I recently wrote a guest commentary for AGENDA, a weekly publication for corporate board directors.  I offer the column again here.  In these tough economic times, boards must fulfill their crucial job ensuring that a company can survive and compete for the long term.


Opinion: 10 Things Every Board Should Do, But Many Don’t

Carly Fiorina’s List of Ten Things Every Board Should Do-But Many Don’t


Board members that fail to prioritize long-term shareholder value, pose tough questions to management and have constructive dissent, among other deficiencies, undermine the integrity of American corporate governance

                 
1.    Long-Term Sustainable Shareholder: A board’s fiduciary duty on behalf of all shareholders is to create long-term sustainable value. This is a difficult task, because there are great pressures on boards and management teams to become short-sighted, or take imprudent risks to chase short-term stock price. Looking back on the dot-com boom and bust, the Enron debacle, and the current Wall Street melt-down, it’s clear that common sense and good judgment were pushed aside as too many people succumbed to the desire to participate in a seemingly never-ending upward spiral of stock price and (frequently illusory) quarterly earnings. Conversely, short-term downward pressure on stock price can motivate a board to step-away from a transformative, strategic move, even when it will demonstrably create sustainable long-term value. This is why too many companies rely too long on existing profit pools and fail to make the moves necessary to build the new franchises and new sources of profit so necessary for long-term success and competitiveness. A board’s job is to ensure that a company can survive and compete in tough times, not just thrive in good times. And this is why any board or CEO who asks Washington, D.C. for a tax-payer funded bail-out should tender their resignations. They have failed in their most basic fiduciary duties.      

2.    Tough Questions and Transparency: A board’s job is to ask the tough questions of management. Management’s job, specifically the CEO’s, is to provide complete transparency about the operational health and strategic options of the company. There should be clear goals, specific progress metrics and identified accountabilities discussed at every board meeting. Board meetings should not be merely formal “i-dotting” and “t-crossing” sessions. A good board meeting is full of real dialogue and spirited exchange of views.    

3.    Opinion, Doubt, and Dissent: Every board member must have a relevant, informed opinion on each matter to be discussed by the board. If they don’t have an opinion they shouldn’t be on the board. It’s a board member’s duty to express their opinion – even if, perhaps especially if, it goes counter to the wishes of other board members or management. It is board chair’s job to ensure that every opinion is fully heard and fully understood.

4.    Real Debate: All issues which come before the board are substantive and important. All must therefore be thoroughly debated, with each opinion aired.  Some decisions are of such magnitude that many debates must be held. It is vital that all the relevant facts and opinions be presented including: the upsides to a proposed course of action, the downsides, the alternatives, the risks, the unknowns, the optimistic plans, the worst-case scenarios and the most-likely outcomes.  

5.    Diversity: Diversity in the board room creates better dialogue and better debate. When all board members look the same, have shared the same experiences, and all know each other over many years, they tend to think the same way. Boards should actively recruit diverse players of all kinds in order to substantially improve board governance and board decision-making.  

6.    Decision-Making and Accountability: While there must be time for full debate to improve decision-making, ultimately decisions must be made. A successful business must act quickly and move decisively. When it is decision-time, every board member should vote. The best decisions are made unanimously, because such unanimity reflects that board members have built common ground and have shared views. Each board member should be held accountable for their vote and stand behind it. If a decision must be reached and unanimity isn’t possible, then a majority of the board must act. Board members who vote in the minority can then choose to resign their positions, or support the decision of the majority. They should not second-guess or sabotage the decision once made, because this will undermine successful execution and harm the company, its employees and shareholders.  

7.    Representation: By the same token, new board members may come to the board elected by a specific constituency – labor, a particular group of shareholders, or debt holders. However, once a board member arrives in the board room, they must accept that their job is to act on behalf of ALL shareholders and represent the best interests of the company as a whole. In this respect, a board member’s job is vitally different from an elected representative’s job. A board member cannot represent a single constituency, although they can certainly be informed and influenced by their constituencies’ concerns.

8.    Confidentiality and Transparency: A board’s deliberations must be kept absolutely confidential until those deliberations are concluded. Without confidentiality, honest debate and disagreement are impossible and both are vital to sound decision-making. Unauthorized leaks from the boardroom are unacceptable behavior and board members who engage in them should step down. Once a decision has been made, a board should be absolutely transparent with all constituencies about how the decision was reached, detailing the consequences, upsides and downsides of the decision, and providing the execution plan and timeline.  

9.    Board Evaluation: A board can function only as well as its board members perform. All boards and all board members should participate in an externally directed performance evaluation process on an annual basis. Board seats are not perks or entitled positions. All board members should be elected annually and evaluated annually. And boards should assess as a group whether they are really performing the work to which shareholders are entitled.  

10.    Executive Compensation: Executive compensation is one of a board’s most important roles as well as a matter in which shareholders have a growing and vital interest. All aspects of board and CEO pay, perquisites, retirement plans, country club memberships etc., should be fully transparent and put to a shareholder vote on an annual basis. Pay for performance ties should be clear and there should be no “surprises.”           

Over the last few months, I have been asked to offer commentary through news outlets and speeches addressing our economic challenges from the perspectives of business, policy and politics.  I’ve been very consistent with my call for common sense and transparency in these difficult economic times.  Posted here are some thoughts first offered in two pieces —one for the Wall Street Journal and the other for CNN.com.  They remain relevant in today’s context of contested bonuses, job losses and continued economic uncertainty.  Business leaders must step up and speak out, if we wish to balance the call for more and more government intervention with a stronger set of solutions from business and free market perspectives.

Americans are outraged over excessive CEO pay and perks.  That outrage is justified, particularly when American taxpayers are footing the bill. 

There are political consequences to business-led crises. After the dot-com bust, technology companies lost real political clout and could not persuade Congress to vote against the expensing of stock options. The onerous regulations of Sarbanes-Oxley and mark-to-market accounting grew out of Enron’s fall. Now, as the economy deteriorates and bailouts continue, a justifiably angry Congress will demand a stiff political price be paid by business. Business leaders must step forward and be part of the solution by volunteering greater disclosure and accepting responsibilities. Otherwise we will be treated as the source of the problem. 

There is no doubt that government will now play a greater role in key industries. While this expanded role is perhaps vital for a time, our Founding Fathers knew that government’s power should be limited. If we are to emerge stronger from our current crises, businesses must restore their credibility and regain the American people’s trust by embracing accountability and transparency.

Our capitalist systems works best when there is transparency and accountability.  There has been too little of both on Wall Street. To strengthen transparency, all aspects of CEO pay and perks should be fully disclosed on a regular basis.  This should include airplanes, cars, golf-club memberships, bonuses, stock options, retirement plans and salaries – in short everything that a common-sense person would consider part of a CEO reward package.

To strengthen accountability, all aspects of CEO compensation should be voted on by shareholders on an annual basis.  Ultimately, it is the owners of a company who must determine whether a CEO’s rewards are justified by a CEO’s performance.  And because the American taxpayer is now a partial owner in many companies, the government will get a vote as well – in some cases a very sizeable vote.   In addition, “clawback provisions”, which require a CEO to return compensation to shareholders if promised results aren’t delivered, should be standard fare. 

Finally, when a company comes to Washington for American taxpayer money, it is an admission that mistakes have been made and major bets have failed.  These CEOs should be prepared to tender their resignations and those of their Boards.  To earn a bail-out, a CEO and board should be held accountable. 

We should not weaken our economy while trying to fix it.  The key is to take actions that help in the short-term, while also being sensible for the medium and long-term.  Too often our politicians react to crisis and public anger by over-reaching – and they create new, unforeseen problems that only become clear with the passage of time.  In this country, the opportunity to be rewarded for taking prudent risk is fundamental to our economic vitality and strength.  Let’s not lose that fundamental principle in our outrage over Wall Street greed and excess.

At no time in human history have we been so unconstrained by our array of capabilities or so challenged by our worst excesses. Never have common sense, good judgment and ethics mattered more. 

Recently, I was asked to share my views on what should be “priority one” for President Elect Barack Obama.  He is no doubt being given advice and perspective from a wide circle of trusted advisors.  I took the task on as a great exercise in honing my own thoughts, coming from my own experience as a CEO and as a recent participant in the political process in which I was often asked to comment on economic issues.  Here is what I put forward…  

America’s economic vitality must be priority one, as this is the foundation for both   global political power and military might.  Technology and globalization offer limitless possibilities, but they also present new challenges to America’s economic leadership.  Brain-power, innovation and entrepreneurship are the keys to 21st century prosperity.  The new President should focus on pro-growth tax policies, incentives for job-creation and investments in innovation, worker re-training and education.  

America levies the second-highest business tax-rate in the world.  A lower rate will keep more jobs here.   

Small business is the engine of economic growth.  We must make it easier for small businesses to form, hire and prosper.

We must invest more in both privately-financed and publicly-funded R&D.    

We must lead in the innovative industries of this century, including energy, healthcare, space and info-tech.  

We must prepare our current and future work-force to tackle new jobs with new skills.      

We must encourage investment by keeping capital gains and dividend taxes low.  

We must enact comprehensive immigration reform so that America continues to attract entrepreneurs, risk-takers and hard-working people from all over the world.    

And we must engage fully in the world if we are to lead.  We must embrace free-trade with new enthusiasm.

America’s economic vitality—the very foundation for both global political power and military might—depends on it.  

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