Douglas L. Foshee *
I would like to state at the outset of my comments this afternoon
that I believe charitable contributions are a part of our corporate
purpose. My company, Nuevo Energy, is headquartered in Houston,
which is the energy capital of the world. We draw on and depend
on the resources of that community every day. I feel that we have
an obligation to give back in order to maintain the vitality of
what, for at least our industry, is by far the largest labor market
in the world.
We also have operations in many small communities, both inside
and outside the United States, where we represent a significant
portion of the local economic base. I believe our contributions
in these communities help ensure that they remain attractive places
for our employees to work, live and raise their families.
I view our corporate contributions as another in a long list of
employee benefits. Our employees take pride in knowing that our
corporate giving dollars go to causes that are important both to
them and to our company. Our corporate contributions help to make
us an employer of choice in an industry that has lost over 750,000
skilled workers in the last 15 years, making the attraction and
retention of qualified professionals among our most important strategic
I view each of these three points, dedication to our home city
as the center of our industry, contributions to better other communities
that we have become part of and making contributions that identify
our company as one with which its employees are proud to be associated
as being completely consistent with maximizing shareholder value.
To speak directly to the issue of the shareholders' right to know,
I do believe that disclosure is appropriate. Three things should
be disclosed to the shareholders: the company's giving philosophy,
the amount of charitable contributions above some threshold and
a description of any potential conflicts resulting from those charitable
contributions. Just as the Board expresses in proxy materials its
philosophy and objectives with regard to the use of the corporation's
resources for executive compensation, so they should with regard
to charitable giving.
I believe that shareholders have a right to know the magnitude
spent on charitable giving. Furthermore, beyond some threshold amount,
large individual contributions should be disclosed. Finally, if
Nuevo Energy makes a large contribution to Rice University, my alma
mater, as a result of which I'm appointed to the Board of Trustees
of Rice University, my shareholders have a right to know that because
I am the CEO. Shareholders also have a right to challenge what role
that contribution played in maximizing Nuevo Energy's share price.
It is my understanding that two primary objections have been raised
to disclosure. First, some have complained that the reporting itself
would be unduly burdensome on the reporting companies. This seems
to me to be a particularly weak argument, given that we already
track in some detail our charitable contributions for tax reporting
purposes. According to our accounting staff, the additional effort
required to report and generate this information would be nominal.
Similarly, disclosure opponents assert that more time would be required
at the Board level to craft a policy statement on charitable giving,
if one does not already exist. Again, in my estimation, this would
not be unduly burdensome on the Board. In the end it is the Board's
responsibility to explain to our shareholders how charitable giving
contributes to the corporate objectives.
The second main argument I hear is that disclosure would result
in a decrease in overall charitable contributions. To this argument
I have only one data point, Nuevo Energy. For our part, we would
not change any of our charitable giving patterns based on the proposal
that we make those contributions public. We already disclose them
to our employees. In fact, we're proud of the causes to which we
contribute. I do believe, however, that some so-called "pet
charities" of companies, where contributions have more to do
with the social standing of the CEO than some goal of the corporation,
will suffer. I do not believe, however, that this represents a majority
of corporate charitable giving.
Like so many issues in corporate governance, disclosure of charitable
contributions seems to me to be just good common sense. What possible
harm could result from disclosure? And if the cost of disclosure
is nominal, what possible justification is there for not disclosing?
Disclosure will provide to investors another means by which to differentiate
among a host of investment alternatives.
* Mr. Foshee is Chairman, President, and CEO of Nuevo Energy Company,
a Houston, Texas based energy company traded on the New York Stock
Exchange. Nuevo primarily engages in the acquisition of and exploration
for crude oil and natural gas and has operations in the U.S. and
Africa. Mr. Foshee received his B.B.A at Southwest Texas State University
and his M.B.A. at Rice University. He currently serves on the Boards
of Small Steps Nurturing Center, Goodwill Industries and the Texas
Business Hall of Fame Foundation, and is a member of the National
Petroleum Council, the Council of Overseers at the Jesse H. Jones
Graduate School, Rice University, and the Young Presidents' Organization.
This article is adapted from remarks given by Mr. Foshee at the
Federalist Society's Conference on Corporate Governance, held in
New York City on September 18, 1998.