BulletProofBlog the blog on crisis communications

Each Monday, Bulletproof Blog features exclusive interviews with thought leaders on issues of critical importance to companies and countries. This week, we interview Nell Minow, editor and chairwoman of the Corporate Library, an independent research company that evaluates Boards of Directors. Ms. Minow was named one of the 20 most influential people in corporate governance by Directorship magazine and "the queen of good corporate governance" by BusinessWeek Online.

What is your perception of how effectively boards handle corporate crises?

Nell Minow: Generally speaking, most boards these days are effective during crises. However, they are ineffective before crises. Their structures tend to discourage the tough actions and tough questions that lessen the likelihood of crises. The people who sit on boards are often simply too polite. Only after an event occurs, and the pressure starts to mount, do they remove the gloves and demand constructive action.

RJR Nabisco is a case in point of a somnolent board that stepped up to the plate during a crisis. You find too that boards get fat and happy when times are good. So many of the most challenging corporate crises happen to companies that were extremely prosperous just a short time before.

I do believe that boards today have learned critical lessons from the disastrous examples of the past, disasters like Hollinger, Global Crossing, and, of course, Enron. But there are glaring exceptions: boards that, pre-meltdown, did not seem to have taken cues from past example. Count the boards at both Lehman Brothers and Bear Stearns among these glaring exceptions.

What role does executive compensation play in how you assess boards? Do you anticipate positive changes in compensation practices?

Nell Minow: I' ll answer your question this way…We rate boards like bonds and we sell our findings to D&O insurers, to headhunters, to plaintiffs' lawyers. In this process, executive compensation is the core indicator. It is the heart of the whole matter. If a board cannot stand up to a CEO on this issue, it is not doing its job.

I mentioned Bear Stearns as a negative example. That board approved a bonus program predicated on nine metrics. Executives could then get lavish bonuses by meeting just one of those standards.

The compensation issue also speaks fundamentally to how our approach to evaluating boards differs from others. We' re not interested in the past or present associations of the board members, or in their resumes, or in their track records elsewhere. We evaluate based on how the board actually performs. For that, executive compensation speaks volumes.

I do anticipate positive changes on the compensation front. Circumstances are simply forcing the issue. Remember, the pay packages that are now so notorious are only a phenomenon of the past 15 years. They are not, as has been suggested, endemic to the American business ethic and culture.

What do shareholders want in terms of communications by board members?

Nell Minow: They want to hear about process most of all. They want to know how the board operates, how it reaches decisions, how it selects members, and so forth.

What are the biggest changes you'd like to see in how companies deal with shareholders?

Nell Minow: I want to see universal adoption of majority vote so that no one ever serves without that decisive approval.

I want to see universal adoption of clawback provisions as a corrective to the mistakes and injustices of the current system.

And I want to see directors themselves responding to shareholder questions at meetings, not deferring to the CEO to speak for them. Let' s spread accountability around as much as possible.

Again, with all three of these initiatives, we' re talking about process. Once public companies get that right, the rest will continue to fall into place.

Larry Smith is Senior Vice President of Levick Strategic Communications and a contributing author to Bulletproof Blog.