A 'blue-collar approach' to board effectiveness.

• Author: Perlman, Lawrence
• Position: Includes a related article on Ceridian Corp.'s board of directors

Given the elevated level of much of the governance debate, it would do well to take under advisement the counsel of Lao-tze: `Govern as you would cook a small fish: Don't overdo it.'

Shareholders, management, employees, and the public owe a great deal to the governance movement for reforms that have set the stage for the continued strength of the corporation in the 21st Century.

While a broad consensus is evolving on what constitutes effective governance, American business is as pluralistic as American society, and for that reason we should be wary about rigid rules that are designed to fit all companies. We should continue to debate the application of principles. A conclusive link between governance principles and performance has not yet been universally established, but, in the meantime, investors should view effective governance as a form of inoculation: It sure won't hurt, and it might help.

Some companies outside of the consensus will do well; some that are well-governed will face difficulties. What all this is about is improving the odds and, more profoundly, maintaining a social contract that allows businesses to exercise a great deal of power in society. For that social contract to be sustainable in the long term, there has to be a basic belief by shareholders, government, and others who are concerned that corporations are governed in a way that makes them appropriately accountable to shareholders and other stakeholders.

Let me review this consensus on governance, which revolves around three principles that should form the foundation of a well-governed corporation:

* First, shareholders exercise the vote attached to their stock to elect the board of directors which has broad responsibility for directing the affairs of the corporation. For this basic principle to work, directors must be independent of management, otherwise they cannot select and monitor management An independent board is the linchpin of the American system of corporate governance. But independence must be coupled with effectiveness if the governance system is to be dynamic rather than static.

* Second, the CEO and other corporate executives work under the authority of the board. That authority is what legitimizes the actions of executives. It should also be somewhat humbling for CEOs, and most of us would benefit from a good-sized dose of humility. If the board is not fully informed, not given time to deliberate on the long-term best interests of the corporation, and not treated with respect by executives, those executives are undermining the very source of their power.

* Third, the board must actively participate in developing long-term strategy and financial goals for the enterprise and review and monitor management's progress toward these goals. A balance between a focus on tomorrow and an appropriate level of concern about today is the challenge. If for too long directors have been too removed from participation in strategic decisions, the converse is too much involvement at too great a level of detail. Governance expert Ira Millstein has observed, "...the genius of the corporate system in the United States is innovative, risk-taking managers capable of acting quickly and decisively even in ambiguous circumstances...." Micromanagement by...