James E. Rogers Chairman, President and Chief Executive Officer Cinergy Corp.

Editor's note:  Each month, we ask a Directors & Boards reader  to comment on critical issues facing directors today.  This month, Jim Rogers discusses board and director self-evaluations and the next phase of corporate governance at Cinergy.

Do board evaluations and director self-evaluations really work?  Or, do they simply permit the participants to check the box as having completed them? 

Interesting question, and one we’ve worked through over the past couple of years.  In my opinion, they really work if structured in a way that solicits thoughtful, relevant answers.  Let me provide some background on how we’ve conducted our evaluation processes over the last couple years.  

Pursuant to Cinergy Corp.’s Board of Directors Corporate Governance Guidelines (first published in the Summer of 2002), the Corporate Governance Committee of the Board sponsors and oversees an annual performance evaluation of the Board to determine whether it is functioning effectively.  This evaluation focuses on the performance of the Board as a whole, concentrating on areas where performance might be improved. 

The Board evaluations for 2002 and 2003 consisted of approximately 13 questions upon which the Directors provided ratings on a scale of 1-5 (with 1 corresponding to “not performing” and 5 corresponding to “outstanding performance”).  Results were anonymously compiled (outside the Company) and discussed in executive sessions in February 2003 and February 2004.  This Board evaluation process in late 2002 pointed out some areas for opportunity that we quickly acted to address in 2003.  The ability for the Board to compare year-over-year results in early 2004 was particularly insightful.

In addition, the Corporate Governance Committee administers an annual performance evaluation to be completed by each Director relative to his or her assessment of his/her individual performance for the year.  For 2002, this form consisted of 31 statements to which a Director was asked to strongly agree, agree, neither agree nor disagree, disagree or strongly disagree.  For 2003, the self-evaluation form was modified to 11 essay-type questions designed to elicit thoughtful responses from the Directors. 

As with the Board evaluations, results were anonymously compiled and discussed in executive sessions in February 2003 and February 2004.  From these executive sessions came specific action items and assignments for me as CEO to follow-up on throughout the year.

Probably the greatest value of the evaluations has been forcing each of us to take the time to sit down and independently evaluate how we’re operating both as a Board and as Individual directors.  This exercise provides the basis for a forum, if you will, to have open and candid discussions about what’s working and what isn’t and it forces us to more sharply focus on areas that may need improvement.  For Cinergy, it’s been an insightful and collaborative process. 

What’s the next corporate governance phase been like at Cinergy?  As an early mover, how would you characterize corporate governance developments over the last nearly two years (since the passage of the Sarbanes-Oxley Act of 2002)?

We’ve been working since the formation of Cinergy—almost eight years before the passage of Sarbanes-Oxley—to improve our corporate governance and practices.  We put a stake in the ground in August of 2002 that Cinergy would lead on the next wave of proposed reforms.  By the end of September that year, we had in place our Code of Conduct and Business Ethics, our Board of Directors Corporate Governance Guidelines and had terminated our poison pill provision.  In addition to posting our Code and Guidelines to our external Website, we posted Charters for each of our five standing Committees of our Board.  Nearly without exception, these documents have been amended, most more than once, over the two-year period.  It’s been a lot of work, but we feel we’re smarter today than we would have been had we taken a wait-and-see approach, as some have done.

In addition, moving quickly to build a strong foundation has given us ample time to move into our next phase of governance – administration and compliance.  We found that it was easy enough to publish sound policies but, as with many things in life, administering to the details once the policies went into practice is where the challenge lies.  For example, in our Guidelines, we have minimum stock ownership requirements for our Directors and Executive team. 

We needed to have processes in place to communicate to these individuals where they stand in relation to the requirements. This includes determining what holdings would and, more importantly, would not count toward that requirement; tabulating shares they own from these sources; and projecting out how and when they will satisfy their respective requirement.  Another example is our requirement that Directors and Executive Officers may not dispose of shares that were acquired by virtue of options exercised.  We, again, had to put processes in place to “ring-fence” these shares as it isn’t enough to have a policy in place, it must be enforced. 

Though anecdotal, examples such as these arise nearly daily as we traverse through what is a new corporate governance environment post-Sarbanes-Oxley.  While we could have never estimated the financial and human capital costs of good governance, we can certainly appreciate its value and the achievements we have made.

Mr. Rogers, 56, has been CEO for more than 15 years—at PSI and now at Cinergy.  Prior to the formation of Cinergy, he joined PSI Energy, Inc., in 1988 as the company’s Chairman, President and Chief Executive Officer.  Prior to joining PSI, he was Executive Vice President, Interstate Pipelines for the Enron Gas Pipeline Group.  Before joining Enron Corp., Mr. Rogers was a partner in the Washington, D.C. office of Akin, Gump, Strauss, Hauer & Feld (a law firm based in Dallas, Texas).  He represented energy companies before the Federal Energy Regulatory Commission (FERC), the Department of Energy, various Congressional committees and federal courts.

Immediately before joining Akin, Gump, Strauss, Hauer & Feld, Mr. Rogers was Deputy General Counsel for Litigation and Enforcement of the FERC.  In this position he directed all aspects of the FERC’s litigation and enforcement.  Previously, Mr. Rogers served as Assistant to the Chief Trial Counsel at the FERC, as a Law Clerk for the Supreme Court of Kentucky, and as Assistant Attorney General for the Commonwealth of Kentucky, where he acted as intervener on behalf of State consumers in gas, electric, and telephone rate cases.  He was a reporter for the Lexington (Kentucky) Herald-Leader from 1967 to 1970.

Mr. Rogers has served more than 35 years cumulatively on the boards of Fortune 500 companies.  He is currently a director of the following corporations: Cinergy Corp., Fifth Third Bancorp and Fifth Third Bank and Duke Realty Corporation.  He has testified before Congressional Committees 13 times since 1989.  He serves on the Board, Executive Committee and is Chairman of the Environmental Policy Committee of the Edison Electric Institute, and he serves on the Board of the American Gas Association and the U.S. Chamber of Commerce.

Mr. Rogers also serves on numerous civic boards and has published numerous articles on energy and environmental issues.  He formerly served as director of the following corporations: Bankers Life Holding Corporation; A O Irkutskenergo (a Russian hydroelectric/coal-fired steam utility), INB (Indiana National Bank) and NBD Indiana Inc.

Mr. Rogers attended Emory University (Atlanta, Georgia) and holds a B.B.A. and J.D. degree from the University of Kentucky, where he was a member of the Kentucky Law Journal and Beta Gamma Sigma (Academic Honorary Society).  He was named to the Hall of Fame at the Carol Martin Gatton College of Business and Economics and the Hall of Fame of the College of Law, both of the University of Kentucky.  He also received an honorary Doctor of Law degree from Indiana State University.