A solution without a problem

When he wasn’t hanging around the Algonquin Hotel’s Round Table with James Thurber and Dorothy Parker, humorist Robert Benchley wrote some pretty droll essays. In one, Insomnia Cure, he said:

‘Those great ideas which come to you in your sleep just before you awake in morning, those solutions to the world’s problems which, in the light of day, turn out to be duds of the puniest order, couldn’t they be put to some use, after all?’

One of the great ideas floating up out of someone’s sleep and into the corporate governance ether is that boards of directors should have their own board secretaries. Hmmm . . . this solves what problem? And how does it solve it?

The thing is, this idea is not just an idea. It is being implemented at a handful of listed companies and is attracting some support from a small segment of the investment and analyst community.

I don’t make any claim to understanding the intricacies of directors’ minds, but I’m willing to hazard a guess that a board secretary’s job would be to aid the board in remaining independent from company management. Call me crazy, but I’m pretty certain that there already exists a plethora of standards for what makes a director independent. And that there are all kinds of guidelines about how many independent directors should serve on boards and on committees of the board. There are even standards for the independence of the consultants the board uses as opposed to those employed by management. Chairmanships are being separated from CEOs, and lead directors and presiding directors are popping up faster than new candidates for the 2008 US presidential elections.

It seems to me that we already have a whole lot of independence, thank you very much. And most corporate secretaries, although part of senior management, are experienced, well-educated and well-versed in governance. The Society of Corporate Secretaries and Governance Professionals recently completed its biennial compensation survey. It found that out of 536 respondents – all of whom are members of the Society – the average number of years of ‘relevant experience’ with their companies was 15.7 years. A whopping 79 percent of them have a law degree and/or a masters degree. And God only knows how many board minutes they’ve recorded, how many 10Ks, 8Ks and Forms 3, 4 and 5 they’ve filed. No matter how you size them up, this is a talented bunch of people.

Never mind all the experience, education and competency – corporate secretaries are required by law. The corporation laws of all fifty states require that each corporation have a secretary.

So . . . how does a board secretary bring corporate governance value to the board that isn’t already there in the person of the corporate secretary?

If the board can’t depend on the corporate secretary for honest guidance on governance matters, how is a board secretary going to be able to provide it? Since the board secretary won’t be a part of senior management, he or she won’t be able to speak to management’s philosophy or motivation. The board secretary won’t be able to provide a look ‘inside’ the workings of management. Also, since the corporate secretary will still be responsible for all compliance requirements, to stay current the board secretary will need to get all of that information from the corporate secretary.

Another thought that crosses the vast wasteland that is my mind: Isn’t a board secretary almost automatically going to be in conflict with a corporate secretary? The very creation of a job reporting directly and solely to the board sends the message that management’s creature, the corporate secretary, is not to be trusted no doubt because management will ‘own’ the corporate secretary’s mind.

And, is an independent board secretary any kind of guarantee that a company will practice good corporate governance? Look at Hewlett-Packard: The company had an independent chairman, arguably the gold standard in independence. And that independent chair, struggling with a board member who was leaking to the press in defiance of board policy, launched an investigation into the leak. Shades of Richard Nixon and the Plumbers – illegal investigatory techniques were used, the soundness of the chairman’s judgment was called into question, and, eventually, she was shown the door. How on earth could a board secretary have helped? Independence wasn’t the issue; the chairman was independent. And since a board secretary will, presumably, report to the independent chairman or lead director, how could he or she tell the chairman that the investigation was a very bad idea and still continue in the board’s employ?

Let me take a completely different tack: If a board secretary is a good idea, why not an independent board financial officer? Why not a financial expert who creates and maintains a completely independent set of books and reports to the board on his or her view of the financial status of the corporation? Such an officer would require a staff to handle the recording and analysis of the financials, but it would be worth it to guarantee the board that the numbers are unquestionably watertight.

While we’re in the midst of creating an independent bureaucracy for the board, why not add a board counsel, a senior legal officer to oversee and review the thousands of legal intricacies that the modern corporation has to contend with? If you can’t trust the corporate secretary or the CFO because of their positions within management, can you really afford to trust the general counsel? If you’re considering a gigantic and complicated merger or acquisition (and maybe a shareholder lawsuit somewhere down the road) do you really want your personal fortune to hang on the advice of management’s legal expert?

Wait a minute, you’re thinking. Who the hell is going to pay for all this independent expertise? Who’s going to figure out the annual salary and bonus structure and options and – well, do you think you can use your (independent) compensation consultants? The ones who used to advise you on management’s compensation? Probably not a good idea… might be a conflict of interest. You probably are going to want to get an independent board bureaucracy compensation consultant.

Maybe there’s a better way to go. Maybe corporate secretaries should be further empowered so they can utter the sometimes unpleasant truths that boards need to hear.

If we thus empower corporate secretaries, we won’t need all the people that we hired for the board. Can the company’s HR department lay them off? Or will we need to hire an independent outplacement consultant?

Any views or opinions are solely those of the author and do not necessarily represent those of Corporate Secretary magazine or the Society of Corporate Secretaries and Governance Professionals.