The CEO's Role in Corporate Governance

By Lear, Robert W. | Chief Executive (U.S.), November 1996 | Go to article overview

The CEO's Role in Corporate Governance


Lear, Robert W., Chief Executive (U.S.)


While preparing our article on Best Boards/Worst Boards (see p. 26), Bob Yavitz and I often discussed the factors that really make boards work effectively. We agree that it takes three elements: a confident and open-minded CEO; at least one or two strong, dedicated, and knowledgeable directors; and a considerable amount of organized planning and working together to capture the full benefits of a corporate-governance program.

What concerns me is that all CEOs are not "confident and open-minded" about corporate governance. There are still many chairmen/CEOs who have reservations about the corporate-governance moves under way in boardrooms these days.

"Why should I turn over the selection of new director candidates, the appointment of committee chairmen and members, and control of the board meeting agenda to my outside directors?" they ask. "Why should I be evaluated on my performance by the board unless the directors are similarly measured? Why should I put myself in such a precarious position that the very continuation of my job depends upon the whim of a few outside directors? Leave me alone to choose my own directors, run the board the way I want to, and then let the shareholders judge me on the company's financial results. If they don't like it, they can sell their stock."

These words are seldom spoken aloud, but the actions of certain CEOs and companies indicate that this philosophy sometimes prevails. It seems to be particularly true of a few arrogant CEOs who are overwhelmed with their importance and power; of CEOs who founded their companies; of CEOs who own a great deal of stock; and of CEOs who are insecure in their jobs and fear director criticism.

A few of these CEOs will "get religion" and change their ways, rejuvenate their boards, and give it a good if belated try. A few more may go through the motions of embracing corporate governance. But the mere establishment of a Corporate Governance Committee and having a "onceover-lightly" performance evaluation of the CEO and the board is not, in itself, going to make good corporate governance happen. It won't and can't work until the CEO wants it to.

Most of these recalcitrant CEOs are not going to change their ways-or even pretend to do so. Nothing is going to happen until these CEOs retire or are replaced. I suspect we will have a number of candidates for our "Worst Board" selections for some years to come. …

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