CEOs and Fixing Corporate Boards

CEOs and Fixing Corporate Boards

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There's a good piece in the New Yorker this week called "Board Stiff." The writer, James Surowiecki, makes the case that corporate boards still aren't doing a very good job minding the store for shareholders. Despite "reforms" like increasing the number of outside directors and increasing the ethnic diversity of corporate boards, he argues, the boards of publicly traded companies still aren't effective in anticipating problems or preventing business meltdowns. The main reason, he cites, is that board members still rely on their CEOs for information. There's no clear autonomy or ability to challenge the CEO's thinking.

One reason is that the CEOs of publicly traded companies still play the largest role in selecting directors, which results in a loyalty system that makes it difficult to rock the boat. Directors don't have enough power or time to really direct; instead, they typically see their most important job as selecting the CEO. It's not until there's a crisis of confidence in the CEO that the Board steps in, and by then it's too late.

I've worked extensively with corporate boards. I've also worked extensively with the boards of many other types of organizations: non-profits, public agencies, universities, and cooperatives. One thing stands out: the CEO typically doesn't serve on those boards. That confers some clear advantages:

First, it's a lot easier to clarify the roles of the Board and the CEO when there's clear separation of powers.

Second, it enables the Board to structure its work so that it truly understands the issues of the company and can set overall direction and policy.

Third, it forces the Board to be held accountable. It can't fall back on the excuse that "we relied on the CEO."

That's a powerful case. But implementing a CEO-less board of directors runs up against a counter-veiling force: the ability of CEOs, under the current system, to control their boards and not be governed by them. That, fundamentally, is what stands in the way of fixing corporate boards.