Director or manager: a fine line?

In his most recent WSJ column, Alan Murray takes a look at what lessons there may be behind the fact that HP has had to remove a female CEO and a female Chair within the past two years. Providing a concise review of the issues leading up to the dismissal of both of these women, he concludes that the issue isn’t one about gender discrimination, but about individual shortcomings related to executive character; I encourage to you to read the column to see just what he means by this.

What I want to mention here is related to an interesting observation made by Ms. Dunn in a conversation with Mr. Murray. He asked her why she resisted, during her testimony before Congress, taking responsibility for the scandal. This is how he recounts her reply:

When I asked her why she refuses to accept any responsibility, she said taking the blame would have been “bad governance.” As a nonexecutive chairman, “I’m not responsible for management,” she said. “It’s a matter of oversight versus execution… If directors think they have to do the role of management, every director of a public company is going to resign tomorrow.”

Much of what Ms. Dunn has said on the topic of corporate governance is, on the face of it, commendable. Her concern about the issue, and her evident resolve to instill high standards of practice in the face of stubborn resistance and incomprehension, engender admiration.

But something seems to be missing, and perhaps a key to what it is can be found here. The issue she addresses is key, but does she take the right approach to it? Let’s take a brief look.

Ms. Dunn has said that she ordered the investigation into leaks of board discussions, but isn’t responsible for the specific conduct of that investigation. As she says in the quotation above, she, as a director, is not responsible for execution. She rightly points out that directors cannot be expected to both set policy and to manage their organizations. However, a concern arises inÂ the distinction she seems to be drawing between “oversight” and “execution.”

Supervision is not execution. It is an integral part of the director’s role. You don’t just issue directives from on high, and then wait passively and disinterestedly for them to be executed. Similarly, accepting uncritically every report you receive doesn’t constitute supervision. There is plenty of evidence that some of the feedback received by the HP board about the leak investigation suggested results that begged for further directorial supervision.

Moreover, claiming after the fact that you were misled, or even lied to, does not absolve you of responsibility for an activity that you have initiated. You are responsible for not just the outcome, but the execution, of any order you issue - even if you are not an executive, but a director. And, if you entrust the execution of an initiative to any particular group of people, you are responsible for that decision, as well; you have not transferred responsibility to them.

There is no governance issue here, no question of the proper division of duties between director and manager. Fiduciary responsibility rests ultimately with directors, and this will often require them to engage in robust supervision. If, faced with this view of their duties, directors of public companies would resign tomorrow, then it’s just as well. Let them go, and let experienced grown-ups ready to shoulder top-level responsibility take their place.