Craig Mallick | ||
Emma's Question | ||
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It's a pleasure to be here with you at this great conference in such a pleasant setting, and with such a distinguished faculty. Your program brochure says that I will focus on the unique and important role that corporate secretaries and their staffs play in corporate America today. I'm not going to talk about nuts and bolts issues, because you're getting three days of those. Instead I'm going to try to give you some more general things to think about. Let me preface my observations by saying that in our roles in corporate governance today, I think we have to deal with the reverse of what we tell our children, or our parents told us, about how much harder things were in the old days — you know, about TV being black and white with only three or four channels and you had to watch what was on when it was on and cross the room to change the channel, or about having to walk three miles to school in knee-deep snow, and it was uphill both ways. No, for corporate secretaries and governance professionals, we look back at the old days with longing, because the snow is getting deeper now, and sometimes we're not even sure which way to go. Uphill would be fine, just please tell me which direction.
I have a 13-year-old daughter named Emma. She's my youngest. A couple of months ago, Emma asked me, "Dad, exactly what do you do at work?" Now she knows I'm a lawyer for U. S. Steel and that I'm the corporate secretary, and she knows I have something to do with making sure the company follows "the rules". But I realized I didn't have a concise answer for her about what a corporate secretary does. This wasn't the first time I'd struggled with this question. Plenty of adults have heard me meander through a 5-minute description of what a corporate secretary does. Perhaps you've had similar experiences. But Emma deserved a better, shorter answer — one that summed it up rather neatly. Fortunately it was her bedtime so I could say, "The answer to your question is kind of complicated and you need to go to sleep, so I'll explain it to you tomorrow." How many think I did? You're right; I didn't. But I did reflect upon her question. It seemed to me there should be a simple answer. I thought about all we do as governance professionals — about determining what matters require board action and making sure they're acted on properly, about keeping accurate minutes and corporate records, about all the compliance and disclosure requirements, about conducting shareholder meetings. I thought about all of that for several days and it finally came to me. I went back to Emma and I said "Emma, remember your question about what corporate secretaries do?" She said, "Yes". "Emma", I said, "we're the guardians of corporate legitimacy." (As an aside, I meant the broad, not-just-legal definition of legitimate, namely conforming to recognized principles of accepted rules and standards.) "Guardians of corporate legitimacy", I actually said. Emma looked at me for a second, blankly, and said, "Oooohhh-kay", in that way that 13-year-olds do. So I quickly tried to follow that up with more about what a board of directors is and what shareholders are and how we have to keep the directors and the CEO out of trouble and tell the shareholders what they need to know, and generally not just make sure we do things right, but that we make sure the company does the right thing. That seemed to resonate with her, but it of course only scratched the surface. What we do is complicated, from board activity down to the concierge function of making sure there are enough low-fat meals. Back in the old days the term "corporate governance" was seldom heard outside the offices of corporate secretaries. It just wasn't something people talked about. In those days investors cared primarily about a company's performance, about shareholder returns, not about whether the board committees were made up of independent directors or a director had a relative who worked for the independent auditor. All of that changed, of course, with the corporate scandals of the early 21st century and the resulting Sarbanes-Oxley Act and new stock exchange rules. Now, corporate governance has become a cottage industry. Self-appointed experts in corporate governance are everywhere, advising companies, advising institutional shareholders and giving out corporate governance ratings. How did we get to this point? And what exactly do we mean when we use the term "corporate governance"? Well, of course we got here because of the scandals. Shareholders, legislators and regulators became concerned with process. They wanted to be sure that decisions reached by CEOs and by boards of directors were made in the absence of any conflicts of interest, and that appropriate safeguards were in place to make sure that no CEO or board member was acting in his or her personal interest at the expense of the corporation or its shareholders. Director independence, internal controls, and corporate governance principles all suddenly became part of our vocabulary. I think that underlying all of this was a very basic human need: Trust. Quite simply, what it all boiled down to was a feeling that more needed to be done in order for investors to trust that their investments were properly handled, to trust that financial results were properly reported, and to trust that corporations had adequate safeguards in place to prevent the abuses that had occurred from occurring again. I say it's a matter of trust because, as you know, the abuses that got us to this point were already illegal when they were committed. Sarbanes-Oxley is not a criminal statute. Fraud has been a crime for a long time. Rather, what Sarbanes-Oxley did was create a set of procedures designed to restore the trust that had been violated. Could the abuses have been averted before anyone got hurt? Maybe, if someone had stood up and said, "Wait a minute; this isn't right." So when I speak of corporate governance I'm not just talking about strict compliance, or drafting agendas or writing minutes or making sure that corporate actions are properly authorized — although those are all certainly important parts of corporate governance. I'm talking about more — about keeping your boards informed and involving them in the corporate governance process, about avoiding surprises. And beyond that, I'm talking about conforming with the highest moral principles — the same principles we learned as children, like doing the right thing no matter how hard it is. Corporate governance is one of those areas in which many times there are no clear legal answers, but in which there are often right answers, the kinds of answers that come from somewhere deep within yourselves. The well-governed company is the company that arrives at those right answers and thereby avoids the next scandal. Ours is a unique role, as your brochure says, and it is certainly an important one — made all the more important when Sarbanes-Oxley and the stock exchange rules made the snow deeper. Here's my advice to you: We have detail-oriented jobs, but don't get so caught up in the details that you lose sight of the herd for the cattle. Don't get caught up in the latest corporate governance trend without analyzing whether it's right for your company, because when your CEO asks why your company should do it, I guarantee that the wrong answer is "because everybody else is doing it." Accept the fact that your jobs are like golf. They're impossible to perform perfectly. You'll save yourself a lot of stress if you resign yourselves to that early on. Just put the bad shots behind you and focus on your next one. Join the Society if you haven't already, and become active in your local chapter. Believe me, the networking you'll enjoy with other members with whom you can share ideas or ask questions is by itself worth the price of membership. But above all, be your company's conscience, its compass. That's quite a burden, and while I'm happy to say that because of the integrity of our executive team at U. S. Steel it's a burden I haven't had to carry in my career, some of you might. It requires the courage to say, "Yes, that would be legally defensible, but it wouldn't be right." Use the famous smell test, because there may come a time when some proposed action just won't smell right to you and you won't be able to readily point to a statute or rule, but I'll tell you this: Given time, some plaintiffs' lawyer will. Trust your instincts. Do the right thing. Have courage. Your CEO, your board, and your shareholders need that from you. Remember that you really are the guardians of corporate legitimacy, and that that's what good corporate governance is — keeping your company legitimate both legally and otherwise. So tell the Emma in your life that that's what you do. Tell her you're the guardian of your company's legitimacy, and say it with conviction, and with pride. Thank you for having me, and enjoy the conference.
Craig Mallick was the society's Chair-Elect at the time of this speech. He has served on the Society's Board of Directors and has been an officer of its Pittsburgh Chapter. He has been a Society member since 1993. He is the Secretary & Assistant General Counsel, United States Steel Corporation. |
