The National Association of Corporate Directors New England this month will honor J. Terrence “Terry” Murray with a lifetime-achievement award for providing strong corporate governance in today’s business environment.
It’s the latest in a long list of credits and achievements for Murray, 72, who has been the lead director of CVS Caremark Corp. since 2007. He’ll be leaving the board in May due to an age requirement
The former chairman of FleetBoston Financial Corp. is best-known locally for his tenure as CEO of FleetBoston from May 1982 until his retirement in December 2001.
Since then he’s also completed stints as a director of Air Products and Chemicals Inc., a provider of gases and related products; of A.T. Cross Co., a personal-accessories company; and of ChoicePoint Inc., a provider of identification and credential-verification services.
PBN: What tenets do you think enable effective corporate governance?
MURRAY: A board should be made up of diversified skill sets. Business is more complicated than ever. It’s the CEO’s job to define the vision and the road map and where the company is going, but it’s the director’s responsibility to be well-versed in the industry in which the company is engaged. The director must also understand the world in which that industry is competing, both nationally and globally. They should have broad and deep experience in managing people.
I am partial to former CEOs. People with that background have seen all types of problems. They’ve seen personnel compensation, public relations and marketing issues. A good director is one who can council a CEO and is measured in their observations, is a good listener and has something relevant to say at a board meeting.
An accounting or technical background provides good skill sets but a broad management background is invaluable because you’ve seen the challenges before.
PBN: What new challenges face Rhode Island boards of directors because of the state of the economy?
MURRAY: Rhode Island’s challenges are the economy and the lack of growth. In terms of publicly owned companies based in Rhode Island, the new issues are [the Dodd-Frank Act] and to a lesser degree the Sarbanes-Oxley Act, which was in response to accounting and disclosure issues [in 2002]. To be a board director has been a little more cumbersome in the last dozen years because of the laws and regulations imposed on a board.
A lot of it is tedious, but it’s necessary. Sarbanes-Oxley deals with compliance and the integrity of financial statements, and that refers back to a chief financial officer and a CEO. Dodd-Frank is not geared to general corporations but more to financial institutions. It concerns broader controls and less leverage, and curtailing certain activities that the regulators see as a higher risk.
PBN: Will the Dodd-Frank Act work?
MURRAY: Surely it has merit. I’m from the world of finance and could complain about it, but the fact of the matter is, what did bankers think were going to be the consequences of the collapse of 2008? It would be highly unlikely of the CEO of a large financial institution to think nothing would come out of that. The financial system brought the economy to its knees. Tarp bailed out a dozen of the largest financial institutions and there are consequences for that.
It’s like a pendulum; at first it will go too far in one direction and now it is swinging in the other direction with Dodd-Frank.
PBN: CVS Caremark Corp.’s growth seemed to be driven by the vision of former Chairman and CEO Thomas M. Ryan. Now that he has retired, will the board, of which you are a member, be expected to drive more of the company’s future vision?
MURRAY: No. I think Larry Merlo, Tom’s successor, is very qualified. He has had 30 years experience with CVS.
Tom’s tenure was brilliantly executed, rolling up drug stores and drug chains. With Caremark, Larry is a terrific operating person. He has stabilized and integrated the Caremark situation, and I think 2011 reflects that. It’s the board’s role to represent the independent shareholders and be comfortable that management is doing the right things. Larry and his team will define the vision and management of the company.
PBN: In general, do you see more boards taking active roles in the management of their companies?
MURRAY: No, not unless a company gets off track. If a company is going in the wrong direction the board has to step in and maybe force some changes. On a day-in and day-out basis it shouldn’t be involved with the management of the company.
PBN: Can the structure of a board be a help or a hindrance to a company?
MURRAY: That depends on the number of members and subcommittees. I tend to like a board that has about nine to 13 people. It should reflect a myriad of skills and knowledge and that can be reflected in the committees and the committee chairs, and I think this number can work efficiently. Management should run the company but oversight is the board’s responsibility.
PBN: Do you feel that boards are accountable for their own actions?
MURRAY: Of course they are. If they preside over a dysfunctional operation for a year or more, they are responsible for not taking action to make changes.
PBN: How would you describe the state of banking today, both nationally and locally?
MURRAY: The large banks continue to operate under a great deal of oversight from the regulators. It’s far less pleasant to be a banker today than it was in my day, and a lot of it is because of the fallout of 2008.
On the local scene there are a few independents like Webster and Washington Trust, and they seem to be doing well. They are in the bread-and-butter business of taking deposits and lending money, both at the corporate level and the small-business and consumer level. I would think they’re doing OK.
PBN: Do you believe that the 2008 banking and housing meltdown was caused at least in part by poor board oversight of financial institutions?
MURRAY: There are a lot of targets to blame for that event. You had a lot of banks that were extending their leverage in more esoteric areas, particularly derivatives, guarantees and cross-guarantees of things that boards and management weren’t even familiar with. Combine that with a monumental misjudgment of sub-prime lending in the housing industry. That starts with underwriters and brokers, packaging a bank’s lending, Wall Street securitizing these things, and Fanny Mae and Freddie Mac buying them.
You could put me on either side of this debate, and I could put blame on half a dozen people. It was a convergence of a lack of oversight on the part of underwriters and management, and you can even extend that to boards.
PBN: Is there sufficient access to capital to meet the needs of business?
MURRAY: The standards have tightened up dramatically. I would guess that banks are dying to make loans but the underwriting criteria are more difficult. There’s an excess of liquidity today and a lot of deposits. They would love to make loans at all levels, but the requirements on the part of the borrower are much tougher today than they were five years ago.
PBN: Your career is well-known in Rhode Island. Do you have any regrets? What might you have done differently and what makes you proud?
MURRAY: I’m proud of the fact that we built a $200 billion dollar company over a 20-year period that was based in Rhode Island, although it eventually moved to Boston. It was successful and had an enormous return for our shareholders. We had a market cap of $250 million and when I left it was $48 billion.
Do I have regrets? Sure, I’ve made a lot of mistakes along the way, but business is a batting average and you’ve got to get used to striking out along the way. As far as anything specific, as soon as we bought Bank of Boston, [our presence in] Argentina blew up. That was a $2 billion write-off we had to deal with, and we never saw it coming.
Robbie Stephens was one of their subsidiaries that collapsed, it was an investment firm on the West Coast, so we had to deal with that. •
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