Rethinking the board: what's called for are breakthroughs in conceptualizing how boards work--rather than simply demanding more of our current boards.

• Author: Wind, Yoram
• Position: ORGANIZATIONAL LEADERSHIP - Cover Story

A Business Week cover story earlier this year entitled "Downsizing the CEO" discussed how the chief executive's strategic role is being reduced by a bevy of auditors, lawyers, and Sarbanes-Oxleycharged directors. In many cases, the circling of the wagons against corruption and fraud has made it nearly impossible for the CEO to play the role of strategic leader. But it is not just the CEO whose role has been constrained by the focus on avoiding Enron-style meltdowns. The board itself, while given more power in some areas, has also seen its role narrowed to that of a policeman. This function has detracted from the other important work that the best boards have traditionally done--providing sources of insight and innovation that can drive the company's performance and growth.

What is lost in all this is the recognition that a strong and empowered board can help take the company in new directions, be alert for potential strategic missteps, and translate experience and insights from very different industries and disciplines into strategies for the firm. While directors and CEOs have bemoaned the burden of paperwork and reporting imposed by Sarbanes-Oxley, perhaps its greatest negative effect is this dilution of the board's creative thinking and strategy. Free thinking and creativity are the first values to be sacrificed in a police state.

This dampening of insight and innovation will never show up on a balance sheet or be bemoaned in a headline in the Wall Street Journal. This engagement and creativity by board members is being eroded quietly, in the words of T.S. Eliot, "not with a bang but a whimper." What is the cost of this? What can be done to revive this important contribution of the board? The solution has to do with understanding two very different roles played by the board. Instead of patching up the current system with Band-Aids such as Sarbanes-Oxley, what is called for is a move to a very different model.

Benefits of collegiality and diversity

While we all recognize by now the importance of the board in succession planning and selecting the right CEOs, evaluating their performance, and ensuring accountability and control, we also must recognize the importance of the board in providing strategic insight and creative direction to the company. The board augments the competencies of top management with skills and perspectives the managers do not possess. Some companies go outside the organization to seek diverse perspectives, such as Nissan and Renault's appointment of Carlos Ghosn as CEO (born in Brazil, educated in France, and leading a Japanese company). Even so, a diverse board offers many more perspectives and broader knowledge than the company could ever assemble in-house.

The perception that led to the tightening of the screws on boards and management was that many boards were collegial groups of close friends and golf partners who rubberstamped the proposals of management and could be misled by dog-and-pony shows at board meetings. It is clear that close relationships can sometimes become cozy to the point of lacking accountability or looking the other way at egregious abuses of power. But as a university professor, I would argue that there are benefits of collegiality. Good ideas come up in this context, connections are made, and sage ideas and advice are shared informally and formally. In a context in which it is not "us-against-them," board members and management can work together to forge better solutions for the benefit of all stakeholders.

The current regulatory and legal environment is making it harder for boards, or even CEOs, to sustain this collegial atmosphere. Our litigious society addresses challenges in a courtroom drama with two sides fighting to the bitter end. This system of checks...