Folks meet Aristotle. It was he who so wisely said eons ago that common sense is not common. You who are in a dither to make boards gushy and friendly, turning directors into the good guys are slipping a cog or two. Some of the ideas being advanced to take the mystique out of boards are simply impractical, the unintended consequences of some will only exacerbate the disconnect with shareholders and stakeholders. Pandering such as promising direct access to directors, creating a “voice” or spokesman for the board or vowing transparency need to be more thoroughly thought through.
Granted boards today, meeting in private (critics say “secretly”) do have an image of Star Chamber proceedings. Equally true that in the interests of unanimity directors forsake communicating the true dynamics of decision-making that independent directors actually do act independently as expected of them. But who knows?
I will argue that directors are doing their best to be responsible stewards of the funds entrusted to them by shareholders. Directors most definitely today are not toadies of domineering chief executives, as portrayed by critics who haven’t a clue as to the innermost workings of good boards. Tenure of CEOs is the shortest of any professional group, thanks to board scrutiny. Statistics abound; take your pick: 1 in 3 CEOs leave involuntarily; “tenure’s down substantially to 4 perhaps 5 years.
As Pogo presciently said in 1970, we (i.e. boards and directors) are their own worst enemy. They stick to tradition with Gorilla glue-like bondage.
With due deference and appreciation to the seemingly endless hours directors spend in seminars and conferences conscientiously examining their roles I suggest that a change in attitude will bring more positive vices than improvements in aptitude.
The public will not be persuaded that they are fully up to their responsibilities by compliance with rules and regulations alone. Besides, who knows of their assiduous efforts, given that directors treat all their actions with a secrecy the CIA would admire.
So, open up—and give up—some of the nutty, illogical ideas thrown out to pander to critics. On the top of my list of ill-thought out ideas is that of giving directors a “voice” a spokesman to be their public advocate. Sounds reasonable, eh?
Granted there are special occasions when the board ought to show its engagement in some high-voltage public issue involving the company…times like the Gulf Coast oil spill where, I contend, the BP board might well have mitigated some of the public heat if it had shown its concern, perhaps by sending two or three members to personally inspect the devastated scenery rather than simply issuing banal statements of support for the CEO from secret headquarters in London.
But creating a spokesman’s role is quite another thing. It suggests regular access to a board … a “voice” available on any matter the media considers important. Well, will such an individual be prepared to answer all questions or only those carefully selected by legal counsel? What if one might logically ask why has that director, whose judgment has been impugned by one or two previous colossal corporate failures, suddenly regained the wisdom to merit a precious board seat? How about that just retired general? What does he add? Credibility is at stake. Try finessing the answers and you’ll simply reinforce public cynicism.
Why are major decisions reported out as unanimous, when in fact, they came out of a deliberative process wherein independent directors performed admirably—as critics expected of them? Protect unanimity again? At what cost? If the Supreme Court can explain its decisions in plain English and by vote, even offering the dissenting viewpoint, what is so sanctified about board decisions? “Are you mad?” a colleague said upon hearing of this idea? Granted it will take some guts and gumption to be this upfront but don’t we preach that and without risk there is no progress?
I flinch when I read of offers, circuitously worded to be sure, that appear to offer shareholders face-to-face access with a director (the unspoken hedge being we mean a chance opportunity at the annual meeting). It is not only disingenuous but ill thought out. It would expose a director to possible violation of Regulation Fair Disclosure which, as you know, inhibits any free exchange that might contain a hint of materiality unless such a slip is immediately communicated broadly.
I heartily favor demystifying boards. Long overdue is the need to let sunshine into the Star Chamber-like proceedings. But let’s do it thoughtfully and not by pandering to critics like Senator Charles Schumer (D-NY) who has never met a payroll, or has a clue to board dynamics, or the business-of-business yet pretentiously offers a Shareholder Bill of Rights.
I argue that this uncovering can be done without opening Pandora’s Box or getting sunburn.
For instance, consider these 10 ideas:
1. Start with the proxy statement and have that part dealing with directors drafted by a journalist not a lawyer; edit the obituary sounding career resumes. Explain in plain English (not corporate speak) what each will contribute.
2. Offer a summary of the pros and cons behind any major decision…even the vote.
3. Reconsider the reliance on the Internet for communicating issues that require contemplation; snail-mail may still be the most effective method—and it can engage the family not simply the digeratist.
4. Develop a pocket guide to directors, profiling their human side, emphasizing their expected roles, de-emphasizing the career bios. A video profile offered broadly?
5. Don’t promise what can’t be delivered. Real transparency, personal meetings; direct correspondence, then create shields (ombudsmen) to censure and control the flow. Shareholders aren’t dummies; they can’t be spun (for long).
6. Mandate all directors attend the annual meeting; seat them on the dais and introduce each. The lead director should present a report as well as the CEO.
7. Supplement annual meetings, unavailable to many shareholders due to cost and distance, with regional “information forums” (or Town Halls) chaired by their lead directors, with other directors participating.
8. Encourage director participation in employee conferences, especially in their area of expertise.
9. Underwrite the participation of a few shareholders—chosen by some open raffle process, to a director’s conference or workshop enabling them to observe first-hand, the seriousness of the self-education underway. Circulate a report on impressions.
10. Pre-empt the critics. Voluntarily move to address some of their pet peeves. What is so cataclysmic about entertaining shareholder nominees for the board? Evidence argues that it prefaces no revolution. Ross Perot and the late Jeremy York, accomplished business executives, failed to sway the board of GM and Chrysler, two union leaders, elected consecutively, did not disrupt Chrysler. Let ‘em come, says multi-director Bonnie Hill, noting that they will sign on to the same fiduciary responsibilities and that, alone, draws down the sails. Might do some good, suggests Charles Elson, governance guru at the University of Delaware, in that they might ask unspoken questions and stir a debate.
Same, too, for shareholder voting if boards find ways and means to fully inform shareholders of the deliberative actions of directors so they are not enigmas.
I realize that directors today are the product of a political culture that disinclines them to challenge tradition. But this intellectual rigidity blinds them to the possibilities open to them to recast their image.
I perceive in the earnestness I witness at seminars the presence of the capacity—and the courage—to take charge of their reputations.
Turn the mantra “being good by doing good,” on its head.
Make it, “doing good enables one to be good.
John F. Budd, Jr. argues from the objective perspective of those 11 years of participation in director conferences, plus 10 years of de facto corporate directorship and insights gained in service on 22 non-profit boards. He is a member of NACD’s national advisory board and a director in the New York chapter.