What's expected of boards: it's time to review the fundamental expectations of board service.
Author | Lipton, Martin |
The current focus on the performance of corporate boards prompts a revisiting of what is expected from the board of directors of a major public company--not just the legal rules, but also the aspirational "best practices" that have come to have almost as much influence on board and company behavior.
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Boards are expected to:
* Choose the CEO, monitor his or her performance and have a detailed succession plan in case the CEO becomes unavailable or fails to meet performance expectations.
* Plan for and deal with crises, especially crises like HP where the tenure of the CEO is in question, BP where there has been a major disaster or J&J and Toyota where hard-earned reputation is threatened by product failure.
* Determine executive compensation, achieving the delicate balance of enabling the company to recruit, retain and incentivize the most talented executives, while avoiding media and populist criticism for "excessive" compensation.
* Interview and nominate director candidates, monitor and evaluate the board's own performance and seek continuous improvement in board performance.
* Provide business and strategic advice to management and approve the company's budgets and long-term strategy.
* Determine the company's risk appetite (financial, safety, reputation, etc.), set state-of-the-art standards for managing risk and monitor the management of those risks.
* Monitor the performance of the corporation and evaluate it against the economy as a whole and the performance of peer companies.
* Set state-of-the-art standards for compliance with legal and regulatory requirements, monitor compliance and respond appropriately to "red flags."
* Take center stage whenever there is a proposed transaction that creates a seeming conflict between the best interests of stockholders and those of management, including takeovers.
* Set the standards of social responsibility of the company, including human rights, and monitor performance and compliance with those standards.
* Oversee government and community relations.
* Pay close attention to investor relations and interface with shareholders in appropriate situations.
* Adopt corporate governance guidelines and committee charters.
To meet these expectations, it will be necessary...
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