The Prime of Ms. Nell Minow

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

What were the lessons of the past year for the shareholder community?

The single most important thing I can say to you is that while both the Sarbanes-Oxley Act and the New York Stock Exchange reforms will make a difference, the most important change will come from the market itself, when shareholders insist on better corporate governance.

There have been egregious governance violations in recent years. Why has it been so hard to get shareholders to act?

When The Corporate Library first started, we picked Global Crossing as the worst [CEO employment] contract in America. I had read through about 20 contracts, which were fairly identical, before I got to this company. It said the CEO had a $10 million signing bonus, which was OK, but he also got 2 million options at $10 a share below market. Furthermore, the contract provided the make and model of the Mercedes the company would buy for him, and specified that once a month Global Crossing would fly his family, including his mother, first class to visit him.

So, from that contract I concluded that (a) the CEO thought the stock was going to decline in value and (b) the board was incapable of saying no to him.

But no one really took it very seriously. People said, “Isn’t that cute that he wants his mother to come out and visit?” I got E-mails saying, “This is the fastest-growing stock in the history of the NYSE, and if I am willing to spend a quarter of a cent a share to fly his mother out so he doesn’t have to worry about her, it’s not your business.” I just felt that there was what I would now call governance risk.

You’ve said you consider yourself to be “an anthropologist of boards.” What do you mean?

My training is in law, and lawyers tend to think in terms of structural solutions. But in the boardroom, there’s no structural solution that can’t be subverted in some way. So when you’re trying to figure out what’s wrong in the boardroom, you have to look at it more as an anthropologist — what is it about the human interaction and the culture in this little world that makes it so ineffective? I’ve met a lot of corporate directors, and almost without exception they are intelligent, honorable, and dedicated, and bring a tremendous set of experiences into the boardroom. For that reason, it’s really endlessly fascinating why they do such a bad job.

What is it about the culture that breeds ineffectiveness?

One thing is that the people who are invited on boards are consensus-builders. They are brilliant at sizing up the norms of whatever situation they’re in and adapting to them. But unfortunately, it creates a culture that makes it difficult to ask questions.

Why are you so convinced that a better board could have made all the difference in last year’s cases — or in others?

Who is in the best position to identify and mitigate damages when you do have a bad apple? Obviously, there are always going to be crooks. But let’s talk about some of these companies for a minute. At Tyco, Dennis Kozlowski did not ask for a contract until 2001. The contract he gave to his board, which they signed, provided that conviction of a felony was not grounds for termination. A better board might have said, “Dennis, we’re sorry: Are you planning to knock over a bank? Is there something you want to tell us?”

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