The Prime of Ms. Nell Minow

For the shareholder activist, these have been both the best and the worst of times.

Recently, Minow sat down with CFO deputy editor Lori Calabro to discuss her hopes for reform. How will she know if governance is really improving? “I will look to see whether there are major changes in boards, whether compensation improves, whether nominating committees improve, and whether shareholders step up to bat and speak out. I’m very hopeful all of this will happen — at least until the next bull market arrives.”

You’ve been at this for the past 16 years. Did you ever think you’d see a year like we just had?

Never. I actually got to quote one of my favorite lines from literature: “[Her] face bore the triumphant look peculiar to those who, suspected of hyperbole, are found to have been employing meiosis [rhetorical understatement].” It’s from Mrs. Miniver, a novel by Jan Struther. That’s how I felt all year. We’d expressed mild concern about some of the companies that melted down. But even in my wildest and most-paranoid fantasies, it never occurred to me that there would be this level of corruption and neglect.

Many people still say the cause of the meltdowns was a few bad apples as opposed to a systemic problem.

It’s fair to say it was a systemic problem. But there are some good apples, and one of my strongest criticisms of the corporate community is that they have not done an adequate job of distinguishing themselves from the people who are corrupt.

I’ve spoken to many CFOs who voice that view individually.

Not good enough. Let’s talk about the person who was generally considered to be the best CEO of the last 30 years — Jack Welch. The fact that when he announced he might leave the company, [he demanded that] his lifetime dry cleaning, apartment, Knicks tickets, and catering bills be covered — and that the board went along — shows me that the problem was not just a few corrupt or neglectful individuals, but a failure to understand what the role of the board should be in those kinds of negotiations. That had a huge ripple effect. Because when Welch got his board to agree to that kind of retirement plan, then [IBM CEO] Lou Gerstner, who was on the GE board, got the IBM board to agree to a similar plan. The fact is, we haven’t seen widespread corruption on the level of Tyco or accounting fraud on the level of Enron and WorldCom. We have seen widespread excessive executive pay, widespread poor financial reporting, and widespread neglectful boards.

Do shareholders bear any responsibility?

Shareholders were the enablers. They voted in favor of a lot of bad pay plans, they voted to reelect a lot of poor boards, and they failed to pay attention to many, many red flags. Furthermore, shareholders themselves have been corrupt at times. In the Hewlett-Packard/Compaq merger last year, one of HP’s largest investors, Deutsche Asset Management, voted against the merger. Then, after receiving a call from the investment-banking side of Deutsche, they agreed to reconsider. Carly Fiorina went to visit, gave them a check for $1 million, and they changed their vote. That kind of behavior is inexcusable.

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