Tuesday, March 20, 2012

In separating the chairman-CEO job, directors say move is 'in the best interests of our shareholders'

In May 2000, when John Curley stepped down as CEO, he kept the chairmanship until his successor, Doug McCorkindale, settled into his new job. Early the following year, McCorkindale then became chairman-CEO.

Five years later, when McCorkindale moved toward retirement, he also stayed on as chairman after Craig Dubow was promoted to CEO. A year later, Dubow became chairman-CEO as well.

But that two-stage handoff didn’t happen in October, when Dubow resigned as chairman and CEO after health problems left him disabled. Gracia Martore was made chief executive and a board member, and another director, Marjorie Magner, was elected non-executive chairman.

Now, a new regulatory filing says directors have separated the two powerful jobs for good. The shift is significant because it means less authority will be concentrated in the hands of one person, a common concern among corporate governance experts. Companies with a single chairman-CEO tend to have less shareholder-friendly governance practices, according to a Corporate Library research firm study.

The board’s decision comes at a critical juncture in Gannett’s turnaround efforts. And it appears to be another sign directors are taking extra steps to keep Wall Street happy when revenue and profits are still falling.

The chairman is the lead director on the 10-member board, presiding over meetings, setting agendas, and scheduling critical votes. The board represents the shareholders and has principal oversight of the CEO and other top managers, who have day-to-day responsibility for running the company.

Combining the two jobs means the chairman, in effect, oversees himself -- or herself, had the tradition continued when Martore was promoted five months ago.

Why now?
When Corporate announced Martore’s promotion, and Magner’s election, it did not detail the reasons for splitting the chairman-CEO position. The proxy report to shareholders filed last week explained the rationale for the first time. In it, directors said they used Dubow’s resignation after five years as chairman and six as CEO to reevaluate the board’s leadership structure.

The report says: “Taking into account prevailing corporate governance trends and in order to enable the CEO to focus on operating the company during a critical time as we move forward with executing our strategic plan, the company decided to separate the positions of chairman and CEO.”

It continues:

“Our board has determined that having an independent director serve as the chairman of the board is in the best interests of our shareholders. Separating the positions of chairman and CEO allows the CEO to focus on executing the company’s strategic plan and managing the company’s operations and performance, enhances the board’s independent oversight of the company’s senior management team and permits improved communications and relations between the board, the CEO and other senior management of the company.”

To be sure, Magner -- a director since 2006 who works on Wall Street -- isn’t a full-time executive chairman, so her authority is limited. Indeed, she’s not an employee; like all directors, she works part-time, on a contract basis. She’s paid a $75,000 fee as chairman on top of the $45,000 all directors receive annually. They get other benefits that bring their total compensation into the low six-figures.

$157K vs. $10.6M
Magner got paid $157,000 last year, a lot of money for most of GCI’s employees. But that was likely a drop in the bucket for Magner, who is a founding partner at Brysam Global Partners, a New York-based private equity firm that invests in financial services companies. And it’s nothing compared to the $10.6 million Hewlett-Packard paid Ray Lane last year after he was elected non-executive chairman during a crisis-driven change in CEOs.

Magner, 62, and Martore, 60, will not stay in their posts very long. Gannett’s mandatory retirement age for executives is 65; Martore turned 60 last fall. The board can make exceptions, as it did when it extended McCorkindale’s term an additional year, but that’s not guaranteed. Magner is 62, but directors can stay until they're 70, so long as they weren't executives with the company.

In choosing Martore, an employee since 1985, directors signaled to Wall Street that they were not expecting any dramatic changes in the company’s strategic plan, which is focused on cutting costs while investing in projects and companies to generate more digital revenue.

The board also has stepped up efforts to appease Wall Street. Directors raised the dividend twice since last July, boosting it to the current 80 cents a year from 16 cents. They added another $300 million to a planned $100 million stock buyback plan. A recent presentation to media stock analysts headlined plans to “return more than $1.3 billion to shareholders by 2015.”

Shares are now trading near $16, up substantially from about $9 just before Dubow quit. But they’re virtually unchanged from a year ago after revenue fell again last year, dragging 2011 net income down 22%.

Board vs. management buffer
To be sure, shares of other publishers have fared worse, including those of the New York Times Co. and McClatchy. But that’s little consolation when the Dow Jones Industrial Average and the S&P 500 index are rocketing to levels not seen since before the Great Recession.

Since Dubow’s retirement, there have been other signs the directors are taking their responsibilities more seriously. One step was splitting the chairman-CEO job to create more of a buffer between the board and management.

In another change starting this year, the board adopted a new executive pay policy that ties compensation more closely to longer-term performance. When directors disclosed that change in the proxy report, they acknowledged that, in a non-binding vote last year, fully 20% of shareholders disapproved of pay policies in place for years.

The board also reduced 2011 cash bonuses to the top brass because of declines in revenue and profits. (Table shows pay to six highest-paid executives.)

Corporate governance experts often say directors are paid too much for what they do -- and too little for what they should do. In GCI’s case, providing management oversight and guarding shareholder interests for a multibillion-dollar company with 31,000 employees is a big responsibility, one that could easily be a full-time job.

The other directors
John Cody, Howard Elias, Arthur Harper, John Jeffry Louis, Scott McCune, Duncan McFarland, Susan Ness and Neal Shapiro.


  1. Didn't Gannett raise the retirement age to 70? I know Al left with protest at 65 They raise it for John Curley. (so he had time to clean the mess up Al made).

  2. Thank you. We're both partly right, and I've tweaked the post to reflect that.

    Mandatory retirement age for executives is 65. For directors, it's 70.

  3. A QUOTE: "The board also reduced 2011 cash bonuses to the top brass because of declines in revenue and profits." What else is there beside revenue and profits?

    KEY WORD IN THAT QUOTE: "...reduced 2011 ash bonuses..."

    Why are there bonuses at all for such poor performance by these members of top management?

    Again, where was the Board's oversight?

  4. Good report, Jim.

  5. 10:44 Thank you. It's not the sexiest news, but it has some of the broadest impact on the company.

    I think it's especially noteworthy that the board elected as chairman someone in private equity. Who better to keep their pulse on Wall Street's feelings about Gannett?

  6. Way too little too late. This board, or most of it, approved the cash and bonuses of Dubow and the others. It also signed off on lifetime healthcare insurance. So the shareholders get screwed, employees get screwed and the board rewards those in charge. Now directors get religion? How about forcing Martore to make wholesale executive changes to get rid of tools such as Dickey and Hunke?

  7. All of the directors named during Dubow's watch should resign. Nothing else is acceptable.


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