To win approval for its takeover of Sprint Nextel (S), Tokyo’s SoftBank (9984:JP) is apparently ready to let Washington OK a board director to oversee national security. The goal, of course, is to make sure our telecom networks aren’t sullied with foreign intrusion (or, one assumes, foreign gear, since approval may be contingent on Sprint dumping Chinese equipment from an affiliate network).
The logic brings to mind what Ronald Reagan once said: “The nine most terrifying words in the English language are, ‘I’m from the government and I’m here to help.’” Who’s been accused of spying on people lately through phone records? Oh, wait. That would be the Justice Department, which is under fire for obtaining journalists’ phone records to ferret out leaks.
Who knows firsthand the role that government can play on your board? Try American International Group (AIG). To be fair, the government essentially owned it after bailing out the insurer in the heat of the financial crisis. But former Chief Executive Hank Greenberg made the point—and it’s a fair one—that a government-appointed board wasn’t exactly in the best position to judge whether the 2008 government bailout was in the best interests of shareholders. A judge presiding over his lawsuit against the company echoed similar concerns.
But the real challenge for any federally approved director comes down to board dynamics itself. Boards rely, for the most part, on information provided them by management. They can probe and question and argue over the veracity of what they see, but they’re not really in a position to do independent due diligence on such issues as, say, national security. That’s the kind of thing you’d expect from government. Unless this appointee/approved director is given an unusual level of influence over such matters, it’s hard to imagine how he or she will be effective in that role.
Instead, the lucky candidate will come into the boardroom every meeting with the added burden of being the chosen one from Washington. That doesn’t exactly set you up for the kind of trust and transparency that typifies effective boards. It raises potential questions about one’s loyalty. Are you there to protect shareholders? Or are you there to protect the undefined interests of the U.S. people? Hey, and while you’re at it, any thoughts on our succession plan or executive compensation?
Perhaps the notion of having a “security director” on one’s board is a brilliant idea. If that’s the case, let’s get the federal government to start weighing in on numerous board appointees in sensitive industries or those that attract foreign interest. Boeing (BA)? News Corp. (NWS)? BlackBerry (BBRY)? Perhaps such matters are best left in the hands of regulators that have oversight of industries that deal with these kinds of matters on a daily basis.
It’s interesting to ponder whether SoftBank would have felt compelled to offer such a pledge if it hailed from across the Atlantic, instead of the other way. While we may know it as a behemoth founded by a man (Masayoshi Son) who attended Berkeley and counted Yahoo and Vodaphone among his investments, he’s from Tokyo. That’s practically in the same time zone as Beijing—only not. Had he been hanging out in Berlin or London, would anyone be talking about getting the government involved in the board? In either case, it’s hard to imagine who will leap at a chance to get that role.