Editor: Mr. Smith, would you tell our readers something about your background and professional experience?
Smith: I grew up in the New York metropolitan area and am a graduate of Amherst and NYU Law School. Prior to joining the American Society of Corporate Secretaries, as it was then called, I was the founder, president and publisher of a magazine called Confetti, a monthly women's magazine, and prior to that I was at Seligman & Latz, a company listed on the New York Stock Exchange engaged in retail activities.I was initially the senior vice president, secretary and general counsel at Seligman & Latz and went on to become a member of the board of directors and chairman and CEO of its largest division. My first job out of law school was in the legal department at Donaldson Lufkin & Jenrette, and I am very glad to say that my relationship with Bill Donaldson goes back to that time in my career. I reconnected with him when he became head of the NYSE, and I served on a number of NYSE committees. I have reconnected with him again in his present role of chairman of the SEC.
Editor: How did you come to what has been known until recently as the American Society of Corporate Secretaries?
Smith: Following my experience with Confetti , I was approached by Heidrick & Struggles. They were engaged in a search for leadership of the American Society of Corporate Secretaries. I was hired in 1991 as the seventh president of the Society in its 45-year history.
Editor: Would you tell us something about the Society's history? What was its mission at the time it was established, and how has that mission evolved over the years?
Smith: The central mission of the Society has remained the same over its now more than 50-year history. From its outset, the Society has been dedicated to providing services that enhance the professional skills of its members, who are primarily corporate secretaries although many of them are lawyers as well. We provide a forum for the exchange of information and serve as a network for a variety of chapters and committees, both regional and national, through our publications, educational conferences and seminars and, of course, a national office. We are committed to performing a leadership role in assisting members and their organizations in their implementation of sound business and governance practices. We support our members, in addition, in their efforts to achieve and then maintain the highest levels of professional conduct and ethics. We also attempt to identify relevant issues of concern to our members and their companies, and we advocate on their behalf with respect to such issues in a variety of forums, including those of the government and the various securities exchanges. Our relations with the SEC and the NYSE are particularly important in this regard, and our meetings with those bodies are both regular and ongoing.
Editor: The Society recently changed its name to Society of Corporate Secretaries & Governance Professionals. I am sure that a great deal of thought went into that name change. Would you share with us some of the factors that went into that decision?
Smith: In February of 1995, I wrote an article in our newsletter suggesting that our members should have the designation of "chief governance officer." This was a time, you will recall, when a number of new titles were appearing in corporate America, including "chief information officer" and "chief knowledge officer." I did not view this as simply a way to keep up with what was in vogue, but rather as a statement to management, the board of directors and outside stockholders that someone was to be formally designated as in charge of all governance issues. That meant, among other things, that such an officer was to be engaged with the institutional investor community and part of the ongoing discussion concerning corporate governance. Well, I think I was a little ahead of my time, and the concept - and the term - fell on deaf ears.
A few years later we experienced the corporate scandals and the passage of the Sarbanes-Oxley Act. I do not know how many of our members today are referred to as "chief governance officers," but I do know that, post-Sarbanes, they are involved in all of the issues that statute was designed to address. The corporate secretary is the corporation's principal resource, I believe, in its compliance with the certification requirements of Sarbanes and with the many governance responsibilities - most of which are not new, but rather newly come to the fore - of the board of directors and board committees. The change of the Society's name was meant to reflect the central role that our members are now playing in this evolving discussion on corporate governance. We thought, in addition, that as the organization approached its 60th anniversary, it might be appropriate to adopt a name that welcomed an emerging group of governance professionals who did not necessarily have the positions or titles that we were used to seeing in the pre-Sarbanes era.
Editor: Corporate governance has changed dramatically over the past ten years. Please give us your thoughts on this transformation.
Smith: At the beginning of my career, there was an assumption that the CEO and the senior management team exercised direct control over the organization's operations, while the governing board concerned itself with policy and long-term strategy. At best, the board exercised a kind of distant oversight responsibility for the corporation, and at worst it acted as a rubber stamp for management. The shareholders did not have any kind of organizational presence. By the late 1970s there was a movement toward more board responsibility, and during the 1980s activism on the part of at least some institutional shareholders led to an enhanced involvement on the part of the governing board and of board committees in the corporation's activities. There was an increased interest in the fiduciary responsibilities of directors and, in particular, those relating to the supervision of management. In recent years, of course, this evolution has accelerated dramatically as a consequence of the corporate scandals and the ensuing legislation - Sarbanes-Oxley, in particular - designed to address the behavior underlying those scandals.
One of the principal issues that has come to the surface in connection with this development concerns executive compensation. It is one of those difficult issues that defies definition - you know excessive compensation when you see it, but it is very difficult, if not impossible, to establish firm standards to govern it. Perhaps it is endemic to corporate life and reflects a kind of arrogance which translates to a concern for personal advancement rather than for the interests of the shareholders. On the other hand, compensation is supposed to reflect achievement in our system. In any event, executive compensation is going to be closely scrutinized over the next few years.
Editor: Can you tell us about how the transformation of corporate governance has changed the duties and responsibilities of the corporate secretary?
Smith: More than other senior officers, the corporate secretary has come to be something of the keeper of the corporate conscience. There are compliance responsibilities under Sarbanes-Oxley that fall within the province of the corporate secretary in many instances, but even beyond what is mandated by legislation, there is now a recognized obligation for the organization to act as a good corporate citizen. It is the corporate secretary, in my opinion, who is the person in the best position to keep that obligation directly in front of senior management and the board of directors.
Editor: What kind of background should the ideal corporate secretary possess?
Smith: I think it is helpful if a corporate secretary has a legal background, although this is not essential. A financial background is also a plus, and a corporate secretary who is also a CPA is in a good position. Above all, such a person must be mature and possess good communications skills. A diplomatic touch is also important.
Editor: Who should the corporate secretary report to?
Smith: That will vary from one organization to the next, although I think reporting to the chairman of the board, provided he or she is an independent chairman, makes a great deal of sense. The chairman of the governance/nominating committee of the board is also appropriate. To be an effective governance professional, one must be able to take the hard messages to the board, and that argues for that person having some insulation from senior management. Reporting to the CEO, therefore, might serve to compromise such insulation. In addition, I believe that the corporate secretary and general counsel ought to be positions held by different people. The two positions, while often held by one person in the past, are beginning to diverge as more and more attention is focussed on corporate governance.
Editor: What about the future? Between Sarbanes and the regulatory framework that derives from it, we have undergone tremendous changes in a very short time. Where are we going? What still needs to be addressed?
Smith: I am concerned about the fact that Sarbanes-Oxley has taken no account of the differences in size and maturity of companies. That is, the standards that it imposes on General Motors are the same as those imposed on a startup entrepreneurial venture. I think that is an issue that remains to be addressed.
An entirely different issue, but one which is nevertheless very serious, has to do with where we are going to get people willing to serve as directors of corporations. In light of all that has happened in recent years, I think there is some hesitation on the part of people who, in an earlier time, would have been willing to join corporate boards. As a consequence, and as the dust settles, I think we will see broader participation than in the past. Governing boards are going to include people from a wider range of backgrounds and experiences - including academics, women and minorities and people who have come from lower down in their own organizations - than those who served on boards in an earlier day. The people sitting around the table are going to look different from their predecessors. All of that is to the good.
Another factor contributing to greater diversity at the board level is that the increased responsibilities independent directors now possess means that they will serve on fewer boards. That, too, is a very healthy development.
Our country possesses the premier capital markets in the world, and I think it is important that we do not overregulate the corporations that are dependent on access to these markets. Sarbanes-Oxley has imposed considerable expense on corporate America, and, as I say, I think it is unfair to treat the small startup operations in the same way that established concerns are treated. Nevertheless, I see the Society's members and their organizations measuring up to the good corporate citizenship standards that are now at the center of American corporate culture, and I think the process that we have been through is, on the whole, a positive one. It is going to result in a stronger American economy and in stronger corporations driving it. For the future, a sound corporation is going to be one where the interaction of a fully engaged board of directors with senior management informs every aspect of corporate activity, and, I think, it is the primary responsibility of the corporate secretary/governance professional to insure that that relationship has all of the underpinnings to make it function properly.