Right On, TJ! Clocking a nun without a conscience...

Rohit Khare (khare@pest.w3.org)
Mon, 15 Jul 96 12:12:04 -0400


This was the subject of a piece in WSJ today -- way to go TJ!

Rohit Khare
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> It isn't every day that the CEO of a major high-tech
> company calls a nun's views "immoral."
>
> And it seems just as unlikely that his slap would result
> in an outpouring of support from executives and investors
> nationwide -- for him. But that's exactly what happened
> when _Cypress Semiconductor_ Corp. Chief Executive Officer
> T.J. Rodgers took a Catholic nun to task for suggesting
> he put qualified women and minorities on his company's
> board of directors.

> Mr. Rodgers' six-page letter, which he distributed to
> Cypress shareholders, has clearly hit home with his
> readers, who are passing it along an underground network
> of disgruntled veterans of the affirmative-action debate.
> Once dubbed the "bad boy of Silicon Valley," Mr. Rodgers,
> 48 years old, makes a habit of publishing provocative
> editorial-style articles on everything from proposed
> immigration restrictions to federal support of the
> high-tech industry -- he is against both. But his attack
> on Sister Doris has yielded a greater response than all
> his other articles combined, he says.

> "The list of things you can and cannot do!" he exclaims.
> "The assumption is that CEOs are bad guys and in acting
> on their own, without prodding from morally correct types,
> they wouldn't make the right decision. And that assumption
> is just flat-a wrong." Sister Doris's methods may be
> mild, he concludes, but others -- including Washington
> politicians -- stand behind her with "baseball bats" and
> represent "a fatal threat to companies that are our size
> or smaller, particularly in fast-moving industries."

> Mr. Rodgers decided he wanted to run his own company when
> he was only 21, and started working toward that goal
> while he was still at Stanford University. As a graduate
> student in electrical engineering, he invented and
> patented a chip technology. He started Cypress when he
> was 35, developing a gruff management style that earned
> him a place in Fortune magazine's list of the country's
> toughest bosses. In his office, he displays a
> license-plate holder reading, "Cypress -- We eat nails."
> He occasionally communicates with staffers using memo
> paper stamped with the words, "From the desk of God," a
> gift from his mother. Divorced, he works most days from
> 7 a.m. to midnight, interrupted only by brief jogging
> breaks. He runs a mile in under seven minutes.

> he says an unqualified woman's point of view just isn't
> needed at Cypress. "That may not be true elsewhere," he
> says. "I can name different industries and different
> companies where a woman manager would add insights, but
> not when you're making static RAMS in our business."

> shortly after receiving Mr. Rodgers's letter, she learned
> that the order's 7,000 shares of Cypress stock had been
> sold. The decision had nothing to do with her
> correspondence with the CEO. "I had a chuckle. It was so
> ironic," she says. She sat down and drafted yet another
> letter to Mr. Rodgers, which she signed herself.
>
> "Since we no longer have even a financial relationship
> there will be no incentive for you to continue this
> correspondence," she wrote. "Diversity, whether in board
> composition or in our opinions, can be stimulating and
> growth-filled. May I suggest that we both take the time
> to consider and reflect non-judgmentally on each other's
> position and try to learn from this experience? Best
> wishes for every blessing and peace!"

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This is the full text of Sister Doris Gormley's letter:

The Sisters of St. Francis of Philadelphia
Our Lady of Angels Convent -- Glen Riddle
Aston, Pennsylvania 19014
(610) 459-4125
Fax (610) 558-1421

Dear ________

The Sisters of St. Francis of Philadelphia, a religious congregation of
approximately 1000 women, is the beneficial owner of ____ shares of stock in
___________ Corporation.

We believe that a company is best represented by a Board of qualified
Directors reflecting the equality of the sexes, races and ethnic groups. As
women and minorities continue to move into upper level management positions of
economic, educational and cultural institutions, the number of qualified
Board candidates also increases. Therefore our policy is to withhold authority
to vote for nominees of a Board of Directors that does not include women and
minorities.

It appears from the proxy statement which does not include pictures that
___________ Company has no women or minority Directors. We have voted our
proxy accordingly, and we urge you to enrich the Board by seeking qualified
women and members of racial minorities as nominees.

Sincerely,

Doris Gormley OSF
Director, Corporate Social Responsibility

This is the full text of Cypress Semiconductor CEO T.J. Rodgers's letter:

Cypress

May 23, 1996

Doris Gormley, OSF
Director, Corporate Social Responsibility
The Sisters of St. Francis of Philadelphia
Our Lady of Angels Convent -- Glen Riddle
Aston, PA 19014

Dear Sister Gormley:

Thank you for your letter criticizing the lack of racial and gender diversity
of Cypress's Board of Directors. I received the same letter from you last
year. I will reiterate the management arguments opposing your position. Then I
will provide the philosophical basis behind our rejection of the operating
principles espoused in your letter, which we believe to be not only unsound,
but even immoral, by a definition of that term I will present.

The semiconductor business is a tough one with significant competition from
the Japanese, Taiwanese, and Koreans. There have been more corporate
casualties than survivors. For the reason, our Board of Directors is not a
ceremonial watchdog, but a critical management function. The essential
criteria for Cypress board membership are as follows:

* Experience as a CEO of an important technology company.
* Direct expertise in the semiconductor business based on education and
management experience.
* Direct experience in the management of a company that buys from the
semiconductor industry.

A search based on these criteria usually yields a male who is 50-plus years
old, has a Masters degree in an engineering science, and has moved up the
managerial ladder to the top spot in one or more corporations. Unfortunately,
there are currently few minorities and almost no women who chose to be
engineering graduate students 30 years ago. (That picture will be dramatically
different in 10 years, due to the greater diversification of graduate
students in the '80s.) Bluntly stated, a "woman's view" on how to run our
semiconductor company does not help us, unless that woman has an advanced
technical degree and experience as a CEO. I do realize there are other
industries in which the last statement does not hold true. We would quickly
embrace the opportunity to include any woman or minority person who could help
us as a director, because we pursue talent -- and we don't care in what
package that talent comes.

I believe that placing arbitrary racial or gender quotas on corporate boards
is fundamentally wrong. Therefore, not only does Cypress not meet your
requirements for boardroom diversification, but we are unlikely to, because it
is very difficult to find qualified directors, let alone directors that also
meet investors' racial and gender preferences.

I infer that your concept of corporate "morality" contains in it the
requirement to appoint a Board of Directors with, in your words, "equality of
sexes, races, and ethnic groups." I am unaware of any Christian requirements
for corporate boards; your views seem more accurately described as
"politically correct," than "Christian."

My views aside, your requirements are -- in effect -- immoral. By "immoral,"
I mean "causing harm to people," a fundamental wrong. Here's why:

* I presume you believe your organization does good work and that the people
who spend their careers in its service deserve to retire with the necessities
of life assured. If your investment in Cypress is intended for that purpose, I
can tell you that each of the retired Sisters of St. Francis would suffer if
I were forced to run Cypress on anything but a profit-making basis. The
retirement plans of thousands of other people also depend on Cypress stock --
$1.2 billion worth of stock -- owned directly by investors or through mutual
funds, pension funds, 401k programs, and insurance companies. Recently, a
fellow 1970 Dartmouth classmate wrote to say that his son's college fund
("Dartmouth, Class of 2014," he writes) owns Cypress stock. Any choice I would
make to jeopardize retirees and other investors from achieving their lifetime
goals would be fundamentally wrong.
* Consider charitable donations. When the U.S. economy shrinks, the dollars
available to charity shrink faster, including those dollars earmarked for the
Sisters of St. Francis. If all companies in the U.S. were forced to operate
according to some arbitrary social agenda, rather than for profit, all
American companies would operate at a disadvantage to their foreign
competitors, all Americans would become less well off (some laid off), and
charitable giving would decline precipitously. Making Americans poorer and
reducing charitable giving in order to force companies to follow an arbitrary
social agenda is fundamentally wrong.
* A final point with which you will undoubtedly disagree: Electing people to
corporate boards based on racial preferences is demeaning to the very board
members placed under such conditions, and unfair to people who are qualified.
A prominent friend of mine hired a partner who is a brilliant, black Ph.D.
from Berkeley. The woman is constantly insulted by being asked if she got her
job because of preferences; the system that creates that institutionalized
insult is fundamentally wrong.

Finally, you ought to get down from your moral high horse. Your form letter
signed with a stamped signature does not allow for the possibility that a CEO
could run a company morally and disagree with your position. You have voted
against me and the other directors of the company, which is your right as a
shareholder. But here is a synopsis of what you voted against:

* Employee ownership. Every employee of Cypress is a shareholder and every
employee of Cypress -- including the lowest-paid -- receives new Cypress stock
options every year, a policy that sets us apart even from other Silicon
Valley companies.
* Excellent pay. Our employees in San Jose averaged $78,741 in salary and
benefits in 1995. (That figure excludes my salary and that of Cypress's vice
presidents; it's what "the workers" really get.)
* A significant boost to our economy. In 1995, our company paid out $150
million to its employees. That money did a lot of good: it bought a lot of
houses, cars, movie tickets, eyeglasses, and college educations.
* A flexible health-care program. A Cypress-paid health-care budget is
granted to all employees to secure the health-care options they want,
including medical, dental, and eye-care, as well as different life insurance
policies.
* Personal computers. Cypress pays for half of home computers (up to $1,200)
for all employees.
* Employee education. We pay for our employees to go back to school, and we
offer dozens of internal courses.
* Paid time off. In addition to vacation and holidays, each Cypress employee
can schedule paid time off for personal reasons.
* Profit sharing. Cypress shares its profits with its employees. In 1995,
profit sharing added up to $5,000 per employee, given in equal shares,
regardless of rank or salary. That was a 22% bonus for an employee earning
$22,932 per year, the taxable salary of our lowest-paid San Jose employee.
* Charitable Work. Cypress supports Silicon Valley. We support the Second
Harvest Food Bank (food for the poor), the largest food bank in the United
States. I was chairman of the 1993 food drive, and Cypress has won the
food-giving title three years running. (Last year, we were credited with
354,131 pounds of food, or 454 pounds per employee, a record.) We also give to
the Valley Medical Center, our Santa Clara-based public hospital, which
accepts all patients without a "VISA check."

Those are some of the policies of the Board of Directors you voted against. I
believe you should support management teams that hold our values and have the
courage to put them into practice. So, that's my reply. Choosing a Board of
Directors based on race and gender is a lousy way to run a company. Cypress
will never do it. Furthermore, we will never be pressured into it, because
bowing to well-meaning, special-interest groups is an immoral way to run a
company, given all the people it would hurt. We simply cannot allow arbitrary
rules to be forced on us by organizations that lack business expertise. I
would rather be labeled as a person who is unkind to religious groups than as
a coward who harms his employees and investors by mindlessly following
high-sounding, but false, standards of right and wrong.

You may think this letter is too tough a response to a shareholder
organization voting its conscience. But the political pressure to be what is
euphemized as a "responsible corporation" today is so great that it literally
threatens the well being of every American. Let me explain why.

In addition to your focus on the racial and gender equality of board
representation, other investors have their pet issues; for example, whether or
not a company:

* is "green," or environmentally conscious.
* does or does not do business with certain countries or groups of people.
* supplies the U.S. Armed Forces.
* is "involved in the community" in appropriate ways.
* pays its CEO too much compared with its lowest-paid employee.
* pays its CEO too much as declared by self-appointed "industry watchdogs."
* gives to certain charities.
* is willing to consider layoffs when the company is losing money.
* is willing to consider layoffs to streamline its organization (so-called
downsizing).
* has a retirement plan.
* pays for all or part of a health-care plan.
* budgets a certain minimum percentage of payroll costs for employee training.
* places employees on its Board of Directors (you forgot this one).
* shares its profits with employees.

We believe Cypress has an excellent record on these issues. But that's
because it's the way we choose to run the business for ourselves and our
shareholders -- not because we run the business according to the mandates of
special-interest groups. Other companies, perhaps those in older industries
just trying to hold on to jobs, might find the choices our company makes
devastating to their businesses and, consequently, their employees. No one set
of choices could be correct for all companies. Indeed, it would be impossible
for any company to accede to all of the special interests, because they are
often in conflict with one another. For example, Cypress won a San Jose
Mayor's Environmental Award for water conservation. Our waste water from the
Minnesota plant is so clean we are permitted to put it directly into a lake
teeming with wildlife. (A game warden station is the next door neighbor to
that plant.) Those facts might qualify us as a "green" company, but some
investors would claim the opposite because we adamantly oppose wasteful,
government-mandated, ride-sharing programs and believe that car-pool lanes
waste the time of the finest minds in Silicon Valley by creating
government-inflicted traffic jams -- while increasing pollution, not
decreasing it, as claimed by some self-declared "environmentalists."

The May 13, 1996 issue of Fortune magazine analyzed the "ethical mutual
funds" which invest with a social-issues agenda, and currently control $639
billion in investments. Those funds produced an 18.2% return in the last 12
months, while the S&P 500 returned 27.2%. The investors in those funds thus
lost 9% of $639 billion, or $57.5 billion in one year, because they invested
on a social-issues basis. Furthermore, their loss was not simply someone
else's gain; the money literally vanished from our economy, making every
American poorer. That's a lot of houses, food, and college educations that
were lost to the "higher good" of various causes. What absurd logic would
contend that Americans should be harmed by "good ethics?"

Despite our disagreement on the issues, the Sisters of St. Francis, the
ethical funds, and their investors are merely making free choices on how to
invest. What really worries me is the current election-year frenzy in
Washington to institutionalize "good ethics" by making them law -- a move that
would mandate widespread corporate mismanagement. The "corporate
responsibility" concepts promoted by Labor Secretary Reich and Senator Kennedy
make great TV sound bites, but if they were put into practice, it would be a
disaster for American business that would dwarf the $57 billion lost by the
inept investment strategy of the "ethical funds." And that disaster would
translate into lost jobs and lost wages for all Americans, a fundamental
wrong.

One Senate proposal for "responsible corporations," as outlined in the
February 26 issue of Business Week, would grant a low federal tax rate of 11%
to "responsible corporations," and saddle all other companies with an 18%
rate. One seemingly innocuous requirement for a "responsible corporation," as
proposed by Senators Bingaman and Daschle, would limit the pay of a
"responsible" CEO to no more than 50 times the company's lowest-paid,
full-time employee. To mandate that a "responsible corporation" would have to
limit the pay of its CEO is the perfect, no-lose, election-year issue. The
rule would be viewed as the right thing to do by voters who distrust and
dislike free markets, and as a don't-care issue by the rest. But the following
analysis of this proposal underscores the fact that the simplistic solutions
fashioned by politicians to provoke fear and anger against America's
businesses often sound reasonable -- while being fundamentally wrong.

Consider the folly of the CEO pay limit as it applies to Intel: the biggest
semiconductor company in the world, the leader of America's return to market
dominance in semiconductors, the good corporate citizen, the provider of
45,325 very high-quality jobs, the inventor of the random-access memory, the
inventor of the microprocessor, and the manufacturer of the "brains" of 80% of
the world's personal computers. Suppose that Intel's lowest-paid trainee
earns $15,000 per year. The 50 to 1 CEO salary rule would mandate that the
salary of Intel's co-founder and CEO, Andy Grove, could be no more than
$750,000. Otherwise, Intel would face a federal tax rate of 18% rather than
11%. Last year, Andy Grove earned $2,756,700, well over that $750,000 limit,
and Intel's pretax earnings were $5.6 billion. Seven percentage points on
Intel's tax rate translates into a whopping $395 million tax penalty for
Intel. Consequently, the practical meaning of this "responsible corporation"
law to Intel would be this gun-to-the-head proposition: "Either cut the pay of
your Chief Executive Officer by a factor of four from $2,756,700 to $750,000,
or pay the federal government an extra $395 million in taxes."

The Bingaman-Daschle proposal would limit the pay of the CEO of the world's
most important semiconductor company to less than that of a second-string
quarterback in the NFL! That absurd result is not about "responsible
corporations," but about two leftist senators, out of touch with reality,
making political hay, causing harm, and labeling it "good." Their plan is
particularly immoral in that it would cause the losses inherent in practicing
their newly invented false moral standard to fall upon all investors in
American companies, even though the government itself had not invested in
those companies.

Meanwhile, my current salary multiple of 25 to 1 relative to our lowest-paid
employee would qualify Cypress as a "responsible corporation," only because we
are younger and not yet as successful as Intel -- a fact reflected by my
lower pay. If Cypress had created as much wealth and as many jobs as Intel,
and if my compensation were higher for that reason, then, according to the
amazingly perverse logic of the "responsible corporation," Cypress would be
moved from the "responsible" to the "irresponsible" category for having been
more successful and for having created more jobs! A final point: Why should
either Intel or Cypress, both companies making 30% pre-tax profit, be offered
a special tax break by the very politicians who would move on to the next
press conference to complain about "corporate welfare?"

How long will it be before Senators Kennedy, Bingaman, and Daschle hold
hearings on the "irresponsible corporations" that pay tens of millions of
dollars to professional athletes? Or are athletes a "protected group," leaving
CEOs as their sole target? If not, which Senate Subcommittee will determine
the "responsible" pay level for a good CEO with 30% pretax profit, as compared
to a good pitcher with a 1.05 earned run average? These questions highlight
the absurdity of trying to replace free market pricing with the
responsible-corporation claptrap proposed by Bingaman, Daschle, Kennedy, and
Reich.

In conclusion, please consider these two points: First, Cypress is run under
a set of carefully considered moral principles, which rightly include making a
profit as a primary objective. Second, there is a fundamental difference
between your organization's right to vote its conscience and the use of
coercion by the federal government to force arbitrary "corporate
responsibilities" on America's businesses and shareholders.

Cypress stands for personal and economic freedom, for free minds and free
markets, a position irrevocably in opposition to the immoral attempt by
coercive utopians to mandate even more government control over America's
economy. With regard to our shareholders who exercise their right to vote
according to a social agenda, we suggest that they reconsider whether or not
their strategy will do net good -- after all of the real costs are considered.

Sincerely,

T.J. Rodgers
President CEO

TJR/cxs