Electronic Media
June 17, 2002
Media companies need boardroom watchdogs
Guest Commentary
By Stuart N. Brotman

Directors must assert themselves to restore corporate reputations

Post-Enron and post-Adelphia, major public electronic media companies are hearing the loud rings of a wake-up call regarding corporate governance. With proper attention to concerns voiced by regulators, shareholders and others, cable companies and broadcasters should address these concerns before the ringing reaches the bottom line.
The waves of reform began regularly breaking in corporate boardrooms in the 1980s. Foreign competition exposed the flawed and outdated strategies of many major American corporations. Blame was laid squarely on the shoulders of senior managers-and ultimately on the board. The takeover movement, with significant help from leveraged-buyout firms, forced boards to choose their allegiances-were they beholden to management or to shareholders? In most cases, the shareholders won.
Institutional investors began pressuring CEOs and boards to sustain performance improvements-especially the pension funds that tend to take long-term positions in firms. These investors have supported initiatives to enhance board authority and make CEOs more accountable. The most popular governance initiatives included having a majority of directors be outsiders rather than insiders (a majority of insiders had been the norm), setting up a separate compensation committee composed of independent directors, and implementing formal performance evaluations of the CEO.
In the past, the norms of polite boardroom behavior and the pervasive presence of insiders discouraged most directors from openly challenging or questioning the CEO's performance. Boardroom meetings were more akin to Japanese tea ceremonies than strategic debates and critical reviews of performance. Directors demonstrated a strong dependence on the CEO.
The CEO usually controlled the meeting agenda and the discussion process. He or she played a pivotal role in selecting each of the directors.
The groundwork laid in the 1980s produced some noticeable boardroom empowerment in the 1990s. Formal CEO reviews, greater use of committees, and equity compensation for directors became popular practices among boards of the Fortune 1000. In 1996, Business Week published its first report card on the best and worst corporate boards.
By the mid- to late 1990s, a single metric of corporate performance-shareholder value-overshadowed all the others and became the focus of most CEOs and their boards. Judging solely by this metric, many boards apparently were doing their jobs well. An exuberant stock market and a few corporate stars reinforced this focus on shareholder value.
Currently, a new wave of thinking asks whether the '90s fascination with shareholder value was misplaced or perhaps overdone and whether it has actually led to more effective boards. A slowing economy also has raised the question of whether continuing annual eye-popping jumps in a company's share value are feasible.
Meanwhile, board intervention often is late-serious red ink or major crises have to surface before boards mobilize for action. Moreover, the formal leadership of most boards remains vested in the hands of CEOs; non-executive chairmen and lead directors still are rare.
Boards must deal with the conflict between the two main roles they're asked to play: strategic partner with top management in formulating strategy and independent overseer of management. The best way for boards to succeed in their multiple, sometimes conflicting, missions is to put structures and practices in place that make the board strong and independent.
With structures to ensure careful ongoing oversight, individual directors and the board as a whole can work closely with top management to enhance strategy and organizational effectiveness. Without this involvement and the additional knowledge and information it provides to directors, boards are effectively confined to reacting to top managers' decisions well after they have been made.
The linkage between corporate governance and communications companies is destined to grow stronger as increasing scrutiny focuses on the electronic media sector as a whole and on individual companies within it. The bad news is that unlike a real alarm clock, there isn't a snooze button to allow us to defer thinking about the
Boards must deal with the conflict between the two main roles they're asked to play: strategic partner with top management in formulating strategy and independent overseer of management.
problem. The good news is that by working on long-term solutions, it will be much easier to sleep soundly with enhanced managerial and financial confidence in place.