S+B: What qualities should an ideal nonexecutive chairman have?
MILLSTEIN: The separate chairman should be the person who thoroughly understands the role of the board and keeps it performing as it should, and no more. There will always be people in the boardroom who want to do a lot more. The chairman should be the person to say, “Wait a minute. That’s not what we’re supposed to be doing. If we start doing that, we’re really getting into the business of managing.” If the separate chair is an intelligent person who understands what the job is and what the board’s role is, he can be of significant help to the CEO.
S+B: Are boards beginning to live up to their expanded responsibilities in this environment?
MILLSTEIN: I see boards becoming much more aware of what their responsibilities are, individually and collectively. I think good board members are respectful of one another, anxious to hear each other’s opinions, and anxious to understand what the other director is saying. I see some older members of the board still pontificating.
S+B: Do you think boards need to be younger?
MILLSTEIN: Absolutely. I think they should be younger, because I think younger people are much more likely to take the job seriously. I think that they have been brought up in the scandal era.
S+B: By younger, we’re talking men and women in their 40s, as opposed to their 60s?
MILLSTEIN: Chronology is not the test. By “younger” I mean “they get it.” What I want is people who have gone through this last 10 years, lived through it, know what it means, and know why this job has to be taken seriously. Some “older” people on boards do “get it,” but some don’t or are set in their ways.
S+B: Warren Buffett doesn’t get it?
MILLSTEIN: I don’t think so, because Warren believes that he knows best how to run his company. And he does — there’s no issue; he’s been remarkably good. But when it comes to his being on other people’s boards, I think he would put total confidence in the CEO. His view seems to be, if something is wrong, he’s going to fire the CEO. That, from what I have heard him say, is his notion of governance. If that is his view, then I disagree. I think the job is more than that.
S+B: Why do you feel that directors’ diligence has to go beyond hiring and firing the CEO?
MILLSTEIN: Because sometimes that’s too late. My view is, the function of the board is to try to find and help fix problems before they get to the crisis point. The company can go over a cliff while you’re waiting for something to change.
S+B: How happy are you with the requirement that directors meet outside the presence of the CEO? GE’s Jack Welch reportedly once threatened to resign if his board met without him present.
MILLSTEIN: That probably was the single most important change in the early ’90s. I believe it was devised by John Smale, who, in my opinion, probably is the individual most responsible for the changes at GM. He told me, “We’re going to meet without the CEO present.” That was essential to improving the conversation about the company’s future.
S+B: Are shareholder suits good or bad?
S+B: You love Milberg Weiss and William Lerach?
MILLSTEIN: Love, no. But do they have to be there? Yes.
S+B: They’re necessary evils?
MILLSTEIN: They are part of the system.
S+B: Are you sorry that Eliot Spitzer is as successful as he is?