The Board Behind Closed Doors with: The Directors of DFP, Inc.

James R. Ukropina

Format ISBN Price   Paperback (6x9) 9781403382559 £ 16.50   Dust Jacket Hardcover (6x9) 9781403382566 £ 26.25

"What goes on inside boardrooms?" "What are some of the difficult issues faced by directors?" This book responds to these questions and others that corporate board members receive from non-board members over and over again.

Thousands of books and articles have been written about corporate boards and corporate governance, and the current popularity of these topics is reflected by the increasing media coverage of this area, including a focus on recent corporate mega-failures. In addition, there are now annual director "colleges" at, among other places, Stanford, Harvard and Wharton. These colleges are designed to educate board members and prospective board members about the principles of good corporate board governance. But most materials about boards concentrate on how they should or shouldn't operate.

Why is this book different? It takes a new approach. It describes how many boards do operate, on a meeting-to-meeting basis, when reaching decisions concerning critical issues and matters that arise in the boardroom. It does so in a fictional setting that allows a certain amount of creative license in depicting more than the usual intensity in the relationships and issues involved. At the same time, this book is not an intense legal or business drama but instead, a fast moving primer about how directors perform – or do not perform – their duties.

In most cases, each chapter covers a board or board committee meeting and leads off with a meeting agenda or, if emphasized, a specific agenda item; then a dialogue emerges with reflections from various board members. Finally, there is a disclosure document or epilogue depicting how the company informs its shareholders or employees about the board decision. In addition, there are "transition" sections or mock newspaper articles between chapters that briefly describe what has transpired over the period of time between board meetings.

In short, this book is a travelogue about what goes on behind boardroom doors. How one will react to this book will turn, somewhat, on how one views corporate leadership. A well-known shareholder activist, in a public address that I heard in person, once depicted all CEOs – and presumably a large number of directors, because many of them are current or former CEOs – "as liars, womanizers and cheats." I don't expect anyone with that mindset to read this book with an objective point of view.

On the other hand, a respected representative of a large, successful institutional investor advisory firm joined the board of a New York Stock Exchange company several years ago with a similar expectation of what he would encounter in his boardroom experience – his first with a large company board. When he retired from that company's board after five years of service, he told his colleagues – including this author – that he was extremely impressed with his boardroom experience because during his tenure his fellow directors had focused only on one issue: How to enhance shareholder value.

Many governance commentators place themselves between these two polar opposites – in their view, boards are usually marginally helpful or hurtful and CEOs aren’t much better. In almost every instance, however, I have found my fellow directors' devotion to fiduciary duties and the CEOs' leadership roles have been exemplary and productive.

Much of the criticism that is lodged against directors – who serve the 90% of public companies that are in sound condition – appears to come from parties who have never served on boards and never will. Certain critics, while perhaps well-intentioned, are not well grounded in the difficult decisions that board members must make, often under emergency circumstances. Others, while more sophisticated, emphasize the negative, such as identifying the "worst" boards in the country and rarely identifying the "best."

What is my personal experience with board governance practices in recent years? Based upon that experience, in my opinion, most board members, CEOs and board chairmen of public companies that I am familiar with do an extremely effective job in representing shareholders' interests.

Some critics may say I am an apologist for directors of U.S. corporations. In fact, I am a "cheerleader" for U.S. boards because they have helped to build trillions of dollars of shareholder value. Certainly there are boards that do not merit cheers but rather a chorus of boos. The latter, however, is a very small universe compared to the former. Thus, if that is true, while vigilance for questionable corporate governance conduct is truly needed, excessive zeal could destroy a fragile framework for what has been over the last century the most productive economy in the world.

Notwithstanding the above remarks, I need to emphasize that, in my view, there is a critical need to continue to be vigilant about proposed corporate governance reforms, especially for some companies that have marginal practices in the area. Also, a warning is in order. If boards do not undertake to make appropriate changes in the governance area, look for shareholders to take the helm to a greater extent and place even more pressure on boards through shareholder proposals. These proposals, submitted by shareholders for inclusion in a company’s annual meeting proxy statements through SEC Rule 14a-8, have gained much stronger support in recent years with numerous proposals receiving in excess of 50 percent of the shareholder vote. While most of these proposals have to be precatory in nature (wishful and not mandatory) under applicable state law, reality soon may dictate that they become mandatory when such a high percentage of votes are cast in favor of them.

Regarding reforms, this year Congress approved the Sarbanes-Oxley Act which provides for a multitude of reforms for board members and corporate officers. Many of these reforms were long overdue – more independent directors, for example – while others may be overdone. Only time will tell. Even so, you can’t legislate integrity and it will be important for American business, if not critical, that officers and directors embrace the spirit of the Act along with the letter of the law. At this point, corporate America needs to embark on a mission to regain the confidence of investors, and sound governance will be a huge component of that mission.

At the same time, reform can be intoxicating because it is an exciting concept. However, successive reform programs could, in general, be incredibly destructive to the corporate segment of American capitalism, and, in particular, could make it truly difficult to recruit and retain strong directors. Whether substantial corporate governance reform is needed at this time may turn on whether recent corporate wrongdoings are largely aberrational in American industry or turn out to be systemic. I strongly expect that the former will be true, although the sheer number of corporate scandals uncovered in the early 21st century is starting to press the validity of the principle that corporate wrongdoings are at least semi-systemic.