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Soundview Executive Book SummariesA Blueprint for Effective Governance
Boards might merely be groups of people trying to get work done, but they can still make or break a thriving company. With vast insight into the ways boards operate, the consultants from Mercer Delta Consulting have compiled Building Better Boards as a thoughtful resource to help corporate boards become more effective in their governance. Chairman David A. Nadler and two of his top consultants have gathered the information found in surveys of corporate board directors from 2003 and 2004 along with the wisdom learned from a broad-based commission of 50 directors, CEOs, chairmen, academics and corporate governance experts. With this data in hand, the editors wrote Building Better Boards to improve the functioning of boards.
The editors have broken down the improvement of boards into three major parts. The first covers board leadership and the dynamics between members. After a complete description of their “Blueprint for Building Better Boards,” the editors describe in detail the optimum board composition. Pointing out that new regulations and guidelines, both domestically and overseas, have had an enormous impact on many areas of corporate governance, they explain that these regulations have also changed board recruitment practices.
Major changes to boards began in the 1990s, the editors write, “when directors suddenly shook off their lethargy and unceremoniously removed the CEOs of some of the leading U.S. companies.” At the same time, they add, other CEOs were beginning to engage their boards in new and different ways than they had in the past. These changes have led to new insights about board problems and potential value.
Board Leadership and Dynamics
While discussing board leadership and dynamics, the editors explain that the status quo is no longer an option. This is due to the recent and unprecedented series of corporate scandals in both the United States (Enron, Tyco and WorldCom) and Western Europe (Ahold and Parmalat). They write that companies have seen the last of the days when “traditional boards were generally passive, compliant and unproductive assemblages of individuals who would gather periodically to rubber-stamp the CEO’s edicts.”
Rather than telling boards to simply take the path of least resistance and minimally comply with the new technical requirements of Sarbanes-Oxley in the United States and the Higgs Review in the United Kingdom, Building Better Boards extols the belief that CEOs and their boards should choose the more difficult (but more rewarding) path of building boards that contribute substantial value to their organizations and shareholders. They see recent changes in board function as an opportunity to re-examine who should be chosen to take a seat on the board, how each board member’s performance should be judged, and what critical activities the board should perform.
The editors explain that boards should now be seen as a source of value creation for their organizations. They write that boards should look beyond simply meeting legal requirements and should take this new opportunity to commit themselves to higher performance standards. The editors write, “We are absolutely convinced that active and appropriately engaged boards ... can partner with senior management in an environment of constructive contention to produce better decisions than management would have made on its own.” To do this, they add, boards must learn to operate as high-performance teams.
How does a board add value to its organization? One example of a board adding value is the time recently when Lucent Technology’s board prevented its new CEO from making a series of potentially disastrous acquisitions. Another example the authors describe occurred at Best Western International, where its board rose to the occasion “to block the CEO’s proposed spin-off of the company’s non-U.S. operations and then took an active role in working with management to rethink the strategy, design robust new performance metrics, and reshape the corporate culture.”
In the second part of Building Better Boards, the editors have compiled valuable advice on critical areas of work, including ways to engage the board in an organization’s corporate strategy, tips for CEO performance evaluation, and descriptions of the board’s role in CEO succession and corporate crises.
A final part that describes emerging issues outside the United States provides clear insight into corporate governance issues in both Canada and the United Kingdom.
Why We Like This Book
Building Better Boards goes beyond the legal requirements that boards must follow and the traditional roles they must play: It takes the latest thinking about corporate governance and compiles it into a useful resource that all boards can use to add value to their organizations. By detailing a precise blueprint that boards can follow to become more effective, as well as seven core principles for building better boards, the editors take corporate governance into the 21st century. Copyright © 2006 Soundview Executive Book Summaries