Board of Directors at Root of Most Corporate Troubles

By Cunniff, John | THE JOURNAL RECORD, May 2, 1992 | Go to article overview

Board of Directors at Root of Most Corporate Troubles


Cunniff, John, THE JOURNAL RECORD


The trouble with many of America's largest companies is their boards of directors.

That opinion comes from an authority on the structure and duties of boards, a man who has chaired boards, sat on them, advised them, studied them, written about them, taught about them and watched their decline as an institution.

"Boards abdicated their responsibilities and capitulated to management," said Eugene Jennings, and he blames their failure for the poor performance at some of the biggest blue chip companies in America.

"It's the root of the problem," he said, contending that it explains the low level of management competence, the breakdown of ties between executive pay and performance, the poor profits, and the inertia of so many large companies.

Moreover, he said, the situation cannot quickly be corrected because boards now do not have the information sources or skills to plan the corporate future, nor the competence to select, train, supervise or terminate top executives.

In short, since the institution and its responsibilities and powers have been allowed to erode, Jennings asked "how can you expect them now to find competent management?"

Jennings has studied the situation for 35 years, during which time he related his observations in many books, including "Routes To The Executive Suite" and "The Executive in Crisis."

Now professor emeritus of management, Michigan State University, he traces the decline to 1955-1965 when, he said, heirs of the founders gradually removed themselves from active roles for tax and estate reasons.

"They had a personal stewardship," he said, and directors had a knowledge of the business and direct involvement in its affairs. The board's role was to design the future and make sure it had the management to achieve it.

As boards become passive, concerned more with dividends than operations, they let management move into the vacuum. The latter became the sole authority on succession planning, with the existing chief picking the successor.

Meanwhile, boards grew larger and even less responsive. In the 1955-1965 period, a large company typically had eight to 10 board members; today, it has 14 to 18, and the typical member sits on an average of 4.5 boards.

"How can you sit on five boards and assume the responsibilties of being competent about the business and able to select, train and terminate chief executive officers? …

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