2003 CWDI Colloquium - Corporate Governance: A Risky Business

2003 CWDI COLLOQUIUM FOR WOMEN DIRECTORS:
Corporate Governance: A Risky Business - What's a Corporate Director To Do?
Westin Grand Hotel; Washington, D.C., March 27 - 28, 2003

Click for Full 2003 Colloquium Program

FEATURED PRESENTATION

Tom Waltermire
Chairman and CEO, Poly One Corporation

Question 1: Are the company and its shareholders better served by a board with a wide diversity of backgrounds or by a board with deep technical expertise in the company’s business?

Arguments for a diversity of backgrounds:

Differing views and experiences bring a more balanced perspective to the board.
People at the director level are inherently intelligent, and can be educated in the complexities of the business.
Directors are not operations managers. They add value by focusing on broad, high-level issues, so an extremely detailed knowledge of the business is not essential.

A board stacked with technical experts would be inclined to become heavily involved in the business, which could compromise members’ independence.
Directors in different industries often confront similar issues, so non-experts are still positioned to make substantial contributions.

Arguments for technical expertise:

Almost every business today is complicated and faces a maze of issues – financial, regulatory, operational, global, etc. – that demand specialized knowledge. The board is no place for the uninitiated.
Directors can better fulfill their advisory obligation if they have a strong background within the industry of the business they are advising.
The board reaches more thoughtful consensus and provides more informed counsel when directors share a base of common knowledge.

“Technical” directors who understand their roles can on occasion offer valuable insights, without getting too deeply involved in the company’s business.

Bottom line:

You can have the best of both worlds. A board that offers a diversity of experience, but includes a few directors with specialized knowledge of the business, should provide the needed balance.

Question 2: Should the positions of chairman and CEO be held by one person or be split?

Arguments for one person holding both jobs:

Lack of clarity on leadership can destroy a company. Infighting and chaos can prevail when a non-executive chairman opposes the CEO.
A properly functioning board with truly independent directors will ensure that the chairman/CEO does not abuse his or her powers.
A diffusion of leadership responsibilities may lead to a dilution of effectiveness. If a company has been well served by the chairman/CEO model, it is arguable whether a division of responsibilities would be of benefit. Such a change could, however, unleash poisonous power struggles.
Splitting the CEO/chairman functions is a knee-jerk response to the ethical breaches that have been publicized. It does not ensure success. In fact, the best solution is also the simplest: a chairman/CEO of the highest integrity, counter-balanced by a diligent board.

Arguments for the positions being split:

A domineering chairman/CEO who has hand picked the board could act as a dictator, with no one to check his or her abuses.
With corporate reform on the front burner, this is the wrong time to concentrate power in one person. Even if the chairman/CEO is honorable, the public perception of an authoritarian figure calling the shots may harm the company’s image and standing.
The optimal governance model is two leaders working in harmony for the benefit of the company and its stakeholders. Simply because people see things differently, a non-executive chairman and a CEO can strengthen and complement each other.
CEOs today must deal with incredible pressure from many sources. Delegation of the chairman’s duties can lift some of the burden, freeing the CEO to focus on running the company.

Bottom line:

The governing structure is not the problem, and changing it is not the automatic solution. Flawless execution is the answer.

Question 3: What are the relative advantages of having retirees and active professionals on a board?

Advantages of retirees:

Most obviously, retired people have more time – an especially significant consideration today, when directors are being asked to take on new responsibilities and devote more hours to the position.
Retirees can draw on a wealth of career and life experiences, which sharpens their judgment and makes their counsel especially valuable.
Retired people bring a clearer focus to the boardroom because they are subject to fewer distractions and demands than active executives, especially execs in senior management with weighty responsibilities to their own businesses.

Advantages of active professionals:

Functioning in the business world on a daily basis, active executives are more likely to be aware of market trends and other significant issues that affect board decision making. They also have better contacts.
Board membership today may involve rigors such as intense preparation, international travel and long days crowded with meetings. Active directors may be better able to withstand this pace than their retired counterparts, who are generally older and may have health problems.
Active directors are less likely than retired directors to become entrenched on a board to the point where their independence becomes a concern.

Bottom line:

Both active and retired directors can make meaningful contributions, and a mix is desirable. The principal factor, however, is the commitment of the individual, regardless of his or her employment status.

Summary

There are no easy answers to issues surrounding corporate governance.
Academicians and pundits are debating these points, and some are devising quick answers and easy solutions that could, in the extreme, be damaging.
In fact, good governance boils down to balance, common sense and fundamental values such as integrity, openness and responsibility toward those whom you represent.
If both the board and management live by that creed and apply it in carrying out their duties, then the pro-and-con arguments of narrow questions diminish in importance.
Because what really matters is not the argument, but the execution.