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Double Standards?

How controlled companies avoid independence rules.
Kate O'Sullivan, CFO Magazine
July 8, 2004

With all the talk about governance and accountability, you might assume that all public companies have a majority of independent directors on their boards. Well, not exactly. In fact, a surprising number of companies, including Primedia Inc. and Weight Watchers International Inc., are identifying themselves as "controlled" in their financial reports, avoiding the independence rules entirely.

There's nothing sneaky about it. Under New York Stock Exchange and Nasdaq listing standards, controlled companies — in which more than 50 percent of the voting power is held by an individual, a family, or an investor group that votes as a block — are not required to have a majority of independent directors on their boards. They may also include nonindependents on their nominating and compensation committees.

The NYSE maintains that voting control generally entitles the holder to determine board makeup, and that it did not want to deprive holders of that right. But should controlled firms get to play by different rules than their peers?

It depends who you ask. At The Corporate Library, senior research associate Beth Young says controlled firms may be in the greatest need of outside board influence. "Often companies with controlling families are run more like private companies," she says. "The family can be very invested in the company's success, but there can also be instances where there's a lack of accountability."

But some controlled companies bristle at the idea that governance issues are ignored because they are family-run. Steve Hankins, CFO of Tyson Foods Inc., which is controlled by the Tyson family and does not have a majority of independent directors, says the company is committed to improving its governance — at its own pace. "[CEO] John Tyson is very focused on enhancing the board," says Hankins. "We are now 50-50, since we just added a new outside director." (Albert C. Zapanta, CEO of the U.S.­ Mexico Chamber of Commerce, became Tyson's latest independent member in May.)

Still, not all companies entitled to the exemption take it. The New York Times Co., for example, is controlled by the Ochs-Sulzberger family, but corporate secretary Rhonda L. Brauer says its board voted against designating the company as controlled. "We recognize that we're a public company," she says, "and we want to comply not only with the letter but also the spirit of all governance requirements."




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