CEOs Turn to Boards in Tough Times

NEW YORK — Peter Edison, chairman and CEO of Bakers Footwear Group Inc., has a financial angel on his shoulder, or more specifically, on his board.

His name is Andrew Bauer, chairman of Southwest Bank of St. Louis, and he’s been a director since 2004.

“A year-and-a-half ago, [Andrew] said, ‘Tough times are coming in the banking community. You should go ahead and secure extra financing now, it may not be available,’” Edison recalled recently. “So we secured a piece of long-term debt, and sure enough, the financing became unavailable. That kind of insight was crucial to us.”

However, it didn’t save the firm from all its financial ills. Bakers’ auditor in May expressed doubts that the retailer could continue as a going concern. But the company pulled through and in December said it expected 2008 operating results would be sufficient to meet its loan covenants.

“The landscape is changing so fast that the combined wisdom of people from different sectors and different backgrounds is extremely helpful to understand what’s happening,” Edison said. “A board is your link to the outside world. I would say a CEO is maybe 30 or 40 percent of it, but when you get to such important things as long-range strategy, board members have so much weight to bring.”

In the simplest terms, boards hire and fire the CEO, and in between, help set the company on a strategic path. For most, the ideal board has a broad range of experiences to draw from and the ability to work with management.

Boards — and their various committees — mostly work in the background and are seldom seen by investors or employees, but they are a crucial layer of leadership and have taken on added importance as footwear companies battle the recession and Wall Street seeks to find its footing.

“A great board is more important today than ever,” said Matt Rubel, chairman, president and CEO of Collective Brands Inc. “I look for them to be experts in functional areas and have the ability to give me outside perspective.”

Directors also provide additional oversight when it comes to the company’s books.

“Today, having a great audit committee becomes so critical,” Rubel said. “One has to have good oversight on all aspects of financial accountability. It’s very dynamic because of the environment. You want to make sure you’ve got an extra set of eyes.”

An extra set of eyes is more important than ever given the focus on corporate governance — and the added fiduciary responsibilities of senior management — in the Sarbanes-Oxley regulations, which were put in place in 2002 after the Enron, WorldCom and Tyco scandals.

And given the economic stresses on footwear firms during the recession, CEOs can use all the help they can get.

“The downturn is only turning up the temperature on everything that matters,” said Jim Brown, a consulting partner at Strive Inc. and author of “The Imperfect Board Member: Discovering the Seven Disciplines of Governance Excellence” (Jossey-Bass). “More attention is being directed toward corporate boards. Everything rises and falls on leadership.”

Although the board members contacted by Footwear News said they are definitely becoming more involved in company matters, there is still room for improvement.

“A lot of corporate boards underengage in the strategy development process,” he said. “Far too many boards listen to a really fancy PowerPoint presentation by the CEO — who has worked with management to create a strategic plan for a year or more — and smile and rubber-stamp it and have lunch.

“In two words, the job of the board is to direct and protect. Sarbanes-Oxley has really turned a lot of boards’ attentions to ‘protect’ and away from ‘direct,’” Brown said.

Boards can be measured both by their brains and their communication skills, said Brown, noting that many have plenty of the former but are lacking in the latter.

“They don’t have an environment where they can ask hard questions without it being interpreted as criticism and rejection of somebody else’s ideas,” he said. “A healthy board actually takes time to get to know who’s sitting around the table and what their strengths are.”

As useful as outside perspective can be, there also are good reasons for footwear companies to have directors from within the industry who know its ins and outs.

“Some of the boards that are most effective in guiding the CEO are boards that have former industry executives,” said Elaine Hughes, president of search firm E.A. Hughes & Co., noting that boards also should have directors who could step into the CEO role should the need arise.

Even though management handles day-to-day operations at a company, directors can make a contribution there as well.

At a recent meeting of Weyco Group Inc.’s board, one director noted the importance of internal communication and explaining the impact of the recession on the company, so employees would understand industry dynamics. Management took the suggestion to heart.

“We normally give a relatively informal year-end review of the business in late February,” said John Florsheim, president, COO and a director of Weyco Group. “This year, we are going to delve into more detail to make our employees cognizant of the challenges presented by the times, as well as long-term opportunities that exist as part of a company with a strong balance sheet.”

Florsheim said its directors also have been important in crafting a corporate plan that considers both current market conditions and long-term goals.

“Because of the fluidity of the situation, they provide an important sounding board as we try to navigate these difficult economic times,” Florsheim said. “You’re really looking for them to ask the right questions.”

Sometimes those questions can be outright scary.

On a recent conference call with Wall Street analysts, Jeffrey Swartz, president, CEO and a director of Timberland Co., was asked how much cost he could cut from the business without sacrificing brand development.

In answering, Swartz stressed the importance of his directors. He said Timberland’s board has asked to see different scenarios on how business might pan out, and that the company has at least contemplated “an industrial nuclear winter.

“We’ve created flexibility in our spending plans so that if we needed to be really draconian … we have real flexibility,” he said.

“Our board’s done an extraordinary job of stepping up in these times,” Swartz added. “We’re meeting much more frequently than we’ve done in the past because the times demand it and the board’s differently engaged in the process of understanding how our business is operating.”

Access exclusive content