New Breed of Directors Reaches Out to Shareholders
Treading a Fine Line Between Apologist, Sympathetic Ear
By Joann S. Lublin
The Wall Street Journal
Monday, July 21, 2008
Bonnie G. Hill, the longest-serving director at
Home Depot Inc., has a new role: "heat shield" against
She and other outside directors were criticized for skipping the
retailer's 2006 annual meeting amid shareholder complaints about
the pay and performance of then-Chief Executive Robert Nardelli.
Mr. Nardelli's January 2007 departure didn't quell the unrest.
Enter Ms. Hill, then chairman of the board's compensation
committee. She met with dozens of investors, easing their anger
by persuading fellow directors to tie the pay of Frank Blake,
Mr. Nardelli's successor, more closely to Home Depot's
performance. But she has also fought activists who want an
annual vote on executives' pay.
In May, fellow board members named Ms. Hill their lead director,
a powerful post she says she will use to widen her involvement
Ms. Hill epitomizes an emerging breed of directors who reach out
to shareholders. Independent board members at
Hewlett-Packard Co. and
UnitedHealth Group Inc., among others, perform similar
roles; each of those companies also endured recent shareholder
unrest. These directors must tread a fine line between
sympathetic listener and management apologist, while taking care
not to violate
rules against selective disclosure.
They "offer investors an important channel for airing their
grievances about corporate governance and executive pay,"
deterring confrontations, says Linda E. Rappaport, a partner at
New York law firm Shearman & Sterling and corporate board
Until recently, outside directors rarely met with shareholders,
and bans on such meetings persist at some small and midsize
Many executives still think increased dialogue is a bad idea.
Board members "run the risk of having discussions that undermine
the CEO," cautions Harry M. Jansen Kraemer Jr., a former CEO of
Baxter International Inc. who is a director at two other
That view, however, is fading amid intensified shareholder
activism and a shifting governance landscape. Most big
businesses now require directors to be elected by a majority of
shareholders, giving board members incentive to court investor
H-P directors Lawrence Babbio and Lucille S. Salhany have met
three times with investors to discuss board nominees and
executive pay since H-P shareholders rejected a 2007 resolution
that would have offered certain investors more clout in choosing
directors. Investors didn't resubmit the measure this year.
Northrop Grumman Corp., compensation committee chairman
Lewis Coleman called investors who wanted the company to
disclose fees paid to the board's compensation consultant and
limit that adviser's possible conflicts of interest. Mr. Coleman
agreed to insert a sentence in Northrop's latest proxy stating
that the outside consultant won't also work for management. The
investors dropped plans for a shareholder resolution.
Ms. Hill, a 66-year-old marketing consultant, previously worked
for the Los Angeles Times and a Kaiser Aluminum Corp. unit as
well as the California
governments. She also holds board seats at Yum Brands Inc., AK
Steel Holding Corp. and California Water Service Group, but says
she hasn't reached out to their investors.
Home Depot board colleagues and investor activists describe her
as a deft diplomat during tense negotiations. Patting her
plentiful gray hair during an interview, she says, "I earned
every one of them."
Ms. Hill adopted her new role following Home Depot's
much-criticized 2006 shareholder meeting, when she received a
blistering letter from Richard Trumka, an AFL-CIO leader, asking
her to tie executive pay more closely to company performance,
among other things.
She won permission from executives and directors to confer with
dissatisfied investors. At the AFL-CIO's
headquarters, she promised that the board "would take a hard
look" at Mr. Nardelli's contract, recalls Dan Pedrotty, head of
its Office of Investment.
She convinced the board to disband its executive committee,
which can crimp board involvement in decision-making when that
panel wields too much power.
In March 2007, union pension-fund activists organized a
conference call with Ms. Hill to voice complaints about lead
director Kenneth Langone, a co-founder who helped craft Mr.
Nardelli's generous pay package. That May, Mr. Langone and three
other directors met with those activists and proposed a larger
"town hall" to air investor concerns.
During the town hall, held last September, Ms. Hill, Mr. Langone
and two board colleagues fielded questions from roughly 40
shareholders about everything from their lack of a separate
board chairman to their housing-downturn strategy.
Mr. Blake, who didn't attend the meeting, says he sees "real
value" in Ms. Hill holding regular town halls. She says the full
board must decide their frequency.
Ms. Hill occasionally rebuffs investor demands, such as an
annual advisory vote on top officers' compensation. Activists
submitted so-called say-on-pay resolutions at more than 90
companies this year, including Home Depot, up from 73 in 2007.
Ms. Hill criticized say-on-pay at three conferences before Home
Depot's annual meeting in May. "I don't believe that a straight
up or down vote on compensation without any details makes good
sense," particularly when investors can talk with directors, she
Support for the resolution at Home Depot slipped this year, to
about 42% of votes cast, from about 43% last year. Ms. Hill
thinks that is partly because shareholders now have more of a
voice electing directors. "If you don't like the job I'm doing,"
she notes, "you vote me out."
Write to Joann S. Lublin at