Corporate Board Membership: Enriching In More Ways Than One

Imagine a position that requires a commitment of just four to 10 working days most years, yet pays up to $60,000--plus stock options. Imagine further that this position allows you as a scientist to observe the inner workings of the industrial culture of the United States, to make personal contacts with powerful businesspeople, and to influence the direction of a major corporation. Such is the lot of the scientists who sit on the boards of directors of public companies. Allen Misher, president of the Philadelphia College of Pharmacy and Science, says of his work on corporate boards, "The quality of the people I deal with, the intellectual interactions, are extremely important to me and highly enjoyable. It gives me an opportunity to deal on a scientific basis with people at the forefront of their disciplines. It's even fun on a personal basis." While the scientists who are asked to serve on corporate boards find the experience to be enriching from a professional as well as a financial perspective, some outside observers caution that such arrangements can lead to dangerous conflicts of interest. "In [a] company, the interest is in getting a product to market," says Sheldon Krimsky, a professor and chairman of the department of urban and environmental policy at Tufts University. "In the university, presumably, the main interest is the pursuit of truth." A conflict can occur, for example, when a scientist with a financial interest in a company must evaluate research-- either in his or her own lab or on a peer-review panel-- related to the company's business, Krimsky says. Yet Alan Schriesheim, director of the Argonne National Laboratory in Illinois and a member of two public boards-- those of Rohm & Haas Co. of Philadelphia and Hollywood, Fla.-based HEICO Corp.--says that when a scientist serves as a corporate director, his or her ability to function effectively as a researcher is enhanced. "It provides the scientist with a look at what one would consider to be the `real world'--what does it actually take to market and sell, and what are the risk/benefit trade-offs?" Schriesheim says. "It gives you exposure to the very interesting problems industry has that require technical solutions. It's a generally broadening experience. The contact with other board members who are senior people in other industries-- banking, for example--makes the scientist a more rounded person. If he's an academic, it puts him in a better position to advise his students on career paths. It provides him with contacts that are helpful to his students and his colleagues." "I look forward to [board] meetings," says Misher, who currently serves on the boards of three public companies-- U.S. Healthcare Inc. of Blue Bell, Pa.; U.S. Bioscience Inc. of West Conshohocken, Pa.; and MARSAM Pharmaceuticals of Cherry Hill, N.J.--and several private ones. "It's such a dramatic change of pace from the normal academic life that I find it extremely stimulating," Misher says. It's high- energy, and decisions are made promptly." Of course, it is the rare scientist who gets to receive these benefits. Few corporations have scientists as directors. The ones that do--primarily those that are heavily dependent on technology--usually have only one scientist among the bankers, venture capitalists, and captains of industry who form the backbones of most boards. Generally, in order to be considered suitable to serve on a board of directors, a scientist must have established a national reputation on the basis not only of scientific achievements, but also of administrative and managerial skills. Furthermore, it helps to have spent a good portion of one's career outside the ivory tower. Misher, for example, spent 18 years with Philadelphia-based SmithKline & French Laboratories (now part of SmithKline Beecham), where he started as a pharmacologist and went on to increasingly responsible management positions, ending up as a group vice president. Schriesheim spent 27 years at the Florham Park, N.J.-based Exxon Research & Engineering Co. and two years as the director of Argonne before being asked to join his first board. The administrative experience is important, because the responsibilities of a board member go far beyond providing the occasional nugget of scientific advice--many companies have scientific advisory panels for that. Board members need to be conversant with profit-and-loss statements, audit reports, and strategic plans, since they are charged with nothing less than overseeing all major corporate functions. Mark P. Kriger, an associate professor of management at the State University of New York, Albany, and an expert on strategic management, says that the formal responsibilities of a board of directors include the following: maintaining, revising, and enforcing the corporate charter and bylaws; delegating special powers to corporate officers, such as the power to sign contracts, establish bank accounts, and sign checks; approving important financial decisions, such as those pertaining to budgets, capital appropriations, and officers' compensation; examining the results of outside audits; safeguarding and approving changes to corporate assets; electing and advising corporate officers; and ensuring the maintenance of a sound board through regular elections and the filling of vacancies. "In a legal sense, board members are the ultimate purveyors of the corporate charter," says Kriger. "They are legally responsible." If a company is well run, these responsibilities can be exercised during the regular board meetings, which are usually held quarterly, or at most monthly. "On occasion there are special assignments that might take a day or two longer," notes Misher. "In one company, another board member and I took on the assignment for the chairman of a very intensive review of their R&D efforts. With some outside help, that took us maybe a week's worth of sitting down and reviewing all of the R&D projects, very carefully, very intensively." But that's unusual. "You each receive a `board book' a week or so prior to [a] meeting, providing a host of background on each of the agenda items," Kriger says. "This gives you the opportunity to read through it, think about it, [and] make a phone call or two if you're not certain as to some of the issues raised." But if a company runs into trouble for one reason or another, the amount of work can increase greatly. Says Misher, "You've got to remember that, particularly in the state of Pennsylvania--and probably here--there are legal responsibilities. If you are the director of a public company, you are legally responsible for representing the best interests of the shareholders. That is a serious responsibility, and in order to execute that responsibility you must ensure that you are knowledgeable about the operations of the company and its controls and the way it manages its business." Soon after Schriesheim joined the board of HEICO, a company that manufactures aircraft parts, there were some problems with management, and the board had to get intimately involved in the details of running the company. Recalling that experience, he says, "When a company is in trouble it sucks up a lot of time. If you're on the board of a public company and it's in trouble, you've just got to put in as much time as it takes, or you've got to get someone to put in the time. You've just got to be responsible to the shareholders. You could, for example, identify very quickly someone who could come in and turn things around. Or, alternatively, it could be months and months of long- distance phone calls for hours at a time every day." Even if a director meets his or her responsibilities with due diligence, in an increasingly litigious society there's the ever-present possibility of being sued. Notes Misher, "If you have a 15 percent drop in your share price for a day or two, computer programs will flash that to a whole host of plaintiff lawyers. You'll have class-action suits filed the next day. If you are a director long enough anywhere, you will find yourself in the middle of a class-action suit." Almost all companies provide liability insurance to their directors and officers to cover this contingency, but prospective board members should ensure that this insurance is adequate. "`Adequate' for me is usually $10 million on a personal basis, above the resources of the company," says Misher. "You are totally indemnified from liability in the conduct of your responsibilities for the company. But that indemnification doesn't hold if you can be found responsible for illegal, inappropriate action." In addition, board members must be careful to avoid the appearance of a conflict of interest. In fact, Tufts' Krimsky thinks that actual or perceived conflicts of interest are so serious and so damaging that academic scientists asked to join a board should just say no. Besides the obvious quandary that occurs when a board member is called upon to give a scientific evaluation of the work of a company in which he or she has a stake, conflicts can arise when a scientist directs a student to a particular area of research that may be of interest to the firm. Conflicts can become an issue when a scientist serves as an expert adviser to government agencies. And they can occur when the time a scientist spends working on company-related business detracts from the time he or she spends on academic pursuits. Krimsky believes that if a scientist feels compelled to join a corporate board, in order to satisfy ethical considerations he or she must agree "never to take any government-funded research projects that are directly related to any work in the company." Says Krimsky of the fundamental conflict of scientists joining boards: "If our universities are filled with people and departments who have multiple interests--not only academic interests but also financial interests in firms-- then we simply have no reservoir of independent opinion left. We can't get it from the companies. We're not going to get it from the government. And therefore what we're left with are very few places in which an expert can be considered by the public to have an independent role in society." Serving as a director can be quite lucrative. Some Fortune 500 companies pay $40,000, $50,000, or even $60,000 to directors. But smaller companies often pay much less. "The compensation can be substantial, but it can also be zip," notes Misher. "I serve on one board where the compensation is zero. I just get out-of-pocket expenses. It's a start-up company, and I said, `Look, I'll share the risk, I'll take some stock options. If the company succeeds, I succeed. If the company doesn't succeed, I get nothing.' But I really enjoy it. It's fun, it's exciting, they're doing great things, and I have great faith in the company. I'm getting my compensation in a variety of other ways." Unfortunately for those scientists who would like to serve on a board, this is not a position you can apply for. "Board invitations are generally extended to those people who have made some reputation somehow," says Schriesheim. "They've gotten to be known for their technical work in a particular field, or for their advancement in a university to management and administrative posts, or for their government service. But usually, in my limited experience, saying that you'd like to be on a board and please won't someone ask me, is a way not to be asked." Misher advises a scientist to have two kinds of meetings before deciding to join a board. "I would want to meet with the chief executive officer and the operating management of the company to assess their working relationship with the board, their openness, their understanding of what the board's responsibilities are, and to assess the `chemistry,'" he says. "If the chemistry doesn't work, forget it. This has got to be something you do less for the compensation than for the personal enjoyment. Secondly, I would want to meet with some outside members of the board to get a sense of their experience. How open is that board? Is this for show, or is it really a functional board? Does the board have a role that it actually plays in the company's business?" Kriger adds that a prospective board member should consider the soundness of the company's finances and management. "You should be asking for substantial recent audits, but more importantly, you should be asking directors about their experience with the organization. What's it like to serve on the board? Do [the directors] like it? You should get a good feeling about the health of the organization. Are people openly disclosing things to you, or are they being protective? Any time your intuition is saying, `This doesn't feel right,' you really have to honor those feelings and follow them up." Nonetheless, Kriger encourages scientists to become directors. "It can be very challenging, but it's potentially a very exciting thing to do, because you're being invited into the inside of this organization without being a full- time member," he says. "There's a way in which, in its purest sense, directors function like the Solons of ancient Greek society--the wise men overseeing the organization. It can be a really fulfilling experience." Robert Finn is a freelance science writer based in Pasadena, Calif.

Corporate Board Membership: Enriching In More Ways Than One

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