What is the alternative?
Just give executives stock, for one thing. There are so-called restricted stocks — you get stocks over a period of time, then you have to hang on to them, and you’re going to be subject to the downs as well as the ups.
Moving on to the subject of corporate governance, what do you think are the weaknesses of the typical board structure in America?
I have a favorite issue that’s not popular among American CEOs, to say the least. I think the single most important structural change is to encourage nonexecutive chairmen. The advantage is that you have a better degree of oversight over the CEO.
There’s always talk about how the independent directors, when they get together by themselves, are not being directly influenced by the chief executive or the management, so they can have a free discussion. I agree with that; I think that’s very important. But I think the best way to get some independent leadership on the board is to have a nonexecutive chairman who can also determine the agenda. That way, the board isn’t entirely at the mercy of the priorities and information of the chief executive. In extraordinary times, it becomes really important — for instance, when a company isn’t doing well, or when there’s some question as to whether you want a new chief executive, or when you have to pick a new chief executive.
I know that when I was a regulator, if something went wrong and you wanted some changes made, who did you talk to? You talked to the chief executive. But what if he’s the problem? Who can you talk to then?
Do you think CFOs should report to audit committees?
I think it’s a good idea, and one that has to be explored. But where do you find the people to spend all that time and have the experience to do it?
I think on the ordinary board you have competent people who don’t have the time, and you have people who have the time but are not competent. My idea is to elect the members of the auditing committees separately, so that you’re not just voting for a slate of general-purpose people. You have to have some indication of who’s going to be on the audit committee, what his experience is, what his background is.