Directors should be so well-informed about a company’s operations that they could step in as chief executive, says Joseph R. Wright, Jr., who did just that at PanAmSat. Most recently, he merged PanAmSat into Intelsat, where he is now chairman. He also sits on the boards of Scientific Games and Terremark Worldwide. Here is the complete version of our wide-ranging conversation:
Directorship: Some say it’s easier to operate a private company than a publicly held one. Do you agree?
Joe Wright: In many ways I’m sure it is. However, if you’re operating a public company in the right way—you’re in control, you’re openly communicating what your plans are and what your status is, you give the appropriate guidance and you use conservative accounting—then it’s really not that big of an issue from the standpoint of the complexity of your management. You may not make as much money as you might as a private company, but from a management standpoint, I haven’t seen that much of a difference.
PanAmSat has been both publicly held and private, right?
In our case, our shareholders were at one time Hughes Electronics and then we went to KKR and Carlyle and Providence. Right now, it’s Intelsat and four private equity firms. So our shareholders have moved all the way from public to private, and various forms of private. We haven’t changed our management style at PanAmSat during the entire time.
That really hasn’t changed how you operate the company?
It doesn’t change in the least. Not only that, when Sarbanes-Oxley was passed and all the rest of it, for the most part we felt from a financial controls standpoint as well as just process control, it didn’t make that much difference to us. Reporting requirements increased. There’s no question about it. Forms and processes increased. Auditors’ fees increased. But from a management standpoint, it didn’t make much difference. We were in control all the time.
I hear it said that you can take tougher, long-term steps when you’re private that you can’t take when you’re public because the markets will punish your stock. Is that right?
It depends on how you communicate what you’re doing. If you properly communicate, and more importantly, if you meet your guidance on a quarterly as well as an annual basis, if you do provide the guidance at all, I think you’re going to be alright. You can be a visionary without being penalized for it. I can remember when I first came in to PanAmSat, I made it very clear that our earnings per share were going to go down for a while until they started coming back. But I explained what I was doing during that time. We were in the middle of a turnaround. As a private company, sure, you’ve got less responsibility to shareholders to explain what you’re doing, but I’ve never found it that complex one way or another.
So how do you explain the boom in private equity involvement in mergers and acquisitions?Private equity has done a very good job of identifying ways to create value through leveraging. Let’s go back to the early 1980s. Remember that?
There was a time when the concept of cash flow financing took [over from] asset-based financing. Some companies did very well on that. That was a whole new concept for banks and lending institutions. Now we’ve gone into a new evolution of that. Private equity firms and a lot of people in the hedge funds are finding they can use leverage. I say it’s in a healthy way. Some others may disagree with that. I say it’s healthy because they’re identifying inherent value that was in the corporations all along and that anyone else could have found, and they’re doing very well by it.
What about the climate that publicly traded companies face in terms of activists and class action lawsuits?
It’s been caused by some of the abuses. I would say the number of those abuses, if you take a look at the overall picture of public companies, is small. But they still attract a lot of attention. And whenever you attract a lot of attention, you get a lot of press and you get a lot of politics. Sometimes you even get regulation. That’s a cycle. I think it will settle down. The attention will go to the next subject, and you know there will always be a next subject.
Do you see the relationship between CEOs and boards changing?
I’ve always been very open with my board of directors whether we were public or private, and whether they were private equity firms or independent directors. I’ve always had many conversations with them outside of board meetings. To me, they are part of the team. And if you don’t look at them as part of the team, you’re making a mistake. I’m also finding on the boards that I’m on that directors are paying more attention. They’re better prepared. They understand the life and death issues, the difference between success and failure. They’re much more engaged than they were five years ago. But I’ve always been that way. As a result, I’ve come in as chairman or CEO of several companies from boards.
Isn’t that a very unusual path?
I don’t think it’s a bad path as long as the director is fully informed about what’s going on at the company. I always have been. I’ve always worked hard on my boards. I’m very fortunate that at PanAmSat I was a member of the board and enjoyed the business of satellites, which is absolutely fascinating. Then when it came to a point that the CEO got out of sync with the rest of the board members and they asked me to take over, I was pretty well prepared. I didn’t have a learning curve.At L-3 Communications, you’ve just had a member of the board who came in and took over as acting CEO. [Editor's Note: Michael T. Strianese became interim CEO following the death of Frank Lanza]. It’s not a bad way to go. It depends on the individual. It depends on the company.
We’re hearing that a lot of formality and process have been introduced into the relationship between CEOs and the boards of public companies. Are you finding the dialogue less robust?
I have not found that. I’ve got a very open dialogue with my board, with the owners. If we have an issue or we’re going to have a problem, they’re going to be the first ones to hear about it. On the boards I’m on and have been on, I always maintain a close relationship with the CEO. That takes more time and more attention. I don’t know how you sit on a board of directors if you’re not totally involved in the company. I don’t think you’re doing your job.
At one point you were on five different boards, but now you only sit on two others. Why?
When we went public again, in the current environment, the owners felt it was appropriate for me to resign down to two boards. I feel that was probably the right move. It was more of a public relations issue than it was an issue of my time commitment. For me, outside activities are primarily weekend duty.
More and more CEOs of publicly traded companies now sit on only one other board.
It is really getting to a point where they don’t want to be looked upon as spending that much time on outside activities that are not in the interests of their shareholders. But the other side of the argument is that if you’re on a board, it can be good business for your company. That doesn’t involve a conflict situation at all. You’re getting an experience. It’s not a bad idea to get a little outside exposure in terms of what others are doing. It’s not just the business. It’s the way other CEOs are operating. It’s the way other boards are operating. It’s market trends and economic trends. I learn a lot of things from serving on other boards.
As a director, what’s your philosophy of engaging with a CEO? How involved should you get?
You can’t tell them what to do. It’s not your job. You’re an advisor. You ought to take the role of advisor very seriously. If the CEO decides not to take your advice, he or she is the CEO. That’s their job. But you ought to be available and you ought to get fully up to speed in terms of what the company is doing, what the competitors are doing, what the market trends are, new technologies coming into the market, new financing trends. You ought to be available to go talk to shareholders, if requested. Many CEOs do not use their board for that. But I think the board can be very effective. I did it the other day. We had a public shareholder that was upset about something and wanted to talk to a member of the board, and I did it. I’m happy to do that.
When you as an independent director talk to a shareholder, doesn’t that cross the lines of communication between management and the shareholder?
You must do it with management [approval]. I did this at the request of the CEO. I wouldn’t do it otherwise. Otherwise you’d be circumventing the responsibilities of the executive team. When I do get calls, I just call the company and say here’s who called. How do you want me to handle it?
Do you thinks boards in general these days are prepared to do what they’re being asked to do?
Not necessarily. I believe they’re getting better. The ones where I have access are taking their jobs much more seriously than they were 10 years ago. Those who do go on boards are doing it in a more conscious fashion. They actually want to be on that board of directors, and they want to work. But 10 years ago, a large number of people just went on boards. It was just the thing to do. I don’t think they took it that seriously. I believe they do more so now. It doesn’t mean that there’s not going to be the old cronyism. That will always exist to a certain degree.
Where do you come down on the CEO compensation issue?
You’ve got me in a weird situation [laughs], because I’m a CEO and I’m on boards. I believe there are enough comparables out there that you can pretty well tell what the value is for a company that is doing O.K. In other words, take your competitive model and you can pretty well see what the other companies in your industry are doing. There are enough comparables to figure out what the range of CEO compensation is. If you go above that, that’s where you get into the pay for extraordinary performance. That’s a judgment call for the board to make. But if it is an extraordinary performance, and if the shareholders have all benefited from it, then I think the CEO should benefit from it as well as the other executives. What bothers me is when you don’t have that performance and your shareholders don’t benefit and you still see this extraordinary compensation. That doesn’t make sense to me. I don’t understand where the board is coming from.
Do you sit on compensation committees?
Yes, and I also have in the past quite a bit.
Some say comp committees can’t get a cohesive view of the CEO’s total package, because they vote on the various components at different times. What do you think?
On the comp committee I’m on right now, absolutely we do have the full package in front of us. That is at the request of the chairman of the comp committee. But I’ve seen exactly what you described in the past. Every salary action is a totally separate entity without looking at it across the board and without looking at comparables. You can get yourself out of sync fairly easily if you don’t pay attention.
What are the other major issues on directors’ minds, as you see it?
Directors appear to be very consumed with the regulatory environment. They pay a lot of attention to process. That can be good to a certain degree, but not if you do it at the expense of results. I believe we’re getting to a point where we’ve spent an extraordinary amount of time in recent years on process because checks and balances weren’t there to the satisfaction of the government, audit firms and a lot of the companies themselves. But now they are there. I think we have to shift a little bit back to where governance is more than just process.
How can a board shift its mentality to help their management go for top-line growth?
First of all, if they have confidence in their management, they don’t worry about the process. If the board has confidence in the CEO, CFO and the general counsel, you get back into results pretty quickly.
What else should boards be doing?
Another thing that boards don’t get too involved in is the communication that goes on between the company and their shareholders. Very seldom have I been on the board where the audit committee and the board itself actually went through the [SEC] filings in detail. Right now I’m on two audit committees that do. But in the past I’ve been on audit committees that basically did not read the filings. If you have an audit committee call where you’re looking at a Q or a K and the call lasts 15 minutes, you’re not paying attention.
In some cases, less communication is better, I’m not so sure in today’s world that less is better. I think it’s the responsibility of CEOs to be out front as much as they possibly can. Lay out what your plans are. Don’t be afraid to do that. Be prepared to explain it. Share things with your shareholders. When you come up with your quarterlies, you can give guidance or not give guidance, but tell them what really happened in the business. Warren Buffett is really great at that. He’ll come out in his annual report and say, “Boy, did I screw up there.” How many times do you see that? It’s refreshing.And he not getting sued or losing his job, is he?You know, if you’re honest and you’re straightforward, you’re not going to get sued.