The power of simplicity.

• Author: Drury, James
• Position: Board Leadership

With 600 business units under his wing, jim farrell of illinois tool works runs one of the most decentralized companies in the world -- thus his passion for an 'open mind,' 'open communication' and 'simplification' model for its governance and management.

RISING THROUGH ITS RANKS to become chairman and chief executive officer in 1995, W. James Farrell has spent over 35 years with Illinois Tool Works Inc. ITW today is one of the leading manufacturing companies in the world, with $10 billion in revenue, operating in 43 countries. Under Farrell's leadership, the company has continued to emphasize growth through acquisition (more than 200 since 1995). Some of its more recognized businesses are Premark, Miller Electric, Hobart, and Signode. In addition to leading ITW, Farrell is an active outside board director and deeply involved in Chicago's civic and cultural community. He serves on the boards of Sears Roebuck & Co., UAL Corp., Kraft Foods Inc., and Allstate Corp., and is a former board member of Quaker Oats Co. He is also on the board of the Federal Reserve Bank of Chicago and is chairman of the board of trustees of Chicago's Museum of Science and Industry.

James Drury founded James Drury Partners, specializing in the recruitment of board directors and CEOs, after a long career with Spencer Stuart, where he served as vice chairman, Americas. Drury founded the Chicago Directors' College with the University of Chicago Graduate School of Business and chairs its advisory board. At the 2001 session of the Chicago Directors' College, Jim Farrell and Jim Drury discussed various perspectives on corporate governance and the role of the board.

Transitioning to CEO

Jim Drury: Jim, you were the third chairman and chief executive officer since ITW transitioned from a family-owned company to a public corporation in 1961, following Si Cathcart and John Nichols. What was the most difficult adjustment you had to make becoming chairman and CEO?

Jim Farrell: The most difficult thing for me, I think, was inheriting a company with such a long and successful tradition. I had been with ITW my entire career, and initially my biggest fear was that I would be the guy who "messes things up." It helped that I already had a great deal of tenure with the company and was so familiar with its culture and operations. Plus, governance of the board at the time -- and to this day -- is very inclusive and involves management in its meetings. So I had only a small gap to bridge as I went from being a sector executive to CEO.

I also had the luxury of having a two-year transition period, which was not visited by any crisis. In fact, it was almost a textbook transition and I was very fortunate to be able to move into the chairman and CEO roles quite easily.

Drury: Let's address the combined chairman/CEO role. What would you say to those who believe that one person shouldn't occupy both positions?

Farrell: I don't think that, as a hard and fast rule, the two functions should always be separated -- nor should they always be combined. It really depends on what's going on in the company, and that's not a cop-out. A new CEO may come into the role in a time of crisis, or through a well-planned succession process. Circumstances ought to suggest the organization that is needed at a specific moment in time, and not be a slave to organization charting.

You'll find that when a company has a crisis, whether it's a crisis in leadership or at the board level, it calls for being responsive to that particular crisis. And how you begin to address this challenge depends on the crisis itself, and the kind of talent or resources you have available, both on the board and in management. Every circumstance is unique.

Raising the tough issues

Drury: Regarding openness in the boardroom, how can a director raise sensitive issues and tough questions, without appearing to be antagonistic or unsupportive of management?

Farrell: Open communication is extremely important between the board and management. And, communication can take place not only in the boardroom but in committee meetings, or at breaks over coffee, or on phone calls between board meetings. It is very important that the board and...