Wednesday, March 12, 2008


While wondering where the legal extremes of corporate abuse, or less legal malfeasance might next surface, there is one prevailing trend that has swept corporate America and led to Congress scratching its assembled intellect. A gradual shift of control of the boardroom. That is now complete.

For any system to succeed over the long-term it should be tended to and altered where improvements can be affected. Starting at the top the capitalist system is in very urgent need of adjustments and a few repairs. Let’s look at one such fissure in the realm of responsible governance affecting one cog of the system. The Board of Director structure and control.

A Board’s responsibilities, as representative of shareholder interests, are broad. They include oversight of business strategies, their implementations, as well as direction of corporate compliance with laws and regulations. The Board dispenses its fiduciary duties through a management it is supposed to control. Most Boards don’t. Whether they are active, interested or complacent does not really matter much. The shift that has swept through all boardrooms over the past thirty years has made directorships a primarily comfortable and financially rewarding posting.

Instead of Chief Executive Officers (CEO’s) reporting to a Board chaired by a Chairman, we have Boards reporting to CEO’s who are also Chairmen and therefore report to themselves. In a structure where the CEO reports to the Board with an independent Chairman who is only that, a Chairman and not a manager, you have a higher likelihood of Board independence and proper oversight. Directors are more likely to influence corporate direction and guide adherence to laws and codes of ethics. Impact of both subtle and overt pressures change when the Board is structurally the final arbiter of governance between the management of the enterprise and its owners. The Board can therefore more effectively and evidently demonstrate the trust and confidence with which it has been entrusted. Shareholders as well as society at large, employees, customers and suppliers expect it.

A Director should not be a CEO’s friend or associate first, and overseer second, as is currently the predominant situation. Although there is pretense to the contrary, North America’s corporations have become the purview and domain of CEO’s in an absolute and royal sense.

Congeniality as well as pandering to the requirements of a CEO is, for the vast majority of directors, the path of least resistance whether those solicitations are subtly delivered or outright demands. It is also the path to continued receipt of all commensurate benefits requiring little mental energy. Even less appetizing for most outside the boardroom is the fact that since there is widespread cross-pollination of Boards, the qui pro quo and indulgence on CEO remuneration results in the gross examples of unrestrained abuse to which America is being exposed. No need to provide examples here since publications, such as Forbes and Fortune, provide copious lists for stimulation of either aspiration or envy. We can also easily recall being treated to the impact that such ineptitude at the Board level can achieve.

Asking the difficult and right questions is never easy. Such exigence requires effort and knowledge. Demanding that such questions be answered is almost impossible in the current atmosphere of convivial boardrooms. This can only come from independence of appointment and independence of thought. Until that is achieved in the boardrooms, there will be little if any scrupulous and effective monitoring of management for signs of abuse, fraud, or the exercise of basic common sense on behalf of all stakeholders.


  1. Your post touches on some very important issues. One of the guests on CNBC this morning sits on no less than six boards of major corporations, makes it way too chummy all the way around. Reminds me of President Eisenhower and his thoughts on the Military Industrial Complex.

  2. good post. I think eventually a more radical rethinking of the entire corporate charter itself will be necessary to direct liability and responsibility where it really belongs; the board and CEO.

    The charter has changed drastically since it's American inception, and it's gotten way out of hand. We shouldn't be giving out liability protection and full human rights to immaterial entities that rival nations in power and influence.

    I've bookmarked your site, you've got some really good stuff here.

  3. Your post on The Economist for Henry Mintzburg was superb and exactly right:
    Canada's economy is built on government tinkering. BC is Hong Kong's retirement home and only good for selling cars and food, not much else due to government regulation and taxes. My mother, a BC business owner, said join the government or union but do not run your own business.