The government bailed out Citigroup. The chief executives of the Big Three automakers asked for $25 billion in loans. There will undoubtedly be more corporations asking the government for financial help. Many people are asking, and rightly so, “Who’s been minding the store?”
Many Americans are frustrated and angry. How could corporate leadership allow their companies to end up in such dire straits? People put their trust in these corporations’ boards of directors and CEOs – and this trust was violated. The Madoff scandal just adds to a growing lack of confidence.
Hearing about CEOs receiving golden parachutes and excessive compensation is particularly painful during a time when the economy is fragile and hundreds of thousands of people are unemployed and losing their jobs daily. In November alone, the United States lost half a million jobs, the largest one-month drop since 1974. The unemployment rate in November increased from 6.5 percent to 6.7 percent, the highest rate in 15 years. As these numbers rise, the levels of frustration and resentment from Americans towards high-paid executives will only increase.
What have the leaders of these organizations been thinking and where is the governance oversight? That question will be scrutinized as a newly elected Congress and president begin their terms in January. Congressional hearings will review governance policies, and rigorously ask how corporations that receive public funds manage risk, the roles their boards play and the kinds of review processes they have in place so that information is getting to the right people to make the most intelligent decisions for the company and their shareholders.
The key word that everyone should take note of is “governance.” Now is the time for all boards to review their governance policies and strengthen them where needed. Here is a checklist to see what kind of processes your board should implement.
Conduct an internal assessment of your board committees. On one board on which I sit, board members annually and independently rate the effectiveness of their committees and the board functionality at large. This great exercise gives the board baseline information for moving forward. Board members fill out a survey, which includes open-ended questions to expand upon answers and provide additional opinions. This will give you even more useful information to work with for evaluation and planning purposes.
Share the information. Once data is collected, make sure you share it in an effective way. If you receive some interesting information and feed- back directed to the finance committee, have the finance committee address the issues in a committee meeting and invite nonfinancial committee members to attend and provide a fresh out- look. While it’s important to establish a process of gathering information, it is just as important to have a plan on how to work with the information in an effective manner.
Exercise a duty of care. A duty of care is a legal obligation imposed on an individual requiring that he adhere to a reasonable standard of care while performing any acts that could foreseeably harm others. This is some- thing that board members should bear in mind as they evaluate their governance policies. Many boards, wanting an outsider’s objective opinion, will hire an independent consultant to analyze the surveys and write a report. The report could include a rating of the effectiveness of specific committees and the effectiveness and strengths of the board chair. Whatever information the report includes – and this is obviously driven by the survey questions – it will become the basis of an intelligent assessment of how well the board communicates internally.
Set goals for the board and the board chair, and review the previous year’s accomplishments.During any self-assessment process, don’t neglect to ask what you would like to accomplish in the coming year ahead as a board. You should also review your previous year’s goals and be prepared to celebrate the ones you met. Remember that governance starts with you. A CEO and the board can’t make good decisions about an organization’s future without good information about what’s happening now. They and the company’s investors must be able to trust the competence and integrity of the people working and reporting within the organization.
©2009, All rights reserved. Stuart R. Levine is chairman and chief executive of Stuart Levine & Associates, an international consulting and leadership development company. He is author of “Cut to the Chase” (Doubleday, 2007) and “The Six Fundamentals of Success” (Doubleday, 2004).