"Huntsman Corporation Announces the Appointment of a New Independent Director," says the headline of a new press release. But what does "independent" mean when the new director, Mary C. Beckerle, is chief executive officer and director of the Huntsman Cancer Institute, funded by the Huntsman Cancer Foundation, headed by Huntsman chairman, former CEO, largest shareholder, and founder Jon Huntsman? Who is also father of the current CEO, Peter Huntsman?
(Bonus points: One of the other directors used to be chairman of Huntsman's European operation. Oh, and don't forget that Jon Huntsman Jr. is apparently prepping to run for president -- let's hope he has a better understanding of conflicts of interests than his father and brother.)
In any event, that's a lot of Huntsmans, over there on (you guessed it) Huntsman Drive in Salt Lake City.
If Beckerle headed a for-profit corporation with that kind of connection to this company, she'd never be considered independent. The inevitable conflicts of interest presented by a commercial relationship would be sufficient to impair a director's ability to provide unbiased oversight on behalf of the shareholders.
Nonprofit ties bind just as strong as for-profit ties
How is that different when she works for a non-profit funded by the chairman of the board and father of the CEO?
Huntsman the company and Huntsman the father and son haven't shown much concern about preventing conflicts of interest. They want the access to capital of a public company and the control -- and sweetheart deals -- of a private company.
The founding family has a history of related-party transactions: leases of aircraft and facilities owned by the family, and a consulting agreement with former CEO Jon M. Huntsman. In 2008 the company paid him $15 million in consulting fees for settling a lawsuit against private-equity firm Apollo Management LP over a failed leveraged buyout. They cancelled his consulting fee in 2009, following objections from shareholders. But he still gets $1.1 million in base salary and up to $3 million in a bonus at the discretion of the compensation committee.
Words like "discretion" actually demonstrate the importance of independent directors. And yet we allow loopholes that allow people like Beckerle to serve as nominally independent despite a web of financial and professional ties to the founding management of the company.
No independent directors, please -- we're Utahns
This announcement makes clear that Huntsman doesn't want directors who are truly independent and it doesn't want directors experienced in the fiduciary obligations of public company directors. The press release emphasizes the new director's "independence" and scientific credentials but provides no information about any other public company boards or relevant background in strategy, finance, risk management, or corporate governance. It certainly won't be easy for Beckerle to say "no" to Huntsman's $3 million bonus or another consulting contract.
Americans believe in independence. We venerate the notion of purity untouched by relationships that can create even the appearance of conflicts of interest. Every few years, elected and appointed officials face yet another round of disclosure requirements and restrictions.
And the scandals of the Enron/HeathSouth/Adelphia/WorldCom era inspired a raft of reforms that ramped up the "independent director" requirements for public companies that were originally imposed by the New York Stock Exchange following an earlier set of scandals. But Beckerle still qualifies as "independent," making her eligible for service on the audit or compensation committees.
Why "independent" directors fail
Dozens of academic studies have tried to find some benefit from director independence. None has succeeded in finding a link between director independence and better returns or reduced risk. That is not because independence is unimportant; it is because the current rules allow someone like Beckerle to be considered "independent."
Directors affiliated with non-profits should have to disclose any contributions from the company or its executives just as for-profit executives must for any "related party" transactions.
We have come a long way since the CEOs of Cummins Engine and U.S. Steel chaired each other's compensation committees. But not far enough.