The Decade of Corporate Governance

Article excerpt

The 1980s, with its tender offers, leveraged buyouts, poison pills, spin-offs and rip-offs, could be called the Decade of Corporate Turbulence. The net result of all this undisciplined, unbridled action was about 30 percent negative and 10 percent positive. A few "sleepy managements were awakened," and a few meritorious reorganizations were accomplished, but many more good companies were dismantled. The only real winners were the big-fee investment bankers and lawyers, the junk-bond opportunists, and a few highbinders who knew a good game when they saw it.

The decade of the '90s could well end up being called the decade of Corporate Governance. If we keep our heads straight, we have a chance to notch a post-decade assessment that is 90 percent positive and 10 percent negative. (Based on history and human nature, this won't happen, but I can dream, can't I?)

At least four lasting benefits can arise if we pursue an enlightened governance program.

The first, the highest-profile but least important one, is a more balanced appraisal of executive compensation. There will be less obfuscation and more consistency between companies with comparable circumstances. The emphasis rightly will be on a "pay-for-performance approach," with which nearly all compensation committees concur. Those flagrant offenders, who each year give a bad name to all executive compensation plans, will be less flamboyant and less brazen.

Second, vocal and knowledgeable institutional shareholders will ask tougher questions and participate fully in corporate affairs. These are not the Evelyn Y. Davis-type of show-off gadfly or the little old lady in tennis shoes who could be laughed off. These are big stockholders who have serious questions that require specific answers and actions. No corporate management--and no board of directors--wants to be on the "target list" of institutional shareholders.

Third, in time, we will improve the makeup of our boards. Board members with potential conflicts of interest--commercial and investment bankers, law firm members, management consultants, and interlocking directors--are on the way out. There will be fewer inside directors. Boards need more talented, experienced, and independent directors to do their complicated, time-consuming work. Most well-run companies started this process several years ago, and much progress has been made. …