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WHY NOT SACK A FEW DIRECTORS?
Say CIAO to corporate directors who don't meet the new standards for institutional holders and activists. In the parlance of Institutional Shareholder Services (ISS), CIAO not only means goodbye, but goodbye to directors who fail to meet the test of commitment, independence, attendance, and ownership. The ISS is urging its clients to vote against individual directors who don't show up for 25% of meetings. Other activists are urging fund managers to vote against directors who have potential conflicts of interest, who sit on too many boards, or who don't own much stock in the company they are supposedly governing. It's a good idea that deserves the support of CEOs and shareholders everywhere.
It is true that measuring the contribution of any individual director by simply adding up numbers on equity ownership or attendance can be misleading. And getting directors who are fully employed elsewhere to focus on problems is becoming harder as time pressures on managers increase to Net speed. But it isn't asking too much to require that directors who sit on 10 boards cut their commitments and spend more time on, say, five of them. Nor is it improper to insist that directors should be paid in stock or own substantial stakes in the companies they oversee. Self-interest is usually a pretty good motivator.
In BUSINESS WEEK's annual survey of the best and worst boards this year (page 90), Campbell Soup, General Electric, Compaq Computer, Microsoft, and IBM were chosen by the nation's largest pension funds and money managers as having the most independent and demanding directors who delivered superior corporate results to shareholders. Anyone doubting that good corporate governance is good business is welcome to ponder where AT&T's stock might be today if board members had taken a firm hand three years ago in picking a new CEO. The stock is up but not nearly as much as the Standard & Poor's 500-stock index.