VideoFor most of the past 16 years, shareholder activist Nell Minow has felt like a cross between Chicken Little and the Little Red Hen. Her calls for reforming corporate governance have often been spurned by companies and ignored by shareholders. "It's been like crying, 'The sky is falling — and who will help me bake my pie?' " she says.
No longer. Between the numerous financial frauds of the past year and the reform proposals, corporate governance has become topic A. The 51-year-old Minow has become a hot commodity, appearing on every program from Nightline to National Public Radio to relay her message to an audience more ready to listen than ever before.
Minow's message is twofold: boards of directors must be improved, and shareholders must take more responsibility for seeing that they are. In her view, boards that have complete access to corporate financial information and are not controlled by CEOs are the best defense against corruption. The meltdowns at Enron, Tyco, and WorldCom, she says, point to the need for a "board that can exercise oversight over the CEO and not just sit there and applaud politely through PowerPoint pep-rally presentations."
While Minow, who currently serves as editor of The Corporate Library — an online repository for corporate-governance information — is pleased with many of the reform efforts, she worries that most have ignored the duties to shareholders. Instead, she says, the proposals have "focused only on the supply side of corporate governance — what managers must do, what accountants must do, what boards must do. There's been no focus on the demand side." She explains, "You can have all the disclosures in the world, all the rights. But if you don't have a shareholder community that is willing and able to exercise those rights and act on those disclosures, you aren't going to see a change."
The University of Chicago-educated lawyer thinks this may be the year for "dramatic improvement" in shareholder involvement. Obviously, shareholders are angry about the scandals, she says, but that anger has been compounded by the silence in the business community and its members' failure to "separate themselves from the bad guys." Her advice to companies: take the lead in changing their own governance policies. "You don't want to be in the middle of the pack on this," she says. "You want to be at the front."
Minow has never had a problem being out front in her previous incarnations, first as general counsel and president (alongside founder, governance activist, and longtime collaborator Robert Monks) of Institutional Shareholder Services, which advises large institutions on corporate-governance and proxy-voting issues; then as president of LENS, a fund that invested in troubled companies and pressured them to change their governance and improve their performance.
Corporations aren't the only object of her scrutiny. A passionate movie critic, she wrote The Movie Mom's Guide to Family Movies, which she recently moved online. By the end of the year, she'll help launch a Web site for parents to give feedback to the movie industry. "So if you think a movie is particularly offensive," she explains, "it will say, 'Click here to send an E-mail to the board of directors or the company that produced it.'"
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.
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