One thing that’s been obvious at least since Enron is that our model of corporate governance is broken. In particular, non-execs have not been discharging their responsibilities. In the case of RBS, for example, it’s abundantly clear that the Board members were terrorised by ‘their’ CEO, now Britain’s most famous pensioner, Fred Goodwin. Mark Anderson’s written a very good ‘open letter’ on this subject in which he puts forward some useful ideas about how corporate governance could be rebooted.
We can blame the regulators who really came from industry, we can blame the bankers and CEOs and their lobbyists, we can blame the politicians who pretended that no regulation was good regulation, we can blame co-presidents George Bush and Dick Cheney. But, with the exception of the last two, there is another layer of governance that should take most, if not all, of the responsibility: the board of directors.
Too much is made of the symptoms of bad management, and much too little is made of those really responsible for the quality of this management.
At different times, I’ve written open letters to specific boards, but today I wanted to write an open letter to all boards. If you are a corporate board member, please read this carefully; I’m betting that, after reading it, you’ll agree: you were probably not doing your job.
Let me start by breaking the neck of the good-old-boy scheme: most board members are friends (or even relatives) of the CEO, or work for him or her. Those who are not – even the most independent “outside” directors – tend to be selected on a rank of the CEO’s ability to direct, manipulate, or intimidate them; OR because they are guaranteed not to look too closely at the company.
This formation step is the first place where things go wrong.
A good board of directors should number 9 to 11, and have the following composition:
The Chairman, often the past CEO, and certainly NOT the current CEO.
The CFO. This will surprise most readers.
At least half the directors should be “outside” directors.
There may be a rotating spot for one or more employees (the German model).
The General Counsel.
The CTO or CIO should also be considered, since most strategic decisions involve technology inputs that others may miss entirely.
Outside directors should be just that; not just golf cronies or the targets of interlocking board favors. Rather, they should bring strengths from areas of current or planned company operations.