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 / Spring 2005 / Issue 38(originally published by Booz & Company)


Ira M. Millstein: The Thought Leader Interview

Reform board structures or accept more value destruction, the corporate governance doyen warns.

Photograph by Peter Gregoire
The global epidemic of directorial debacles and disgrace — at Enron, Disney, WorldCom, Tyco, Parmalat, and Vivendi, to name a few — is not close to over, says Weil, Gotshal & Manges senior partner Ira M. Millstein. “We can expect more scandal and more failure, from more self-dealing and more excessive compensation schemes, despite newly mandated process and structural reforms,” Mr. Millstein and Yale economist Paul MacAvoy aver in their new book, The Recurrent Crisis in Corporate Governance (Palgrave Macmillan, 2004), a pithy and provocative survey of the perverse incentives and pathologies afflicting and undermining boardrooms. The result, they fear, will be a “recurrence of massive destruction of investor value, to the loss of the economy as a whole.”

Yet Mr. Millstein, a visiting professor at the Yale School of Management, is hardly a pessimist. The sharp-tongued 78-year-old argues that most board members are too frequently beholden to chief executive officers who double as the chairman of the board. Mr. Millstein has relentlessly promoted separating the positions and importing the British tradition of the nonexecutive chairman. As de facto dean of America’s community of legal scholars and activists shaping the rules, roles, and regulations of corporate governance, he champions an agenda of boardroom reforms that he believes will preserve and increase trust in publicly traded corporations and shareholder value, and avoid further regulation.

A former chair of the U.S. National Association of Corporate Directors (NACD) Blue Ribbon Commission on Director Professionalism, chairman of the Private Sector Advisory Group to the Global Corporate Governance Forum (a joint venture of the World Bank and the Organisation for Economic Cooperation and Development, or OECD), and a contributor to the OECD’s Principles of Corporate Governance, Mr. Millstein has an interest in the future of governance that is as global as the companies he’s advised. Over the past 53 years at the Weil, Gotshal law firm, he has worked with General Motors during its board restructuring in the 1980s and 1990s, and advised Sotheby’s board during the company’s recent antitrust case, among many other matters. Mr. Millstein was also retained by the boards of the Walt Disney Company and Tyco to advise on governance reforms. For him, the recurrent crisis in corporate governance is a fact of life.

While quick to embrace litigation, regulation, or legislation that might prompt better governance as a second-best alternative to self-help, Mr. Millstein is concerned that sweeping initiatives such as Sarbanes-Oxley may go too far. He is concerned that more regulation will follow, unless boards reform themselves. He’s confident that boards are now far more open and receptive to his recommendations. “I wish every board member in the country could attend my class at Yale,” he told strategy+business in a recent conversation at his law firm’s Manhattan office. “The exchange would benefit both of us.”

S+B: When the board of directors confronts what they call a serious problem, is that really another way of saying, “What do we do with the CEO?”

MILLSTEIN: Generally, yes. But sometimes the board doesn’t take the next step, doesn’t ask the real questions, doesn’t probe deeper. Why? They may like the CEO. They might prefer to hope that there’s nothing wrong, so that they don’t have to do anything. Most boards were like that. Most boards in the past — before Enron and Sarbanes-Oxley — would have preferred to just go along, hope that they were being told the truth, and hope that the solution being proposed was really the right solution. They didn’t want to challenge the CEO if they didn’t have to. That’s obviously been changing.

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