Needed: a mission statement for directors.

• Author: Miller, Paul F., Jr.

Since the 'bottom line' for any board is shareholder return, boards should formally acknowledge the primacy of this mission.

This article is not about creating fast fixes for the short-term benefit of shareholders. It is not about sacrificing high standards of corporate conduct to pursue a single-minded goal of making money for shareholders. Importantly, it's also not about corporate directors usurping managements' responsibilities.

It is about the accountability of corporate directors to shareholders for producing superior longer-term returns. My hypothesis is simple:

If boards adopt mission statements that clearly state the primacy of shareholder returns and regularly measure those returns relative to an appropriate set of benchmarks, then the probability will be increased that superior returns will actually be achieved.

Measurement is integral to continuous improvement and goal attainment in any pursuit, and the achievement of investment returns for shareholders is no exception.

In over 30 years of experience as a corporate director, I have seen many directors make valuable contributions to companies' progress based on their own areas of expertise, general experience, and wisdom. Yet, I am sometimes surprised at how little some of them know about the relative returns to the shareholders of the companies they serve.

Generally, directors acknowledge their accountability to shareholders but tend to think of it as being over an undefined long term and so dependent on the stock market's vagaries as to be largely beyond their control. It is true that absolute investment returns may be primarily determined by changes in valuation levels of the stock market as a whole, but relative returns are the product of individual company performance. Only in the past few years have companies been required to show elementary measures of absolute and relative shareholder returns in proxy statements. And even today, many boards do not regularly measure returns relative to an appropriately selected group of peer companies over various time periods.

The importance of a mission statement occurred to me several years ago when I served on an ad hoc board committee re-examining the role, duties, and responsibilities of the directors. We were provided with considerable source material that had appeared in the wake of attempts to rectify the many dismal shareholder experiences exemplified by IBM and General Motors. To be sure, these materials reflected a heightened...