The flurry of post-Enron corporate reforms has been broad and swift–if not always as deep as it should be.
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Congress has weighed in. The Securities and Exchange Commission. The New York Stock Exchange, too.
But those reforms came from outsiders. From regulators and market managers. From prosecutors like New York’s Eliot Spitzer.
This was different. In a crowded midtown Manhattan conference room, some old lions of commerce, industry and investment gathered for a roar of their own–to set the ultimate insiders’ agenda in the form of a Conference Board commission’s reform plan.
There was Paul Volcker, the esteemed former Fed chairman and would-have-been rescuer of the Andersen accounting firm. Pete Peterson, the former commerce secretary, chairman of the Blackstone Group and of the Federal Reserve Bank of New York.
Vanguard Group founder John Bogle was there. Intel Corp. founder Andy Grove was on a conference-call line. Commission co-chairman John Snow was elsewhere preparing for confirmation hearings as treasury secretary.
There was a sense of history in the room, and not just because the commission elders have made a good deal of economic history themselves. Mostly, it was because members of this blue-haired, blue-ribbon commission have the power to force their peers to make historic change.
Not by law. Not by rules. But by setting new codes of conduct–formal new standards that members of the business insiders’ club will feel compelled to adopt. And if the standards aren’t met, market forces will levy a cost.
“We have a very, very difficult system to take on,” Bogle admitted. “Sooner or later, it’s going to take reputational authority, moral authority” to pressure companies to change.
The most far-reaching and controversial idea: that companies should split the chairman and CEO titles between two people. This would create an independent source of boardroom oversight, a second seat of power.
Most of the other proposals seemed familiar or incremental. New independence standards for accountants. Hiring investigators when something smells fishy. A call for institutions to push for change and not just dump stock when governance issues arise.
After a year of reform, there aren’t many brand-new ideas left.
Even the proposal for independent, non-executive chairmen has been discussed. But for the first time, a high-powered commission formally has endorsed the idea. This bold move should prompt more companies to give it a try.
Some see more downside than benefit. The proposal prompted a dissenting opinion from John Biggs, the former chairman and CEO of pension fund TIAA-CREF. “I wanted to put up a warning flag that this has some real dangers,” Biggs told me.
Top-tier CEO candidates might avoid companies that split the duties. The separate power bases could create competing fiefdoms within companies.
And experiences from Europe and Japan, where this setup is common, are not overly promising. “It seems to me it’s an extremely bureaucratic approach that’s got to bog down companies,” Biggs observed.
OK, so Biggs has forewarned. But reformers should not disarm.
The potential gains from creating non-executive chairmanships or “lead directors” outweigh any drawbacks. Doing so creates an avenue for independent board action–a designated leader to act should the CEO go awry.
Volcker saw the need while regulating banks. “Sometimes it was very hard to find someone on the board who was going to deal with a problem,” Volcker recalled. “The CEO himself wasn’t going to deal with the problem: He was part of the problem.”
This is the way corporate reform can best happen. By debate and experiment–and ultimately by example.
Other controversial reforms have taken root. Many companies have begun expensing stock options. Coca-Cola is leading a healthy effort to stop fostering a short-term investment mentality by refusing to offer earnings guidance to Wall Street analysts.
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The Conference Board commission raises the stakes by taking the reform movement to the head of the table in the corporate boardroom.
New laws put things in black and white. New ideas are messier, but they could prove just as powerful.