THE OPEN MIND
Host: Richard D. Heffner
Guest: Courtney Brown
Title: The Business of American Business
I’m Richard Heffner, your host on The Open Mind. A half century ago Calvin Coolidge said that “The business of America is business.” He was applauded. To repeat that phrase today would probably bring catcalls instead. But we would be worse than foolish if we were to ignore the extraordinary role that business does play in contemporary living. And my guest today is a man so well qualified to discuss American business, particularly the giant corporation. Courtney C. Brown is Dean Emeritus of the Columbia University Graduate School of Business and a member of numerous corporate boards. McMillan is publishing his new book, Putting the Corporate Board to Work.
Dean Brown, perhaps it’s not as bad as those who would view with alarm say, but it seems to me that in all probability the reputation of American business today is not what it was in Calvin Coolidge’s day. And I wonder whether you feel that to any extent that’s the responsibility of the way that business has governed itself.
BROWN: In part, yes. But I think also in part the external influences that bear on business. Calvin Coolidge spoke in the 1920s. By the 1930s the public attitudes toward business were pretty low. We had the Depression. And business was largely held responsible for the Depression. As the business community marshaled its resources and efforts to make its contribution in the Second World War, the public attitudes toward business were much improved. And in the ’50s, there was the feeling that perhaps we were beginning to emerge into a kind of a pluralistic society of which business was a part in which business could play an increasing role in the betterment of life. Now the pendulum has swung the other way. It is now more like it was in the 1930s. And I think business is going to have some difficulty maintaining its credibility over the next decade, especially in the light of the prospective slow rate of economic growth. Unless business is able to provide jobs, it will be blamed for not doing so.
HEFFNER: How is business dealing? You’re on a number of boards of directors. How is business dealing with this phenomenon?
BROWN: Well, I think business is thinking seriously about it and concerned about it. The problems that I think businessmen see ahead will be, one, the availability of capital for new investment. It takes, depending on the nature of the business, from $15,000 to perhaps $50,000 of capital investment to provide a job, you know. And the shortage of capital is one of the major concerns, shortage of materials, the increasing costs of raw materials, both domestic and those that are imported. All of these are problems that will occupy the business community in the years ahead that I think we’re going to have to marshal all of the talents and all of the foresight that can be assembled to keep business from becoming the whipping boy of public attitudes.
HEFFNER: What do you mean,” The whipping boy?”
BROWN: Well, business is an awfully easy, easy target. If something doesn’t go quite right, it’s easier to blame the business community than the politicians you helped elect. (Laughter) I think that our problems in the next decade as a nation, I mean the diminished problems, are going to be so difficult and so complex that we should be thinking not of where we put blame, but of how we can achieve the greatest good for the greatest number.
HEFFNER: Do you think we’re in danger of killing the goose that has in the past, at least, laid all those golden eggs?
BROWN: No, I don’t believe I see any evidence of business being killed, if that’s what you mean. (Laughter)
HEFFNER: Well, perhaps I used the phrase too loosely. But I do mean to ask whether you feel that this attitude that you see as increasing, a negative attitude, increasing with the problems that will accumulate, the external problems that will accumulate, are you concerned that those problems will lead to actions on the part of government that will tend to diminish the capacity of business to build back …
BROWN: To some extent, yes. But my book is designed to make suggestions for the internal administration and structure of business that will help the business community foresee some of the difficulties ahead and come to grips with them before they occur.
HEFFNER: Well, when you say, “Putting the corporate board to work,” are you concerned that it is the board of directors of a large corporation that essentially will recognize the responsibilities of a large business before perhaps management will?
BROWN: In the area of business’s relationship to the external world, yes. To the society in which it’s functioning. I think the constant attention to maximizing the bottom line is not the best trend in the world to be able to foresee some of the shoaly waters that emerge of a societal nature.
HEFFNER: You know, Dean Brown, I asked a friend of mine who is high up in a major corporation, not one on whose board you sit, about the thesis that you set forth and that you just mentioned a moment ago. He said that he felt that it isn’t really true that management doesn’t have that deep and abiding concern for futures and is only wrapped up in the bottom line. And he said, for example, that most of the top people he knew in executive positions or management positions were themselves to a considerable degree involved financially in the future of the companies that they worked for and which they administered. And therefore, they were concerned with the future; not just for today. And I wonder how you’d respond to that.
BROWN: Well, I hope you didn’t take what I said to mean that executive management is unconcerned. It is concerned. But I feel that by achieving some kind of an internal structure within the corporation of checks and balances – let me put it this way – the executive management is judged first by its results on the bottom line. Now, the participation of business in societal matters typically costs money. And I think it’s quite unfair to expect the management to develop a consistent and sustained level of compassion which is going to cost some continuous money unless it has guidance and encouragement from the board of directors.
HEFFNER: Do you mean that the board of directors has compassion essentially? Or is it a long-range interest in the corporation?
BROWN: I’m saying that the board is in a better position to have that kind of compassion. I would put it this way: that the board is thinking in the long-range interest of the company, five, ten, fifteen years from now. The management is more likely to be thinking of the results in the current year and next year, the year after. In other words, the board typically is in a position to take a longer view than management. Now, management should, I think, cross-check the board. And if the board becomes bully headed and thinks that the company ought to do this and this and this because this is the way to achieve an improvement in the quality of life, it can go broke. Management should be in a position to check the board on that kind of extravagance.
HEFFNER: Legally, who does what to whom in a major corporation in terms of the relationship of the board to top management?
BROWN: The board is vested with the ultimate authority. But it very seldom exercises that ultimate authority. It delegates to management the running of the business. And that’s the way it should be. But it has too frequently, I submit, delegated not only the running of the business, but it has delegated the monitoring of the business. It has not exercised its monitoring function as rigorously as it might have.
HEFFNER: Are boards largely window dressing?
BROWN: Boards differ. They differ quite a bit from company to company. And I know of no board that is window dressing in the sense of simply validating everything that management presents to the board without putting some sharp questions.
HEFFNER: And yet your reforms, the suggestions that you make seem to me as a reader to stem from the feeling that perhaps there have not been put the sharp questions, perhaps the boards have not lived up to their responsibilities.
BROWN: The behavior of boards is in a period of transition. And I think it has become a more common practice to be assertive and to be skeptical. But I think we have some distance to go. And I would assign the board internally with the monitoring of a number of, I call them the four P’s in the book. The determination of policy. Now, in this they’d have to work closely with management, to be sure. The selection of personnel. The development of procedures and the monitoring of procedures. If you don’t pay some attention to the procedures within the company. And finally, the …
HEFFNER: Well, but all of these … I’m sorry.
BROWN: … policy, procedures, personnel, and performance, the monitoring of performance.
HEFFNER: Now, you feel that this is better left to the board, the monitoring of these four P’s?
BROWN: It’s the board’s function to do so.
HEFFNER: Right. But I gather you feel that up to this point, in large part, boards have not carried out these functions as well as they might? That’s fudging it enough to …
BROWN: In some corporations more than others.
HEFFNER: You said before that members of the board perhaps will have more compassion, will have a longer-range point of view. Something demonstrated, do you believe, in American business?
BROWN: Yes. I’ll follow that up with a conviction that the long-range interest of the corporation is related to how well it serves the public. If it can make a contribution to the quality of life, it would be much more secure over the years than if it cannot. The idea of maximizing immediate return s a concept that the economists of the 18th Century began to develop. But the corporation isn’t that kind of a person; the corporation is much more than the single enterpriser who had grown up into an organization. It’s a force in society. And unless it achieves and maintains and holds public function, its life will not be a comfortable one.
HEFFNER: Isn’t the opposite – not the opposite – but isn’t the notion that comes from the other end of the spectrum just as true: Unless it maximizes profits it’s not going to be there in a competitive situation to be concerned about the general well-being of society?
BROWN: Now, I should be the last one to take the position that profits are unimportant. I think they’re very important. But without maximization of profit. But there’s a time profit here. You can maximize profit this year at the expense of next year, or you can maximize profits over a 10-year period or a 12-year period.
HEFFNER: Well, that’s what gets us into what I think may be something of a semantic problem and problem semantics. What is – again going back to the word “altruistic” or “concerned” – is it solely a more clearly perceptive view of what will bring larger profits ten years from now that is the concern of the board? Can it say to management, “You’re worried about the bottom line today, and we’re concerned about the bottom line ten years from now,” or is that concept of a bottom line ten years from now terribly much colored with concerns for society in general that are separate from the maximization of profit?
BROWN: No, they’re not separate at all. Mind you, I have not used the word “altruistic.”
BROWN: And I think it would be a mistake for business to take actions that it regards purely as an altruistic matter.
HEFFNER: “Compassion” I think was the word that you used.
BROWN: That’s right.
HEFFNER: And compassion for the corporation ten years from now, or compassion for society?
BROWN: Compassion for society and the effect of the corporation on society.
HEFFNER: But doesn’t that mean that the corporate director is taking the responsibility for something that he wasn’t appointed to take responsibility for? Presumably he was appointed to the board to look after the well-being of that particular corporation.
BROWN: Of that particular stockholder.
HEFFNER: I don’t understand that.
BROWN: Stockholder of the corporation.
BROWN: Yes. Well, this is exactly what I’m saying. That by exercising an influence on the corporation that is looking ahead and assuring public approval, public sanction, public acceptance, he is looking after the interests of the stockholder. Even though it may cost a little more money this year.
HEFFNER: Okay, I guess that’s the coming together. It’s Adam Smith’s deep conviction that the two could be tied together, so something …
BROWN: Well, Adam Smith didn’t approve of the corporation, you know.
HEFFNER: No, I mean in terms of self-interest and the interest of society at large. As a director, do you find that your concern – this may not be fair, and you can slough it off – but I wondered whether as a director in the past (let’s forget about your present involvements) you have found that as a director you’ve been more concerned with this compassion for the future than line or management or day-by-day executives.
BROWN: Well, the director can’t neglect the day-by-day problems that are presented at the board meetings, no. And it would be a mistake in my judgment to have a group of directors who are representing specialized constituencies, whether it’s consumers or whether it’s women or whether it’s minorities or anything else. This is not the way the corporation would best serve the public over the period of the long run. A director represents the corporation. And it’s through the corporation that he is trying to help all of the community.
HEFFNER: Why have so many boards of directors appointed or have had appointed to them members of constituencies, members with constituencies: women, blacks, minority members, etcetera?
BROWN: Well, I would like to answer that by saying that I thought it was because the black happened to be the best man or the best woman for the job. There’s no reason why there shouldn’t be, and as a matter of fact I serve on one board where a black is one of the best members of the board we have in the interest of the corporation. In the case of women they may be the same way. But what I’m trying to say is that it’s a mistake to have a board made up of separate constituencies representing separate groups in the community.
HEFFNER: Then who is the ideal director?
BROWN: I’m not sure there is one. (Laughter)
HEFFNER: Well, if he or she is not to be chosen as a representative of some interest, how can he or she be chosen?
BROWN: In terms of the track record of the individual, how much they have experienced various kinds of communities and activities, in terms of their demonstrated capacity to think clearly and precisely, in terms of the company interest. Now, I want to emphasize that a board member’s first obligation is to the company; not to any constituency. Now, you may, I may feel very strongly about some action in Harlem, and I might present it as a desirable thing to undertake. But that wouldn’t be because I was representing a constituency. It just would be because I thought the company had a unique capacity to do something in that particular area. Now, that has been done at big, great, great distress. Marshal Cascade went into the construction business, as you know, in black communities, and it almost broke him.
HEFFNER: I’ve heard that if you put all of the directors of the top 100 corporations together in a room, a large room, perhaps not as large as one would think ordinarily about many members of a board in 100 top corporations, they’d be talking many times to each other, to themselves I should say, and that so frequently there’s an overlapping, and you seem to find a board member of this major corporation is also a board member of another major corporation. Is that, in your experience, the case?
BROWN: There is a great deal of overlap. Frankly I wish there were less. But I don’t regard it as being a serious thing. The interest of the Federal Trade Commission in overlapping directors, I think, is misguided. If a man’s on the aluminum corporation and United States Steel, the chances are they have no contact whatsoever in terms of the transactions between those two companies.
HEFFNER: But in terms of, not representing constituencies, but of presenting a variety of points of views, doesn’t that overlapping cut down the possibility that on any one particular board there will be that kind of variation of views?
BROWN: I would like to see more people recognized as being qualified and available for board membership, yes. I think we have in the past concentrated too much on lawyers and investment bankers and commercial bankers, on executive officers of the corporation. I would like to see more interests in the community represented on boards. And we’re getting that, we’re beginning to get it quite dramatically as a matter of fact.
HEFFNER: What kinds of representation are you referring to?
BROWN: Well, I’m talking about women that are recruited from different kinds of activities in which they’ve distinguished themselves. I’m talking about academic administrators, some professors.
HEFFNER: Just some, I hope.
BROWN: (Laughter) Well, I would like to see different communities represented on boards. Not because they represent the constituencies of those communities, but because they bring to the boards considerations and discussions, a wider range of background interests.
HEFFNER: Going back to the internal concerns about a board of directors, I had the feeling when you were speaking before about the responsibility of the board to monitor the activities of management that it’s almost as if we were talking about another government. And that I wondered whether management people mustn’t feel about boards of directors that they are under the gun with them just as much as they are with a Federal Trade Commission or an FCC or whatever government agency happens to be overlooking their particular shoulders.
BROWN: Not if there’s a tradition. I would make the chairman of the board a much more important figure in the management of a corporation than he is today. If the chairman of the board is important it’s because he’s the chief executive officer additionally.
BROWN: Yeah, right. But I think it would be much healthier in the long run to separate these two jobs. And the chairman of the board would work toward the development of a tradition and practice of the board members, working in collaboration with management in this monitoring role, but not in the sense that, as Goldberg would have imposed a whole new structure of inquiry.
HEFFNER: I gather from your book, you said that Justice Goldberg resigned from a board because he couldn’t have enough backup support to be able to do the job he felt he had to do.
BROWN: Well, he wanted an independent staff and an independent budget to make any kind of an inquiry he wished in the company. Well, this is not the spirit of a corporation at all. If a member of the board wants to know something he ought to go to the chief executive officer and ask him if he could assign somebody to make the kind of inquiry he wants. This is, you must have confidence and trust between the board of directors of the executive management or you are not going to have a company.
HEFFNER: Do you think that the recent revelations about political contributions in this country and abroad might lead directors to think twice about trusting information that they get from internal management?
BROWN: Well, that’s an awfully difficult and complicated question. I don’t think boards typically knew that management had made this kind of a contribution domestically. Whether they knew it or suspected it abroad I don’t know. But it’s a pretty common practice and not illegal abroad, if you know.
HEFFNER: Uh hum.
BROWN: I deplore it. And I think if boards had known that this was going on they would more than likely have objected. But I’m sure that in some cases senior members of the board did know it. However, I would add this note, however: that if we had equal treatment of political contributions from all interests in the community …
HEFFNER: Labor unions as well as business.
BROWN: that’s right. It probably would not have happened. I think when you have a situation in which there is an imbalance, and I don’t think you have to look at the Congress more than once to see that there is a tendency on the part of the Congress to favor positions that are being taken by labor leadership.
HEFFNER: That would be challenged, you’d agree, wouldn’t you?
BROWN: Yes, of course.
BROWN: But I think probably part of this has been induced by the sense that there was an imbalance.
HEFFNER: Does it lead you though, in the one minute we have remaining, to wonder whether the demand that you make for real information to the boards of directors
mustn’t even be strengthened beyond what you’ve suggested in your book?
BROWN: I would rest on the suggestions I’ve made in the book as a first step anyway. And I think it would be adequate. Especially would this be so if we organized the board around the chairman of the board and the committee structure that I propose in the book.
HEFFNER: Do you feel that your proposals will be heard with enthusiasm and acceptance?
BROWN: I think they would be mildly shocking in their first introduction. But over a period of time – and I make it very clear in the book that I don’t know these things should happen overnight – but in a period of time I think that this is the direction that the boards will begin to develop as monitors and ultimately authoritative bodies within the corporation.
HEFFNER: Thank you very much for joining me today, Dean Courtney Brown.
And thanks, too, to you in the audience. I hope you’ll join us again on The Open Mind. Meanwhile, as an old friend used to say, “Good night, and good luck.”