Being a Director Should be Considered a Real Job

Jonathan Drance and Edward Waitzer compare and contrast private-equity and public boards and conclude we should Make directors work. (National Post, 7/16/09) I've seen the comparisons before; it's the conclusion that is novel.

"In private equity, CEOs are clearly subordinate to their board. This contrasts with many public companies where, absent a crisis, directors often effectively view themselves as virtual employees of the CEO. Private-equity boards tend to be smaller and comprised of individuals with or representing substantial ownership stakes — many of whom would not be considered “independent” under the regulatory frameworks governing public company boards. The primary focus for board selection tends to be effectiveness. The issue, when it comes to independence, is on a director’s ability to bring informed and objective judgement to their role. Conflicts of interest tend to be faced and managed (rather than pretending they can be avoided). Private-equity directors devote more time, and receive better information and more (and longer-term equity-based) compensation. Social customs tend to differ as well, with discussions at the board level and between directors and management being more forthright and focused."

While private-equity directors devote 40-60 mostly hands-on days a year, public company directors average of 18-25 days, largely at or preparing for board and committee meetings. "What if, instead of spending 25 days, public company directors were expected to dedicate 80-100 days a year to their responsibilities?"

When I first ran for the CalPERS Board in 1986 it was a part-time job. The Government Code limited CalPERS to reimbursing the employers of directors elected by state, school or public agencies to 25% their salary. The implication was, they were expected to spend no more than 25% of their yearly time on CalPERS related matters.

Over the years, CalPERS adopted various internal policies, which I believed were in conflict with that limitation. I understood directors couldn't do the job working only 25% time. However, I felt CalPERS should be clearly in compliance with the law. My advice was, "Admit the job is bigger than it once was. Go to the Legislature to get the law changed." To urge them down that path, in December 2000 I filed a petition with the Office of Administrative Law, arguing their policies constituted underground regulations. Language operative in 2003 removed that restriction from Section 20092 of the Government Code.

Isn't it time shareowners, CEOs and corporate boards admit, if we really want directors of public companies do their jobs they need to be reimbursed for more than 20 days a year? If serving on the CalPERS Board is practically a full-time job, why isn't that the case for the directors serving on the board of GM or Exxon Mobil? For years, CalPERS was in denial. Then they finally woke up and got clear legal authority to allow directors to devote far more than 25% of their time to their work. CalPERS had to go to the Legislature, so they were reluctant. What's the excuse for public corporations?