GARY LIEBL : It's Lonely, Risky at the Top : CEO Coach Helps Directors Play Game Fairly and Win

Times staff writer

At the suggestion that the job of corporate director is becoming a job nobody wants, Gary Liebl smiled and poked around in his briefcase. He was hoping this would come up.

He pulled out a news story about three Allergan Inc. shareholders who filed a lawsuit seeking to force 11 officers and directors to return their salaries for decisions they made that impacted the company's stock price. "This is the kind of litigation that does dissuade a lot of people from taking the risk," he said, adding cautiously that he is not making a judgment on this particular case. "Even with (directors and officers) insurance, there's much pain to be borne."

Bad publicity, anxiety and public embarrassment, just to name a few. Add hostile takeovers, corporate raiders and greenmail to the list of hazards and it's clear that directors have a tougher job today than before.

Liebl has led a push to organize Orange County directors and would-be directors by forming a new chapter of the National Assn. of Corporate Directors. It is the 15th regional chapter formed since the organization opened its doors in Washington, D.C., in 1977. The organization has 2,000 members nationally. The chapter, which met for the first time last week, will hold five dinner meetings in the coming year and invite speakers. As important as the speakers will be to the group's mission of educating directors is the fact that local business leaders will be gathering in the same place a few times a year, Liebl said.

He said his experience as former head of Cipher Data Products of San Diego--which was acquired in a hostile takeover by Costa Mesa-based Archive Corp. earlier this year--showed him that directors need a peer group. Among other things, they can share names of trusted investment bankers and attorneys when time is short and a takeover bid has come as a surprise.

So it was not a surprise that the invitation Liebl sent out to prospective members of NACD quoted a recent Harvard Business Review: "Every time you find a business in trouble you will find a board of directors either unable or unwilling to fulfill its responsibilities." More than 100 local business leaders took the challenge.

Liebl, now chairman of Systech Corp. of San Diego, lives in North Tustin. He recently spoke with Times staff writer Anne Michaud about his views on life as a corporate director.

Q. Why are you forming an NACD chapter here?

A. The environment has become significantly more complex. The issues of risk have become far more complex. Federal regulations are more complex when you get into things like environmental controls and the like. The capitalizations of companies are subject to much more change than they were 10 years ago with, until recently, the seemingly attractive junk bond methodologies for recapitalization, the leveraged buyouts, takeovers of all types including hostile takeovers.

As a consequence, there is a question of where does a professional board member go if he or she wants to understand alternatives, to understand rules, to understand practices, to make informed judgments. That's what NACD represents: an opportunity to have participation in a formal organization that addresses those kinds of issues and an opportunity to hear from very informed speakers.

In addition to that, there is the opportunity to have a peer group of fellow board members who share the same kinds of challenges and responsibilities. The meetings can be opportunities to discuss these kinds of issues.

Q. Who will you choose to speak to the group?

A. The feedback we've had from our Orange County directors has indicated to us that they'd like to hear from CEOs who really have experiences that they themselves may have, and from professionals who can advise in areas that relate to responsibility and to potential risk and liability as well.

We will be bringing to Orange County over the next 12 months speakers who are very prominent CEOs, who have experience and visibility, individuals who are strong leaders, who can recount experiences and challenges and solutions.

We will also be talking to professionals such as attorneys who have specific experience in things like hostile takeovers and recapitalizations and government regulation.

Q. You have said that one of your chapter's goals is education. What is the point of the education?

A. A director in a company is not expected to be a rubber stamp who attends a quarterly board meeting and nods when told to nod, but rather to be a proactive participant in the process. The director carries the burden and the responsibility of guiding a company's directions strategically as well as tactically, but particularly strategically, to ensure long-term success. That's a big responsibility. One must understand a number of things. To the extent that we can, we're going to provide resources, speakers and forums and panels that will advise directors in those areas.

The ultimate objective is to assist NACD's membership in being more effective in its role of corporate governance. And it can be more effective by understanding the environment, by understanding techniques and methodologies, by understanding the success scenarios of businesses and management and directors, and by understanding its obligations in an ever-changing environment.

Q. How have people responded to the formation of the new chapter?

A. I am extremely pleased and very encouraged by the strong initial positive reaction we've had from Orange County businesses to the creation of the chapter. It is proof of the desire of the board members in Orange County to have this kind of forum to learn, to contribute to, and to network with other directors.

Orange County is growing industrially and commercially at a very fast rate and has become a very important center of business, not only for California but for our nation. We now have that kind of identity and enough activity in this market area that we need these kinds of organizations. I'm very pleased to see the very strong early response to the emergence of NACD.

Q. Tell me about the database NACD uses to track potential directors.

A. If a member of NACD has an interest in being a member of a board of an additional organization or two, he or she has forms to fill out that put them into a special category. Member organizations of NACD who are recruiting board members can then go to NACD and say, "I'm looking for one or two board members who meet this profile."

Almost every board, a good percentage of the time, is recruiting for board members. There are expiring terms in some cases, and there are board members retiring. It's very desirable to have access to a database of professional directors who have the right qualifications. It makes the recruiting process considerably easier.

Q. What do you foresee doing to recruit women and minorities to serve as directors?

A. That's a very important part of our direction. I believe that every businessman has an obligation to attack the so-called glass ceiling. Everyone has a role to play in breaking that barrier and making it easier for women and other minorities to participate in business. Most business people do that in the form of how they manage their businesses, what kind of opportunities they provide, what kind of support systems they establish.

Within NACD, one way that we're addressing that issue is that we are not restricting membership to people who are existing board members. That was a conscious judgment on our part and a very important one. If a person, in his or her game plan, wants to become a board member at a certain stage in his or her career, it's very important to become educated, to become qualified to become a board member.

It's a chicken-and-the-egg problem if you can only join the organization that can help you qualify yourself to become a board member if you are already a board member.

Q. There's been a suggestion that boards should more broadly represent their constituencies. For example, if you're an auto maker, you should have someone from labor, someone from auto parts supply, someone to represent consumers.

A. I do not detect strong trends in those directions. I see more of an emphasis on doing the best that a board can to represent its primary constituency, which is its shareholders. The emphasis in my view is on how do we structure a board to best represent our shareholders. And usually the answer to that question comes in the form of examining carefully the credentials of current and future board members to make sure that we have enough experience, talent, intuition, and capability represented on the board.

However, we are seeing some signs of more progressive companies beginning to include among board members people who can represent those kinds of constituencies very well and I applaud that direction. But I think it's a case of first things first, and I think more boards are preoccupied today with how do we structure to do the very best job of supporting our No. 1 constituency under the law, and that's the shareholders. They will naturally move from that to the next obvious step, which is how do we further improve our representation for employees, customers and suppliers.

Q. What other trends do you see in the composition of boards?

A. I see a re-examination of the balance of outsider and insider board members. We seem to be moving in the direction of having more and more outside board members who can carry in a lot of objectivity.

Q. Some suggest that directors should have independent staffs to monitor management. Is that needed?

A. I don't think independent staffs are required, but I wholeheartedly support the committees of boards. At minimum, I believe a company of medium size and above, and in many cases smaller companies as well, should have a compensation committee of the board and an audit committee of the board.

Those committees are responsible for entertaining proposals from management and for working with outside resources, like the public accounting firm. They assure that the board is adequately involved and can make independent judgments.

Now, there are many other committees that companies consider--technology committees, external communications committees and the like--but I believe that audit and compensation are the two most essential.

The shareholders certainly benefit; it makes it considerably easier for the board to discharge its duties if the subcommittee of the board is more intimately involved than periodic meetings allow. And I firmly believe that management also benefits because management has more participation, more assistance from individuals who have a lot of experience to provide.

Q. There have been stories recently about companies that got rid of liability insurance for directors because it became too expensive. Some directors quit as a result. What is your opinion of their action?

A. The director takes on significant responsibility and significant potential legal exposure to sit on a board, particularly, but not exclusively, on a public company. And, consequently, most professional board members have taken the position that they will not participate unless D&O; (directors and officers) insurance is provided. I think that's a defensible and logical consideration of the fact that, in the absence of it, the person's own estate and net worth is at direct risk to litigation.

Now, one would like to believe that a good board member who has the right ethical set, who discharges his or her responsibilities in the most appropriate fashion, never does put his or her estate at risk. But, in a society that's become very litigation-conscious, we all know that lawsuits are no longer the exception but more the rule. And the cost of defending oneself and the potential risk of losing one's net worth, or a good portion of it, is more than most professional board members are willing to embrace without appropriate insurance.

Also, I think it's important for companies to attract the best caliber of board member that they can. A management team deserves and needs an excellent board that can provide overall guidance and direction and strategic focus and assistance. Therefore, I would urge companies that are recruiting board members to assure that they can provide the support of D&O; insurance to assure that they can attract the best possible candidates.

Q. Should directors be required to own stock?

A. It's difficult to generalize. Take an extreme case--a retired executive whose net worth is tied up in a retirement program and whose estate provides the income to support the retirement. It might not be reasonable to ask that kind of an individual, who might otherwise be a very strong asset to a board of directors, to risk his money in a very high-risk but potentially high-return company.

But I would say in more typical situations that I feel it's desirable for board members to demonstrate their commitment to the company and their belief in the future of the company by owning some stock.

Q. Do you believe board members should be non-paid?

A. You find extreme cases where remuneration may be a conflict with the real needs of the board. In a hypothetical company that has a board of rubber stamps where the CEO pays the board of that public company outrageous amounts against industry standards, one could question whether they aren't being bought by that CEO. But those kinds of situations are the extreme and the exception, not the rule.

I don't feel that board remuneration is a major issue today.

Q. How do you feel about golden parachutes for directors?

A. I don't think that having a golden parachute should be a prerequisite for a person to join the board of a company, or a prerequisite to performing well as a member of that board. The board member's primary career, typically, is not being on the board of that company. He or she is typically on the board of other companies and either is retired or has a full-time employment or career position someplace else. So the rationale for a golden parachute for a board member isn't overwhelming in my opinion and should not be held by a candidate as a prerequisite to joining the board.

Q. I read that corporate director is becoming a job nobody wants. Is that true?

A. Shareholder suits are dissuading people. Even if one appropriately wins in the defense it can be a very, very traumatic experience.

But I think the answer is not to stop being a member of a board. It is rather to assure that proper insurance is available from the company, and to choose a company in which management and other directors have identical ethical standards, where one believes that the company is being properly managed, and where one believes that the board is very responsible. Then, of course, it is necessary to discharge one's responsibilities carefully and in due consideration of the law and of one's fiduciary responsibility to shareholders.

Those kinds of actions help to minimize the occasion of litigation.

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