Lifetime Achievement
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Watch Heineman's interview with Corporate Board Member.
Ben W. Heineman, Jr.
Ben W. Heineman Jr. served as GE's senior vice president and general counsel from 1987 to 2003 and as GE's senior vice president for law and public affairs from 2004 until his retirement at the end of 2005. He is currently a distinguished senior fellow at Harvard Law School's Program on the Legal Profession and a senior fellow at Harvard's Kennedy School of Government. He has held senior positions in the federal government and at private law firms.
Transcript from the June 19, 2008 Legal Recognition Dinner
TK: TK Kerstetter, President & CEO, Corporate Board Member
NH: Neal Hochberg, Senior Managing Director, FTI Consulting
BH: Ben W. Heineman, Jr.
TK: As many of you know that have followed the legal issue for six years, there is a ranking of how the firms finished compared to voting by the directors and by the GC’s. Again we welcome you to either go to our website or look at the magazine to see how everybody has done and once again we would like to salute Skadden Arps for once again being voted by both parties as the top corporate law firm. So congratulations Skadden Arps.
Now it’s my pleasure to introduce Neal Hochberg who is the Senior Managing Director with FTI Consulting. As I’m sure many of you know that are in the business of everything of needing help with the discovery or any type of support work in your law firms – both in-house and out-of-house firms – you probably have come across FTI. FTI is certainly a big player in making this happen and it’s my pleasure to introduce Neal who will introduce our achievement award.
NH: TK thank you and thank you all for coming tonight. FTI Consulting is proud and pleased again to be the sponsor of the Corporate Board Member/FTI Consulting legal survey and co-host of tonight’s legal recognition activities. A brief elevator speech, FTI assists in-house counsel and their outside law firms to help protect and enhance enterprise value in the complex increasing legal regulatory and economic environment. We work closely with each of you almost everyday to anticipate, mitigate, or overcome complex business challenges. Now to the reason we’re here.
It’s my honor to introduce the recipient of the first general counsel lifetime achievement award, Ben W. Heinemann, Jr. I’m sure you will agree that Ben is accomplished and distinguished in his legal career and rightly deserves this recognition. Ben may be best known for his tenure and duties as Senior Vice President General Counsel and then Senior Vice President for Law and Public Affairs at GE. Ben is one of the pioneers of corporate governance in a multi-national corporation.
Long before Enron and the passage of Sarbanes Oxley and other reforms, Ben identified the need for sound, transparent, corporate governance throughout GE’s C suite and boardroom. To make that happen he built the company’s legal department into what became in effect a top-notch law firm while serving one global company of over 1,000 lawyers operating in over 100 countries. He was also one of the first general counsels to pay them competitively. Ben redefined the role of general counsel and one of his quotes is, “You’re not only there to provide legal advice to the CEO, you’re a partner, a business person who knows what the company does. You talk about company citizenship, its business, its relationship to society, and the particular risks of a given opportunity. As general counsel,” he adds, “you must shape the board, its thoughts on key issues, and add to the debate.”
Today Ben serves in a senior counsel role with Wilmer Hale as well as senior fellow at both the John F. Kennedy School of Government and Harvard Law School passing along his wisdom and experience to a new generation of inside and outside attorneys. In addition, Ben has just published his third book “High Performance, High Integrity” which is available tonight in the back of the room and I’m sure he’ll be glad to personalize that book when his thoughts are over.
Ladies and gentlemen, it gives me great pleasure to present this award to Ben and introduce the first Corporate Board Member and FTI Consulting General Counsel Lifetime Achievement Award winner, Mr. Ben W. Heinemann, Jr.
BH: Thank you very much. It’s a great honor to be here tonight and I’m very grateful to Corporate Board Member magazine for choosing me for this honor. To the active GC’s who I have enormous respect for I have only a few words, good luck from a pensioner. Have fun.
Obviously I have to credit the team as all of them have done to their teams in terms of getting this award. I would like to say just a word about the GE revolution, which has been written about for nearly 20 years. It was really Jack Welch’s vision to hire not me, but to people like Bracket Dennison and all my colleagues, A players from law firms, from government, who basically have the same quality as the fine outside lawyers who are here tonight. So as it has been mentioned we were able to create a great inside law firm. And it was only by doing that that I think we were able to transform, to some degree, the practice of inside law and change the profession in important ways and make these jobs more attractive. It wasn’t just one person. It was the partnership and it was people like Bracket who did a fantastic job to I think improve greatly GE’s capacity to fuse high performance with high integrity.
And that’s what this book is about. I’d like to just say a very few words about it because I think it’s so important. To me the goals of the modern corporation are high performance with high integrity. Indeed I would even go further in saying that goals of global capitalism are high performance and high integrity. What do I mean by high integrity? Three things. Obviously robust adherence to the spirit and the letter of the formal rules, legal and financial; secondly the establishment of global ethical standards that bind the company and its employees; and thirdly having employees who embody the values of honesty, candor, fairness, reliability and trustworthiness. No organization can operate without those values in the employee base. We know of organizations that have backbiting, turf fighting, self-dealing, selfishness, can’t works as teams. Those are not good places to work. Only when the employees have those values that I’ve mentioned can a company really deal with the substance, get the job done, work in teams, and basically serve its customers, suppliers, communities and so forth. But those values, which are basically the foundation of the company, cannot occur if there is hypocrisy about compliance with the law, the spirit and letter, and if there are not global ethical standards that deal with problems that the company faces in its global markets. So I think integrity is critically important.
Now why is the fusion so important? First of all it’s obviously to avoid catastrophic misses. We all know that in the legal environment that’s been mentioned tonight, we all know this in our bones, has changed dramatically in the last 15 years so that an ethical lapse can lead basically to market cap tanking, CEO’s fired, boards humiliated, suppliers cut off, communities injured. It can have truly catastrophic affects. But I would go to a second reason why the fusion of high performance and high integrity is so important and those are the affirmative benefits in the company, in the marketplace, and in the broader society. I could enumerate those benefits, but I think at the end of the day they come down to one word… trust. Capitalism, for all of its regulation, for all that we have to deal with, is still based on trust. Every company has to have the trust of its employees, its suppliers, its customers, and that comes obviously from world class, first class goods and services. But it also comes from the integrity in the relationships in the company, again in the marketplace, and with the regulators and the media in the broader society. So there is a very powerful reason why in addition to avoiding the catastrophic miss that I believe these are the core goals of capitalism in companies today.
Let me make three comments – it’s late – but three comments about the CEO, about the board, and about lawyers. One of the arguments in the book is that we have misplaced the emphasis in the governance debates since Enron by focusing too much on the boards. As I’m going to say in a moment, the boards have a critical role. But really what I call the third dimension of governance is where performance with integrity is going to occur and that’s from the CEO on down. If the first dimension is shareholders-company and the second dimension is directors and managers, then the third dimension is the CEO down into the company. And we all know that’s where the work gets done. That’s the grinding day-to-day effort. Only then can you create an affirmative culture of performance with integrity, a culture which starts with rules and deterrents and punishment if you miss, but should evolve into a very positive and affirmative culture where the CEO makes clear, the business leaders make clear, that they want to do the right thing and the rest of the corporation then has an affirmative culture as well. Only the CEO and the top business leaders can do it. The staff can’t do it. Just the legal staff or the HR staff or the finance staff can’t do it. They can play a critically important supporting role, but it has to be the CEO and the business leaders. I so deeply believe that we have spent way too much time talking about the new duties that directors have and not enough time on how do you fuse performance with integrity at the operational level, how do you really drive it into business processes.
I hope you will have a chance to look at the book that’s in the back. There are about eight different principles about how to do that and associated practices I’m not going to go through that. But I do want to emphasize I really do think the governance debate needs to be redirected and refocused to deal with the realities of companies. That’s point one. Point two however is that the board clearly has a critical role. It has to have oversight of the most important strategic issues, the risks and the opportunities facing the corporation. But I think there are two new dimensions that I believe are terribly important. Number one there should be a new spec for choosing CEO’s. Clearly you have to have a good business person with a vision, a sense of where the world’s going and you have to have a person of high integrity. But you really have to have someone who can fuse high performance with high integrity in an operational sense and that involves knowledge, experience, intensity, and commitment. So then I think part of the board’s job, we all probably agree that the most important job is choosing the CEO. But there ought to be a new dimension of the spec for hiring CEO’s. I mean all we have to do is look around the wreckage and the landscape over the last ten years and we know the problems when you don’t have CEO’s of this kind of quality. And this is really the most important thing that the board can do.
I think a very related dimension is also what I would call pay for performance with integrity. There’s a huge debate, as we all know, about what pay for performance means. But I think we need to further. The board has to establish a process of paying for performance with integrity, something that would apply to the CEO and to top management and would part of a managed development process. I believe we can actually measure integrity in a very simple way. I suggest that there are seven or eight critical principles that have to be part of this fusing of performance with integrity. So one way is to say has the CEO adopted those principles. Secondly there are critical practices to implement those principles. Have the CEO and the top business leaders done that? Thirdly have they created the affirmative culture? And whether it’s 360 evaluations or employee surveys you can measure the culture and that culture is so critical. Is there an affirmative culture in the company on these critical sets of issues? Fourthly you can compare with peers and lastly you can have annual goals and objectives. We have to hire a new leader in China. Well what kind of person is that going to be in an enormously challenging market. We’ve got to resolve a problem with the SEC and the Justice Department or the EPA. How does the CEO lead that effort and what is the result? So I think there are very common sense ways in which we can measure integrity and there ought to be some percentage of comp. You can look in the proxy statements of the Fortune 50, you won’t find the word integrity in half of them – is my rough guess – that we compensate the CEO because of his efforts and integrity. You won’t even find the word in very good company, and you certainly won’t find the comp committees explaining how performance with integrity is measured in some kind of more systematic way. So I think this is a really critical thing for boards to do: change the spec, change the way we pay for performance.
The last comment I would make is about the people in this room, the lawyers. I have long said that the core of our job as inside lawyers is resolving the partner guardian intention. We have to be partners of the CEO. We can’t just be naysayers and left in our offices and not included in the meetings. We have to help them accomplish their business goals. But at the same time our fundamental responsibility is being guardians for the corporation and having responsibility to the board. And everybody who has been an inside lawyer, and many of you fine lawyers in the firms, know that those two goals are often intention. They need not be, but they often are. CEO’s are in a hurry, CEO’s don’t want to listen, the palace guards get around the CEO and sort of mock the people who sort of want to raise their hand and say maybe we shouldn’t do that. The real world is it’s hard to do and so inside lawyers have got to figure out who you can both be a friend and partner with the CEO and have the courage and the guts and the credibility to stand up and say not this time, not this way. And I think that one of the ways to do that is to recognize explicitly that there is this tension, to have the CEO recognize it when they hire general counsels, to have the board recognize it when it talks to the CEO about hiring general counsel, and I think that until we really face into this issue there are tremendous pressures on general counsels. They can be fired at will in most cases. You can lose all your unvested financial interests that have not accrued but have been given to you by the company. And it takes a very brave 45 year old to stand up and take a big risk, even though the issue may be enormously important. I made it through. I’m retired. I’m a pensioner as I said. But I do not diminish the difficulty for people in these roles to do the right thing if they don’t have the right CEO.
So all these things fit together. The CEO has to be the person that drives high performance with high integrity, the board’s got to choose the right person and compensate them, and they both have to recognize the critical role of the general counsel and I would add equally importantly the CFO and the HR leader to be sort of the nervous system of the company and to be both partners and guardians.
Anyway I’m extremely honored to be here tonight, privileged to be in the company of such great general counsels, and I think you all very very much.
TK: Ben you’re a class act and I look forward to you helping Corporate Board Member select the 2009 lifetime achievement because we trust your judgment that much and we couldn’t be more honored that you’re our inaugural candidate for this so congratulations.
