“There is nothing new under the sun,” complained the author of Ecclesiastes. This old lament comes to mind when I hear about “new” solutions in governance. I can usually find a precedent near at hand—whether it is something we have done here at NACD within the director community, or else a solution we’ve seen coming from other governance groups such as managers, shareholders, and professionals.
But I have to say that Bridging Board Gaps: Report of the Study Group on Corporate Boards , released in late April, contains some new perspectives and some new thinking.
A New Gathering
The Study Group on Corporate Boards is new in the breadth of its representation across U.S. public company governance and, frankly, the celebrity status of its members. At NACD we take pride in our Blue Ribbon Commission reports, which bring together a diverse group of participants in governance. The Study Group assembled an equally strong group with a wide range of backgrounds and affiliations.
Co-Chairs Charles Elson, University of Delaware; Glenn Hubbard, Columbia Business School; and Vice-Chair Frank Zarb, Hellman and Friedman, currently serve on a total of seven major corporate boards. The Study Group also includes other prominent corporate directors, plus an array of retired chief executives, senior managers, shareholders and professional advisors of note, and also two retired jurists—Chief Justice E. Norman Veasey, retired from the Delaware Supreme Court, and Chancellor William T. Allen, retired from the Delaware Court of Chancery.
Also serving in the Study Group is Arthur Levitt, former chairman of the Securities and Exchange Commission; former Treasury Department Secretary Paul O’Neill; former general counsel of the Securities and Exchange Commission, David Becker; and a representative of organized labor, Damon Silvers, policy director and special counsel of the AFL-CIO. The group even includes Jon Hanson, chairman emeritus of the National Football Foundation and a director of the company that owns the New York Yankees.
So exactly what did the Study Group say that was new? The main message of their report is twofold:
1. There are natural limits to what boards (as part-time nonmanagers), by definition, can do, and we all need to face those limits and adapt to them. Previous reports leave this difficult truth unaddressed.
2. Even given these limits, some boards are falling short of their potential.
The Study Group identified seven gaps: gaps in purpose, culture, leadership, information, advice, debate, and self-renewal. Every member made a significant contribution to the discussion. My own area of focus was the issue of information asymmetry, which I have addressed in a number of NACD publications. Management will always know more than the board about the company; that gap is inevitable, but it can be narrowed.
In my view, however, the truly new message in the report lies in the last three areas: advice, debate and self-renewal. Boards are not investing enough in advisors; their fear of treading on management’s toes leads to serious gaps in knowledge. Also, boards are too deferential in their discussions. Rigorous debate is required and there is also a place for outright dissent (votes need not always be, as they usually are, unanimous). And finally, the third message that to me seems quite new is the suggestion that although obviously evaluation is the best way to refresh board membership, boards should consider term limits—a backstop that fewer than one in ten corporate boards have implemented, according to NACD research.
A New Start
Although as a lifelong auditor, I am constitutionally incapable of being star struck, I must say it was an honor to serve with this distinguished group. Indeed, I can’t imagine any American man or woman of business being uninterested in what this unique and high-caliber team has to say. I commend this report to the attention of every corporate director, and to all who care about free enterprise in America and in our global economy.
Kenneth Daly is president and CEO of the National Association of Corporate Directors.