What's Right And Wrong At Heinz
"The CEO and the board," (Cover Story, Sept. 15) wrongly asserts that Heinz's corporate-governance system is under attack. Our style of governance was overwhelmingly endorsed on Sept. 10 at the annual meeting of shareholders, when our entire board received 98.6% of one of the highest votes ever cast. The vote recognized that, under the directors' stewardship, Heinz has, over 20 years, delivered superior returns to its shareholders--21.8% per year. This accomplishment exceeds that of Campbell Soup Co., at 20.7%.
You claimed that, over the past five years, Heinz's annual shareholder returns of 13.9% have "consistently underperformed" the Standard & Poor's food index. For that period, the food index return was the same--13.9%.
While the Heinz executive committee has the authority to act when the board is not in session, its powers are strictly limited by the board. For example, it cannot authorize capital appropriations, acquisitions, or divestitures in excess of $10 million, or special transactions such as the issuance of stock or debt. Also, all executive-compensation plans must go before the board.
You understated the status of the board of directors by failing to mention that Donald R. Keough is chairman of Allen & Co., that Edith E. Holiday was Assistant to the President of the U.S. and Secretary of the Cabinet, that Nicholas Brady was Treasury Secretary, and that Samuel C. Johnson is chairman of S.C. Johnson & Son Inc., not former chairman.
You failed to report that the board's management development and compensation committee, which recommends the choice of CEO, is composed entirely of outside directors. The nominating committee, which screens and recommends candidates, has a majority of outside directors.
BUSINESS WEEK compares Heinz with Campbell, which, according to its proxy, has on its board five members and representatives of the family, controlling 43% of its shares. The test of any board of directors is the performance of the company. By this criterion Heinz has performed superbly.
Vice-President, Corporate Affairs
H.J. Heinz Co.
Editor's note: BUSINESS WEEK's story noted that a stock runup since the appointment of Bill Johnson as president had allowed Heinz to catch up with food-industry rivals after it had consistently underperformed the S&P food index. With regard to Samuel Johnson's title, he was chairman until 1994, when his title was changed to "nonexecutive chairman."
The notion of independence has nothing to do with friendship, compensation of directors, or gifts from the Heinz Foundations. None of us on the Heinz board is easily purchased by friendship or money. The kind of people on the Heinz board take pride in having independent views and in the ability to think clearly about important matters. Most of us are independent financially and are not dependent on our income from Heinz.
Another superficial issue is age. Again, the emphasis has to be on individual performance, not on some arbitrary variable such as age. We both know that some people are mentally dead at 50 and others are still going strong at 80 or 85. Accomplishments are the kinds of things to look at, not age.
In my own case, you have the facts wrong. Jack Heinz, who was chairman of the board and was a trustee at Carnegie Mellon, was the person who asked me to go on the board. He relayed this information to Tony O'Reilly, who then talked to me. It was after I was already on the Heinz board that O'Reilly joined the board at Allegheny International. Our both being on the Allegheny board had nothing to do with my being on the Heinz board.
If you really want to attack the problem of corporate governance, then it must be based on information flow and the determination of the ways to get good information to directors. On this score, incidentally, there are many things that can be done, but one of them is not to get rid of the inside people on the board. They are a terrific source of good information for outside board members.
Richard M. Cyert
President Emeritus, Carnegie Mellon
Director, H.J. Heinz & Co.
I've been a Heinz stockholder for several years. A few months ago, when I read the latest proxy issued in connection with the firm's annual meeting, I was dismayed by the number of directors over 70 who had been on the board 10 years or more, all of whom were seeking reelection.
I am 61, and I know I have acquired a certain expertise in my profession, but I simply do not have the mental (or physical) agility that associates who are 20 years younger have. I think this is quite normal in most professions, including corporate directorships. Having one or two Wise Old Owls on the board does make for a certain stability, but when they are in the majority, it can mean only one thing: stagnation.
When I returned my proxy, I voted against half the nominees and wrote on the ballot: "There are too many fogies on this board."
Richard A. Kagan
An outstanding Cover Story this week--and a logical extension of last year's "The best & worst boards" (BW--Nov. 25). I plan to wave it at my corporate governance students at Stanford Law School next Monday.
Richard H. Koppes
Consulting Professor of Law
Palo Alto, Calif.
I found your story most enlightening. In John Byrne's most balanced portrait of life in the H.J. Heinz boardroom, I learned a lot about what fortunately only a few business leaders consider to be acceptable corporate governance.
It is interesting to note that only a few days after you reported Chairman O'Reilly's views that an insider-dominated board was best for the shareholders of Heinz, the traditionally CEO-dominated Business Roundtable, never considered a bulwark of cutting-edge corporate governance principles, issued a report calling for public company boards to be composed of a "substantial majority" of outside directors.
Charles M. Elson
Professor of Law
Stetson College of Law
St. Petersburg, Fla.
Historically, groups of people received corporate powers because they were willing to take on certain tasks--such as settling North America and building bridges and railroads--that the government could not or would not shoulder. They took on vital social functions and received quasi-governmental powers to carry them out. The shareholders received the protections of the corporate veil and limited liability in exchange for assuming the risk that these challenges posed.
Therefore, the Business Roundtable task force's conclusion that the first obligation of management is to shareholders is wrong. The primary duty of corporate management runs to the polities (the true stakeholders) that gave managers and shareholders the privileges--and wealth--they enjoy.
Stakeholders, unlike shareholders, assume unlimited liability for corporate mismanagement. The savings and loan debacle is only the most recent proof of this truth.
Peter D. Kinder
Kinder, Lydenberg, Domini & Co.