Investor relations finds itself in the middle of a three-way tug-of-war between shareholders, management and the board of directors. Each party is meant to keep the other two in check, while the IRO acts as messenger to them all. Who is saying what about whom? It’s the IRO’s job to find out.
Everyone can see the benefit of boards that are independent – they provide a system of checks and balances to offset corporate cronyism. ‘Let an independent, equity-holding board decide what’s best for the company,’ exclaim fans of independence, ‘as opposed to the threat of litigation to keep management in check.’ In other words, let good corporate governance provide inoculation against bad decision-making. Corporate democracy – it’s a noble idea.
But has our preoccupation with technicalities caused us to forsake the spirit of independence? While independence is an easy term to roll off the tongue, the devil is in the detail. Consider the case of Atlanta-based Fuqua Industries, which created a supposedly independent one-man special committee comprised of Duke University then-president Terry Sanford. Shareholders charged – and courts agreed – that Sanford was not truly independent because although he satisfied all the textbook criteria of independence, Fuqua had given generously to Duke U, and Fuqua’s chairman and CEO JB Fuqua was on the university’s board of trustees (which, incidentally, has the responsibility to hire and fire university presidents).
Dissident shareholders maintain that boards should be seated not only with a majority of independents, but a significant majority. That structure, they argue, is necessary to strengthen the board’s hand against the persuasive, self-serving hand of top management.
Of course independence is highly desirable, but we should also be alive to the idea that very good performance-oriented counselors are more valuable board members than mere textbook independents. Good non-executive directors remain very difficult to find, and a visionary chairman would be foolish to turn them away simply because they have some distant relationship to the company. Boards too can succumb to the lemming mentality, after all, regardless of whether they are truly objective or not.
The theme here is that the spirit of good corporate governance lies in its focus on performance just as much as on a preoccupation with strict, technical compliance. We have to move beyond box-ticking. And it’s the investor relations department that has to try to explain this to the shareholders.
