Irving Kristol: 'Godfather' and Corporate Director

Irving Kristol, the powerful thought leader in political affairs, the "Godfather of Modern Conservatism" as the New York Times called him, died on Sep. 18 at the age of 89.

In various glowing tributes to him on his passing, which traced the impressive arc of his career and influence, I saw no mention of his corporate directorships. He was a full-contact player in the political realm, but he did keep a hand in on the corporate side of life. In my records I see that he was a director of Lincoln National Corp., Basic Books Inc., Citizens Utilities Co., Warner Lambert Co., and several Dreyfus mutual funds. He and I corresponded in 1984 about his writing a piece for Directors & Boards.

In was in that year that he published an essay, "Dilemma of the Outside Director," for the Wall Street Journal that caught my attention. Retrieved from my archives, what follows is a passage from that essay, which gives a taste of his thinking on board matters. Its conservative thrust, no surprise, would not find favor with a shareholder activist. Here he is reacting to an article that Harold Geneen had just written for Fortune magazine in which the legendary ITT chieftain attacked overpaid CEOs:

"[Geneen] believes it to be a scandal that the pay of top executives is almost never reduced, even when the corporation performs poorly. Well, there are indeed occasional scandals in corporate compensation, but this happens not to be one of them.

"Mr. Geneen might well have asked himself: Why is this rigidity in compensation visible not only in corporations but in nonprofit institutions as well? Does a university president get his salary cut when his budget falls into the red? Of course not. Does the head of the U.S. Postal Service get his salary cut when mail delivery deteriorates? Of course not. Does the head of the American Red Cross take a salary cut when donations diminish? Of course not.

"In short, such rigidity on the downside of executive compensation is a feature of all large organizations, where holding on to executive talent is always a primary consideration. After all, if you cut the CEO's salary, leaving other managerial salaries untouched, you have publicly diminished his authority to a degree where he might as well leave. And if you cut other managerial salaries proportionately, you will end up losing some of your best managerial talent. There is a market for such talent, as there is for musical, baseball and entertainment talent. Many of us may think this talent is often inequitably rewarded and wonder why a Michael Jackson or a Dan Rather do so well. But either the market regulates these salaries or government does. Between the two, it's not such a hard choice."

A rather prescient last two lines in this passage, considering it was written a quarter of a century ago and where we are today with the government's encroachment on compensation decision making. Indeed, prescience is an attribute of Kristol's that the Wall Street Journal's editorial writers specifically cited in their homage to him the day after his death: "Perhaps the greatest gift of the gifted Irving Kristol was prescience. This does not mean predicting the future. Prescience, a more useful gift, is seeing the direction in which the future is headed."

28 Years

Today marks my 28th anniversary with Directors & Boards.

I chuckle now when I think about how I turned down the offer to join Directors & Boards back in 1981 — not once but twice over the course of several months of discussions with the principals backing the journal. It was at that time too academic a publication for my tastes, and, besides, who ever heard of corporate governance? It wasn't even a term in the popular lexicon three decades ago. I was a business writer and editor — covering everything from high finance to low sales (1981 being a pretty punk year for Corporate America). Not a word had I ever written or published about boards of directors. A board was in deep background back then — directors weren't even a factor in popular business coverage.

So, I am somewhat bemused that here I am, starting my 29th year as editor of Directors & Boards. The aforementioned principals must have seen something in me that I didn't see in myself. I finally relented, agreeing to give this "beat" of specializing in corporate boards a shot. On Sep. 21, 1981, I showed up at the door as the next editor of Directors & Boards.

On such an anniversary milestone, I am mindful of the following anecdote. When writer William Saroyan asked famed magazine editor H.L. Mencken (pictured) how to become a magazine editor, Mencken responded: "I notice what you say about your aspiration to edit a magazine. I am sending you by this mail a six-chambered revolver. Load it and fire every one into your head. You will thank me when you get to hell and learn from other editors there how dreadful their job was on earth."

I sometimes think Mencken's sentiment applies as well to those aspiring to a seat on a corporate board. Yes, there are days when the job can be dreadful. Just ask, for example, how it must feel to be a Bank of America director now being subpoenaed by New York Attorney General Andrew Cuomo. Or being a director of a company facing bankruptcy or scandal.

But (sorry, H.L.) if there is one thing I have learned over all these years, it's this: the joy of finding your calling in life — be it in editing a journal of corporate governance (especially now that the term is viscerally embedded in the lexicon) or in lending your time, energy and expertise to board service.

Dominic Cadbury on Brand Power

"Cadbury Vision Is to Stay Single" is the headline of a recent piece in the Financial Times covering the $16 billion bid by Kraft Foods for the British confectionary company. "Cadbury, On Its Own, Says Future Looks Sweet," chimed in a headline in a Wall Street Journal report today of the company's desire to swat away Kraft's acquisitive interest.

That desire is as true now as it was 18 years ago when Directors & Boards Publisher Robert Rock and I had a chat with Dominic Cadbury (pictured). He visited the journal's office on the way to giving a presentation to the Financial Analysts Society of Philadelphia.

He was group chief executive at the time of the company then called Cadbury Schweppes PLC. The three of us huddled to talk about the power of brands. The resulting interview appeared in a special 15th anniversary edition of Directors & Boards, themed "Being a Global Leader," published in the fall of 1991.

Here are two snippets from that interview that echo over the decades to the present stance being taken by both sides of this bidding interest (remember that Kraft has been in and out of Philip Morris):

• On the Prospect of a Takeover: "Philip Morris wanted to be a major global competitor in coffee. It bought Suchard, which gave them that opportunity. It also took them into confectionary. Will they decide to be a global competitor in confectionery? If so, everybody knows that they've got the cash flow to buy anything in the world. We're all public companies. Theoretically, they could say, 'Why don't we buy Cadbury Schweppes?' That would give them a very strong confectionary position in worldwide markets. I have no idea whether that could happen. My guess is that what it will come down to is, year by year, who does the best job individually of developing their business. If we do an excellent job of developing our confectionary business, my guess is that it would not be very attractive to somebody else to pay a huge premium to buy us."

• On the Value of Strong Brands: "The financial market has attributed over the last few years very high value to brands. It's so expensive and may become even more expensive in the future to build a brand name like a Cadbury. There is a scarcity value. I sometimes think it's a bit like old houses with attractive gardens in an attractive part of the countryside. There are a certain number of those in a country like Britain, and they are going to get fewer. The value tends to keep climbing higher. Brand names fall in the same category. It's going to be very difficult for anybody to build any of these brand names from scratch in the future."

"Build or buy (or, be bought)" is a board's perennial strategic dilemma. Cadbury-Kraft will be a dandy case of how two boards resolve this dilemma. We'll see if Sir Dominic's (he was knighted in 1997) words prove prescient. No matter how the deal jockeying proceeds, his thoughtful musing on the power of brands certainly stands the test of time — past, present and future.

The Voluntary Nature of Board Service

Today is Volunteer Day — a first National Day of Service in commemoration of the 9/11 attack. Building on this day, the AP reports that organizers hope the 10th anniversary of 9/11 in 2011 will mark the single largest day of service in U.S. history.

A day of volunteer service like today is an opportune moment to recognize a special breed of volunteer who is critical to the workings of free market capitalism. I'm referring to the corporate director.

Rabid criticism has been leveled at corporate directors for coming up short during the financial meltdown and resulting recession — in assessing risk and exercising sufficiently diligent oversight. Deserved? In many cases, yes.

But what we don't ever want to lose sight of is the voluntary nature of the corporate governance system we have in this country. Congress, the SEC, the NYSE, the Delaware courts, RiskMetrics, CalPERS ... all these bodies and more come up with their directives and notions on how a board should be organized and conduct itself. However, none of these regulators and sundry protectors of the system conscript individuals to carry out the complex duties of directorship. It is up to the corporation to find individuals who will volunteer to join its board.

Companies need smart, accomplished people who have a sense of duty, honor and statesmanship, of interest and desire, of noblesse oblige, to willingly take on the immense responsibility and accountabilities involved in corporate oversight. This is no inconsequential bit of volunteerism. Nor is it an insignificant recruiting challenge.

Our governance system has its weaknesses, which were mightily exposed by the financial crisis starting in 2007. But for a system that depends largely on an army of volunteers, it is remarkable how well it functions and how much good work has emanated from the collective intelligence and integrity of the man and women who have stepped up to the role of corporate director.

On this national day of volunteer service, and in the weeks ahead when we start fielding new regulatory salvos aimed at corporate boardrooms, let's be mindful of the voluntary nature of serving as a corporate director. These volunteers make the governance system work ... and will make it work even better in times to comes.

Arnie at 80: A Father's Lessons

Today is Arnold Palmer's 80th birthday. There is a Directors & Boards angle to this. We had Arnold Palmer in our pages 25 years ago, when then-Publisher Milton Rock visited with Palmer to get the champion to talk about how business and golf made for a winning match-up on and off the fairway.

Here is a piece of that article that seems appropriate to revisit on a milestone day like today — Palmer paying tribute to his father for being such a profound influence in his life and in the success he achieved as a golfer and businessman. Listen in:

"My father was never formally educated past the eighth grade. He came to Latrobe, Pennsylvania, which is still my home, as a paper boy and a mail carrier in the local steel mills. He got a job at the golf club, that I now own, because of his politeness and his willingness to work very hard from the time he was 16 years old. He was at the club as the course superintendent and pro until he died at 71.

"This club was put together by a group of probably the most sophisticated small-town businessmen in the world. Latrobe at the time was one of the richest small business communities in the world, with coal and steel and aluminum, a brick business, railroads, rubber, glass, and wool mills. The people who ran those businesses played golf and were literally my father's bosses.

"My father learned from them how to eat with proper etiquette and have good manners. The more he learned at the country club the more he brought it home and literally pounded it into his children. He was almost obsessed by the desire to have us learn proper ways. Being the oldest, I got the brunt of it. He gave me many lessons in how to act in front of businessmen and how to keep my mouth shut and listen rather than talking all the time.

"At the same time, I had enough awe at a young age to watch the businessmen and see how they conducted themselves. I wanted to know if my father was really right in telling me that I had to hold a knife and a fork in a certain way, and that I had to use a napkin properly and do things in accordance with the manners and tradition that were a big part of a country club.

"I think that was a tremendous advantage to me. I not only learned, but I remembered it because my father was a very tough man. He was strict, and he was great."

The son became someone deserving of being called "great" himself. Happy birthday, young man.

[Photo: Golf Digest]

Liability Day 2009

In his Labor Day note to clients and colleagues, my friend Bob Dilenschneider reminds us that the first observance of Labor Day is believed to have been a parade of about 10,000 workers on Sep. 5, 1882, in New York City. Bob's research shows that by 1893 more than half the states were observing a "Labor Day"; and that in 1894 Congress passed a bill to establish a federal holiday that was signed by President Grover Cleveland.

The very name of this holiday this year seems like a cruel joke.

The Labor Department reported just a few days ago that the jobless rate has now risen to 9.7%. Everyone knows that is a grossly misleading figure. Add in those who have given up looking for work or who are doing part-time gigs as they search for full-time employment or who have gone uncounted, and the jobless stat easily doubles.

When I first got into the business world in the 1970s, companies were proud of the number of people they employed. I remember this distinctly. In their letter to shareholders in the annual report, company chairmen would routinely cite the size of the company's workforce with the same sense of satisfaction as the amount of the firm's revenues and the scope of its operations.

Now, what is being conveyed to the market is something very different — a pride in how few people companies need on their payroll. How sad it is to see companies get high-fived by analysts and the stock market for workforce reductions and other miserly treatment of their human capital.

Survival is one thing. But my fear is that managements see their company, or are forced to see their company, as simply a pass-through mechanism for disbursing its revenues to its institutional owners (after pocketing, in too many instances, an outsized take for themselves).

Bob Dilenschneider concludes his Labor Day letter with this fervent wish: "Let us pause to remember what Labor Day is meant to be — a celebration of the working men and women who have made America the greatest nation in history. Let us rededicate ourselves to getting everyone who is ready, willing and able back to work so that America can continue to grow and prosper and serve as a model to the world."

Let me add my own wish to Bob's: that public corporations regain a sense of themselves as employers, as organizations that see and treat their workers, young and longtimers alike, as assets and not expenses — or, worse, liabilities.

Liability Day? That's kind of where we seem to be at this Labor Day.

Ending on a hopeful note, Bob offers some good news: "Several of our clients indicate strong resolve to get America working again to innovate, to invent and to find ways to spur the economy forward."

Let's hope that by next year this time such resolve will have born results, and put some of the celebratory nature of labor back in Labor Day.

MetLife's Decisive Leaders

New AIG CEO Robert Benmosche sure is making his leadership presence felt, even if it may veer a bit into, in his own words, "too aggressive" territory, as per today's piece in the Wall Street Journal. In its earlier coverage of Benmosche's appointment in August to be AIG's chief, the WSJ wrote that he will be "the most decisive, direct and tough leader to run the battered insurer" since Hank Greenberg's reign.

Benmosche had been head of MetLife Inc. from 1998 to 2006. This is not the first "decisive, direct and tough" leader that MetLife has turned out.

I'm thinking of Richard Shinn (pictured), who I met in 1987 when he did the keynote for a CEO dinner that Directors & Boards held at the Harvard Club in New York. Dick Shinn had been with then-named Metropolitan Life Insurance Co. for 44 years. He retired as chairman and CEO in 1983, and at the time of his speech he was still keeping his hand in as executive vice chairman of the New York Stock Exchange.

We published his keynoter in early 1988, titled "Forces That Are Reshaping the Board." Talk about a page out of the history books. Here are two of those forces he spotlighted to both the Harvard Club CEO audience and then to the audience reading Directors & Boards:

"There are two new governance developments that have come to light. One which is a natural result of the growing demands on, and importance of, directors is the search for procedures to provide a continuing evaluation of a director's performance and provide for an orderly turnover. The leadership in this approach is coming more from nonprofit organizations, and perhaps we can learn from their experience.

"The second emerging concept is the need to keep board members sufficiently informed of the corporation's current and looming problems."

Whoa! Here we had a top corporate statesman of his day identifying in the hallowed halls of the Harvard Club "emerging concepts" that would eventually lead to one of his MetLife CEO successors taking on the job of rescuing AIG, one of the top corporations of its day, from the very problems that Shinn surfaced two decades earlier — a board of suspect performance and one not sufficiently informed of its company's current and looming problems.

The irony astounds. Let's hope the MetLife brand of decisive leadership as practiced by Robert Benmosche astounds as well.

A Perfect Time to Be Optimistic

It's a new month ... but old fears linger. Some economic indicators appear to have touched bottom over the summer, hinting that the nightmare of the Great Recession may be ending. Still, many people — senior executives, as well — are haunted over whether a prosperous future can be regained.

Donald Keough (pictured) is just the guy to turn to for an uplift in these fearful times. This corporate leader wrote a book last year called The Ten Commandments of Business Failure [Portfolio]. Keough is a longtime Coca-Cola executive who, upon retiring from the beverage company in 1993 as president and COO, became nonexecutive chairman of Allen & Co., the investment banking firm (and still sits on the Coca-Cola board).

Here is one of his commandments of failure: Be Afraid of the Future.

"To aspire to any kind of leadership in business you simply have to be an optimist," Keough writes. "One optimist in a sea of pessimists can make all the difference." What all great leaders, in politics and business, have is "the ability to sense a mood," he says. "They know what the prevailing mood is and, when it is negative, they sense how to change it."

That's what Keough did in another "bleak year" in our nation's history — 1974. "What a time!" he writes in his book. "President Nixon was named a co-conspirator in the infamous Watergate case and resigned in disgrace. The Mideast oil-producing countries embargoed oil shipments to the United States. Gas shortages popped up all over the country. There were bloody IRA terrorism attacks in Belfast and London, even at Harrods department store. We had our own homegrown terrorism, such as the kidnapping of Patty Hearst by some group called the Symbionese Liberation Army. India developed the atomic bomb. And we were still trying to pull out of the Vietnam War. In short, it was not a good time for America."

But ... "Therefore, it was a perfect time for Coca-Cola to be optimistic."

The company rolled out a new advertising campaign that aspired to help raise the sagging spirits of the country. That theme became Look Up, America. The "wonderfully uplifting series of commercials," Keough says, triggered a huge response, demonstrating how "Coca-Cola had an ability, in a small way, to influence the national mood."

As the economy tries ever so grindingly to leave the bleakness of the Great Recession behind, let's follow Keough's example. Let's not fear the future. Even better, let's be the valiant optimist, and try to find a way, even if it's a small way, that we can contribute to raising the spirits of those around us and, perhaps, even help influence the national mood.

Surely that is something that directors can bring into their board meetings with the CEO and management teams. Be a leader. Be optimistic. It's the perfect time.