This year is shaping up to be a pointer to not only the direction the corporate governance debate takes, but the venue in which it is held. Thankfully, that direction seems to be toward more responsible assessments of the issues rather than denial of their existence, and that venue seems to be in the boardroom rather than in the bureaucracy. Let’s take a brief look at this.
Globalization. The presumption that problems with broken boards and corrupt chiefs are peculiar to the United States leads to the danger that the source of those problems will be misattributed - to American culture, for example, rather than to ill-conceived and managed corporate governance systems. But the truth is the difficulties afflict companies around the globe. See here for a WSJ piece on the latest high-profile outbreak of corporate scandals; this time in Germany.
Living large. One of the most volatile issues in this general area revolves around the complex issue of CEO and senior executive compensation. In my view, this, rather than being a problem in and of itself, is a symptom of a deeper problem - but it is highly visible, emotionally charged, and so will continue to attract attention in its own right. There is thus the danger that measures designed to address it will be abandoned once they succeed in deflecting attention.
But there is also the very real possibility that they will lead to more fundamental advances in the practice of corporate governance. Please see this item from Portfolio.com discussing how one company’s board is taking the initiative to trim some of the more egregiously excessive items on its executive compensation program. Next, view Joan Lublin’s current WSJ column about an American company’s experiment with “say on pay” - a procedure whereby shareholders are asked to offer a non-binding opinion on compensation programs offered to executives, more common overseas and still widely resisted in the United States.
Director demography. Discussions of director qualifications and performance are riddled with misplaced assumptions. Most, for example, take the perspective that dysfunctional boards are an inconvenience to the CEO which are in his or her interest to repair. This approach, actually, is a reflection of the problem itself. For a welcome relief from it, please see this entertaining and enlightening Business Week essay by Beverly Behan about how boards themselves can deal with problem directors.
One of the greatest examples of how opportunity can be found in challenge resides in the issue of women in the workplace. This is particularly important for managers. And it appears that it will be difficult to address properly, much less resolve, until we see more women sitting on boards of directors. The catch-22 offered here is that directors require the sort of experience that the career paths followed by women at work tend to deny them. But this, as so many issues in this vital topic, turns out not to be true. Please see an excellent article about this at Management-Issues.
So this year indeed does appear to be one that will see a wide range of initiatives, studies, and commentary probing around this issue, attempting to locate its range and influence, identify its character and dimensions, and determine the proper bases for appreciating and managing it. This is a good development, and one we hope you will join us in following.
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Today’s tips: Speaking of peculiarities about pay, we spend a lot of time bemoaning the irony of a society that offers extraordinarily high pay to entertainers performing essentially frivolous services, and relatively low pay to teachers providing obviously vital ones. Please see this NYT article about a new charter school opening next year in New York that plans to pay its teachers $125,000 a year plus bonuses.
A post in an interesting new blog, Escape from Excellence, by Bill Wilkie caught my attention with this insightful assertion: “Skills enable action, they don’t take action, and they sure don’t make choices or create possibilities.” Please stop over to see why a recent Harvard Business Review article provoked this observation.
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2 Comments
Great post, Jim, covering a lot of ground.
I’m a bit of a cynic, so my view of the CEO compensation issue is that the underlying issue will be buried under political posturing. It’s an election year and the US Congress is calling CEOs to explain/justify compensation. I don’t think much good can come of this. The core issue that compensation is often uncoupled from actual performance won’t get the attention it deserves.
Hello Wally,
I have always been a cynic here, also, but am perhaps moving into ambivalence about which way this might go. The matter of the CEOs you refer to testifying before Congress is the classic populist whitewash, and certainly an indicator of the non-serious side of this, a side that will definitely wane when the politicians conclude there is no more mileage in it. The testifying and self-justifying CEOs you refer to, as I’m sure you know, include those who have received fantastic bonuses while heading companies suffering staggering losses in the current credit scandals. Amazing stuff.
But the combined influence of everything in this broad area - from general corporate governance issues to high-vis scandals and outrageous compensation arrangements - may be prompting a sea-change in how boards and directors see themselves and their role in the corporate structure. The “say for pay” initiative in the States is a big step for an American company - especially, perhaps, in that industry. Trimming executive benefits from club-memberships to car washes may, on the other hand, seem trivial and may in fact be mere window dressing with tiny parts of still-bloated pay packages - a kind of sleight-of-hand - in order to distract attention from the real goings-on until the whole matter dies down. Or, it might not, if viewed in the wider context of the scrutiny that boards are under these days.
So, I understand and share your skepticism. I just hope we’re both - at least eventually! - wrong.
Thanks, as always, for your visit, your kind comments, and your thought-provoking observations.
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