Volume 5, Number
2 • February 2008
Who Knows Best?
Here is what you might ask yourself — in a quiet moment of soulful
reflection — when an investor questions your strategy.
Back in 1999, when the old AT&T Corp. was a huge operation and growing even
more expansive (with cable acquisitions) under then-CEO Mike Armstrong, I
asked him this question in an interview for a
Directors & Boards cover story: “Can
companies grow so large and complex that they could become almost
That question bothered me then in analyzing AT&T, and bothers me today in
analyzing Citigroup and other companies that seem to be unwieldy in size and
Mr. Armstrong gave me a reasoned answer: “Yes, that could become a problem.
Not so much due to size, although that is one element of the complexity. It
is when companies lose their focus, when they try to be more things than
they truly can be, that it is a risk … Manageability is more parallel to
focus than it is just to size.”
Fair enough. But still, looking at Citigroup et al, the question nags: Can a
company become too big and complex for any one individual to lead — and for
a board to oversee? (I’ve been joined in this question by the
Wall Street Journal, which critiqued
Citigroup in an editorial in January titled “Too Big to Succeed?” — a play
on the “too big to fail” philosophy of the domestic banking system
Investors who have advocated the breakup of Citigroup over the past few
years may have been more right than have the successive CEOs and board
members in recognizing the unmanageability — and “ungovernability” — of this
It’s not heresy to think that investors may actually know more than the
board about the company, its industry, and, crucially, its likely destiny.
Outsiders haven’t “drunk the Kool Aid.” They are not steeped in the “group
think” that comes from seeing the world from inside the corporate walls.
Here from a Reuters report last month on former SEC Chairman Richard
Breeden’s activist initiatives:
“Large stockholders … can have vastly more resources to analyze corporate
strategies than a part-time board member without an investment staff. ‘I can
put eight MBAs on studying a company’s problems,’ said Breeden.”
In a note last month to clients and colleagues, top PR counselor Davia Temin
recounts this exchange: “An older corporate board member once said to me,
‘Do you know when we directors know it is time to step down? When the things
we believe to be undeniably, incontrovertibly true — aren’t any more.’ ”
If an activist shows up on your doorstep this year, ask yourself: Could this
investor be better at seeing around corners for our company and its destiny
than we as a management team and board are doing? Are the things we believe
about our company, its capabilities, and its place in the universe
incontrovertibly true — or maybe not?
And it shouldn’t take an activist knocking on the boardroom door. Take the
initiative to get involved in a shareholder forum, like
the kind investment banker Gary Lutin organizes and that the SEC is now
encouraging, to test your incontrovertible theories about your business.
As a postscript, the circa 1999 AT&T that Mike Armstrong and I talked about
was soon thereafter to be no more. It was restructured and acquired. Mr.
Armstrong, no longer running the new AT&T but continuing now as then to
serve as a board member of Citigroup, is likely confronting the question I
asked him nine years ago: “Can companies grow so large and complex that they
could become almost unmanageable?”
Jim Kristie is the editor and associate publisher of
Directors & Boards.
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