Managing Leadership^®

Over the past couple of months several issues regarding corporate governance have been highlighted in the press, pondering a miserable year in this area, one which bodes poorly for the future. We will review just a few of them:

• Executive pay. This has received a great deal of attention, largely due to the options back-dating scandal, but that is hardly all of the problem here. Pressure is increasing for mandated disclosure about all aspects of senior executive pay packages. Boards are responding to much of this by becoming more assertive in hiring, supervising, and even firing their CEOs, but even that can be surprisingly problematic, given the nature of the severance packages often incorporated into their contracts. These were originally organized to help lessen the resistance by senior managers to the sale of a company, even where it was clearly in the best interests of the company and its shareholders, when the sale might cost the managers their jobs. Now, they are a standard part of a contract independent of such events, and that can make firing such a CEO a financial event of considerable consequence to the financial health, and even viability, of a firm. This can make the prospect of firing a CEO a peculiarly daunting action for a board to take. Indeed, it can even be difficult to recover pay from CEOs awarded for achieving certain accomplishments, such as a merger, that later fail completion or unravel. So much for aligning the interests of management and owners.
• Boards. Disappointingly, less serious attention has been paid to this topic, although that situation is slowly improving. As mentioned in yesterday’s post, there is a lively – and quite important – debate underway regarding the nature and expression of shareholder rights. But with activist shareholders in mind, we see that it is not just CEOs and other senior managers who are under siege – it is directors as well. Many require legal representation, not to mention liability insurance and extraordinarily legalistic exclusions and provisions in their own contracts. Much of this potential legal liability results, ironically, from directors’ alleged failure to adequately consider the legal aspects of their decisions regarding their firms, and their underuse of corporate legal staff in assessing these. And this isn’t a phenomenon restricted to the famously litigous US – European boards, as well, are at risk in this regard. Legal liability issues are also exerting an uneven influence on the number of different boards that individual directors serve on. If a director tries to focus his or her attention on only one board, are there legitimate concerns about experience, skills, and contacts that the director is failing to generate and bring to bear to the benefit of the company? If he or she serves on several boards, developing these assets, are there then legitimate concerns about farming directorships for financial gain and influence, diluting focus, and spreading personal attention so thin that looming crises are missed or inadequately addressed?
• Hope springs eternal. Discussions continue to explore the curious subject of core corporate values (whatever those are, according to whoever determines them (owners, directors, managers, “stakeholders”)). And we continue, as well, to view CEOs as being the very personifications of the corporations they lead. We then, all of us at every level of every enterprise, quite simply bet on them as if we were at an off-track-betting site, picking the horses for the next race.

But then maybe we shouldn’t be so hard on ourselves for our relentless – sometimes seemingly in the face of the facts – optimism. After all, we haven’t done so badly for ourselves, our firms, our respective societies, even for the world. As we continue to explore the issues of management, corporate governance, and capitalism itself in the coming year, perhaps we should indeed be confident in our hopes as we learn to place our bets not on our putative “leaders” – but, increasingly, on ourselves.

Here’s to a happy, prosperous, and rewarding new year for all of you. I look forward to seeing you when it begins in earnest, on Tuesday.

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