“Envy, among other ingredients, has a mixture of the love of justice in it.
We are more angry at undeserved than at deserved good fortune.”
—William Hazlitt“With public sentiment, nothing can fail. Without it, nothing can succeed.”
—Abraham Lincoln
Although neither was a market expert, Hazlitt and Lincoln hit the nail on the head. Their observations describe today’s public perception towards business with remarkable clarity: Greedy executives and financiers are responsible for the current economic crisis because they’re interested only in making money, often at the expense of the public good.
At least that’s what a broad swath of society thinks in the wake of the biggest financial meltdown since the Great Depression.
Whether this perception is accurate or not, the public’s anger and outrage are boiling over at corporate boards, those charged with overseeing corporate America. Directors are squarely in the middle of the debate, whether they realize it or not.
Public confidence towards business–and those who administer it–is at an historic low. So, the outcry for more regulation is spurring government regulators, Congress and others to react to the loss of public confidence by enacting tighter laws that address accountability and transparency.
The Obama administration is pushing some of the most widespread reform proposals in more than 70 years, intended to strengthen the nation’s financial regulatory system for the next several decades. Treasury Secretary Timothy Geithner has hailed the reform as “not modest repairs at the margin, but new rules of the game.”
How did it come to this?
Just as there is nothing new under the sun, there is nothing new in market reform. Excesses inevitably lead to contractions, bailouts, business failures, loss of public confidence, reform and regulation. In recent decades, the guilty parties have ranged from savings and loans and underfunded dotcoms to Enron, WorldCom, subprime mortgages, Lehman Brothers, AIG, banks, GM, Bernie Madoff and hedge funds. Along the way, Japan, Asia, Russia and Argentina have had their culprits, too.
What is important for directors to remember is that this crisis is taking place in the wake of governance reforms mandated by Sarbanes-Oxley, some of the most sweeping in modern history. There is precedent for the level of oversight that also makes good business sense.
The public’s attitude about negative developments at a corporation…can result in a major hit to reputation and billions in lost market capitalization.
Yet, not a week passes where some well-meaning soul doesn’t come into our office to say, “I want to be on some boards.” These are decent people who want to do the right thing.
We always ask, “Why?”
Their responses are along the lines of “My time has come” or “Two or three boards would give me the income I want going ahead in life.” Or, worse, they cannot offer a view. These individuals have not thought about the full range of responsibilities they will need to face, about the work they will have to put in to make their time on a board successful for the company, or about the personal commitment they will need to make.
They want prestige. They want money. They want to get in the game. Not to put too fine a point on it, but ego and greed are what got us into this mess.
Board service today requires enormous work and oversight, experience and business savvy, ethics and good judgment. An outside directorship at a multinational company with complicated operations can involve hundreds of hours a year in meetings, conference calls, travel and study.
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