Moderator: Mary Pat McCarthy, executive director, KPMG’s Audit Committee Institute; U.S. vice chair, KPMG LLP Panel: Edward A. Kangas, chairman, Tenet Healthcare; director, Eclipsys, Hovnanian Enterprises, Intuit, United Technologies; Jack Wasserman, director, Cadus, Icahn Enterprises, Wendy’s/Arby’s Group
“I think boards are so overwhelmed with new measures and regulations that there is a real possibility that directors are going to lose the core of what they’re supposed to be doing,” began Jack Wasserman, who like fellow panelist, Edward Kangas, is a veteran of audit committee service.
Mary Pat McCarthy asked about the board’s role in developing company strategy. Kangas broke it down into three elements: set the fundamental direction (which boards do actively with the CEO), develop the strategic plan (also driven by the CEO) and review, monitor and approve transactions and major investments that are a result of that plan. “When I joined Tenet Healthcare in 2003, the company…had been accused of bribing doctors through physician relocation agreements, doing unnecessary surgeries in certain hospitals—and the government was threatening to pull their Medicare certification, which would have put them out of business,” Kangas said. “The board decided we had two decisions: we could liquidate the company and sell off the hospitals…or we could decide to do what would be needed to have the government back off, which meant, change all the management.” Kangas explained that if they went with the first decision, the current CEO would stay; if they decided on the latter, they would need a new CEO. “So the CEO couldn’t make that decision; that was not a management activity,” Kangas said. “The board made the decision to change management, change the board and restructure the company…today Tenet is doing reasonably well.”
Wasserman added that there is a dynamic between the CEO and the board. “There has to be board surveillance,” Wasserman noted. Senior management gets “big dollars” to do their jobs. “Leave them alone…let them do their jobs.” Wasserman continued, noting that unless the company is in the process of a major structural change or looming crisis, management should be allowed to perform their duties—and if they don’t, “change the management.”
Both Kangas and Wasserman agreed that it can be difficult to identify a plan to maximize shareholder value when shareholders are only interested in the next two or three years. Kangas said that it is important to deliver results in a 36- or 48-month timeframe and that developing plans for 10 years can work, but is often difficult. Wasserman agreed, noting that it’s a given to have a financial plan, but when planning for risk, the plan frequently changes. “We just don’t know what’s going to happen over the long term,” Wasserman said. Kangas added that if a good strategic plan is in place, it serves as a solid foundation to handle potential future risks: “If management can’t do that, you change the management.”
Gretchen Michals Salois