Inside the Board Room

The Social Register of U.S. business is a thick, blue-covered book that lists the members of the nation's most exclusive business clubs: the corporate boards of directors. Last week Standard & Poor's issued the 37th edition of its Register of Corporations, Directors and Executives, covering some 29,000 publicly held companies. The 3,185-page volume listed the names of 72,153 directors and executives, the highest number in history. Standard & Poor's also drew a statistical profile of the men who run U.S. business.

Of the people in the directory, 70% are over 50, and many are much older; 750 are over 80, while only 296 are 30 or younger. More of them (3,465) attended Harvard than any other college, and the Ivy League colleges in general led the field; on the other hand, 23,960 listed no college or university at all. More and more women are becoming directors, though the number is still relatively small; the new Register lists 1,148 directors who identify themselves as women, but Standard & Poor's suspects that some 300 other women may have used only initials to conceal their sex.

Despite the rising number of directors,* the nation's companies are still hard-pressed to find men -- or women -- with the time and savvy to fill the 150,000 boardroom chairs. Because of the increasing complexity of business, directors need to know more and work harder than ever. By charting -- or at least approving -- the policy guidelines followed by management, they act as trustees for 17 million U.S. stockholders. Yet few stockholders know much about who the directors are, what they do, or how they are selected.

Microcosm of Business. The directors of small companies tend to be dominated by the president or controlling owner, who has a board because state laws require it and who packs it with his pals. A few giants, notably Standard Oil (N.J.), have completely "inside" boards consisting of only their own executives, and Du Pont has a "proprietary" board in which family members and other large stockholders predominate. But most leading companies choose a majority of outside directors and give them a large voice in policy.

Today's boards are larger than they used to be and are still growing.

Twelve members seems to be the current average, but some companies go as high as 17. For the most part, today's board members are expected to work at their task; each directorship costs a man at least one day's time a month, not counting several hours of homework. Communications between the directors and corporate officers, once haphazard, have been improved to the extent that many executives spend most of their time at the job of pulling together information for the directors. And whereas boards used to be heavily weighted with production men, today's emphasis on marketing has given a strong boardroom representation to distribution experts.

Much business give and take goes into the manner in which directors are picked. A bank almost certainly seeks executives of several large corporations, expecting to help handle their companies' accounts. Corporations, on the other hand, frequently seek out bankers not only for their business acumen but for the support they could give should the company encounter financial need.

But boards also strive to recruit experts in such fields as law and international business and to draw as wide a geographical mix as possible. One of the functions of a good board is to act as a microcosm of business, enabling a company to get a quick reading on the state of business in general.

The Categories. Directors are difficult to type--and one board member may embody several types--but they usually fall into distinct categories. The ideal director, in many ways, is the top executive of proven judgment and success, whose experience is his passkey.

Corporations today seek more such men, regardless of social background or personal wealth, although these factors still count for much. Other types: >The man with connections, who knows many other businessmen and companies. Goldman, Sachs Partner Sidney Weinberg once sat on 35 big boards simultaneously and was valuable to all of them; through his directorships he became acquainted with the talents of so many executives that U.S. business and Government used him as their prime "body snatcher." >The investor with a big stake in the company. Most directors nowadays have only a nominal stock ownership in the big and broadly held companies they serve. But Chicago Industrialist Henry Crown, himself a major shareholder in General Dynamics and other companies, believes that "the best director is a man who has a good financial stake in the company." Wall Street's Charles Allen, whose personal fortune of some $500 million speaks for his business skill, either controls or has major interests in most of the 20 companies on whose boards he sits.

>The scientist or educator, who is increasingly in demand because of his ability to grasp and explain complicated matters. Former Harvard Business School Dean Donald K. David lends his presence to nine boards, and University of Pittsburgh Chancellor Edward H. Litchfield serves on six.

>The retired military or Government leader. Lucius Clay, Omar Bradley and Arleigh Burke, among many others, have been drafted by boards that prize their experience under pressure, their prestige and Washington contacts. Eugene Black, former president of the World Bank, is now busier than ever as director of ten companies.

>The largely ornamental director, who may be talented but whose major contribution is often his name and wide variety of friends. The nation's busiest board member at present is George E. Allen, the onetime "friend of Presidents." He is a director of 32 companies as diverse as American Export Lines and Washington Mutual Investors Fund.

The Reason Why. Some businessmen are eager to get directorships simply to raise their own reputations, but the stratagem rarely works; a board is joined strictly by invitation. Boards are not only selective but secretive and rarely reveal their rituals. Most are dominated by a few men, usually on the executive or finance committee. When a director wants to ease through a proposal, he lobbies to line up support from these men well before the meeting.

Since decisions are usually made in advance and in a gentlemanly way, there are seldom any dramatic confrontations in the board room.

Without stepping into day-to-day operations, the directors oversee new products, pay scales, stock options and executive promotions. They also determine the size of dividends, give the final word on mergers and expansion plans.

Most of all, they exercise an independent check on managers, often firing and hiring them. The man most responsible for lifting Lynn Townsend to the presidency of Chrysler is Pittsburgh's George H. Love, who is board chairman of both Chrysler and Consolidation Coal Co.

When the Fruehauf trailer company skidded into the red, new management was brought in largely by Detroit Edison's Walker Cisler.

What motivates a man most to become a director? "Prestige, pride, interest and a sense of participation," says Zenith Radio Corp. President Joseph Wright. Certainly it is not the lagniappe.

For each meeting they attend, directors collect anywhere from $20 (American & Foreign Power) to $300 (Union Carbide). Some companies pay annual retainers, ranging up to General Mills's $10,000. But the responsibilities of sitting on a board usually exceed the rewards. "You couldn't hire many of these men for hundreds of dollars an hour," says American Motors Chairman Richard E. Cross. "They do it because they like business--the power and the thrust and the action."

*Boards probably originated in Germany in the 15th century, when mining companies began selling shares to people in distant cities. Investors found it difficult to attend company meetings, appointed agents to look after their interests.

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