Professionalism in the boardroom.

Last November, in this magazine, Dean Boris Yavitz and I picked the Five Worst and Five Best Boards in the U.S. The Five Worst were Mirage Resorts, Nucor, H.J. Heinz, Maxxam, and Warnaco. The year before our Five Worst were Archer Daniels Midland, Morrison Knudsen, Crown Cork & Seal, CBS, and Disney.

I'm not sure that the CEOs who ran these 10 companies paid a helluva lot of attention to our complaints about the way their boards operated. William Agee of Morrison Knudsen got deposed in a shareholder uprising. Dwayne Andreas of ADM was forced into some cosmetic board changes by his shareholders. Lawrence Tisch got out from under CBS, by selling the company to Westinghouse. So far, the other seven CEOs have kept their status at quo.

Now there is some new ammunition to hurl at those CEOs and boards who cling tenaciously to boardrooms filled with compliant, beholden directors. The National Association of Corporate Directors, through a Blue Ribbon Commission headed up by the redoubtable Ira Millstein, has turned out a report on Director Professionalism. Developed by a group of 30 highly qualified and experienced people, the report calls for much tougher standards for selecting directors and operating boards. I have read the full text and, except for a few minor quibbles, go along with the primary recommendations of the Commission.

The biggest noise comes from the report's assertion that too many directors serve on too many boards and simply can't have time to do their corporate governance jobs effectively. While I will grant that there are some abuses here - and concur that a few high-pro-file individuals have simply gone too far in accepting directorships - for the most part I don't think that serving on too many boards is the major problem, or is even defined properly by most critics. There is a lot of difference in the time it takes to serve on a small company board that meets four times a year versus one that meets 12 times and has oodles of committee meetings, between a board that usually meets in the city where the director lives and one that requires significant travel time, and between a mature, well-run company board and one that is suffering from financial, organizational, or litigation problems. Furthermore, a busy, active executive has less time to do his homework than does a semi-retired person whose primary activity is boardroom service.

The real thrust of the Professionalism Report is in the thorough going over it gives to directors who have conflicts of interest through receiving fees for services supplied to the company. Thus, investment bankers, commercial bankers, active legal counsels, consultants and lobbyists are in the dog-house as directors - and they belong there. So, too, are special interest shareholders, non-participating family members, interlocking directorates, and personal friends of the CEO. And, finally, the report recommends that employee directors be limited to a minimum number.

Few, if any, of these "beholden" directors have the guts or the rashness to speak out in criticism of the company's management. Importantly, these beholden directors can hardly be expected to evaluate the CEO's performance with complete objectivity.

The Millstein Commission thoroughly endorsed a previous National Association of Corporate Director's Report - that Dean Yavitz chaired and I served on - and which recommended regular and formal board appraisals of the performance of CEOs, the board itself, and individual directors.

Hasn't the time come for all boards to begin to take the steps suggested by the Millstein Commission for improved corporate governance? Shouldn't all independent directors speak up when nominations for directors are being made for new and continuing directors - and question or protest the nomination of beholden directors? Shouldn't all shareholders question the professionalism of a board when it fails to act on these constructive recommendations? What does it take to catapult boards into action?

As an interested corporate observer, I am forever indebted to people such as Ira Millstein of Well, Gotshal & Manges, to former Dean Boris Yavitz of Columbia Business School, to Robert Stobaugh of Harvard Business School, and to John Nash, president of the National Association of Corporate Directors, who have given selflessly of their time and talent in developing these splendid Blue Ribbon Commission Reports.

Corporate governance is one of the last bastions of the free enterprise system. If we don't keep our own boardrooms clean, then the government is going to "help" us do so.

Formerly the CEO of F.&M. Schaefer (1972-1977), Robert W. Lear is chairman of CE's advisory board. He also teaches at Columbia Business School, where he is an executive-in-residence. He is an independent general partner of Equitable Capital Partners and holds directorships with Scudder Institutional Funds; Korea Fund; and Welsh, Carson, Anderson, Stowe Venture Capital Co.; and is a partner of Lear, Yavitz & Associates.