Pleasures and Problems
from What Directors Think 2003
SURVEY SAYS: The payoff
86% believe good governance improves a company’s image.
84.4% believe it boosts the odds that a director will be exonerated if named in litigation.
46.7% believe it benefits the company’s stock price.
I love being part of the big picture, reviewing opportunities for growth and acquisitions. I absolutely hate discussions about spin, about how we can say this without getting in trouble, either with Sarbanes-Oxley or with the Street or with stockholders or with employees. I’m an open, straight-shooting guy, and when people want to wordsmith everything, it drives me nuts. It’s probably necessary, but it drives me nuts.
John F. Chapple III, 62
Former Owner and President, Marlin Management Services, Burlington, Vermont
Casella Waste Systems
To me the intellectual challenge is the most significant, along with the reading that takes place before the board meetings. I’m on the board of the American Medical Association, and it’s involved in the hottest issues of our day—prescription drugs, insuring the uninsured. What disturbs me is the length of discussion on some issues when I feel it’s unwarranted. But of course, others might feel it is very warranted.
Robert M. McMillan, 71
Partner, Fischbein Badillo Wagner Harding, Melville, New York
WellChoice
If it’s a good board, you have a cross section of leadership from all walks of life—financial, industrial, academic. I enjoy the interchange and being able to help other companies. There are some disturbing factors as well. Under the new laws, for example, directors are at such risk now. I’m also bothered by directors with Who’s Who credentials who add their big names to a board, collect big stipends, and pay very little attention to the company. One other issue that concerns me is that directors must understand what they should do and shouldn’t do. What they should do is set policy, make sure the company has good ethics and management, and replace management if it isn’t up to standard. The “shouldn’t” part is run the company. Some directors feel they have the license to second-guess and run the company, and that just isn’t right.
John Doddridge, 63
Chairman, Intermet Corp., Troy, Michigan
I like to think that by sitting on a board, I’m making a difference. I try to not only make the company more profitable but also help improve quality. I always ask questions about quality and quality control. What disturbs me? My concern is that one day you might wake up and find that the company is in deep water, you’re in it with them, and you didn’t see it coming.
Avery S. Cohen, 66
Partner, Baker & Hostetler, Cleveland
Stoneridge
I’m an adviser at heart. My background is in finance and operations; I was president of a drug company in San Francisco. I enjoy being a mentor to others. If there’s something disturbing, it’s that the D&O liability insurance is going to be a continuing source of higher costs and analysis on all the boards. In today’s environment, it’s difficult to get the right coverage for the board.
Thomas Simone, 61
Vice Chairman, United Natural Foods, Dayville, Connecticut
Spectrum Organic Products
What pleases me is the feeling that I’m involved in the process of building a new business or a cutting-edge business. What disturbs me is how companies like Enron got in the condition they did in the first place. I’d have hoped for better. The late Vice President Hubert Humphrey said you can’t legislate good-neighbor rules. That’s true in any industry. If someone wants to cheat or misrepresent the numbers, that’s difficult to find.
Craig A. Lang, 52
Chairman, FBL Financial Group, West Des Moines, Iowa
I’m pleased to be able to have a positive impact on people’s lives. But sometimes the shortsightedness of stockholders causes me concerns. They want to know, “What did you do for me last quarter? What did you do for me this quarter?” In today’s business environment quarterly performance is important, but it can be a hindrance in making the proper long-term decisions.
Herman Cain, 57
Chairman, Godfather’s Pizza; President and CEO, T.H.E. Inc., Omaha, Nebraska
Aquila Inc., Reader’s Digest Association, Whirlpool
I’m concerned when not enough time or groundwork has been provided for making a decision. In such cases, information must be requested and decisions delayed. Board meetings should not be on a set time limit; this can suppress proper discussion. Board members should be prepared to stay as long as it takes.
Joseph D. Ruffolo, 62
Partner, Ruffolo Benson, Fort Wayne, Indiana
Steel Dynamics, Tower Financial Corp.
What I like most is the chance to step out of the box. When you go through your life and do your job, there’s inevitably some redundancy to it. But if every once in a while, maybe four or five times a year, you had to go work in, say, an emergency room—well, for those of us who aren’t doctors, that would be a unique out-of-the-box experience. I find that being confronted with other businesses, management groups, and professionals from other fields—who maybe think and do things a little differently than I do—that’s very rewarding.
Right now what bothers me most is being exposed to directors who frankly aren’t competent, because they’ve been out of business too long and are not engaged in the issues or up on today’s activities. They’re not reading the new regulations. When you see directors who are not up to speed but yet are making decisions, that really is bothersome. I’m not saying this is the case with the boards I serve on, but it happens. I’ve been exposed to a lot of directors who, if you bring up asbestos lawsuits or tort reform or 16H filings, they don’t have a clue. There are still a lot of boards packed with old CEOs, CFOs, and private-business owners who frankly ought to step down. And you’ll see that. I think in the next three to five years, there’s going to be a real difference in the quality and experience of the people who are serving on boards.
James L. Packard, 61
Chairman and CEO, Regal-Beloit Corp., Beloit, Wisconsin
Clarcor, Manitowoc Co.
This is kind of a goofy analogy, but having been a CEO twice at two different companies and now being in the twilight of my career, I see serving on a board as a little bit like being a grandparent. You have all the excitement of being involved in the setting of strategy and in the monitoring of the progress of the company, and where necessary trying to influence change if it’s warranted—except you’re not the one who’s at the helm. It’s a little bit like after you’ve enjoyed the children all day as a grandparent, they go home and you don’t have to worry about getting up at two in the morning and changing their diapers. What disturbs me are the misconceptions about business leaders that exist in the mind of the public. We’re not all bad folks. I don’t mean to say there are only a few bad apples, because there probably are more. But it isn’t a bushelful.
Richard W. Hanselman, 76
Chairman, Health Net, Woodland Hills, California
ArvinMeritor, Brass Eagle
The two boards I serve on make up a significant portion of my net worth, so it gives me a certain amount of satisfaction to at least have input on how those companies are being run. And I enjoy interacting with bright businesspeople on these boards. It’s always nice to hear what people smarter than you have to say, and that’s particularly true on the Berkshire board. The only time serving on a board gets a little unpleasant is when you sit on committees and occasionally have to recommend that a certain member of management has to be let go. That’s not your best day.
Malcolm G. Chace, 69
Chairman, Bancorp Rhode Island, Providence, Rhode Island
Berkshire Hathaway
What I find most frustrating is when something occurs that is patently unfair. I’m thinking of one board that I’ve served on, which endured what amounted to an absolutely disgraceful and unfair legal action against it. We were looking to buy a manufacturing plant in Illinois and make it a subsidiary. It wasn’t the sexiest business—they made parts for heating, ventilation, and air-conditioning systems—but it was a good solid American business. We did all the homework, checked its environmental record and so on, and then we made the purchase. Then the local politicos and environmentalists came forward and accused the facility of polluting the land. That led to many tests. The acceptable level of contamination was 5 parts per billion, and those tests never found contamination greater than 2 parts per billion. But by then the lawyers had jumped into the game with both feet and signed up more than 100 people with the promise of free money. They took the case before a friendly local judge and a friendly local jury, and they got an award of $2 million. After that the factory had to declare bankruptcy. They just said, “Okay, take it, it’s all yours.” One hundred and seventy people lost their jobs. And this is just one case study. This is happening all over the place.
It’s my belief that it’s gotten to the point where if you and I were to invent something to manufacture, if it was bigger than a fingernail we wouldn’t do it here. We’d have to take it to Asia. We’ve turned America into a nonmanufacturing country.
I wouldn’t broaden this to say that the worst part of being a board member is fighting the lawyers. But probably the greatest unrealized problem in America is the legal fraternity. Somebody’s got to pay legal bills, and in the end the only alternative is to pass those costs to the consumer.
David W. Hunter, 75
Chairman, Hunter Associates, Pittsburgh
Mestek Inc.
