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Column

Hoffer Kaback
President
Gloucester Capital Corp.

Stranger Than Fiction

Governance doings that approach the fantastical.

In junior high school English class, we were at one point required to write about “an unforgettable character.”

Creating a fictional character, I figured, would be way too hard (and way too much work). Why not just write about an actual kid from the neighborhood? So I wrote and submitted a composition that recounted three or four bizarre incidents involving this kid. I had witnessed them all. Everything I described in the paper was true.

When it was graded and returned, I saw that the teacher, Mr. Silver, had written this comment on the last page: “Somehow your character doesn’t quite jell.”

What was he getting at? I wasn’t entirely sure. I asked my mother, a former high school English teacher. “He doesn’t believe your character.”

“But he’s a real person,” I protested. “Every story happened exactly as described. He’s an ‘unforgettable character’ because his actual behavior is so screwy.”

Now that the year 2004 is history, it is instructive to examine recent governance events through the lens of Mr. Silver’s critical approach to creative writing assignments. Let us assume that those events have been transformed into movie treatments and pitched to a middle-level movie exec for possible production.

1. Disney

Thumbnail sketch of the Disney melodrama:

(a) The CEO-character brings in as his No. 2 a hugely successful, immensely powerful Hollywood personage who proceeds, within short order and notwithstanding his prior success, to demonstrate utter incompetence.

(b) When the No. 2 first joins the company, the general counsel and chief financial officer pointedly inform him that, despite his title, neither has any intention of reporting to him.

(c) The CEO tells directors that his No. 2 is a liar, a fabricator, and a psychopath; the No. 2 remains in place.

(d) That No. 2 claims that he and the CEO were best friends (“I loved this guy like a brother”) but the CEO denies anywhere remotely near that level of bonding (“I liked him. He was one of my friends”). [Wait a minute: Is this a business movie or a teenie girl clique flick?]

(e) The No. 2 finally exits and, as a party favor upon departure, receives a severance package, per contract, of some $140 million.

(f) Even though the No. 2’s job performance is characterized (by, for example, the general counsel) as negligent and incompetent, he is nevertheless handed that nine figure package. Had, however, his performance been even worse, then he would not have received anything.

Nutshell: A top executive’s performance is horribly stinky, and stockholders are out $140 million; had his performance been incredibly and grossly negligently stinky, then stockholders would not be out $140 million.

Script Evaluation: Fantastical; far-fetched; unworthy of belief. Characters do not jell. Be wary of writer in future.

2. TIAA-CREF

Shooting Script: For years, a powerful organization criticizes and admonishes others for their inferior governance practices. Many public statements, writings, comments on SEC proposals, etc. issue from the organization, all proclaiming the cause of good governance. Much publicity, including in The Wall Street Journal.

Flash forward: In early December 2004, it is revealed that the organization has blotted its own governance copybook. There is a double fault (and an inquiry by the SEC): (a) improper conduct by two organization trustees (b) about which the organization’s board was not promptly informed.

Visual and sound: many feathers hitting fans.

Cut to interior scene of WSJ interview of organization “overseer,” who -- get this! -- just happens to be a former chairman of the SEC. He offers the quote that he is “deeply disturbed.”

Cut to shot of boardroom: Camera pans determined faces of overseers as they vote to engage former U.S. Attorney General (under LBJ) to conduct an “independent review.”

Evaluation: Contrived and hokey. Reject. Who recommended this idiot writer?

3. Tyco (Kozlowski Trial)

CEO repeatedly preaches corporate cost-cutting.... Shot of CEO in store buying a $6,000 shower curtain.... Panoramic shot (a la David Lean) of party in Sardinia, partly paid for by corporate funds ... where scantily clad models serve hors d’oeuvres ... and booze flows through an ice statue’s male appendage....

Evaluation: Approaches the Felliniesque but without any charm or finesse. Fire writer.

More sophisticated conclusions from the dramaturge:

1. Even if -- and especially because -- real characters may not jell, truth, including that of the corporate governance world, is generally stranger than fiction.

2. Fire Mr. Silver.

Hoffer Kaback is President of Gloucester Capital Corp., New York, and has served on several corporate boards. He is the lead columnist for Directors & Boards, authoring the “Quiddities” column in each edition. The author can be contacted at hkaback@directorsandboards.com.