Governance the H-P way.

• Author: Platt, Lewis E.
• Position: Hewlett Packard

Our deep-rooted company culture shapes the context in which our board operates - with our extraordinarily high value on performance, responsiveness to customers and shareholders, and ability to speak very openly with one another.

In the five years that I have been CEO at Hewlett-Packard I have benefitted greatly from my board. Collectively and individually, our working relationship has the same qualities that I try to establish with my employees - one of openness and trust. The effective balance that we have with the board, between being collaborators and maintaining the right level of independence, is absolutely key to our being able to function well together. Although I have worked very hard to make that happen, I cannot take full credit for it. My board has taken its job very seriously.

I am going to offer a useful framework for thinking about some of the important issues to consider in putting together a board, serving on a board, or establishing the duties of a board. While what we do at Hewlett-Packard works well for us, it may not work for everyone. Each CEO and board needs to establish their own distinctive framework and relationship for effective governance.

The framework that we embrace has three elements. The first is performance. You know the old saying about what drives the value of property - "location, location, location." Other people say, "It's location, stupid." Well, in the business of governance, "It's performance, stupid." That's where it starts and ends. If you think about boards that have gotten into trouble, most if not all have been boards of companies that have been in trouble. The performance of the company is critical to the functioning of a good board, and vice versa. Usually, when you see good company performance over the long haul, you see a good board standing behind it.

The second element is effective representation of shareholders. It was not long ago that boards were mere window dressing and board meetings were times to get together with old friends. For many directors, board service was just supplemental income. Boards did not add a great deal of value to their companies. Today, boards are expected to act in the best interests of shareholders. When I sit on a board, I feel as though I am as responsible as the company's management for results. If things go wrong, shareholders come after not only the company but also the board for not having done its job, and for ultimately letting the company get into trouble.

The final, and perhaps most important, element is openness - openness between the CEO and the board, among board members, and between the board and management. Generally, when boards have not functioned well, openness has not existed. One of the signs of a poorly functioning board is a lack of openness between the company management and the board. If you look at companies that have stumbled and the boards that have struggled in dealing with their companies' poor performance, you can see that in virtually all cases openness did not exist. For one reason or another the board was kept in the dark about the real issues in the company.

I identify this as a vital governance framework because of my experience. Everything about me is colored by my 30 years spent at Hewlett-Packard. We place an extraordinarily high value on performance, responsiveness to customers, including shareholders, and our ability to speak very openly with one another. Our deep-rooted company culture shapes the context in which our board operates.

Keeping these framework elements in mind, we can then address a major governance issue of the times - "How can boards work with senior management to help achieve the company's goals?" There are four aspects of governance that lead to an answer to that question: mission, guidelines, director selection, and board processes.

Board mission

The first is board mission. The bottom line for any board is company performance and shareholder return, and that...