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21st Century Corporate Board

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So you've been a director for 20 years and you think you've read it all. Think again. As he opens "21st Century Board," Ralph Ward sets the stage for adventure. "In editing a national magazine for the past six years, I've had a ringside seat for the wildest era of corporate governance change since the New Deal," Ward begins...and proceeds to bring the era to life in 350+ comprehensive pages. It's all here--the issues, the players, the research, the war stories, the trends--from Archer Daniels Midland to Westinghouse--in a tome so comprehensive that any reader is guaranteed to find something new (even this reviewer, who has spent nearly two decades covering the governance scene). But beyond information, this book offers unbiased, well-reasoned, and fair-minded opinions on the most important governance controversies of our day. Readers joining Ward will soon find that their companion is no mere ticket-holder, but a narrative ringmaster who can put even the "wildest" things in their proper place.

Ralph Ward grabs the reader from page one with a Barbarians at the Gate style tale of the board revolution at General Motors. For the first six chapters I kept wondering if I could somehow buy into the movie rights. By chapter 7, however, he is shifting gears into a history of boards of directors and their function. The likelihood of a movie faded but the book never looses its lively pace through 60 informative chapters with headings like "How to Launch a Board Revolt," "Q: Why is Board Education like Sex Education," and "Take Me to Your Lead Director."

Ward tells the familiar tale, chronicled by Berle and Means and updated by Mark Roe, of how owners were usurped by managers. The recent era of corporate raiders and rubber stamp boards is fading into history as shareholders and their board representatives gain an equal footing with CEOs. Ward draws on his years of experience as editor of The Corporate Board to inform the reader of current trends and to speculate on the future.

For example, Ward tells us that new boards are looking for skills in telecommunications and technology, marketing, international markets, finance, restructuring, entrepreneurial skills, and service industries, as well as for demographic diversity. Ward devotes several chapters to describing the work of audit, compensation, and nominating committees. He also looks examines emerging committees in corporate governance and compliance as well as more specialized committees. He sees the likelihood that small board secretariats will strengthen the board's hand in working with management by helping them dig through the data.

Looking at the chair/CEO controversy, Ward concludes that in most cases the independent outside chair "would not have enough muscle yet to make a difference." "This does not mean we should give up on the idea of a separate chair, but rather that supporters may have been too early with the idea for it yet to be effective." Ward sees lead directors as a "fallback" position that is likely to take hold sooner but on a less formal basis.

Most readers will find that Ward takes a balanced and reasoned approach to SEC regulations, director liability, stakeholder influence, and the dozens of other issues which he covers in brief but informative discussions. Perhaps most controversial is his contention is that we may soon be seriously considering proposals for federal the chartering of corporations. Ward breezes through past proposals by James Madison, William Jennings Bryan, T. Roosevelt, Wilson, Taft, William O. Douglas, Ralph Nader, and more recent efforts. He points out that "the very Congress that gained power in 1994 by proclaiming a return of power to the states passed the Private Securities Litigation and Reform Act of 1995" which preempts state powers in shareholder suits and adds federal disclosure requirements.

Ward argues that several federal laws have defused the radical call for federal chartering while bringing us closer to a de facto federal system. "While federal chartering waves of the past century were stirred by politicians, jurists, and consumer advocates, a renewed effort would likely be led by shareholders." "If federal corporate certification could supersede state lawsuits, coordinate often contradictory federal regulations, and set clear standards for board behavior, it might well draw new fans from the business sector." I find his arguements compelling. If shareholders and businesses united around such a proposal now, we might avoid populist based demands, with confusing stakeholder provisions for constituent based boards, which are likely to resurface in an economic downturn.

http://www.corpgov.net

Now that the capitalist/communist divide in eastern Europe has fallen, perhaps the greatest remaining human barrier is between those who have served as directors of public corporations and those who have not. From the inside, boards look like groups of honest, smart, hard-working earnest people trying to do a very difficult job with inadequate tools. From the outside, people automatically use words like "entrenched," "greedy," "co-opted" and "lazy." When the stock is going up, no one thinks of the board. When it goes down, everyone is disgruntled and everyone blames the board. Ralph Ward has bridged that gap with a book that brings the outsider into the boardroom, to see real day-to-day board operations. At the same time the book will show the insider the view from the stands. The author is neither a cheerleader for nor an enemy of boards. He shows how a board can add real value to a public company, but he does not hesitate to criticize bad practice. Any board member can use this book to improve their board. Any investor can use it to understand boards, and to encourage improvement. On top of that, it's actually fun to read.

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How to Build Better Boards

"The Family Circus", Bil Keane's winsome cartoon strip, focuses on the daily ups and downs of life in the often chaotic home of a young family.

Regular readers of the strip have learned that in addition to mother, father, four young children, and three pets, there are two other residents in the household who make regular, if furtive, appearances. Whenever the mother finds a broken dish, a piece missing from a birthday cake, or muddy footprints tracked through the house, we know that the ghostly characters "Ida Know" and "Not Me" are lurking nearby. All the mother has to do whenever she finds something broken, missing, or in disarray is confront her youngsters with the question, "Who is responsible for this?" to elicit the collective response, "Ida Know!" or "Not Me!"

These two troublemakers have apparently expanded their families and sent their children off to inhabit the most senior executive offices of many of the world's best known corporations. Their names are on the tongues of virtually every executive who has had to explain why his or her corporation has collapsed. Listen to the CEOs of Enron, Polaroid, Global Crossing, Warnaco, or Arthur Andersen, for example. The top executives of each of these companies have assured us that they themselves had nothing to do with the collapse of their companies, putting the blame squarely on "Ida Know" and "Not Me" in virtually every case.

Exasperated shareholders wonder whom ultimately to hold responsible for the collapse of these companies and their investments. Ever so slowly, the glare of the lights is shifting to the boards of directors, as questions are raised about board accountability and responsibility. The boards of these companies all seemed to have been napping as they waited for their options to vest.

For all the time, energy, and resources organizations put into training executives, it appears that they put considerably less into training directors and helping them to understand their responsibilities. Type the words "board of directors" or "corporate governance" into the search engine at Amazon.com and you will see a fraction of the number of books that you would find had you typed the word "leadership."

Among the books that stand out are two by Ralph D. Ward: The 21st Century Corporate Board and its follow-up, Improving Corporate Boards. Ward, the editor of Corporate Board magazine, has filled the pair with well-written and insightful case studies, along with specific recommendations for changes in practices and procedures. Together they make an excellent handbook both for companies and for individual directors. In fact, "required reading" is the term that best describes them.

The 21st Century Corporate Board focuses on the turbulent era of the early 1990s, which saw a series of sackings of CEOs at corporate giants GM, Kodak, IBM, and American Express, among others. The frenzied era of hostile takeovers and leverage buyouts in the 1980s was still fresh in the minds of corporate boards. If a CEO failed to keep his company's stock price high enough to ward off potential raiders, boards were not hesitant to send CEOs packing.

Ward divides the book into two sections - an examination of how things got so bad as boards grew increasingly somnolent, and then a prescriptive section, with specific recommendations for changes. Among his most powerful suggestions is that the board have its own office and staff within the organization. Typically most boards rely on assistance from the CEO's or corporate counsel's office. The board needs more independence and autonomy, especially as the prospect of increased government oversight grows.

His more recent book, Improving Corporate Boards, provides more detailed and specific recommendations for improving each branch of a board's function. The audit committee of Enron's board might have spared themselves and the rest of the company more than a little trouble had they read Ward's pithy chapter entitled, "Smarter Audit Committees." Two suggestions seem especially on point: "Make sure the company is looking at the real numbers" and "Learn where right and wrong really are for the company's financials."

Polaroid CEO Gary DiCamillo managed to work the stock price of his company consistently down over his six-year tenure: from a high of ... per share to its recent value of pennies following the company's bankruptcy. Amazingly, near the end of DiCamillo's initial three-year contract, with the stock price at half of what it had been when he first took over as CEO, Polaroid's board paid him a ... cash bonus, extended his contract, and affirmed their support for him. DiCamillo banked the bonus and bankrupted the company. He is still CEO. We can only surmise what might have happened had Polaroid's board members read through Ward's two books and then acted on even a small number of Ward's sound suggestions. As it is, the board has no doubt provided Ward with an unfortunate but instructive case study for a future edition of either of these two solid handbooks. ...