Carey Contributes to 'Merger and Acquisitions'

Published in April, 2001, Harvard Business Review on Mergers and Acquisitions is a book which will help managers think clearly about the consequences of merging their company so that they can make a truly educated decision about such a strategic business move. This is an important book today considering the modern trends toward merging companies, including buyouts and joint ventures. Keeping track in today’s world of who owns which company is difficult, but not as difficult as deciding if this is the right direction for a particular company. Luckily this book, which includes discussions from major experts in the world of business today, can help make this decision easier. Among the many informed discussions in this book are:

• Lessons from Master Acquirers: A CEO Roundtable on Making Mergers Succeed by Dennis Carey;

• The Fine Art of Friendly Acquisitions by Robert J. Aiello and Michael D. Watkins;

• Are You Paying Too Much for That Acquisition? by Robert G. Eccles, Kersten L. Lanes, and Thomas C. Wilson;

• Stock or Cash?: The Trade-Offs for Buyers and Sellers in Mergers and Acquisitions by Alfred Rappaport and Mark L. Sirower

Returning Chairmen Bring Experience and Success to Boardroom

Executives with years of experience behind them are to a greater and greater extent being recruited to help faltering companies get back on the road to success. This trend of bringing retired executive back up to the plate is continuing as the economy, and businesses, come out of crisis mode and begin the long climb to stability and success.

These older, but wiser executives are being used as “outside chairmen” to bring to the table their well-earned expertise to guiding companies out of the mud of financial instability into the clear waters of financial success.

As Dennis Carey, one of the key executive recruiters contributing to this trend puts it: "These chairmen are strategic equal partners of the CEO because they already demonstrated a successful 'in the trenches' style of management."

The new-old “outside chairmen” enter the picture by leading a board review of the company’s overall business strategy. In addition they evaluate the possibility of spinoffs and acquisitions, while simultaneously running the company in partnership with the CEO and also the business coach.

Since the idea is so successful it is not only utilized by struggling companies, but often companies that are doing just fine will bring in an outside chairman with years of experience in order to do even better. In the year 2004, for instance, only 14 former CEOs became chairmen of new companies, while today there are at least 46 ex-CEOs chairing different companies.

Surviving in a Recession

Yes, this is a difficult time to run a business, but as so many recessions in the past have shown, crisis breeds opportunity. Both Carnegie Steel and Hewlett-Packard were created during long depressions.

In this type of environment when money is scarce and markets are volatile, it is not easy to keep morale up in many companies. As Dennis Carey, a senior partner at Korn/Ferry International explains, this is the time to reevaluate techniques that worked for your company during boom years. As he says, "You can't rely on a peacetime general to fight a war. The wartime CEO prepares for the worst so that his or her company can take market share away from players who haven't."

One key aspect of many businesses right now is to get the funds they need to help their businesses to grow. Only those businesses that can show strong balance sheets will stand a chance.

CEOs Taking Action - Quickly or Slowly?

When a new CEO comes into a company, the rest of the company can certainly anticipate that there will be many changes. The question, however, is how quickly those changes will occur. According to executive recruiter Dennis Carey, the depth and speed of those changes usually has a lot to do with the hiring circumstance of the CEO. If someone has been promoted from within, and they are working with a well-run company, they may greatly limit the turnover rate. If, however, a CEO has been brought in from elsewhere, and the company is failing, the executive changes will be quite fast and sweeping.

Dennis Carey continued to explain that under these later situations, the first jobs to turnover are usually the CFO, the general counsel, and the head of human resources.

Kevin Coyne, a management consultant and a professor at Emory University’s business school, said that CEOs typically decide on their strategy within the first 60 days. They will group the workers into four categories: those who will be invaluable; those they are keeping, but who aren’t exceptional; those they are keeping for now but will eventually fire; and those they are firing right now.

Publications from the G100

In addition to the vast array of benefits provided by the G100 to its 100 or so CEOs, they also receive regular publications. Founded in the year 2000 by executive recruiter Dennis Carey, the G100 is a forum that meets biannually to discuss business and to offer a location for CEOs to learn from each other.

As part of the membership, CEOs receive a monthly memo that includes important news and concerns for CEOs. They also have a publication called Insights that is produced twice a year and that summarizes their meetings and has original, previously unpublished articles by some of the G100 advisors.

One month prior to each meeting, the G100 also sends each member a briefing book featuring articles and interviews to prepare for each upcoming session.

According to Dennis Carey Management and Boards Must Work Together

As the dust begins to settle after the several governmental regulatory reforms of recent years, corporations can begin to refocus their strategies from compliance with new legislation and begin to push forward into the brave new world of developing strategies to increase value for shareholders and innovation and growth.

According to Dennis Carey, executive recruiter and corporate strategy consultant, it would behoove corporations to link the human capital of the board of directors to the long-term strategy created by management. This is the direction Dennis Carey would like to see the next wave of governance reform, and he believes this is the path to increased value for shareholders.
Carey bemoans the fact that although boards may approve a particular strategy, they have little role in developing and shaping that strategy.

As Dennis Carey puts it,

“Now that innovation and growth increasingly drive the top executive's agenda and major business trends emerge in the blink of an eye, strategically minded boards that forge close partnerships with management will prove to be the crucial difference between companies that create superior shareholder value and those that don't.”

Carey Advises to Let Chairman/CEO Combo Remain

Dennis Carey is a prolific writer of books and articles that have appeared in numerous respected locations including, The Wall Street Journal, Financial Times, The New York Times, and many more. Often Mr. Carey comments on current issues that affect the corporate world.

Recently, in May 2009, an article appeared in the Wall Street Journal in which Dennis Carey discusses the latest attempt in Washington to effect change in the corporate world and why this proposed legislation would be a mistake.

Dennis Carey clearly argues that the bill proposed by the Democratic Senator from New York which seeks to split the role of Chairman and CEO in public corporations "flies in the face common sense and proven results."

Siting the fact that over 60% of the largest American corporations have a combined position of Chairman/CEO and yet there is no observable difference between these companies' performance and those in which the CEO and Chairman roles are separated, Dennis Carey shows that changing this practice has not harmed American businesses. On the contrary. American companies seem to be doing quite well with this configuration of governance and management.

Choose a New CEO Now

According to Dennis C. Carey, author of CEO Succession, even at the very outset of the tenure of a new CEO, he should already be planning for his own replacement.

Although this might seem a misplaced priority among the many urgent tasks a new CEO must accomplish when taking over a company, Dennis Carey believes that because succession planning requires team-work and input from many sources, when it is accomplished at the beginning the new CEO’s term it can create a feeling of trust in the new CEO and a re-establishment of confidence in the company.

Carey continues to explain that even if the new CEO is not interested in planning for his own replacement, the board should make it a priority anyway. No one knows the future, and the sudden loss of a company’s CEO is always a possibility, even if it is a small one. In at least two prominent cases, the CEO of Tenneco and the CEO of Frontier, both died from a brain tumor. Although this was a rare and unforeseeable tragedy, having already have planned for the CEO’s replacement would have made the trauma less traumatic.

Sarbanes -Oxley Act Forces Boards to React

In 2002 the much lauded Sarbanes-Oxley Act was passed by the United States Congress. Another name for this landmark legislation is “The Public Company Accounting Reform and Investor Protection Act.” This longer title tells a lot about this law, named for its two sponsors, Paul Sarbanes, Democrat of Maryland and Michael G. Oxley, Republican of Ohio.

Considering that it was co-sponsored by members of both parties and won almost unanimous support in the Senate and House (99-0 and 423-3 respectively) it was a law whose time had come.
Dennis Carey has discussed in several places the need for corporations to comply and move forward in the aftermath of this far-reaching legislation. To quote President George W. Bush, who signed SOX into law on July 30, 2002, this law includes,

“the most far-reaching reforms of American business practices since the time of Franklin D. Roosevelt.”

Corporate Structure and Equity Carve-Outs

Equity carve-outs are a new type of corporate subsidiary which has many of the same features of traditional subsidiaries, but with some new innovative and unique twists.

In an article discussing the issue of equity carve-outs, Dennis Carey, with co-authors Patricia Anslinger, Kristin Fink and Chris Gagnon, points out that a corporate center is essentially a structure which allows a single, centralized body to bring value to its numerous individual business units. Entities such as operating companies, multi-business companies, holding companies, conglomerates and investment firms are all examples of this centralization which serves the needs of its subsidiaries. Equity carve-outs are a new way to structure a business on this model.

How Do Equity Carve-Outs Stand Out

When a public company decides to sell the common stock of a part of one of its divisions or subsidiaries using an initial public offering (IPO), you have what is known as an equity carve-out. Each one of these “carved-out” subsidiaries has its own unique board, CEO, and financial statements. The corporate parent supplies strategic planning, direction, and central resources.
Examples of companies who have taken this direction for their corporate structure are The Limited, Genzyme, and Enron, with several notable others. How has this innovation worked for these companies? Dennis Carey explains:

“We examined the performance of US equity carve-out subsidiaries from 1985 to 1995, in cases where 50 percent or more of each subsidiary's shares were retained by the parent. (We were interested only in those companies where the parent remained an operating center, not a loosely affiliated holding company.) Over a three-year period, the subsidiaries in this sample showed average compound annual returns of 20.3 percent 9.6 percent better than the Russell 2000 Index. Those companies that repeatedly sold stakes in subsidiaries fared even better. Three years after the carve-out, their subsidiaries showed annual returns of 36.8 percent. The parent companies themselves experienced average annual shareholder returns of 31.1 percent.”

Dennis Carey is able to conclude from this study that equity carve-outs are an excellent way to take advantage of growth opportunities while also improving shareholder value.

As one example, take Safeguard Scientifics: Between 1985 and 1996 this company gave birth to six new companies, with a resulting growth from $66 million in 1985 spiraling up to $1.9 billion in 1996.

Brave New Future for Boards and Management

We have entered a brave new world of corporate strategy, according to Dennis Carey in response to the corporate world’s compliance with the latest regulations coming from the Sarbanes-Oxley Act, (SOX.) Now that the adjustment to the new regulations has been successfully made, boards need to re-tool their strategies for success so that there is a new emphasis on human capital and creating better value for the shareholders of the corporation.

Increasingly, says Dennis Carey, it is growth, innovation and creativity that drive the agenda of the top executives. But boards do not function in a vacuum. On the contrary, although boards of directors set strategy and policy, it is management that of necessity must implement that strategy. Therefore, Dennis Carey continues, the boards that create good working relationships and partnerships with their management will find that their strategies will not be left behind on the drawing board, but will be implemented. This is a true formula for success.

Corporate Reform and Sarbanes-Oxley

In the wake of the passage of the historical Sarbanes-Oxley Act it is time for corporate boards in the United States to refocus their attention on developing new strategies for success.

Dennis Carey believes that for the most part boards have gotten past the initial struggle to comply with the new rules and regulations legislated by SOX, (Sarbanes-Oxley), and it is time for them to go forward into the future.

SOX forced corporate boards of directors to turn inward and adjust their practices to the new accounting compliance rules. Now that these rules have been digested Dennis Carey would like to see the next reform incorporating together human capital with long-term strategy.

Dennis C. Carey, Author of "CEO Succession"

In 2000 Dennis Carey authored the book, "CEO Succession: A Window on How Board Can Get It Right When Choosing a New Chief Executive". Co-authored with Dayton Ogden and Judith A. Roland, CEO Succession is an essential guidebook for anyone who cares about the quality of leadership in the corporate culture of America, and not just for board members or CEOs.

In CEO Succession Dennis Carey takes his readers on a guided tour of what the best practices are for empowering the corporate board of directors to be the force which ensures the consistent and steady flow of successful, enlightened leadership.

Dennis Carey, along with Dayton Ogden, draw on their own experiences working behind the scenes with CEOs and directors of the world’s most well-known and powerful companies. They also utilize personal interviews with corporate leadership so that the message of how corporate boards can implement the appropriate strategies and techniques to create a transparent planning process so that a seamless, smooth transfer of leadership of an organization can be accomplished.

CEO Compensation Is an Easy Target

By Dennis Carey
After the devastating losses in the financial markets, the collapse of companies like Lehman Brothers, the bail out of insurance giant AIG, the $700 billion Troubled Asset Relief Program, as well as the injection of hundreds of billions of dollars into banks by governments around the world, it’s no surprise that executive compensation has become a target of congressional scrutiny and shareholder ire.

Wall Street has heard the message: the seven top executives at Goldman Sachs Group Inc., including CEO Lloyd Blankfein as well as Deutsche Bank AG CEO Josef Ackermann and others are waiving year-end bonuses. Other firms are looking at the cash and stock bonuses and are tying them more strongly to the company’s performance, holding some in escrow as opposed to being paid out immediately. In addition to rewarding those who deliver good results over several years some compensation committees are looking at ways to reward leaders who do not take excessive risk.

It takes just one story about a poorly performing CEO who has been ousted and yet retains a rich benefit package to infuriate those who have seen their 401 K or pension fund lose half of its value. And the newspapers have presented graphic accounts of how ineffective leaders have walked away with millions of dollars in compensation.

Keep in mind that this market sell-off has been completely democratic. Everyone everywhere has lost money. There was no place to hide as the sophisticated financial instruments proved to be based on a house of cards.

When CEO salaries are bandied about as a news item, the amounts can seem excessive or arbitrary. Yet companies with strong boards and corporate governance criteria have a Compensation Discussion and Analysis in their proxy statements that reveal a thoughtful approach to attracting and retaining the most talented executive to build shareholder value over the long term.

Long term is an important concept since the current financial malaise will take many months or even years to correct. The U.S. economy as part of the global economy is going through the most significant market adjustment in one hundred years. It’s the most momentous financial re-set in a century.

These times call for the best leaders with a thoughtful approach to the challenges to steer our companies through these treacherous waters.

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Learn more at CEO Succession.

Wall Street Journal: In The Lead: What Boards Can do to Boost Independence, Restore Investor Trust

The Wall Street Journal

In The Lead: What Boards Can do to Boost Independence, Restore Investor Trust

By Carol Hymowitz. Wall Street Journal. (Eastern edition). New York, N.Y.: June 25, 2002 pg. B1

“Some executives and board recruiters complain that the proposals will pit corporate heads against directors, and increase the difficulty of filling board slots."

“Even before Enron, one in four board candidates declined seats, says Dennis Carey, a vice chairman of the recruiting firm SpencerStuart and a co-founder of the Director's Institute at the University of Pennsylvania's Wharton School. 'The biggest reason people don't want to serve is time demands.”

“Mr. Carey recommends that boards establish just four commitees – Audit, compensation, corporate governance and director nominations-- to center their attention on key issues.”