He also makes a case for rethinking stock options. While acknowledging that option grants are an important incentive, Mills joins many economists in suggesting that options should be decoupled from the company stock price. If options were indexed against the performance of peer companies, an industry, or the economy in general, he maintains, executives would be encouraged to focus on performance rather than stockmarket volatility.
Finally, Mills is an ardent proponent of an independent CFO and head of human resources. The two executives who control finance and compensation, says Mills, should be hired by, and report to, the board rather than the CEO. Appointing a corporate governance officer can be worthwhile, adds Diane Frankle, a partner with Palo Alto-based law firm Gray Cary, but only if the CGO has the authority to revise policies and provide governance training.
Mills has a ally in Stephen Roulac, a San Rafael, California-based financial and management consultant who likens good corporate governance to the U.S. Constitution. “Separation of powers” promotes appropriate decision making, declares Roulac. To that end, he offers a three-step process for corporate “decisions of consequence.”
First, an individual or group originates and advocates an idea. Next, a second group conducts an internal evaluation of the plan, including the associated budget, capital resources, financial risk, and business processes. Finally, a third group — an independent board or committee — produces a quantitative and qualitative assessment.
Too time consuming? Perhaps Roulac’s proposal is an example of how, in theory, most executives agree with corporate governance reform, but in the implementation, things get sticky. One former CEO, now a board member at a financial services company, agreed with Mills’s idea that CFOs should report directly to the board. He added, though, that “it’s not necessary at my company, because our culture doesn’t foster conflict-of-interest problems.” Self-examination, too, can be a sticking point.
Get It Together — or Break It Up
To integrate, or not to integrate — that is a question which, rightly, should be asked very early on. Say, sometime during M&A planning. But better late than never, says Joe Phelps, who sees fertile ground for improvement in Time Warner’s organizational structure. Phelps, the CEO of Santa Monica, California-based marketing communications firm the Phelps Group, would seek to eliminate the accounting problems associated with intercompany barters by eliminating competition between the company’s internal profit centers: broadcast, cable, film, magazines, online.
Phelps says that by becoming a one-stop shopping conduit built around major accounts and not major Time Warner business units. the parent company could outbid competitors with broad-based media packages. The company would also be able to free itself from internal turf battles — and their attendant accounting games.
Joel Goldhar would go to the other extreme. A professor at the Stuart Graduate School of Business at Chicago’s Illinois Institute of Technology, Goldhar contends that the only way to keep Time Warner out of trouble is by splitting it into separate operating companies linked only by external marketing agreements. There have been whispers from Wall Street — but nothing more — about spinning off the AOL division.