Improving performance through boardroom diversity

Firm separated CEO and chair roles and recruited more women directors.

Those who have worked their way through the ranks of a company from an entry-level position to the chairman and CEO role could certainly make the case that they know what’s best for that company, but in the current age of shareholder activism, investors are not conceding to that argument. In fact, shareholders are taking a more active role in leading companies to separate the chairman and CEO roles and to diversify their boardrooms.

Take the case of Richard Kinzel, whose name came to be synonymous with the famous Ohio-based amusement and water park operator, Cedar Fair Entertainment. Kinzel started with the company in 1972 at its flagship park, Cedar Point, moved up to general manager of Valleyfair when it was acquired in 1978, and was promoted to chief executive officer in 1986, shortly before the company began trading publicly as Cedar Fair. In 2003 Kinzel added the title of chairman of the board to his résumé, wielding overwhelming authority over the company’s operations and strategic vision.

Initially the company enjoyed significant financial growth under Kinzel’s leadership – so much so, in fact, that it began acquiring other amusement parks. One of its largest acquisitions was the $1.24 billion purchase of the Paramount Parks chain in 2006, which at the time seemed a good strategic move. Unfortunately, integrating the Paramount chain into Cedar Fair’s operations produced more problems than were anticipated. Then came the unexpected financial crisis in 2008 and the subsequent ‘Great Recession’ of 2009, the worst in US history.

The sluggish economy and the debt taken on in the Paramount deal made Cedar Fair’s growth plummet. In 2010, Kinzel sought relief by proposing the sale of Cedar Fair to private equity firm Apollo Global Management for $11.50 per unit, less than half the $26-a-share stock price it traded at when Paramount Parks was first acquired. Several significant shareholders opposed the sale of Cedar Fair, arguing that the sale price was too low. They rallied support from other unitholders and eventually the merger agreement was terminated. The unitholders’ actions led the board to adopt a ‘unitholder’s rights plan’ that the company said was ‘designed to enable all unitholders to realize the long-term value of their investment in the company and to ensure that all unitholders receive fair and equal treatment in the event of any hostile attempt to gain control of the company.’

Kinzel’s attempt to sell the company marked a turning point for Cedar Fair. It ushered in a new era of governance at the century-old amusement park operator that included separating the CEO and board chair positions and moving the company to being more receptive to recruiting women onto the board. Kinzel was forced to relinquish his role as board chair, and he retired as CEO (as planned) in 2011 after more than 35 years with the company.

Benefits of good governance

Most advocates of good governance believe that a company reaps considerable benefits from separating the roles of board chairman and CEO. A recent study from research firm GovernanceMetrics International (GMI) supports these findings. The report says that companies can save on the cost of compensation by separating the roles, as executives who hold both the CEO and chair titles earn a median total compensation of over $16 million, whereas a separate CEO and chairman can earn total compensation packages of $11 million combined. In addition, industry analysts view the dual CEO/chairman role as promoting a lack of transparency and accountability.

Additionally, several recent studies suggest that companies should take on more women directors. The studies maintain that if you are looking to boost your financial performance, promote a strong reputation and remain competitive, it’s time to start diversifying your boardroom with female members. In its third gender diversity report of the year, GMI points out that in Texas, 52 percent of companies have no women sitting on their corporate boards. Nationally, only 8 percent of US corporate boards have three or more women. GMI also notes that the Midwest leads the nation with the majority of women in board positions, while the South and Western regions of the US lag behind.

Last year, Cedar Fair began looking to recruit women onto its board in a serious manner. Between the change in the leadership structure and the commitment to bring on new board members with new ideas, the company has turned its situation around. From being sold at $11.50 per unit in April 2010, company shares were trading at $32 per unit in late August.

‘The amusement park chain had a long-tenured board,’ says Duffield Milkie, corporate vice president, general counsel and corporate secretary of Cedar Fair. ‘In light of our transition to a larger business platform and the evolution of our unitholder base, as each of the incumbent directors’ terms expired the board was refreshed with new directors. We searched for diversity and expertise to meet the growing demands of the larger company and achieved greater focus on corporate governance and financial expertise.’

DFThroughout the process of searching for new board members, Milkie maintained an instrumental role – mainly as a liaison between Eric Affeldt, chair of the nominating committee, Matt Ouimet, Cedar Fair’s incumbent president and CEO, and the executive search firm. He actively assisted with the development of a new board matrix which identified critical areas of expertise that a candidate should possess. As the company’s general counsel, he was a major contributor to the development of the nominee criteria and the coordination of interviews and the overall selection process.

Milkie, who has been with the company since 2008, has experienced the Cedar Fair boardroom’s transition from old to new. The veteran lawyer has seen firsthand how having a diversified boardroom has made a difference in maintaining long-term value for the company.

‘Matt and the board subscribe to the philosophy that a strong, independent, diverse board should represent the interests of all unitholders,’ he notes. ‘The nomination of a strong slate of candidates confirms the board’s commitment to that philosophy and its importance to stakeholders.’

New board tackles governance and compliance

A recent Credit Suisse Research Institute report contends that large companies with at least one or more women directors reaped higher-than-average returns on equity and share price performance. Can women really improve governance and compliance models?

Cedar Fair is testing that theory. Having fresh blood and female members in the boardroom has provided many opportunities to closely re-examine and improve business strategies. According to Milkie the boardroom is seeing more engagement between directors than ever, with ideas continuously being challenged and tested before reaching a final decision. In turn, this new type of engagement helps the firm stay away from the one-size-fits-all approach that many companies have adopted over the years.
‘A boardroom that is diversified in terms of both business and personal experience elevates the conversation and debate,’ Milkie says. ‘The breadth of experience that a diverse board offers is invaluable and can effectively support the governance, risk and compliance functions.’

In June 2011, Gina France, president and CEO of France Strategic Partners, became the second female to ever sit in the boardroom at Cedar Fair. She was elected to the board to succeed the now-retired Richard Ferreira.

One of her first initiatives was to conduct a review of the company’s existing corporate governance practices in order to identify areas of strength and weakness. Once this was completed, the company issued new corporate governance guidelines that touch every part of its operations.

Women make their mark

Lauri Shanahan, principal of Maroon Peak Advisors, and Debra Smithart-Oglesby, president of O&S Partners, were the most recent additions to the Cedar Fair board. Having three women sitting on the once all-male panel serves as a major turning point for the company.

Shanahan, who is a member of the board’s corporate governance and nominating committee, previously worked as a former chief legal officer and corporate secretary during her 16-year stint at Gap. Milkie says that her extensive courtroom-to-boardroom experience has made her truly effective in her role.

Smithart-Oglesby, a certified public accountant, came to Cedar Fair with 30 years of financial and corporate leadership experience in the food service and retail industries. Her knowledge of the accounting and audit functions assists the board in identifying areas of risk and mismanagement.

‘The three women who have been elected to help guide Cedar Fair have brought their own unique individual perspectives along with their strong background in corporate governance and oversight,’ Milkie contends. ‘Additionally, from the perspective of the general counsel, it is extremely beneficial to have a focused board with a wealth of experience in corporate governance that is readily accessible.’

After a tumultuous few years, Cedar Fair is back on track with its new boardroom and improved governance standards. Not only is the company seeing greater economic results, but the tone at the top has also created a sense of value for the company and its shareholders.

Many businesses fail to realize that there should be a balance of power in the boardroom. Not only can women on the board generally improve a firm’s reputation, but they can also bring a diversity of perspectives and fairness to the decision-making process. Another perk of having a well-equipped boardroom is the competitive advantage that this can give a firm over its peers. Cedar Fair is living proof that shaking up the boardroom and tapping new talent can help any company rise above unexpected challenges.

What women bring to the boardroom

According to the Credit Suisse Research Institute report ‘Gender diversity and corporate performance’, four key findings stood out when researchers compared the average financial metrics of companies with women on the board to those without:

1. Higher return on equity (ROE): the average ROE of companies with at least one woman on the board over the past six years is 16 percent, 4 percentage points higher than the average ROE of companies with no female board representation (12 percent).

2. Lower gearing: net debt to equity of companies with no women on the board averages 50 percent over the past six years; companies with one or more women on the board have a marginally lower average at 48 percent. However, a much faster reduction in gearing took place at companies with women on the board as the financial crisis and global slowdown unfolded.

3. Higher price/book value (P/BV) multiples: in line with higher average ROE, aggregate P/BV for companies with women on the board (2.4x) is on average a third higher than the figure for those with no women on the board (1.8x).

4. Better average growth: net income growth for companies with women on the board has averaged 14 percent over the past six years compared to 10 percent for those with no female board representation.

Source: Credit Suisse Research Institute report, ‘Gender diversity and corporate performance’, August 2012


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