A Conversation With Joe Wright: How Boards Should Talk to CEOs

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.