News: Analysis & Commentary
THE KNIGHTS OF BUSINESS
When W.R. Grace & Co. Chief Executive J.P. Bolduc sensed a few months ago that his strained relations with Chairman J. Peter Grace were putting his job in jeopardy, he took his case to a rather unorthodox authority: John Cardinal O'Connor, Archbishop of the Archdiocese of New York. At Bolduc's request, the cardinal asked Grace to patch things up, hoping to avoid the scandals and the corporate upheaval that have since cost both men their jobs.
Grace rebuffed the advice, say sources close to the company; Grace, Bolduc, and the cardinal won't comment. But why did O'Connor even attempt to referee a boardroom blowup at W.R. Grace, a publicly held chemicals giant? Grace, Bolduc, and three other company directors--former Fidelity mutual fund whiz Peter Lynch, former Borden CEO Eugene Sullivan, and former University of Notre Dame administrator James Frick--all are Knights of Malta, an elite, secretive, Catholic lay order that counts O'Connor as its spiritual leader in the U.S.
The knights trace their history back some 900 years, to a band
of warrior-monks who tended to the injured during the Crusades. Though the order has only about 2,600 U.S. members, several have played roles in recent high-profile corporate meltdowns. William J. Agee, ousted in February as CEO of Morrison Knudsen Corp., is a member, as are his wife, Mary Cunningham Agee, and at least two directors, Lynch and headhunter Gerard R. Roche.
The boards of both Grace and Morrison Knudsen have come under fire for not living up to their duties to shareholders. At Morrison Knudsen, the board was widely criticized for allowing the company to deteriorate for years without replacing a poor-performing CEO. Grace's board was criticized as being too cozy with the Grace family, which long enjoyed rich company-provided perks. And when Bolduc resigned on Mar. 2, amid sexual-harassment allegations he denies, the board was criticized again for paying out $47 million in separation benefits.
The issue in these situations is not religion; nor is it, per se, the Knights of Malta, a benevolent group devoted to charitable works. Rather, the question is whether such close ties among a network of influential executives have affected business decisions. "What does membership mean?" asks activist shareholder Robert A.G. Monks. "With very close bonds [as] Knights of Malta, the board as a group may have loyalty to themselves instead of the shareholders."
"SELECT COMPANY." Prominent knights dot the business and political landscapes. Lee A. Iacocca, a knight for decades, is part of a bid by investor Kirk Kerkorian to take over Chrysler Corp., whose directors include at least one other knight--former Health, Education & Welfare Secretary Joseph A. Califano. Other knights include Domino's Pizza founder Thomas Monaghan, Chase Manhattan CEO Thomas Labrecque, and public-relations maven Robert Dilenschneider, who counts W.R. Grace as a client. Well-known columnists Michael Novak and William F. Buckley Jr. are knights. So is Senator Pete Domenici (R-N.M.), along with former Cabinet Secretaries William Simon and Alexander Haig.
The knights also figure prominently on the board of Ingersoll-Rand Co., which recently agreed to acquire Clark Equipment Co. Peter Grace is a director emeritus at Ingersoll-Rand, and knights Theodore Black and Joseph Flannery serve on the board. Former Ingersoll-Rand CEO Thomas A. Holmes, while not a knight, is now the acting CEO at Grace.
In Europe, it takes four generations of noble ancestry to become a knight. In the New World, though, the rules for admission are somewhat relaxed by necessity. Still, being inducted is a big deal. "You're joining select company," says Iacocca. Knights are asked to make regular pilgrimages to Lourdes, a holy site for Catholics, and to be active volunteers in charity work. Joining "had nothing to do with business," says recent inductee Richard Torrenzano, former spokesman for the New York Stock Exchange who now runs his own firm. "It was an opportunity to really do something substantial for people in need."
EVEN COZIER? But to some critics, the links between knights reinforce complaints that boards are too frequently chummy, nonconfrontational clubs. "When board members have other allegiances [tying them] together, it may make it difficult for them to be objective in doing their job in an independent fashion," says Harvard business school Professor Jay W. Lorsch. The problem is not being a Knight of Malta, Lorsch notes. Rather, any common membership in an exclusive group can indicate personal ties between some directors and the CEO that should be publicly disclosed. "Public shareholders have the right to know what the connections on that board are," Lorsch says.
Simon, for one, would like to see the knights become even more of a force: "There is a close bond when you meet knights in other parts of the U.S. [and] obviously a camaraderie. But [we're] not as close as I'd like to see." In the boardroom, that may not be desirable. Clearly, the ties that bind the knights weren't strong enough to prevent Bolduc or Agee from losing their jobs. But the camaraderie instilled by the Knights of Malta may have affected the speed and character of directors' decisions--and that may have cost their shareholders dearly.
THE MALTESE CONNECTION
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Former chairman and CEO and his wife
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J. PETER GRACE
Director emeritusBy Elizabeth Lesly in New York