Road to Better Business Reputations Will Not Be Smooth or Painless
By: JOHN H. STOUT
Appeared in the May 2, 2003 issue of The Business Journal.
The corporate governance world has changed. Shareholders, employees and other stakeholders are demanding real oversight, not just tweaks in the governance processes of their companies. There are countless improvements that can and must be made to improve corporate governance. I’d like to briefly share the most essential.
- Make organizational integrity the first priority. Recognize and reward displays of integrity in tough situations. Assuring the integrity of the enterprise is the most important job of a board and senior management team. The women who were awarded Time’s “People of the Year” awards this year didn’t expect the kind of recognition they ultimately received for being brave enough to point out to their superiors that there were big problems in their organizations. It’s even more critical that people not fear telling the truth.
- Focus on governance and emulate best governance practices wherever possible. According to a recent survey sponsored by Korn Ferry, 62 percent of companies have committees to stay on top of corporate governance responsibilities. Given regulatory changes flowing from Sarbanes-Oxley and related legislation, every public company and many private companies should have a board governance committee. Good governance practices will help to rebuild employee and investor/shareholder confidence.
- Challenge your board of directors to be a valued corporate asset. Does the board have a mission, and do directors have explicit job descriptions? Set goals. Evaluate results.
- Take board elections off auto-pilot. Board member reelection should not be automatic. Board composition should be dynamic and responsive to the needs of the enterprise at various stages of its development. There should be evaluation procedures in place and a process for shedding non-contributing members.
- Embrace board diversity. Fifty percent of firms say they are looking for more women and minorities to join their boards. Boards need to move beyond tokenism and recognize the competitive strengths of organizations whose directors represent not only the diversity of the U.S. marketplace but the global marketplace as well.
- Get independent leadership for your board. Whether by splitting the role of chair and CEO, or by electing an independent director to chair meetings, U.S. boards would be well-served to re-think who takes responsibility for overseeing board and director performance, board agendas and board meetings. In today’s governance environment, it’s tough for CEOs to do both jobs effectively.
- Devote more time and attention to the effectiveness of board meetings. Better materials sent in advance of meetings, less management reporting, more discussion of critical issues and periodic assessments of what’s being accomplished will help boards be more effective and productive in discharging their governance responsibilities.
- Emphasize and enforce ethical conduct and legal compliance. Be sure that appropriate codes of conduct and compliance are in place, and that they are monitored effectively. Put a good early warning system in place. Offer all employees a means of reporting their concerns anonymously to senior management or the board. When issues surface, investigate them promptly, and, where appropriate, with the assistance of independent advisors. Be mindful in all investigations of the importance of protecting information discovered by the attorney-client privilege. Avoid conflicts of interest.
- State your company’s values. Demonstrate that the company is serious about living these values at all levels. Build a respectful work environment, and respectful relations with customers, vendors, financiers, etc. It’s difficult to reconcile employee layoffs and salary freezes with large executive salary increases and bonuses, corporate jets and other expensive executive and board perks.
- Walk the talk. Actions speak louder than words. Execution is everything. All the proper codes, committees and procedures won’t mean a thing if good governance isn’t practiced everyday by everybody, particularly at the board and management level. Last year, many governance failures occurred under the noses of high profile boards with all the right procedures in place. We know that excellence is really about achieving excellent results.
The road to better performance and reputations will not be smooth or painless. It will require changes in the status quo. But making these kinds of changes is the only way to restore the deeply shaken trust of key stakeholders.