Alan Murray - Revolt in the Boardroom: The New Rules of Power in Corporate America

The New Rules of Power in Corporate America

To Lori,
who made this book,
and so much else thats worthwhile in my life, possible

In November of 2004, Paul Steiger, the managing editor of the Wall Street Journal, asked me to start a new column that he wanted to call, simply, Business.

It was an unusual request. I had spent my career with the Wall Street Journal in Washington, D.C., writing about the intersection of politics and business, but from the political side of that intersection. For nearly a decade, I had run the papers Washington bureau, and for three years, I had run the Washington bureau of CNBC television. Just two months earlier, I had been tied to an anchor desk broadcasting hourly updates on the twists and turns of the final days of the presidential campaign. And now I was supposed to write a column called Business?

During my two decades working for Paul, however, I had learned to appreciate his wisdom and trust his judgment. I left Washington behind and moved with my familyagainst some protestto Connecticut to begin a new journey, not sure where it would lead.

It didnt take long to find out.

The first Business column, which ran on February 2, 2005, was about Carly Fiorina, the Hewlett-Packard CEO whose struggles with her board of directors had been exposed in an unusual front-page piece by my colleague Pui-Wing Tamthe story that later sparked a controversial investigation into boardroom leaks. I followed Fiorina to the annual Davos schmooze-fest in Switzerlandthe last place she should have been at the time, given her problemsand confronted her with a question about her relationship with the Hewlett-Packard board. Her terse response, delivered with the fire of anger in her eyes, was Excellent.

Less than two weeks later, she was fired.

Fiorinas firing was quickly followed by that of Harry Stonecipher, chief executive of Boeing, who had an affair with another executivehardly uncommon among CEOs in the pastand then had the astonishingly bad judgment to write about it in a series of graphic e-mails. Then came Hank Greenbergthe prototype of the imperial CEOwho was forced out of the top job at American International Group that he had held for three decades. A few months later, Philip Purcell was dumped as the top man at Morgan Stanley.

As I watched from my columnists perch, CEOs fell like bowling pins. Michael Eisner had left Disney just a few months earlier, and Franklin Raines had been ousted as CEO of Fannie Mae. Raymond Gilmartin at Merck, Hank McKinnell at Pfizer and Peter Dolan at Bristol-Myers Squibb toppled in the months soon after, followed by William McGuire at UnitedHealth Group. The specifics of each case were different. But the result was the same: a powerful CEO tossed out of a job against his or her will by forces too strong to resist.

This was something new in American corporate life. During the 1960s, 70s and 80s, the public firing of a big-company CEO was virtually unknown. Starting in the 1990s, a few boards had the gumption to oust the top man at poorly performing companiesGM, IBM, American Expressbut the instances were still relatively few and far between. For the most part, chief executives of big American companies continued to stride the world stage like giants. At a time when democracy was spreading and hierarchies everywhere were crumbling, CEOs continued to hold surprising unilateral power. Men like Bill Gates of Microsoft, Jack Welch of General Electric, Sandy Weill of Citigroup, wielded largely unquestioned authority over their sprawling organizations, traversing the planet in private jets, determining the fates of hundreds of thousands of employees, and enjoying levels of pay and benefits that enabled them to live like royaltyor better.

Those icons left the scene, however, as the new century witnessed a string of calamitous eventsthe collapse of the stock market bubble, the terror attacks of September 11 and the corporate scandals of Enron, WorldCom, Adelphia, Tyco. Suddenly, the public perception of CEOs plummeted. Regulators, legislators and attorneys general swung into action. New laws and new listing requirements for public companies were rushed into place. Giant pension funds and their reformist allies began to flex their muscles more, looking to exert more control over corporations. Within a remarkably short period of time, the corporate world was transformed.

The most visible manifestation of that transformation was the spate of CEO firings that began with Disneys Michael Eisner in 2004 and has continued right up until the publication of this book. Corporate beheadings have become endemic. According to the executive recruiting firm Challenger, Gray & Christmas, U.S. firms were on track to fire or lose a record 1,400 CEOs in 2006, up from 1,322 in 2005, and nearly double the 663 in 2004. The tenure of CEOs was getting shorter each year.

Something new was afoot in corporate America. The roots of change could be found in the democratization of stock ownership, the rise of the great pension funds, the flowering of nongovernmental organizations and in the shareholder rights battles, takeover fights and corporate governance reforms of earlier decades. In the new century, following the markets collapse and the spate of corporate scandals, the trend became a revolution.

By the time I started the Business column in February of 2005, that revolution was well under way. The ancient regime was gone. The corporation, which had been the very foundation of 20th-century prosperity, was in metamorphosis. A new order was waiting to be born.

Before the new order emerged, however, there would be disorder. The CEO firings signaled widespread rejection of an old way of doing business. No one quite knew yet, however, what the new way would be. In boardrooms across the country, directors struggled to understand the changed rules of corporate power. Their struggles often resulted in confusion rather than clarity.

Once again, Hewlett-Packard provided the clearest window into the turmoil.

Carly Fiorina had been ousted from her job in February 2005 because she acted too much like a CEO of the old world. She expected to rule her domain with unquestioned authority.

Her board of directors, meanwhile, was struggling to come to grips with the new world. It was a world in which the directors could no longer sit back and simply let the CEO hold sway. In the new world, they were held to account by shareholders, regulators, and even the public at large for the companys performance. As directors at Enron and WorldCom had found, directors could even be forced to pay large sums of money out of their own pockets for the companys misdeeds.

In short, boards of directors, once a clubby gathering of the CEOs friends and advisers, now suddenly mattered. As the CEOs power had waned, the boards power had grownbuoyed by the requirements of new laws and new stock exchange listing requirements, and by the demands of shareholders and regulators and a host of others who wanted CEOs to be held in check. How to exercise that new power became a matter of hot debate.

Nowhere was that debate hotter than inside the Hewlett-Packard boardroom in the months following Fiorinas departure. The dull-sounding subject of corporate governance became the cause for sharp-elbowed boardroom battles, with warring egos offering competing visions of how the company should be run.

On one side of that battle was the companys nonexecutive chairman Patricia Dunn, who, while struggling with cancer, was also trying to turn HP into a model of post-Enron probity. She was a stickler for proper rules and procedures, and her strong sense of propriety compelled her to investigate the boardroom leaks that had plagued Fiorinas final days.