When Boeing Co. executive Michael Sears’ promising career was derailed by his dismissal for unethical conduct in November, at least two of the many boards on which he served quickly dumped him.
World Business Chicago, though pained to see him go, delivered a letter of thanks for his service as Boeing’s representative to the economic development agency. And Sprint Corp., the telephone company, immediately accepted his resignation.
Yet Sears, one of the area’s most sought-after directors while he was Boeing’s chief financial officer, continues as an unpaid trustee of such prominent institutions as Chicago’s Field Museum and Washington University in St. Louis.
He serves on the museum’s 60-member board with the likes of McDonald’s Corp.’s former CEO Jack Greenberg, who stepped down 13 months ago because of performance issues.
“If you pick good people who are true believers in the mission of the institution, you’ve got a great trustee,” said Field Museum President John McCarter.
Clearly, the standards for deciding whether a director stays or goes are different for public companies and private institutions. But these days, in an era of heightened board scrutiny and increased turnover in executive suites, boards more often face tough decisions on whether to keep directors who turn from treasures into tarnished prizes.
Is a CEO’s value as an outside director diminished when, for example, she or he retires under pressure, as in the case of Motorola Inc.’s Christopher Galvin or Boeing’s Phil Condit?
Is Kraft Inc.’s Betsy Holden any less valuable after being demoted from co-CEO?
And do chief executives who failed to satisfy their own boards qualify to sit on the boards of other companies?
“You’ll notice that in a lot of these situations, people remain on the board unless there’s something untoward,” said Julie Daum, North American leader of Spencer Stuart’s board services practice. “They’re a retired CEO, they have run a company, they have seen a lot.”
Besides, Daum said, “It’s a bit awkward in that you have personal relations and often you’d like to be able to keep somebody.”
Niceties aside, most corporations have written policies about how such matters are handled. Many require that directors offer their resignations when their job status changes, giving boards a chance to make a change.
This practice predates the Sarbanes-Oxley era of stricter corporate governance. One reason is that boards sometimes find it harder to remove a director than to fire an underperforming CEO, governance experts said.
For now, there are plenty of examples of directors who have been knocked off their corporate perches only to enjoy soft landings at their outside board jobs.
Take Ronald LeMay, former Sprint Corp. president and chief operating officer.
Boeing’s Sears replaced LeMay on Sprint’s board last year after LeMay left the company amid an IRS investigation into his use of tax shelters. Yet the investigation did not dissuade Allstate Corp. from keeping LeMay.
“LeMay did indeed offer his resignation to the nominating and governance committee, as did [McDonald’s] Jack Greenberg when he retired,” said Allstate spokesman Michael Trevino. “They decided not to accept [either] resignation. Mr. LeMay has been and continues to be an excellent director.”
Asked whether there is any risk to Allstate’s reputation in keeping LeMay, Trevino said Allstate’s nominating committee “will continue to review that situation.”
Sprint, meanwhile, took no such chances with Sears. The company already had come under renewed scrutiny from corporate watchdogs, who noted that Sprint signed a deal to provide telephone service to Boeing four months after Sears joined the board.
Sears was fired from Boeing for discussing a possible job at the aerospace contractor with a Pentagon official who was overseeing a big Boeing contract.
He has asked confidants to withhold judgment until all the facts in Boeing’s contracting scandal are in, say people familiar with the matter. He could not be reached for comment.
At World Business Chicago, Executive Director Paul O’Connor said he was sorry to lose him. As Boeing’s representative, Sears had been working on a program using the company’s foreign offices to help market theChicago metropolitan region abroad.
“It’s a huge loss,” O’Connor said. “I sent him a letter thanking him sincerely for the extraordinary support he’d shown [and] alleviating him of any need to write.”
Motorola’s Galvin, on the other hand, kept his seat on World Business Chicago’s 20-member panel, whose members are mainly active CEOs.
Galvin quit as Motorola’s chairman and CEO in September over differences with the firm’s board, and his severance package included a two-year consulting agreement.
“He remains connected to Motorola,” O’Connor said.
So far, none of the Chicago-area CEOs who recently lost their jobs have quit their outside corporate boards.
Galvin remains a director of privately held construction and engineering giant Bechtel Corp.
Kraft’s Holden remains on the board of Tribune Co., which owns the Chicago Tribune.
She lost her job as Kraft’s co-chief executive in December, but stayed on as president of global marketing and category development. She also remains on Kraft’s board.
At Tribune, “it was an easy decision” to keep Holden, said Crane Kenney, senior vice president, general counsel and corporate secretary.
Tribune’s board requires a review by the governance and compensation committee when a director’s job status changes.
“It was their belief a change in her role at Kraft didn’t change the value of her service to shareholders,” Kenney said. “There was no great discussion. It was as easy as that.”
Former Boeing CEO Condit’s situation as a director of computer-maker Hewlett-Packard Co. is more sensitive because of the circumstances under which he retired, as well as his duties on Hewlett-Packard’s board.
He stepped down shortly after Sears was fired amid concerns about Boeing’s ethics and a contracting scandal, which remains the subject of a U.S. Defense Department investigation. On Hewlett-Packard’s board, according to the company’s 2003 proxy, he serves on the nominating and governance committee and chairs the human resources and compensation committee
A Hewlett-Packard spokeswoman said the company “has not communicated any change regarding Mr. Condit’s position on the board.”
At non-profits, an executive’s passion for a cause is an important factor.
Kraft’s Holden has been president for seven years of Chicago’s Off the Street Club, seeing the organization through its greatest period of growth. The city’s oldest boys and girls club provides activities for kids on Chicago’s West Side.
“Don’t get me wrong, the fact that she has a high status at Kraft has been beneficial to our club,” said executive director Ralph Campagna. “But it’s the kind of leader she is that makes her invaluable. If she were a schoolteacher again, I would hope she would remain president.”
But these days, even nonprofits are scrutinizing their board practices, according to people active on nominating committees.
“Along with our accountants, we’re trying to adopt as much from Sarbanes-Oxley as we can,” said John A. Canning Jr., chairman and CEO of Madison Dearborn Partners LLC.
Canning serves on the boards of the Field Museum, Northwestern Memorial Hospital, Chicago Community Trust and Northwestern University.
