Thursday, November 05, 2009
The GM-Opel Decision
The recent decision by General Motors to reverse course on its proposed sale of Opel to Canadian auto supplier Magna raises some interesting questions about the role of a Board of Directors. On the one hand, we desire more effective and vigilant boards who spend time learning a business and monitoring the decisions of senior executives. However, we have to recognize that boards can lose their objectivity if they begin making corporate strategy. In other words, most people believe that boards have an important role monitoring and controlling management behavior. However, if the board begins to become the primary decision-making body regarding the strategic direction of the firm, then you must ask: Who is monitoring and controlling the board? What if decisions don't work out and performance lags? Who is responsible? It becomes difficult for the board to hold management accountable if they have actually made all the key decisions, sometimes by overruling management. I'm not suggesting that the GM Board was incorrect necessarily in overturning Henderson's Opel decision. I'm simply arguing that the board must take great care not to blur responsibilities so much that no one is actually left conducting unbiased governance and control activities.