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.

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.

A Board Entry for Black History Month

In thinking about February being Black History Month, I submit a governance-related milestone that is worthy of note — the first black director elected to a major company board. His name is Asa Spaulding (pictured). He was the head of the largest black-owned insurance company at the time when, in 1965, he joined the board of retailer W.T. Grant Co., a fact that did not get recorded in this detailed biography of this accomplished businessman.

I nailed down this board "first" while doing research for a history of corporate governance special-themed issue that I published in 1997.

What Black History Month will not be celebrating are the stats on the number of African American directors sitting on corporate boards.

According to the 2009 report from the Executive Leadership Council, African Americans have lost ground on Fortune 500 boards and remain "seriously underrepresented." The number of board seats held by African Americans has declined since the Council's inaugural board report in 2004:

• The percentage of African Americans on corporate boards decreased from 8.1% in 2004 to 7.4% in 2008.

• Four years ago, African Americans held 449 corporate board seats and, as of the report's release last July, hold 413 seats.

With the SEC's new push starting later this month for fuller disclosure of a corporation's board diversity policies, greater attention may be directed at this underrepresentation — and initiatives may get underway to address such stats that are so out of whack with the executive population and the leadership pool available for board service.

Perhaps Black History Month next year will have a bit more to celebrate on the corporate governance front.

Rohatyn Returns to Lazard

Felix Rohatyn has returned to his old stomping ground, Lazard. He rejoined the firm on Feb. 1 as a special advisor to Chairman and CEO Kenneth Jacobs.

Directors & Boards lead columnist Hoffer Kaback had the pleasure of visiting with Rohatyn to do a Q&A cover story that appeared in the Spring 2003 edition (cover pictured). What boardroom experience to draw upon! The famed financier and strategic adviser's past directorships included ITT, MCA, Owens Illinois, Pechiney, Pfizer, Schlumberger, American Motors, Avis, Eastern Airlines, and Comcast. At the time of the interview, his board seats included Fiat, Suez, LVMH, Publicis, Lagardere Group, and EADS (owner of Airbus Industries). Three choice nuggets from the interview:

• On corporate crises: "The reason I believe things are usually worse than they appear is because people don't tell the CEO everything. Things get bad because people are not reporting that something's out of control or that something isn't working. By the time things come up to you as the CEO, they're a lot worse than they appear on the piece of paper that comes to you."

• On his early days on boards: "I first learned about corporate governance when I went on the board of Avis in the 1960s, when Lazard bought control of Avis. It was a public company, and we owned around 20% or 30%. I learned about corporate governance from the perspective of an owner, really, which is actually a pretty good perspective. I learned about other people's views about the role of directors. We had a very iconoclastic chief executive, Bob Townsend. He said to me, 'A really good board is one that only reduces the efficiency of the company by 20%.' "

• On accepting a board invitation: "You don't go on a board — nor should you go on a board — if you don't know the people. Because your only real protection against a Tyco or a WorldCom or an Enron is the ethics of the other members of the board and the management, the competence of the management, and the culture of the company."

The storied dealmaker had his own firm, Rohatyn Associates, at the time of this interview. He did not come back to Lazard after returning as U.S. ambassador to France in 2000. I 'd be remiss if I didn't share one dealmaking anecdote he told for our article:

"I remember one person came to hire me to be his financial adviser (this was when I was still at Lazard) and I said, 'Look, I don't really understand your business well enough; you should go someplace else.' He came back and I took it on, and we finally had to sell the company to somebody who made a hostile bid for us. I said, 'You should take it. The more quickly you take it, the better.' He was very unhappy with that. Finally, that's what we did, and it was the right advice. Afterwards he said to me, 'I don't quarrel with your advice; I just quarrel with your bedside manner.' "

The 'Very Public' Director

I read in a newsletter for public relations professionals that today is the birthday of Howard J. Rubenstein. The founder and president of Rubenstein Associates Inc. is a counselor to some of the most influential business executives and corporations in the country.

I turned to him five years ago for some thoughts on how a board has to rise to the challenge of managing its own image in an era of increasing transparency. In the old days, a board could hide behind management's screen (or stone wall). The board did not speak for management, much less for itself. The corporation spoke with one voice, that of the CEO.

Well, change is afoot, and Howard recognized that, as should a PR master and maestro like himself. Here is what he put forward in an article that he wrote for Directors & Boards in 2005, titled "The 'Very Public' Public Company Director":

“In many ways, a gauntlet has been thrown down. Each in their own way, regulators, shareholders and the press have signaled to boards and directors that they expect more of them. Those of us who work regularly with boards of directors know that additional responsibility is not something they will shy away from. The vast majority of directors are conscientious, competent, and qualified, and the boards they serve on are engaged, demanding, and committed to representing the best interests of shareholders. The new skill that boards must cultivate in a more transparent and open environment is the ability to communicate how their good intentions, motivations, and actions work to enhance the strength and value of the company as a whole” (emphasis mine).

Yes — a new skill, indeed. It is one that directors have not had to cultivate as long as the boardroom has been a cloistered chamber. But Howard Rubenstein recognized five years ago the dawning of a new age of disclosure and its implications for public company board members. Thank you for that, Howard, and best wishes for many more birthdays.

By the way, the New Yorker did a profile of Howard, titled "The Fixer," that offers quite a insight into the man and his methods. I won't be surprised if more than a few boardrooms need his and his PR peers' brand of fixing as they cultivate their image management.

The Pierre Hotel: A Board Tale

Laura Landro's Wall Street Journal profiles of her stays at ultra-lux resorts and hotels are a guilty pleasure for me. Chances are I will never set foot in 99 percent of the palaces of pleasure that she "tests out" for the WSJ readership, but I enjoy vicariously her candid and colorful documenting of the best and, yes, the worst, that these facilities offer to the business and vacation traveler.

She got me engrossed again with her stay at the Pierre, the famous New York hotel, which she recounted about a week ago. There is an interesting governance tale about the Pierre.

When Isadore Sharp, founder and CEO of Four Seasons Hotels Ltd., wanted to buy a premier property in New York for his expanding hotel chain, he set his sights on the Pierre. He needed the hotel's board to approve. He tells the tale in his book Four Seasons: The Story of a Business Philosophy [Portfolio]:

"We immediately approached the Pierre's board with an offer. The board was led by it chairman, Serge Semenenko, and two other prominent members, Matthew Rosenhaus and Arthur Bienenstock.

"I was quite optimistic that we would get the Pierre. In discussing it with my family one evening during dinner, our boys asked why I was so confident.

"I don’t usually talk about a deal until it’s completed, but I was so sure of this one that I said, 'We’re nearly there now. We’ve got the support. We’re almost certain it’s going through.' Then, jokingly, I added, 'Only one thing could go wrong. An impossible scenario. A board member could die.'

"But that's exactly what happened. The two main supporters of our proposal, Chairman Serge Semenko and Matthew Rosenhaus, both died suddenly, and Arthur Bienenstock, our third proponent, wasn't prepared to push it through alone. We eventually convinced him that the Pierre needed his leadership, and again he brought owners around to our side."

A happy ending to this board governance story. I learned from Landro's article that the Pierre is now operated by Mumbai-based Taj Hotels Resorts and Palaces. On future visits to the hotel I will always think of the tumult that took place when two of the board's key members died mid-deal.

Director, Educate Thyself

I am getting a hearty response to my editor's note in the February e-Briefing about the need for director education. I told the Directors & Boards readership about RiskMetrics Group's official announcement on Jan. 26 that it was getting out of the business of accrediting director education programs — a development that I gave an early warning line about in my blog post of Jan. 14.

As I wrote a couple of weeks ago, this is a curious, and seemingly counterintuitive development — to be downplaying director education at a time when so much new is coming at directors on the legal, investor, and regulatory fronts. This kind of unsettled environment is when you want to be encouraging directors to avail themselves of educational opportunities to get better up to speed.

For some validation of this sentiment, I turned, as I often do, to a voice of reason from among my past authors — Jean Head Sisco. Jean was a remarkable women in governance: a director who served on 22 corporate boards over the course of a distinguished career as a retailing executive; the National Association of Corporate Directors's "Director of the Year" in 1999; and author of "Director, Educate Thyself," an article in Directors & Boards in 2000. (And for those of you who knew Jean — who sadly passed on in early 2000, shortly before I published her article — you will know what I mean when I say, "Those outfits! Those hats!" Stylish, she was.)

Here is what Jean said in her article back then:

"Continuing education for directors — we need it now more than ever. Yes, experienced directors may say, 'You can't teach corporate governance,' or, 'I already know governance.' I find, however, after my many decades, that governance can be taught and learned, and there is always something new and valuable to teach and learn. If continuing education is mandated for other groups such as lawyers, accountants, and doctors, why can't it work for directors? Shouldn't stockholders expect well-informed directors?"

Truer words could not be spoken today, with or without the impetus supplied by any governance ratings agency.

[Photo: Jean Sisco receiving the NACD's "Director of the Year" Award in 1999, presented by (left to right) Thomas Horton, then NACD chairman; Roger Raber, then NACD CEO; and John Peterson, then the CEO of Aon Financial Services Group, sponsor of the award dinner]