Managing Leadership^®

Even among champions of the current system of management-dominated boards, there is recognition that some changes need to be made. One assumption being examined recently is the idea that boards should be composed pretty much solely of CEOs (with a sprinkling of academics, consultants, and retired government and military officials to add panache and some lobbying pull).

Indeed, many observers of the subject - even those seeking ways to address concerns about poor corporate governance - seem hardly able to conceive of any other measure of qualification than being a CEO. Those who do venture to recommend non-CEO executives as directors, seem to do so tentatively, prefacing the notion with waves of justification, in order to dampen the expected reaction of incredulity. (We’re talking about outside directors, by the way; it is well known that CEOs like to put as many of their fellow senior executives on their own board as they can get away with.)

It is happening, though. In some cases it is because of growing pressure on CEOs to pay proper attention to the directorship duties they do take on. This may limit the number of boards they join to just one other than their own - sometimes none (please see Nick McCormick’s comment to yesterday’s post for some insight as to why this pressure is mounting). Demand to fill seats remains, though, so boards are beginning to accept non-CEO directors in greater numbers. Many jump at the chance to serve, believing that it provides great experience and contacts for a later move to the top spot.

And yet, the degree of independence and influence a junior executive will play in a board dominated by CEOs may prove to be somewhat less than that demanded by many who want to see corporate governance improve markedly. Moreover, it does nothing to address the basic problem of managerial dominance of the boardroom.

Please note, by the way, that I’m certainly not saying that there is anything inherently wrong with managers. But there is with the idea of managers being their own boss, and with all of us pretending that they can infer and represent owner interests, particularly when these may, as they often do, fail to coincide with their own.

So, boards dominated by managers, as they are under current and most proposed arrangements, will still suffer from two handicaps: 1) an unspoken atmosphere of mutually-aggrandizing non-interference in the business and initiatives of the directed company’s CEO, and 2) whether or not that situation obtains, an inevitable dominance of management thinking in boards that require ownership thinking.

What to do about that?

As it happens, Peter Drucker offered a proposal over thirty years ago in his book, Management: Tasks, Responsibilities, Practices: a “professional director.” He believed that being a director should be a full-time profession and that those who practice it should be entirely independent of management.

In some countries a similar practice is seen in the legal field. At a point in one’s education, or early in one’s career, a person will opt to be either an attorney or a judge. The educational and career paths then veer away from one another, and each specializes in its own approach to the same issues. They do so in an individually independent way that is nevertheless systemically collaborative.

Some actually see that in the future of corporate governance as well. It is a very promising development, I think. It promises to provide an independent and professional source of both determining ownership intent and interest (within the communicative constraints imposed by the corporate veil), and, on the basis of that determination, of developing and supervising the implementation of corporate strategy.

This will help to resolve much of the conflict of interest that lies behind a lot of today’s corporate governance difficulties. It will also relieve managers of much of the schizophrenic pressure they are under - indeed, which they unthinkingly deem as essential for them to take on - in the current system, allowing the strategic role of the senior executive to finally be properly appreciated and executed.

There are a lot of questions to be answered, of course: How will professional directors be trained, appointed, compensated? How will their performance of their duties be overseen and evaluated?

But these are exciting and promising questions, and I think we should get started addressing them. How about you?

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

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Today’s tips: Speaking of paying directors, many of them aren’t doing so badly under the current system. Please stop over to see Leon Gettler’s piece on this topic at Sox First; Leon’s article is an eye-opener, and the site is an excellent resource for those of you interested in the topic of corporate governance.

And speaking of Peter Drucker and corporate governance, please also see this feature article, published in Directorship Magazine, by Elizabeth Haas Edersheim, author of the remarkable book The Definitive Drucker. I was able to become aware of both her feature and the other item referred to in the main post due to her sending me the magazine as a result of her reading of a previous piece on corporate governance on this site. I must disclose that, for the same reason, she also was kind enough to send me a copy of her book, which I will be reviewing here soon (having employed Cam Beck’s, of ChaosScenario, excellent policy in this regard).

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