Friday September 19, 2014
WHAT SOCIETY THINKS?

Main Street’s View of Directors Improves

The second annual landmark survey of Main Street, C-suite and director attitudes on American corporate governance.

Interestingly, the credibility crisis toward corporate leaders is not just occurring among Main Street, students and other non-management sections of society. Business leaders and analysts, along with politicians, also have some doubts about what is going on in boardrooms across the country.

How They Performed
When asked to rate the credibility of directors, the majority of 580 respondents described performance over the past 12 months as “adequate” or “poor.” The director group was the only sector where a majority described boards as “good” or “outstanding.” However, 20 percent of the directors rated themselves in the “poor” category. The C-suite and senior management also showed dissatisfaction with director credibility, with 34 percent of both groups rating them “poor” as well. This is particularly surprising when read in comparison with results from the NACD Board Confidence Index. In the Q4 survey (a similar timeframe to when the What Society Thinks? survey was conducted) directors professed to feeling markedly more confident about business conditions at the time and also about the near-term future. A possible reconciliation between the two divergent results is that board directors, by their nature, tend to have very high expectations. Given that they feel economic conditions have improved, many may believe they could have done more.

Also of note, given the nature of press coverage during the year, journalists displayed the largest turnaround in confidence. A majority of this group last year rated directors in the “poor” category, whereas this year 78.9 percent rated them “good” or “adequate.”

In a clear indication that most “outsiders” do not differentiate between the board and the chief executive—even though their duties and responsibilities differ widely—CEOs also did not fare well. In fact, their credibility rating receded among policy makers, a majority of whom (56.4%) rated them as “poor” this year. In a striking symmetry to the results from the director ratings, C-suite executives were remarkably hard on themselves, with 24 percent ranking CEOs as “poor.”

Some director responses indicated frustration. Increasing demands from shareholders on non-traditional tasks such as proxy disclosure and advisor independence compete with their primary function to provide strategic oversight and guidance.

In stark contrast to the attitude of CEOs towards directors (which was largely negative) the director group espoused remarkable bullishness towards CEOs, with almost half describing CEO performance as “good” or “outstanding.”

This division and dissatisfaction between the CEO and the board belies the cohesiveness and cooperation that is often associated with Corporate America. This may be an indication of the competing pressures being placed on these business leaders from outside forces.

The Influencers
Following a decade of regulatory activity by both federal and state governments, the perception of the balance of power between executive management, directors and shareholders has shifted considerably. When asked who exerts the greatest control over the company, every survey group pointed to the CEO. Financial analysts, who it can be fairly assumed most closely associate with shareholders, were the strongest voice in suggesting the CEO has ultimate control. Attitudes change sharply when asking who should have greatest control of the company. In this case, every group, with the exception of senior management, indicated that shareholders should be in charge. Academics and Main Street were the strongest proponents of shareholder control.

“I found this discussion extremely interesting,” says Steve Mader, vice president and managing director of Korn/ Ferry. “Generally speaking, it seems almost all groups believe that shareholders should have the greatest control and not the CEO. Structurally I find that very odd. Technically speaking, directors are supposed to have control of the company— the shareholders hire directors to represent them—and the directors hire and fire the CEO. So if you believe in this power chart, then it is true that shareholders have the power.”

In reality, as Mader explains: “The nuances of the board/management relationship go to the heart of governance.” Do directors [and by extension investors] know enough to be hiring and firing the CEO? Are boards continually apprised of information that allows them to make informed decisions? Some boards don’t know enough until it is too late.

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Comments on “Main Street’s View of Directors Improves”

  • Terrific piece of research. I was particularly interested in the finding regarding the separation of the role of CEO and Chair which is the case in Australia.

  • Ron Scott says:

    I’m interested that it required a crisis of this sort to make Directors sit up and be concerned about what they were achieving.

  • John F. Dix says:

    Boards of Directors still have a long way to go in setting the tone for and expectation of accountability to shareholders.

  • William Brereton says:

    If Boards are asking new questions, are they asking the right ones and are they getting the right answers or only New Answers? A survey may never be conclusive or enlightening. Simple questions such as what, when and why would do in the majority of issues. Having the right information to ask the right questions, maybe is what Directors would consider new.

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