S+B: So if John Smale, the Procter & Gamble chairman who served on the GM board during its crisis years in the 1980s, had threatened to resign
MILLSTEIN: It would have been a disservice to the company.
S+B: If he had threatened to resign, do you think that would have undermined or enhanced his effectiveness?
MILLSTEIN: It never came to that, but I think it would have undermined his effectiveness. I think that the way he handled it was much better than threatening to resign. He had proven himself to be a responsible director, and when it was time for him to lead, the other directors accepted him.
Most Dangerous Job
S+B: Whom should directors go to for advice on how to manage themselves, both as individual directors and collectively as a board?
MILLSTEIN: I think you first turn to your inside general counsel, even though it is the most difficult job in America today. The burden on these people is enormous, because they represent the entire company. They’re hired by management and are expected to be independent enough to counsel everybody. The inside general counsel should have the total confidence of the CEO, or he or she really can’t do the job. But if he has the total confidence of the CEO, he may have trouble fully disclosing information to the board. It’s a true test, but the good ones manage it well.
S+B: This sounds remarkably similar to the problem faced by recent White House counsels. Does the White House counsel represent the president, or does the White House counsel represent the person who is the president?
MILLSTEIN: The exact same issue.
S+B: That’s been resolved by the president getting his own personal counsel.
MILLSTEIN: Absolutely right. There are times when the CEO will be advised by general counsel, “You need your own lawyer.” There certainly are times today, more than a little bit, when the general counsel should say to the board, “Get your own counsel.” The first line of defense is a good general counsel who knows when outside help is needed.
S+B: This strikes me as almost a statutory rationale for the separation of CEO and chairman of the board. The role of the general counsel comes with that legal conflict of interest baked in.
MILLSTEIN: No question. The separation is essential, otherwise the general counsel could be in a position of conflict. The general counsel’s role is one of the very good reasons for that. Most of us feel that the board ought not to have its own counsel on a regular basis. It just clogs up the boardroom. But the general counsel, if they’re good, will know when to recommend that the board should have outside counsel. Most directors today are sensitive enough, anyhow, to know when they need outside counsel.
S+B: What is this resistance to separating the CEO from the chairman of the board? Is it cultural? Organizational?
MILLSTEIN: I believe it’s ego and the culture of the American enterprise. The people who are defending it will say it’s “our culture.” What does “our culture” mean to them? It means that if you’re the boss, you must be the CEO and the chair in the United States, and if you’re not the CEO and the chair, then you’re not really the boss. That is a complete obfuscation of the fact that there are two jobs: one running the company, and one running the board, and the two jobs don’t fit well under one hat.
S+B: Boards have finessed the issue by appointing lead directors. They’ve created gray markets in nonexecutive chairmen.