“Where was the board?” It’s a question we hear whenever something – anything – goes wrong at a public company. The question has been asked in all sorts of circumstances, ranging from failing jet systems, to networks being hacked, to harassment allegations, and so on.
Don’t get me wrong – there are most assuredly cases in which the question needs to be asked. Without naming names, there have been numerous instances where it seems apparent (and in some cases has been proven) that the board elected not to see or hear evil and thus hadn’t a clue that there was a problem, and other cases where the board created or fostered a rotten culture that seemed to beg for problems. However, what concerns me is that society at large seems to think that the board is or should be responsible for every sin of commission or omission by the company. And that just seems wrong.
Boards are charged with oversight. And while the definition of that word can be difficult to pin down, it seems clear that the board was never supposed to be a guarantor. Yet that’s precisely where we are headed – or perhaps where we’ve arrived. You even see it in articles and treatises by governance nerds who should know better: “The board should ensure that…”. Boards cannot “ensure” anything. They are part-time consultants, and even the best boards cannot possibly know everything that a company does.
As a result, we’ve seen an upswing in suggestions as to how to help boards, including the following:
- You have too many independent directors. (I’ve actually seen this one.) Get rid of independent directors who don’t know enough about the industry to challenge management. Bring in people with industry experience, as well as suppliers, customers, and even employees. We don’t mind that they’re not independent.
- You need to have a non-executive chair. (This suggestion keeps being made despite the fact that it hasn’t prevented serious problems at many companies.)
- You need more diversity. (I agree that boards need more diversity. But it doesn’t “ensure” an absence of problems.)
- You need more committees because of the complexity of your industry, related regulation, and so on.
- You need fewer committees, because the board has lost sight of what the committees are doing.
Most recently, The Business Lawyer, published by the Business Law Section of the American Bar Association, devoted a major chunk of an issue to what to do about boards (see here). The articles included suggestions to outsource the board, allow entities (such as consulting firms) to serve as board members, and create a “true” office of the board (as distinguished from prior attempts to provide a staff of company employees to assist the board).
Maybe it’s me, but these and other suggestions strike me as little more than the proverbial rearrangement of the deck chairs on the Titanic. If the concept of the board is really not working, perhaps we need to get rid of boards and figure out a better way of governing our corporations. Or perhaps going back to basics by recognizing that boards are not, cannot, and are not supposed to be, guarantors of all corporate conduct.