An unstoppable force.

• Author: HORTON, THOMAS R.
• Position: Brief Article

The governance movement barrels ahead, evolving beyond even the reforms of the '90s.

IT BEGAN AS A puff of fresh air, wafting into the musty boardroom, imperceptibly stirring the atmosphere. Soon, it became a wind of change that eventually grew to gale force, creating worldwide momentum. Now the interest in improving the quality of corporate governance has a life of its own.

Against this background it is difficult to keep in mind just how new this phenomenon is. Most of what has been called "governance reform" has come to pass only during this past decade.

Many observers consider the awakening of the board of directors of General Motors Corp., in 1992, as marking the true beginning of the accountable independent board. It was just 10 years ago that institutional shareholders were knocking loudly on GM's boardroom door with an urgent wake-up call that eventually roused its outside directors, causing them to form a fact-finding mission that ultimately led to a major board restructuring and the adoption of a set of governance guidelines. Since then dozens of commissions have handed down thoughtful recommendations, and thousands of U.S. boards (and many more abroad) have adopted new boardroom practices.

Encouraged by a favorable review in DIRECTORS & BOARDS of the book, Harvard Business Review On Governance [Summer 2000], which purports to be "an essential reference" but actually is merely a selection of articles published since 1992, I dutifully read it from cover to cover. I was struck most of all by how rapidly governance has changed. Some of the articles seem quaint, even curious.

One professor, for example, issued in 1993 a dictum that precisely three insiders (the CEO, COO, and CFO) belong on corporate boards; today many would recommend only one. The most novel idea is a proposed new governance tool called the "strategic audit committee," designed to monitor corporate strategy. The proper role of the board in strategy has long been a topic of heated discussion, yet here is a structure, proposed as early as 1995, designed explicitly to deal with this and to do so with great efficiency. The committee would be staffed by exactly three outside directors and would meet only once every three years! Mercifully, this tool has not found its way into practice.

Last year the board's role in strategy was explored by a National Association of Corporate Directors' Blue-Ribbon Commission. A survey of CEOs had shown strategic planning to rank number two...