Corporate Boards of Directors

Corporate Research E-Letter No. 3, August 2000

Corporate Boards of Directors:
Waking Up the "Watchdogs"

by Philip Mattera

When we try to attach a face to anti-social corporate behavior, the person who invariably comes to mind is the chief executive officer. CEOs are typically held responsible for company policies that undermine the environment, labor rights and the well-being of the community. With their bloated salaries, bonuses and stock options, they are inevitable poster boys for corporate greed.

Yet in the business world, the chief executive does not call all the shots. Every corporation has a board of directors that, in theory at least, is responsible for setting overall company policy. Outside directors (those who are not members of management) are supposed to provide a measure of independent oversight, to serve as watchdogs alert to any signs of serious problems in the company. A social justice campaign that seeks to change a corporation's practices should thus pay attention to the board as well as management, holding both groups responsible for the misbehavior.

"Ornaments on a Corporate Christmas Tree"

There was a time it was understandable for corporate critics to pay little attention to boards. The growth of the power of Top management during the 20th Century was accompanied by a decline in the power and influence of boards. Directors tended to be pals of the chief executive who rubber- stamped management decisions and enjoyed being wined and dined a few times a year when board meetings were held. One study called outside directors "ornaments on a corporate Christmas tree."

Passive boards often came under attack during the 1980s, when corporate raiders sought to shake up stodgy companies, but directors tended to stay loyal to management. This bond began to weaken in the early 1990s, when many large U.S. companies began to feel the effects of heightened international competition. As losses mounted, some boards felt compelled to act. In 1991 the outside directors of Goodyear Tire & Rubber Co. forced out the chief executive. Even more significant was the move the following year by the board of General Motors, the country's largest corporation, to force the resignation of CEO Robert Stempel because of the automaker's poor performance.

The New York Times wrote at the time that "many predict that the awakening of the once sleepy GM board will redefine the cozy relationship that often exists between the nation's Top executives and the hand-picked members of their boards." It's true that in the following years the boards of other large companies such as Eastman Kodak engaged in similar coups.

Overall, however, the board revolution never materialized. The zeal of outside directors was quenched in no small part by the fact that board service became an increasingly lucrative activity. By the mid-1990s some large companies were paying directors annual fees of $50,000 plus stock options and other perks. For directors who served on multiple boards it was now possible to earn well into six figures from a bunch of rather undemanding part-time jobs. In the past few years some directors have made more than $100,000 from a single board membership as the booming stock market has ballooned the value of their stock options. Last year Clinton buddy Vernon Jordan, who serves on ten different boards, raked in $947,000 as a director.

The combination of swollen compensation and lackluster oversight make directors a juicy target when challenging corporate policies. Early in the 20th Century, the sharing of directors by companies (known as interlocking directorates) was an important issue for the trust-busting movement, given the potential for collusion among firms that were supposed to be competing with one another. Limited restrictions on such interlocks were embodied in the Clayton Act of 1914, one of the nation's key antitrust laws.

Isolating Your Adversary

The modern focus on directors in campaigns for social justice dates back to the late 1970s, when the Amalgamated Clothing and Textile Workers Union was trying to organize workers at textile giant J.P Stevens & Co. After other tactics failed to move the company from its adamantly anti-union stance, the union launched what it called a corporate campaign. One of the key elements of the campaign was to put pressure on the outside directors of Stevens and on companies where Stevens chief executive James Finley was an outside director. Using the financial muscle of the labor movement, ACTWU forced Finley to resign from the boards of a leading bank (Manufacturers Hanover Trust) and a large insurance company (New York Life). This came about because both financial institutions were faced with the prospect of losing a considerable amount of labor union business. ACTWU also brought about the resignation of two outside directors from the Stevens board.

These resignations helped to isolate Stevens from its allies in the corporate and financial world and played a significant role in persuading the company to soften its resistance to unionization.

In the following years numerous other unions employed corporate campaigns as part of organizing or to assist difficult negotiations on contract renewals. Such campaigns came to include a wide variety of pressure tactics against recalcitrant employers, but targeting board members remained an important weapon in labor's arsenal. It was used, for instance, in the campaign by the United Electrical workers and other unions against Litton Industries, the Steelworkers campaign against Phelps Dodge and the Farm Labor Organizing Committee campaign against Campbell Soup.

Targeting directors does not always involve using financial pressures. As part of its campaign to protest the lockout of a group of workers in Texas by Crown Central Petroleum, the Paper, Allied-Industrial, Chemical and Energy Workers International Union (PACE) has been pressuring Crown board member Rev. Harold Ridley, the president of Loyola College in Maryland. Among other things, PACE has obtained the support of Catholic social justice groups and prominent bishops in putting heat on the Jesuit college president.

In May of this year, the Steelworkers union said their campaign against Oregon Steel Mills and its subsidiary CF&I Steel (where workers have been on strike since 1997) helped to bring about the resignation of businessman George Stathakis from the company's board. Labor leaders in California had complained to Stathakis about his continued service on the Oregon Steel board while another company he is affiliated with--Calpine Corp.--was working in partnership with unions in San Jose on a power generation project.

How to Figure Out Who's On Boards

For publicly traded corporations it is not difficult to discover who serves on the board of directors. The names are usually listed in the company's annual report, but there is another document that has the names plus a lot more about the board. The document is called the proxy statement, or simply the proxy. The main functions of the proxy are to notify shareholders of the date and location of the annual meeting, and to give those shareholders who will not be attending the meeting an opportunity to let management vote on their behalf.

The Securities and Exchange Commission (SEC) also requires companies to load proxies with a lot of other juicy information, such as a detailed account of executive compensation. As for the board of directors, the proxy provides the following:

  • the names of other companies where he or she serves as an executive or outside director; affiliations with philanthropic and other non-profit organizations are often included as well.
  • how many shares in the company each director owns.
  • how much directors are paid for serving on the board.
  • other business connections between directors and the company.

In other words, the proxy provides a wealth of ammunition for a pressure campaign that targets directors.

Free copies of proxy statements are available from the company's investor relations department. Thanks to the EDGAR electronic document program of the SEC, the texts of proxies are also available on the Web at no cost. You can retrieve the documents from the website of the SEC itself ( or from any one of several advertiser-supported sites that are often more convenient to search. Try, for example,, which permits easy downloading of documents into a word processing file. Note that on the EDGAR system, proxies are referred to by the cryptic designation DEF14A.

As for privately held companies, it may not be so easy to learn the identity of board members. Some larger privately held firms put the information on their website or divulge it to directory publishers such as Standard & Poor's or Dun & Bradstreet. Most of these companies do not. But don't waste too much time trying to track down directors of privately held firms. Such companies usually do not even pretend to have independent outside directors. Their board members may consist entirely of the firm's Top managers, members of the family that controls the company, or closely allied lawyers or bankers. They are more lapdogs than watchdogs.