How a new CEO reshapes governance.

• Author: Foshee, Douglas L.

'I felt that by eliminating every possible governance issue, I could refocus the market's attention on our ability to create value for our shareholders.'

Nothing so needs reforming as other people's habits.

- Pudd'nhead Wilson, Mark Twain

"Let me tell you something Doug, this whole governance thing is getting pushed by institutional investors and academics, and between the two of them they couldn't run a *!#@&* hot dog stand!"

The latter quote above is attributed to a friend of mine for whom I have a great deal of respect. He has been extremely successful in his business career and has many years of experience in the boardrooms of successful companies, both private and public. I also suspect that, in a candid moment, many public company CEOs would agree with this statement.

And so the battle rages on between independent-minded CEOs who think they are best in a position to govern their corporations and choose the perfect board members, and those institutions that bristle at the notion that those same CEOs fill their boards with like-minded "good old boys" who are more interested in preserving their relationship with the CEO and their position in the community than in ensuring that shareholder value is maximized.

Boardroom complications

I am a relative newcomer to the ranks of public company CEOs, having assumed that role in August 1997. I came into a situation which would have to be described as less than ideal. Our company, Nuevo Energy Co., has been extremely successful as an independent exploration and production company. The company's stock had a strong run during the tenure of my predecessor, and hence it was not surprising that he was well regarded on Wall Street. This success belied a deteriorating relationship between the CEO and the company's founder and chairman, which spilled over to the rest of the board. Consequently, the board made a decision to change the leadership and I was given an opportunity to assume the CEO role.

At the time, there were rumors about boardroom drama surrounding the management change. In addition, the company had four directors who had some potential for conflict of interest in their roles as board members. Nuevo's chairman was president and CEO of a potentially competing public energy company which in fact was rumored to be interested in an acquisition or merger with Nuevo, and that same chairman was an equity holder in Nuevo's largest service provider. Also, two other Nuevo directors served on that other energy company's board and one director held a management position in a company which owed Nuevo money that was past due. (I must point out here, however, that to a person these directors acted with the utmost professionalism and, in my opinion, with only the Nuevo shareholders in mind; in fact, it was a source of great concern to me that their departure from the board would deprive me and Nuevo of the continuing service of as fine a group of directors as one could hope to have). To add one final complication, I was president and CEO of Nuevo's largest service provider prior to assuming the role of CEO of Nuevo.

An earful from investors

As you might imagine, all of this was cause for a great deal of...