Corporate Boards: Strategies for Adding Value at the Top

Corporate Boards: Strategies for Adding Value at the Top

Corporate Boards: Strategies for Adding Value at the Top

Corporate Boards: Strategies for Adding Value at the Top

Synopsis

This outstanding work reveals how boards governing 21st-century organizations can change their practices and align their principles to successfully govern the organization of the new economy. The authors propose that judging a board's effectiveness should be done not in a "shareholder" context but in a "stakeholder" context instead. They couch their reforms in a framework that focuses on what determines effective governance behavior: information, knowledge, power, and rewards. They argue it is behavior, not practices that count, and look at boards from a group and an organizational perspective.

Excerpt

Corporate boards are in the spotlight. Investors, governments, communities, and employees are scrutinizing their performance and challenging their decisions. As a result of this attention, boards themselves have become more proactive. Rare today are boardroom meetings that look like Soviet May Day parades, with a string of well-orchestrated, “good news” presentations. Instead, there is a great deal of experimentation with initiatives to empower boards. It is unlikely that this tide of change will reverse itself. A number of powerful drivers are likely to maintain the interest in corporate governance for years to come.

One principle driver is the increased focus on the role that senior leaders play in corporations. The management literature is awash with books which argue that leadership at the top of corporations is critical to providing vision, implementing strategy, creating successful corporate transformations, and so on. Given the importance attributed to executives, it is only natural that attention should be directed toward the very people who oversee, advise, and select a company’s most senior managers.

A second principle driver is pressure from the investment community. In the last decade, we have witnessed a dramatic rise in shareholder activism. This rise has been directly coupled with the growing power of institutional investors, especially pension funds. Such funds have enormous assets and future obligations that they must cover. For example, the California Public Employees’ Retirement System (CalPERS) alone must be capable of paying to its beneficiaries some $20 . . .

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