Managing Leadership^®

Boards are the standard device for providing strategic direction and oversight to a corporation, particularly in predominantly capitalist economies. In Europe, bicameral boards, in which one body composed of executive directors is subordinate to another of non-executives (which in some countries, may include employees), are often found. But generally, and especially in North America, a unicameral board is the norm.

In both cases, the board is composed of executive and non-executive directors, sometimes referred to as inside and outside directors. The latter terms are more appropriate, because even “non-executive” directors are almost always senior executive-level managers of some other company. As noted, in some countries employees serve as non-executive directors, but this is typically mandated by law or labor agreement. More broadly, many academics, consultants, and even former government and military officials take some outside director spots.

It nevertheless remains an inescapable reality that most directors, in North America and elsewhere, in unicameral or bicameral boards, are senior managers. In the US, there often are fewer executives proportionately, but the CEO also typically serves as chair of the board, more than compensating for the insider deficit. Elsewhere, there tend to be more of a company’s executives on its own board.

The problems created by this situation are not difficult to imagine. So, some argue that it is necessary to have “independent” directors on the board. This term is sometimes mistakenly equated with “outside” or “non-executive” (including by professionals, even intentionally) but it actually refers to directors who have no potential for conflict of interest with the directed company. Generally, this means that the director is not and has not recently been an employee of the company, nor is the director the manager of an organization that does business with or benefits from the activities of the company.

But back away a degree or two and what do you find? All of these executives are carefully comparing notes and backgrounds, and then picking which director seat to plop themselves into - inside, outside, independent. The truth about what is really going on behind those closed boardroom doors is that they are really just divvying themselves up to perform reliably and predictably in prescribed roles for each other’s benefit on each other’s boards.

There is little value in the corporate governance-related fictions of these various types of directors when they accommodate each other this way. They cannot really provide meaningful oversight. It is extraordinarily difficult for them to overcome the burdensome weight of expectations and their perspective-constraining intertwined relationships to perform to the level of fiduciary duty the position requires. At whatever degree of removal, they are still looking after their own interests - those of corporate management - not those of owners or, certainly, “stakeholders.”

But, it will be argued, the present emphasis on this issue is generating fundamental shifts in the composition and design of boards and the backgrounds of their directors. We will look at that claim tomorrow, and hope you will join in!

—

This post is a part of a series. You can learn about and link to the other articles here: Directors and managers

—

Today’s tip: Wally Bock, at Three Star Leadership, recently provided some commentary on this week’s Carol Hymnowitz WSJ “In the Lead” column. Hymnowitz has a knack for identifying and combining salient issues, and finding insightful ways to present them. Reading this week’s item, about the irony of layoffs and talent shortages, is certainly recommended - but to gain the greatest understanding of what is really at stake, and what is really going on, please read Wally’s post first.

—

If you have enjoyed this post, please do join us by using the subscription links just below or at the top right of this page. And thanks - we look forward to your being aboard!

Similar Posts:

• Knocking heads: Boards and Management
• Barbarians at the gate
• What are you going to the board meeting as?
• Director or manager: a fine line?
• Practicing Management: Setting the rules

Technorati Tags: strategic, direction, oversight, corporation, capitalist, Europe, bicameral, board, executive, director, non-executive, employee, North America, unicameral, inside, outside, senior executive, manager, company, academic, consultant, government, military, official, senior manager, US, CEO, independent, professional, conflict of interest, business, boardroom, corporate, governance, Wally Bock, Carol Hymnowitz, WSJ, In the Lead, talent