Bill Ford Appointed a Chief of Governance. Should you?
from January/February 2003
by Jessica Fourneret
When William C. Ford took over as chairman of Ford Motor Co. in 1999, one of the first things he did was to create a corporate governance department, an in-house group of self-proclaimed activists who monitor how conscientiously the company reports its non-financial data, sticks to its environmental promises, and generally commits itself to straight shooting with shareholders and others. Ford put Deborah Zemke, formerly executive director of the automaker’s corporate organization planning and development department, in charge and named her corporate governance director.
She’s been reporting directly to him and the vice president of corporate affairs ever since—and not always with good news. In her first year, she pushed for Ford Motor to ’fess up in its annual report to a number of problems, including the harmful environmental effects and safety hazards of the company’s most profitable vehicles, its SUVs. This year, at her prodding, the annual report acknowledged that the company had put some environmental promises on hold.
Other outfits have set up similar positions. Chiquita Brands International has a corporate responsibility officer, 10-year company veteran Jeff Zalla, who reports to the audit committee and the CEO. Pfizer has a vice president of corporate governance, Peggy Foran, who doubles as corporate secretary. She reports to the general counsel. At Citicorp, the board formed its own corporate governance committee, headed by outside director Franklin Thomas, a former chairman of the Ford Foundation. Even embattled Tyco International is getting in on the act. The new chairman and CEO, Edward Breen, has created the role of senior vice president of corporate governance and hired Eric Pillmore, former CFO of semiconductor-parts provider Multilink Technology Corp., to fill it. Pillmore says he will focus on “restoring confidence in the company with our employees, suppliers, customers, and the financial community [as well as] ensuring that we have the highest standards of corporate governance in place and creating value for shareholders.” Pillmore reports to Breen and his top executives, and also to the audit and the nominating and governing committees.
The idea of appointing a chief governance officer has some powerful supporters. They include the Conference Board, a nonprofit research group in New York City that is planning a workshop on governance officers in May, and Institutional Shareholder Services, a Maryland-based outfit that monitors proxy voting. ISS will soon be rating companies on corporate governance and will give “positive credits” to those that install a chief governance officer or the equivalent.
The scope of CGOs’ responsibilities varies, though most are expected to monitor how procedures set in place by the board are carried out—internal accounting controls, for example, or insider-trading rules—and to help develop programs that encourage financial openness. The three authors of a new report, Strategic Transparency, describe the CGO as the eyes and ears of the board. They recommend that all public companies add the position and suggest that a CGO should set the audit committee’s agenda, investigate complaints from shareholders, customers, employees, and regulators, and sign off on the financial-disclosure process. “Companies need somebody to make sure everyone is playing the rules the way they should be played. The solution is not going to come from regulation; it’s going to come from inside,” says one of the authors, William Mougayar, president of the Toronto consulting firm CyberManagement. Adds co-author Tim Russi, the Oakland, California-based executive vice president of DHR International, an executive search firm: “It just doesn’t make sense to manage each of these things in their individual silos. You need someone to manage it all. Boards today can’t do this, because it’s a full-time job. CEOs have too much on their plates. You need someone to dive into these issues and summarize them so that the board can be more effective.”
Not everybody agrees. Among the dissenters is Paul Lapides, director of the Corporate Governance Center at Kennesaw State University in Georgia. “It’s a terrible idea,” he says. “Every director is responsible for corporate governance. That’s his or her job. So why make somebody else responsible for it?” Besides, he adds, most companies already have officers in place with the sort of responsibilities that a CGO would take on.
At Ford, Deborah Zemke says she spends half her time working with outsiders and potential critics, among them the environmental group CERES, a London think tank called Sustainability, and various religious groups, universities, and companies. She’s looking for early signals on what different pressure groups might be pushing for next. And while she does keep tabs on Ford’s internal programs, “we have one foot in the company, one foot out at all times,” she says. She calls her department, which comprises four people, “an internal activist group.”
Carl Steidtmann, chief economist at Deloitte Research in New York City and the third author of the Strategic Transparency report, thinks that companies with a CGO in place will find it easier to recruit new board members—and might even put a brake on premium increases for directors’ and officers’ liability insurance.
