As we’ve seen during our recent discussion about corporate governance and capitalism, there appears to be an insurmountable disjunct between owners and managers in the corporate governance of publicly-held companies, characterized by anonymous shareholder-ownership, with respect to communication of strategic identity and intent. One would think that the obvious role of the board is to try to close this gap. But no. . .
It is an inescapable reality that most directors, in North America and elsewhere, are the senior managers of each other’s companies. In the US, there often are fewer executives proportionately, but the CEO also typically serves as chair of the board, more than compensating for the insider deficit. Elsewhere, there tend to be more of a company’s executives on its own board. The problems created by this situation are not difficult to imagine. . .
Corporations have been under assault around the world lately from a variety of quarters. Activist shareholders are concerned that managers are not adding wealth, or that they are operating their companies in politically or socially immoral, or environmentally unsustainable ways. Many are even trying to address their grievances directly, by having their own nominees placed on boards as directors. Some of the corporate behaviors leading to all of this has been so egregious as to attract the attention of regulators and even legislators. What have corporations come up with to stanch this rising tide of criticism?
Boards dominated by managers, as they are under current and proposed arrangements, 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?
In the past several days we have argued that the fact of managers serving as directors on boards is an inherently unstable concept, leading inevitably to fissures in the practice of corporate governance. There are two basic reasons for this . . .
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