Posts tagged ‘Corporate Governance’

To Manage or Not to Manage?

The indistinct line between managing and operating versus planning and strategy as it relates to the boardroom and board director behavior is in need of real examination.

For years corporate governance writing and thinking has been consumed with its aversion to micromanagement on the part of board directors. The flow of information has been analyzed and the types of information appropriate for board consumption has been debated ad nauseum. There has been a prevailing concern with the board receiving too much information. In fact, many of best-selling corporate governance books devote pages to information flow and recommend carefully considering what information the board receives.

While I do believe the board should not be bogged down with data and unnecessary reports, I think the willingness to obtain more information than has been the norm in the past would have helped many of today’s boards better understand the companies to which they serve. Increased transparency for the board would hopefully lead to better business decisions and less corporate turmoil. Board directors need to feel that it is appropriate to ask for details. Board directors need to feel comfortable asking questions and requesting elaboration, elucidation and clarity.

We need to get over the fear of micromanaging that has probably pushed governance thinking to the opposite extreme of omission. There is clearly a way for directors to be adequately informed while maintaining and fundamentally improving their effectiveness.

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April 20, 2009 at 3:25 pm

The Board Director Vetting Process

It is quite commonplace to discuss the vetting process for potential employees at all levels and in all types of organizations. The formula is simple enough and quite consistent: a resume is submitted followed by a telephone conversation and then a face to face interview ensues. This can be followed by several additional face to face meetings and becoming more frequent these days is testing, both psychological and aptitude. References are then conducted and depending on the level of the possible employee this can be somewhat complex and include what is popularly called 360° referencing.
But how does this play out when dealing at the board director level? As we know independent board directors, although not technically employed by the company on which they serve, have far reaching and significant influence. As such it would seem that they too are subjected to some formal, detailed and importantly objective selection process. Regrettably, this is not always the case.

Until recently in most cases potential board directors were “invited” to join a board with little formal interviewing involved. Subsequent to the Enron fiasco and the consequent adoption of Sarbanes Oxley, corporate boards formalized the process somewhat and simple invitations gave way to more methodology and competition for an open seat. This is certainly a move in the right direction. I suspect that as the dust begins to settle in our current business environment progressive boards will move towards a model of even more objective evaluation and decision making as it relates to board members. We are currently seeing an increase in formal board and director evaluations but only AFTER a Director is elected to a board and even this is still not pervasive.

It would be hard to argue against increased scrutiny at all levels of an organization. This would ultimately serve all stakeholders well even if there needs to be an interlude of initial adaptation!

February 20, 2009 at 8:36 pm

Is Director Independence Enough?

The Merriman-Webster dictionary defines “independent” as: not subject to control by others, not looking to others for ones opinions or for guidance in conduct, and so on. The NYSE and NASDAQ have a slightly different definition of independence as it relates to Directors and Boards. To simplify, the NYSE says that a Director is independent if he/she has “no material relationship” to the company and according to the NASDAQ, a Director is independent if there is no “interference” with his or her independent judgment.

I think this latter definition comes closer to the way we must think of Directors in this environment of economic uncertainty. Directors should, at the very least, have no material relationship with the company on whose Board they serve. This should be the minimum. In addition to this, all Directors need independence of thought and opinion and moreover must be able to clearly articulate their ideas even if they diverge from the rest of the board. In fact, this is when it becomes most important to communicate clearly. When the group (in this case, a board) is all in agreement about something that one Director feels is not in the best interests of the company or its shareholders then this Director must have the conviction to speak up and vocalize their opinion. Autonomy and self sufficiency should be part of every Director’s mandate.

This independence of thought and convictions has certainly been discussed and seemingly decreed in the past. However, isn’t it time that it is thoroughly endorsed and applauded?

January 28, 2009 at 3:02 am 1 comment


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