Friday, May 04, 2007

Have Boards of Directors Really Changed?

In the April 2007 issue of the Academy of Management Journal, Jim Westphal and Ithai Stern published a thought-provoking study of the labor market for directors of U.S. corporations. They found that directors are more likely to be appointed to other boards if they provide advice to the CEO frequently. That is the good news. The bad news is that directors are more likely to gain new appointments to other boards if they engage in a low level of monitoring and control activity with regard to strategic decision-making by the CEO and his/her management team. After the corporate scandals of Enron, Worldcom, and others, we saw the implementation of many corporate governance reforms intended to strengthen the monitoring and control activities of boards of directors. Yet, Westphal and Stern discovered that their findings hold even in the post-Enron era. The bad news does not end there. The scholars also find that women and minorities "are punished more for engaging in monitoring and control behavior." Those findings also hold in the post-Enron era. What do I conclude from this finding? We have focused far too much effort on structural reforms at the board level, rather than focusing on board process. Board chairmen and lead directors need to develop processes that stimulate open dialogue and induce constructive debate in the boardroom. We cannot simply expect a vigorous exchange of views because we have appointed a certain percentage of outside directors. Pressures for conformity will arise, even among a highly capable group of directors who are properly nominated and selected.

2 comments:

Les said...

Here's my 2 cents, old professor @ HBS!

ATTITUDE REFLECTS LEADERSHIP. I am a Sales Client Rep at IBM, and once every qtr I gather with my brand reps who support me (hardware, software, and services). We have informal dialogue on what accounts they are having trouble breaking into, and we also talk about how I as a client rep can do a better job getting them into accounts and maintaining relationships there. Even though I have positional power in terms of account ownership, I let them know that it is open season regarding comments/concerns they have at these accounts. I let them argue with me and others freely.

On the board level, Mike, I think you MUST have a Chairwoman/man who sets the tone of 'dissent and conflict are part of the job.' I have never sat on a board (well, does a wooden park bench count?)but I imagine when you get busy and high-powered execs together at these meetings there may exist a 'lemming-like' mentality.

While this sounds silly, I think once a qtr the Chairwoman/man should gather the troops and do team-building excercises where the board is split into teams and forced to compete against one another! Heard of the Richard Pettty Driving School (google it)? Well, I convinced my boss to think about taking the team out to compete in NASCAR pit-crew competition @ Atlanta Motor Speedway so that we can get comfortable competing against one another. I think this friendly competition translates into a comfortable atmosphere when it is time to get down to business in the conference room.

I agree with you that Board leadership need to stimulate open dialogue, and I am just giving you a concrete example of how they can do this. The problem; who will take my Mickey-Mouse Advice? These leaders are busy people and I worry that no time will be made ON A QTRLY basis where they can engage in these excercises as a group.


-Les

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