November 3, 2003
Q&A with Michael Dell on Integrity in
Corporate Governance
By Jerry Mahoney
Editor's note: Dell Chairman and CEO Michael Dell was gracious enough to sit down with freelance writer Jerry Mahoney, working on behalf of the McCombs School, to share some of his thoughts on recent reforms and best practices in corporate governance.
Mahoney: Does Sarbanes-Oxley require well-run companies to make major changes in what they are doing?
Dell: On an overall basis, no, is the simple answer. There’s probably a burst-mode of activity that well-run companies had to go through to do some things that were a little bit different from what they were doing. But fundamentally, if you think about having a good control process inside a company, having a set of ethical principles and having a series of sign-offs and assurances by different business-unit leaders – it’s really not a huge change. I think the change is probably much bigger for companies that obviously didn’t have those things.
Mahoney: Would you hazard a guess about what percent of
public companies would be in that second group?
Dell: Gee, I really don’t know. I can tell you that as I’ve gone to
different meetings and talked to other leaders, it’s not a huge
concern.
Mahoney: So what would you say about how effective the Act will be at restoring investors’ confidence in public companies, which is what it was designed to do?
Dell: (Laughs) Well, that’s a whole other question. I think it might be a catalyst for some companies to change and for rooting out some problems. The problem is – let’s go back to Enron or WorldCom or any one of these companies – it really doesn’t matter what you submit to the SEC. I mean, if you’re lying, it doesn’t really matter. So I think at the end of the day, you can’t legislate integrity. It doesn’t matter what the bill says. At the end of the day, you’ve (got to) have ethical people and principled people inside companies. It doesn’t matter what the regulations say. So I think you have to find ways to root that out of the system.
One of the positive things that Sarbanes-Oxley does, is it raises the awareness of the importance of good controls in a company. In our company, we have a lot of systems to detect and resolve anything that isn’t looking the way it should. Whether it’s a business process or a concern that an employee might have. We have confidential ethics hotlines all over the world. Any employee can raise any issue any time they want. I think it’s very important. You know, our company has 40,000-plus employees. Imagine a company with 100,000, 200,000 employees. You might have some people at the top who are supposed to be good people, and let’s assume for the sake of argument they are good people. Well, what if somebody in a far-away business unit does something they’re not supposed to do, and people just kind of look the other way? Well, that’s really bad. Every person in the company needs to be a part of making sure that things are working the way they’re supposed to. So at our company, if you see something that’s not right, well, it’s your responsibility to actually raise that. You can do it confidentially; you don’t have to tell us who you are.
Mahoney: But that’s part of your culture. You want people to do that.
Dell: Yeah, we want people to do that. We want people to raise those concerns, and we fully look into them and fully address them.
Mahoney: That topic relates to Section 404 of Sarbanes-Oxley, which
may be getting the most criticism because of the “onerous”
details of internal controls that companies are going to have to
set up with their auditors. Is Section 404 going to make
companies better at finding out that little misbehavior over
there in that far corner?
Dell: It will probably make some companies better. It all comes
back to the individuals involved.
Mahoney: In your opinion and experience, how common would it be for a CEO not to know what is going on inside his company?
Dell: Well, it depends on what level of detail you’re talking about. I mean the human mind only has the capacity to maintain so many facts and details at one time. I pride myself on knowing a fair bit about what is going on inside our company, and certainly things that are relevant and important and critical, you definitely want to know about. But to assume that a CEO knows every single thing about every aspect of a company … I mean you take a guy like Jeff Immelt, Jeff’s a great guy, a really smart guy. Can he know every single thing about all aspects of GE’s business? Sorry. (Laughs) It ain’t gonna happen. So, I think you got to have a system of processes and controls, and it’s his responsibility, just as it is mine, to sit down with the teams on a regular basis and understand. ‘Well, let’s talk about your business, what are you doing, what’s the control environment?’ We rely on our teams to give us assurances, and we go check it out ourselves too.
Mahoney: Obviously, no one person could know that kind of detail. But what I was getting at is that one of the purposes of Sarbanes-Oxley was to eliminate the so-called Ken Lay or Enron defense that this important stuff was going on over here and the top guy didn’t know about it.
Dell: Well, yeah. That falls in the category of gross negligence. But can a CEO know everything that’s really important? Yeah, he probably should.
Mahoney: And he should have before the Act?
Dell: Yeah, absolutely. How are you supposed to run a business if you don’t know what you’re doing down there? (Laughs) I mean we don’t just spend all our time taking pictures and talking to reporters.
Mahoney: I noticed that. Is the Act going to change relationships between CEO’s and their board of directors? At Dell, for example?
Dell: In our company, not really. We have a lead director now. We had a lot of the things already in place. We encouraged the board to meet without management, but it wasn’t as formal a process as it is now. I would pretty frequently at a board meeting say, ‘Why don’t you guys discuss this and we’ll all leave.’ But it wasn’t like a formally scheduled part of the agenda, which it is now. But they met pretty regularly without management, myself included.
Mahoney: That segues into the other question I wanted to ask you about: the dual role of chairman and CEO. Even as chairman of the board, you would leave the group as an employ and let the remaining directors meet?
Dell: Absolutely. I’ll give you an example. When the board is discussing management development and succession, and the performance of the CEO. There are times when it’s appropriate for me to leave the room, and I’m happy to leave the room. And I’d say, ‘Hey, if you want to talk to Kevin Rollins (Dell president and chief operating officer) by yourself, go talk to Kevin. If you want to talk to Jim Schneider (chief financial officer), go ahead.’
I’m not on any outside boards, so I don’t really have any great knowledge, other than what I hear from others. But we encourage very active communication among our board members and our management team. So there is no filter. It’s not like if you want to talk to someone you’ve got to go through the CEO. If you read the charter of any company, the board is actually responsible for managing the company. That’s the way it works. Most people don’t realize that. The management team is just put there on behalf of the board, but the board is really responsible for running the company.
Mahoney: There probably are a lot of directors who until recently may not have known that.
Dell: (Laughs) Yeah. You ought to go back and read the articles of incorporation for the typical company. You’ll find that the board has a lot of responsibilities. But we have a program that we call ‘Director Days.’ The way this works is before a new year starts, I’ll send out a list of maybe 15 or 20 different areas of the company. It could be the European manufacturing facility or IT or finance or our consumer business or whatever it is. And I’ll say, ‘You’re a director; you get to pick whichever area you get to select. Give us your first, second and third choice.’ And then we will sit down and say where we would like our directors to spend a day. So for example, Alex Mandel was just in Ireland. He spent a day with our European manufacturing team. So his assignment is to tell the board about what he learned.
It’s basically a way of assuring that the board stays in touch with the actual operations of the company. And we kind of hold them to it. If they’re not meeting their commitment to do this every year, we’ll say, ‘Hey, you need to get this done. This is a requirement for being on the board.’ We do an evaluation of the board’s performance. We do some benchmarking versus other boards that we’re aware of, in terms of what kinds of things are they doing, and what can we learn from other boards. Then we ask our board members (about) how the meeting is conducted, do you get the information that you want, how are the relationships with other board members and management. Is it open, clear, those kinds of things. And the (director) nominating committee talks about specific performance issues, if there are any, of board members. It’s not like you just show up and there’s no accountability.
Mahoney: It’s fairly common for CEOs also to be chairmen of their company’s board. Since that is also your role, can you comment on that? Are there governance issues that crop up?
Dell: You know, it’s interesting. If you look at Enron, WorldCom, Global Crossing, Adelphia, all of them had separated the role of chairman and CEO. I’m not suggesting that if you separate those roles, you get corruption. There are plenty of examples where you had the chairman and CEO as the same person and you also had corruption. It just so happens in all four of those that they were separated. I think it goes back to the basic principle, which is, titles don’t mean a damn thing. Basically, it’s down to what are the principles of the people. I mean, you could call me the ‘grand poobah’ or whatever you want. It doesn’t really matter. You’ve got to have principles and ethics.
In my case, I happen to be the largest shareholder. That’s a pretty good reason to be on the board. I’d like to remain the chief executive officer of the company. I make a point when we go out and talk to shareholders to ask, ‘What issues concern you about Dell’s corporate governance.’ Basically, they don’t have any. They’re concerned about other companies’ corporate governance.
Mahoney: Do you have any words of advice for the students at the McCombs School about the corporate world that they are about to enter?
Dell: I think that you’ve got to look at the reputations of the people that you’re going to go work for and work with. And say, ‘Do I believe these people, do I trust them?’ Much like people are doing with investments today. I mean, you look at a lot of boards today in corporate America, and unfortunately, there are still too many insiders and too many buddies and friends and things like that. I think you’ve got to look at those things and say, ‘Is this a company that’s going beyond the regulations.’
Mahoney: That may hard to tell from the outside. But your point is, do your research on it.
Dell: Yeah. If you’re going to go interview at the company, you can
probably ask enough questions to find out what the culture of
control is like, how are issues dealt with and raised, are the
people at the top of the company unquestionable – in the sense
that nobody can challenge them, which is bad. You know, a lot of
these cultures that got into problems started breathing their
own exhaust.
For further information on the
Corporate Governance Forum or McCombs
Executive Education contact Assistant Dean and Director
Chantal Delys
(512-471-1064).
For information on specific programs at the McCombs School, consult our
contacts page. For media information,
contact the Communications Director by phone at 512-471-3314 or by email at
CommunicationsDirector@mccombs.utexas.edu.
