Stephen Davis is a Senior Fellow at the Harvard Law School Program on Corporate Governance. This post is based on an article by Dr. Davis published in the Ethical Boardroom.
It wasn’t long ago that Lord Boothby could describe a corporate director’s job this way: “No effort of any kind is called for. You go to a meeting once a month in a car supplied by the company. You look both grave and sage and, on two occasions, say ‘I agree’, say ‘I don’t think so’ once and, if all goes well”, you get a hefty annual fee.
Those days are mostly gone—though not entirely. Board meetings at Nissan Motor under (now-ousted) chief Carlos Ghosn met for an average of 19 minutes, according to a special committee investigation, just about enough time for directors to slip in their “I agree” on each agenda item before adjourning. But at most companies, thanks chiefly to years of shareholder pressure, crony is out, professional is in.
We would expect such new-style boards to advance performance, oversight, risk management, ethical behavior and alignment with investor interests. After all, those are the outcomes for which advocates of change were fighting for so long. But there turns out to be one inconvenient hitch, which is becoming ever more evident: the independent board model isn’t truly workable, at least not without a crucial reboot.
