The Way it was: 1989.

Boards Achieve Higher Visibility

As a major provider of D&O insurance to corporations, the development that we, at National Union Fire Insurance Co., see as interesting as anything in the restructuring area is the visibility that boards have achieved. The RJR Nabisco LBO certainly contributed to this. Suddenly, issues that were dealt with in a small clique of underwriting organizations, and dealt with rather quietly, were front-page news in Time, Newsweek, etc. The whole issue of what is responsible action on the part of boards is now something that I think the general public is more aware-of. That kind of visibility is a double-edged sword. It is fine if you have a good board that acts intelligently. It is bad if you don't, because the public is even more aware that there is this avenue to pursue -- i.e., the ability to pursue the directors and officers and any insurance or indemnity provisions that are meant to protect them.

Sean Patwell, president of the professional liability division of National Union Fire Insurance Co., the leading D&O underwriter, in the roundtable discussion, "Restructuring 1990: Caution -- Curves Ahead" [Fall 1989].

Assessing CEO Performance

By their own admission, many compensation committee members agree that measuring a CEO's ability to establish strategic direction, build a management team, and lead is more critical than certain quantitative measures, particularly in the long run. Yet, most boards still rely solely on the corporation's financial performance rather than attempting to evaluate a CEO's individual performance. Most boards have a difficult time with measuring qualitative performance. First of all, they are reluctant to confront the CEO about qualitative performance. The CEO is usually a power on the board. In many companies, the CEO is also the chairman and may have "handpicked" the directors. Telling the guy who gave you a directorship that he's not a leader is a challenge most directors would prefer to forgo. Second, many directors are CEOs themselves and they empathize with the demands put upon the CEO. It is difficult for them to define and evaluate leadership. It is easier to analyze the financials. Poor performance is more o bvious when the numbers are bad.

Directors also may be wary of tampering with success, particularly if the company has been experiencing strong financial health. While the CEO may lack certain leadership qualities, he must be doing something right, and that something is important after all. Providing constructive feedback in this case is too close to criticism in many directors' eyes -- criticism they believe is not justified if the financials are sound.

Seymour Burchman and Craig Schneier, principals with Sibson & Co., in "Assessing CEO Performance. It Goes Beyond the Numbers" [Winter 1989]

Takeovers Force a Reexamination

Do not underestimate the positive side of the consternation that sets in when [acquirers] are in your midst. At Continental...