Directors Take Back Control Corporate Boards Grow in Stature as Firms Face Changes

Article excerpt

When a company is floundering or undertaking a major transition, the buck has to stop somewhere.

In the past it was with the chief executive officer, which was only proper because the CEO had operational power. His bosses, the board of directors, were often part of his country club set. An interfering board of directors was simply not cricket.

The rules of the game, however, are changing. Although area companies this year are not radically changing the make-up of their boards, directors are being held more accountable for company performance by both shareholders and the courts.

Consequently, CEOs are listening more closely to their directors and directors are second guessing CEOs more often.

"Boards are getting more, not less active," said James Drury, a Barrington Hills resident and the vice chairman of Chicago-based executive recruitment firm Spencer Stuart Management Consultants N.V. Drury has been involved in placing directors on the boards of Deerfield-based Baxter International Inc., Chicago-based Quaker Oats Co. and Elk Grove Township-based UAL Corp., parent company of United Airlines.

"There are boards that are less active but even they will have to change," Drury added.

This month is heavily booked with annual shareholders meetings, a time when directorships are voted upon by shareholders. Schaumburg-based Motorola Inc. met May 1. Hoffman Estates-based Sears, Roebuck and Co. met last week. Northbrook-based Allstate Insurance Corp., Chicago-based Bank One Corp., Oak Brook-based McDonald's Corp. and UAL all convene their annual meetings this week.

Thursday's shareholder's meeting at Sears' headquarters in Hoffman Estates was perhaps a signal of times to come.

Sears is facing monumental challenges in the coming year but it will be doing so as CEO Arthur Martinez prepares to leave his post. Its board of directors - which will choose his successor - was named one of the 25 worst board of directors in the country by Business Week magazine this year.

At Thursday's meeting, shareholders approved the naming of McDonald's President James R. Cantalupo to the board and then turned around and voted for an advisory measure to cut the term of directors from three years to one year. The change in charter will take a year and need a 75 percent approval vote at next year's meeting, but it was widely seen as a shareholder call for more accountability from the board.

Just one director, retired head of Tupperware Corp. Warren Batts, predates Martinez coming to Sears to take over its retail operations in 1992. Yet in the five years between 1994 and 1999, Sears stock price lagged both the S&P 500 index and the S&P Retail Composite index.

"He (Arthur Martinez) has created one of the friendliest boards in the world," said Tom Dowd, a Sears retiree and shareholder. "I don't see how they let him go so long without doing something. They just went along for the ride."

Chicago-based Fruit of the Loom Inc. is another among the local boards ranked among the country's worst by Business Week. Not coincidentally, it is in the midst of Chapter 11 bankruptcy proceedings.

"The Fruit of the Loom board is a classic example of an insider board," said Wally Scott, professor of management at Northwestern's Kellogg School of Management. "They were heavily compensating (CEO William) Farley while the company was heading into bankruptcy."

Not surprisingly, the boards ranked the highest preside over companies showing growth. Locally, McDonald's was ranked the 23rd best board by Business Week. It has been diversifying and turning itself around after years of flat profit growth. …