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Originally published Saturday, October 15, 2011 at 10:02 PM

What kind of board member will Chelsea Clinton be for IAC?

Questions raised by her selection speak to the larger issue of what types of directors should be on boards.

New York Times News Service

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Chelsea Clinton as a corporate director? Really?

Clinton has been appointed to the board of IAC/InterActiveCorp, the Internet media conglomerate controlled by Barry Diller.

For her efforts, Clinton will be paid about $300,000 a year in cash and incentive stock awards. Not bad for a 31-year-old in graduate school.

Is IAC also getting a good deal, or is this another eye-rolling celebrity appointment?

In her favor, Clinton appears to be a smart, capable individual. She worked in her 20s at the consulting firm McKinsey and at a hedge fund run by a loyal Clinton donor. She is now working at New York University and pursuing a doctorate at Oxford.

Clinton appears to be levelheaded, despite growing up in the limelight. She is also popular; her wedding last year was one of the social events of the year.

But let's be real. Clinton only has this position because she is the daughter of former President Clinton and Hillary Rodham Clinton, the current secretary of state. This is clearly an appointment made because of who she is, not what she has done, one that defies American conceptions of meritocracy. Even most celebrity directors earn their way to such celebrity — sort of.

In fairness, while the reasons for the appointment are suspect, that does not mean Clinton cannot be a good, even great, board member. But questions raised by her selection speak to the larger issue of what types of directors should be on boards.

In the past, boards were too often passive instruments of the chief executive officer, and often included celebrities. Some examples: Sidney Poitier (the Walt Disney Co.); Evander Holyfield (the Coca-Cola Bottling ); Tommy Lasorda (Lone Star Steakhouse and Saloon); Lance Armstrong (the Morgans Hotel Group); and O.J. Simpson (Infinity Broadcasting). Simpson actually served on Infinity's audit committee, the body responsible for supervising a company's auditors.

In recent years, the Securities and Exchange Commission and corporate-governance advocates have tried to bring more professionalism to corporate boards. Public companies are now required to have a majority of independent directors on their boards. Directors on audit committees must have demonstrable financial knowledge, and companies are required to publicly disclose the skills of each director and state why that person was chosen.

In Clinton's case, IAC said her "skills and background complement the existing areas of expertise of other board members." In the absence of experience in the Internet industry or substantial business or other life experience, presumably IAC is going to assert that she was selected because she is smart. If so, other graduate students should dust off their résumés. There are plenty of struggling students out there who could use the extra $300,000 a year.

Another argument IAC could advance is that Clinton has an extensive network of contacts that can help the company's business, and there is evidence that celebrity director appointments do create value this way.

In a recently released study, "Reaching for the stars: The appointment of celebrities to corporate boards," professors Stephen Ferris, Kenneth Kim, Takeshi Nishikawa and Emre Unlu examined 700 celebrities who served on corporate boards from 1985 through 2006. The authors found that the appointment of a celebrity increased the value of a company over as long as a three-year period.

The authors postulate that celebrity directors create value by enhancing a company's prestige and visibility and by using their connections to help the company.

If celebrities can create value through prestige or networking, why can't this be done through a sponsorship agreement, or a joint venture? But for a company like IAC, with its grab bag of Web businesses, it is hard to see what prestige or networking value Clinton can bring.

After the financial crisis, board members need to devote serious time to their duties, and be willing to question the actions of the CEO and fellow directors. Too many boards, including those of Yahoo and Hewlett-Packard, have gotten into hot water for failing to act forcefully and exercise their duties. Will a celebrity — even a smart, well-regarded one like Clinton — ask the hard questions we want a director to ask?

The particular company matters. IAC gets low marks on corporate governance from GovernanceMetrics International, a research and rating firm.

IAC's board is filled with high-powered friends of Diller, including Michael Eisner, and Edgar Bronfman Jr. The celebrity bug appears contagious on this board. When Eisner served as chief executive of Disney, his board was also criticized for being filled with lightweights, celebrities and cronies, among them Poitier.

GovernanceMetrics also asserts that IAC's executive compensation does not conform with best practices. Diller, who controls the company, serves only as board chairman, but he was paid about $3.7 million last year, while the new chief executive, Gregory Blatt, was paid about $18.6 million. For IAC, a midsize company with a market capitalization of $3.4 billion, this is a rather hefty payout.

Age is not a problem in Clinton's appointment. After all, Mark Zuckerberg, a Facebook founder and its chief executive, is about four years younger.

The real question is whether Clinton can act independently and provide value to the IAC board. While there are doubts on that score — and while Clinton clearly did not earn this position — she can still demonstrate that she is up to the task.

Go for it, Chelsea.

Steven M. Davidoff, a former corporate lawyer, is a professor at the Michael E. Moritz College of Law at Ohio State University.

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