Blogs

Toward Better Board Governance

04.21.11

As reported on the Delaware Corporate Governance Blog and by the Wall Street Journal, the Study Group on Corporate Boards released “Bridging Board Gaps,” a report intended to identify and address the most critical board gaps and propose practical solutions for improvement (PDF). The report identifies problems and proposes solutions in seven core areas: Purpose; Culture; Leadership; Information; Advice; Debate; and Self-Renewal. Through the report, the Study Group hopes to “contribute to what [it] see[s] as the gradual but positive improvement of board practices and standards and director attitudes.

With respect to Purpose, for example, the report notes that many boards are focused on process and compliance and do not have a real sense of their own purpose. The report’s general recommendation is that “Boards must understand their purpose—to ensure that the corporations they serve create sustainable long-term value for shareholders.” One of the specific recommendations in this regard is to always ask, with every board decision, how will our decision affect long-term shareholder value.

Other examples of specific recommendations include:

  • Debate—Board chairs should encourage “constructive skepticism, debate, disagreement and dissent, when necessary.”
  • Self-Renewal—Boards should have a process for rotating board and committee leaders.

The Study Group is a 20-member blue ribbon panel co-sponsored by Columbia Business School and the John L. Weinberg Center for Corporate Governance at the University of Delaware. Its members include a diverse group of current and former CEOs and directors of publicly held companies, academic and professional leaders, and former government officials. Notable members include Richard Daly, CEO and director of Broadridge Financial Solutions, Inc., Arthur Levitt, former Chairman of the SEC, the Kenneth Daly, President and CEO of the National Association of Corporate Directors, Kenneth A. Bertsch, President and CEO of The Society of Corporate Secretaries and Governance Professionals, and E. Norman Veasey, retired Chief Justice of the Delaware Supreme Court. The Weinberg Center for Corporate Governance publishes the Delaware Corporate Governance Blog.

OUR TAKE: Boards have been heavily criticized for the last few years in the wake of the economic downturn—and, in fact, or ten years or more going back to the corporate events that gave rise to the Sarbanes-Oxley Act—for not providing effective oversight of company management and operations. The report is a positive step toward improving board governance by providing a clear focus on problems and solutions. The report builds on past reforms but strives to drive gradual forward progress. And it is not reticent about including proposals, like the encouragement of dissenting votes where appropriate and the implementation of director term limits—that are rarely seen in today’s public company board governance.

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