Managing Leadership^®

Drawing from detailed knowledge and vast experience with boards in Europe, the US, and Japan, Peter Drucker was able to discern the practical import of the legal features that distinguished them, together with the one great fact that he believed was shared by them all: “They do not function.” (emphasis his)

One sure sign of this, he noted, is that they are always the last group to hear of trouble which is about to bring the world crashing down around their firms. Sound familiar?

There’s more. Leading to this state of affairs are many things that we (or, at least some) recognize as part of the problem, today. First is the issue of CEOs serving on each others’ boards. Next is the insidious presence of inside, or “executive,” directors. There is additionally the question of assigning to the board representatives of other companies that do business with the firm, which can certainly act to compromise their independence. Drucker also found a tendency for people to collect directorships like accessories, or tokens of their stardom; one director he knew served on over 100 boards.

But the most - and most intractable - barrier to effective boards, Drucker saw, is that top management doesn’t want them. And, in an age of widespread public, and essentially anonymous, ownership of companies, management easily finds ways, some noted above, to basically make their boards “disappear” as effective controls on management.

But without effective boards, there cannot really be effective management. Obviously, business scandals and disasters have continued unabated (to say the very least) since Drucker wrote on this subject, but his thinking remains as germane now as it was then. A major concern currently fretted over by the corporate governance community is reflected in this observation:

The decline of the traditional board has left a vacuum. It will not remain unfilled.”

Drucker saw that if boards were ineffective checks on runaway top management, others would cue up to attempt to establish control and to mitigate the consequences in society of any collateral damage from these business crashes and indiscretions. Much of the news this past year has reflected this fact, from potential for additional legislation on corporate behavior and executive pay to shareholder activism by everyone from disaffected investors to supporters of various social and environmental causes.

There is no use in whining about this, or shouting into the wind that nothing, really, is wrong. If we don’t fill this vacuum responsibly ourselves, it will be occupied by others with their own agendas. As is only to be expected, Drucker had some pertinent ideas in this area, both about the purposes of a board and about who ought to serve on one.

Briefly, he believed that boards need to serve two roles: 1) the “executive” function of a robustly independent oversight and review of top management, and 2) a “public and community relations organ” a major purpose of which is to give the company (and top management) access to its “publics” and “constituencies.” He believed that this role was so important that the executive function could be performed by a committee of a larger board, the principle purpose of which was to be the organ of information exchange and community relations between top management and the outside world in which the company operated.

As for directors, he argued that they should be people of proven competence who, most importantly, are able to devote professional attention to the job (and who thus should serve on no more than 4 or 5 boards), and who are independent in all ways of top management. He even argued for the creation of a body of “professional directors.”

There are many aspects of this subject which will receive their due attention in the future. For now, we will turn to a brief review of the source of many of Drucker’s ideas on management that we have covered in the past two weeks. Stop by tomorrow for that.

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Please be sure see all the posts in this series!

1. Marketing Management
2. Defining Management
3. Understanding what we do
4. Understanding who we are
5. Faith or deeds?
6. Doing “certain - and fairly simple - things”
7. The fundamental requirements
8. The basic resource of the business enterprise
9. Making tasks meaningful
10. Making it matter
11. Setting the rules
12. Book Review: Management: Tasks, Responsibilities, Practices

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