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| 2004
News and Press Releases |
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HEADLINE:
Tough Corporate Reforms Are Still Being Dodged
By: Ira Millstein (senior partner at Weil Gotshal & Manges, the law firm, is visiting professor at Yale School of Management)
Financial Times UK. July 6, 2004
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EXCERPT: After two years of corporate governance reform, it is time to take a close look at how management, boards and shareholders have risen to the challenge of upgrading directors' accountability and responsibility. My impression is that management does not like reform and so complies and complains, resists, or merely goes through the motions. Boards seem willing to adapt but are burdened and not yet sure how. Small shareholders are concerned but helpless. A few institutions take voting seriously and try to be responsible; others fulminate and demand contested elections to unresponsive boards. At least the turmoil is keeping reform on the public agenda. Management never much liked boards. Directors were a nuisance, to be fed and tolerated. They were easier to tolerate when the chief executive could handpick the board by selecting cronies, acquaintances, harmless academics and, if absolutely necessary, a few women and minorities. So much the better if the chief executive was also chairman of the board charged with supervising him. That cosy relationship changes when the board is scrutinised for its independence and qualifications and seeks to define its own processes. It may slip completely out of control when a lead director tries to set the agenda or an independent chairman sits at the head of the table. And matters are even worse when the independent directors hold a "secret" meeting without the chief executive. It would be counterintuitive to expect many in management to embrace such reforms happily. Directors, in turn, used to be content to have a good dinner with a peer group, chat amiably about current events, attend an hour or two of corporate "show and tell", and then add another prestigious corporate name to their curriculum vitae. Board service begins to be difficult when you have real duties to perform, have to pay attention to unpleasant risks and financial figures, and spend more time on committees. The job becomes harder still when it is clear that you could be sued for lack of "good faith" without knowing precisely what that means and, worse yet, held up to ridicule by politicians, unions or the media. No wonder, then, that directors are trying to protect themselves by putting more pressure on management and demanding more advisers (with strict no-conflict rules) and better directors' and officers' insurance.
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