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Dallas Business Journal - North Texas’ most powerful board:

January 3rd 2014

 

AT&T: The boardroom big league

North Texas' most powerful board

By Bill Hethcock and Nicholas Sakelaris


The corporate boardroom has long been a symbol of power. And the 14 men and women who make up AT&T's board of directors are at the epicenter of that power in North Texas.

The board of directors for Dallas-based AT&T (NYSE: T) ranks as the most powerful board in North Texas and the ninth most powerful in the United States, according to a recent study of 647 public companies. With recent changes to the board's makeup, it's only getting stronger, the study's author says.

Such a board not only makes AT&T one of the most powerful corporations in telecommunications, but one of most powerful businesses in the country - if not the world. That sort of influence can not only chart the path of an individual company, it can shape the future of an entire industry.

With 2012 revenue of $127 billion and income of $7.3 billion, AT&T is the second-largest public company in North Texas. Only Irving-based Exxon Mobil Corp. is bigger. AT&T has more than 35,500 employees in Texas, about 15 percent of the company's global workforce.

AT&T directors' compensation also ranks among North Texas' highest. The board ranked third in total compensation in 2012 at $3.5 million, trailing Grapevine-based GameStop's $4.9 million and Exxon Mobil's $4.7 million. AT&T and Exxon Mobil's boards had 13 directors each in 2012, and Gamestop's board had 11.

Strength in the boardroom allows AT&T to draw upon a vast network of experience and leadership capabilities as it sets its course for growth amidst a flood of regulatory, competitive and technological changes.

It gives CEO Randall Stephenson a built-in sounding board with a diverse array of vantage points. And it gives shareholders a high level of confidence in the company's strategic direction and governance oversight.

"When you look at the makeup of the board, it's heavily dominated by CEO or ex-CEO experience," said Matthew K. Rose, executive chairman of Burlington Northern Santa Fe LLC and a member of the AT&T board since 2010. "It's supplemented with technology expertise, economic expertise and judicial/regulatory expertise."

 

Making the list

JamesDruryPartners, the Chicago-based executive search firm that authored the study, examined the experience of directors using 2012 proxies and other materials to determine which boards had the most governance strength.

The businesses included the nation's 500 largest public companies measured by revenue and by market capitalization. Pittsburgh-based PPG Industries Inc. (NYSE: PPG) ranks as the strongest.

AT&T is the North Texas heavyweight.

Its board has four women and 10 men from an array of industries and backgrounds. Ten of the directors are currently, or have been, CEOs of major U.S. corporations.

Rose, for example, was CEO of the railroad company until December and is widely speculated to be named successor to Warren Buffett at Berkshire Hathaway, which owns BNSF. John B. McCoy is the retired chairman and CEO of Bank One; Jon C. Madonna is the retired chairman and CEO of accounting giant KPMG; James P. Kelly is the retired chairman and CEO of United Parcel Service Inc., and Michael B. McCallister is chairman and recent CEO of Humana Inc.

Joyce M. Roche, the retired president and CEO of Girls Inc., a nonprofit research and advocacy organization, is the board's longest-serving director, having been first appointed in 1998. Reuben Anderson, a retired Mississippi Supreme Court Justice, and James H. Blanchard, the board's lead director, both served on the BellSouth board until its 2006 acquisition by AT&T Inc.

Blanchard said he thinks the number of active and former CEOs sets the board apart.

"A CEO, to be successful, has to be somewhat of a generalist," Blanchard said. "They have to be able to sink their teeth into vision and strategy and be able to really focus on whatever is the subject of the moment."

 

The business of business

James Drury III, chairman and CEO of the recruitment firm that bears his name, describes the boards he evaluates in terms of being heavy or light, rather than good or bad, weak or strong.

"I believe the weight of business acumen in the boardroom is really the telling factor," Drury said. "My view is, if you're going to govern a business, you can do it a heck of a lot more effectively if you really understand business than if you understand hospitals or universities or managing a military operation."

AT&T's board, he added, understands the business of business.

"If boards were sports teams, at the beginning of the season, teams like AT&T would be ranked because of their athletic ability as a favorite to win the division," Drury said. "Maybe even the Super Bowl."

 

The board in action

When it comes to the rankings, financial performance counts, Drury said.

AT&T is set to release fourth-quarter 2013 financial results on Jan. 28. The company reported it made $3.8 billion, or 72 cents per share, on $32.2 billion of revenue in the third quarter. Earnings rose $2 million from last year's third quarter earnings of $3.6 billion or 63 cents per share.

AT&T experienced a 5.1 percent jump in wireless revenue and a 3.7 percent jump in service revenue from the same quarter last year. New smartphone subscriptions were up by 1.2 million, and the company reported a record U-verse increase, gaining 97,000 customers and helping the service earn its first billion-dollar revenue quarter.

On Dec. 29, AT&T announced board approval of a 2.2 percent increase in the company's quarterly dividend to stockholders. The board increased the dividend rate from $0.45 to $0.46 quarterly, or from $1.80 to $1.84 a share annualized, marking 30 straight years that the telecom company's dividend has increased.

Beyond the quarterly statements and annual reports, AT&T's board has pushed to aggressively acquire spectrum, expand the global network and convert the company from its landline phone roots to a primarily wireless telecommunication company.

They've done it during a tumultuous worldwide economy and in a highly regulated environment, Blanchard said.

"The secret sauce of this board is that each board member really understands our role is not to run the company, not to micromanage, not to get down in the weeds," he said. "It's to really be the conscience of the company and to make sure we have the right CEO and to be able to oversee and advise and affirm rather than to directly manage."

One of the biggest decisions AT&T's board has faced in recent years was whether to divest or invest further in its fixed-line business, Blanchard said. After extensive deliberation in 2012, the board approved a $14 billion plan called Project Velocity IP, or VIP, to significantly expand the company's broadband and 4G LTE wireless networks. It's one of the company's most ambitious network buildout initiatives to date.

"This investment decision has been the foundation for the company's record-setting growth in its broadband and TV business in 2013," Blanchard said.

Blanchard called Stephenson "a dream CEO" and said his relationship with the board is exceptional. That relationship is a cornerstone of AT&T's success, he said. "He is brilliant and he has all of the competencies and characteristics that one would really hope for in a CEO."

Renee Hornbaker, president of the North Texas Chapter of the National Association of Corporate Directors, said the number of CEOs on AT&T's board of directors plays a big role in the ranking. "They've achieved success in their own right," Hornbaker said, "and are confident enough to push back."

AT&T's board would have ranked even stronger if the study had been done since the 2013 additions of Cynthia B. Taylor, president and CEO of Oil States International Inc., and Beth E. Mooney, chairman and CEO of KeyCorp., Drury said.

Roche attributes the AT&T board's strength in large part to its diversity.

"We've got diversity in all aspects - not just gender and ethnic diversity," Roche said. "We've got expertise and experience diversity. I think that the fact that we've got this level of diversity both in terms of expertise and experience is a big factor in the success of the board."

The board's biggest challenges include operating in a highly regulated environment and the pace of technological change, Roche said.

"The company has evolved and innovated so dramatically over the last 10 or 15 years from the old telephone company to the technology company it is today," she said. "We're in an industry in which the speed at which change is happening is mind-boggling."

 

Click here to view a slideshow of AT&T's Board of Directors

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