12/08/97 A VICE-PRESIDENT FOR WHAT?

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A VICE-PRESIDENT FOR WHAT?
Terence Gallagher helped Pfizer build a reputation as a governance stalwart
Terence J. Gallagher often gets stares when he tells people his title at Pfizer Inc. ''People are almost always surprised,'' he says. ''They've never heard anything like it.''
Gallagher may be the world's only vice-president for corporate governance. Most companies hand over such duties to their general counsels, who serve as the liaison between the board and senior management. But when William C. Steere Jr. became chairman five years ago, he wanted Pfizer to help shape the then-emerging debate over governance.
Enter Gallagher, a 32-year Pfizer veteran who had been assistant vice-president for administration. Since 1992, the soft-spoken lawyer has helped the company build a reputation as a governance stalwart. Ironically, he has done so even as the company toes a moderate line on board issues. ''At Pfizer, governance has not been a revolution. It has been an evolution,'' says Robert W. Lear, a consultant and executive-in-residence at Columbia University's business school.
Pfizer's carefully cultivated reputation enabled Gallagher to pull off the near-impossible earlier this year: He persuaded the country's most activist investors--from the New York City Teachers' Retirement Fund to TIAA-CREF--to swallow its renewal of a poison pill. To most stockholders, such devices are anathema, since they protect management. Poison pills usually bring a call for a shareholder vote.
Pfizer, however, avoided a fuss over its poison pill, largely through goodwill Gallagher created. He talked investors into accepting the pill by ensuring it would be reviewed every three years by the independent directors. ''Maybe I sell out too easily, but I judge their outreach effort to be serious,'' says Jon Lukomnik, deputy controller for New York City pensions. ''We haven't always agreed on things, but they have been out front in examining governance.''
So what does a corporate-governance VP do? Gallagher started by helping revamp executive compensation, linking pay to performance. Next, he assisted the board in creating a governance committee and designing a charter that empowered the panel--instead of the CEO--to recommend new board members. He also helped to draft a set of governance principles and regularly meets with shareholders.
In his first year, Gallagher visited with 20 top Pfizer institutional investors. ''I learned that some of them weren't much interested in corporate governance,'' he says. ''They didn't care about it unless we failed to make the bottom line next quarter.''
COURTED. More important, however, many investors--who had scant contact with the management of the companies in their portfolios--were suddenly being courted by Gallagher. ''This is a company that has been very attentive to shareholders,'' says B. Kenneth West, the head of governance at TIAA-CREF.
As boards go, Pfizer's is good. CEO Steere and two other insiders do not sit on the audit, compensation, or governance committees. And once a year, the outsiders meet without Steele to discuss his performance and other matters. Pfizer also ditched director pensions in 1995.
But if those moves put it ahead of many, Pfizer is hardly pushing the envelope. Among other things, Pfizer doesn't let shareholders vote each year for all directors. It does not do performance evaluations of either the board or individual directors, and it has no mandatory share ownership rules. Moreover, among his four directorships, Steere serves on the board of Minerals Technologies Inc., whose CEO also sits on Pfizer's board.
Such relationships would be prohibited at governance leaders like Campbell Soup, Compaq, and Chrysler. Gallagher's answer to this charge: ''You can have a good corporate-governance program without going as far as Campbell or Compaq.'' Gallagher's unique title notwithstanding, Pfizer remains firmly in the middle of the pack.
By John A. Byrne in New York

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