BIZ TIDBITS FROM AND ABOUT MAGAZINES
Would corporate boards perform better if their members were subjected to coaching and continuous reviews, just like everyone else in the company? Intuitively, the answer would seem to be yes. And although as HR magazine notes "only 15 percent of companies conducted individual board member reviews last year," the magazine expects the number to rise as scrutiny of board performance increases. "In the wake of corporate scandals, such as those at Enron, and following enactment of laws such as the Sarbanes-Oxley Act, companies have been striving to demonstrate the reliability of their corporate governance procedures," Kathryn Tyler writes. For proof she notes in 2003 that 18 percent of companies did complete board reviews. By last year, "that number had jumped to 68 percent." Individual evaluation of board members would seem the next natural step, she writes. The question, of course, is who is going to tell a director that his performance needs to improve, especially since directors could, in theory, have the corporate employee delivering the news fired. (It would be the most obvious case of "shooting the messenger.") The logical people to deliver the assessments would be outside consultants or fellow board members, Tyler concludes.
.. and questions about itchy trigger fingers ...
Are corporate boards too quick to fire the CEO, undermining his ability to lead for the long term? It is a fair question to ask, given that boards of large corporations worldwide "are dismissing four times more CEOs today than in 1995," Chuck Lucier and Jan Dyer point out in the Harvard Business Review. But a review of the data, the strategy consultants say, shows directors are not overreacting. "They are doing what they should have been doing all along: removing clearly inadequate CEOs who in years past would have been sheltered by faulty corporate governance," they write. "On average, an ousted CEO's company achieves only half the profit, cash flow, and market capitalization of a comparable company led by an effective CEO for the same length of time." So, the real question to ask is not why are so many CEOs being fired, but why so few were fired before.
.. and worries about being sued
Board members frequently worry out loud about the risks of being sued for their decisions, "but a careful analysis shows that the threat is vastly overblown," Stanford law professor Michael Klausner writes in Directorship. In a recent study of cases going back to 1980 that he conducted with two colleagues, Klausner said he found just 13 instances in which "outside directors made out-of-pocket payments." Nearly all involved situations that can be avoided today with directors and officers insurance, reasonable coverage limits and proper board processes, he writes.