They can accept the position or leave for something more attractive. This elevates their self-esteem because they realize they have made important contributions and, in the new economy, lifelong employment no longer exists.
 
Executives and directors know how to hire and be hired. The rehire process embodies trust, communication,commitment, defined roles, goals and terms in a simple letter of agreement. In some cases, the CEO and key directors of an acquired bank are rehired to replace weaker talent and are able help propel the combined community bank to success.
 
Here’s another common scenario:
 
“Our investment banker convinced us this deal was too sweet to pass up,” said the chairman & CEO of a community bank. “We sent in our CPAs, attorneys and executive teams to conduct a major due diligence. We knew we could consolidate costs and combine our marketing efforts. We thought we pretty much covered all the risks, except one. Who was going to lead and produce the business?
 
“We should have spent more effort on the board and executive team,” he continued. “No one during the due diligence really talked to them. Sure, we had the usual dog and pony shows, meetings lunches, but it never got below the surface.
 
“A year later, we found that the president of the acquired bank was burned out – even before the acquisition, (some of key directors could have told us). We lost all the key people. At first we said good riddance – a great way to cut costs. But then productivity went to hell. It was ugly and financially devastating-and could have been avoided,” the CEO concluded.
 
Don’t waste the opportunity to strengthen your talent in merger, acquisition or consolidation. Treat those who leave with respect. They may be customers or referral sources in the future. Manage the talent as closely as you manage the loan portfolio. It’s too important not to.

Larry Cabaldon is CEO of Boardroom Performance Group. He can be reached at 949-477-8031 or larry@boardroomperformancegroup.com.

Unauthorized reproduction of all or part of this material without the express written consent of the author is strictly prohibited. All rights reserved.

Larry Cabaldon

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Larry Cabaldon

bio

In the late 1980’s and early 1990’s, hundreds of banks were closed. Bank directors suffered greatly under regulatory pressure, civil money penalties and lawsuits. Larry was asked by the California Bankers Association, advisors, regulators and board members to come of up with performance solutions.

Larry developed a fast, cost effective solution to encourage the board, CEO, directors and advisors work together to achieve major results in 90 days. Most importantly, he helped save six banks from failing. More recently, he successfully used these solutions for non-profit, association, and private company boards that need fast, tangible results.

Over a two years ago, Larry saw another economic crisis emerging that would severely effect boards, so he left DHR International, a top 5 executive search firm, to launch Boardroom Performance Group http://www.boardroomperformancegroup.com/ to help bank boards survive and prosper, particularly in this era of economic and governance crisis. Previously he was with DHR International, a Big 5 retained executive search firm, as Executive Vice President and a member of the firm’s Board CEO Practice.

Prior to DHR, Mr. Cabaldon headed his own executive assessment, board consulting and executive recruiting firm serving clients such as Bank of America, Security Pacific Corporation, Wells Fargo and other organizations. He was assessed over 500 executives and board members. He’s spoken to CEO’s on “How to Assess Fiduciary Performance”, “Board’s Role in Mergers Acquisitions”, “Board Succession Planning: How to Create a High Performance Bank” “Governance Post Enron” and “Creating a Proud Legacy of Leadership and Value” and “How to Mobilize Boards to Exceed Regulatory Expectations”.

Previously he was Director of Executive Search for Pricewaterhouse Coopers and a Director of Human Resources for a 400 employee one- bank holding company. He started his career with Union Bank with a group of 50 management trainees, many of whom moved to top management positions at Wells Fargo as described in the book “Good to Great”. He was a director of the Forum for Corporate Directors for 14 years, the largest independent director group providing director forums, education and recognition. He was President of USC Commerce Associates, an 1800 member business school group and Chairman of Options for Youth, a non-profit that recovered over 3000 high school drop outs.

He helps boards/executives, regulators, investors, private equity firms, acquirers, venture capitalists, private companies and non-profits benchmark performance, select and maximize talent, improve results, and facilitate transactions that create value. His approach is based on setting appropriate performance criteria, interviewing and assessing leadership- an approach he developed from assessing hundreds of executives in financial institutions mergers, acquisitions and consolidations. Finally, he was asked to use the same techniques to assess Boardroom Performance-on behalf of investors, shareholders, CEO’s, directors and regulators.

He also has recruited hundreds of executives and consultants and has participated in major consulting assignments with McKinsey; Co. consultants, Deloitte & Touché, outside counsel and others, which has given him a sense of major business, functional, governance, legal and strategic issues. He uses this experience to motivate the board teams to achieve major objectives in 90 days.

Boardroom Performance

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  •  A chairman complained, “The regulators have ordered the board to assess its own effectiveness and come up with recommendations for improvement. Our board doesn’t understand its role and accountabilities. Can you assess the board’s effectiveness within 30 days and really produce results?”
  • The Chairman of a Danish parent company asked, “Can you assess our American CEO and board of directors to help us focus the turnaround?”
  • We need to adjust to managed care. We used to own the market. Now we must compete. We have to become customer oriented and cost conscious. We need to develop new relationships, and technology. Can you assess my performance and the management team and help us become more competitive?” requested the President.
  • “We tried everything-earnings improvement, strategic planning, team build and retreats. Nothing seems to work. We are not adjusting to the new challenges. Our board and management team needs better financial and management discipline yet we don’t want to lose our sales and entrepreneurial sprit. We’re not sure the CEO can make it happen. Can you help move us in the right direction and turn things around?” asked three frustrated board members and owners of an insurance holding company.
  •  “Our company has outgrown the CEO and the board. We need new ideas, skills and energy. How do we transition without causing major turmoil? Can you help define the role of the new CEO and the criteria for directors?” asked the new Chairman.
  • “We’ve lost our strategic focus, urgency and decisiveness. We have all kinds of consultants and programs, but we’re just going through the motions. We don’t want a six-month study. Can you help fire up us?” asked the CEO.
  • A Chairman asked, “Our two boards are concerned. The joint venture is not working. Can you interview the key players and tell what we need to do to get back on track?”
  • My client, the Chairman of the Board, wants to keep the CEO despite the pressures to replace him. Can you help him survive and help the bank improve its performance?” cautiously asked the outside legal counsel.
  • “I want to cash out of the company within two years. Do I have the management talent to leave the company in good, hands, or should I be acquired, and how do I handle the succession?” asked a President.
  • “I come from a major, aggressive financial services institution. Can you help transform 99 executives and managers from a “nice” to an aggressive financial services culture?” Asked the new CEO.
  • “When we we’re founded a few years ago, our national board was cutting edge.  The founding CEO/directors handed off their directorships to subordinates; Can you help us overcome dysfunctionality, complacency, and weak director involvement so we can re-energize our association? Asked the Chief Executive Office and Chairman of a well regarded health industry association.
  • “The regulators are concerned about our bank’s rapid growth and whether the board and management team are qualified to run a $3 billion bank. Can you assess our board and executive team and come up with recommendations to satisfy the regulators and help us move forward? Asked the Chairman and SVP of Risk Management.
  • “The executive team and I want to move on to our next start up, Can help us transform and motivate our team so we can exit with maximum value in the next 3 years?” Asked the Chief Executive Officer of a private company”.

Stakeholders/Acquirers/Investors

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  •  The president of a financial holding company said, “We’ve made a number of acquisitions, but we’re not hitting our objectives. We think it has to do with management teams we are inheriting. We seem to lose the strong players. It takes a year to sort out. Can you assess the acquired executives and help us make this acquisition successful?
  •  A Vice Chairman of a major financial services group asked, “’I’ve inherited three major business units as a result of the merger. Can you help me and the business unit heads select and motivate the best talent from 85 executives in 90 days?
  • Partners at a major accounting firm asked,” We starting a project or a major client involved in acquisitions. We will handle all the operational and audit, issues, but he’s concerned about the quality of the acquired management and the CEO. Can you be part of our due diligence tam and assess the key executives?”
  • “Before we invest another $5 million in this company, could you assess the management team, strategy and any other issues we should be concerned about”, asked the venture capital director.
  • Shall we combine our profit making data center with a software group we acquired two years ago and who should run it? Asked the new CEO of the holding company.
  • “We are a start up company looking for talent, credible contacts, funding and expertise. Can you help us move to the next level?” Asked the founder of a company with a proven product who was ready to launch.
  • “We are an early stage company looking for funding. For stock, can you develop our message, bring in senior advisors, and recruit a celebrity CEO and board so we can attract investors?” Asked the founder/CEO with limited cash.
  • “We have a great ministry with tremendous potential to evangelize the world through effective education of children. Can you help us motivate our board, craft a compelling message and stage a “road show” that will help us expand?” asked the CEO of a powerful Latin American ministry preparing for a global launch.
  • “Can you help us convince a major client to outsource all external innovation to us?” Asked highly respected venture capitalist seeking to be a major player in the global innovation marketplace
  • We need to create a strategic alliance with a major bank’s wealth management group, Can you arrange a meeting, develop the presentation and so we cancreate a profitable partnership with the bank?,” Asked the head a national independent marketing grout of 100 top life insurance producers.
  • “We just spin off our health services consulting practice from a major accounting firm. Can you develop the plan and messaging, bring in a major search firm, helppromote the 30 company roll up in preparation for a major IPO campaign?,” asked the Chairman and CEO of a new organization.
  • “To develop our national marketing program, we need a credible Advisory Board of senior retired executives for introductions to major corporations and a strategic alliance with a top CPA firm, can you help us create the plan and execute it?” Asked the Chairman of Financial Services marketing group.
  • “Before we invest another $5 million in this company, could you assess the management team, strategy and any other issues we should be concerned about”, asked the venture capital director.

For Improved Boardroom Performance

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  • A chairman complained, “The regulators have ordered the board to assess its own effectiveness and come up with recommendations for improvement. Our board doesn’t understand its role and accountabilities. Can you assess the board’s effectiveness with in 30 days and really produce results?”
  • “We tried everything-earnings improvement, strategic planning, team build and retreats. Nothing seems to work. We are not adjusting to the new challenges. Our board and management team needs better financial and management discipline yet we don’t want to lose our sales and entrepreneurial sprit. We’re not sure the CEO can make it happen. Can you help move us in the right direction and turn things around?” asked three frustrated board members and owners of an insurance holding company.
  • “Our company has outgrown the CEO and the board. We need new ideas, skills and energy. How do we transition without causing major turmoil? Can you help define the role of the new CEO and the criteria for directors?” asked the new Chairman.

For Stakeholders/Acquirers/Investors

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  • The president of a financial holding company said, “We’ve made a number of acquisitions, but we’re not hitting our objectives. We think it has to do with management teams we are inheriting. We seem to lose the strong players. It takes a year to sort out. Can you assess the acquired executives and help us make this acquisition successful?
  • A Vice Chairman of a major financial services group asked, “’I’ve inherited three major business units as a result of the merger. Can you help me and the business unit heads select and motivate the best talent from 85 executives in 90 days?
  • “Before we invest another $5 million in this company, could you assess the management team, strategy and any other issues we should be concerned about”, asked the venture capital director.
  • Shall we combine our profit making data center with a software group we acquired two years ago and who should run it? Asked the new CEO of the holding company.