Corporate boards look to high-profile directors

When T. Rowe Price Group looked to add a director to its board last month, the Baltimore money manager chose someone with widespread name recognition: former Sen. Olympia J. Snowe of Maine.

Earlier this year, Price added another notable figure to its board: Freeman A. Hrabowski III, president of the University of Maryland, Baltimore County, whom Time magazine named last year as one of the 100 most influential people in the world.


Price is by no means alone in appointing high-profile or so-called celebrity directors. Former Republican presidential candidate Mitt Romney rejoined the board of Bethesda-based Marriott International after his defeat in the November election. The board of Exelon Corp., parent of Baltimore Gas and Electric Co., includes an admiral and former Homeland Security Secretary Tom Ridge. And several Maryland corporate boards have retired military brass.

Corporate governance experts say such celebrity directors can be highly beneficial, raising a company's profile and even its stock price. But that doesn't mean all boards should have a celebrity, they add. Choose wrongly, and a company can find itself dealing with someone who disrupts meetings, doesn't come to them or becomes a scandal.


Celebrity directors are generally people widely recognized for something other than their position on the board. Al Gore, for instance, is better known as a former vice president than a director of Apple Inc.

A.B. "Buzzy" Krongard, former chairman and CEO of Alex. Brown, said celebrity directors add "usually nothing" to a board.

"Generally speaking, they bring celebrity status," he said. "Why people put them on the board, I have no idea."

But Krongard, the lead director at Under Armour, defends the appointment of retired Adm. Eric T. Olson to the Baltimore athletic apparel company's board last year.

"He has tremendous experience," Krongard said.

Olson, a decorated former commander of U.S. Special Operations, has worked under conditions of extreme heat and cold and brings insight on what's needed in apparel under those situations, Krongard said.

Under Armour doesn't have a director who is an athlete. So many athletes wear Under Armour gear that the company doesn't want to pick one for the board and offend the others, Krongard said.

Concerns about celebrity directors go back 20 or so years when corporations — under pressure to appoint independent directors — started putting well-known figures who were not necessarily engaged in the company's business on their boards, said Jill Fisch, a law professor at the University of Pennsylvania.


"They often didn't attend as many board meetings as they should have," she said. "They just rubber-stamped what management wanted."

Times have changed, Fisch said.

"The people we are talking about today are a little bit different than that," she said. "Yes, they are big names, but ... many times they are bringing some sort of skill set that a company finds valuable."

Since 2010, the Securities and Exchange Commission has required companies to spell out the skills, experience and qualifications that make a person board-worthy.

Companies now are discouraged from filling board seats with other CEOs and are urged to find directors who can think outside the box, something high-profile directors can provide, Fisch said.

For instance, a company facing regulatory issues might want a former elected official who understands regulations and how to lobby on them, Fisch said. A university president, she said, has experience in running a big enterprise much like a CEO, but might address matters in a different way.


Celebrity directors can add more than a fresh perspective.

A 2011 study that looked at the impact of more than 700 celebrity directors — including former Vice President Dick Cheney, former Secretary of Defense Robert M. Gates, ex-tennis star Billie Jean King and New Age guru Deepak Chopra — found that they raise a company's visibility among consumers, investors and even analysts.

Consequently, such directors boost a company's stock price on average by about 3 percentage points over a year, said Stephen Ferris, senior associate dean for graduate studies and research at the University of Missouri and co-author of the study.

Investors and others tend to view celebrity directors as a seal of approval, concluding that high-profile figures would not get involved with a bad company, Ferris said.

Celebrities also can help little-known startups, giving them "credibility and visibility much more quickly," Ferris said.

Of course, it doesn't always work out.


Morgans Hotels Group added now-disgraced bicyclist Lance Armstrong to its board when the company went public in 2006. Armstrong resigned in early 2008 after missing every board meeting the year before, even though the company paid him $71,644 in fees and stock awards. He later lost all seven of his Tour de France titles because of a doping scandal.

Why do celebrities join boards? Prestige and a desire to give back or to continue in a leadership role, Fisch said.

And money. Directors can earn six figures for a year's work.

Two years ago, while a graduate student, Chelsea Clinton — daughter of a former president and secretary of state — was appointed to the board of a media and Internet company that gave her $250,000 in restricted stock and a $50,000 annual retainer.

Snowe can expect to earn significantly more on the Price board than the $174,000 salary she received as a senator. Compensation for Price directors last year ranged from $238,823 to $309,618, including stock awards. Snowe has received 4,200 shares of restricted stock.

Price declined to comment beyond statements that Chairman Brian C. Rogers made when announcing the two new directors.


Hrabowski's "focus on helping others succeed fits in well with our mission and our focus on financial education," Rogers said. (Hrabowski also is on the board of Hunt Valley spice maker McCormick Corp.)

And Snowe "has worked extensively on many complex and important issues relevant to our business, including budget and fiscal responsibility, education, retirement and aging, women's issues, health care, foreign affairs, and national security," Rogers said.

Hrabowski was traveling and unavailable, and Snowe could not be reached for comment.

While former politicians are tapped frequently as directors, Maryland companies — some of which cater to the Defense Department — reach out to retired military leaders.

Corporate Office Properties Trust, whose top tenants include Uncle Sam and defense contractors, appointed a retired Navy rear admiral to its board two years ago. One of the directors of TeleCommunication Systems, an Annapolis maker of mobile communications technology used by the military among others, is a retired Marine Corps lieutenant general.

But sometimes a director's experience isn't related directly to the company.


H.C. "Barney" Barnum Jr., a former deputy assistant secretary of the Navy for reserve affairs and decorated former Marine, sits on the board of Medifast, an Owings Mills maker of weight-loss food products. Barnum, 73, said he brings experience in leadership and formulating budgets and policies to the fast-growing company, which is expanding into new markets.

"We have to make timely, accurate decisions, and of course, I've been doing that all my life," he said.

And when Barnum is out representing Medifast, it helps the company when he's introduced as a Medal of Honor recipient. "That makes people listen," he said.

Besides bringing extensive experience running large organizations, Medifast CEO Michael MacDonald said, Barnum has opened doors for the company when it needs to reach out to the military or the government.

"He asks some tough questions," MacDonald added.

Daniel Okrent, the first public editor of The New York Times, will be retiring this month from Tessco Technologies' board after serving for nine years.


CEO Robert B. Barnhill Jr. said in a statement that Okrent brought a "wealth of insight" from his years as a journalist, editor and publishing executive and helped the Hunt Valley company achieve a "laser focus" on its communications.

"Of course, having someone of Dan's stature and renown helped bring attention to Tessco outside of industry circles," he said.

Okrent, 65, said he doesn't consider himself a celebrity director. He contributed to the board by doing the job of a journalist, he said.

"I asked questions like a journalist," Okrent said. Maybe they sometimes would appear self-evident, he said, but "at times they led to new ideas."