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From the Wall Street Journal and top cable business news programs to global politics, the topic of corporate governance is in the business media spotlight. Yet despite this surge of popular attention and the board of directors' growing power and burdens, solid advice for running a better board remains scattered and inconsistent. At a time of sharp scrutiny and far tighter board accountability, today's corporate boards ...
From the Wall Street Journal and top cable business news programs to global politics, the topic of corporate governance is in the business media spotlight. Yet despite this surge of popular attention and the board of directors' growing power and burdens, solid advice for running a better board remains scattered and inconsistent. At a time of sharp scrutiny and far tighter board accountability, today's corporate boards and top managers need practical wisdom more than ever. In this invaluable guidebook, the founder of the online newsletter Boardroom INSIDER compiles the best "first-person" advice for quality boards. Here are expert answers to the most widely asked governance questions from today's board members and top corporate management. From CEO evaluation to logistics and policymaking, bone up on:
* Effective board recruiting
* The hottest trends in board pay
* What to do when your CEO is the problem
* Running a smart audit committee
* How to manage board-meeting surprises
* Dealing with corporate counsel, boardroom battles, board investigations, and strikes
* Surviving the family boardroom
* Board retirement policies
* Career builders for women in the boardroom
* Putting your board retreat to work
* Strategies for nonprofit boards
Including dozens of helpful checklists and inside examples of the governance strategies of leading companies, Improving Corporate Boards will help all directors ask the questions that hold the key to better governance for the future.
CEO Succession Planning.
Search for Directors.
Smarter Audit Committees.
Effective Compensation Committees.
Better Board Logistics.
Board Tech Tips.
Board Meetings and Minutes.
Board Info Ideas.
Board and Internal Company Resources.
Boards and the Corporate Secretary.
Your Board as a Strategic Tool.
Behind Boardroom Doors.
Coping with Liability Dangers.
The Startup Board.
Family/Closely Held Businesses.
The Public Face of Your Board.
Boosting Your Personal Board Prospects.
Your Board Income.
Women in the Boardroom.
Boards and M&A.
International Boardroom Trends.
The growth in corporate governance as a business issue over the past decade has been astonishing. In 1990, even the most savvy business observers could not name any of the outside board members of our top corporations. How these directors were elected, for what terms, how independent they were, how much they paid themselves and the CEO, and the quality of their oversight were terra incognita. The greater business community knew little and cared less.
In the year 2000, however, The Wall Street Journal, Business Week, and the top cable business news programs routinely drag boards into the spotlight. CalPERS produces a yearly list of America's best and worst boards, and gains a level of news coverage once reserved for Mr. Blackwell's Worst Dressed List. The media study the board rum-blings at troubled corporations like DaimlerChrysler, Waste Manage-ment, AMD, and Compaq with the care they once devoted to the Soviet Politburo. The New York Society of Security Analysts and Georgeson Inc. publish closely studied tips on how a company's gov-ernance should be factored into analyzing its prospects and into investor relations.
Globally, reports on corporate governance, such as Cadbury in the United Kingdom and Vienot in France, have become living documents that shape national policy on how companies are regulated and managed. U. S. observers such as the National Associ-ation of Corporate Directors and the New York Stock Exchange are now crafting "best practice" governance policies that drive corporate laws and regulations. Recent transnational guidelines from the Office for Economic Cooperation and Development are stirring a truly global movement for a new, international gover-nance agenda.
Yet the story of how governance grew to this eminence, and the way it was shaped (and was itself shaped) by current thinking on the issues, is less well known. In 1990, corporate governance was an eso-teric subject of interest to a small handful of business observers, pri-marily shareholder activists and business school academics.
The early activist voices were primarily progressive change groups, though a few state pension funds were also involved. These advocates usually brought a narrow, cause-based approach to gover-nance. They may have raised a proxy stir, showing up at annual meetings to "just vote no," but they weren't too worried about what happened in the boardroom, except as it advanced their goals. Disin-vestment from South Africa, pollution, nukes, or affirmative action set the activists' agendas-- not how well the board did its job.
Indeed, the company's board was viewed as such a remarkably gray and tedious affair that it served as its own camouflage in these battles. At annual meetings (the only time anyone actually saw the board) directors were little more than a restive audience, wishing the chairman would hurry the hell up, switch off the gadfly's mike, adjourn, and move on to lunch. The activists, meanwhile, largely wrote off the ho-hum governance issues, assuming that they'd score more points through the sound bites they gave the media after losing their proxy vote eight million to three.
The other voices concerned with governance a decade ago were far quieter, heard mostly in academic journals or the Harvard Business Review. Academics and authors such as Jay Lorsch and John Pound offered early insights into the power that actually resided in the boardroom. They shaped valuable models and rationales for how the board could counterweigh management, and the forces that influ-enced governance. But the academics brought an empirical treatment to the wildly subjective world of the boardroom. Their careful methodology charted how such factors as director independence, sep-arate CEOs and chairmen, and greater board diversity affected results. Yet at the same time, companies whose boards broke all such rules were often just as likely to be making bank.
But the issue of corporate governance saw a massive topical uplift in the early 1990s. The recession of 1990- 1992 led to a headline-mak-ing series of CEO sackings in the United States. In the United King-dom the first Cadbury report in 1992 sparked a trans-European drive for governance reform. Corporate governance and the dynamics of the boardroom suddenly mattered in business, at the same time as business news itself was taking off.
We've all seen how the news media scrambles for any information it can grab on a topic when world-class news suddenly bursts forth from obscurity. Likewise, the business world and the business media seized on the state of governance as it stood at the moment for its arche-types. Academia and activism thus became the progenitors of what we now know as the American corporate governance movement.
As with any active, fast-growing family, the offspring of these governance parents introduced their own variations. The governance activists begat major pension funds, mutual funds, relational investors, and proxy advisors-- entities with business agendas as rad-ical as you'd expect from their names. These institutions largely sup-planted social statements with focused concerns on shareholder value. Today their governance initiatives tightly target the bottom line, focusing on such issues as antitakeover protections, board responsiveness to shareholders, and share price.
The academic wing has continued its research, providing statisti-cal tools that help the governance voices prove their points. Crossing into the world of governance consulting, however, the academics have provided valuable assessments of the little-studied governance landscape. They've made careful case studies of how boards handle major issues, compiled much-needed historical data on board evolu-tion and structure, and dragged business leaders into an appreciation of how serious governance issues can be.
But there's been a price for building this new governance phe-nomenon on the old activist/ academia foundations. Both of these strains have "outside-looking-in" roots when it comes to what really happens in the boardroom. The activists and funds approached gov-ernance as a tool to achieve their agendas. The tools have become more effective, shrewdly forged, and precisely used, but they still approach board improvement as a means to their own ends. Even when the end is better shareholder value, definition of the term is so debatable that boards are often right in questioning the activists' one-size- fits-all prescriptions. A corporate board is still no more likely to believe someone saying "I'm from CalPERS, I'm here to help you" than they are anyone else from the government.
The academic/ consulting strain, meanwhile, offers sound macro information for what are often micro issues. Good statistics on how board independence influences company performance sound valu-able until we consider how wildly subjective and debatable any defin-itions of "independence" and "performance" really are. Furthermore, the academics often disagree among themselves on governance. Over the past decade, researchers have provided solid, empirical evidence that board independence improves shareholder value; that board independence has no effect on shareholder value; and that board independence turns CEOs into boardroom Machiavellis. Such high-altitude views of governance also divorce themselves from the very untidy world of "boardsmanship"-- how a group of high-powered individuals sit around a table and take practical action.
Worse, as the worlds of business school and consulting firm feed on each other, governance begins to suffer from the same consultant buzz-term voodoo that has proved of such dubious value to manage-ment. The best we can say is that, when we combine the 1990s stock runup with the huge growth in consulting and business publishing, both the activists and the academics have spent the past decade mak-ing tall dollars.
In short, when it comes to offering solid advice for running a bet-ter board, the current American field of corporate governance either misses the mark or aims at the wrong target.
In 1997, I launched the online newsletter Boardroom INSIDER as a response to these needs. In speaking to groups on corporate gover-nance, I found that the people who actually serve in our boardrooms ask specific types of questions. They aren't fretting over how to differ-entiate shareholder from stakeholder needs; whether it's proper to combine the jobs of chair with that of the CEO; or what the big institu-tional investors think of them. Instead, they want to know the nuts and bolts of making board evaluation work. They want to know how to discreetly edge inept, lazy members off their boards. They seek advice on the intense, personal political issues that arise behind boardroom doors. And they want to know how to do more and better board work in less time.
This boardroom folk wisdom exists, alright. There are thousands of seasoned, wise board pros out there, Jedi Knights of governance with invaluable boardroom experience. But their knowledge is widely diffused, hidden in bits and pieces, and almost wholly uncollected. Directors and boards were left to reinvent the wheel time and time again, in an environment where trial and error is a very expensive teacher. Avaluable tip for using the board as a recruitment tool would filter out of the boardroom at Company X slowly, if at all, and might never be learned by Company Y, headquartered in the same city.
And even the savviest of board pros don't know everything. In editing Boardroom INSIDER, I've chased the answer to some puzzling governance questions by calling a half dozen proven board experts, only to find them stumped. Then, on the seventh call, someone with equal qualifications will come up with an answer-- with the bland assurance that the issue is hardly worth pursuing because "everybody knows that."
But everybody doesn't know, and that's the reason for this book. The book is a compilation of the best information offered over the past couple of years in Boardroom INSIDER, organized under the most commonly sought topical headings. This book makes no claim to be a comprehensive treatment of what you need to know to run the "com-pleat board". Indeed, in the compilation process, I developed a num-ber of new items specifically because some topics needed fleshing out. Also, as with any endeavor based so extensively on reader questions, a missing item may simply mean that no one has asked about it-- yet.
And that, possibly, is the ultimate problem we face today in improving the quality of our corporate boards. Worse than what our directors don't know, or what they don't do right, is our assumption that they already know all the answers. But when these directors don't know all the answers, they can't very well admit it, since they're already supposed to be the experts.
Consider this book a first step in addressing this problem. The boardsmanship answers it provides will be of real value to your direc-tors. But this book will be even more valuable if it makes it okay for them to ask questions in the first place.
What are the attributes of a truly effective board of directors? What are the hallmarks of an excellent board member?
As we enter a new century, these two questions are at the core of a much broader and often fierce debate about the responsibilities of a board and its directors. For decades, of course, most boards had become little more than internal fan clubs for the boss. Friends and cronies were often invited on as directors to support and stroke the chief executive and to help him network his way through a challenge or problem.
The near-meltdown of many large American enterprises in the 1980s, however, caused many boards to test and question the chief executive. In some cases, including American Express and General Motors, boards pushed out poorly performing bosses. Institutional and activist investors helped to place pressure on board members for reform and action. As a consequence, the media began to focus greater attention on boards. As a senior writer for Business Weekmagazine, for example, I created a best and worst list of boards that debuted in 1996.
One very positive fallout: The uproar and the attention has made many far more interested in boardroom practice and procedure. At small and large companies, and at nonprofit organizations, the directors who sit around the long, highly burnished tables increasingly want to improve their performance. They do not want to be perceived as a cozy, clubby group of the chieftain's friends. Rather, they want to play a more active and vital role to help their companies succeed. They also want to fulfill their fiduciary responsibilities to shareholders and other stakeholders.
Yet, boards must resist the temptation to become over-involved in a company's affairs. So where to draw the line? The book in your hands provides much nitty-gritty counsel on how to discharge your duties as a director in this new more active model of governance. What involvement should the board have in corporate strategy, succession, and performance evaluation? How should a board organize its various committees? What should you do in-between board sessions to fulfill your job as a valuable board member? How can you edge out a nonperforming board colleague? You'll find useful tips in these pages from some of the best directors and boards in Corporate America.
What I find most refreshing, however, is that author Ralph Ward does not take a dense, academic approach to dispensing advice and help. Instead, his numerous examples and lessons, many culled from his online newsletter, are easy-to-read and highly accessible. Even better, there are lots of ideas in this book that can immediately be carried into the next board meeting to make one a better director.