Commentary: Governance: Ce Os Catch Up With Shareholder Activists

For more than a decade, Nell Minow has been at the forefront of shareholder activism. The principal of investment fund Lens Inc. has lobbed more than her fair share of verbal grenades at entrenched managements and their boards of directors, charging they aren't sufficiently responsive to shareholders.

So it comes as a surprise that Minow finds herself in general agreement with Big Business. That's the upshot of the Sept. 10 release of the Business Roundtable's statement on corporate governance. Says Minow: "I'm not on the fringe anymore."

Indeed, the biggest news in the Roundtable's report may be that once radical ideas about corporate governance are now firmly in the mainstream--and are accepted by a group made up of 200 CEOs of the nation's largest corporations and headed by the chieftains of Caterpillar, Johnson & Johnson, Chase Manhattan, and General Motors.

STOCKHOLDERS FIRST. The document offers little in the way of new ideas about governance. But it acknowledges that "the paramount duty" of management and the board is to the shareholders and not to such other stakeholders as employees, customers, suppliers, and the community. It also urges that boards be composed of a "substantial majority" of outside directors and that they meet at least once a year without the CEO or other inside directors present.

Parts of the document even sound as if they could have come from a speech by Minow or governance guru Ira M. Millstein, who in 1996 headed a panel of the National Association of Corporate Directors that issued its own guidelines. The Roundtable now agrees that it's up to the board--not the CEO alone--to nominate new directors and that a board's nominating committee should include only outside directors. It calls for boards to evaluate CEO performance every year.

The last time the Roundtable tackled the subject of governance was in 1990. Then, its recommendations were so general as to be nearly meaningless. Few expected better in 1997. "That group creating guidelines for governance is like a group of foxes creating rules for rushing into the henhouse," says Charles M. Elson, a governance expert and a professor at Stetson University School of Law.

This time around, however, a task force headed by Chase Manhattan Chairman Walter V. Shipley brought the Roundtable to many positions long advocated by activists. Still, the group shies away from endorsing "best practices" as a rigid tool for governance. "The substance of corporate governance and how it works is more important than the form or structure of it," insists Shipley.

Undoubtedly, some corporate-governance experts will say the directives don't go far enough. For example, the Roundtable opposes term limits for directors, a popular technique for keeping companies open to new ideas. But Minow and other activists find plenty to applaud. With top American CEOs calling for reform, governance is achieving the prominence on management's agenda it has long deserved.

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