The 'Great Divide' II: It Is Inevitable

Here is round 2 of the debate on separating the chair-CEO roles, as explored in an eight-page cover story in the Directors & Boards First Quarter edition just off press.

The first shot highlighted in this blog came from former American Express Chairman and CEO James Robinson, in the posting of March 4th below. Now we turn to panel member Reuben Mark, who retired from Colgate-Palmolive Co. at the end of 2008 after having served as chairman of the board for 22 years and CEO for 23 years. His outside directorships have included Cabela's Inc., Citigroup Inc., the New York Stock Exchange Inc., Pearson PLC, and Time Warner Inc. Listen to what his long tenure of holding down both the chair and CEO positions has led him to conclude:

"Now having stepped down from both positions I have become convinced that separation is required. During the last three or four years of my tenure as chairman-CEO, I was devoting an increasing amount of my time to board management — eliciting directors' opinions, bringing them together on issues, and so on — and less time perforce on the CEO job. The president ended up absorbing more of my CEO duties. It became clearer and clearer that being chairman was virtually a full-time job.

"Also, let me acknowledge this. People who serve as CEOs, and I certainly include myself among them, tend to have a touch of megalomania or a leaning toward tyrannical action. After all, a corporation is a kind of benevolent dictatorship. If there is a separation, and assuming good faith and assuming the right people are in place, the board has an additional conduit of information and oversight that they would not have had. So even though my personal experience is contrary to this conclusion, I believe that separation of the roles not only should happen but inevitably will happen."

When one of the nation's most respected business leaders has convinced himself that there is a new and better way of running a corporation and its board, attention must be paid. A recommendation like this can kick the "great divide" debate into a higher gear.

Reuben Mark, in white shirt, is pictured above at the Weinberg Center on Corporate Governance at the University of Delaware, where the debate was held in November 2009; also in photo are (l. to r.) shareholder activist Bob Monks, HealthSouth Corp. Nonexecutive Chairman Jon Hanson, and Charles Elson (standing), the center's director who moderated the panel discussion.

The 'Great Divide' I: 'Do No Harm'

The First Quarter edition of Directors & Boards has come off press today. Our lead story is a debate on the wisdom of separating the chair and CEO positions. Our commentators are a panel of business leaders assembled at the Weinberg Center for Corporate Governance at the University of Delaware. Under the deft moderating by the center's director, Charles Elson, the group was tasked to think through the many critical dimensions — from governing theory to practical applications — of splitting these two top leadership roles.

Charles and I did not decide willy-nilly on this topic. This is a vastly important subject that is transcending the normal debate over governance best practices. Capitol Hill pols are eyeing this structure of board leadership — legislation that would separate the roles has been introduced in Congress — and, as Prof. Elson warns in the article, a mandated separation "is an issue that the courts ultimately may deal with as well." So we assembled a superb group of thinkers to tackle the pros and cons while this issue is still on the cusp of decisive action. I commend the article to you as a distinctive examination of board leadership.

Here is a taste of the flow of the debate. We'll first turn to James D. Robinson III, and then in the posting on March 5 to follow I will highlight a comment by Colgate-Palmolive's retired chairman and CEO, Reuben Mark.

Robinson was chairman and CEO of American Express Co. from 1977 to 1993. He has been general partner of venture capital firm RRE Ventures since 1994 and also president of JD Robinson Inc., a strategic advisory firm. He is presiding director of the Coca-Cola Co. board, and from June 2005 until February 2008 he was nonexecutive chairman of Bristol-Myers Squibb Co. A superb background to make this statement:

"I have been an independent director. I have been a nonindependent director. I've been a chairman and CEO. I've been a nonexecutive chairman. There are times when the best course of action is to split the roles. There are times when it's best to combine them. My conclusion is a simple one: Do no harm.

"Beware the simplicity of saying that two heads are better than one. What about the 12 heads of the full board? You have to be careful that you don't create a passive attitude among directors who think they can just sit back and watch while the chairman and the CEO run the show. You want all board members to be actively engaged. Once you start separating the duties and acknowledging that two heads are running the shop, you risk disenfranchising the other board members and not getting the active contribution you want from each and every director."

Beware the simplicity of saying two heads are better than one. That's an important insight to carry forward as this separation debate heats up.

George Cloutier Tackles the Tough Stuff

The New York Times caught up with George Cloutier for a Q&A interview in today's edition. Cloutier is the savior you call in when your business is in trouble. As the head of turnaround firm American Management Services Inc., he has a no holds barred, no sacred cows approach to restructuring for survival. The Times captured his tough talking, tough love manner quite appropriately with how it titled its article: "Fire Your Relatives. Scare Your Employees. And Stop Whining."

Cloutier wrote down his turnaround game plan last year in a book, Profits Aren't Everything, They're the Only Thing [HarperBusiness]. I ran an excerpt from it in the Third Quarter 2009 edition of Directors & Boards — his chapter on facing (and embracing, with no shame) Chapter 11. Brutally realistic, it is sound advice on bankruptcy for all directors of troubled companies.

I first met George in 2004, when he was a panelist at the Weinberg Center for Corporate Governance at the University of Delaware. My close colleague and editorial advisory board member, Charles Elson, puts on superb panel discussions several times a year at the business school. This one was on "Handling the Dissident Director." I did not know George but, considering his background and expertise, should not have been surprised to find him on this panel. He was there drawing on his experience as a director of Circon Corp., a justly famous case of two dissident directors (Prof. Elson being one) who were elected to the medical devices company board and what then ensued with these dissidents in the board mix. Fascinating stuff.

Considering the fire-breathing that Cloutier brought to bear in his book and Times interview, what he had to say that day about bumping up against a dissident director sounds downright restrained. (Actually, knowing what I know about him today, I would have expected him to be one of the dissident directors involved.) You can't get much more calmly professional than this in terms of the dealing with a dissident:

“Depending on the maturity level and the rationality of the dissident directors, I think they can play a very strong role. They remind the rest of us on the board that there is another view of life, which is very important for all of us to have. Secondly, it forces the non-dissidents and the management to sharpen their attitude, sharpen their mental responses and, most importantly, to sharpen their management performance on the job. [So] I’m on the side of 'Let’s bring them on' — as long as it is civilized. Shouting, yelling, and screaming do not serve a purpose. On balance, people who are elected dissident directors are mature, honest individuals with a strong point of view. To keep them out of the process would be a big mistake.”

In contrast to the Times interview, which drew a bevy of heated comments about his no-frills management techniques, who could challenge this statesmanlike position that Cloutier puts forward for handling fellow directors who are dissenters.

As fiery brimstone as Cloutier may come across in his book and press coverage, it sounds to me like he is a pussycat compared to the other Circon dissident director talked about at that panel discussion — former Marine General Victor Krulak. Listen to this Cloutier remembrance of serving on the board with this fellow director: "Known as 'Brute' Krulak, he had served in Vietnam as the Marine commander, and he did not take any prisoners from day one. He opened each Circon board meeting with a resolution to fire the CEO, which created a certain amount of emotional turmoil for the first half-hour."

I would guess so, which makes Cloutier's approach for handling dissidents even more remarkably dispassionate.