The Conflict that Keeps on Giving
Posted by Dr. Earl R. Smith II in Governance, tags: adviser, advisor, advisory board, board of directors, CEO, chairman, coaching, consulting, director, Executive Coaching, Governance, Leadership, leadership assessment, leadership coaching, leadership development, leadership styles, Life Coaching, management assessment, non-profit, nonprofit, Personal Growth, spirituality, turnaround, Turnaround ManagementDr. Earl R. Smith II
DrSmith@Dr-Smith.com
www.Dr-Smith.com
One of the most commonly ignored conflicts in corporate governance is that between the role of the CEO and the one of Chairman of the Board of Directors. In some companies, this conflict is papered over by giving the same person both roles. This arrangement not only degrades the ability of the Board to meet its fiduciary responsibilities to the share holders – it also is an indicator that a Machiavellian culture has taken root within management and that the Board has ceded its responsibility – in direct terms, is acting negligently.
There is an inherent conflict is having one individual fill both roles – one that cannot be resolved with adequate oversight. The Board is tasked, among other things, with monitoring CEO performance, setting pay levels and managing succession issues. The Board is responsible for replacing the CEO if performance indicates that that is best for the shareholders. If the CEO (in the role of Chairman of the Board) is managing the Board, it is unlikely that these responsibilities will be met.
The pure fact is that CEOs who also fill the role of Chairman are – through a pure power play – intent on castrating the Board and reducing the power of the only legal challenge to their unfettered power. What is lost are the therapeutic benefits that exist because of the dynamic tension between the two roles. An independent Chairman forces the CEO to better understand that management works for the Board and shareholders – not the other way around.
The existence or lack of this dynamic tension defines the dynamics of Board. Without it, the Board tends to become a ‘rubber stamp’ for management and a critical corporate function is lost. With it, the CEO is in the proper role of reporting to the Board. (BTW, I am also an advocate that the CEO not be a member of the Board of Directors.) An independent Chairman sets the tone for the relationship between management and the Board as representatives of the shareholders. As a result, the Board tends to be more activist in both governance and oversight of the strategic planning process.
Years ago, whenever I held forth on this position, I was greeted with dismissive snorts. The CEO was, after all, the knight on the white steed – the savior of not only the company but also humanity. However, time and tide seems to have brought opinion to a new place. Support for separating the jobs has been slowly growing for the past decade. The recent corporate scandals and the financial crisis have added new momentum and a sense of urgency.
So where do these actions come from – how does the momentum and urgency translate into action? Most often, minority shareholders force the issues. Recently their actions have forced several major companies to split the roles of CEO and Chairman. In most cases, the Chairman was defined as someone who isn’t affiliated with the bank. Some companies have installed a recently retired CEO as Chairman but (given the focus of that person and the likely relationship with the new CEO, this approach has not been as effective in changing the governance culture. In some ways it appears to replace one conspiracy against the interests of the shareholders with yet another.
One of the most distressing data points is that the combined role arrangement tends to be most common at the extremes of corporate size. Small and medium sized companies quite often have a CEO who is also Chairman. The tragedy here is that a management team that could really benefit from oversight – adult supervision – does not get it. I have worked with a number of companies that have suffered from this lack. The mentoring function of Board members is enhanced when there is a separate Chairman.
At the other end of the spectrum, the odds of having a separate chairman get smaller as the company gets bigger. The most frequently offered justification for this arrangement is that the CEO acts as a bridge between management and the Board. While I agree that that is necessary, it is clear that this bridge can be built without appointing the CEO as Chairman. A Chairman does more than act as a bridge. They control the board meetings, the agenda, allocate resources of the board and deal with the hard questions of governance.
Putting the fox in charge of the chicken coop is only good for the fox – not for the farmer, not for the people who depend on a steady supply of eggs and chickens and certainly not for the chickens.
~~~~~~~~~~~~~~~~~~~~
In the battle over separating the roles of CEO and Chairman, management deploys an array of ‘experts’ who point to the value of having one person occupy both roles. The first argument offered is on of particularism – “after all, this is not a theoretical issue – this is a particular company with a particular CEO and particular circumstances”. This argument is intended to dissolve the issue of the legal definition of the role and responsibility of the Board as fiduciary representatives of the shareholders. By removing the legal reality from the table, the CEO and management team seek to both remove the argument about fiduciary relationships (a potent issue in law) and the exposure that they might incur by acting in ways which limit or degrade shareholder value – particularly when their own fortunes increase as a result.
The truth is that the combination of the roles is a pure power play on behalf of the CEO and management. It is accomplished with the clear intent of subverting the oversight role of the Board and allowing management to focus on maximizing its own short-term gains. However, since Sarbanes-Oxley, there had been a new factor in the calculation. Management may be successful in subordinating the Board but the law now fixes the blame and liability on the Board members who have allowed this subordination to occur. In some cases, going along may mean going to jail.
© Dr. Earl R. Smith II
Related Articles:
- The CEO involvement in the Succession Process
- New Board Member Selection
- Board Succession Planning – Two Tiered Candidate Criteria
- Good Governance – The Chairman’s Role
- Corporate Ethics and Good Governance Leadership
- Corporate Board Dangers
Dr. Smith is a proven senior executive, successful entrepreneur, published author and public speaker. He serves on boards of directors and advisory boards or as a strategic adviser to CEOs. Dr. Smith specializes in turnaround management, strategic planning, leadership development and executive coaching. He also works as an executive and/or life coach in the areas of personal growth and spirituality. He is the author of Amazing Pace: Turbo-charged Business Development – a book that shows how Advisory Boards can dramatically increase revenue. Dr. Smith is also the author of Dream Walk: Parables for the Living – a book of Raven Tales and exploration.
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HBVinc.comBruce Carpenter wrote:
Dr. Smith:
We agree strongly with the recommendation on strong representation of independent directors on the Board of companies at all stages of development. Strong corporate governance is not only demanded by today’s litigious society but also, in our experience, produces stronger companies and improved performance. A certain amount of natural tension between management and the board is healthy in most instances. It fosters a thorough review of important decisions and strategy and ultimately produces, in our experience, better results. While many entrepreneurs resist this and prefer to structure a board that tends to merely “rubber stamp” the founders decisions, we resist this tendency in our advisory engagements.
Thanks for providing great advice to others in your blogs and postings.
Bruce Carpenter
Principal, Harbour Bridge Ventures
http://www.HBVinc.com
dr-smith.infoBruce, Thanks for the comment. I have a different take on the role of advisory boards. for me they have only one purpose – which I describe in my book Amazing pace: Turbo-Charged Business Development: http://www.dr-smith.info/books-by-dr-smith/amazing-pace/ – and that is to drive the revenue line. Governance is properly the purview of the board of directors and, even with early-stage companies, it seems to me to make more sense to establish a strong culture of oversight. Good boards are populated with a range of skill sets and should focus not only on protecting and extending shareholder value but on supervising the strategic planning process, seeing to issues such as succession, audit and compensation and monitoring and enforcing a strong set of performance metrics. I agree that the use of an advisory board may avoid the risks of board of director service, But that risk exists whether the advisory board is present or not. the risk for advisory boards is that they will be taken legally as the actual board of directors and the legal fiction will be pierced. i am not satisfied that advisory board service, in the face of governance activities, relieves advisory of such liability.
I agree with you that a sound approach to risk management is essential and that prudence demands that the board oversee this critical area. There is simply no substitute for a professional board effectively operating. I have had entrepreneurs push back against that formulation; mostly because they did not want to be subjected to the oversight. It is one the major challenges that early-stage investors face and one of the areas that they have to prevail in to improve their chances of seeing a return on their investment.
I am also a fan of bringing in professional board members. A few of my investor friends have been successfully sued as board members for having an agenda which conflicts with other shareholders. Many are now opting for independent members under the theory that the good governance that they will bring is really more important. what has been your experience in this area?
Thanks for recommending the blog. I appreciate the confidence and compliment implied.
Dr. Smith
Bepsy Fakir Strasburg wrote:
The separation of the roles enables richer discussion of trade-offs which companies must make to serve their stakeholders – investors and employees alike. Companies who are resource constrained or does not have the advantage of immediate feedback from the market may particularly benefit from this valuable discussion. As outside advisors, we can see team dynamics influence decision-making which are not immediately obvious to the management group or ensure awareness of blind spots. The tension between the two roles can be very constructive to the entire team and give the CEO air-cover, if it is needed.
HBVinc.comBruce Carpenter wrote:
Dr. Smith:
An excellent point and you have addressed this matter in several of your blog posts with advice consistent with that we provide to our clients. We are firm believers in companies addressing their insurance requirements in a responsible and professional manner at the appropriate times.
Often in the very early stages when cash is scarce, we suggest that an Advisory Board is more appropriate than a formal Board of Directors. A strong Advisory Board with strategic value that can help in opening doors and providing warm introductions through strong relationships in targeted market sectors can be invaluable to early stage companies. Additionally, we suggest the presence of strong business and financial advisors on the Advisory Board to provide a “sounding board” to the founding entrepreneur(s) on corporate decisions. The use of an Advisory Board without true corporate governance responsibilities, avoids the liability issues of board service, eliminates the need for directors insurance, and avoids this expense in early launch stages. Once outside fund raising begins in earnest, it is time to think about the need for a formal board of directors who can provide responsible corporate governance and oversight. Often the investors may have something to say about the nature and composition of this Board. At this time we always suggest that responsible management and governance dictates appropriate insurance coverage including General Liability, and Officers and Directors Liability coverage and well as a thorough review of the businesses insurance requirements. We have several very sound business insurance brokers who can assist in such a review, as I am sure you do as well.
We are strong believers in sound risk management as a responsible component of all business ventures at every stage of their launch and development. We often find this the assessment of risks and the development of risk management and mitigation strategies is a missing component of many business plans. Those of us who assist with capital raises understand and adhere to the practice of full and formal disclosure of such risks and risk management strategies as a required component of all capital raises. I am sure you follow this practice as well.
We strongly encourage all entrepreneurs to retain a competent and experienced team of advisors when contemplating and executing a capital raise, even if it is only a “friends and family” or founders raise. Often we see opportunities where early raises have been done without such a professional advisory team and found the company now fatally flawed in some manner resulting in great difficulty in accomplishing a later needed raise.
We also highly recommend your Blog as a great source of advice and information to entrepreneurs. If others reading this discussion have not visited the Blog we strongly suggest they visit and review its words of wisdom regularly.
Bruce Carpenter
Principal, Harbour Bridge Ventures
http://www.HBVinc.com
Bruce, Thanks for the comment – very well done. Even early-stage companies can benefit from having a majority of outside directors and a separation of the CEO and Chairman roles. One of the limitations is the ability of the company to adequately insure the directors against risks. I certainly have that issue when I am invited to serve on boards of these companies. How do you advise companies to deal with this issue? It does involve channeling scarce resources to essentially overhead categories. Dr. Smith
HBVinc.comBruce Carpenter wrote:
Dr. Smith:
In our experience with many early and growth stage companies the combining of these two roles is frequently problematic. We frequently counsel our clients that better corporate governance and often a stronger overall team and improved performance demands the separation of these roles. A certain natural but professional and well-advised tension between the Board and executive management often engenders more examination, review, analysis, and questioning of corporate strategy and tactics. The proper role of a Board is to represent the shareholders interests (over management’s) and provide proper oversight. Often combining the roles of CEO and Chairman can result in the Board becoming little more than a social club that “rubber stamps” management decisions and actions rather than exercising a proper oversight and questioning role.
Bruce Carpenter
Principal, Harbour Bridge Ventures
http://www.HBVinc.com
James, There is little doubt that the trend over the last several decades has been to combine the roles in large public companies. But this is like putting the fox in charge of the chicken coop. Most often it is the CEO who claims the Chairman role and then argues that he always has the interest of the shareholders in mind. But this is a deception. The interests of the shareholders and those of management are inherently conflicting in important areas. Management plays the system to maximize its compensation. The horrors of companies like Enron show clearly what can happen when a board abdicates its fiduciary responsibility to the shareholders. Recent criminal and civil verdicts against sitting directors, the rapid increase in the cost of D&O insurance and an increased focus on board responsibilities are all part of a trend towards greater accountability for sitting directors. the real liability lies with the directors – they have the legally defined fiduciary responsibility to the shareholders – they are responsible for reigning in the excesses of management. When they do not, increasingly they will end up going to jail. Dr. Smith
emgc.comJames Smith wrote:
Dr. Smith,
I looked at the Fortune 500 list of “most profitable companies’ and randomly picked 16 from the upper part of the list. Remember, these are the most profitable companies, of the 16, 13 had combined Chairman CEO titles.
I’m not certain that it’s the title or titles, I tend to believe it’s the person, regardless of the title he/she is given. I just don’t see it being the inherent conflict between the two titles as much as the competency and strength of the leader.
Best wishes,
Jim Smith, CEO Enterprise Management Group http://www.emgc.com
HBVinc.comHBVinc.comHBVinc.com
Bruce Carpenter wrote:
Dr. Smith:
We agree strongly with the recommendation on strong representation of independent directors on the Board of companies at all stages of development. Strong corporate governance is not only demanded by today’s litigious society but also, in our experience, produces stronger companies and improved performance. A certain amount of natural tension between management and the board is healthy in most instances. It fosters a thorough review of important decisions and strategy and ultimately produces, in our experience, better results. While many entrepreneurs resist this and prefer to structure a board that tends to merely “rubber stamp” the founders decisions, we resist this tendency in our advisory engagements.
Thanks for providing great advice to others in your blogs and postings.
Bruce Carpenter
Principal, Harbour Bridge Ventures
http://www.HBVinc.com
dr-smith.infodr-smith.infodr-smith.info
Steve, I am a big fan of such programs. You should not approach service on any board casually. The liabilities are simply too great. Dr. Smith
Bruce, Thanks for the comment. I have a different take on the role of advisory boards. for me they have only one purpose – which I describe in my book Amazing pace: Turbo-Charged Business Development: http://www.dr-smith.info/books-by-dr-smith/amazing-pace/ – and that is to drive the revenue line. Governance is properly the purview of the board of directors and, even with early-stage companies, it seems to me to make more sense to establish a strong culture of oversight. Good boards are populated with a range of skill sets and should focus not only on protecting and extending shareholder value but on supervising the strategic planning process, seeing to issues such as succession, audit and compensation and monitoring and enforcing a strong set of performance metrics. I agree that the use of an advisory board may avoid the risks of board of director service, But that risk exists whether the advisory board is present or not. the risk for advisory boards is that they will be taken legally as the actual board of directors and the legal fiction will be pierced. i am not satisfied that advisory board service, in the face of governance activities, relieves advisory of such liability.
I agree with you that a sound approach to risk management is essential and that prudence demands that the board oversee this critical area. There is simply no substitute for a professional board effectively operating. I have had entrepreneurs push back against that formulation; mostly because they did not want to be subjected to the oversight. It is one the major challenges that early-stage investors face and one of the areas that they have to prevail in to improve their chances of seeing a return on their investment.
I am also a fan of bringing in professional board members. A few of my investor friends have been successfully sued as board members for having an agenda which conflicts with other shareholders. Many are now opting for independent members under the theory that the good governance that they will bring is really more important. what has been your experience in this area?
Thanks for recommending the blog. I appreciate the confidence and compliment implied.
Dr. Smith
Steve Collins wrote:
All, I am being asked to join the board of a Chinese company listed on the NASDAQ? I have heard that UCLA offers a Director Training Program which Helps Corporate Officers and Board Members Meet Their Fiduciary Responsibilities. Would this course be beneficial and are their others that you can recommend?
Bepsy Fakir Strasburg wrote:
The separation of the roles enables richer discussion of trade-offs which companies must make to serve their stakeholders – investors and employees alike. Companies who are resource constrained or does not have the advantage of immediate feedback from the market may particularly benefit from this valuable discussion. As outside advisors, we can see team dynamics influence decision-making which are not immediately obvious to the management group or ensure awareness of blind spots. The tension between the two roles can be very constructive to the entire team and give the CEO air-cover, if it is needed.
HBVinc.comHBVinc.comBruce Carpenter wrote:
Dr. Smith:
An excellent point and you have addressed this matter in several of your blog posts with advice consistent with that we provide to our clients. We are firm believers in companies addressing their insurance requirements in a responsible and professional manner at the appropriate times.
Often in the very early stages when cash is scarce, we suggest that an Advisory Board is more appropriate than a formal Board of Directors. A strong Advisory Board with strategic value that can help in opening doors and providing warm introductions through strong relationships in targeted market sectors can be invaluable to early stage companies. Additionally, we suggest the presence of strong business and financial advisors on the Advisory Board to provide a “sounding board” to the founding entrepreneur(s) on corporate decisions. The use of an Advisory Board without true corporate governance responsibilities, avoids the liability issues of board service, eliminates the need for directors insurance, and avoids this expense in early launch stages. Once outside fund raising begins in earnest, it is time to think about the need for a formal board of directors who can provide responsible corporate governance and oversight. Often the investors may have something to say about the nature and composition of this Board. At this time we always suggest that responsible management and governance dictates appropriate insurance coverage including General Liability, and Officers and Directors Liability coverage and well as a thorough review of the businesses insurance requirements. We have several very sound business insurance brokers who can assist in such a review, as I am sure you do as well.
We are strong believers in sound risk management as a responsible component of all business ventures at every stage of their launch and development. We often find this the assessment of risks and the development of risk management and mitigation strategies is a missing component of many business plans. Those of us who assist with capital raises understand and adhere to the practice of full and formal disclosure of such risks and risk management strategies as a required component of all capital raises. I am sure you follow this practice as well.
We strongly encourage all entrepreneurs to retain a competent and experienced team of advisors when contemplating and executing a capital raise, even if it is only a “friends and family” or founders raise. Often we see opportunities where early raises have been done without such a professional advisory team and found the company now fatally flawed in some manner resulting in great difficulty in accomplishing a later needed raise.
We also highly recommend your Blog as a great source of advice and information to entrepreneurs. If others reading this discussion have not visited the Blog we strongly suggest they visit and review its words of wisdom regularly.
Bruce Carpenter
Principal, Harbour Bridge Ventures
http://www.HBVinc.com
Bruce, Thanks for the comment – very well done. Even early-stage companies can benefit from having a majority of outside directors and a separation of the CEO and Chairman roles. One of the limitations is the ability of the company to adequately insure the directors against risks. I certainly have that issue when I am invited to serve on boards of these companies. How do you advise companies to deal with this issue? It does involve channeling scarce resources to essentially overhead categories. Dr. Smith
HBVinc.comHBVinc.comHBVinc.com
Bruce Carpenter wrote:
Dr. Smith:
In our experience with many early and growth stage companies the combining of these two roles is frequently problematic. We frequently counsel our clients that better corporate governance and often a stronger overall team and improved performance demands the separation of these roles. A certain natural but professional and well-advised tension between the Board and executive management often engenders more examination, review, analysis, and questioning of corporate strategy and tactics. The proper role of a Board is to represent the shareholders interests (over management’s) and provide proper oversight. Often combining the roles of CEO and Chairman can result in the Board becoming little more than a social club that “rubber stamps” management decisions and actions rather than exercising a proper oversight and questioning role.
Bruce Carpenter
Principal, Harbour Bridge Ventures
http://www.HBVinc.com
dr-smith.infodr-smith.infodr-smith.info
Sylvester, Thanks for a great comment. Your trilogy – accountability, transparency and effectiveness – is at the core of an effectively operating board. I have written an article on the evolution of boards – http://www.dr-smith.info/board-of-directors-cultural-evolution/ – I would be very interested in your thoughts about it. Dr. Smith
Sylvester DiDiego wrote:
Dear Dr. Smith
I agree with your analysis and the need (per your article) to split the roles of Chairman of the Board and CEO.
When I was involved with monitoring/managing a porfolio of 500 global companies we confronted this problem in certain JVs. Whenever a CEO was also the Chairman of the Board then inevitably, and more often immediately, accountabilty, transparency and effectiveness suffered greatly. This was in the early 1990s when new attention (as now) was directed toward governance models and best practices. But this is still true today.
Moreover the selection of other board members can not be at the discretion or heavy handed influence of the CEO/Chairman of the Board as this is the tactic of power concentration that enables the defacto dictator to make business decisions that are not in the best interests of shareholders nor of other stakeholders.
Today whenever I am assisting emerging and growth companies on corporate management and governance I recommend to carefully consider each of the unique roles of both the managmeent and of the governance structures. Be sure to clarify and articulate in writing the decision making authorities with clear responsibilities. limits and metrics for each role. Be sure to fit the role with the person’s capabilites. If for some reason there is a need to put mutlipe roles on one person (even on a temporary basis), then be sure to know which ‘hat’ the person is wearing on each major deliberation and decision. Be sure to recuse a person from topics with conflict of interests. And of course, memorialize your governance framework well in the Shareholders and Operating Agreements with prepared by reputable attorneys and carefully checked from a business standpoint by your key management and board members.
And document, decisions of the Board clearly. Be sure to include sufficient details of decisions with rationale and have votes as appropriate. Some boards have cursory minutes to limit legal liabilities but at the expense of good history necessary from a corporate, management and accountability standpoint.
So to your main point – definitely keep the roles of CEO and Chairman of the Board separate as one of the most important aspects of great corporate governance.
Best,
Sylvester Di Diego
George, Thanks for a very useful comment. I suspect that the initiative should be in the hands of the shareholders – forcing the installation of an effective and pro-active Chairman. In situations where the CEO takes the lead, the Chairman’s role is almost always reduced and sometimes eliminated. Dr. Smith
George Chiarucci wrote:
In my view combining the CEO/Chairman’s role has an inherent bias towards abuse of power and dysfunctional governance. Too many times these roles are combined because there isn’t a clear understanding of the roles and responsibilities of management (i.e. the CEO) and the board. A good CEO recognizes the value of engaged and supportive board and a good board recognizes that its role is not to manage the company but support management through oversight and insight. Combining these roles is usually a way to limit the board’s oversight powers on management. Healthy tension built on mutual respect leads to healthy discussion and optimal decision making. As Lord Acton said ”Power tends to corrupt; absolute power corrupts absolutely.”
David Camilleri wrote:
I am sorry I did not read the article yet but from my experience we have had both successes and failures in this. So…just jotted down a couple of notes (obviously the arguyment is very wide and many valid albeit potentially divergent opinions and experiences will exist)
One critical factor was the innate capabilities of the appointed person. Great vision and leadership will be critical as the helm would be entrusted firmly in his/her hands.
Another is knowing clearly why you want to merge the two roles. We have successfully deployed this strategy as a temporary measure… merging the functions at moments when the organisation will be going through major transformations (merger, complete restructuring in organisation design etc) or when a new organisatiojn is beign set up. frequently, at these moments we need one vision, one leader, one reference point, and minimal ‘conflict’ such as to achieve the focussed, concerted and concentrated effort that is required for success. This will then give way to the ‘normal’ sitation where the two roles are separated once the main thrust of the change process has been implemented (the appointed CEO would have been part and an owner of the lead team so as to ensure continuity and that staff would already identify with th CEO-designate as an authority in the organisation).
In deploying this strategy however, one has to be very careful and cautious of the risks (future power struggles at Board level; lack of authoirty gioven to deisgnate-CEO etc). Timing of the transition (separation of roles is also of essence) is also critical – too early and the change process risks failure. Too late and the CEO would not be recognised by staff as their leader.
As I said, these are a couple of points. There are obviously many more and one needs to assess the realities of their own organisation to establish if the merging of the roles (temporarily or permanently) is of benefit or else represents more of a risk.
Tracy E. L. Poured wrote:
Keeping the roles separate works best.
Regardless of dismissive snorts, hearing the thundering hooves of the white knight’s steed cresting the ridge in supposed triumph, and the (also) romantic insinuation of particularism ‘our situation is SO different than any organization ever before’ … adults see through the poppycock and do what’s appropriate for all involved parties.
Julie, Thanks for the comment. I think that the reason that shareholders tolerate the combination of the roles is that they are disconnected from its implications. The real change came when sitting directors were found guilty of abrogating their fiduciary responsibilities to shareholders. Some of them faced stiff fines while others went to jail. Regulation and prosecution are the two weapons that will shut down the practice. Both are critical to good governance. Dr. Smith
Julie Garland McLellan wrote:
This is a really good paper. I have always held that the two roles are different and require different people with different skills and a different focus on the enterprise.
I totally agree with everything Dr Smith says here (except perhaps that bit where the non-executive directors are likened to chickens; no-one has ever called me chicken before!).
The burning question is ‘why do shareholders tolerate this blatent usurpation of the powers of their primary defender?’
Cheers
Julie
Jim Ferris wrote:
Dr. Smith,
I have been enjoying your articles and have been passing them on the fellow board members. I agree with your cautionary words regarding board failures and the need, now more than ever, for functioning boards with a healthy checks and balance system.
As a director of a new bank, emerging into the bright light of a new, and daunting dawn for the banking industry; I find that me and my fellow directors are sobered by our responsibilities. We have a lot to learn.
Jim Ferris
dr-smith.infodr-smith.infodr-smith.info
Don, Thanks for the comment and for adding to the discussion. I think that it is productive to look at any board in terms of its evolution. I wrote an article focused on the stages – Board of Directors: Cultural Evolution. http://www.dr-smith.info/board-of-directors-cultural-evolution/ You may find that interesting. I would value your comments on it. Dr. Smith
Don McNamara CMC wrote:
Earl; after attending [member also] of the Orange County [CA] Forum for Corporate Directors, it is clear there is no right or wrong answer. I let my MBA students in on a closely held to the vest secret: that everyone reports to a higher authority. The CEO to the board, the board to the shareholders and the shareholders to their investment strategy. {;o)
Net: governance at any level requires a set of ethical [and moral] responsibilities, where too often, the moral compass is headed TRUE SOUTH. We can thank the likes of movies like WALL STREET for the decay in American value systems where ‘greed is good’. Or as rhetorically I ask my son who is in the securities industry, ‘how much is enough?’
Putting the fox in charge of the chicken coop is only good for the fox – not for the farmer, not for the people who depend on a steady supply of eggs and chickens and certainly not for the chickens.
That said, and personally agreed upon, what about the situation where the board through total incompetence, malfeasance and short-sightedness lets the enterprise wither away until there is little recourse but to sell what assets are still left or liquidate in some form to recoup some of the investment capital?
My contention is that every situation is different and the board had better be sharp enough to do what they are missioned to do. I.E. Concentrate on: strategy, succession planning and risk management and then hold their report-the CEO with feet to the fire.
Oscar, Thanks for the comment – very helpful. My experience is that turnover of CEOs is much higher than Chairmen if the board is doing its job. The combination of enforced performance metrics and succession planning should properly make that so. I also agree that what you call ‘unreasonable’ consequences come more often in situations where the board and Chairman is not functioning – or do not exist as a separate entity. The lack of well defined boundaries is one of the biggest risks when the roles are combined. Dr. Smith
Oscar Cuzzani wrote:
In my previous company, the CEO and the Chairman were 2 individuals. We changed the CEO 3 times. There were few problems and all solved well for shareholders. But at one point the Chairman and last CEO became friends with “unreasonable” consequences. Both left the company…
I fully agree with you. They should be separate and roles and responsibilities well defined. I’ve found most personal problems in a company arise from two things: lack of well defined boundaries and poor communication.
Oscar