Monday, March 28, 2011

Bonnie Hill: The Shareholder Whisperer

March 28, 2011
Link (available to non-subscribers as a PDF here)

Throughout two decades of board service across nearly a dozen organizations, Bonnie Hill has stuck to a simple rule. “I will not serve on a board if I don’t respect the other members of the board, the CEO, the CFO and the general counsel,” she says.

Current and former Home Depot board members leave no room for doubt about the respect they have for their valued lead director. “She’s fair. She’s objective. And she’s got enormous ethics and integrity,” says Hill’s predecessor as lead director, company co-founder Kenneth Langone, who now sits alongside her on the Yum Brands board. “If there’s a better example of an ideal director than Bonnie, I haven’t seen it yet.”

Greg Brenneman, fellow Home Depot director and CCMP Capital Advisors chairman, emphatically agrees. “Bonnie’s one of the best I’ve ever seen. She puts in the time necessary to do a good job as lead director and takes the role very seriously,” he says.

Hill was forced to put those governance abilities to the test when she and the board came under sharp criticism over the pay of then-CEO Robert Nardelli. She chaired Home Depot’s compensation committee as the outcry from shareholders, lawmakers and academics intensified when Nardelli’s January 2007 ouster garnered him a severance package worth about $210 million.

The press had a field day criticizing the package in comparison to the stock price performance during Nardelli’s tenure. Home Depot found itself at the center of a growing backlash against CEO compensation.

Hill played an unusually active role, explaining the former General Electric executive’s compensation directly to shareholders. After Frank Blake succeeded Nardelli as CEO, Hill continued to engage in shareholder outreach, and other directors say she was instrumental in helping to transform Home Depot’s reputation for good governance.

Hill acknowledges that, while Nardelli’s pay made sense in light of Home Depot’s needs when he was hired, the board made several missteps, including what she now calls the “ridiculous” decision not to attend the company’s 2006 annual meeting. “If you can say that a bad situation can have a good outcome, I think it [the Nardelli backlash] made us realize that we had to be much closer to our shareholders,” she observes. “We went to work with a vengeance to have best-in-class governance.”

Face-to-Face with Stockholders

As “a seminal event” for Home Depot’s relationship with shareholders, Brenneman points to an open meeting that Home Depot’s nominating and governance committee held with shareholders in fall 2007. He describes the question-and-answer session as “vintage Bonnie”; Hill, for her part, credits Langone, who called and chaired the meeting. “We stayed there, and we talked until every question had been asked and answered,” Hill recalls. “It was just a really good thing to do, and it was Ken’s idea.”

Talking with shareholders is nothing new for Hill. At a time when say on pay and other governance changes have required much more shareholder dialogue, colleagues say their lead director has long excelled at putting investors at ease.

Take David Batchelder of Relational Investors, an activist investment firm that harshly criticized Home Depot before Nardelli’s departure. Shortly after the CEO’s exit, Batchelder and fellow Relational co-founder Ralph Whitworth met with Hill and another board member. “She didn’t care whether we were called ‘activists’ or not,” Batchelder remembers. “She cared what our ideas were.”

In February 2007, Home Depot invited Batchelder to join the board, where he now chairs the audit committee and serves on the compensation committee. “She is our ghostbuster,” Batchelder says of Hill today. If you’ve got a shareholder proposal and you need someone to help negotiate its resolution, then you call Bonnie.”

When she meets with shareholders Hill says she almost always brings along Home Depot’s head of investor relations. When meeting with groups about compensation during the 2006–2007 period, she also included the head of human resources, and a member of the general counsel’s staff was typically present to help ensure compliance with Regulation FD. But Hill adds that she has met shareholders alone, too, during various panels and discussion groups over the years.

Board Leadership at Its Best

To be sure, Hill’s willingness to listen extends beyond shareholder groups. Board colleagues rave about her demeanor in the boardroom. “She’s just a great combination of being very smart and having great peripheral vision around the concerns of others,” says Home Depot’s Blake. “She goes out of her way to make sure that the discussion isn’t dominated by one person or another.”

Brenneman underscores the point, adding, “We have a great board with a lot of thoughtful people and good opinions, and Bonnie just does a nice job of very thoughtfully making sure all those opinions come out to the benefit of the company.”

That said, Hill never hesitates to share her views about what’s best for shareholders. “You can disagree with Bonnie, but at the end of the disagreement, your respect and your confidence in her judgment is intact,” Langone adds.

As Hill describes it, the Home Depot board is collegial but far from conformist. “This is a board that engages in spirited discussion, yet does it in a way that respects everyone involved. And I think it works.”

The board has also applied lessons learned from its time in the spotlight. Blake’s compensation represented a stark contrast to Nardelli’s. In 2007, Home Depot agreed to pay the incoming CEO a base salary of $975,000 with a bonus target of 200%, or $1.95 million. Of that bonus target, 70% was based on corporate financial performance, and 30% was linked to individual performance. The prior year, not including severance pay, Nardelli received a $2.3 million salary, a $3 million guaranteed bonus and $3 million in non-equity incentive compensation. Unlike Nardelli’s deal, Blake’s contained no provision for severance pay.

With governance controversies behind it, the Home Depot board has been able to focus more on the business, Hill observes. Blake’s goals have included improving customer service in response to various complaints as well as upgrading technology, all in the face of strong economic headwinds. Those efforts appear to be paying off. For 2010, Home Depot reported its first yearly revenue increase since 2006. Despite the housing crash, share prices as of market close Feb. 28, 2011 have risen 4% since Nardelli’s ouster.

While Hill’s shareholder outreach is mainly limited to the company where she acts as lead director, her board service outside of Home Depot elicits similar compliments.

“She’s the consummate professional,” Yum Brands CEO David Novak says. “And I don’t think there’s anybody in the corporate world that understands corporate governance any better than Bonnie.”

AK Steel CEO James Wainscott echoes the glowing sentiments. “Bonnie is an exemplary director for our company because of the kind of oversight wisdom she provides,” he says. “She really has a broad base of business experience in a variety of sectors.”

More than just Hill’s business acumen, Novak also lauds her “inspirational” qualities. He recalls when Hill once spoke at a special meeting of female leaders, and he gave her the company’s “Yum! Award”— “a set of chomping dentures with legs given to all those who ‘walk the talk’ of leadership,” according to the company’s website. “I used that as a way to spontaneously recognize her for inspiring all of us,” Novak explains.

Hill might not be the first to mention it, but hers is a story of perseverance and triumph over adversity. In 1987, under the headline “From Welfare Roll to White House Payroll,” Jet magazine described Hill as “a classic example of what hard work (and) dedication can achieve.”

Brought up by a single mother, who was a domestic worker and welfare recipient, Hill reflects that she has worked her “whole life.” Unlike the vast majority of directors, she started college at age 30, juggling full-time employment along with caring for her daughter and ailing first husband. She went on to serve in the administrations of President Ronald Reagan, President George H. W. Bush and California Gov. Pete Wilson before becoming dean of the University of Virginia’s McIntire School of Commerce in 1992.

Since then, Hill has served on many boards, including Niagara Mohawk Power, Hershey Foods and Albertson’s. It was as a very new public company director, on the board ofLouisiana Pacific, that she came up with her rule about avoiding boards where she doesn’t respect her colleagues.

“At one of my first board meetings, the CEO comes in and says we’re being indicted by a federal grand jury,” she says. “And I’m totally green in board work at the time. I had no idea what this would mean.”

Hill spearheaded a board-led internal investigation, ultimately leading to a shakeup in the company’s C suite. “I learned firsthand the importance of being thorough in what you do and making certain that corporate governance is solid,” she says.

When asked what’s she most proud of in her years of board service, Hill unhesitatingly identifies her fellow directors. “I am only as good as the directors I serve with and that’s not in any way disingenuous,” she says. “You learn from them and you can’t do anything without their support.”

Search This Blog

Press Mentions

"Goes over the top and stays there to very nice effect."
-- David Carr, The New York Times

"I wasn't fully convinced. But I was interested."
-- Rob Walker, The New York Times

" Marc Hogan wrote in Spin..."
-- Maureen Dowd, The New York Times

Blog Archive