CORPORATE CRIME REPORTER
Minow
on Vast Wastelands, Corporate Boards, Rating Movies, and Liquid Hissing
21 Corporate Crime Reporter 46, November 25, 2007
Nell Minow grew up in a family where there was no television on school nights.
After all, she is the daughter of Newton Minow – the former chairman of the Federal Communications Commission – he of ‘television is a vast wasteland’ fame.
How did she react to no television on school nights?
Well, let’s put it this way.
When she went off to Sarah Lawrence College, everyone else brought with them a stereo.
Nell Minow brought a television set.
And she watched a ton of movies.
But she also ended up studying law at the University of Chicago.
So now, she has two careers.
Career one – as a corporate governance expert.
Career two – as a movie reviewer.
On the web, she’s known as The Movie Mom.
In one career, she rates movies.
In the other, she rates corporate boards of directors.
Minow is the editor and chair of the board of directors of a company called The Corporate Library.
The Corporate Library, which is based in Portland, Maine, is her third corporate governance company.
She started out with Bob Monks at Institutional Shareholder Services (ISS).
ISS is the proxy advisory firm. They sold ISS in 1995 to Thomson.
Monks and Minow then started something called LENS.
LENS was a investment firm. They took $150 million of other people’s money, invested it in underperforming companies, and then began to pressure the companies to do better.
Monks and Minow did pretty well at LENS. They sold it at the top of the market in 2000.
They then started The Corporate Library.
Minow is currently the editor and chair of the board of The Corporate Library.
At The Corporate Library, she rates boards of directors.
“I always wanted to rate boards of directors like bonds – AAA to junk,” Minow told Corporate Crime Reporter in an interview last week. “It was clear to me that the board of directors could be a risk factor and should be looked at like any other element in securities analysis.”
What would be the most important factor that goes into rating corporate boards?
Minow doesn’t hesitate.
“The most important indicator in determining how effective the board is would be CEO pay,” she says. “If the board can’t say no to the CEO on pay issues, it is not a good board. And I don’t care how sterling their credentials are or how beautiful their corporate governance policies are.”
When she started out at The Corporate Library, she began by digging out and reading CEO compensation contracts.
Movies were more fun.
“We started by collecting compensation contracts. I started reading through them,” she says. “And I was very sorry I thought of this idea. They were all very similar. And very boring. Finally, I got to one and said – I don’t have to read anymore. I’m declaring this one officially the worst contract in America. And we can all go home now.”
“This one was where the CEO got as a signing bonus $10 million, plus two million options at ten dollars a share below market. Furthermore, the contract also provided the make and model of the Mercedes the company would be providing for him, infinite use of the corporate jet, and that the company would fly his mother out to visit him once a month first class on the company dime.”
What company was that?
“At that time, it was the fastest growing company in the history of the New York Stock Exchange. And we got a lot of hate mail concerning this. But it turned out to be the eleventh biggest bankruptcy in the United States – Global Crossing. That turned out to be a very good introduction of our company to the world. We were able to identify governance risk as a factor that could be used by investors.”
It costs a pretty penny to subscribe to The Corporate Library.
But The Corporate Library has some big money clients.
“Our
biggest client category is director and officer liability insurers,” she
says. “They think that our ratings are good predictors of litigation liability
risk. And I do think that is the best possible market test that we could hope
for.”
Minow has angered corporate board members for her insistence that shareholders
have a voice in corporate affairs.
While at LENS, she attended the annual shareholders’ meeting of Stone
& Webster.
J. Peter Grace had been on the board of Stone & Webster for 50 years.
He met Minow at the company’s annual meeting.
It was in the basement of a hotel in Delaware.
And Grace was not happy.
Some news reports have it that Grace spit on Minow.
“That’s a bit of an exaggeration,” Minow now says. “He sort of hissed at me in a liquid way. We were waiting in the doorway before we went in. And he looked at me and he said – what are you doing here? Not that we had ever met, or that he had any idea who I was. We had no previous relationship. He just said – what are you doing here? And I said – I’m waiting for my friends and we were all going to go in together. It was very disconcerting. And he said – you’ve got friends? Well, consider yourself lucky that you have friends. You had better keep your friends around you.”
Why was he upset with you?
“That shareholders would have the temerity to suggest that the board wasn’t doing its job was very disturbing to him,” Minow says.
By the way, Minow does not believe we should follow the lead of some countries, like Japan, and cap CEO pay as a multiple of what the lowest paid worker in the firm makes.
“I believe the sky is the limit – as long as it is tied to performance,” she says. “But let me also point out that in Japan there is a lot of off the books pay. They will pay them according to the formula and then they will give them a $3 million membership in an exclusive country club.”
How would you measure performance?
“The board should decide what the performance target is,” she says. “It could be cash flow. It could be market share. It could be return on equity. But they should make it clear so that investors know what companies they want to invest in based on what targets the company wants to reach.”
[For a complete transcript of the Interview with Nell Minow, see 21 Corporate Crime Reporter 46(9), print edition only.]
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