Balance of Power

Illustration of hands holding building up

pushing for corporate accountability in a post-enron world

written by ann logue illustrations by carl wiens & Nancy zink white

The Enron scandal may seem like ancient history, especially now that the key players are in prison or dead, but that doesn’t mean that the potential for shareholder abuses has been put away for good. Nell Minow ’74 and Myra Drucker ’68 are both experts on corporate governance who have spent the better part of two decades working to make corporations more accountable. They look at governance from different sides of the table: Drucker wants board members to do their work better, while Minow wants shareholders to exercise more power over boards. Their work isn’t done as long as human beings continue to act badly on occasion.

Picking stocks and timing trades are different skills than motivating employees and managing marketing campaigns. That’s why corporations aren’t run by their shareholders, although they should be run for them. Shareholders use proxies to elect a board of directors to oversee the work of company management.

Members of boards “need to be aware of who their shareholders are and what they want and need,” says Drucker, who serves on several corporate boards and is the vice-chair of the College’s Board of Trustees. Those shareholders include people who have savings, are counting on a pension, or contribute to nonprofit institutions.

But the board doesn’t always come through, especially if the C.E.O. nominates board members for status instead of business savvy. “When I first got into this business, O.J. Simpson was on five boards,” says Minow, a corporate governance activist. When that happens, the best case is that managers will maximize their pay regardless of profits; worst case is a governance scandal that becomes a household name—like Enron.

How did this all get started? “For most of the 20th century, corporate governance was considered to be as outmoded as the horse-drawn carriage,” Minow says. The operating philosophy was that companies were too complicated for outsiders to understand, but that sophisticated, professional managers could be trusted to behave appropriately.

Illustration of Nell Minow

But a few things happened in the 1980’s, says Minow. First, too many managers abused their powers and spent profits on perks, without regard for shareholder interests. Second, new securities—like junk bonds—were developed, which made large corporate takeovers possible and gave investors a lever against lousy managers. Finally, money flowed into large institutional pools like pensions and mutual funds. “All of a sudden, you had a level of abuse, and shareholders big enough and smart enough to know what was going on and to be unhappy about it,” Minow says.

Drucker worked for those institutions long before she was asked to join any boards. She managed trust and pension assets for Xerox Corporation and International Paper in the 1980’s—jobs that required her to pay attention to the performance of the companies that the funds invested in. At that time, “board members were not expected to ask too many questions,” she says. “Asking too many questions was thought to be a breach of etiquette.” Many directors asked their questions and did their work outside of the board room, she says, so appropriate oversight happened at most companies. But when it didn’t, disasters occurred.

As part of her pension fund responsibilities, Drucker joined the New York Stock Exchange Pension Managers Advisory Committee in 1988. In 2002, she was named to the exchange’s Corporate Accountability and Listing Standards Committee, which looked at the board practices of N.Y.S.E. companies. One of the new requirements the committee made was that boards meet regularly in executive session, which are meetings that exclude the company C.E.O. Drucker says this makes directors feel more comfortable discussing performance. “The ethos in the board room changed dramatically,” Drucker says. “It freed up the web of politeness in which many boards had been caught.”

In 1985, the same year that Enron was formed, Minow and Robert A.G. Monks launched Institutional Shareholder Services, which advised large shareholders on how to vote proxies. ISS was sold in 1999, and that year Monks and Minow formed the Corporate Library (, which advises investors about problems with management and board practices that could lead to performance problems or lawsuits. The businesses proved more successful than Minow ever imagined. “Even we were flabbergasted by just how bad things got with Enron and WorldCom and Hollinger International,” she says.

Over the years, Minow and Drucker have presented on the same panels and submitted testimony to the same committees, but they’ve often differed on how best to improve governance. Most of their disagreements are over subtleties that arise only between people deeply enmeshed in the subject; both agree that boards can do a better job of serving their constituencies. And both agree that their Sarah Lawrence educations made their work possible. “I learned to question authority and to try to turn things on their heads and see how they look,” Minow says. “It’s tremendously liberating to feel that everything is open for discussion.”

“Sarah Lawrence is always about juggling the impossible and learning how to teach yourself things when you need to,” Drucker says. “I was given the respect of very smart professors at a very young age,” which gave her the confidence to challenge the status quo.

Most Americans glaze over when the subject turns to governance. After all, the Sarbanes-Oxley Act of 2002 solved some huge problems. The law included criminal penalties for executives who distort finance statements, which seems like it should have solved the conflicts between shareholders and managers. To those active in governance, though, it was just one more step in a long journey. Minow’s wish list includes majority vote, in which a board cannot be seated unless a majority of shareholders support a candidate, rather than getting on with just one vote if the candidate is unopposed; another is say-on-pay, in which shareholders would get a non-binding vote on the C.E.O.’s compensation package. Both, she thinks, would force companies to be accountable to those who invest with them.

Drucker would like to see a sharper line between management functions and oversight functions in board meetings, which requires education of all parties involved, including regulators. “It requires a great deal of appropriate leadership,” she says, because conflicting government regulations sometimes blur the lines between board-as-overseer and board-as-manager, solving short-term problems at the expense of long-term guidance.

In the meantime, Minow is still in business, and Drucker is spending her retirement working on four corporate boards, three nonprofit boards, and the President’s Working Group on Financial Markets. As long as business evolves, new governance challenges will emerge, creating an ongoing need for their expertise.

Ann Logue is a Chicago-based writer who covers business and finance. She’s the author of Hedge Funds for Dummies (Wiley, 2006) and Day Trading for Dummies (Wiley, 2007).

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