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| Vision & Revisions |
The New Regencies
Daniel Gross
10/01/2004
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There is something timeless about Raymond Troubh’s office at 10 Rockefeller
Plaza, overlooking the famous Rockefeller Center skating rink. The door bears a
simple nameplate. There is no computer, cell phone or BlackBerry on his desk.
The wall behind it is covered with black-and-white photographs, including one of
the 1953-54 Supreme Court, autographed by each justice. Troubh, a Yale Law
School graduate, was a clerk for Justice Harold Burton when the court handed
down its landmark Brown v. Board of Education ruling.
 | | (Photograph by Abe Frajndlich.) |
There is also something
timeless about Troubh, 78, a straight-talking man with a faint Maine accent. For
the past 30 years, he has pursued an unusual avocation as a full-time director
of public companies. Troubh has served on dozens of boards, including those of
Time Warner, Sunbeam, Starwood Hotels and Becton-Dickinson. The trustees of
bankrupt energy trader Enron, seeking a steady hand to navigate it back from the
brink, chose Troubh as the interim chairman of its board of directors in 2002.
Enron’s downfall has become emblematic of the shortcomings of corporate
governance in the late 1990s. Its board, like those of many other tarnished
corporations, failed to oversee and restrain its management, which resorted to
fraudulent measures to boost its reported earnings. In response to this and
similar scandals, the government passed the Sarbanes-Oxley law, which attempts
to improve governance, management accountability and transparency. Whether it
will succeed, or result only in only additional compliance costs, has yet to be
determined.
High-profile corporate failures and scandals have changed boards’ priorities.
| If somebody who is quite smart is determined to screw the company, I
don’t think anybody is going to uncover it for quite a while. |
Corporate governance is now the most important topic, as it should be, in
boardrooms. It is not only the fear of not doing the right thing; it is a
determination that the numbers served up to shareholders and the media and the
public must be real numbers. This is not to say that in the past the numbers
were not real. But there is much more crispness in the determination of the
balance sheet now.
The Sarbanes-Oxley bill is expensive but important.
Sarbanes-oxley is proving to be extremely costly, more so than anyone in
Congress realizes. I am seeing accounting fees—in particular, auditing
fees—doubling this year, because the law requires that internal controls be put
in, and opined upon. So companies are throwing much more firepower into the
breach and ending up with enormous extra time invested. Some companies may find
these costs too onerous and go private as a result. But that is too bad. It is
just the cost of trying to strengthen the capitalist system.
Board oversight of CEOs has changed.
 There has been a sea change in the relationship between the CEO and the
board. The balance of power has shifted to the board; the days of the imperial
CEO are numbered. To extend the metaphor, a regency has now been established
wherein the board is going to be much more involved in advising the CEO, and
keeping him on the straight and narrow. And I think it is all for the
better.
One of the most important developments has been the creation of the
independent nominating committee. In the old days, the CEO monopolized the
selection of the board of directors. Typically, they were cronies. They went to
the same church or synagogue, or went on vacation together. How could you be
truly independent? Given time, these nominating committees, driven by very
strong chairmen, are going to result in better people sitting on boards.
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