An article in the Wall Street Journal highlights a controversy over whether Penny Pritzker qualifies as an "independent" director of Hyatt, which has filed for an initial public offering. Reports the Journal:
Under rules of the New York Stock Exchange, where Hyatt seeks to be listed, a company must have a majority of directors deemed "independent"—-meaning there isn't a relationship with the company or its executives that could create a conflict of interest. Including Ms. Pritzker, eight of 12 Hyatt directors have been designated as independent.
The Big Board gives a company latitude in making that designation. The exchange's rules don't consider a first cousin relationship close enough, by itself, to disqualify a director.
Plus, the millions of dollars of business done with Ms. Pritzker's firms are a tiny percentage of Hyatt's 2008 revenue of nearly $3.9 billion and her personal wealth, which is estimated to be over $1.5 billion.
However, Ms. Pritzker's family and business ties to Hyatt, "would make me question how any board could come to an affirmative determination that Penny is independent," says Beverly Behan, founder of New York-based Board Advisor LLC, which provides consulting services to corporate boards.
Though Ms. Pritzker—who was the finance chair for Barack Obama's presidential campaign— might "technically" meet Big Board independence criteria, "she is not independent. The family controls the business," says Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware.
It all depends on your definition of independent. Some of the other "independent" members of the Hyatt board are an executive of Goldman Sachs, whose firm stands to reap significant fees from underwriting the IPO and, potentially, from various other dealings with the Pritzker family and its businesses, and a retired apparel industry executive for whom director fees from Hyatt are potentially a much more significant source of income, relative to personal wealth, than they would be for Ms. Pritzker. The Journal doesn't quote anyone questioning their independence. One can understand some of the reasoning behind having "independent" directors -- to prevent a family that controls a publicly traded company from milking the company for the private benefit of the family at the expense of the public shareholders. But being able to follow that reasoning doesn't necessarily mean one has to agree with it. It's an odd feature of early 21st-century capitalism that it is considered, at least in some circles, to be good public policy or sound corporate governance to minimize the influence on a company of the members of the family that grew it to great prosperity, in favor of "independent" directors who have, in many cases, been less successful in building their own businesses and are, in many cases, more dependent on the company's management for fees of various kinds.