Ever more reliance on good judgment.

Author:Lutin, Gary
Position:The Shape of Things to Come - Brief Article

TO EFFECTIVELY GOVERN the enterprise communities of global capitalism, directors must focus on their essential responsibility: exercising commonsense judgment.

The function of a corporate board, like any other council or legislative body, is to assure the productive management of its constituents' resources. In a competitive society, this means at least matching what others do. Boards are thus charged with engaging executives who can manage their shareholders' assets as well as -- or, hopefully, better than -- the competition. This requires setting appropriate strategic goals and monitoring performance. And everything that goes into that depends on the judgment of individuals.

Recent attention to theories of corporate governance has distracted us from its practical applications. Adopting "good governance" policies and defensive legal procedures is of course important to assure the proper function of boards, just as the maintenance of democratic process is important to our society. But merely following the rituals isn't satisfactory. Some of the past decade's biggest corporate fiascos involved ideally constituted boards following the advice of nationally reputed lawyers and investment bankers.

The real test is whether things work...

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