* BlackRock, Merck, Caterpillar boards top-ranked-study
* Tyson Foods, Host Hotels boards among least capable
* Icahn's public company at bottom of list, disputes method
* Outside CEOs seen as top picks
By Scott Malone
BOSTON, July 11 The boards of BlackRock Inc
, Merck & Co Inc and Caterpillar Inc
topped a ranking of the most capable boards of directors in
corporate America, while a publicly traded affiliate of activist
investor Carl Icahn came in last.
Companies rated as the least capable boards included several
traditionally family- or founder-controlled companies, including
Tyson Foods Inc, Dole Food Co Inc and D.R.
A study by James Drury Partners, which conducts director
searches, ranked boards of the 500 largest U.S. companies by
revenue, based on the number and experience of their directors.
It gave the most weighting to outside directors who are
CEOs at other companies, arguing they were most likely to have
the experience and independence to challenge management, and
less likely to be cowed by a fellow CEO.
The report found the shares of better-governed companies, as
measured by the number and experience of the directors on their
boards, outperformed the stocks of their less capable peers.
In a group of 25 companies whose boards were stronger than
the consultancy expected given the company's size -- including
MasterCard Inc and Rockwell Automation Inc --
their shares rose 29 percent over the past five years.
That outpaced the 16 percent rise in a group of 25 companies
whose boards were weaker than the consultancy expected given
their size, including Wal-Mart Stores Inc and Microsoft
Microsoft, which in the past six months has added the
current CEO of Seagate Technology PLC and the former CEO
of Symantec Corp to its board, declined to comment.
Wal-Mart did not respond to a request for comment.
Overall, the 2012 edition of the study found boards had
become slightly weaker based on their standards over the past
year -- a trend Drury related to fewer top-level outside
executives on the board.
'DRASTIC' CHANGE NEEDED
Icahn, known for challenging managements and shaking up
boards of underperforming companies, said the survey was flawed
in including Icahn Enterprises LP -- where he serves as
chairman and owns the vast majority of shares.
"We're a general partnership. A GP structure is vastly
different from a corporation because you don't even have votes.
Even if that wasn't the case, I own 96 percent of the company,"
Icahn said in a phone interview. "The owners should select board
members and be represented on the board and hold management
But the billionaire investor said he agreed that many
corporate boards fail to police management or represent
"I do believe that the whole structure of corporate
governance in this country needs drastic changing, but not in
the way this survey implies," Icahn said. "You don't need larger
boards. You need better boards."
Last month alone, Icahn successfully placed a director on
the board of troubled natural gas producer Chesapeake Energy
Corp and online health information provider WebMD Health
Corp and nominated four new directors for the board of
drugmaker Forest Laboratories Inc.
James Drury, chairman of the Chicago-based search firm,
admitted he saw the irony in placing Icahn Enterprises, which
has four directors in addition to Icahn, at the bottom of his
list. But he said all publicly listed companies should be held
to the same standard.
"If you are a public company, you have to play by the same
rules," Drury said.
Some of the other companies the study said had less-capable
boards took issue with its methodology, particularly the heavy
weight placed on CEOs of other companies.
"Since I became chairman in 1998, the percentage of
independent directors has consistently increased," said John
Tyson, chairman of Tyson Foods. "We are confident in each
director's business acumen and ability."
D.R. Horton said four of its six directors are independent
and that it split the chairman and CEO roles in 1998.
"We believe our board does not lack governance capacity,"
the homebuilder said in an email to Reuters.
CEOS SCALE BACK OUTSIDE BOARDS
Many CEOs have scaled back the number of outside boards on
which they serve to focus on their own companies. Just 47
percent of the CEOs of the 500 largest U.S. companies serve on
outside boards currently, down from 70 percent in 1990.
While the study acknowledged the desire for CEOs not to be
spread too thin, it also suggested that serving on an outside
company board could broaden their experience.
Among the top-rated companies, BlackRock's board includes
James Rohr, CEO of PNC Financial Services Group Inc
and Merck's includes Wendell Weeks, CEO of Corning Inc.
The need to have other strong CEO voices on a board is not
lost on top companies. AOL shareholders in mid-June voted down a
slate of three dissident nominees, but the company still aims to
add two more voices to its eight-member board.
"We would really like to have a sitting CEO," AOL CEO Tim
Armstrong said at the time. AOL's board includes the CEOs of
several nonprofits and retired executives from Amazon.com Inc
and Automatic Data Processing Inc.
The boards ranked second and third from bottom in terms of
corporate governance capability were at Seaboard Corp,
which has pork production and processing and shipping units, and
TravelCenters of America, which operates highway rest
TravelCenters declined to comment. Representatives of
Seaboard, Host and Dole did not respond to requests for comment.