In preparation for the article on Best/Worst Boards in this issue, I rummaged through a stack of 1994 proxy statements. It was a tedious task in some ways, but an interesting chore in others. I came away with a number of impressions.
This year’s proxy statements are well-presented and packed with information. On the whole, corporations have done a good job. The compensation committee reports, which cover in detail new performance-share approaches, are enlightening and encouraging. But the most striking aspect is the number of companies establishing a committee function to handle board affairs.
Sometimes this is a special committee with no other functions. But often, the expanded duties of “board affairs” have been added to those of the independent nominating committee-and I think this device has considerable merit. Here are few exam ples of the different corporate nomenclature and approaches I ran across in my proxy-reading stint:
- Allied Signal-nominating and board affairs committee.
- Ameritech-nominating committee (expansion).
- Avon Products-nominating and directors activities committee.
- Boeing-organization and nominating committee.
- Colgate-Palmolive-committee on directors.
- General Motors-committee on director affairs.
- Pfizer-nominating committee (expansion).
- Rubbermaid-nominating and director activities committee.
- Ryder System-committee on directors and public responsibility.
- Texaco-nominating committee (expansion) and committee of non-management directors.
- Unum-board governance committee.
Whatever the committee’s name, the intent is basically the same. The board assumes responsibility for determining its own composition, selecting directors, staffing committees, and setting director compensation. More important, with such a committee in position, the board is able to swing much more smoothly into well-considered programs of CEO evaluation, board performance review, and individual director assessment.
For those boards that have lagged the recent corporate-governance innovations and that need to make major changes in board composition and committee structure, the committee on board affairs can be a first and critical step toward correction.
However, do not underestimate the complexity and delicacy of restructuring a hoard. The chief executive plays a vital role, whether he or she is chairman or not. The CEO must believe in the merits of a strong board and must be willing to let the board become the primary factor in determining its own destiny, but still stay intimately involved in the whole process.
Not all CEOs are able to adopt this new stance. Some old-style executives will successfully protect their dominant roles and continue picking their own directors, making their own committee appointments, and dodging their own performance evaluations. And unfortunately, a few CEOs will squabble with their boards in the process. The best of all worlds is when the CEO actively initiates the process and installation of a committee on hoard affairs and then wholeheartedly participates in implementing the procedure.
In all cases, the key to success is a nucleus of at least two or three experienced, emboldened directors who are willing to face up to a sometimes recalcitrant CEO and occasionally lethargic or hostile outside directors. The hardest part is asking a director to resign; in such an instance, a united front is essential.
Usually, putting together an effective committee takes longer to accomplish than you might think. The committee has to establish credibility with both the CEO and the board. The appropriate degree of communication sometimes is achieved by trial and error. There is an ever-present temptation to procrastinate and wait for a better time to start the process. Don’t wait too long.
The rewards for accomplishing the transition from a weak board to a strong one are tremendous. A CEO with a strong board has a more effective review of corporate policies and projects. When trouble comes-as it invariably does-there is a reservoir of support that enables him or her to take fast and incisive remedial action. Most of the time, the company just seems to be managed better. The combination of a strong CEO and a strong board is tough to beat.
In just a few months, you will be drafting your 1995 proxy statement, and the annual organizational meeting will he right behind. If you are considering the formation of a committee on board affairs, start moving now.
Formerly the CEO of F.&M. Schaefer (19721977), Robert W. Lear is chairman of CE’s advisory board. He also teaches at