In a year when the movement for board diversity has enjoyed significant support from investors, should corporate secretaries be considered candidates for directorships?
No one understands the risks and rewards of board membership better than the corporate secretary, so in a year when the movement for board diversity has enjoyed significant support from investors, should corporate secretaries be considered candidates for directorships? ‘When you think about senior statesman corporate secretaries, some from the past and some from the present, there are definitely some people you can look at and say, Who wouldn’t want that person on their board?’ says Nicole Sandford, leader of Deloitte’s governance practice.
Peggy Foran, the chief governance officer, vice president and secretary of Prudential Financial who sits on the board of Occidental Petroleum, is the immediate sterling example of a board-serving corporate secretary, but clearly there are others with similar qualities who could also serve as directors. ‘If they’ve been with a large-enough firm where they’ve lived through some really interesting issues – maybe shareholder challenges of one kind or another, board building or spin-offs – then they really have been on the front lines of some interesting transactions,’ says Sandford. ‘They are in the boardroom, so they are getting a crash course in board member responsibility that goes on for years. They have something interesting to offer.’
Always looking for ways to improve the governance of companies, Sandford began quietly advancing the concept of including corporate secretaries in the pool of board candidates in March this year as the issue of board diversity picked up steam at the start of proxy season. She has studied the issue for several years and co-wrote a white paper on the subject of diversifying boardrooms in America in 2010. Having served on the board of the Society of Corporate Secretaries and Governance Professionals (SCSGP) for four years, she believes the organization could be an excellent source of potential new board members.
The society’s president and CEO, Ken Bertsch, agrees. ‘I think corporate secretaries are a good source for boards potentially, obviously because they have a strong grasp on governance,’ he explains. ‘Moreover, they tend to have a good view of the various issues that come before the board, the different influences and the different pressures. They are people with strong experience, and constitute a pretty diverse group – including a lot of women – so it seems kind of natural to me.’
The skill set
As Bertsch suggests, corporate secretaries may have a natural skill set that makes them great candidates for a director’s position. Many of them are lawyers, and that lawyer training and experience is often very valuable when boards face difficult challenges. In February, the Financial Times and other news organizations reported on a Cornell Law School research paper that reveals the total number of lawyer-directors sitting on boards of companies within the S&P 500 had increased from 340 in 2000 to 541 in 2009. In fact, authors professor Charles Whitehead of Cornell Law School, and assistant professor of finance Lubomir Litov and associate law professor Simone Sepe of the University of Arizona found that the percentage of public companies with lawyer-directors jumped from 24.5 percent to 43.9 percent over that same time period.
Why are so many companies placing lawyers on their board? ‘Our results tell us that, on average, a lawyer-director increases company value by 9.5 percent, an increase that rises to 10.2 percent when the lawyer-director is also a corporate officer,’ the authors note in their research paper. Among other things, the paper suggests lawyer-directors are particularly good at decreasing accounting malpractice, securities law litigation and bankruptcy risk for the companies they serve, making them a very desirable group to have on any board. Given that a high percentage of corporate secretaries also happen to be lawyers, that presumably makes them attractive as board members.
Sandford says corporate secretaries’ knowledge of how to handle crises is another attractive factor. ‘They know better than anyone the challenges a board faces and how something can go from zero to 60 overnight,’ she points out. She adds that because corporate secretaries manage entire boards over long periods of time, they know how to make a board function well. ‘They know exactly what the board’s role is and how it’s different from management,’ she says. ‘They understand how to get the most out of the support management can provide in terms of information flow and access to senior executives.’
Finding the right board
While corporate secretaries may have great qualities for board service, however, it doesn’t automatically follow that they will be right for every company’s board.
‘If we are talking about the board of the company that employs the corporate secretary, I think there is an inherent conflict,’ cautions Steven Shapiro, partner at Pircher Nichols & Meeks in Chicago and a former corporate secretary himself. ‘If we are talking about serving on the board of a different firm, I don’t see any reason why the approach for nominating a corporate secretary would be any different from nominating any other candidate. You’d consider what industry and company experience he or she has, and the skills, expertise and personal qualities he or she would bring to the board. If it’s just a background in corporate governance, I don’t think that would be sufficient.’
Bertsch also feels having a corporate secretary serve on the board of the company he or she works for would create conflicts and would not be considered best practice, but he adds: ‘For smaller companies, it’s typically a board member who is going to wind up serving as the companies that are thirsty for expertise. Mega-cap and large-cap companies have specific skill sets they require in those who fill their boards, and would likely pursue higher-profile CEOs and senior corporate executives as board candidates. Small-cap companies, however, would be more open to welcoming a corporate secretary who might be seeking a board seat.
More specifically, Sandford says adding a corporate secretary as a director might work well for ‘a small private firm that wants to be a public company someday, say within the next two to five years. If you analyze the skills you have on your board, the first director you would want to add is somebody who has helped build a board before, someone who understands how to get the best possible people to take a company public. Or if you’re a young public company trying to think about what it’s going to take to grow and you have several long-term strategies that will require some patience on the part of your investors, a corporate secretary on your board may be of great help.’
She suggests that, at a young public company, a seasoned corporate secretary can provide a blueprint for a governance structure long-term investors may like, and use his or her established relationships in the marketplace to help attract the investors the new firm needs.
The challenges
Of course, there are challenges to considering corporate secretaries for director positions. Some companies have policies that prevent officers from serving on outside corporate boards. Generally these policies cover senior executives, but they could cover the corporate secretary at some companies. Even if there isn’t a policy against it, it may still be frowned upon by management.
‘The immediate downside is that it’s a lot of work,’ explains Bertsch. ‘A lot of companies don’t want their executives to be on other boards because it’s a diversion from their core job. Many people are overworked as it is without sitting on an outside board.’
The candidate’s personality can also be a factor. ‘Many corporate secretaries are very good at dealing with other egos, and that could be good on a board,’ says Bertsch. ‘But it’s also possible that some might not be assertive enough because they tend to be conciliators, which is not the same as being a board member.’
One of the obvious challenges of serving on a public company board is scheduling the board meetings and finding time to take part in the annual meetings. ‘Corporate secretaries won’t be able to miss their own company board meetings, and they won’t be able to miss the week leading up to their own company annual meeting – so trying to work out the schedules will be really tough,’ Sandford says.
But she points out that ‘CEOs are able to do it, and they certainly have a broad spectrum of responsibilities for the companies [they serve as directors for]. Smaller-cap companies have a little bit more flexibility in their calendar than the bigger companies, so there is a way to make it work – but it certainly is a challenge.’
List of Potential Board Candidates
Peggy Foran, chief governance officer, vice president and secretary of Prudential Financial declined to be interviewed for this article, but has shown that corporate secretaries can serve as board members and still function at a high level. Overall, corporate secretaries may make good candidates for director positions under very specific conditions. While far from an exhaustive list, Corporate Secretary believes the following individuals could also make excellent candidates for members of corporate boards:
- Doug Chia, assistant general counsel and corporate secretary, Johnson & Johnson
- Joan Conley, senior vice president and corporate secretary, NASDAQ OMX
- David Masse, senior legal counsel and assistant corporate secretary, CGI Group, and chairman of the Canadian Society of Corporate Secretaries
- Janet McGinness, executive vice president and corporate secretary, NYSE Euronext
- Carol Schwartz, corporate secretary and chief governance officer, American Express
- Irma Villarreal, chief securities counsel and assistant corporate secretary, Kraft Foods
- Paul Washington, senior vice president, deputy general counsel and corporate secretary, Time Warner.
