It's hard to imagine what could make a garbage company exciting. But there was plenty of excitement when Bill told the astounded board that he and the company's general counsel had been working secretly for months with the Manhattan district attorney to end the Mafia's stranglehold on commercial waste disposal in New York City. The Mafia had fought back with tactics we had all watched goggle-eyed in The Godfather: the wife of BFI's New York district manager, greeting some women guests, had found a severed dog's head on her doorstep. But BFI had the last laugh when the Mafia refuse collectors were rounded up, tried, and convicted. In his Texas drawl, with an unlit cigar clamped in the corner of his mouth, our lead lawyer explained: “I took the papers that would complete BFI's purchase of his company to the jail where one of the Mafia owners was locked up and watched while he signed them, cussing all the way. I had to bob and weave to duck his spit.”
Despite its success in this bit of heroic derring-do, BFI was struggling in an industry where the accounting practices of at least one of its largest competitors skirted the edge of legality. In 1997 the board decided that selling the firm to another company (not the one with the dubious accounting) was in the best interest of the shareholders. We didn't come to the decision easily; when BFI's young president first broached the idea, several of the directors said to Ruckelshaus, “You should fire him for disloyalty.” The evidence was ultimately persuasive, though, and we voted the company, along with ourselves as a board, out of existence.
Given the roughneck nature of the petroleum industry, it's not surprising that, when I joined the board of Unocal, I was nonplussed by the “cowboy culture” I found there. At one of my first meetings, the chairman reported on a leak that had allowed a toxic substance capable of causing skin irritation and flulike symptoms to escape from the firm's San Francisco refinery. The refinery's managers, he told us, had known about the leak but decided to do nothing about it until the time came for a scheduled overhaul of the plant. “And how,” we asked, “had those managers been punished for their irresponsible decision,” a misjudgment that ultimately cost the company some hundred million dollars in fines and penalties? “Oh, they were reprimanded and temporarily suspended,” came the bland reply. “You mean they weren't fired or at least transferred?” I sputtered.
Speechless with indignation, I couldn't manage even a sputter when Unocal's president, John Imle, reported that he had entertained several members of the Taliban at his home for dinner to discuss the possibility of Unocal getting involved in business in Taliban-ruled Afghanistan. It wasn't long before Unocal recognized the impossibility of working with the Taliban, and Imle was pushed out of the presidency not long afterward, but other elements of the company's traditional culture took longer to uproot.
Soon after I joined the board, the outside directors, acting through the various committees of the board, started putting steady, persistent pressure on Unocal's top management to change the firm's behavior from top to bottom, which in some cases involved ousting or reassigning some of its senior managers. Many of these initiatives originated with the Corporate Responsibility Committee, which I chaired during much of my time on the board. The directors themselves wrote a charter for each Board committee, and conducted an audit every year to check whether its commitments had been met and whether any revision or updating was required.
Beginning in 1994, Unocal started to issue an annual report to stockholders, separate from the required one focused on financial performance, in which it discussed candidly its problems in the areas of corporate social responsibility—health, safety, and the environment—and what it was doing to correct them. And it adopted as its motto “To improve the lives of people wherever we work.” The process was a gradual one, but, over time and with the directors pushing and prodding every inch of the way, Unocal took steps to match its actions to its words. It became more forthcoming in admitting to and aggressive in cleaning up underground leaks that had persisted for many decades, and in compensating the communities that had suffered as a result. It strengthened the language in its code of conduct for both employees and directors, which was then cited by several activists as one of the most progressive in the industry. And it's Operations Management System, introduced in 1999 to identify, evaluate, and mitigate the various safety risks in its operations, was so cutting edge that Unocal received requests from other companies for help in implementing such a system in their own operations.
The most inflammatory issue Unocal's directors had to confront was the company's participation in building a gas pipeline through Myanmar (Burma), a country then ruled by one of the most thuggish regimes on the planet. The company was under constant, highly emotional pressure to get out of the country by selling its share in operations there. How, our angry critics demanded, could we partner with the state oil and gas company of such a reprehensible regime? My fellow directors in corporate jobs could shield themselves from hostile calls, but, as a member of a university faculty whose telephone and office door were open to anyone who called or knocked, I was confronted face-to-face by groups of students who told me bluntly that doing business in such a country was immoral.
We argued intensely over the relative merits of selling our interest in the project, what I dubbed the Pontius Pilate choice—washing our hands of responsibility for a situation by placing it in the hands of others—versus “constructive engagement.” Neither side persuaded the other, of course; some of the students prayed for my soul, while others burned me in effigy on the Diag, the center of the University of Michigan campus, where I had become a professor.
The Unocal directors chewed over the Myanmar issue frequently and at length. We quizzed the top management intensively on the nature of operations in that country, sending the CEO there in person to see the situation for himself. When he returned, we demanded and got from him personal assurances that, contrary to widespread allegations, the actual operator of the facilities in which Unocal held part ownership (a French firm called Total) had never cooperated with the Myanmar government, either in using forced labor or in relocating villages to make room for the petroleum pipeline. On the contrary, he described to us in detail Unocal's active program of providing schools, clinics, and training (as, for example, in fish farming) to the people in villages along the pipeline route.
Our CEO's replies to our probing were corroborated by four field reports, covering the period 2002–5, based on extensive interviews with a broad range of stakeholders inside Myanmar, including villagers in most of the communities along the pipeline. These interviews were conducted by a small American nonprofit focused on working with companies to help them ensure that they have positive rather than negative impacts on the communities where they operate. The final report concluded, “[T]he overwhelming majority of [those interviewed] argue that Total [and its partners] should neither leave the country nor limit its interaction with the military regime in Myanmar/Burma.”4
We recognized that when revenues began to accrue from the pipeline, some would go into the coffers of the despised and cruel autocracy that held—and continues to hold—the country in an iron grip. Weighing all these considerations, we concluded that the benefits we could bring to at least a small part of Myanmar's population by staying in the consortium there was preferable to a forced sale to another company, probably Chinese, that would almost certainly not continue investing in socioeconomic projects that benefited the local population.
Because of this decision to stay, Unocal was sued in 1996 by activist groups under a centuries-old law originally directed at curbing the operations of pirates on the high seas. The case dragged on inconclusively for nearly a decade. Meanwhile, the directors had gradually come to the conclusion that Unocal was too small to reap full economies of scale, implying that it would be in the shareholders' best interest to sell the company to a larger firm. This decision meant disposing of the lawsuit that was hanging over its head, and the case was settled out of court in 2005. Chevron, the company that ultimately bought Unocal, has conti
nued to support economic and social initiatives in Myanmar and has continued to come under pressure for disinvestment.
Most of my years on the Unocal board were characterized by slow, steady progress in the effectiveness of board oversight; the final year, in contrast, was one of high drama. After the company had been in play, or up for sale, for several months, it entered into negotiations with the only bidder that had met the announced deadline, Chevron, America's second-largest oil company. Terms had been agreed to and the transaction appeared well on its way to a shareholder vote when the Chinese National Overseas Oil Corporation (CNOOC), a firm 70 percent owned by the Chinese government, tendered an all-cash bid with a significantly higher value than Chevron's combined stock and cash offer.
With two contenders now in the game, the Unocal board, whose fiduciary duty was to get the highest possible price for Unocal's shareholders, successfully elicited a higher offer from Chevron. But in the meantime, all hell was breaking loose in Washington. Several legislators, egged on by Chevron's lobbyists, were raising objections to a sale to a state-owned Chinese firm on grounds of national security. They were threatening, at the very least, to complicate and stretch out the required approval process, to the point that CNOOC withdrew its bid. Chevron's was accepted, and Unocal was merged into Chevron.
How much the buildup of both congressional and public hostility to the CNOOC bid was actually based on national security concerns, in the military or strategic sense, and how much on a belief that a company owned and possibly subsidized by the Chinese government would provide unfair competition to privately owned American firms is impossible to tell. In any case, CNOOC's withdrawal rendered moot what would have been an interesting but difficult discussion by Unocal's board, centered on two questions. First, how should we have weighed our fiduciary obligations to the shareholders against our obligations as citizens to our country's best interests? Second, if we had concluded that the latter should dominate, would we have decided that the United States would be better off if CNOOC were allowed to buy Unocal or if it were prevented from doing so?
That conversation never took place in the Unocal boardroom, but I have played it over in my own mind every time a proposed investment in the United States by a foreign entity has attracted controversy. No general rule can cover all cases, but my own belief is that, if the United States is to continue to be regarded as a hospitable host to foreign investment, such transactions should be prohibited only when national security, in the conventional meaning of the term, is at issue. Given that CNOOC had undertaken to sell all of Unocal's US assets—its interest was in the ones in Southeast Asia—it's hard to believe that our national security would have been threatened if the Chinese company had been the winning bidder.
Reflecting on the more than three decades I spent as an independent director of multinational companies, I ask myself how much value-added I had contributed to changes in corporate governance, beyond my symbolic role as a pioneering woman. In most cases, I'm confident that I did have some impact on the board's deliberations and the company's behavior. The one situation about which I feel no such reassurance is my performance as a director of Alcoa, the worldwide aluminum company. I had been asked to join that board by its chairman and CEO, Paul O'Neill, another acquaintance from my days on the CEA, when he was a rising young deputy director of the Office of Management and Budget (OMB). Paul liked to anchor Alcoa's strategic decisions firmly in the current global political and economic picture. As part of that approach, he relied on Ken Dam—who had been Paul's colleague at OMB and, at later points in his career, became deputy secretary of both the state and treasury departments—to give periodic reports on political developments and trends around the world, not only to the board but to business unit managers as well; Paul relied on me to do the same on the economic side.
For very different reasons, both Paul and I struck out after he resigned, in 2000, to become secretary of the treasury and took Ken Dam with him as his deputy. Paul's successor at Alcoa, Alain Belda, had a very different management style, which did not include our global briefings. Apparently that difference made me superfluous in Alain's eyes; one day he invited me into his office a few minutes before a meeting of Alcoa's nominating committee and asked me to resign to make room for a new director. I was hurt and angry at the grade of F he had implicitly given me and thunderstruck by the brusque way in which it was delivered, allowing me almost no time to make up my mind. But, privately, I had to admit to myself that I hadn't found a way to have much impact on the board's deliberations or decisions once Paul O'Neill had departed. Paul's dismissal from his cabinet post was far more public. It came from President George W. Bush, after Paul disagreed with the President and his other economic advisers on their proposed tax cuts and insisted repeatedly that there was no evidence of weapons of mass destruction in Iraq.
Whatever progress “my” boards made in corporate governance, it wasn't enough. Of the seven firms, only two—P&G and Alcoa—preserved their identities in the face of the upheavals that were reshaping American business during the last quarter of the twentieth century. Marcor, BFI, and Unocal were acquired by and merged into larger firms; Manny Hanny had been involved in three major mergers and name changes; and Westinghouse, known as a leader in the nuclear power industry, had sold off its birthright and transformed itself into the entertainment company CBS. And the financial scandals, crimes, and disasters that marked the first decade of the twenty-first century revealed how far corporate boards of directors still have to go to fulfill their monitoring role effectively. Women are still in the minority on corporate boards today, but very few of them are feeling the isolation of being the first woman, as I did. Silently, I say to them, “Go girl; be a pushy broad and put some spine into whatever board you're on.”
The governing bodies of leading universities were grappling with some of the same social issues as the boards of for-profit corporations, I discovered when I served on two of them. One was Harvard, where I had spent my undergraduate years; the other was Princeton, which had played such an important role at various stages of my life, even though it had refused to admit me as a graduate student. Both institutions were also caught up in questions of effective governance. And, although universities are grounded in a dedication to the principles of openness and the free exchange of ideas, both conducted much of their decision making in sessions closed to outside eyes.
Harvard and Princeton had their own version of the “withdrawal versus constructive engagement” controversy several decades before it erupted at Unocal. There the question was whether to continue to hold stock in companies that did business in South Africa, then under the yoke of a regime firmly committed to apartheid. As was true of many college campuses during the 1970s, Harvard was feeling strong pressures, intensified by student protests in 1972 and again in 1977, to disinvest entirely from such companies.
Like many of its sister institutions, Harvard at first chose a path of compromise, actually selling stocks only in cases where companies failed to adopt the Sullivan Principles. These principles required firms operating in South Africa to treat all employees equally regardless of race, to promote the advancement of blacks and other nonwhites in the workplace, and to take measures to improve the quality of life for these groups outside the workplace as well. This question, which was roiling the Harvard campus when I left its Board of Overseers in 1978, was doing the same at Princeton when I joined its Board of Trustees in 1980. Later, as a director of Unocal, I was to confront the issue once again. In each of these situations, I would have found it more comfortable to come to a decision based on some simple universal principle. But the moral choice is never unambiguous, the empirical evidence is mixed, and the question is not likely to be resolved definitively in my lifetime, if ever.
Like the Harvard and Princeton governing boards at the time, I believed, and still do, that in most situations constructive engagement—maintaining limited political and business links with a country despite its inexcusable policies, while
continuing to press for political or social reform—is likely to be more effective than total withdrawal. In hindsight, though, I have become convinced that, under the particular circumstances of apartheid South Africa, disinvestment was the more effective course. By the end of the 1980s, Harvard had almost entirely withdrawn from investment in South Africa; Princeton eventually did the same. And the Reverend Sullivan, a director of General Motors and the author of the principles that bore his name, had himself abandoned his original principles as ineffective and become a champion of disinvestment.
A very public issue, the changing status of women in the corporate world, had its counterpart in the private world of Harvard. Although many of the restrictions on female students' full participation in Harvard life had been eliminated by the time I joined its board, women undergraduates, who were more and more often seeing themselves as Harvard rather than Radcliffe students, had become increasingly vocal about their dissatisfaction with the distinctions that remained. They were particularly unhappy that the men's and women's housing were separated by a mile or more, and that the Harvard Houses offered a range of house-centered intellectual and cultural activities that the Radcliffe dorms lacked.
Martian's Daughter: A Memoir Page 26
