Advisory Boards: Influence for Hire?
Even the wonks had ties to Enron, it turns out. The company paid Paul Krugman, an economist and editorial columnist at The New York Times, $50,000 to serve on its advisory committee, a group of political and academic figures assembled to advise the energy giant on everything from Presidential politics to energy markets. Similarly, The Weekly Standard's William Kristol received $100,000.
So what did the likes of Krugman and Kristol, who could not be reached for comment, and other one-time advisory-board members like Lawrence B. Lindsey, now the top White House economic adviser, and U.S. Trade Representative Robert B. Zoellick, do to earn their keep?
Krugman, recruited to advise Enron on the Asian financial crisis, attended a single two-day meeting on the topic in 1999. Later that year, he severed his relationship after accepting the position at the Times, where he wrote a number of columns highly critical of the company. Krugman maintains that he avoided a conflict of interest by disclosing his Enron connection in his column. "If I was writing stuff favorable to Enron, people would have a right to look at me cross-eyed," says Krugman. According to another former board member: "My job was to report on what was going on around the world -- with charts, that sort of thing. This took about 1½ days."
Nice work if you can get it. And with many companies employing advisory boards like Enron's to advise them on technical, economic, and policy issues, it hasn't been that hard to land a gig for those with the appropriate talents and reputations. The list of those serving on such boards reads like a who's who of American power brokers: former Secretary of State Henry A. Kissinger chairs the advisory committee at insurance kingpin AIG, former National Urban League President Vernon Jordan Jr. sits on one at DaimlerChrysler, former House Speaker Thomas Foley is a member of Goldman Sachs' advisory board, and former Treasury Secretary Robert Rubin heads Solomon Smith Barney's.
The question is: Are these programs simply workfare for wonks, or do they actually serve a purpose?
The latter was certainly the intent. Such boards proliferated throughout the '80s and early '90s, as startups, technology companies, and biotech outfits sought the sort of expertise on emerging technologies and overseas markets that wasn't available through their own boards of directors. The pay was often low, and much of it came in the form of stock options. But as the technologies matured, overseas markets were conquered, and many dot-coms went bust, the need for tech advisory boards diminished.
Today, advisory committees of a more general sort remain as much an institution throughout the corporate world as the boards of directors they advise. Usually answering to chief executives and board chairmen, advisory panels typically comprise anywhere from 5 to 15 members -- each being paid from $10,000 to $25,000 a year, according to those who follow the industry. Dennis Carey, co-chairman at SpencerStuart, says most advisory boards function as an inexpensive way to capture market intelligence, citing as an example the panel created by Harold Wagner, the former CEO at Air Products & Chemicals, to help lay the groundwork for the company's push into the European market.
BROUGHT TO HEAL.
Others play an even more crucial role. At Closure Medical, CEO Robert Toni turned to his 10-member advisory panel for help when a lack of scientific literature on the company's liquid adhesive for wounds threatened to sink both its Food & Drug Administration petition and a marketing partnership with Johnson & Johnson. The result? Panel members, including two professors at Duke University and experts in internal and external medicine, studied the product and published their research. It won FDA approval in 1998, and the deal with J&J was inked.
With so many people moving between the business world and Washington, hiring current and former bigwigs is inevitable. The international advisory committee of Solomon Smith Barney, now headed by Rubin, once included Defense Secretary Donald Rumsfeld and Vice-President Richard Cheney, when he was still CEO of Halliburton. "This was a shrewd tactic by [Enron Chairman] Ken Lay because he recognized early on that his bread was partly buttered by regulators and policymakers. It allowed [Enron] to curry favor with important people," says Wharton management professor Michael Useem.
Companies that use advisory boards and the people who serve on them dispute that notion. Goldman Sachs says it named Foley to its Japanese advisory committee because of his experience as a former U.S. ambassador to Japan and not "to open doors in Japan and Washington."
Solomon Smith Barney says its advisory-panel members are chosen for the "valuable perspectives" they bring to the task, not their political clout. Rubin, Foley, and Kissinger could not be reached for comment for this story, but Jordan says advisory panels are not an attempt to curry favor. Says Jordan, who was paid $25,000 for his once-a-year service on the DaimlerChrysler committee: "The notion that it's peddling influence is an insult to the process."
Advisory committees can, and do, offer valuable assistance to management as they grapple with vexing technological and regulatory issues. But for advisory panels to be viewed as something more than a back-door way to win friends in high places, companies have to tread carefully -- paying members modestly and giving them real work to do. It may be too late for Enron, but it's not too late to learn from its mistakes.
By Louis Lavelle in New York, with Dan Carney in Washington and bureau reports