There remains substantial concern that senior executives and CEOs have been able to cocoon themselves with fantastic combinations of isolation, wealth, and numerous other protections that divorce them from reality and undermine their ability to understand and focus on their fiduciary duties as managers. The resulting environment of moral hazard has enabled them to pursue courses of action that have direct and often immediate consequences on everyone from shareholders to customers to employees . . .
The rise of assertive boards and shareholders is a recent phenomenon in the United States, provoked by spectacular instances of executive malfeasance so egregious and damaging that they could not be ignored. But this resurgence of the struggle for power between boards and managers comes after a long period during which management was fully in control. Indeed, its victory was so complete that it was virtually institutionalized; the only remaining controversy was how boards could better enhance and defend the power of the CEO, and facilitate his or her expression of it. Why was this so?
In recent years, activist shareholders have been reviving the long-dormant struggle for power between owners and management. Can they really break the seemingly unshakeable control that CEOs have acquired over their boards? If they do, what might be the consequences?
If the dangers of giving a CEO too much freedom of action are countered by those of shackling his or her initiative too closely, then how can the right balance be struck? Is there a fixed set of rules that can safely govern the respective duties of a board and its CEO? As in so many things, while we look for fool-proof, simple steps to follow to accomplish our duties, the truth is that they don’t exist. This issue, too, requires conscientious attention and the application of principles by means of situationally-appropriate flexibility . . .
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