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Posted on 01/09/2003 10:43:57 PM PST by Ernest_at_the_Beach
NEW YORK -- A blue-ribbon panel on a mission to restore public trust in the capital markets thinks one way to do it is to limit the power of the chief executive officer.
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As part of recommendations released Thursday, the panel is advocating companies consider several alternative board structures, including separating the chief executive and chairman's role, or if the same person wears both hats, appointing a presiding director.
The recommendations by the Conference Board (news - web sites)'s Blue-Ribbon Commission on Public Trust and Private Enterprise were formally presented at a press briefing Thursday, but the proposals were announced without one important member present.
John Snow, cochairman of the panel and the White House pick for Treasury Secretary, was a no-show.
According to The Wall Street Journal, a spokesman for CSX Corp. (NYSE:CSX - News) , of which Mr. Snow is chairman and chief executive, said Mr. Snow wouldn't be making public comments until after the confirmation hearings.
The panel was formed by the Conference Board in June amid a wave of financial scandals. The panel's members are a who's who of corporate executives, former regulators and lawmakers, and institutional investors.
The commission is also recommending that corporate boards be composed of a substantial majority of independent directors and suggests strengthening ethics procedures.
The panel also urges public accounting firms to limit their services to performing audits and closely related services "that do not put the auditor in an advocacy position," such as proffering novel and debatable tax strategies and products that involve income-tax shelters and extensive offshore partnerships or affiliates.
Other panel members include cochairman Pete Peterson, chairman of the Blackstone Group; Arthur Levitt, former Securities and Exchange Commission (news - web sites) chairman; Paul A. Volcker, former Federal Reserve (news - web sites) Board chairman; John Biggs, former chairman and chief executive of TIAA-CREF; John Bogle, founder of the Vanguard Group; Andy Grove, chairman of Intel Corp. (NasdaqNM:INTC - News) ; former Comptroller General Charles A. Bowsher; Peter Gilbert, chief investment officer of Pennsylvania's employee retirement system; and Ralph Larsen, former chairman and CEO of Johnson & Johnson .
Under the proposal calling for the separation of the office of chairman and chief executive, the chairman should also be a nonexecutive. If the chairman and chief executive are two different individuals but the chairman still isn't considered wholly independent, a lead independent director should be named.
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Mirroring a proposal from the New York Stock Exchange (news - web sites), the group called for the presiding director to run board meetings when the chairman and chief executive isn't present, and to preside at meetings of the independent directors. Moreover, the director should have ultimate approval of information flow to the board, meeting agendas and meeting schedules.
Commissioners recognized that proposals that shift the balance of power to independent directors from chief executives may not be something CEOs would ordinarily be keen on implementing. But in the current environment, they may be more amenable to such moves, panel members said.
"Will people willingly and gleefully give up the title of CEO? The answer is obviously no," said panel member Warren Rudman, a former U.S. senator from New Hampshire.
In the current atmosphere of fear, however, "CEOs feel, 'Maybe I ought to have a little distance here,'" he said.
Indeed, how receptive executives will be to those and other suggestions remains to be seen as the group has no formal authority. Though Mr. Snow, the cochairman, was involved in drafting the recommendations, his actions during the official announcement may also take away from the group's so-called moral authority. It was Mr. Snow who earlier in the process said he hoped moral persuasion would help convince executives to sign on.
Carolyn Brancato, staff director, said that nothing should be read into his absence. Co-chair Mr. Peterson called Mr. Snow a "great contributor" and said he "continues to be supportive of the commission's work."
Mr. Snow indicated he had to attend a critical meeting in Washington, Mr. Peterson said.
The panel waded into other areas, including shareholder power to nominate directors, how the accounting profession should run itself, and advocating tax incentives so shareholders hold stakes for longer periods. Among other things, the group called for companies to consider rotating their auditors when there is a confluence of circumstances that could raise questions about the accounting firm's independence.
Potential red flags include when a former partner of an audit firm is now employed by the company, and "if you have had the auditor forever," said Mr. Biggs, the former head of TIAA-CREF.
Mr. Biggs was also the lone dissenter on recommendations on the chairman and CEO roles.
Mr. Biggs was thrown into the center of controversy last year when his name was first floated for a new public accounting board and then later dropped after Republicans raised concerns about his reform agenda.
The commission issued its first set of proposals in September aimed at overhauling corporate compensation practices. Among other things, the panel called on companies to predisclose executive stock sales and uniformly expense stock options.
The commission's raison d'etre came about because of the accounting scandals that began with the collapse of Enron Corp. in late 2001. At least one of its recommendations was directly inspired by Enron's first hiring its in- house law firm, Vinson & Elkins, to investigate concerns raised by an employee about questionable accounting. Special investigations should be handled by lawyers who don't already serve as outside counsel, the panel proposed.
"It is too much to ask a major law firm that is regular counsel to be brought in to investigate possible wrongdoing. It just doesn't work," said Mr. Rudman, a former U.S. senator from New Hampshire. "Bring in someone with no ax to grind."
Vanguard founder Mr. Bogle, meanwhile, issued a call to arms to shareholders, particularly mutual-fund managers, to become more active in trying to shape corporate-governance principles at their portfolio companies. Among the suggestions from the commission, outlined by Mr. Bogle, is for investors to act more like long-term investors than like "traders."
For example, the commission said in its report that institutional investors should establish compensation arrangements for portfolio managers that reward a long-term rather than a short-term focus.
The panel also suggested that boards consider developing procedures to hear shareholders out on possible board nominations, and for boards to give serious thought to adopting advisory shareholder proposals that receive a significant number of votes cast at an annual meeting.
Commissioners immediately began their work proselytizing after the press briefing at a planned luncheon with 30 chief executives.
-By Phyllis Plitch, Dow Jones Newswires; 201-938-2357
This sounds like a way to protect CEOs, not prevent future scandals.
How about increasing the responsibility of CEOs for problems in their corporations? I like the recent rule changes at the SEC that requires CEOs of major companies to file an affidavit with their corporate filings, swearing under penalty of perjury that the information is accurate and true to the best of their knowledge.
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