To open the 11th Annual Directorship 100 Forum, NACD president and CEO Kenneth Daly advised the audience to look at the NACD as an agent of change as it delivers on about its mission “to amplify the voice of the director.” In opening remarks to the more than 350 delegates convened to pay tribute to this year’s Directorship 100, Daly said that achieving this important objective would require that those who are allied to the cause of promoting better corporate governance must avoid becoming distracted by “all the noise” and “concentrate on not majoring in the minors.”
Left to right: H. Rodgin Cohen, Carol J. Loomis and Edward A. Kangas
“In other words, focus on the important job ahead” Daly said. “The selection and monitoring and execution of winning strategies that result in sustained profitability. That’s what I think that being a director and being part of the director community is all about.”
That mission was underscored by the participation of this year’s Hall of Fame inductees in a panel discussion on their distinguished careers as part of the D100 dinner tribute: H. Rodgin Cohen, the chairman of Sullivan & Cromwell; Edward A. Kangas, the former chairman and CEO of Deloitte, lead director for Tenet Healthcare, and director of United Technologies; and Carol J. Loomis, senior editor at large for Fortune magazine for more than 50 years and the editor of Berkshire Hathaway’s well-read annual letter to shareholders.
NACD Managing Director and Senior Advisor Jeffrey M. Cunningham led off the conversation by asking each of the Hall of Fame honorees what event or events in their career changed the way they looked at business.
For Cohen, it was helping to negotiate the release of the American hostages held in Iran for 444 days from beginning during the Carter Administration and in 1979. He described the international incident as a “human drama…that involved the unprecedented intersection of private and public interests.” The hostages were released just moments after Ronald Reagan was sworn in as the 40th president of the United States.
For Kangas, transforming two very different businesses first as CEO and later as the chairman of the board led to his understanding of the effect of change. He served as the architect in 1989 of the merger that created Deloitte & Touche and in 2002 was the chairman who led Tenet’s turnaround.
“We took two of the weakest, smallest firms of the Big Eight, Deloitte, Haskins & Sells, a great quality white-shoe firm, not known for creativity, and the Touche Ross firm, too edgy with a very hard-nosed New York mentality and attitude. And we put them together and we created a big accounting firm, some criticized it at the time for size being its main attribute,” Kangas recalled. “And 20 years later, by focusing on clients and people and quality, Deloitte today is a great firm, and this year it’s the largest professional firm in the world.”
In addition, Kangas became chairman of Tenet shortly after it was disclosed that the second largest hospital group in the country was practicing what he called “Wall Street medicine and gamed the Medicare system.” The Justice Department was ready to pull the Medicare certification, which would have put the company out of business.
Kangas helped recruit a new chief executive and asked for the resignations of nine of the 11 sitting directors. Today, Kangas reports, Tenet Healthcare operates 60 hospitals and 50 or so ambulatory surgery centers and imaging centers and has one of the highest scores on the most measured aspects of quality clinical care.
Noting that she has been at Fortune “so long, I’m older than the Fortune 500,” a turning point for Loomis occurred when she was promoted from reporter to an administrative position that put her in editorial charge of the famed listing.
“The 500 taught me accounting and…I began a career of writing about managed earnings and its illegitimate partner, cooking the books. And I can look back on the 500 and say that was the reason.” Loomis, who revealed that meeting and getting to know Warren Buffett in the mid-1960s were turning points for her. “Warren is instinctively a teacher, and in me, he had someone who was dying to learn about business,” she recounted. “And the education that he gave me in business was exceptional and beneficial beyond all words.”
Cunningham noted that typically when one thinks of complexity and volatility it’s in relation to the markets, but increasingly that describes the boardroom. He asked each of the panelists to project what their greatest concerns are for today’s public company boards.
“I think a challenge is a need for skepticism in the boardroom,” said Cohen. “We’ve seen too many cases where a corporation, some business unit or some division is turning out these extraordinary profits, and that’s a cause for celebration. Nobody seems to step back and ask how or why. Now, think of a slightly different situation. If you have an athlete that all of a sudden performs far above whatever he or she ever had performed, the immediate thought is, steroids. Well, risk is the steroid for business, and too often, there’s just not enough drug testing in the boardroom.”
Kangas is concerned that the increased pressure on board members to be responsive to regulators, shareholder activists, proxy advisors and others will drive away the very best board candidates: “It’s already started…and I can see that in another ten years, we will have responsive boards that are weaker and not as effective, and that is not good for companies, it’s not good for shareholders, and it’s not good for this nation.”
Loomis pointed to three areas of concern: getting rid of ineffective CEOs, paying closer attention to mergers and acquisitions and the effect—particularly in all-stock deals—of what is being sold and more fairly compensating top executives.
“Compensation for the top echelon will continue to be a very hot button,” Loomis said. “There has to be a logical approach to what the CEO gets paid. There have to be incentives that really make sense, and I don’t see this issue going away.”