Corporate finance in job yorkshire

Engaged in a proxy battle in the late 1990s, the board of directors of the company that preceded Furr's Restaurant Group bickered about the flavor of the pudding that management wanted to add to the menu.

While the incident became amusing cocktail banter among analysts, it also raised eyebrows about what directors should be focused on in fulfilling their corporate governance responsibilities. Such dilemmas are receiving even more attention in the wake of the Enron scandal.

What should they know it and how does that knowledge affect board decisions and corporate strategy? Those questions and others are on the minds of Congress, the Securities ad Exchange Commission and law enforcement agencies as they look to exact more accountability, and perhaps liability, from directors following the energy giant's controversial bankruptcy.

Indeed, in February, Roger W. Raber, president and chief executive of the National Association of Corporate Directors, appeared before Congress with a wish list of changes designed to improve corporate governance nationwide. Among the changes his group advocates: Independent directors should make up a substantial majority of boards, boards should more frequently evaluate the performance of a company's senior executives and they should review company compliance and reporting systems at least annually.

But as lawmakers consider mandating such changes, foodservice executives and other interested parties are engaged in their own analysis.

"You don't want your board to micro-manage," says Nell Minnow, a shareholder-rights advocate who points to the Furr's incident as intolerable and who believes that boards should be composed completely of outside, independent directors. Minnow is co-founder of The Corporate Library, a Web site devoted to news and analysis about corporate governance issues.

"You don't need your board to understand the intricacies of the business," she continues. "Eighth-grade common sense is all it should take."

That is not so, according to a director of Yorkshire Global Restaurants -- whose A&W Restaurants and Long John Silver's brands recently were sold to Tricon Global Restaurants pending shareholder approval -- who counters that some of the Enron disaster hinged on board ignorance.

"Management can always obfuscate the agenda of board meetings," asserts the Yorkshire director, who requested anonymity. "There is no way on earth, if you attend a few meetings a year, that you will fully understand the intricacies and complexities of a modem organization."

Craig Miller, president of Furr's and one of its directors, says he believes that a situation like Enron's would not happen in the foodservice industry.

"We are a cash business and we don't generate business unless we sell food," he says, suggesting that it would be more difficult for cash-dependent companies to inflate earnings or hide losses.

But Miller adds that when one considers some of the restaurant industry's best-known corporate setbacks -- such as Boston Chicken's rapid rise and fall or Planet Hollywood's aggressive over-expansion -- it is clear that some foodservice boards may have taken their shareholder responsibilities too lightly.

Bankruptcy-broken Boston Chicken, whose Boston Market brand now is a division of McDonald's Corp., is a case study of poor corporate governance, Miller states. He notes that a lack of attention to the business model, especially by the analyst community, lulled the board into a false sense of security.

He recalls that only one analyst sounded alarms about the company's strategy.

"How did Boston Chicken come about," Miller queries. "What was the board's responsibility? Any analyst in America that is worth their salt could have seen that they had a business model that wasn't working, but only one analyst raised any questions. Why didn't the board?"

On the other hand, however, Miller says that some boards really are on top of their game. He points to Darden Restaurants, whose board was praised for its foresight when it signed off on a business plan decades ago for Darden's ownership of its own properties. As a result Darden is free of the vagaries of real-estate inflation and enjoys, in Miller's estimation, the greatest undervalued assets in foodservice.

Houston-based Enron, a multibillion dollar energy-and-trading conglomerate, filed for bankruptcy protection from creditors last Dec. 2, unmasking a series of shady dealings and false accounting practices that cost more than 6,700 people their jobs and generated investigations by Congress and the Justice Department.

Enron was once a Wall Street darling revered for its innovative use of technology. Its stock tumbled from a year-ago high of $80 a share to 90 cents in recent trading.

Although Enron's independent directors have not been implicated in any wrongdoing, investigators are examining the legality of one board member's receiving $1 million for a research fund he heads.

Minnow says one of the lessons learned from Enron is that just because a company is public and has to report its performance regularly, there's nothing to stop it from stealing in plain sight. But Don Karras, a director at Wolfgang Puck Food Co., says honest communication between management and the board should have prevented the Enron debacle.

Wolfgang Puck Food Co., which was named after the celebrated chef who also is its chairman of the board, has sales of about $85 million from several restaurant concepts, three of which are growing chains. Karras is chairman of one of the chains, Wolfgang Puck Express, a 16-unit quick-service concept designed for malls and airports.

Once a director on several boards and start-up restaurant companies simultaneously, Karras now sits only on the board of Puck Food, where he has been a director for the past 15 years of his 35-year foodservice career.

He says he and his board colleagues meet officially once a month, usually through phone conferences, but communicate steadily throughout the month. He says he had one meeting just recently by cell phone for an hour and a half while waiting to catch a plane at Dallas/Fort Worth International Airport.

"I bet we talk 10 to 15 times a month, checking plans, figuring out where we are, where we're going next with a project," Karras says. "I think the big difference is that there is not necessarily a need to know anything, but a desire to know."

Karras insists that although the company is privately held, Puck, the chairman, runs the board as if it were publicly held. Karras says all of the normal committees often associated with directors of public entities -- auditing, performing, nominating and governing -- exist at Wolfgang Puck Food Co.

"Our board members are investors, and they have investors," Karras says, "so all of the due diligence in reporting, all of the committees, we have, too.

"But our board is also very bright and made up of some extraordinarily talented young people who make being associated with them a pleasure," he adds. "I don't think I've ever had so much fun in my life."

Other members of Puck's board include David Scully, former president of H.J. Heinz; David Chu, founder and president of Nautica, the $2 billion marine and outdoor clothing manufacturer; and other successful but lesser known investment bankers, private investors and restaurant creators.

While critics express concern about the boards of privately held companies, the anonymous Yorkshire director -- who once was the president of a major national restaurant brand -- insists that directors of privately held companies assume their duties with as much seriousness as their peers on public company boards.

"Being a board member on a private company certainly makes the job easier, if for no other reason than that you don't have to answer to Wall Street or disclose proprietary information," he asserts. "But we have the same degree of safeguards a public company has.

"The board has an audit committee, a compensation committee -- which is really about performance evaluations, stock options and bonuses -- and we meet quarterly. In some respects, I'd say, that outside of the disclosure commitments, what we do is really indistinguishable from a public company."

Nevertheless, the Yorkshire director did make one concession: Publicly held companies are usually more diverse in terms of ethnicity and gender.

"Most public companies tend to err on the side of diversity," he observes. "You look at the board of a major Fortune 500 company, and you will probably find a woman, a member of an ethnic group, maybe an academic, perhaps a noted celebrity or politician, certainly successful business people.

"But it begs the question: Does a person with some social notoriety who has a particular social and or political agenda really lend as much to corporate governance as, say, another CEO who has been in the trenches and brings that perspective from the world of business?" he asks.