When an activist shareholder attempts to oust an incumbent CEO of a company, the contest is sometimes depicted as an attack on the company. But the CEO is not the company; he or she is merely a hired hand. Even when a CEO is, as is so often the case in the US, the head of the board (even if he or she is a shareholder), it is inappropriate to identify him or her as “the company” from the perspective of the CEO position. It is very important to keep this clear.
The instinct to identify a company with its CEO is rooted in the deep historical tradition to equate individual leadership with strong elements of sovereignty, or ownership. The practical expression of this instinct in a world where such leaders possess, in the law, nothing remotely resembling such degrees of rights arising from sovereignty or ownership, is at the bottom of much of the distress business has suffered in recent decades in the US and around the world (and is still experiencing).
When an activist shareholder, then, attempts to gain control of a board, even if his or her complaint and spur to action is the performance of the current CEO, we should be careful to identify the struggle as one among owners to shape the strategic identity of the company. Shareholders may debate with each other over which major grouping of them will have what percentage of representation on the board. This may involve a direct majority, a veto-wielding minority, or a plurality powerful enough to drive a coalition – but it must take the form of an internal debate among owners about issues central to the direction of their – not the CEO’s – company.
The rest of us should accustom ourselves to viewing the company as belonging to the board, and holding it – not the CEO – responsible for the company’s performance. And, we should object when this distinction is missed by participants or observers.
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[...] I have argued that boards are the true repository of owner-level authority and responsibility for modern corporations. If that is so, how are they to be held responsible? Are CEOs and senior management to be left off the hook for corporate misdeeds? If a corporation headed by an unduly powerful CEO (double-hatted as board chair) has been found guilty of a criminal act, is the CEO responsible, or do directors who have failed to discharge their duties with adequate care and energy share the blame? On the other hand, if a board is composed entirely of independent directors who closely and clearly control the behavior of management, who is to blame for possible criminal behavior of the corporation? Indeed, as I asked in previous post, who is the corporation? [...]
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