Boot camps for boards: Sessions energize even the sleepiest directors, helping bosses avert shareholder lawsuits and watchdog scrutiny - Corporate Governance

Chief Executive, The, Jan, 2002 by Michael T. Harris

After successfully settling one shareholder lawsuit brought against Peerless Systems Corp.--and now knee-deep in another battle being waged against Landry's Seafood Restaurants -- SWIB, the State of Wisconsin Investment Board, is emphatic in its views on how corporations should be governed.

Some people don't care, but we do," says Cynthia Richson, SWIB's director of corporate governance. "It comes down to this: Those companies with the higher standards will be the ones getting our money.

As the nation's ninth largest pension fund, with $67 billion in assets, SWIB is so serious about raising the bar that last September it co-sponsored the University of Wisconsin--Madison's first Directors' Summit. The investment board, known as a shareholder activist, is concerned that directors may not be up to the job and may need a better understanding of their duties to shareholders. "We decided to co-sponsor the Directors' Summit because we think higher standards enhance shareholder value and improve overall return on investment," says Richson.

Responding to nudges by academic and institutional investors to pay greater attention to corporate governance practices, more CEOs are attending such seminars. The UW--Madison seminar is one of about a dozen such programs that have sprung up over the past 10 years at premier business and law schools, including Harvard, Stanford, and the University of Chicago. They immerse executives in intensive sessions that define a board's responsibilities to shareholders. The latest to emerge will be from the University of Delaware, which starts its corporate governance conference in April.

"Do some CEOs need a kick in the pants when it comes to sending their directors to corporate governance conferences? Sure," says Charles Elson, director of the Center for Corporate Governance at the University of Delaware. "These programs make sense; they create stronger boards, and that means stronger companies."

Steven B. Engle, chairman, president, and CEO of La Jolla Pharmaceutical Corp., agrees. His biopharmaceutical company in San Diego has heavy institutional ownership that includes SWIB's 12 percent stake.

"Being at these [seminars] is our way of saying we view this as a very serious issue," says Engle, who attended the UW-Madison program. "They present a great opportunity to get people together to talk, to make sure boards are as good as they can be."

Governance conferences reflect important issues both CEOs and directors face. At the UW-Madison conference, for example, industry notables gathered to discuss topics such as the need for more independent boards, CEO compensation, succession, liability and financial risk management, the institutional investor's view of value creation, and even whether companies should now have a corporate governance officer.

Being on top of such issues is a major reason for attending, says Robert Nugent, chairman, president, and CEO of Jack in the Box Inc., which operates or franchises nearly 1,800 restaurants in 16 states. "The takeaway from the [Stanford University] conference was that corporate governance is not a fad," Nugent says. "It's an important trend, and one that responsible board members and CEOs should be in tune with."

Nugent also had a personal reason for attending. "I had this vision that I would be at an annual shareholder meeting one of these days, and someone would ask me one of those [corporate governance] questions, and I don't like to be on the defensive. I always want to be ahead of the curve and in tune with current thinking."

Questions Nugent wanted to be prepared for? "'How do I know that the board is really looking out for my interests?' I can answer by saying that we continually update and implement 'best practices' to assure that shareholders' interests come first," he says. "We have written evaluations of board effectiveness on an annual basis, and twice each year our outside directors meet without management present."

John Charters, president and CEO of Qwest Cyber.Solutions, owned by Qwest Communications International in Denver, was invited to go to Stanford's program by North Western Corp., a $5 billion utilities holding company in Sioux Falls, SD. Charters serves as a member of the audit committee on that company's board. North Western paid for his expenses and the conference fee. That's no small cost: At $3,000 to $5,500 per person, conference fees cause some CEOs to grumble.

"Yes, it was a lot of money to go, but companies ought to invest in ensuring board members are up to speed in the latest trends and issues," Charters says.

Program Particulars

These seminars, sometimes called boot camps because of their avowed level of intensity, typically run over two days and feature high-powered speakers and topics. Attendees are CEOs, other corporate officers, and board members. Venture capitalists and institutional investors also attend. Corporation names range from the Fortune 100 to mid-cap firms and even a few early-stage, pre-IPOs. Seating is usually limited to a few hundred.