In his bi-weekly column in the Wall Street Journal, today, Alan Murray discusses a subject that has also been the topic of the last several posts right here. He provides an excellent summary of the issues to bear in mind when considering how closely to rein in CEOs. He argues that we are entering an era of the “short-leashed” CEO, closely monitored by increasingly independent boards, and suggests that we have yet to see how effective a response this will be to the troubles caused by overly “long-leashed” CEOs.
Indeed, the question is, how do we get it just right. How do we determine that we have the right degree of control over the CEO, and that neither the CEO nor the board are running away with themselves? Is it a fixed set of procedures circumscribing the activities of both, or a carefully developed and cultivated relationship between the two?
I would argue that it is the latter, built on a flexible version of the former. The fundamental principle should be the primacy of the shareholders, expressed effectively through the board – its effectiveness arising not just from its power, but also from its composition. From this foundation, the relationship between the board and its hired management should be built on the sound construction and flexible application of a set of principles, similar to those discussed in a previous post, driven by board deliberation, although these decisions can and should be informed by a wide range of sources, including management.