Thursday, February 18, 2010

Director Resignations: An Enigma Wrapped in a Mystery

I got a call today from a New York Times reporter asking me about the decision by Ruth Simmons not to stand for re-election to the board of Goldman Sachs. Was there anything special to read into this move, he inquired.

I got the call because Directors & Boards ran a profile piece in our Spring 2000 issue on Simmons, then the president of Smith College, for getting the prestige invitation to join the post-IPO Goldman board. Our article reported that she turned down the first invite from Hank Paulson but, as our writer Kelly McCarthy noted, "Traditionally, what Goldman Sachs wants, Goldman Sachs gets," and that was true of the firm's intent to have Simmons join the board.

I made three points to the Times:

• Public announcements of director resignations or decisions to not stand for re-election are almost invariably couched in the most conservative and constructive terms, such as a desire to redirect precious time and energy to doing other things. In other words, running to something rather than running away from something. And that indeed seems to be the case with the Simmons' announcement, since it reads that she is stepping off the board "as a result of increasing time commitments associated with her position as president of Brown University."

• Since we are not a fly on the wall of the boardroom, it would be the rankest of speculations to attribute any other motives to her decision.

• Board resignations can indeed serve the purpose of being a "protest move" by a director, but unless it is accompanied by some candid statement of what may have prompted it, it serves as an ineffectual rejoinder to management's actions and squanders an opportunity to prompt a change in behavior, personnel, policies, or whatever the source of the director's dissatisfaction.

I can understand the NYT's interest. There is some suspicious smoke. Goldman Sachs is a churning furnace of bad publicity. No director likes to be on the board of a company that is one giant piñata for savage press and public contempt, because they too can then become a piñata.

This seems to have been happening with Simmons, as per this critical piece from the Brown Daily Herald on her Goldman directorship as it pertains to her Brown presidency, and this critique of Simmons by Reuters blogger Felix Salmon. Three days after the publication of both of these articles on Feb. 9 came Simmons' announcement of her departure from the Goldman Sachs board. Interesting timing, no?

But, again, if there is a deeper message in this director's resignation, it is likely to remain unconveyed. A director resignation can mean many things. Mostly, such a move is utterly enigmatic. And useless as a tool for change.