Critique of the GM board guidelines.

• Author: Minow, Nell
• Position: General Motors Corp.

The board of one of America's most emblematic companies has given thoughtful consideration to what a board needs in order to be able to do its job.

Over its history, General Motors has tried out almost as many models of corporate governance as cars, and with the same variety of results. In the 1920s the CEO of General Motors was forced to resign by Pierre du Pont, representing the Du Pont company's 36% stake in GM. Du Pont himself became the CEO for two critical years, before turning the company over to Alfred Sloan -- perhaps the ultimate example of shareholder activism and board responsiveness.

But in the 1980s, General Motors was at the other end of the scale. After bringing in H. Ross Perot to get his ideas on how to improve the company, GM management decided that his criticism made them uncomfortable, and they forced him off the board, paying him $742.8 million for shares that were trading at a little more than half of that. When two large institutional shareholders wrote letters inquiring about the process for selecting a replacement for retiring CEO Roger Smith, management responded with a statement to the press: "Corporate governance, which includes the selection of officers, is the board's responsibility." Management never answered the shareholder letters.

The shareholders lost that battle but won some bigger ones. In 1990 the GM board agreed to a shareholder initiative and adopted a bylaw prohibiting greenmail. The following year, again in response to shareholder pressure, the board adopted a bylaw provision mandating a majority of outsiders on the board. While these concessions were mostly symbolic, the real change in the governance structure at GM was demonstrated a year later, when the board very publicly put pressure on Robert Stempel, Smith's replacement, to take "a more aggressive" approach and then, six months later, replaced him, coming full circle to the days of Du Pont. Again, the board had taken action to resolve a crisis situation.

The new board guidelines issued by GM address for the first time, however, the question of the standard of behavior for the board during times other than crises. Indeed, it is fair to say that these guidelines are designed with the goal of preventing future crises. From my perspective, the most important provisions of the guidelines are:

(1) Executive sessions of outside directors three times a year. This is crucial. No matter how responsive they are, the presence of insiders has a chilling...