Articulate a conceptual framework.

• Author: Lev, Leslie
• Position: Decision making among board of directors

A worthy goal of such an exercise is to lessen the ambiguity of director decisionmaking.

No one, including directors and their critics, understands how boards really work! The problem is lack of a conceptual framework.

A rudimentary conceptual framework need not be articulated in order to exist. Practitioners of a simple craft, for example, can apply similar principles without ever discussing what they are doing, why, or to what end. But more complex practice generally requires discussion among those involved in order to succeed. Too many interrelationships and different kinds of situations are involved for participants to track without communicating with one another about what they are doing, what it is designed to accomplish, and what their goal is.

Such communication usually centers around what to do in a specific situation or class of situations. Disagreements are generally resolved by reference to (1) specific past cases in which what worked can be described in detail and explained in terms of the conceptual framework; and (2) the similarity (or lack thereof) of specific cases examined to new ones where a decision must be made.

At present, no conceptual framework exists with respect to boards of directors in general. Directors (and sometimes their advisers and major investors) of a particular corporation may implicitly rely on a conceptual framework specific to that board and corporation, even if the framework has not been explicitly articulated. However, partly because of the enormous complexity of board decisionmaking, the absence of an explicit, well-articulated conceptual framework designed to facilitate that process in specific boards and in general creates problems for directors and executives and opportunities for activists and politicians.

No one can be confident that directors are making good decisions for a particular corporation when its directors are confused about what contribution they are supposed to be making there, how they need to be organized (both formally and informally) in order to make that contribution, and how to use their organization in order to achieve their intended goal. Nor can anyone be confident that good decisions are being made by boards in general when uncertainty prevails about what contribution they are supposed to be making to corporations, how they need to be organized to make it, and how to use that organization in order to make the desired contribution.

Consider one example: a compensation...