Managing Leadership^®

I have argued, both in this forum and in Managing Leadership, that the traditional model of individual leadership is inappropriate for modern life and modern organizations. Moreover, I have suggested that we need to open a new debate on the subject of leadership in organizations: what it really is and how to make the best use of it.

In supporting the need for that, I have also attempted to highlight some of the difficulties that the traditional approach to the topic has caused. Many of these involve misguided apprehensions of one’s role, others arise from incompetence, and still others, unfortunately, from what is alleged (and, in many cases, established as fact in American courts of law) to be outright criminal activity. Indeed, much of what is purported to be corporate malfeasance at one level or another is being sorted out in criminal or civil courts. Let’s take a moment to look at the topic, then, from that perspective.

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 a previous post, who is the corporation?

This topic is developing into a fairly controversial one as government agencies begin to come under criticism for what is often perceived as overly aggressive prosecution of corporations, combined with overbearing and broad interpretations of the law which are used, it is alleged, to intimidate and coerce cooperation from targets of their attention. The questions revolve around ownership and responsibility. In the US corporate model, shareholders are shielded from responsibility.

Yet, when corporations are found guilty of criminal (or civil) wrongdoing, they are fined (they can’t be imprisoned, after all); that is to say, the shareholder is punished (fines directly and negatively affect the bottom line), even though not responsible for the misdeed and unable to directly influence its commission or repetition.

So, how should this be addressed? Should directors be subject, personally, to fines and even imprisonment? Should managers? Should, really, shareholders be spared the negative consequences on their investment of fines because they technically are legally shielded from responsibility, even though they may have benefited financially if the corporation had gotten away with the misdeed?

It would seem that the reordering of corporate power structures and governance is opening up an interesting, and potentially very enlightening, debate over not only where the buck stops, but even what it is. A complex topic for the lawyers; but all of us had best keep a close eye on its course. Begin with this brief article by a teacher of business law and ethics at Georgetown University, published recently in the Wall Street Journal.

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