The only time in his life Ira Millstein remembers not working was during a visit to the icy wastes of the south pole. If Antarctica had an industrial economy, though, it would probably be yet another continent flying the flag of corporate governance planted by this New York attorney. The rest are taken care of. As chairman of the OECD’s business sector advisory group on corporate governance, Millstein this spring unveiled a globe-spanning reportá hailed by Bob Monks as ‘genius’, and by SEC chairman Arthur Levitt as a ‘necessary and forceful work that will have a continuing influence on international governance.’ Never mind that London’s Daily Telegraph ruled it an effort by the OECD to expand its bureaucracy.
It’s a crowning achievement for the distinguished, 71 year-old senior partner at Weil Gotshal & Manges, who began as a Department of Justice trust-buster, matured as a 1970s antitrust litigator, wrestled the likes of General Motors, Westinghouse and American Express into a new posture of corporate behavior in the last decade, and in the past year helped rescue the SEC’s controversial proxy reform.
But can this Manhattan-bred scrapper conquer the boardrooms of Europe and Asia? ‘I’m not here to preach the gospel according to New York,’ says Millstein. ‘We have a good system which works well in the US, but I’m not sure it’s going to work everywhere for everybody. However there are elements that will; central elements around which each country can build its corporate governance system to fit its culture, its society, its way of doing things.’
The OECD report, he says, captures the essence of good governance without going into the same level of detail as guidelines from the Business Roundtable, the Council of Institutional Investors, Calpers or the National Association of Corporate Directors (whose ‘blue ribbon’ commission on director professionalism Millstein chaired in 1996). The report certainly exists at a higher level. It is, after all, trying to bring the world’s corporate governance systems under one umbrella while attempting to avoid the charge of resorting to a lowest common denominator. The jury is still out on whether it has succeeded.
Significantly, though, the report makes the ‘performance connection’ with corporate governance as never before. ‘If we made one signal contribution, we linked corporate governance to access to capital. That made it real. Up until now a lot of people outside the US thought this was an esoteric subject like ethics. When the report came out, it was like the sun coming out: if you want access to capital, you had better have good corporate governance.’
Entrenched ineptitude
This is not magic, insists Millstein. It’s common sense perhaps best summed up in a recent Wall Street Journal article by editor Holman Jenkins. The US corporate governance revolution, Jenkins writes, has removed a whole class of risk from the investing process: ‘the risk of entrenched ineptitude.’ At Millstein’s request, Jenkins declared the phrase in the public domain.
‘That’s the beginning,’ says Millstein. ‘Then comes transparency, disclosure and enforceability of rights. It all makes for good corporate governance, which is good for access to capital. That’s what brought the OECD advisory group together in thinking: we all agreed finally that it’s the markets that will dictate the answer.’ Millstein says that while his initial approach to the OECD group was to spread US-style governance, his outlook evolved dramatically as the work progressed. ‘Clearly the US is way out in front. We’ve had a very deep industrialized economy and public markets for a long, long time. This has given us the soil in which governance could grow. It’s important the rest of the world understand that this isn’t a question of chauvinism or patriotism; we’ve just been at it longer.’
With a finely honed sense of modern history, Millstein points out that continental Europe and Asia are now going through the same process as turn-of-the-century America when the Fords, Du Ponts, Carnegies, Mellons and Rockefellers began selling their holdings to the public. A more vigorous SEC and a strong court system have contributed to the US lead, along with a tradition of enforcement to protect shareholders against fraud and corruption – ‘You name it, we’ve had a version in the US that had to be corrected.’ Then came the M&A boom of the 1980s. ‘Through all of this emerged big responsibilities for the board of directors. We just had the trouble long before anyone else.’
Millstein himself played a leading role in the US corporate governance saga. For example, he was credited by Calpers’ Dale Hanson and Richard Koppes for their change in focus from social issues and anti-takeover devices to boards and corporate performance after a speech before the Council of Institutional Investors in 1987. And he was counsel to GM’s board for the car company’s management shake-up in the early 1990s and the board’s publication of seminal governance guidelines in 1994.
Different strokes
In preparing the OECD report, however, Millstein came to see that the US system of corporate governance would not fit all other countries. ‘They have different market infrastructure, laws, history and culture. But there are elements of a system of corporate governance which could be applicable anywhere.’
His colleagues in the OECD advisory group – Sir Adrian Cadbury in particular – made him see that governance outside the US is a concept that has to be conveyed, rather than a detailed prescription. ‘The Russians are different from the French, Japanese or Koreans. They all, I hope, want the same thing: to join the global capital markets. But they’re going to have to get there their own way.’
Take the OECD’s broad definition of board independence, treated to minimum wordage in the report: simply, it’s important the board be capable of acting independently of management. ‘If we adopted a US definition, such as the Business Roundtable’s, most Europeans or Asians would reject it out of hand. We knew independence would be defined differently in different countries, for now.’
In Japan, for example, one group is advocating the creation of an ‘independent’ board of auditors composed of employees. ‘They’re supposed to perform the function of independent directors. Maybe that will work in Japan given their culture and idiosyncrasies. At least they realize that somebody at the company has to be capable of acting independently of management.’
In keeping with its theme of access to capital, the OECD report keeps shareholder value firmly on the bottom line. But it doesn’t discount other stakeholders: employees, suppliers, community and society. Indeed Millstein says balancing the needs of different stakeholders is the ultimate role of the board of directors. Problems arise, however, when other constituents are placed in line before shareholders, destroying the ability of a company to perform.
‘Japan today is learning this the hard way,’ he remarks. ‘It has a social system that is a lot more supportive of the employee than ours ever was. We were jealous of it, but had to give it up to compete internationally with the very same Japanese. Now they have to give it up to compete with us.’
Intertwined history
For Millstein, the OECD report is just one more line in a long resume closely intertwined with the American corporate governance revolution. But now even the most remote corner of the world is in the sights of this senior corporate governance statesman, who once joked that until joining the army he never left Manhattan except to go to the Bronx.
While his legacy is a system for how public companies should be run, there are other sides to this inveterate corporate warrior. Millstein the teacher presides at the Yale School of Management. As chairman of the non-profit Central Park Conservancy, he gazes from his corner office in the GM building at the lush sprawl of his ‘front yard’. There’s also a singing voice reserved for the sole pleasure of his grandchildren. Perhaps it’s the inscription on the photograph of his idol, Albert Einstein, that best sums up Millstein’s latest corporate governance success: ‘Remember what I told you: make everything as simple as possible. But not a bit more.’
Corporate Governance: Improving competitiveness and access to capital in global markets, a report to the OECD by the Business Sector Advisory Group on Corporate Governance: Ira Millstein (chairman), Michel Albert, Sir Adrian Cadbury, Robert Denham, Dieter Feddersen and Nobuo Tateisi.
