A Boardroom Conversation

James “Jim” Chiafullo is a director at F.N.B. Corp., a $20 billion asset bank holding company for First National Bank in Pittsburgh, Pennsylvania. In his day job, he’s a partner with the law firm Cohen & Grigsby, and chairman of the commercial finance group. He is passionate about corporate governance, and explains why he cares about concepts such as duty of care and duty of loyalty.

You really care about corporate governance. Why?
I was a summer associate [and later attorney] at the Gulf Oil Co. in Pittsburgh [in the 1980s]. It was a wonderful company that was generous with the communities in which it operated. [However,] the board of directors at Gulf lost sight that the shareholders owned the company and shareholder value was an important part of their obligation. The company’s stock traded between $28 and $35 per share. When you looked at their balance sheet, you saw there was cash on hand and proven reserves of oil and gas of about $100 per share. By not unlocking that value, it made them very vulnerable to activists. At that time [in 1979], it was Mesa Petroleum and T. Boone Pickens. [Pickens] suggested a royalty trust that really worked as a way to break up the company and release that value. It was not good for anybody, really. The shareholders got some benefit, but they would have been better off if a path of releasing that shareholder value was taken by the directors. That’s what was missed. The [directors] were all very smart people. They lost their way. They missed how important it was to return shareholder value. It’s a really important part of what I’m thinking when I’m sitting in the boardroom. I was lucky enough to be a first hand observer of all this. I was a young lawyer.

How does that fit into the duty of care and the duty of loyalty?
You have to be prepared at all time for decisions and meetings. You cannot feel like you have a right to be in that boardroom. You can’t be entrenched. You have to make the decisions that are in the best interest of the shareholders, not you, but the shareholders.

What skills can a lawyer bring to a bank board?
He can bring corporate governance skills and risk analysis. That’s a very important part of bank boards presently. Risk is one of the most important committees.

One CEO told me that it’s important to listen to his lawyers’ advice but not necessarily take it because lawyers are too focused on avoiding risk, and sometimes you just need to make decisions based on what’s best for the company. Do you think that’s true?
I could not agree with him more. A lawyer is a tool like any other tool in a businessman’s toolbox. You can’t abdicate your responsibility to lawyers. The whole idea of being a director is to assess risk and make decisions that lead to reasonable rewards. I should never be giving legal advice when I’m on the board. That’s not my role. We have excellent general counsel at F.N.B. Corp. He comes in with the legal perspective.

You have a pretty extensive document on your web site called “directors’ duties and responsibilities.” What struck me was that everything was very clearly spelled out in terms of what to do if you have a potential conflict of interest, and even defined insider trading and said no member of your family can sell stock within 48 hours of significant news about the company going public. Is that level of detail needed?
In that arena, you want to err on the side of conservatism, especially on insider trading. There is nothing gained by playing that fast and loose.