The trial of Joe Nacchio, former CEO of Qwest Communications, is yet another warning call to directors and managers of corporate America. I don’t know if Nacchio did anything wrong. But it almost doesn’t matter to most Americans. The picture of a highly paid corporate CEO making $100 million from his stock options, when the average investor took a huge bath in his company’s stock, simply underscores an unfortunate mistrust of business.
It doesn’t have to be this way. Most American corporations and most corporate managers and directors know what their jobs are. They are there to make their companies, not just themselves, successful. But, as a director of a number of public companies myself, I know that simply mouthing the words “increase shareholder value” is meaningless unless your actions match your words. This means taking very seriously your job, as a director or CEO, of putting shareholders’ interests above your own.
A multitude of people own American public companies, including those represented by huge pension funds that are meant to ensure the retirement of millions of workers. Therefore, the first responsibility of any public company is to those who own it. Nacchio may have made his multi-millions through very legitimate trades. But the retiree whose pension was reduced by losing millions in Qwest stock legitimately sees herself as someone whose retirement is impoverished while an already rich man became much richer.
Given the fiduciary responsibilities of corporate managers and directors, here are some ways I look at my own obligations as a public company director. First, my interests are secondary to those of other shareholders. That doesn’t mean I’ll end up a loser, but it does mean I can’t look for personal gain first and foremost. My interests are tied completely to those of other shareholders.
Next, a big part of my job is to hold management accountable. At the same time, directors rely on management to provide the very information that enables them to assess accountability.
That makes it particularly important for directors to act independently, to ask difficult questions, and to demand the data they need to make good decisions. That isn’t always comfortable, but it is essential. Fortunately, the federal Sarbanes-Oxley law and the resulting regulations established by the Securities and Exchange Commission require directors to sharpen their behavior.
Directors must protect confidential information they receive in board meetings. This is important to safeguarding trade secrets, which is a key part of a company’s value to shareholders. One only needs to look at the chaos resulting from directors’ betrayal of confidential information at Hewlett-Packard to see how this can damage a company’s reputation. It takes a huge effort on the part of managers and directors to right such a lapse.
At the same time, directors must ensure that information essential to the public’s ability to make wise investment decisions is fully shared with the public. That means disclosing bad news as well as good. It means not acting on insider information for one’s own benefit, a legal requirement that entangled both Martha Stewart and perhaps Joe Nacchio.
Finally, even when the news is bad, it pays to tell the truth. No matter how painful or humiliating, it’s only fair to let your investors know what is happening to their company.
Americans bet their futures on American business. It is the core of our society and economy. That’s why it’s so important for managers and directors to hold themselves accountable for watching out for shareholders. Ultimately, they are the ones who make our economy successful. We who run their companies owe them the highest fiduciary responsibility. We must deserve their trust.
Gail Schoettler (gailschoettler@email.msn.com) is a former U.S. ambassador and Colorado lieutenant governor and treasurer.
