An Ode to Good Governance.

• Author: Elson, Charles
• Position: EDITOR'S NOTE

For many years, I've been asked the same question: "Does good corporate governance really matter?" And for years I've replied, "Yes." Now I have more to add. After nearly two decades of service, I recently retired from the Encompass Health board as our term limits required. Four other directors who joined the board at roughly the same time also departed. It has been an interesting and rewarding experience in many ways and makes the point that I have long advocated: good governance does matter.

When I became involved with Encompass (then Healthsouth) in the early 2000s, the company found itself in dire condition. Its CEO had been arrested for bribery (and later convicted). Its financials had been muddled in one of the largest financial scandals of the decade. Federal investigations, executive indictments, shareholder lawsuits, delisting and a collapsed share price were crippling. The company, which once had been in the Fortune 500, had an equity valuation of less than $75 million. The business was carrying major debt. Bankruptcy loomed. No annual shareholder meeting could be called, as the company had no audited financials to present to its investors. In short, it was a terrific mess.

When I was first asked to join the board, I declined. I had no appetite to swim in such a treacherous stream. But I was impressed by the acumen and integrity of independent directors Jon Hanson and Bob May, who were determined to right the ship. I also believed in the long-term viability of the business. I signed on.

Among the first things Hanson and May pursued was recruitment of a new board composed of talented and experienced independent individuals and creation of a model governance structure that would aid in the company's resurrection. When we five new directors retired this May, the company was healthy, with a market valuation of over $6 billion and paying a regular and significant dividend. Primary responsibility for the company's reconstruction and recovery rests with a superb management team whose efforts ultimately bore fruit. But I also must give credit to our board. The directors' efforts in providing management with independent oversight and guidance ensured a happy conclusion to a painful corporate collapse and recovery, resulting in substantial shareholder value.

Among the reasons for this success, first was composition. In addition to our CEO, the new Healthsouth board consisted of a diverse group of individuals with experience in the various...