Bah Humbug to Lead Directors
from March/April 2006
“Lead directors and non-executive chairmen interfere with good governance.” So says Frank V. Cahouet, 73, the retired chairman and CEO of Mellon Financial Corp. Cahouet makes an exception for companies where either of the positions is temporary. That’s the case at the two companies he serves as a board member—recruiter Korn/Ferry International and Teledyne Technologies, which makes products for broadband communications—whose boards both have rotating lead directors. Cahouet expanded on his contrarian view in an interview with Corporate Board Member ’s Julie Connelly. Excerpts:
What have you got against lead directors and non-executive chairmen?
As
a board member, one of my principal responsibilities is to evaluate the
CEO. Among other things, I’m interested in seeing how the CEO relates
to his board and to his key managers, as well as his ability to
articulate the corporate strategy and perform against this strategy.
One
issue that can arise with a non-executive chairman is that the chairman
normally runs the board meetings and the CEO would tend to play a
secondary role. This lack of leadership of the CEO can be a serious
issue for the company if it’s struggling, because it is particularly
important for all the directors to have a thorough understanding of how
the CEO performs when faced with very difficult issues.
But what about lead directors?
The
issues with permanent lead directors who develop a special relationship
with the CEO are somewhat similar. However, I don’t visualize a problem
with what is commonly called a rotating lead director. These are
directors who chair the executive session of the board meetings on a
rotating basis and are responsible for helping to structure the
session. Normally they report to the CEO on the issues discussed at the
session, and this process seems to work well. In the same way, a
non-executive chairman who serves for a limited period of time, for
instance to support a new CEO, can be equally constructive without
interfering with the governance of the other directors.
However,
there are two issues for everyone to keep in mind. The first is that
all directors have an equal responsibility to the shareholders. It is
up to the directors to feel totally comfortable with the performance of
the management team. Second, and equally important, we must be careful
not to create a governance structure that is so risk-averse that
management avoids taking appropriate risks and thereby fails to make
the necessary investments for the long-term benefit of the shareholder.
You serve as a rotating lead director at Korn/Ferry and Teledyne Technologies. How well does the process work?
I’ve
felt it worked well as a way to provide a structure for the executive
session. And since the lead director serves on a rotating basis, there
is no sense that any one director is senior to the other directors.
