The National Association of Corporate Directors selected Edmund T. Pratt Jr. as its 1992 Director of the Year. The award is for significant contributions to good corporate governance in both the corporate and nonprofit sectors and is presented annually by the NACD in conjunction with the National Union Fire Insurance Co. of Pittsburgh. Pratt retired in March 1992 as Chairman of Pfizer Inc., the New York-based pharmaceuticals company. He joined the company in 1964 as controller, became president in 1971, and chairman and CEO in 1972. He remains a director as well as Chairman Emeritus of Pfizer and currently serves on the boards of General Motors Corp., Chase Manhattan Corp. and Chase Manhattan Bank, Celgene Corp., and International Paper Co. Excerpted below are his remarks at the NACD awards dinner in October 1992 at the Waldorf-Astoria.
In recent years, we have witnessed a sea change in corporate governance. Institutional investors have replaced individual shareholders as the majority owners of large public companies. As a result, the role of corporate directors is being examined anew.
Not surprisingly, the new owners of Corporate America are seeking an influence commensurate with their ever-larger blocks of stock. That is entirely legitimate. Who can doubt that shareholders have a right to make their views known and, ultimately, to change things if necessary?
Yet, from the right to change things, to knowing when and under what circumstances to exercise that right, is a giant step. Given a properly functioning board, it is a step no shareholder - institutional or otherwise - should ever have to take.
That's because the board of directors has a fiduciary responsibility to oversee the management of the corporation. Those of us who are corporate directors are members of a body that is traditionally supportive and collegial but also legally independent of, and with authority over, management.
Directors have a duty to oversee the long-term plans of management, to advise on strategic direction. On the vast majority of matters, they support management. So they should. The board should oppose management only on clear and convincing evidence of error or incompetence.
For a board is not an alternative executive branch" of corporate government. Neither is it - as some nowadays seem to think - a legislative body, nor an assembly of various corporate, employee, and shareholder factions. Indeed, a board of directors is neither a congressional committee...