Growing in stature

There is an old saying that if you can’t explain something to a child or to your grandmother then you don’t really understand it. That is all well and good but have you ever tried to explain what a corporate secretary does to a teenager? That is exactly what Craig Mallick, chairman-elect of the Society of Corporate Secretaries and Governance Professionals, had to do earlier this year. It may not surprise you that the role of corporate secretary and assistant general counsel at a major US company (US Steel to be exact) is complicated enough and that he had to think for several days before answering the question. The following is, in Mallick’s own words, the story of how he answered, which he originally shared with his peers during a speech given at the Society Essentials Conference, which took place in Florida this past January:

Mallick’s story

I’m not going to talk about nuts and bolts issues [of  corporate secretaries and their staffs], ... Instead I’m going to try to give you some more general things to think about. Let me preface my observations by saying that in our roles in corporate governance today, I think we have to deal with the reverse of what we tell our children, or our parents told us, about how much harder things were in the old days – you know, about TV being black and white with only three or four channels and you had to watch what was on when it was on and cross the room to change the channel, or about having to walk three miles to school in knee-deep snow, and it was uphill both ways. No, for corporate secretaries and governance professionals, we look back at the old days with longing, because the snow is getting deeper now, and sometimes we’re not even sure which way to go. Uphill would be fine; just please tell me which direction.

I have a 13-year-old daughter named Emma. She’s my youngest. A couple of months ago, Emma asked me, ‘Dad, exactly what do you do at work?’ Now she knows I’m a lawyer for US Steel and that I’m the corporate secretary, and she knows I have something to do with making sure the company follows ‘the rules’. But I realized I didn’t have a concise answer for her about what a corporate secretary does. This wasn’t the first time I’d struggled with this question. Plenty of adults have heard me meander through a five-minute description of what a corporate secretary does. Perhaps you’ve had similar experiences. But Emma deserved a better, shorter answer, one that summed it up rather neatly.

Fortunately, it was her bedtime so I could say, ‘The answer to your question is kind of complicated and you need to go to sleep, so I’ll explain it to you tomorrow.’ How many think I did? You’re right; I didn’t. But I did reflect upon her question. It seemed to me there should be a simple answer. I thought about all we do as governance professionals, about determining what matters require board action and making sure they’re acted on properly, about keeping accurate minutes and corporate records, about all the compliance and disclosure requirements, about conducting shareholder meetings.

I thought about all of that for several days and it finally came to me. I went back to Emma and I said, ‘Emma, remember your question about what corporate secretaries do?’ She said, ‘Yes’. ‘Emma’, I said, ‘we’re the guardians of corporate legitimacy.’ (As an aside, I meant the broad, not-just-legal definition of legitimate, namely conforming to recognized principles of accepted rules and standards.)

‘Guardians of corporate legitimacy,’ I actually said.

Emma looked at me for a second, blankly, and said, ‘Oooohhh-kay,’ in that way that 13-year-olds do. So I quickly tried to follow that up with more about what a board of directors is and what shareholders are and how we have to keep the directors and the CEO out of trouble and tell the shareholders what they need to know, and generally not just make sure we do things right, but that we make sure the company does the right thing. That seemed to resonate with her, but it of course only scratched the surface. What we do is complicated, from board activity down to the concierge function of making sure there are enough low-fat meals.

Back in the old days the term ‘corporate governance’ was seldom heard outside the offices of corporate secretaries. It just wasn’t something people talked about. In those days investors cared primarily about a company’s performance, about shareholder returns, not about whether the board committees were made up of independent directors or a director had some relative who worked for the independent auditor.

All of that changed, of course, with the corporate scandals of the early 21st century and the resulting Sarbanes-Oxley Act and new stock exchange rules. Now, corporate governance has become a cottage industry. Self-appointed experts in corporate governance are everywhere, advising companies, advising institutional shareholders and giving out corporate governance ratings. How did we get to this point? And what exactly do we mean when we use the term ‘corporate governance’?

Well, of course we got here because of the scandals. Shareholders, legislators and regulators became concerned with process. They wanted to be sure that decisions reached by CEOs and by boards of directors were made in the absence of any conflicts of interest, and that appropriate safeguards were in place to make sure that no CEO or board member was acting in his or her personal interest at the expense of the corporation or its shareholders. Director independence, internal controls and corporate governance principles all suddenly became part of our vocabulary.

I think that underlying all of this was a very basic human need: trust. Quite simply, what it all boiled down to was a feeling that more needed to be done in order for investors to trust that their investments were properly handled, to trust that financial results were properly reported, and to trust that corporations had adequate safeguards in place to prevent the abuses that had occurred from occurring again. I say it’s a matter of trust because, as you know, the abuses that got us to this point were already illegal when they were committed. Sarbanes-Oxley is not a criminal statute. Fraud has been a crime for a long time. Rather, what Sarbanes-Oxley did was create a set of procedures designed to restore the trust that had been violated. Could the abuses have been averted before anyone got hurt? Maybe, if someone had stood up and said, ‘Wait a minute; this isn’t right.’

So when I speak of corporate governance I’m not just talking about strict compliance, or drafting agendas or writing minutes or making sure that corporate actions are properly authorized, although those are all certainly important parts of corporate governance. I’m talking more about keeping your boards informed and involving them in the corporate governance process, about avoiding surprises. And beyond that, I’m talking about conforming with the highest moral principles – the same principles we learned as children, like doing the right thing no matter how hard it is. Corporate governance is one of those areas in which many times there are no clear legal answers, but in which there are often right answers, the kinds of answers that come from somewhere deep within yourselves. The well-governed company is the company that arrives at those right answers and thereby avoids the next scandal.

Ours is a unique role ... and it is certainly an important one – made all the more important when Sarbanes-Oxley and the stock exchange rules made the snow deeper. Here’s my advice to you: we have detail-oriented jobs, but don’t get so caught up in the details that you lose sight of the herd for the cattle. Don’t get caught up in the latest corporate governance trend without analyzing whether it’s right for your company, because when your CEO asks why your company should do it, I guarantee that the wrong answer is ‘because everybody else is doing it.’

Accept the fact that your jobs are like golf. They’re impossible to perform perfectly. You’ll save yourself a lot of stress if you resign yourselves to that early on. Just put the bad shots behind you and focus on your next one.
Join the Society if you haven’t already, and become active in your local chapter. Believe me, the networking you’ll enjoy with other members with whom you can share ideas or ask questions is by itself worth the price of membership.

But above all, be your company’s conscience, its compass. That’s quite a burden, and while I’m happy to say that because of the integrity of our executive team at US Steel it’s a burden I haven’t had to carry in my career, some of you might. It requires the courage to say, ‘Yes, that would be legally defensible, but it wouldn’t be right.’ Use the famous smell test, because there may come a time when some proposed action just won’t smell right to you and you won’t be able to readily point to a statute or rule, but I’ll tell you this: given time, some plaintiffs’ lawyer will. Trust your instincts. Do the right thing. Have courage. Your CEO, your board and your shareholders need that from you. Remember that you really are the guardians of corporate legitimacy, and that that’s what good corporate governance is: keeping your company legitimate both legally and otherwise. So tell the Emma in your life that that’s what you do. Tell her you’re the guardian of your company’s legitimacy, and say it with conviction and with pride.
– Craig Mallick, January 2008

A new era begins

By the time you read this, Mallick will be preparing to take over the chairmanship of the Society. Having developed such well-defined insight into his role at US Steel, what should he expect as chairman of the Society? The answer: something very similar to his day job.

Perhaps the person best positioned to inform Mallick is Lydia Beebe, corporate secretary and chief governance officer at Chevron, and also the reigning Society chairman.

During Beebe’s tenure the Society has developed its own corporate governance processes to the point where they are reminiscent of those at the companies its members work for.

Beebe explains, ‘Before I became chairman, when I was chairman-elect and getting ready for last year’s national conference, I spent some time having calls with the members of the board trying to gather their thoughts as to what the most important things were that the Society and board had to work on.’

She adds that there was a lot of support for moving forward to continue to improve the Society’s own governance. ‘As part of this we created a SWAT team, headed by Richard Koppes, and the result was to create a nominating and governance committee of the Society which is currently headed by the chairman-elect.’ This committee now works on the Society’s governance guidelines, which will include the criteria used for identifying and selecting future chairmen and committee members and the process that is used.

‘We have made significant steps in the transparency of the nomination and selection process [and listed a number of these criteria on the Society website],’ explains Beebe. ‘This is part of building on what was started in the past and trying to bring it all together to try and improve the professionalism of how we go about things. As the role of each of us as corporate secretaries has grown in importance along with our stature within the companies we work for, so too has the role of the Society and the need for it to present itself as a professional organization and really be a role model with its own governance.’

This is part of the unique leadership and governance structure of the Society. The chairmanship changes on an annual basis and the members are actively involved in many aspects. ‘I think part of the notion of having a new chairman each year and a structure of governance by the members is to build on the things that have been started before you and to also take advantage of the knowledge and experience of new people each year,’ explains Beebe. ‘This helps to keep things fresh and to make sure we keep moving in the right direction and advancing the ball.’

Many of the issues facing the Society are mirrored at the public companies that employ a majority of the members. Beebe says that she spends considerable time ‘thinking about the things that my board is worried about,’ when away from her role as Society chairman.

‘One of the wonderful things about being corporate secretary of a really big company is that you have people around to help with many of the daily governance and compliance activities. The things I spend most of my time thinking about are the things that the board is thinking about – the big governance questions that are out there at the moment: dealing with activist shareholders; working with the nominating and governance committee to identify potential new director candidates; and many of the pragmatic issues surrounding pay for performance and other hot-button topics.’

Star power

As the attention on governance continues to increase, the board has become much more interested and involved in issues that pertain to this area. It is an area that is getting more coverage in the larger business community than ever before, and as this happens, ‘the board tends to come to the corporate secretary more often to get information,’ says Beebe. The energy around governance is infectious. ‘Directors are very interested in what other companies are doing and what is considered best practice. The corporate secretary should certainly be in a position to offer advice or insight into some of these issues. This has certainly changed significantly in the 12 years that I have been involved in the corporate secretary function.’

An overriding principle that Beebe holds – and that echoes the words of Mallick – is, ‘Chevron seeks to be a leader in corporate governance and we certainly have a good reputation that we have worked very hard to get and maintain.’

She continues, ‘We want to be leaders in the issues that we believe are good for Chevron and our stakeholders and are, at the same time, sound steps to take. We don’t want to follow the latest fads but prefer to spend time carefully considering the steps and all the potential outcomes. We don’t feel the need to rush in and be the first people to be doing something. We would rather be doing the things that make good sense and will lead to long-term improvements for the company and the stockholder base as a whole.’

So the next time someone asks what exactly it is that you do, and what the Society does for that matter, you can tell them.