Notes from the boardroom;

              corporate boards showed that more
prospective directors turned down
offers to serve in 1979 than in any of
the prior seven years. Of the firms
surveyed, 13 percent had at least one
candidate turn them down. A well-known,
prestigious corporate name
did not prevent this phenomenon
either. The 128 firms surveyed, which
had sales over $1 billion, experienced
a turndown rate that was three times
that of 1978.
The way the nominating commit­tee
goes about the critical job of
selecting candidates and getting the
acceptances of its future board
members is a vital assignment. The
committee has to be sure that various
constituencies are represented and
yet do not upset the balance of view­points
on the board as a whole. As
more minorities, academicians, and
representatives of various social con­cerns
become board members, the
manner in which the committee is
structured—the nature, breadth, and
objectivity of the candidates that
satisfy these needs—will be critical
to the future direction of the cor­poration.
What all this says to me is that the
nominating committee is an increas­ingly
important part of the corporate
world. At present, and hopefully in
the future, it can be viewed as a
means by which the corporate world
can deal voluntarily with some of the
major criticisms being leveled at it.
In short, our boards are respond­ing
to the reasonable demands for
accountability from a variety of con­stituencies.
And the nominating
committee's efforts to help the cor­poration
balance the needs of share­holders,
employees, and the commu­nity
is squarely in the middle of this
action. It is a tough and pivotal mid­dle,
in fact, and perhaps the fulcrum
on which will turn the corporation's
future course of action. £
Notes from the Boardroom
by RODERICK M. HILLS/Former Chairman, SEC
The following excerpts are from a
presentation made at a Houston
directors' seminar by Mr. Hills, a
partner in the law firm of Latham,
Watkins & Hills.
Ifirst joined a company that had
directors and stockholders back in
1960. It was a small electronics com­pany,
and as I walked into the room, I
saw an older gentleman sitting at the
table. He was obviously a veteran of
these meetings, and I said to him,
kind of shyly, "What is it that we're
supposed to decide here?" He said,
"Well, Sonny, you come into each
board meeting, and you just ask
yourself one question: Should we fire
the boss? If the answer turns out to
be no, just keep your mouth shut,
and smile a lot."
Today, we're asked by the law to
make a lot more decisions. But I ser­iously
question whether any of these
mandated decisions are helpful to
the primary mission of directors,
which should be the corporation's
productivity and profitability.
As a director, it is my responsibility
to know what the other directors
bring to the table. Is there sufficient
experience in the group to provide an
overview for this company? By rea­son
of background, training, knowl­edge,
intelligence, does this group
have the minimum ability needed to
judge the business? I didn't choose
them. Probably the president did. But
isn't it my responsibility, the board's
responsibility, to look around each
year and decide? And that evaluation
should be done, it seems to me,
before the old slate is renominated
just on the grounds that we all play
golf together a couple of times a year.
One day some judge is going to
proclaim in a learned opinion
whether or not a board has a suffi­ciently
independent character to
make the decisions a board needs to
make. If he's my kind of judge, he
won't much care whether there is a
given number of outside directors
and so many inside directors. He
won't very much care whether there
is a nominating committee or what
the board's structure is. What will
matter is that there is real indepen­dence,
and that it is being exercised
to decide whether to reject a tend­er
offer, to go private, or to approve
a company's pricing mechanism.
Rather than have the SEC tell us
how directors should act, the courts
can cause this standard of indepen­dence
to evolve, based on practical
experience and proper corporate
performance. The judicial role—so
played—will be to bring the more
deficient companies up to that stan­dard.
That, after all, is how the com­mon
law evolved in this nation. &
51